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 2020
Commission
File Number: 001-38187
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MICRO FOCUS INTERNATIONAL PLC
(Exact name of registrant as specified in its charter)
|
The Lawn, 22-30 Old Bath Road
Newbury, Berkshire
RG14 1QN
United Kingdom
+44 (0) 1635-565-459
(Address of principal executive office)
Indicate
by check mark whether this registrant files or will file annual
reports under cover of Form 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
|
Exhibit No.
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Exhibit Description
|
|
99.1
|
2019
Annual Results, dated 04 February 2020
|
4 February 2020
Micro Focus International plc
Preliminary results for the 12 months ended 31 October
2019
Initial findings of Strategic & Operational Review and
appointment of new Chairman
Micro
Focus International plc ("the Company" or “the Group”,
LSE: MCRO.L, NYSE: MFGP), the global enterprise software group,
announces audited Preliminary results for the 12 months ended 31
October 2019.
The
Company also announces the initial findings of the Strategic &
Operational Review, which was launched in August 2019, and the
appointment of Greg Lock as non-executive Chairman on 14 February
2020. Greg Lock succeeds Kevin Loosemore, who will be standing down
as Chairman on 14 February 2020, after 15 years in the
role.
|
Results at a glance
|
12 months
ended
31 October 2019
|
12 months
ended
31 October 2018
|
Growth
/(Decline)
%
|
|
|
|
|
|
|
Alternative performance measures from
continuing operations1
|
|
|
|
|
|
|
|
|
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Revenue (versus CCY comparatives)
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$3,348.4m
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$3,613.9m
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(7.3)%
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Adjusted EBITDA (versus CCY comparatives)
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$1,362.5m
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$1,399.5m
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(2.6)%
|
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% Adjusted EBITDA margin (versus CCY
comparatives)
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40.7%
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38.7%
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2.0ppt
|
|
|
|
|
|
|
Adjusted Diluted Earnings per Share (“EPS”) –
continuing operations
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195.89 cents
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187.51 cents
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4.5%
|
|
|
|
|
|
|
Net Debt
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$4,338.5m
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$4,253.5m
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2.0%
|
|
Net Debt / Adjusted EBITDA ratio2
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3.2x
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2.8x
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(0.4)x
|
|
|
|
|
|
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Statutory results
|
12 months
ended
31 October 2019
(audited)
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18 months ended
31 October 2018
(audited)
|
Growth
/(Decline)
%
|
|
|
|
|
|
|
Revenue – continuing operations
|
$3,348.4m
|
$4,754.4m
|
(29.6)%
|
|
Operating profit – continuing operations
|
$221.7m
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$376.8m
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(41.2)%
|
|
Profit for the period
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$1,469.1m
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$784.1m
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87.4%
|
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Basic EPS – continuing operations
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(4.87) cents
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181.91 cents
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(102.7)%
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Diluted EPS – continuing operations
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(4.87) cents
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176.92 cents
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(102.8)%
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|
|
|
|
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1
The definition and reconciliations of
Adjusted EBITDA, Adjusted Diluted EPS, Net Debt and Constant
Currency (“CCY”) are in the “Alternative
Performance Measures” section of this Preliminary
announcement.
2 Net debt/ Adjusted EBITDA
ratio for 12 months ended 31 October 2018 as previously reported
and therefore includes profit for discontinued
operations.
Summary:
●
Revenue in line
with the guidance of minus 6% to minus 8% issued on 29 August 2019,
at minus 7.3% on a CCY basis for the 12 months ended 31 October
2019 compared to the 12 months ended 31 October 2018;
●
Adjusted EBITDA
margin1
increased 2.0ppt to 40.7% on a CCY basis (12 months ended 31
October 2018: 38.7%);
●
Profit for the
period of $1,469.1m for 12 months ended 31 October 2019 (18 months
ended 31 October 2019: $784.1m);
●
Adjusted Diluted
EPS from continuing operations up 4.5%;
●
Net debt of
$4,338.5m at 31 October 2019 (31 October 2018: $4,253.5m), 3.2
times Adjusted EBITDA; Cash and undrawn facilities amounted to
$855.7m as at 31 October 2019;
●
Final dividend per
share of 58.33 cents taking total dividend for the 12 months ended
31 October 2019 to 116.66 cents compared to an annualised dividend
of 100.84 cents for 12 months ended 31 October 2018;
●
The dividend policy
remains twice covered Adjusted Profit after tax;
●
$2.5bn disposal of
SUSE completed and $1.8bn of proceeds returned to shareholders, in
addition to $540.0m of share buybacks in the period;
●
Comprehensive
Strategic & Operational Review undertaken resulting in the
detailed initiatives detailed further below.
●
Greg Lock will take
up the role of non-executive Chairman on 14 February 2020. Greg has
more than 45 years’ experience in the software and computer
services industry, including 11 years as Chairman of Computacenter
plc, seven years as Chairman of Kofax plc and four years as
Chairman of SurfControl plc. In the last five years he has also
been a director of Informa plc and UBM plc. From 1998 to 2000, he
was General Manager of IBM’s Global Industrial sector. Greg
also served as a member of IBM’s Worldwide Management Council
and as a governor of the IBM Academy of Technology.
Stephen
Murdoch, Chief Executive Officer, said:
“This
has been a challenging year for Micro Focus and our overall
financial performance fell short of expectations. As a result, we
conducted a Strategic & Operational Review, which has
identified the additional actions and changes required to deliver
on the significant potential within the business. Successful
execution of these actions, will position Micro Focus to deliver
against our goal of consistent and sustained value creation for
customers, shareholders and employees.”
“Kevin
joined Micro Focus in 2005 to lead the IPO. Under his stewardship
the Company has grown from a small, single portfolio company with
revenues of roughly $100m to a multi-billion dollar software
business supporting more than 40,000 customers globally and from
2005 to January 2020 delivered compound annual returns to
shareholders of approximately 20%. On behalf of the whole Micro
Focus team, the board and personally, I would like to thank Kevin
for his leadership and vision in building the Micro Focus business
over 15 years”.
Kevin Loosemore, Executive Chairman, said:
“The
Board and I have decided that now is the right time for me to leave
Micro Focus and hand over to a non-executive Chairman. Greg Lock
will become Non-Executive Chairman effective 14th February 2020. At
that time, I will step down from the Board but will remain
available to support the business over the next 6
months.”
Greg Lock, non-executive Chairman designate, said:
“I
am pleased to join Micro Focus as non-executive Chairman, well
aware of the previous successes and the present challenges. I
am looking forward to rolling my sleeves up to help management
execute the plan.”
This
announcement contains information that was previously Inside
Information, as that term is defined in the Market Abuse Regulation
(Regulation (EU) No 596/2014 of the European Parliament and of the
Council of 16 April 2014) and successor UK
legislation.
There
are no other matters in relation to Greg Lock which are required to
be disclosed under LR 9.6.13 R.
Results conference call
A
conference call to cover the results for the 12 months ended 31
October 2019 will be held today at 1.30pm UK time.
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:
United
Kingdom
+44 (0)330 027
1446
United
States
+1
334-777-6978
Confirmation
Code:
9659816
Enquiries:
|
Micro Focus
|
Tel:
+44 (0) 1635 565200
|
|
Stephen
Murdoch, Chief Executive Officer
Brian
McArthur-Muscroft, Chief Financial Officer
|
|
|
Ben
Donnelly, Investor relations
|
|
|
|
|
|
Brunswick
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Tel:
+44 (0) 20 7404 5959
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|
Sarah
West
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MicroFocus@brunswickgroup.com
|
|
Jonathan
Glass
|
|
|
Craig
Breheny
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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. 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.
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
Performance in the Period
This
has been a challenging year for Micro Focus and our overall
financial performance in the 12 months ending 31 October 2019 fell
short of our expectations. For the 12 months ended 31 October 2019
the Group reported revenues of $3,348.4m (18 months ended 31
October 2018: $4,754.4m). This represents a 7.3% decline on the 12
months ended 31 October 2018 on a constant currency basis
(“CCY”), in line with revised management guidance
issued as part of the trading update in August 2019 of minus 6% to
minus 8%. The Group generated a statutory operating profit of
$221.7m for the 12 months ended 31 October 2019 (18 months ended 31
October 2019: $376.8m).
Adjusted
EBITDA for the Group was $1,362.5m for the 12 months ended 31
October 2019, representing a decline of 2.6% on a constant currency
basis. Whilst further progress on cost optimisation was made across
the business this was not sufficient to fully offset the miss on
revenue. This performance translates to a 40.7% Adjusted EBITDA
margin (12 months ending 31 October 2018: 38.7%).
The
divestiture of our SUSE business for $2.5bn completed in the period
and the operational work required to enable the separation of this
division was completed to time and budget. This, when combined with
our other share buy-back activities resulted in total cash returns
to shareholders of $2.3bn or equivalent to $5.36 per share (based
on the share count as at the day before the announcement of the
transaction).
The
revenue performance in the period was impacted by a combination of
volatile macro-economic conditions and changing buying behaviour
leading to the delay of customer investment decisions, and
inconsistent execution, which was further impacted by the greater
than expected complexities arising from the integration of the
Hewlett Packard Enterprise (HPE) Software business
acquisition.
As a
result, we issued a trading update on 29 August 2019, revising
downwards the range for expected full year revenues and announcing
the decision to initiate a comprehensive Strategic &
Operational Review of our business.
Board changes
The
Company also announces the appointment of Greg Lock as
non-executive Chairman. Greg succeeds Kevin Loosemore, who is
standing down after 15 years in the role. On behalf of the whole
Micro Focus team, the board and personally, I would like to thank
Kevin for his leadership and vision in building the Micro Focus
business over 15 years.
Effective
from 4 February 2020, Silke Scheiber also stepped down. I would
like to thank Silke for her contributions to the Board, having
joined prior to the closing of the HPE Software transaction in
September 2017.
Strategic & Operational Review: Approach
We have
undertaken the most comprehensive review of the business since
2011. A leading Global Investment Bank and other specialist
advisors supported the work undertaken.
The
review covered:
●
Evaluation of the
full range of the strategic alternatives for value creation;
and
●
An assessment of
where we stand now in our efforts to fully integrate the HPE
Software business, the overall execution capability within the
company and the improvements required to accelerate
progress.
In order to enable better clarity and provide the necessary
context, a summary of the key issues, the progress made within this
reporting period and the outcome of the review is set out
below.
Assessment of key issues and progress to date
The key
issues that have emerged related to overall execution, market
changes and the integration of the HPE Software business
acquisition. All of these issues are understood in detail, progress
has been made and there is clear visibility of what remains to be
done in the near term. This is set out below.
1.
Operational
Systems and Business Processes
The HPE
Software business acquisition presented the typical challenges
associated with making a large and complex acquisition and
significant additional complexities relating specifically to this
being a “carve-out” of a division from a much larger
parent.
To
enable this “carve out ”, HPE designed and initiated
the build of new IT systems, new business processes and identified
the key functions and people required to support a standalone
organisation. The adoption of these purpose built systems and
business processes across the enlarged Group was one of the key
benefits expected from the acquisition.
In
reality, the systems were proven to be not fit for purpose, the
business processes were overly complex, and the organisational
design was highly fragmented. This has continued to have a material
impact to core business operations, execution levels and overall
productivity.
We have
deployed significant resources to stabilise these systems and in
parallel execute a comprehensive programme of work to address the
more structural changes required. The objective of these changes is
to deliver a single set of business applications and infrastructure
built on simplified or completely re-designed business processes,
which are anticipated to drive operational improvements and
efficiencies.
Notable
progress includes:
●
The design, build
and deployment of a fully standalone IT hardware infrastructure was
completed on time and budget. This significant and critical
undertaking allowed us to migrate from the shared environment with
HPE;
●
Organisational
consolidation in each of the Finance and Human Resources functions
has advanced and will consolidate operations from more than 60
locations into 5 global and regional Centres of Excellence to
enable effective scale, lower costs and efficiency;
and
●
Rationalisation of
our legal entity structure and standardisation of company policies
and processes. When complete we expect to significantly simplify
the group structure which will bring significant improvements in
efficiency and cost.
The
remaining major work item is the completion of the project to build
the single business application architecture. When complete this
work is expected to deliver the platform for materially improved
execution through more streamlined business operations and
effective scale to drive operational and cost efficiencies creating
a platform for future growth.
2.
Go-to-Market
Organisation
Through
multiple acquisitions, the business has inherited a mix of regional
and product orientated Go-to-Market models. These differences have
led to inconsistent approaches to customer engagement and the
associated deployment of resources and when combined with the
systems issues outlined above impacted overall levels of execution
and predictability of performance. This led to reduced productivity
and elevated levels of staff attrition.
Progress
has been made in stabilising staff attrition and hiring levels have
increased to drive towards stable sales headcount. The process of
on-boarding new people has been improved and investments made in
better enablement and training to reduce the time it takes to get
new sales teams fully productive. Investments have also been made
in delivering tactical improvements to systems and reporting tools
whilst replacement business systems are developed.
The
approach to date has been to drive improvement through iterative
and incremental change. This has now been replaced by a more
accelerated approach in order to drive fundamental changes on a
global basis to deliver the necessary improvements to the
organisation. The new model and approach is summarised later in
this section.
The
operating model for product development drove “siloed”
execution leading to disconnected strategies and limited
cross-portfolio leverage of skill and capability. Customer
engagement in the development of product strategies was
insufficient and resulted in product roadmaps that did not fully
exploit the advantages of significant customer installed bases and
strong market positions. This combination led to reduced adoption
of our latest technology which in turn limits our ability to cross
and upsell.
The
operating model has been re-structured to drive collaboration and
the leverage of innovation across portfolios to both strengthen
existing offerings and reduce time to market. Core product roadmaps
have been re-shaped in every portfolio with the major remedial,
corrective actions in product design now complete.
The
improved collaboration enabled our product teams to deliver over
500 product releases during the period with examples of this more
customer centered innovation being delivered, notably:
●
New Robotic Process
Automation, Artificial Intelligence and Natural Language Processing
capabilities;
●
Delivering
container technology to enable flexible deployment;
●
User, Entity &
Behavioural Analytics capabilities to enhance security
capabilities; and
●
Enabling customers
to process huge volumes of data in the cloud or within their own
environment but with cloud scale economics.
The
immediate execution focus is to ensure our customers fully
understand our product strategy and are able to deploy our latest
technology releases successfully.
4.
Revenue
Composition & Alignment to Strategy
Professional
services revenue has needed to be realigned to support the Micro
Focus product strategy rather than to generate standalone services
revenue and some of the key SaaS offerings were not engineered
correctly to create a profitable and sustainable source of
incremental revenue.
The
amount of revenue impacted and the actions and time required to
correct this were greater than we initially anticipated but there
is now a clear path to completion.
Professional
services revenue has been broadly stable for the last 3 quarters
and is on track to be stable on a year-over-year basis by the end
of FY20. The remedial product roadmap work for the impacted SaaS
offerings is complete and the remaining activities will be
completed within the next six months. Impacted customers now have a
clear path forward and delivery of the transition is driven by
customer demand.
Strategic & Operational Review: Conclusions and next
steps
The
Strategic & Operational review is substantially complete, and
in the opinion of the board, has confirmed that:
●
The fundamentals
underpinning our model and approach remain valid;
●
We underestimated
the challenges that have emerged in the integration of the HPE
Software business;
●
The key issues in
relation to execution and integration are understood in detail,
progress has been made and there is clear visibility of what
remains to be done and this now needs to be driven to conclusion;
and
●
Whilst we have been
addressing these challenges, the pace of change within the
Enterprise software market has accelerated and we now need to
evolve our business model to capture the opportunities for
significantly improved performance that exist within a number of
our portfolios.
Given
the above and having completed a full evaluation of the alternative
strategic options available, the board has concluded that, at this
time, the greatest opportunity for value creation is through the
successful execution of the following key initiatives:
Evolve – our operating model
Objective: improve product portfolio positioning and external
visibility
Given
the pace of change in our industry we need to both accelerate and
improve the visibility of our product strategies and drive a more
differentiated approach to operational management and investment
levels in certain portfolios.
When we
acquired SUSE as part of The Attachmate Group we recognised the
need to run this portfolio differently and essentially as a
separate business. The market opportunity for Security and Big Data
is such that a similar, differentiated approach to investment and
operational management will be adopted for these product
lines.
Over
the medium-term our goal is to develop broadly autonomous
businesses operating within the group. This will happen in two
phases and take 12-24 months to complete. During the first phase we
will re-align organisational structures, build new capability
within these portfolios and re-focus product and market positioning
where required. In phase two our plan is to run these portfolios
broadly autonomously and report performance discretely within the
overall Group performance updates.
Accelerate – transition of certain portfolios to SaaS or
subscription based revenue models
Objective: Improve portfolio positioning and revenue
composition
The
Strategic & Operational review has highlighted the need for a
more definitive approach and accelerated transition to Subscription
and SaaS based offerings as part of our future portfolio strategy.
The transition will be managed over multiple financial periods with
an initial focus on products where this model is the emerging or
de-facto market standard.
Our
goal is to deliver incremental improvements in revenue trajectory
alongside a structured and disciplined transition to SaaS and
Subscription for some of our products. During FY20 we will begin
the transition of Vertica, seek to grow existing and introduce new
offerings in Security and build upon existing initiatives in ADM
and ITOM with accelerated progress in these portfolios during
2021.
Driving
this transition more systematically and faster will lead to
improved competitiveness, higher contract value and customer
retention rates combined with greater revenue
predictability.
Transform - our Go-to-Market function
Objective: Improve overall productivity and predictability of
performance
In
order to drive consistent and sustained improvements in sales
effectiveness a more fundamental restructuring of our go-to-market
organisation is now underway. We have now accelerated the
implementation of a new global operating plan and management
system, supplemented by improved infrastructure and a single,
consistent sales methodology and investment in the enablement of
our teams. The goal of which is to drive significantly improved and
increased levels of customer engagement.
Effective
execution should over time ensure our resource alignment is better
optimised to the opportunities in the marketplace for our portfolio
and drive productivity improvements, improve renewal rates and
exploit cross-selling opportunities within our broad
portfolio.
Complete – core systems and operational simplification
priorities
Objective: deliver the operational systems and business processes
that form the platform for operational effectiveness and
efficiencies
The
Strategic & Operational Review confirmed the critical priority
of driving our systems work to successful conclusion to capture the
significant operational improvements and associated efficiencies
evident and achievable within the business.
The
major piece of structural work outstanding is the project to
deliver the single set of business application systems architecture
required to fully integrate our business operations.
We are
encouraged with progress made to date but as previously
communicated this is a complex multi-period IT project, further
complicated by our SOX requirements which limits the opportunity to
make substantial system changes in the second half of FY20. As such
a decision on whether we execute in line with our timetable or have
to re-phase will be made in the second quarter and communicated as
part of our interim results.
Outlook for the Future: Focus on Operational Excellence and
Performance
Micro
Focus has a heritage of strong brands and deep sector expertise,
along with customer and partner relationships founded on delivering
software and support that is essential to mission-critical business
processes. Our approach and experience in helping customers run and
transform their business while managing risk and ultimately driving
long-term value from their investments are strong foundations from
which to build.
Our
model is designed to deliver sustainable and consistent returns for
our shareholders, customers and employees. Our overarching
principles remain unchanged:
1.
Long-term and
sustainable Adjusted EBITDA growth;
2.
Strong free cash
flow generation;
3.
Efficient
allocation of capital; and
4.
Value accretive
corporate actions through either acquisition or
divestment.
The key
initiatives and associated investments, combined with existing but
adjusted operational improvement actions resulting from the
Strategic & Operational Review are intended to drive an
accelerated recovery in revenue trajectory such that the revenue
decline moderates and delivers flat to low single digit growth over
the medium-term. Successful delivery of this when combined with the
completion of work to build an effective operational platform
should also enable Adjusted EBITDA margins to be improved to the
mid-forties % range over time and result in significantly improved
levels of free cash flow.
Significant
progress on this journey will also enable the company to once again
consider appropriate portfolio actions and accretive M&A to
enhance shareholder value creation in the medium-term.
FY20 Outlook
We
expect revenues for the 12 months ending 31 October 2020 to be in
the range of minus 6% to minus 8% at constant currency when
compared to the 12 months ended 31 October 2019. Within this, we
expect the first half revenues of FY20 to be broadly consistent
with the trajectory achieved in the second half of FY19, with
improvements in the second half of FY20 and beyond. The investments
we are announcing today should amount to $70-80 million in FY20 and
are expected to recur in large part in FY21. We do not expect to
see a material revenue benefit from these in the current financial
year but the benefits should start to come through in FY21. The
increased investment will impact our Adjusted EBITDA margins in
FY20 and FY21, by which time we expect to be showing a demonstrable
improvement in our growth prospects and revenue quality, which in
turn should flow through into higher returns thereafter. This
should also coincide with the delivery of the operational platform
enabling cost and operational efficiencies to further contribute to
margin expansion, in line with our longer term
objectives.
We
expect net debt broadly to reduce through FY20 excluding the impact
of IFRS16 with our strong underlying cash flows from operations
continuing to comfortably fund the remaining integration related
exceptional costs, as well as ongoing debt service, capital
expenditure, tax and dividend payments.
Chief Financial Officer’s Report
Micro Focus International – Statutory Results
REVENUE FROM CONTINUING OPERATIONS
$3.3BN
Compared to $4.8bn in 18 months ended 31 October 2018.
LOSS BEFORE TAX FROM CONTINUING OPERATIONS
$34.1M
Compared to a profit before tax of $34.1m in the 18 months ended 31
October 2018.
PROFIT FOR THE YEAR
$1.5BN
Including the profit on disposal of SUSE.
In the 18 months ended 31 October 2018, the Group generated a
profit of $0.8bn.
FINAL DIVIDEND PER SHARE
58.33 cents
Compared to 58.33 cents in the 18 months ended 31 October
2018.
|
Continuing operations
|
12 months ended
31 October 2019
(audited)
|
18 months ended
31 October 2018
(audited)
|
12 months ended
31 October 2018
(unaudited)
|
|
|
$m
|
$m
|
$m
|
|
Revenue
|
3,348.4
|
4,754.4
|
3,684.3
|
|
Operating profit (before exceptional items)
|
515.9
|
915.0
|
630.2
|
|
Exceptional items
|
(294.2)
|
(538.2)
|
(439.7)
|
|
Operating profit
|
221.7
|
376.8
|
190.5
|
|
Net finance costs (excluding exceptionals)
|
(255.8)
|
(336.9)
|
(269.0)
|
|
Exceptional finance costs
|
-
|
(5.8)
|
-
|
|
(Loss)/profit before tax
|
(34.1)
|
34.1
|
(78.5)
|
|
Taxation
|
16.0
|
673.1
|
700.5
|
|
(Loss)/profit from continuing operations
|
(18.1)
|
707.2
|
622.0
|
|
Profit from discontinued operations
|
1,487.2
|
76.9
|
55.5
|
|
Profit for the period
|
1,469.1
|
784.1
|
677.7
|
The financial periods presented in this report are for the 12
months ended 31 October 2019 and the previously reported 18 and 12
months ended 31 October 2018.
As reported previously, the Group acquired the HPE Software
business on 1 September 2017 and completed the disposal of SUSE on
15 March 2019. SUSE has been excluded from continuing operations
for all periods, with its results shown separately in “Profit
from discontinued operations”. The results of the HPE
Software business are shown within continuing operations for all 12
months ended 31 October 2019 and 31 October 2018 and for the 14
months post acquisition in the period for the 18 months ended 31
October 2018.
The impact of these significant corporate development activities
combined with the extended period of account in the comparative
period has meant the financial information for the Group are better
understood when comparing the 12 months ended 31 October 2019 with
the 12 months ended 31 October 2018, which were
unaudited.
Revenue
In the 12 months ended 31 October 2019, the Group generated revenue
of $3,348.4m, which represents a decrease of 29.6% on the results
for the 18 months ended 31 October 2018 and a 9.1% decrease on the
results for the 12 months ended 31 October 2018. The rate of
decline includes a 1.8% decrease due to the strengthening of the
dollar against most major currencies.
In order to fully understand the underlying trading performance of
the continuing operations, the directors feel revenue is better
considered on a constant currency basis (“CCY”) between
the 12 months ended 31 October 2019 and the 12 months ended 31
October 2018. Excluding the impact of foreign exchange, revenue
declined at constant currency by 7.3%. Revenue performance
presented on a CCY basis can be found later in this
report.
Operating profit
In the 12 months ended 31 October 2019, the Group generated an
operating profit of $221.7m, which represents a decrease of 41.2%
on the results for the 18 months ended 31 October 2018 and a 16.4%
increase on the results for the 12 months ended 31 October 2018.
This increase was driven by ongoing cost reductions combined with
lower exceptional costs, partially offset by a decrease in revenue
from $3,684.3m in the 12 months ended 31 October 2018 to $3,348.4m
in the 12 months ended 31 October 2019. Exceptional costs (included
within operating profit) have decreased from $439.7m in the 12
months ended 31 October 2018 to $294.2m in the 12 months ended 31
October 2019.
Exceptional items (included within operating profit)
|
|
12 months ended
31 October 2019
(audited)
|
18 months ended
31 October 2018
(audited)
|
12 months ended
31 October 2018
(unaudited)
|
|
|
$m
|
$m
|
$m
|
|
Exceptional items
|
|
|
|
|
Micro Focus/HPE Software business integration related:
|
|
|
|
|
System and IT infrastructure costs
|
126.3
|
114.4
|
114.4
|
|
Integration costs
|
119.6
|
147.6
|
143.7
|
|
Severance
|
32.1
|
129.1
|
119.9
|
|
Property costs
|
16.3
|
29.9
|
29.9
|
|
Micro Focus/HPE Software business integration related
costs
|
294.3
|
421.0
|
407.9
|
|
HPE Software business acquisition/pre-acquisition
costs
|
(3.9)
|
70.1
|
1.3
|
|
Integration in respect of previous acquisitions
|
-
|
17.0
|
0.8
|
|
Other acquisition costs
|
5.4
|
-
|
-
|
|
Property costs relating to previous acquisitions
|
-
|
8.2
|
8.4
|
|
Divesture gain on Atalla
|
(3.7)
|
-
|
-
|
|
Severance costs relating to previous acquisitions
|
-
|
0.6
|
-
|
|
Pre-disposal costs in relation to SUSE
|
-
|
21.3
|
21.3
|
|
Other costs
|
2.1
|
-
|
-
|
|
Total exceptional costs (reported in Operating
profit)*
|
294.2
|
538.2
|
439.7
|
*
Exceptional
costs excludes gain on disposal of SUSE, which is separately
included in Profit from discontinued operations.
In the 12 months ended 31 October 2019, exceptional costs totalled
to $294.2m. Exceptional costs predominantly relate to the
integration of the HPE Software business and the costs incurred in
the year include:
●
System
and IT infrastructure costs of $126.3m principally reflect the IT
migration of the Micro Focus business onto a single IT
platform;
●
Integration
costs of $119.6m across a wide range of projects undertaken to
conform, simplify and increase efficiency across the two
businesses;
●
Severance
costs of $32.1m in relation to ongoing headcount reductions as we
continue to remove duplication and streamline the continuing
operations; and
●
Property
costs of $16.3m as the Group continues the process of simplifying
the real estate footprint.
As communicated previously, we anticipate total exceptional charges
in relation to the HPE Software business integration of $960.0m of
which $715.3m has been incurred to date. We initially expected to
incur exceptional costs in relation to the HPE Software business
integration of $420.0m in the 12 months ended 31 October 2019,
which compares to an actual charge of $294.3m in the financial
year. This variance is driven by the phasing of integration
programmes.
This is
a complex multi-period IT project, complicated by our SOx
requirements, which limits the opportunity to make substantial
system changes in the second half of FY20. As such a decision on
whether we execute in line with our timetable or have to re-phase
will be made in the second quarter and communicated as part of our
interim results.
Net finance costs (excluding exceptional costs)
Net finance costs were $255.8m in the 12 months ended 31 October
2019 compared to $336.9m in the 18 months ended 31 October 2018 and
$269.0m in the 12 months ended 31 October 2018. Finance costs
predominantly relate to interest on the term loans put in place as
part of the transaction to acquire the HPE Software business. In
addition, included within the $255.8m is $46.7m in relation to the
amortisation of facility costs and original issue discounts, which
were paid on initiation of the term loans.
The decline in net finance costs between the periods of $13.2m
primarily reflects an increase in bank interest from $2.6m in the
12 months ended 31 October 2018 to $16.3m in the 12 months ended 31
October 2019. The majority of interest income relates to interest
earned on cash deposits held following the completion of the SUSE
divestment until the Group returned $1.8bn of the proceeds to
shareholders.
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 reported a tax credit for the 12 months ended 31 October
2019 of $16.0m (18 months ended 31 October 2018: credit of
$673.1m).
Profit from discontinued operation
Profit from discontinued operation reflects the profits generated
from the SUSE portfolio and the profit on disposal. The SUSE
disposal was completed on 15 March 2019, and as a result was
included in the Group’s reported trading numbers for four
months during the 12 months ended 31 October 2019. In these four
months, SUSE generated a profit of $28.7m compared to $55.5m in the
12 months ended 31 October 2018. After taking into account profits
on disposal and disposal costs the Group generated a total of
$1,487.2m from discontinued operation during the 12 months ended 31
October 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 this Preliminary announcement. 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:
|
|
12 months ended
31 October 2019
(audited)
|
12 months ended
31 October 2018
(unaudited)
|
|
|
$m
|
$m
|
|
Operating profit
|
221.7
|
190.5
|
|
Add back/(deduct):
|
|
|
|
Exceptional items (reported in Operating profit)
|
294.2
|
439.7
|
|
Share-based compensation charge
|
68.8
|
47.5
|
|
Amortisation of intangible assets
|
716.5
|
720.0
|
|
Depreciation of property, plant and equipment
|
66.5
|
73.6
|
|
Product development intangible costs capitalised
|
(16.5)
|
(27.5)
|
|
Foreign exchange loss/(gain)
|
11.3
|
(30.2)
|
|
Adjusted EBITDA* at Actual rates
|
1,362.5
|
1,413.6
|
|
CCY adjustment
|
-
|
(14.1)
|
|
CCY adjusted EBITDA*
|
1,362.5
|
1,399.5
|
*
Adjusted
EBITDA is for continuing operations only.
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 Plrofit before tax
for the period to Adjusted Profit before tax:
|
|
12 months ended
31 October 2019
(audited)
|
18 months ended
31 October 2018
(audited)
|
12 months ended
31 October 2018
(unaudited)
|
|
Continuing operations
|
$m
|
$m
|
$m
|
|
(Loss)/profit before tax
|
(34.1)
|
34.1
|
(78.5)
|
|
|
|
|
|
|
Adjusting items:
|
|
|
|
|
Exceptional items
|
294.2
|
544.0
|
439.7
|
|
Share-based compensation charge
|
68.8
|
64.3
|
47.5
|
|
Amortisation of purchased intangibles
|
655.7
|
830.4
|
661.6
|
|
Total adjusting items
|
1,018.7
|
1,438.7
|
1,148.8
|
|
|
|
|
|
|
Adjusted Profit before tax
|
984.6
|
1,472.8
|
1,070.3
|
Adjusted Effective Tax Rate
The tax charge on Adjusted Profit before tax for the 12 months
ended 31 October 2019 was $235.7m, which represents an effective
tax rate (“ETR”) on Adjusted Profit before tax
(“Adjusted ETR”) of 23.9%. The Group’s forecast
for Adjusted ETR in the medium-term remains at 25%.
|
Effective tax rate (continuing operations)
|
12 months ended
31 October 2019
(audited)
|
|
18
months ended
31
October 2018
(audited)
|
|
|
Actual
|
Adjusting items
|
Exceptional tax items
|
Adjusted
measures
|
|
Actual
|
Adjusting items
|
Exceptional tax items
|
Adjusted
Measures
|
|
|
$m
|
$m
|
$m
|
$m
|
|
$m
|
$m
|
$m
|
$m
|
|
(Loss)/profit
before tax
|
(34.1)
|
1,018.7
|
-
|
984.6
|
|
34.1
|
1,438.7
|
-
|
1,472.8
|
|
Taxation
|
16.0
|
(251.7)
|
-
|
(235.7)
|
|
673.1
|
(327.9)
|
(692.3)
|
(347.1)
|
|
Profit
after tax
|
(18.1)
|
767.0
|
-
|
748.9
|
|
707.2
|
1,110.8
|
(692.3)
|
1,125.7
|
|
Effective
tax rate
|
46.9%
|
|
|
23.9%
|
|
(1,973.9)%
|
|
|
23.6%
|
In computing Adjusted Profit before tax for the 12 months ended 31
October 2019, $1,018.7m of adjusting items have been added back
(see Adjusted Profit before tax section above) and the associated
tax is $251.7m.
Cash tax paid in respect of continuing operations during the year
was $167.4m.
In April 2019, the European Commission published its final decision
on its state aid investigation into the UK’s Financing
Company Partial Exemption legislation and concluded that part of
the legislation is in breach of EU State Aid rules. Similar to
other UK based international groups that have acted in accordance
with the UK legislation in force at the time, the Group may be
affected by the finding and is monitoring
developments.
In addition, during the period the Group has recognised a one off
credit within adjusting items above of $48.6m in relation to the
recognition of deferred tax on historical UK interest
restrictions.
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.
|
|
12 months ended
31 October 2019
(audited)
|
|
18 months ended
31 October 2018
(audited)
|
|
12 months ended
31 October 2018
(unaudited)
|
|
|
Basic
Cents
|
Diluted
Cents 1
|
|
Basic
Cents
|
Diluted
Cents
|
|
Basic
Cents
|
Diluted
Cents
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted EPS
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
(4.87)
|
(4.87)
|
|
181.91
|
176.92
|
|
143.01
|
138.94
|
|
Discontinued operation
|
393.37
|
389.16
|
|
19.79
|
19.25
|
|
12.76
|
12.39
|
|
Total Basic and Diluted EPS
|
388.50
|
384.35
|
|
201.70
|
196.17
|
|
155.77
|
151.33
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Adjusted EPS
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
198.01
|
195.89
|
|
289.57
|
281.63
|
|
192.99
|
187.51
|
|
Discontinued operation
|
8.25
|
8.16
|
|
29.36
|
28.56
|
|
18.67
|
18.14
|
|
Total Basic and Diluted Adjusted EPS
|
206.26
|
204.05
|
|
318.93
|
310.19
|
|
211.66
|
205.65
|
1 As there is a loss from continuing operations attributable
to the ordinary equity shareholders of the Company for the 12
months ended 31 October 2019 ($18.4m), the Diluted EPS is reported
as equal to Basic EPS, as no account can be taken of the effect of
dilutive securities under IAS 33. There was total earnings
attributable to ordinary equity shareholders of the Company for the
12 months ended 31 October 2019 of $1,468.8m and therefore the
effect of dilutive securities can be reflected in the total Diluted
EPS above.
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 believes they are
important to understanding the impact that the underlying trading
performance has on the Group’s EPS.
In the 12 months ended 31 October 2019, the Group generated an
Adjusted EPS from continuing operations of 198.01 cents. This
compares to 192.99 cents in the 12 months ended 31 October 2018.
The increase was primarily driven by a lower share count due to
share buy-backs and share consolidation as described further
below.
Following the completion of the SUSE transaction, the Group
returned $1.8bn of proceeds to shareholders, in addition to the
$540.0m of share buy backs. As a result, the total ordinary shares
with voting rights has reduced from 426.9m to 333.4m during the
period. These returns occurred throughout the year ending 31
October 2019, meaning that the full year Adjusted EPS will further
benefit from the accretion in value in the 12 months ended 31
October 2020.
Micro Focus Alternative Performance Measures
CONSTANT CURRENCY REVENUE
(7.3)%
After the impact of the deferred revenue haircut.
CONSTANT CURRENCY COSTS
(10.3)%
Continued operational efficiencies delivering cost reduction of
10.3% year on year.
CONSTANT CURRENCY ADJUSTED EBITDA
$1.4BN
in the 12 months ended 31 October 2019.
CONSTANT CURRENCY ADJUSTED EBITDA MARGIN
40.7%
Adjusted EBITDA margin increase of 2.0ppt from 38.7% in the 12
months ended 31 October 2018.
The table below has been prepared on a constant currency basis
(“CCY”) and is for continuing operations only. See the
Alternative Performance Measures section for further
detail.
|
|
12 months ended
31 October 2019
(audited)
|
12 months ended
31 October 2018
(unaudited)
|
Year-on-year
change
%
|
|
|
$m
|
$m
|
|
|
CCY revenue:
|
|
|
|
|
Licence
|
800.0
|
862.4
|
(7.2)%
|
|
Maintenance
|
2,057.6
|
2,193.7
|
(6.2)%
|
|
SaaS & other recurring
|
279.7
|
314.8
|
(11.1)%
|
|
Consulting
|
217.9
|
277.7
|
(21.5)%
|
|
CCY revenue before haircut
|
3,355.2
|
3,648.6
|
(8.0)%
|
|
Deferred revenue haircut
|
(6.8)
|
(34.7)
|
(80.4)%
|
|
CCY revenue
|
3,348.4
|
3,613.9
|
(7.3)%
|
|
CCY costs
|
(1,985.9)
|
(2,214.4)
|
(10.3)%
|
|
CCY Adjusted EBITDA
|
1,362.5
|
1,399.5
|
(2.6)%
|
|
|
|
|
|
|
CCY Adjusted EBITDA margin %
|
40.7%
|
38.7%
|
+2.0ppt
|
Revenue
|
|
12 months
ended
31 October 2019
(audited)
|
|
CCY %
change to
12
months
ended
31
October 2018
(unaudited)
|
|
|
|
Licence
|
Maintenance
|
SaaS & other recurring
|
Consulting
|
Total
|
|
Licence
|
Maintenance
|
SaaS
& other recurring
|
Consulting
|
Total
|
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
|
%
|
%
|
%
|
%
|
%
|
|
Product portfolio:
|
|
|
|
|
|
|
|
|
|
|
|
|
AMC*
|
170.9
|
326.1
|
-
|
11.7
|
508.7
|
|
(5.1%)
|
(0.6%)
|
0.0%
|
(1.4%)
|
(2.2%)
|
|
ADM*
|
130.3
|
485.4
|
87.8
|
18.2
|
721.7
|
|
(4.2%)
|
(3.3%)
|
(8.1%)
|
(41.9%)
|
(5.6%)
|
|
ITOM*
|
237.5
|
645.8
|
11.0
|
127.5
|
1,021.8
|
|
(3.9%)
|
(11.1%)
|
(22.0%)
|
(14.6%)
|
(10.1%)
|
|
Security
|
185.7
|
416.7
|
35.0
|
43.9
|
681.3
|
|
(13.1%)
|
(5.4%)
|
(0.8%)
|
(29.0%)
|
(9.3%)
|
|
IM&G*
|
75.6
|
183.6
|
145.9
|
16.6
|
421.7
|
|
(11.7%)
|
(6.8%)
|
(14.1%)
|
(29.2%)
|
(11.4%)
|
|
Revenue before haircut
|
800.0
|
2,057.6
|
279.7
|
217.9
|
3,355.2
|
|
(7.2%)
|
(6.2%)
|
(11.1%)
|
(21.5%)
|
(8.0%)
|
|
Haircut
|
-
|
(6.0)
|
(0.8)
|
-
|
(6.8)
|
|
n/a
|
(78.6%)
|
(84.6%)
|
(100.0%)
|
(80.4%)
|
|
Revenue
|
800.0
|
2,051.6
|
278.9
|
217.9
|
3,348.4
|
|
(7.2%)
|
(5.3%)
|
(9.9%)
|
(21.1%)
|
(7.3%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regional:
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
385.8
|
1,074.0
|
206.1
|
77.2
|
1,743.1
|
|
0.6%
|
(9.4%)
|
(11.7%)
|
(32.1%)
|
(9.0%)
|
|
International
|
295.0
|
766.0
|
59.9
|
112.3
|
1,233.2
|
|
(18.4%)
|
(3.2%)
|
(7.3%)
|
(12.6%)
|
(8.4%)
|
|
Asia
Pacific & Japan
|
119.2
|
217.6
|
13.7
|
28.4
|
378.9
|
|
1.3%
|
0.2%
|
(18.3%)
|
(20.2)%
|
(2.1%)
|
|
Revenue before haircut
|
800.0
|
2,057.6
|
279.7
|
217.9
|
3,355.2
|
|
(7.2%)
|
(6.2%)
|
(11.1%)
|
(21.5%)
|
(8.0%)
|
|
Haircut
|
-
|
(6.0)
|
(0.8)
|
-
|
(6.8)
|
|
n/a
|
(78.6%)
|
(84.6%)
|
(100.0%)
|
(80.4%)
|
|
Revenue
|
800.0
|
2,051.6
|
278.9
|
217.9
|
3,348.4
|
|
(7.2%)
|
(5.3%)
|
(9.9%)
|
(21.1%)
|
(7.3%)
|
*
The
trends discussed in this section are presented before the impact of
the deferred revenue haircut.
**
The
prior year comparatives have been restated to reflect the
reorganisation of the LATAM operations from North America
(previously named “Americas”) to International
(previously named “EMEA”). This restatement ensures
consistent revenue trend reporting.
Revenue by stream performance (versus CCY
comparatives)
In the 12 months ended 31 October 2019, the four revenue streams
performance versus the 12 months ended 31 October 2018 was as
follows:
Licence revenue declined by
7.2%. The Group’s licence revenue performance in the year
continues to be impacted by operational issues impacting sales
execution and, as such, performance volatility.
In the third quarter of the financial year the challenging macro
environment resulted in a slowdown in customer purchases. This
environment improved marginally in the fourth quarter but
short-term volatility remains a continued risk to new business in
future trading periods.
The stabilisation of licence revenue is a key objective of the
Strategic & Operational Review and the steps outlined within
the CEO Report of this document are the focus areas required to
improve the performance in future periods.
Maintenance revenue declined by
6.2% (5.3% post deferred revenue haircut). This was impacted by
one-off events such as the disposal of Atalla and selling to the US
Government through a strategic partner rather than direct, which on
a combined basis contributed 1.5% to the decline. Excluding these
factors Maintenance revenue declined by 4.7%.
As
highlighted above, the HPE Software business transaction brought a
greater than anticipated level of complexity, which has required us
to address a range of specific legacy, issues which are taking time
to work through. These have a distortive effect on the underlying
trends within the business. For example, Winback iniatives, which
we implemented
to recover previous customer terminations, had to be paused for
systems reasons and then restarted. These examples amongst others
impact in period comparisons in multiple and distort underlying
performance especially when comparing half-year on half-year
performance.
As such, we do not see the decline in the financial year to be
indicative of our underlying maintenance revenue trend and we
anticipate an improvement in the rate of decline in future
periods.
Renewal rates vary at a product level but across the portfolio we
continue to see renewal rates consistent with historical
rates.
SaaS and other recurring revenue declined by 11.1% (9.9% post deferred revenue
haircut). During the current financial year, the Group took
deliberate actions to rationalise unprofitable operations and
practices and refocused resources and investments to deliver the
product enhancements required for long-term success. As a result,
SaaS and other recurring revenue declined in line with our
expectations during the current financial year, which will allow us
to deliver a more sustainable expected growth in SaaS revenue at a
higher profit margin in the medium-term.
As a result of the Strategic & Operational Review, we will be
accelerating the transition of certain aspects of the portfolio to
subscription and SaaS revenue models. In the next financial year,
we will begin the transition of Vertica to subscription and
accelerate the transition of certain products within the Security
portfolio to SaaS, before undertaking similar transitions in ADM
and ITOM in future periods. This transition will be delivered over
multiple financial periods in a controlled and disciplined manor
prioritising key products and will be undertaken alongside the
intention to deliver incremental improvements in revenue
performance year-on-year.
Consulting revenue declined by
21.5% (21.1% post deferred revenue haircut). The managed decline
can be primarily attributed to the Group’s continued desire
to focus only on consulting engagements that are directly related
to the software portfolio.
In the 12 months ending 31 October 2020, the decline in Consulting
will moderate as the actions undertaken in the current financial
year conclude.
Revenue by product group (versus CCY comparatives)
The Group has more than 300 products reported under five product
groups. These products are managed at a granular level using the
application of the Micro Focus four-box model. The
l
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.
APPLICATION MODERNISATION & CONNECTIVITY
(“AMC”)
Licence revenue declined by 5.1% in the 12 months ended 31 October
2019. The AMC portfolio operates in a mature and stable environment
with long-term licence performance trending broadly flat. In
individual financial periods, the timing and impact of one off
deals will result in a performance, which exceeds or trends below
this level; however, over the longer-term this performance is
expected to remain relatively stable.
Maintenance and Consulting revenues declined by 0.6% and 1.4%
respectively, as the level of maintenance and consulting support to
licence sales continued to track at historical rates.
IT OPERATIONS MANAGEMENT (“ITOM”)
Licence revenue declined by 3.9% in the 12 months ended 31 October
2019. The performance in the current financial year includes an
improvement in the second half in part due to the launch of a new
Robotic Process Automation offering combined with a strong close to
the financial year in the core ITOM product offerings.
ITOM Maintenance revenue declined by 11.1% in part due to the
impact of the change in approach to government contracts and the
change in terms of two customer contracts acquired with the HPE
Software business assets, which resulted in a loss in total
Maintenance revenue on these contracts. We do not anticipate any
more such contracts as the majority of acquired contracts have
already been through one renewal cycle.
The management actions to exit non-core revenue drove the 14.6%
decline in Consulting revenue.
SECURITY
Licence revenue declined by 13.1% in the 12 months ended 31 October
2019, albeit with an improvement in the second half of the
financial year. The Licence revenue decline is due to two primary
factors. Firstly, the product group experienced significant levels
of sales force attrition which was then secondly compounded by
corrective actions made to product roadmaps within the portfolio,
which will initially be disruptive to revenue. The improvements we
have made are well progressed in these areas, but will take time to
flow through to pipeline and revenue.
Following the strategic review, we intend to make additional
strategic investments in the Security portfolio during financial
year 2020, in order to stabilise the revenue
performance.
Maintenance revenue declined by 5.4% in the 12 months ended 31
October 2019 and was driven in part by the disposal of
Atalla.
Consulting revenue declined by 29.0% over the same year driven by a
reduction in Licence revenue combined with the deliberate managed
actions discussed earlier in this report.
INFORMATION MANAGEMENT & GOVERNANCE
(“IM&G”)
Licence revenue declined by 11.7% in the 12 months ended 31 October
2019.
Maintenance and Consulting revenues declined 6.8% and 29.2%
respectively. In addition, SaaS revenue declined 14.1% year-on-year
due to a deliberate reduction in revenue generatated from managed
services offerings within the product group.
The IM&G division includes our Vertica offering, which
currently relies on large one-off licence deals, which results in a
revenue profile, that can be inconsistent period on period due to
timing of significant deals. In the 12 months ended 31 October
2019, the product teams have improved the offering to allow Vertica
to be sold on a subscription basis. This road map re-engineering is
important as it will allow our customers the option of a
consumption model and develop a growing recurring revenue base
which is expected to supplement large licence deals.
APPLICATION DELIVERY MANAGEMENT (”ADM”)
Licence revenue declined by 4.2% in the 12 months ended 31 October
2019.
SaaS and other recurring revenues declined by 8.1% in the 12 months
ended 31 October 2019. The ADM product group operates within a
market, which is transitioning to SaaS at a faster rate than other
parts of the portfolio.
In the current financial year, we have offered customers the choice
of consumption model with products available in both traditional
licence and maintenance or SaaS offerings. The work undertaken on
the Strategic & Operational review has indicated this market
will continue to transition this way and as such, we intend to
transition the portfolio to a subscription model over the coming
financial years.
Work will be undertaken to transition parts of the ADM portfolio to
a subscription model in the 12 months ending 31 October 2020,
however no material incremental substitution in revenue is
anticipated until the 12 months ending 31 October 2021. Maintenance
revenue declined by 3.3% year on year. Consulting revenue declined
by 41.9% driven by our decision to refocus execution to be in
support of consulting engagements that drive other revenue
streams.
Regional revenue performance (versus CCY comparatives)
Within the 12 months ended 31 October 2019, the revenue performance
has shown a decline across all three regions, which were all
impacted by the issues outlined earlier in this
report.
Within North America, the decline in Maintenance was impacted by
the disposal of Atalla and selling to the US Government via a
strategic partner rather than directly to the customer. If you
exclude the impact of these items, North America Maintenance
declined by approximately 7.0%, however this region was impacted by
the legacy HPE issues as outlined earlier in this
section.
Adjusted EBITDA performance (versus CCY comparatives)
The Group generated an Adjusted EBITDA of $1,362.5m in the 12
months ended 31 October 2019, at an Adjusted EBITDA margin of
40.7%. This represents a 2.0ppt increase in Adjusted EBITDA margin
between the periods.
The ability to drive operational efficiencies within the two
businesses via integration was a key thesis for the HPE Software
business deal and remains a strategic priority of management. Total
costs on a CCY basis within the Micro Focus Product Portfolio in
the 12 months ended 31 October 2019 were $1,985.9m. This reflects a
reduction of $228.5m on the comparable period to 31 October
2018.
Alongside this cost reduction, we continue to work on multiple
transformation projects to simplify and standardise our systems and
processes, including a new IT system to run more streamlined
business processes. We anticipate the opportunity to realise
further efficiencies across our centralised Finance, HR, IT and
Legal functions, allowing for further cost reductions in the
future.
As mentioned above, whilst we are still targeting structural cost
reductions for the future, the rate at which costs are taken out
will reduce to enable focused investment in certain products and
Go-To-Market.
As outlined within the Chief Executive Officer report, the
Strategic & Operational review has highlighted the need for
investments in our Security and Big Data products. These
investments will total $70-80m and as such will have an
unfavourable impact on the Adjusted EBITDA margin in the short-term
before driving incremental revenue and profit in future accounting
periods.
MFI Cash Generation
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.
|
|
12 months ended
31 October 2019
(audited)
|
18 months ended
31 October 2018
(audited)
|
12 months ended
31 October 2018
(unaudited)
|
|
|
$m
|
$m
|
$m
|
|
Cash generated from operations before working capital
|
1,177.5
|
1,711.3
|
1,191.2
|
|
Movement in working capital
|
(121.2)
|
(287.0)
|
(39.6)
|
|
Cash generated from operations
|
1,056.3
|
1,424.3
|
1,151.6
|
|
Interest payments
|
(227.1)
|
(301.8)
|
(219.5)
|
|
Bank loan costs
|
-
|
(101.2)
|
(10.8)
|
|
Tax payments
|
(167.4)
|
(99.5)
|
(79.0)
|
|
Purchase of intangible assets
|
(29.3)
|
(92.1)
|
(56.5)
|
|
Purchase of property, plant and equipment
|
(56.3)
|
(40.1)
|
(30.2)
|
|
Free cash flow
|
576.2
|
789.6
|
755.6
|
In the cash flow analysis presented above, the results for SUSE are
included for the entire period in the 12 and 18 months ended 31
October 2018, but are only included for four months to 28 February
2019 for the 12 months ended 31 October 2019.
As a result, in the 12 months ended 31 October 2019, the Group
generated $576.2m of free cash flow compared to $755.6m in the 12
months ended 31 October 2018. The year-on-year impact of the SUSE
cash flows was approximately $76m. The remaining decline in free
cash flow year-on-year was primarily driven by increased tax
payments from $79.0m in the 12 months ended 31 October 2018 to
$167.4m in the 12 months ended 31 October 2019. The increased tax
payments in the 12 months ended 31 October 2019 were due to the
utilisation of tax attributes, which reduced cash tax, paid in the
12 months ended 31 October 2018.
The working capital outflow increased from $39.6m in the 12 months
ended 31 October 2018 to $121.2m in the 12 months ended 31 October
2019. Despite a significant improvement in the collection of
overdue trade receivable balances during the year, this was offset
by cash outflows due to the timing of exceptional costs, and
deferred income which was partly due to the change in approach to
US government revenues. See Consolidated statement of financial
position later in this report.
In addition to the corporate tax payments mentioned above, the
Group also paid $264.6m in tax on profits following the disposal of
SUSE. This payment is included within cash generated from investing
activities and therefore excluded from the analysis
above.
In the 12 months ended 31 October 2019, purchases of intangible
assets (relating predominantly to software licences) totalled
$29.3m compared to $56.5m in the 12 months ended 31 October 2018.
In addition, purchase of property, plant and equipment increased
from $30.2m to $56.3m over the same period.
Free cash flow for the 12 months ended 31 October 2020 will benefit
from a reduction in exceptional costs, however this will be
partially offset by increased tax payments as the Group has now
utilised a number of significant tax attributes acquired with HPE
Software (as mentioned above). Allowing for these factors, once the
business has completed its strategic initiatives, the business is
capable of delivering a substainable free cash flow of in excess of
$700.0m
See the Alternative Performance Measures for further detail of cash
conversion.
The Group’s Adjusted cash conversion ratio (defined as cash
generated from operations divided by Adjusted EBITDA less
exceptional items included within operating profit) for the 12
months ended 31 October 2019 was 95.3% compared to 105.7% in the 12
months ended 31 October 2018. Overall, the Group continues to
anticipate annual adjusted cash conversion rates of between 95% and
100% over the medium term.
Net Debt
As at 31 October 2019, Net Debt was $4,338.5m (31 October 2018:
$4,253.5m). This represents a Net Debt to Adjusted EBITDA ratio as
follows:
|
|
12 months ended
31 October 2019
(audited)
|
12 months ened
31 October 2018
(unaudited)
|
|
|
$m
|
$m
|
|
Adjusted EBITDA*
|
1,362.5
|
1,529.6
|
|
Net Debt
|
(4,338.5)
|
(4,253.5)
|
|
Net Debt/Adjusted EBITDA ratio
|
3.2 times
|
2.8 times
|
*
The
Adjusted EBITDA for the 12 months ended 31 October 2019 is for
continuing operations only, the comparatives include the
discontinued operation.
The Group’s net debt to Adjusted EBITDA ratio is 3.2 times as
at 31 October 2019. The net leverage has increased in the year due
to $540.0m of share buy backs,
of which $200.0m were paid from the residual amount remaining from
proceeds of the SUSE transaction net of the $1.8bn return of value
to shareholders and the $200.0m debt repayment with the remainder
being paid from cash within the business.
The medium-term leverage target for the Group remains 2.7 times Net
Debt to Adjusted EBITDA. The cash generation qualities of the
business means the business has successfully increased leverage
above this target in order to complete in-organic investment before
returning to 2.7 times after each transaction.As we have undertaken
the Strategic & Operational Review, we have identified organic
opportunities, which require similar investment. As a result, we
now intend to repeat this leverage cycle to invest in the organic
business before returning to our medium-term target in future
financial periods.
The board will keep the appropriate level of debt under review and
the Group will be consistent in its policy of not holding surplus
cash on the balance sheet.
The movements on the Group loans in the 12 months to 31 October
2019 were as follows:
|
|
Term Loan
B-2
|
Term Loan
B-3
|
Seattle Spinco
Term Loan B
|
Euro Term
Loan B
|
Total
|
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
|
At 1 November 2018
|
1,503.8
|
382.1
|
2,580.5
|
530.5
|
4,996.9
|
|
Repayments
|
(89.1)
|
(13.9)
|
(94.2)
|
(15.4)
|
(212.6)
|
|
Foreign exchange
|
-
|
-
|
-
|
(9.3)
|
(9.3)
|
|
At 31 October 2019
|
1,414.7
|
368.2
|
2,486.3
|
505.8
|
4,775.0
|
In the 12 months ended 31 October 2019, the Group repaid $212.6m of
term loans of which $200.0m was repaid on the completion of the
SUSE divestment. This early repayment means that the Group has no
mandatory repayments payable until the first tranche of the debt
matures in November 2021.
In addition to the term loans and cash reserves, the Group has
access to a $500m revolving credit facility, which has remained
undrawn throughout the financial year.
Consolidated statement of financial position
The Group’s Consolidated statement of financial position is
presented later in this report. A summarised version is presented
below.
|
|
31 October 2019
(audited)
|
31 October 2018
(audited)
|
|
|
$m
|
$m
|
|
Non-current assets
|
12,846.7
|
13,720.5
|
|
Current assets
|
1,448.1
|
1,917.6
|
|
Current assets classified as held for sale
|
-
|
1,142.5
|
|
Total assets
|
14,294.8
|
16,780.6
|
|
|
|
|
|
Current liabilities
|
1,802.0
|
2,010.4
|
|
Current liabilities classified as held for sale
|
-
|
437.7
|
|
Non-current liabilities
|
6,216.5
|
6,540.5
|
|
Total liabilities
|
8,018.5
|
8,988.6
|
|
Net assets
|
6,276.3
|
7,792.0
|
|
|
|
|
|
Total equity attributable to owners of the parent
|
6,275.0
|
7,791.0
|
|
Non-controlling interests
|
1.3
|
1.0
|
|
Total equity
|
6,276.3
|
7,792.0
|
The net assets of the Group have decreased from $7,792.0m to
$6,276.3m between 31 October 2018 and 31 October 2019.
In the year, the key movements were as follows:
●
Non-current
assets decreased by $873.8m to $12,846.7m primarily due to the net
decrease of other intangible assets of $687.0m primarily as a
result of the annual amortisation charge.
●
Current
assets decreased by $469.5m to $1,448.1m driven by a reduction in
trade and other receivables of $239.1m and a decrease in cash and
cash equivalents of $265.2m. Trade and other receivables decreased
due to a reduction of aged receivables of $100.8m and a reduced
current balance of $111.4m. The reduction in aged receivables has
been a key focus of the finance team in the financial year and an
important part of the ongoing stabilisation of the business and
mitigation of potential risk on the balance sheet.
●
Current
assets and liabilities classified as held for sale as at 31 October
2018 reflects the assets and liabilities of the SUSE business
segment, which were disposed of in the year. Following the disposal
the Group returned $1.8bn of proceeds to shareholders and completed
$540.0m of share buy-backs.
●
Current
liabilities decreased by $208.4m, primarily due to a $65.9m
reduction in trade and other payables driven by the year-end bonus
provision reducing to nil and a $88.8m decrease in contract
liabilities (deferred revenue) balance due to the decline in
maintenance revenue.
●
Non-current
liabilities decreased by $324.0m to $6,216.5m, primarily due to the
repayment of term loans in the year.
Other financial matters
IFRS 15 “Revenue from contracts with
customers”
The Group adopted IFRS 15 “Revenue from Contracts”
(“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 has been impacted by the new policies.
IFRS 15 increased revenue by $16.1m in the 12 months ended 31
October 2019.
IFRS 16 “Leases”
The Group is required to adopt IFRS 16 “Leases” from
the transition date of 1 November 2019. We currently estimate that
IFRS 16 will increase Adjusted EBITDA by between $70.0m and $80.0m
for the 12 months ended 31 October 2020 and net debt by
approximately $200.0m as at 31 October 2020.
These estimates reflect the current lease positions of the Group as
at the date of this report, the actual impact on the results for
the year ended 31 October 2020 and statement of financial position
at 31 October 2020 will depend on factors that may occur during the
year. These include new leases entered into, changes or
reassessments of the Group’s existing lease portfolio and
changes to exchange rates or discount rates.
Contractual cash obligations
The following table reflects a summary of obligations and
commitments outstanding as of 31 October 2019:
|
|
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
|
-
|
1,431.7
|
3,343.3
|
-
|
4,775.0
|
|
Interest payments on debt
|
209.2
|
360.6
|
235.7
|
-
|
805.5
|
|
|
209.2
|
1,792.3
|
3,579.0
|
-
|
5,580.5
|
|
Finance Leases
|
11.8
|
10.8
|
0.9
|
-
|
23.5
|
|
Operating Leases
|
78.6
|
123.6
|
61.4
|
37.6
|
301.2
|
|
|
299.6
|
1,926.7
|
3,641.3
|
37.6
|
5,905.2
|
Dividend
The
Group proposes a final dividend of 58.33 cents, taking total
dividend per share to 116.66 cents for the period. The
Group’s dividend policy remains unchanged at two times
covered by the adjusted earnings of the company, of which one third
will be paid as interim and two thirds as final.
The
dividend will be paid in Sterling equivalent to 44.53 pence per
share, based on an exchange rate of £1 = $1.31, the rate
applicable on 03 February 2020, the date on which the board
resolved to propose the dividend. Subject to approval by
shareholders, the dividend will be paid on 7 May 2020 to
shareholders on the register at 14 April 2020.
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, or superior to, the equivalent
measures calculated and presented in accordance with
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.
Unaudited reporting periods
The Group has a comparative period of the 18 months ended 31
October 2018, as a result of a change in year-end. The Group has
therefore also reported unaudited comparative results for the 12
months ended 31 October 2018 as this provides a more meaningful
basis on which to discuss the results of the Group.
1. Consolidated
statement of comprehensive income
12 months ended 31 October 2019 (12 months ended 31 October 2018
(unaudited))
The 12 months to 31 October 2018 results were calculated by
deducting the six-month results to 31 October 2017, after adjusting
for the discontinued operation, from the 18 month results to 31
October 2018.
|
|
12 months
ended
31 October
2019
(audited)
|
12 months
ended
31 October 20181
(unaudited)
|
Six months
ended
31 October 2017
(unaudited)
|
18 months
ended
31 October
20181
(audited)
|
|
|
$m
|
$m
|
$m
|
$m
|
|
Revenue
|
3,348.4
|
3,684.3
|
1,070.1
|
4,754.4
|
|
Cost of sales
|
(789.9)
|
(1,038.7)
|
(264.0)
|
(1,302.7)
|
|
Gross profit
|
2,558.5
|
2,645.6
|
806.1
|
3,451.7
|
|
Selling and distribution expenses
|
(1,224.8)
|
(1,417.1)
|
(347.1)
|
(1,764.2)
|
|
Research and development expenses
|
(491.2)
|
(549.0)
|
(131.8)
|
(680.8)
|
|
Administrative expenses
|
(620.8)
|
(489.0)
|
(140.9)
|
(629.9)
|
|
Operating profit
|
221.7
|
190.5
|
186.3
|
376.8
|
|
|
|
|
|
|
|
Finance costs
|
(282.4)
|
(274.9)
|
(75.5)
|
(350.4)
|
|
Finance income
|
26.6
|
5.9
|
1.8
|
7.7
|
|
Net finance costs
|
(255.8)
|
(269.0)
|
(73.7)
|
(342.7)
|
|
|
|
|
|
|
|
(Loss)/profit before tax
|
(34.1)
|
(78.5)
|
112.6
|
34.1
|
|
Taxation
|
16.0
|
700.5
|
(27.4)
|
673.1
|
|
(Loss)/profit from continuing operations
|
(18.1)
|
622.0
|
85.2
|
707.2
|
|
Profit from discontinued operation (attributable to equity
shareholders of
the Company)
|
1,487.2
|
55.5
|
21.4
|
76.9
|
|
Profit for the period
|
1,469.1
|
677.5
|
106.6
|
784.1
|
|
|
|
|
|
|
|
Operating profit (before exceptional items)
|
515.9
|
630.2
|
284.8
|
915.0
|
|
Exceptional items (reported in Operating profit)
|
(294.2)
|
(439.7)
|
(98.5)
|
(538.2)
|
|
Operating profit
|
221.7
|
190.5
|
186.3
|
376.8
|
1The comparatives for the 12
months and 18 months ended 31 October 2018 have been revised as
described in the Basis of Preparation of the Significant Accounting
Policies section.
2.
Consolidated statement of cash flows - 12 months to 31 October 2019
(12 months ended 31 October 2018 (unaudited))
|
|
12 months ended
31 October 2019
(audited)
|
12 months ended
31 October 2018
(unaudited)
|
Six months ended
31 October 2017
(unaudited)
|
18 months ended
31 October 2018
(audited)
|
|
Cash flows from operating activities
|
$m
|
$m
|
$m
|
$m
|
|
Operating profit (attributable to continuing and discontinued
operation)
|
259.4
|
269.8
|
219.9
|
489.7
|
|
Research and development tax credits
|
(1.2)
|
0.2
|
(2.2)
|
(2.0)
|
|
Depreciation
|
66.5
|
78.9
|
16.3
|
95.2
|
|
Loss on disposal of property, plant and equipment
|
3.6
|
4.2
|
0.5
|
4.7
|
|
Gain on disposal of Atalla
|
(3.7)
|
-
|
-
|
-
|
|
Amortisation of intangible assets
|
716.5
|
744.6
|
198.7
|
943.3
|
|
Amortisation of contract-related costs
|
10.2
|
-
|
-
|
-
|
|
Share-based compensation charge
|
71.3
|
53.9
|
18.3
|
72.2
|
|
Foreign
exchange movements
|
11.1
|
(29.8)
|
(4.8)
|
(34.6)
|
|
Provisions movements
|
43.8
|
69.4
|
73.4
|
142.8
|
|
Cash generated from operations before working capital
|
1,177.5
|
1,191.2
|
520.1
|
1,711.3
|
|
Changes in working capital:
|
|
|
|
|
|
Inventories
|
-
|
0.3
|
(0.2)
|
0.1
|
|
Trade and other receivables
|
183.0
|
(177.1)
|
(231.7)
|
(408.8)
|
|
Increase in contract-related costs
|
(36.7)
|
-
|
-
|
-
|
|
Payables and other liabilities
|
(114.8)
|
115.8
|
15.5
|
131.3
|
|
Provision utilisation
|
(58.6)
|
(89.5)
|
(55.5)
|
(145.0)
|
|
Contract liabilities - deferred income
|
(98.5)
|
109.9
|
21.5
|
131.4
|
|
Pension funding in excess of charge to operating
profit
|
4.4
|
1.0
|
3.0
|
4.0
|
|
Movement in working capital
|
(121.2)
|
(39.6)
|
(247.4)
|
(287.0)
|
|
Cash generated from operating activities
|
1,056.3
|
1,151.6
|
272.7
|
1,424.3
|
|
Interest paid
|
(227.1)
|
(219.5)
|
(82.3)
|
(301.8)
|
|
Bank loan costs
|
-
|
(10.8)
|
(90.4)
|
(101.2)
|
|
Tax paid
|
(167.4)
|
(79.0)
|
(20.5)
|
(99.5)
|
|
Net cash generated from operating activities
|
661.8
|
842.3
|
79.5
|
921.8
|
|
Cash flows from/(used in) investing activities
|
|
|
|
|
|
Payments for intangible assets
|
(29.3)
|
(56.5)
|
(35.6)
|
(92.1)
|
|
Purchase of property, plant and equipment
|
(56.3)
|
(30.2)
|
(9.9)
|
(40.1)
|
|
Finance leases
|
-
|
(0.7)
|
-
|
(0.7)
|
|
Interest received
|
26.6
|
7.5
|
1.7
|
9.2
|
|
Payment for acquisition of subsidiaries
|
(89.0)
|
(19.3)
|
0.1
|
(19.2)
|
|
Net cash acquired with acquisitions
|
1.2
|
0.9
|
320.8
|
321.7
|
|
Investing cash flows generated from disposals
|
20.0
|
-
|
-
|
-
|
|
Investing cash flows generated from discontinued operation, net of
cash disposed
|
2,473.5
|
-
|
-
|
-
|
|
Tax paid on divestiture
|
(264.6)
|
-
|
-
|
-
|
|
Net cash from/(used in) investing activities
|
2,082.1
|
(98.3)
|
277.1
|
178.8
|
|
Cash flows (used in)/from financing activities
|
|
|
|
|
|
Investment in non-controlling interest
|
-
|
(0.1)
|
-
|
(0.1)
|
|
Proceeds from issue of ordinary share capital
|
3.1
|
4.6
|
1.2
|
5.8
|
|
Purchase of treasury shares and related expenses
|
(544.7)
|
(171.7)
|
-
|
(171.7)
|
|
Return of Value paid to shareholders
|
(1,800.0)
|
-
|
(500.0)
|
(500.0)
|
|
Expenses related to the Return of Value
|
(1.0)
|
-
|
|
-
|
|
Repayment of working capital in respect of the HPE Software
business acquisition
|
-
|
(225.8)
|
-
|
(225.8)
|
|
Finance leases
|
(12.9)
|
-
|
-
|
-
|
|
Repayment of bank borrowings
|
(212.6)
|
(37.9)
|
(215.0)
|
(252.9)
|
|
Proceeds from bank borrowings
|
-
|
-
|
1,043.8
|
1,043.8
|
|
Dividends paid to owners
|
(439.2)
|
(408.3)
|
(133.9)
|
(542.2)
|
|
Net cash (used in)/from financing activities
|
(3,007.3)
|
(839.2)
|
196.1
|
(643.1)
|
|
Effects of exchange rate changes
|
(1.8)
|
(11.4)
|
26.7
|
15.3
|
|
Net (decrease)/increase in cash and cash equivalents
|
(265.2)
|
(106.6)
|
579.4
|
472.8
|
|
Cash and cash equivalents at beginning of period
|
620.9
|
730.4
|
151.0
|
151.0
|
|
|
355.7
|
623.8
|
730.4
|
623.8
|
|
Reclassification to current assets classified as held for
sale
|
-
|
(2.9)
|
-
|
(2.9)
|
|
Cash and cash equivalents at end of period
|
355.7
|
620.9
|
730.4
|
620.9
|
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.
|
|
12 months ended
31 October 2019
(audited)
|
12 months ended
31 October 2018
(unaudited)
|
|
|
Continuing operations
|
Discontinued operation
|
Total
|
Continuing operations
|
Discontinued operation
|
Total
|
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
|
Revenue before deferred revenue haircut
|
3,355.2
|
127.1
|
3,482.3
|
3,719.1
|
374.5
|
4,093.6
|
|
Unwinding of fair value adjustment to acquired deferred
revenue
|
(6.8)
|
(0.1)
|
(6.9)
|
(34.8)
|
(0.8)
|
(35.6)
|
|
Revenue
|
3,348.4
|
127.0
|
3,475.4
|
3,684.3
|
373.7
|
4,058.0
|
|
|
18 months ended
31 October 2018
(audited)
|
|
|
Continuing
operations
|
Discontinued operation
|
Total
|
|
|
$m
|
$m
|
$m
|
|
Revenue before deferred revenue haircut
|
4,815.5
|
539.8
|
5,355.3
|
|
Unwinding of fair value adjustment to acquired deferred
revenue
|
(61.1)
|
(1.6)
|
(62.7)
|
|
Revenue
|
4,754.4
|
538.2
|
5,292.6
|
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), exceptional items including the gain on disposal of
discontinued operation, share-based compensation, product
development intangible costs 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, including the gain on disposal of discontinued operation as
set out in note 3, are excluded by virtue of their size, nature or
incidence, in order to show the underlying continuing business
performance of the Group.
●
Share-based
compensation 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 for long-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 compensation 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.
●
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 (gains)/losses from Adjusted EBITDA in
order to exclude foreign exchange volatility when evaluating the
underlying performance of the business.
4.
EBITDA and Adjusted
EBITDA continued
●
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:
|
|
12 months ended
31 October 2019
(audited)
|
|
12 months ended
31 October 2018
(unaudited)
|
|
|
Continuing operations
|
Discontinued operation
|
Total
|
|
Continuing operations
|
Discontinued operation
|
Total
|
|
|
$m
|
$m
|
$m
|
|
$m
|
$m
|
$m
|
|
(Loss)/profit for the period
|
(18.1)
|
1,487.2
|
1,469.1
|
|
622.0
|
55.5
|
677.5
|
|
Finance costs
|
282.4
|
-
|
282.4
|
|
274.9
|
-
|
274.9
|
|
Finance income
|
(26.6)
|
-
|
(26.6)
|
|
(5.9)
|
-
|
(5.9)
|
|
Taxation
|
(16.0)
|
318.1
|
302.1
|
|
(700.5)
|
22.5
|
(678.0)
|
|
Share of results of associates
|
-
|
0.3
|
0.3
|
|
-
|
1.4
|
1.4
|
|
Depreciation of property, plant and equipment
|
66.5
|
-
|
66.5
|
|
73.6
|
5.3
|
78.9
|
|
Amortisation of intangible assets
|
716.5
|
-
|
716.5
|
|
720.0
|
24.6
|
744.6
|
|
EBITDA
|
1,004.7
|
1,805.6
|
2,810.3
|
|
984.1
|
109.3
|
1,093.4
|
|
Exceptional items (reported in profit from discontinued
operation)
|
-
|
(1,767.9)
|
(1,767.9)
|
|
-
|
-
|
-
|
|
Exceptional items (reported in Operating profit)
|
294.2
|
-
|
294.2
|
|
439.7
|
-
|
439.7
|
|
Share-based compensation charge
|
68.8
|
2.5
|
71.3
|
|
47.5
|
6.4
|
53.9
|
|
Product development intangible costs capitalised
|
(16.5)
|
-
|
(16.5)
|
|
(27.5)
|
-
|
(27.5)
|
|
Foreign exchange loss/(gain)
|
11.3
|
(0.2)
|
11.1
|
|
(30.2)
|
0.3
|
(29.9)
|
|
Adjusted EBITDA
|
1,362.5
|
40.0
|
1,402.5
|
|
1,413.6
|
116.0
|
1,529.6
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
3,348.4
|
127.0
|
3,475.4
|
|
3,684.3
|
373.7
|
4,058.0
|
|
Adjusted EBITDA Margin
|
40.7%
|
31.5%
|
40.4%
|
|
38.4%
|
31.0%
|
37.7%
|
|
|
18 months ended
31 October 2018
(audited)
|
|
|
Continuing operations
|
Discontinued operation
|
Total
|
|
|
$m
|
$m
|
$m
|
|
Profit for the period
|
707.2
|
76.9
|
784.1
|
|
Finance costs
|
350.4
|
-
|
350.4
|
|
Finance income
|
(7.7)
|
-
|
(7.7)
|
|
Taxation
|
(673.1)
|
34.2
|
(638.9)
|
|
Share of results of associates
|
-
|
1.8
|
1.8
|
|
Depreciation of property, plant and equipment
|
88.6
|
6.6
|
95.2
|
|
Amortisation of intangible assets
|
903.1
|
40.2
|
943.3
|
|
EBITDA
|
1,368.5
|
159.7
|
1,528.2
|
|
Exceptional items (reported in profit from discontinued
operation)
|
-
|
-
|
-
|
|
Exceptional items (reported in Operating profit)
|
538.2
|
-
|
538.2
|
|
Share-based compensation charge
|
64.3
|
7.9
|
72.2
|
|
Product development intangible costs capitalised
|
(44.4)
|
-
|
(44.4)
|
|
Foreign exchange (gain)/loss
|
(37.4)
|
2.8
|
(34.6)
|
|
Adjusted EBITDA
|
1,889.2
|
170.4
|
2,059.6
|
|
|
|
|
|
|
Revenue
|
4,754.4
|
538.2
|
5,292.6
|
|
Adjusted EBITDA Margin
|
39.7%
|
31.7%
|
38.9%
|
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 including
gain on disposal of discontinued operation. These items are
individually material items that are not considered to be
representative of the performance of the 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:
|
|
12 months ended
31 October 2019
(audited)
|
|
12 months ended
31 October 2018
(unaudited)
|
|
|
Continuing operations
|
Discontinued operation
|
Total
|
|
Continuing operations
|
Discontinued operation
|
Total
|
|
|
$m
|
$m
|
$m
|
|
$m
|
$m
|
$m
|
|
(Loss)/profit before tax
|
(34.1)
|
1,805.3
|
1,771.2
|
|
(78.5)
|
78.0
|
(0.5)
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation charge
|
68.8
|
2.5
|
71.3
|
|
47.5
|
6.4
|
53.9
|
|
Amortisation of purchased intangibles
|
655.7
|
-
|
655.7
|
|
661.6
|
24.6
|
686.2
|
|
Exceptional items, including gain on disposal of discontinued
operation
|
294.2
|
(1,767.9)
|
(1,473.7)
|
|
439.7
|
-
|
439.7
|
|
Adjusting items
|
1,018.7
|
(1,765.4)
|
(746.7)
|
|
1,148.8
|
31.0
|
1,179.8
|
|
|
|
|
|
|
|
|
|
|
Adjusted Profit before tax
|
984.6
|
39.9
|
1,024.5
|
|
1,070.3
|
109.0
|
1,179.3
|
|
|
18 months ended
31 October 2018
(audited)
|
|
|
Continuing operations
|
Discontinued operation
|
Total
|
|
|
$m
|
$m
|
$m
|
|
Profit before tax
|
34.1
|
111.1
|
145.2
|
|
|
|
|
|
|
Share-based compensation charge
|
64.3
|
7.9
|
72.2
|
|
Amortisation of purchased intangibles
|
830.4
|
39.4
|
869.8
|
|
Exceptional items
|
544.0
|
-
|
544.0
|
|
Adjusting items
|
1,438.7
|
47.3
|
1,486.0
|
|
|
|
|
|
|
Adjusted Profit before tax
|
1,472.8
|
158.4
|
1,631.2
|
6.
Adjusted Effective Tax Rate
The tax charge on Adjusted Profit before tax for the 12 months
ended 31 October 2019 was $235.7m (18 months ended 31 October 2018:
$347.1m). This represents an Adjusted Effective Tax Rate
(“Adjusted ETR”), calculated as the tax charge on
Adjusted Profit from continuing operations divided by the Adjusted
Profit, of 23.9% (18 months ended 31 October 2018:
23.6%).
|
Effective tax rate (continuing operations)
|
12 months ended
31 October 2019
(audited)
|
|
18
months ended
31
October 2018
(audited)
|
|
|
Actual
|
Adjusting items
|
Exceptional tax items
|
Adjusted
measures
|
|
Actual
|
Adjusting items
|
Exceptional tax items
|
Adjusted
Measures
|
|
|
$m
|
$m
|
$m
|
$m
|
|
$m
|
$m
|
$m
|
$m
|
|
(Loss)/profit
before tax
|
(34.1)
|
1,018.7
|
-
|
984.6
|
|
34.1
|
1,438.7
|
-
|
1,472.8
|
|
Taxation
|
16.0
|
(251.7)
|
-
|
(235.7)
|
|
673.1
|
(327.9)
|
(692.3)
|
(347.1)
|
|
Profit
after tax
|
(18.1)
|
767.0
|
-
|
748.9
|
|
707.2
|
1,110.8
|
(692.3)
|
1,125.7
|
|
Effective
tax rate
|
46.9%
|
|
|
23.9%
|
|
(1,973.9)%
|
|
|
23.6%
|
In computing Adjusted Profit before tax for the 12 months ended 31
October 2019, $1,018.7m (18 months ended 31 October 2018:
$1,438.7m) of adjusting items have been added back (see Adjusted
Profit before tax section above) and the associated tax credit is
$251.7m (18 months ended 31 October 2018: $327.9m
credit).
Exceptional tax items of $692.3m in the 18 months ended 31 October
2018 shown above related 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.
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 exceptional items including the gain on
disposal of discontinued operation, 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.
|
|
12 months ended
31 October 2019
|
12 months ended
31 October 2018
|
18 months ended
31 October 2018
|
|
|
(audited)
|
(unaudited)
|
(audited)
|
|
CENTS
|
|
|
|
|
|
|
|
|
|
EPS from continuing operations attributable to the ordinary equity
shareholders of the Company
|
|
|
|
|
Basic EPS – cents
|
(4.87)
|
143.01
|
181.91
|
|
Diluted EPS – cents 1
|
(4.87)
|
138.94
|
176.92
|
|
Basic Adjusted EPS – cents
|
198.01
|
192.99
|
289.57
|
|
Diluted Adjusted EPS - cents
|
195.89
|
187.51
|
281.63
|
|
|
|
|
|
|
EPS from discontinued operation
|
|
|
|
|
Basic EPS – cents
|
393.37
|
12.76
|
19.79
|
|
Diluted EPS – cents
|
389.16
|
12.39
|
19.25
|
|
Basic Adjusted EPS – cents
|
8.25
|
18.67
|
29.36
|
|
Diluted Adjusted EPS - cents
|
8.16
|
18.14
|
28.56
|
|
|
|
|
|
|
Total EPS attributable to the ordinary equity shareholders of the
Company
|
|
|
|
|
Basic EPS – cents
|
388.50
|
155.77
|
201.70
|
|
Diluted EPS - cents 1
|
384.35
|
151.33
|
196.17
|
|
Basic Adjusted EPS – cents
|
206.26
|
211.66
|
318.93
|
|
Diluted Adjusted EPS - cents
|
204.05
|
205.65
|
310.19
|
|
|
|
|
|
|
PENCE
|
|
|
|
|
|
|
|
|
|
EPS from continuing operations attributable to the ordinary equity
shareholders of the Company
|
|
|
|
|
Basic EPS – pence
|
(3.82)
|
106.40
|
136.73
|
|
Diluted EPS – pence 1
|
(3.82)
|
103.37
|
132.98
|
|
Basic Adjusted EPS - pence
|
155.49
|
143.59
|
217.66
|
|
Diluted Adjusted EPS – pence
|
153.82
|
139.50
|
211.69
|
|
|
|
|
|
|
EPS from discontinued operation
|
|
|
|
|
Basic EPS – pence
|
308.89
|
9.49
|
14.88
|
|
Diluted EPS – pence
|
305.59
|
9.22
|
14.47
|
|
Basic Adjusted EPS - pence
|
6.48
|
13.89
|
22.07
|
|
Diluted Adjusted EPS – pence
|
6.41
|
13.50
|
21.46
|
|
|
|
|
|
|
Total EPS attributable to the ordinary equity shareholders of the
Company
|
|
|
|
|
Basic EPS – pence
|
305.07
|
115.89
|
151.61
|
|
Diluted EPS – pence 1
|
301.81
|
112.59
|
147.45
|
|
Basic Adjusted EPS - pence
|
161.97
|
157.48
|
239.73
|
|
Diluted Adjusted EPS – pence
|
160.23
|
153.00
|
233.15
|
1 As there is a loss from
continuing operations attributable to the ordinary equity
shareholders of the Company for the 12 months ended 31 October 2019
($18.4m), the Diluted EPS is reported as equal to Basic EPS, as no
account can be taken of the effect of dilutive securities under IAS
33. There was total earnings attributable to ordinary equity
shareholders of the Company for the 12 months ended 31 October 2019
of $1,468.8m and therefore the effect of dilutive securities can be
reflected in the total Diluted EPS above.
7.
Adjusted Earnings per Share and
Diluted Adjusted Earnings per Share continued
|
|
12 months ended
31 October 2019
|
12 months ended
31 October 2018
|
18 months ended
31 October 2018
|
|
|
(audited)
|
(unaudited)
|
(audited)
|
|
|
$m
|
$m
|
$m
|
|
Profit for the period
|
1,469.1
|
677.5
|
784.1
|
|
(Profit)/loss from Non-controlling interests
|
(0.3)
|
0.2
|
(0.1)
|
|
Earnings attributable to ordinary shareholders
|
1,468.8
|
677.7
|
784.0
|
|
|
|
|
|
|
From continuing operations1
|
(18.4)
|
622.2
|
707.1
|
|
From
discontinued operation
|
1,487.2
|
55.5
|
76.9
|
|
Earnings attributable to ordinary shareholders
|
1,468.8
|
677.7
|
784.0
|
|
|
|
|
|
|
Adjusting items:
|
|
|
|
|
Exceptional items, including gain on disposal of discontinued
operation
|
(1,473.7)
|
439.7
|
544.0
|
|
Share-based compensation charge
|
71.3
|
53.9
|
72.2
|
|
Amortisation of purchased intangibles
|
655.7
|
686.2
|
869.8
|
|
|
(746.7)
|
1,179.8
|
1,486.0
|
|
Tax relating to above adjusting items in the period (including
exceptional tax credit in the prior period)
|
57.7
|
(936.6)
|
(1,030.3)
|
|
Adjusted earnings attributable to ordinary
shareholders
|
779.8
|
920.9
|
1,239.7
|
|
|
|
|
|
|
From continuing operations1
|
748.6
|
839.7
|
1,125.6
|
|
From
discontinued operation
|
31.2
|
81.2
|
114.1
|
|
Adjusted earnings attributable to ordinary
shareholders
|
779.8
|
920.9
|
1,239.7
|
|
|
|
|
|
|
Weighted average number of shares:
|
Number
|
Number
|
Number
|
|
|
m
|
m
|
m
|
|
Basic
|
378.1
|
435.1
|
388.7
|
|
Effect of dilutive securities – Options
|
4.1
|
12.7
|
11.0
|
|
Diluted
|
382.2
|
447.8
|
399.7
|
1 For the purposes of calculating EPS measures, Earnings and
Adjusted earnings attributable to ordinary shareholders from
continuing operations excludes the impact of non-controlling
interests since these are not attributable to ordinary
shareholders.
|
|
12 months ended
31 October 2019
(audited)
|
12 months ended
31 October 2018
(unaudited)
|
|
|
Continuing
operations
|
Discontinued
operation
|
Total
|
Continuing operations
|
Discontinued
operation
|
Total
|
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
|
Adjusting items:
|
|
|
|
|
|
|
|
Exceptional items, including gain on disposal of discontinued
operation
|
294.2
|
(1,767.9)
|
(1,473.7)
|
439.7
|
-
|
439.7
|
|
Share-based compensation charge
|
68.8
|
2.5
|
71.3
|
47.5
|
6.4
|
53.9
|
|
Amortisation of purchased intangibles
|
655.7
|
-
|
655.7
|
661.6
|
24.6
|
686.2
|
|
|
1,018.7
|
(1,765.4)
|
(746.7)
|
1,148.8
|
31.0
|
1,179.8
|
|
Tax relating to above adjusting items and exceptional tax credit in
the period
|
(251.7)
|
309.4
|
57.7
|
(931.3)
|
(5.3)
|
(936.6)
|
|
|
767.0
|
(1,456.0)
|
(689.0)
|
217.5
|
25.7
|
243.2
|
|
|
18 months ended
31 October 2018
(audited)
|
|
|
Continuing
operations
|
Discontinued
operation
|
Total
|
|
|
$m
|
$m
|
$m
|
|
Adjusting items:
|
|
|
|
|
Exceptional items
|
544.0
|
-
|
544.0
|
|
Share-based compensation charge
|
64.3
|
7.9
|
72.2
|
|
Amortisation of purchased intangibles
|
830.4
|
39.4
|
869.8
|
|
|
1,438.7
|
47.3
|
1,486.0
|
|
Tax relating to above adjusting items and exceptional tax credit in
the period
|
(1,020.2)
|
(10.1)
|
(1,030.3)
|
|
|
418.5
|
37.2
|
455.7
|
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 the
understanding the Group’s cash flow.
|
|
12 months ended
31 October 2019
|
12 months ended
31 October 2018
|
18 months ended
31 October 2018
|
|
|
(audited)
|
(unaudited)
|
(audited)
|
|
|
$m
|
$m
|
$m
|
|
Cash generated from operating activities
|
1,056.3
|
1,151.6
|
1,424.3
|
|
Less:
|
|
|
|
|
Interest payments
|
(227.1)
|
(219.5)
|
(301.8)
|
|
Bank loan costs
|
-
|
(10.8)
|
(101.2)
|
|
Tax payments
|
(167.4)
|
(79.0)
|
(99.5)
|
|
Purchase of intangible assets
|
(29.3)
|
(56.5)
|
(92.1)
|
|
Purchase of property, plant and equipment
|
(56.3)
|
(30.2)
|
(40.1)
|
|
Free cash flow
|
576.2
|
755.6
|
789.6
|
Net debt is defined as cash and cash equivalents less borrowings
and finance lease obligations.
|
|
31 October 2019
(audited)
|
31 October 2018
(audited)
|
|
|
$m
|
$m
|
|
Borrowings
|
(4,670.7)
|
(4,845.9)
|
|
Cash and cash equivalents
|
355.7
|
620.9
|
|
Finance lease obligations
|
(23.5)
|
(28.5)
|
|
Net debt
|
(4,338.5)
|
(4,253.5)
|
10.
Adjusted cash conversion ratio
The Group’s adjusted cash conversion ratio is defined as cash
generated from operations divided by Adjusted EBITDA less
exceptional items (reported in Operating profit). This is presented
as management believe it is important to the understanding the
Group’s conversion of underlying results to
cash.
|
|
12 months ended
31 October 2019
(audited)
|
12 months ended
31 October 2018
(unaudited)
|
18 months ended
31 October 2018
(audited)
|
|
|
$m
|
$m
|
$m
|
|
Cash generated from operations
|
1,056.3
|
1,151.6
|
1,424.3
|
|
|
|
|
|
|
Adjusted EBITDA
|
1,402.5
|
1,529.6
|
2,059.6
|
|
Less: exceptional items (reported in Operating profit)
|
(294.2)
|
(439.7)
|
(538.2)
|
|
Adjusted EBITDA less exceptional items
|
1,108.3
|
1,089.9
|
1,521.4
|
|
Adjusted cash conversion ratio
|
95.3%
|
105.7%
|
93.6%
|
The Group’s reporting currency is the US 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, Canadian Dollar, Israeli Shekel and Japanese
Yen. The exchange rates used are as follows:
|
|
12 months ended
31 October 2019
|
12 months ended
31 October 2018
|
18 months ended
31 October 2018
|
|
|
Average
|
Closing
|
Average
|
Closing
|
Average
|
Closing
|
|
£1 = $
|
1.27
|
1.29
|
1.34
|
1.27
|
1.33
|
1.27
|
|
€1 = $
|
1.12
|
1.12
|
1.18
|
1.14
|
1.18
|
1.14
|
|
C$ = $
|
0.75
|
0.76
|
0.78
|
0.76
|
0.78
|
0.76
|
|
ILS = $
|
0.28
|
0.28
|
0.28
|
0.27
|
0.28
|
0.27
|
|
100 JYP = $
|
1.10
|
1.08
|
0.90
|
0.92
|
0.90
|
0.92
|
Consolidated statement of comprehensive income
for the 12 months ended 31 October 2019
|
Continuing operations
|
|
12 months ended 31 October 2019
(audited)
|
18 months ended 31 October 20181
(audited)
|
|
|
|
Before exceptional items
|
Exceptional items
(note 3)
|
Total
|
Before exceptional
items
|
Exceptional items
(note 3)
|
Total
|
|
|
Note
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
|
Revenue
|
1,2
|
3,348.4
|
-
|
3,348.4
|
4,754.4
|
-
|
4,754.4
|
|
Cost of sales
|
|
(777.3)
|
(12.6)
|
(789.9)
|
(1,237.3)
|
(65.4)
|
(1,302.7)
|
|
Gross profit
|
|
2,571.1
|
(12.6)
|
2,558.5
|
3,517.1
|
(65.4)
|
3,451.7
|
|
Selling and distribution expenses
|
|
(1,216.4)
|
(8.4)
|
(1,224.8)
|
(1,725.0)
|
(39.2)
|
(1,764.2)
|
|
Research and development expenses
|
|
(491.7)
|
0.5
|
(491.2)
|
(663.4)
|
(17.4)
|
(680.8)
|
|
Administrative expenses
|
|
(347.1)
|
(273.7)
|
(620.8)
|
(213.7)
|
(416.2)
|
(629.9)
|
|
Operating profit
|
|
515.9
|
(294.2)
|
221.7
|
915.0
|
(538.2)
|
376.8
|
|
|
|
|
|
|
|
|
|
|
Finance costs
|
4
|
(282.4)
|
-
|
(282.4)
|
(344.0)
|
(6.4)
|
(350.4)
|
|
Finance income
|
4
|
26.6
|
-
|
26.6
|
7.1
|
0.6
|
7.7
|
|
Net finance costs
|
4
|
(255.8)
|
-
|
(255.8)
|
(336.9)
|
(5.8)
|
(342.7)
|
|
|
|
|
|
|
|
|
|
|
(Loss)/profit before tax
|
|
260.1
|
(294.2)
|
(34.1)
|
578.1
|
(544.0)
|
34.1
|
|
Taxation
|
6
|
(38.3)
|
54.3
|
16.0
|
(125.1)
|
798.2
|
673.1
|
|
(Loss)/profit from continuing operations
|
|
221.8
|
(239.9)
|
(18.1)
|
453.0
|
254.2
|
707.2
|
|
Profit from discontinued operation (attributable to equity
shareholders of the Company)
|
20
|
28.7
|
1,458.5
|
1,487.2
|
76.9
|
-
|
76.9
|
|
Profit for the period
|
|
250.5
|
1,218.6
|
1,469.1
|
529.9
|
254.2
|
784.1
|
|
|
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
Equity shareholders of the Company
|
|
250.2
|
1,218.6
|
1,468.8
|
529.8
|
254.2
|
784.0
|
|
Non-controlling interests
|
|
0.3
|
-
|
0.3
|
0.1
|
-
|
0.1
|
|
Profit for the period
|
|
250.5
|
1,218.6
|
1,469.1
|
529.9
|
254.2
|
784.1
|
1The comparatives for the 18
months ended 31 October 2018 have been revised to reclassify
certain costs from administrative expenses to cost of sales,
selling and distribution expenses and research and development
expenses as described in the Basis of Preparation of the
Significant Accounting Policies section.
Consolidated statement of comprehensive income continued
for the 12 months ended 31 October 2019
|
|
|
12 months ended 31 October 2019
(audited)
|
18 months ended 31 October 2018
(audited)
|
|
|
|
Before exceptional items
|
Exceptional items
(note 3)
|
Total
|
Before exceptional items
|
Exceptional items
(note 3)
|
Total
|
|
|
Note
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
|
Profit for the period
|
|
250.5
|
1,218.6
|
1,469.1
|
529.9
|
254.2
|
784.1
|
|
Other comprehensive (expense)/income for the period:
|
|
|
|
|
|
|
|
|
Items that will not be reclassified to profit or loss
|
|
|
|
|
|
|
|
|
Continuing operations:
|
|
|
|
|
|
|
|
|
Actuarial loss on pension schemes liabilities
|
16
|
(26.2)
|
-
|
(26.2)
|
(8.9)
|
-
|
(8.9)
|
|
Actuarial gain/(loss) on non-plan pension assets
|
16
|
0.3
|
-
|
0.3
|
(5.3)
|
-
|
(5.3)
|
|
Deferred tax movement
|
|
13.0
|
-
|
13.0
|
3.8
|
-
|
3.8
|
|
Discontinued operation:
|
|
|
|
|
|
|
|
|
Actuarial gain/(loss) on pension schemes liabilities
|
16
|
0.1
|
-
|
0.1
|
(1.5)
|
-
|
(1.5)
|
|
Actuarial gain/(loss) on non-plan pension assets
|
16
|
0.1
|
-
|
0.1
|
(0.5)
|
-
|
(0.5)
|
|
Deferred tax movement
|
|
-
|
-
|
-
|
0.5
|
-
|
0.5
|
|
Currency translation differences - discontinued operation recycled
to profit and loss in the period
|
|
-
|
(1.5)
|
(1.5)
|
-
|
-
|
-
|
|
Items that may be subsequently reclassified to profit or
loss
|
|
|
|
|
|
|
|
|
Cash flow hedge movements
|
18
|
(122.9)
|
-
|
(122.9)
|
86.4
|
-
|
86.4
|
|
Current tax movement
|
18
|
23.3
|
-
|
23.3
|
(16.4)
|
-
|
(16.4)
|
|
Deferred tax movement
|
|
14.0
|
-
|
14.0
|
-
|
-
|
-
|
|
Currency translation differences – continuing
operations
|
|
(206.2)
|
-
|
(206.2)
|
(29.5)
|
-
|
(29.5)
|
|
Currency translation differences - discontinued
operation
|
|
-
|
-
|
-
|
0.7
|
-
|
0.7
|
|
Other comprehensive (expense)/income for the period
|
|
(304.5)
|
(1.5)
|
(306.0)
|
29.3
|
-
|
29.3
|
|
Total comprehensive income for the period
|
|
(54.0)
|
1,217.1
|
1,163.1
|
559.2
|
254.2
|
813.4
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
Equity shareholders of the Company
|
|
(54.3)
|
1,217.1
|
1,162.8
|
559.1
|
254.2
|
813.3
|
|
Non-controlling interests
|
|
0.3
|
-
|
0.3
|
0.1
|
-
|
0.1
|
|
Total comprehensive income for the period
|
|
(54.0)
|
1,217.1
|
1,163.1
|
559.2
|
254.2
|
813.4
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income attributable to the equity shareholders
of the Company arises from:
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
(82.9)
|
(239.9)
|
(322.8)
|
483.1
|
254.2
|
737.3
|
|
Discontinued operation
|
|
28.9
|
1,457.0
|
1,485.9
|
76.1
|
-
|
76.1
|
|
|
|
(54.0)
|
1,217.1
|
1,163.1
|
559.2
|
254.2
|
813.4
|
|
Earnings per share (cents)
|
|
|
|
|
|
|
|
|
From continuing and discontinued operations
|
|
|
|
cents
|
|
|
cents
|
|
- basic
|
8
|
|
|
388.50
|
|
|
201.70
|
|
- diluted
|
8
|
|
|
384.35
|
|
|
196.17
|
|
From continuing operations
|
|
|
|
|
|
|
|
|
- basic
|
8
|
|
|
(4.87)
|
|
|
181.91
|
|
- diluted
|
8
|
|
|
(4.87)
|
|
|
176.92
|
|
Earnings per share (pence)
|
|
|
|
|
|
|
|
|
From continuing and discontinued operations
|
|
|
|
pence
|
|
|
pence
|
|
- basic
|
8
|
|
|
305.07
|
|
|
151.61
|
|
- diluted
|
8
|
|
|
301.81
|
|
|
147.45
|
|
From continuing operations
|
|
|
|
|
|
|
|
|
- basic
|
8
|
|
|
(3.82)
|
|
|
136.73
|
|
- diluted
|
8
|
|
|
(3.82)
|
|
|
132.98
|
Consolidated statement of financial position
as at
31 October 2019
|
|
Note
|
31 October 2019
(audited)
$m
|
31 October 2018
(audited)
$m
|
|
Non-current assets
|
|
|
|
|
Goodwill
|
9
|
6,671.3
|
6,805.0
|
|
Other intangible assets
|
10
|
5,942.3
|
6,629.3
|
|
Property, plant and equipment
|
|
140.5
|
144.3
|
|
Derivative asset
|
|
-
|
86.4
|
|
Long-term pension assets
|
16
|
17.1
|
16.7
|
|
Contract-related costs
|
|
31.5
|
-
|
|
Other non-current assets
|
|
44.0
|
38.8
|
|
|
|
12,846.7
|
13,720.5
|
|
Current assets
|
|
|
|
|
Inventories
|
|
0.1
|
0.2
|
|
Trade and other receivables
|
11
|
1,032.9
|
1,272.0
|
|
Contract-related costs
|
|
19.3
|
-
|
|
Current tax receivables
|
|
40.1
|
24.5
|
|
Cash and cash equivalents
|
12
|
355.7
|
620.9
|
|
|
|
1,448.1
|
1,917.6
|
|
Current assets classified as held for sale
|
20
|
-
|
1,142.5
|
|
Total current assets
|
|
1,448.1
|
3,060.1
|
|
Total assets
|
|
14,294.8
|
16,780.6
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
Trade and other payables
|
|
611.0
|
676.9
|
|
Borrowings
|
14
|
-
|
3.7
|
|
Finance leases
|
|
11.8
|
13.6
|
|
Provisions
|
15
|
29.3
|
57.4
|
|
Current tax liabilities
|
|
104.0
|
124.1
|
|
Contract liabilities
|
|
1,045.9
|
1,134.7
|
|
|
|
1,802.0
|
2,010.4
|
|
Current liabilities classified as held for sale
|
20
|
-
|
437.7
|
|
|
|
1,802.0
|
2,448.1
|
|
Non-current liabilities
|
|
|
|
|
Contract liabilities
|
|
149.9
|
178.1
|
|
Borrowings
|
14
|
4,670.7
|
4,842.2
|
|
Finance leases
|
|
11.7
|
14.9
|
|
Derivative liability
|
|
36.5
|
-
|
|
Retirement benefit obligations
|
16
|
141.4
|
110.4
|
|
Provisions
|
15
|
49.1
|
35.4
|
|
Other non-current liabilities
|
|
50.4
|
58.0
|
|
Current tax liabilities
|
|
119.7
|
131.0
|
|
Deferred tax liabilities
|
|
987.1
|
1,170.5
|
|
|
|
6,216.5
|
6,540.5
|
|
Total liabilities
|
|
8,018.5
|
8,988.6
|
|
Net assets
|
|
6,276.3
|
7,792.0
|
Consolidated statement of financial position
continued
as at
31 October 2019
|
|
Note
|
31 October 2019
(audited)
$m
|
31 October 2018
(audited)
$m
|
|
Capital and reserves
|
|
|
|
|
Share capital
|
17
|
47.2
|
65.8
|
|
Share premium account
|
|
44.0
|
41.0
|
|
Merger reserve
|
18
|
1,739.8
|
3,724.4
|
|
Capital redemption reserve
|
18
|
2,485.0
|
666.3
|
|
Hedging reserve
|
18
|
(29.6)
|
70.0
|
|
Retained earnings
|
|
2,250.7
|
3,275.2
|
|
Foreign currency translation reserve
|
|
(262.1)
|
(51.7)
|
|
Total equity attributable to owners of the parent
|
|
6,275.0
|
7,791.0
|
|
Non-controlling interests
|
|
1.3
|
1.0
|
|
Total equity
|
|
6,276.3
|
7,792.0
|
Consolidated statement of changes in equity
for the 12 months ended 31 October 2019
18 months ended 31 October 2018
|
|
|
Share capital
|
Share premium account
|
Retained earnings
|
Foreign currency translation reserve
|
Capital redemption reserves
|
Hedging reserve
|
Merger reserve
|
Total equity attributable to owners of the parent
|
Non-controlling interests
|
Total equity
|
|
|
Note
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
|
Balance as at 30 April 2017
|
|
39.7
|
192.1
|
902.2
|
(22.9)
|
163.4
|
-
|
338.1
|
1,612.6
|
0.9
|
1,613.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the financial period
|
|
-
|
-
|
784.0
|
-
|
-
|
-
|
-
|
784.0
|
0.1
|
784.1
|
|
Other comprehensive income for the period
|
|
-
|
-
|
(11.9)
|
(28.8)
|
-
|
70.0
|
-
|
29.3
|
-
|
29.3
|
|
Total comprehensive income/(expense) for the period
|
|
-
|
-
|
772.1
|
(28.8)
|
-
|
70.0
|
-
|
813.3
|
0.1
|
813.4
|
|
Transactions with owners:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
7
|
-
|
-
|
(542.2)
|
-
|
-
|
-
|
-
|
(542.2)
|
-
|
(542.2)
|
|
Share options:
|
|
|
|
|
|
|
|
|
|
|
|
|
Issue of share capital – share options
|
17
|
0.2
|
5.6
|
-
|
-
|
-
|
-
|
-
|
5.8
|
-
|
5.8
|
|
Share-based payment charge
|
|
-
|
-
|
78.6
|
-
|
-
|
-
|
-
|
78.6
|
-
|
78.6
|
|
Current tax on share options
|
6
|
-
|
-
|
4.1
|
-
|
-
|
-
|
-
|
4.1
|
-
|
4.1
|
|
Deferred tax on share options
|
6
|
-
|
-
|
(23.7)
|
-
|
-
|
-
|
-
|
(23.7)
|
-
|
(23.7)
|
|
Acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued to acquire the HPE Software business
|
17
|
28.8
|
-
|
-
|
-
|
|
|
6,485.4
|
6,514.2
|
-
|
6,514.2
|
|
Share reorganisation and buy-back:
|
|
|
|
|
|
|
|
|
|
|
|
|
Return of Value – share consolidation
|
17,18
|
(2.9)
|
-
|
-
|
-
|
2.9
|
-
|
-
|
-
|
-
|
-
|
|
Issue and redemption of B shares
|
18
|
-
|
(156.7)
|
(500.0)
|
-
|
500.0
|
-
|
(343.3)
|
(500.0)
|
-
|
(500.0)
|
|
Share buy-back
|
17
|
-
|
-
|
(171.7)
|
-
|
-
|
-
|
-
|
(171.7)
|
-
|
(171.7)
|
|
Reallocation of merger reserve
|
18
|
-
|
-
|
2,755.8
|
-
|
-
|
-
|
(2,755.8)
|
-
|
-
|
-
|
|
Total movements for the period
|
|
26.1
|
(151.1)
|
2,373.0
|
(28.8)
|
502.9
|
70.0
|
3,386.3
|
6,178.4
|
0.1
|
6,178.5
|
|
Balance as at 31 October 2018
|
|
65.8
|
41.0
|
3,275.2
|
(51.7)
|
666.3
|
70.0
|
3,724.4
|
7,791.0
|
1.0
|
7,792.0
|
Consolidated statement of changes in equity
for the 12 months ended 31 October 2019
12 months ended 31 October 2019
|
|
|
Share capital
|
Share premium account
|
Retained earnings
|
Foreign currency translation reserve
|
Capital redemption reserves
|
Hedging reserve
|
Merger reserve
|
Total equity attributable to owners of the parent
|
Non-controlling interests
|
Total equity
|
|
|
Note
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
|
Balance as at 1 November 2018
|
|
65.8
|
41.0
|
3,275.2
|
(51.7)
|
666.3
|
70.0
|
3,724.4
|
7,791.0
|
1.0
|
7,792.0
|
|
Impact of adoption of IFRS 15
|
|
-
|
-
|
52.4
|
-
|
-
|
-
|
-
|
52.4
|
-
|
52.4
|
|
Impact of adoption of IFRS 9
|
|
-
|
-
|
(15.6)
|
-
|
-
|
-
|
-
|
(15.6)
|
-
|
(15.6)
|
|
Revised balance at 1 November 2018
|
|
65.8
|
41.0
|
3,312.0
|
(51.7)
|
666.3
|
70.0
|
3,724.4
|
7,827.8
|
1.0
|
7,828.8
|
|
Profit for the financial period
|
|
-
|
-
|
1,468.8
|
-
|
-
|
-
|
-
|
1,468.8
|
0.3
|
1,469.1
|
|
Other comprehensive income/(expense)
for the period 1
|
|
-
|
-
|
4.0
|
(210.4)
|
-
|
(99.6)
|
-
|
(306.0)
|
-
|
(306.0)
|
|
Total comprehensive income/(expense) for the period
|
|
-
|
-
|
1,472.8
|
(210.4)
|
-
|
(99.6)
|
-
|
1,162.8
|
0.3
|
1,163.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions with owners:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
7
|
-
|
-
|
(439.2)
|
-
|
-
|
-
|
-
|
(439.2)
|
-
|
(439.2)
|
|
Share options:
|
|
|
|
|
|
|
|
|
|
|
|
|
Issue of share capital – share options
|
17
|
0.1
|
3.0
|
(3.8)
|
-
|
-
|
-
|
-
|
(0.7)
|
-
|
(0.7)
|
|
Share-based payment charge
|
|
-
|
-
|
64.5
|
-
|
-
|
-
|
-
|
64.5
|
-
|
64.5
|
|
Current tax on share options
|
6
|
-
|
-
|
13.1
|
-
|
-
|
-
|
-
|
13.1
|
-
|
13.1
|
|
Deferred tax on share options
|
6
|
-
|
-
|
(7.6)
|
-
|
-
|
-
|
-
|
(7.6)
|
-
|
(7.6)
|
|
Share reorganisation and buy-back:
|
|
|
|
|
|
|
|
|
|
|
|
|
Return of Value – share consolidation
|
17,18
|
(18.7)
|
-
|
-
|
-
|
18.7
|
-
|
-
|
-
|
-
|
-
|
|
Expenses relating to Return of Value
|
17
|
-
|
-
|
(1.0)
|
-
|
-
|
-
|
-
|
(1.0)
|
-
|
(1.0)
|
|
Issue and redemption of B shares
|
18
|
-
|
-
|
(1,800.0)
|
-
|
1,800.0
|
-
|
(1,800.0)
|
(1,800.0)
|
-
|
(1,800.0)
|
|
Share buy-back
|
17
|
-
|
-
|
(544.7)
|
-
|
-
|
-
|
-
|
(544.7)
|
-
|
(544.7)
|
|
Reallocation of merger reserve
|
18
|
-
|
-
|
184.6
|
-
|
-
|
-
|
(184.6)
|
-
|
-
|
-
|
|
Total movements for the period
|
|
(18.6)
|
3.0
|
(1,061.3)
|
(210.4)
|
1,818.7
|
(99.6)
|
(1,984.6)
|
(1,552.8)
|
0.3
|
(1,552.5)
|
|
Balance as at 31 October 2019
|
|
47.2
|
44.0
|
2,250.7
|
(262.1)
|
2,485.0
|
(29.6)
|
1,739.8
|
6,275.0
|
1.3
|
6,276.3
|
1 $21.6m of foreign exchange
movements arising on the re-domination of intangible assets (note
10), have been recognised as ‘‘currency translation
differences – continuing operations’’ and $1.5m
of currency translation differences are recorded in retained
earnings at 31 October 2019, net of $4.9m of deferred
tax.
Consolidated statement of cash flows
for the
12 months ended 31 October 2019
|
|
Note
|
12 months ended
31 October 2019
(audited)
$m
|
18 months ended
31 October 2018
(audited)
$m
|
|
Cash flows from operating activities
|
|
|
|
|
Cash generated from operations
|
22
|
1,056.3
|
1,424.3
|
|
Interest paid
|
|
(227.1)
|
(301.8)
|
|
Bank loan costs
|
|
-
|
(101.2)
|
|
Tax paid
|
|
(167.4)
|
(99.5)
|
|
Net cash generated from operating activities
|
|
661.8
|
921.8
|
|
Cash flows from investing activities
|
|
|
|
|
Payments for intangible assets1
|
10
|
(29.3)
|
(92.1)
|
|
Purchase of property, plant and equipment1
|
|
(56.3)
|
(40.1)
|
|
Finance leases2
|
|
-
|
(0.7)
|
|
Interest received
|
|
26.6
|
9.2
|
|
Payment for acquisition of business
|
21
|
(89.0)
|
(19.2)
|
|
Net cash acquired with acquisitions
|
21
|
1.2
|
321.7
|
|
Investing cash flows generated from disposals
|
20
|
20.0
|
-
|
|
Investing cash flows generated from discontinued operation, net of
cash disposed
|
20
|
2,473.5
|
-
|
|
Tax paid on divestiture gain
|
|
(264.6)
|
-
|
|
Net cash from investing activities
|
|
2,082.1
|
178.8
|
|
Cash flows used in financing activities
|
|
|
|
|
Investment in non-controlling interest
|
|
-
|
(0.1)
|
|
Proceeds from issue of ordinary share capital
|
17
|
3.1
|
5.8
|
|
Purchase of treasury shares and related expenses
|
17
|
(544.7)
|
(171.7)
|
|
Return of Value paid to shareholders
|
17,18
|
(1,800.0)
|
(500.0)
|
|
Expenses relating to Return of Value
|
17
|
(1.0)
|
-
|
|
Repayment of working capital in respect of the HPE Software
business acquisition
|
21
|
-
|
(225.8)
|
|
Finance leases2
|
|
(12.9)
|
-
|
|
Repayment of bank borrowings
|
14
|
(212.6)
|
(252.9)
|
|
Proceeds from bank borrowings
|
14
|
-
|
1,043.8
|
|
Dividends paid to owners
|
7
|
(439.2)
|
(542.2)
|
|
Net cash used in financing activities
|
|
(3,007.3)
|
(643.1)
|
|
Effects
of exchange rate changes
|
|
(1.8)
|
15.3
|
|
Net (decrease)/increase in cash and cash equivalents
|
|
(265.2)
|
472.8
|
|
Cash
and cash equivalents at beginning of period
|
|
620.9
|
151.0
|
|
|
12
|
355.7
|
623.8
|
|
Reclassification
to current assets classified as held for sale
|
20
|
-
|
(2.9)
|
|
Cash and cash equivalents at end of period
|
12
|
355.7
|
620.9
|
1The principal non-cash
transactions in the 12 months ended 31 October 2019 were property,
plant and equipment finance lease additions of $9.0m. 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 business acquisition (note 21) and property, plant and
equipment finance lease additions of $12.0m.
2Cash outflows in relation to
repayments of finance lease liabilities have been reclassified as a
financing activity in the current year as repayments relating to
all leases will be presented as financing activities in future
periods following the adoption of IFRS16. The comparative continues
to be shown as an investing activity.
Micro Focus International plc
Notes to the consolidated financial information
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 2019, the Group had a presence in 48 countries (31
October 2018: 49) worldwide and employed approximately 12,100
people (31 October 2018: 14,800, including 1,200 SUSE
employees).
The Company is listed on the London Stock Exchange and its American
Depositary Shares are listed on the New York Stock
Exchange.
In the prior period, the Company changed its financial year-end
from 30 April to 31 October and reported 18-month financial
information running from 1 May 2017 to 31 October
2018.
The Group Consolidated financial information was authorised for
issuance by the board of directors on 3 February 2020.
I Significant Accounting policies
A Basis of preparation
The summary financial information set out above does not constitute
the Group's statutory Consolidated Financial Statements for the 12
months ended 31 October 2019 or the 18 months ended 31 October
2018. Statutory Consolidated Financial Statements for the Group for
the 18 months ended 31 October 2018, prepared in accordance with
adopted IFRS, have been delivered to the Registrar of Companies and
those for the 12 months ended 31 October 2019 will be delivered in
due course. The auditors have reported on those accounts; their
report was (i) unqualified, (ii) did not include a reference to any
matters to which the auditors drew attention by way of any emphasis
without qualifying their opinion and (iii) did not contain a
statement under Section 498 (2) or (3) of the Companies Act
2006.
The summary financial information for the 12 months ended 31
October 2019 has been prepared by the directors based upon the
results and position that are reflected in the Consolidated
Financial Statements of the Group.
The Consolidated Financial Statements are prepared on the
historical cost basis other than derivative financial instruments,
which are stated at fair value.
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.
The accounting policies adopted are consistent with those of the
Annual Report and Accounts for the 18 months ended 31 October 2018
apart from standards, amendments to or interpretations of published
standards adopted during the period and the revision in the period
to allocate goodwill and purchased intangible assets into
functional currencies of the underlying foreign operations and then
retranslate goodwill and purchased intangible assets at closing
rates, as set out in Accounting Policy J(b) “Foreign currency
translation - transactions and balances”, and which has been
recorded in the 12 months ended 31 October 2019 (note
10).
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.
Consolidated Statement of Comprehensive Income – Prior Period
Revision
In the prior period, certain costs were incorrectly presented as
administrative expenses ($159.0m) and should have been classified
as $43.4m in cost of sales, $94.2m in selling and distribution
expenses and $21.4m in research and development expenses.
Management have therefore decided to correct the presentation and
record these immaterial adjustments to revise the Consolidated
statement of comprehensive income for the 18 months ended 31
October 2018. The impact of the revision is to reduce
administrative expenses by $159.0m, increase cost of sales by
$43.4m, increase selling and distribution expenses by $94.2m and
increase research and development expenses by $21.4m as compared
with previously reported amounts. The revision has no impact on the
operating profit, profit for the period, assets and liabilities or
cash flows for the 18 months ended 31 October 2018.
Micro Focus International plc
Notes to the consolidated financial information
continued
I Significant Accounting policies continued
B Consolidation
The financial information of the Group comprise the financial
information 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 more than 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 2019, the Group had an 84.24% (31 October 2018:
81.05%) interest in Novell Japan Ltd which gives rise to the
minority interest reported in these Preliminary
results.
C 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 Consolidated statement of comprehensive income
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 statement of cash flows
has been presented including the discontinued
operations.
D Revenue recognition
On 1 November 2018, the Group adopted IFRS 15 using the modified
retrospective approach which means that the cumulative impact of
the adoption was recognised in retained earnings as of 1 November
2018 and that comparatives are not restated. IFRS 15 replaces
guidance in IAS 18 and IAS 11. The accounting policies applied
under IAS 18 and IAS 11 in the comparative period are presented
below under the heading ‘Revenue recognition policy in the
prior period’. 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.
The Group follows the five-step model and recognises revenue on
transfer of control of promised goods or services to customers in
an amount that reflects the consideration, which the Group expects
to be entitled in exchange for those goods, or services. Customer
contracts can include combinations of goods and services, which are
generally capable of being distinct and accounted for as separate
performance obligations.
Micro Focus International plc
Notes to the consolidated financial information
continued
I Significant Accounting policies continued
D Revenue recognition continued
Revenue is allocated to the various performance obligations on a
relative stand-alone selling price (“SSP”)
basis.
On an on-going basis, the Group utilises available data points
based on relevant historical transactions, to establish the
observable stand-alone selling prices to be used in allocating
transaction consideration. For observable stand-alone sales a
reasonable range of prices will be determined to represent the
stand-alone selling price of that performance obligation. Given the
highly variable selling price of licenses, the Group has not
established SSP for licenses. When SSP is established for the
undelivered performance obligations (typically maintenance and
professional services), the residual approach is used to allocate
the transaction price to the delivered licenses.
For performance obligations where observable stand-alone sales are
not available, SSP will be estimated using the following methods in
the order set out below:
- Market price
- Expected cost plus a margin
- Residual
approach
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. ISV revenue includes fees based on end usage of ISV
applications that have our software embedded in their
applications.
Software licence revenue is the sale of right to use the software
on customer premises and is recognised at a point in time when the
software is made available to the customer and/or reseller (i.e.
when control of the asset is transferred). The Group enters into
licence verification arrangements, for customers who are not in
compliance with their contractual licence and/or maintenance terms,
by agreeing a one-off settlement fee. If the performance obligation
can be identified in the contract, revenue is allocated to each
performance obligation, otherwise the Group policy is to recognise
as licence revenue. The allocation of revenue does not impact the
timing of revenue recognition in these deals, given the performance
obligation(s) have already been fulfilled, but will impact the
presentation of revenue recognised during the period, (as licence
or licence and maintenance).
For Subscriptions and SaaS arrangements where customers access the
functionality of a hosted software over the contract period without
taking possession of the software, and performance obligations are
provided evenly over a defined term, the Group recognises revenue
over the period in which the subscriptions are provided as the
service is delivered, generally on a straight-line
basis.
In SaaS arrangements where the customer has the contractual right
to take possession of the software at any time during the
contractual period without significant penalty and the customer can
operate, or contract with another vendor to operate the software,
the Group evaluates whether the arrangement includes the sale of a
software licence. In SaaS arrangements where software licences are
sold, licence revenue is generally recognised at a point in time
when control of the software is transferred to the
customer.
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. The Group
recognises revenue from fixed-price professional services contracts
as work progresses over the contract period on a percentage of
completion 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.
Service costs are expensed as incurred; amounts collected prior to
satisfying the above conditions are shown as contract liability and
included in deferred income.
Rebates paid to resellers as part of a contracted program are
accounted for as a reduction of the transaction price and netted
against revenue where the rebate paid is based on the achievement
of sales targets made by the partner. If the Group receives
an identifiable good or service from the reseller that is separable
from the sales transaction and for which fair value can be
reasonably estimated, the Group accounts for the purchase of the
good or service in the same way that it accounts for other
purchases from suppliers.
Revenue recognition policy in the prior period
The Group recognised 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 included 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 were bundled
with the Licence fee, they were 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 existed for all undelivered
elements and there was no such evidence of fair value established
for delivered elements, revenue was first allocated to the elements
where fair value has been established and the residual amount was
allocated to the delivered elements. If evidence of fair value for
any undelivered element of the arrangement did not exist, all
revenue from the arrangement was deferred until such time that
there was evidence of delivery.
Micro Focus International plc
Notes to the consolidated financial information
continued
I Significant Accounting policies continued
D Revenue recognition continued
Revenue recognition policy in the prior period continued
If the arrangement included acceptance criteria, revenue was not
recognised until the Group could objectively demonstrate that the
acceptance criteria have been met, or the acceptance period lapses,
whichever was earlier.
The Group recognised Licence revenue derived from sales to
resellers upon delivery to resellers, provided that all other
revenue recognition criteria was met; otherwise revenue was
deferred and recognised upon delivery of the product to the
end-user. Where the Group sold access to a Licence for a specified
period of time and collection of a fixed or determinable fee was
reasonably assured, Licence revenue was recognised upon delivery,
except in instances where future substantive upgrades or similar
performance obligations were committed to. Where future performance
obligations were specified in the Licence agreement, and fair value
could be attributed to those upgrades, revenue for the future
performance obligations was 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 were unspecified in the Licence
agreement, revenue was deferred and recognised rateably over the
specified period.
For Subscription revenue where access and performance obligations
were provided evenly over a defined term, the revenue was deferred
and recognised rateably over the specified period.
The Group recognised revenue for SaaS arrangements as the service
was delivered, generally on a straight-line basis, over the
contractual period of performance. In SaaS arrangements, the Group
considered 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 included the sale of a software
licence. In SaaS arrangements where software licences were sold,
licence revenue was generally recognised according to whether
perpetual or term licences are sold, when all other revenue
recognition criteria was satisfied.
Maintenance revenue was recognised on a straight-line basis over
the term of the contract, which in most cases was one
year.
For time and material-based professional services contracts, the
Group recognised revenue as services are rendered and recognised
costs as they were incurred. The Group recognised revenue from
fixed-price professional services contracts as work progressed 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 were
regularly reassessed during the life of a contract. Amounts
collected prior to satisfying the above revenue recognition
criteria were included in deferred income.
Rebates paid to partners as part of a contracted programme were
netted against revenue where the rebate paid was based on the
achievement of sales targets made by the partner, unless the
Company received an identifiable good or service from the partner
that was separable from the sales transaction and for which the
Group could reasonably estimate fair value.
E Contract-related costs
The Group capitalises the costs of obtaining a customer contract
when they are incremental and, if expected to be recovered, they
are amortised over the customer life or pattern of revenue for the
related contract.
Normally sales commissions paid for customer contract renewals are
not commensurate with the commissions paid for new contracts. It
follows that the commissions paid for new contracts also relate to
expected future renewals of these contracts. Accordingly, the Group
amortises sales commissions paid for new customer contracts on a
straight-line basis over the expected customer life, based on
expected renewal frequency. The current average customer life is 5
years. If the expected amortisation period is one year or less the
costs are expensed when incurred.
Amortisation of the capitalised costs of obtaining customer
contracts is classified as sales and marketing expense. Capitalised
costs from customer contracts are classified as non-financial
assets in our statement of financial position.
F 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.
G 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 Operating Committee. The
segmental reporting is consistent with those used in internal
management reporting and the measure used by the Operating
Committee is the Adjusted EBITDA as set out in note 1.
Micro Focus International plc
Notes to the consolidated financial information
continued
I Significant Accounting policies continued
H 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, judgement 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 or does not reflect the underlying
performance of the business. Exceptional items are allocated to the
financial information 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,
Group 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, the cost of integrating acquired businesses or gains
on the disposal of discontinued operations.
I 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 or termination.
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 financial position as long-term pension
assets. 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 finance costs in the
Consolidated statement of comprehensive income.
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 financial assets measured at fair value through other
comprehensive income. 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.
Micro Focus International plc
Notes to the consolidated financial information
continued
I Significant Accounting policies continued
I Employee benefit costs continued
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 current reporting
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.
J Foreign currency translation
a) Functional and presentation currency
The presentation currency of the Group is US dollars. Items
included in the financial information of each of the Group’s
entities are measured in the functional currency of each
entity.
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 within administrative
expenses.
Non-monetary items that are measured in terms of historical costs
in a foreign currency are translated using the exchange rates as at
the dates of the initial transactions. Any goodwill arising on the
acquisition of a foreign operation and any fair value adjustments
(including purchased intangible assets) to the carrying amounts of
assets and liabilities arising on the acquisition are treated as
assets and liabilities of the foreign operation and translated at
the closing rate.
On consolidation, 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.
Goodwill arising before 1 May 2004 is treated as an asset of the
Company and expressed in the Company’s functional
currency.
Micro Focus International plc
Notes to the consolidated financial information
continued
I Significant Accounting policies continued
J Foreign currency translation continued
c) Exchange rates
The most important foreign currencies for the Group are Pounds
Sterling, the Euro, Canadian Dollar, Israeli Shekel and Japanese
Yen. The exchange rates used are as follows:
|
|
12 months ended
31 October 2019
|
18 months ended
31 October 2018
|
|
|
Average
|
Closing
|
Average
|
Closing
|
|
£1 = $
|
1.27
|
1.29
|
1.33
|
1.27
|
|
€1 = $
|
1.12
|
1.12
|
1.18
|
1.14
|
|
C$ = $
|
0.75
|
0.76
|
0.78
|
0.76
|
|
ILS = $
|
0.28
|
0.28
|
0.28
|
0.27
|
|
100 JYP = $
|
1.10
|
1.08
|
0.90
|
0.92
|
K 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 seven 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 as part of a
business combination are recognised at their fair value at the date
of acquisition, and are subsequently amortised. 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
Term licence agreement based, generally three to seven
years
Technology
Three to 12 years
Trade
names
Three to 20 years
Customer
relationships
Two to 15 years
Lease
contracts
Term of the lease agreement
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.
Micro Focus International plc
Notes to the consolidated financial information
continued
I Significant Accounting policies continued
L 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:
Leasehold
improvements
Three to 10 years (not exceeding the remaining lease
period)
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.
M 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 the asset’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.
N 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.
O Trade receivables
Trade receivables are initially recognised at fair value and
subsequently measured at amortised cost less provisions for
impairment based upon an expected credit loss methodology. The
Group applies the IFRS 9 simplified approach to measuring expected
credit losses which uses a lifetime expected loss allowance for all
trade receivables. A provision of the lifetime expected credit loss
is established upon initial recognition of the underlying asset and
are calculated using historical account payment profiles along with
historical credit losses experienced. The loss allowance is
adjusted for forward looking factors specific to the debtor and the
economic environment. The amount of the provision is the difference
between the asset’s carrying amount and the present value of
the probability weighted estimated future cash flows, discounted at
the effective interest rate. The amount of the provision is
recognised in the Consolidated statement of comprehensive
income.
P 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.
Q 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.
Micro Focus International plc
Notes to the consolidated financial information
continued
I Significant Accounting policies continued
R 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 Consolidated statement of comprehensive
income.
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.
Operating sub-lease income is recorded as operating income on a
straight-line basis over the sub-lease term.
S 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 information. 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 tax liabilities are not
recognised if they arise from the initial recognition of goodwill.
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.
T 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 information in the period in which the dividends are
approved by the Company’s shareholders. Interim dividends are
recognised when they are paid.
Micro Focus International plc
Notes to the consolidated financial information
continued
I Significant Accounting policies continued
U 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
initially recognised at fair value and subsequently measured at
amortised cost less provisions for impairment based upon an
expected credit loss methodology.
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.
IFRS 9 replaces the provisions of IAS 39 that relate to the
recognition, classification and measurement of financial assets and
financial liabilities, de-recognition 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 was effective for accounting periods beginning on or after 1
January 2018 and the impact of the adoption by the Group with
effect from 1 November 2018 can be seen in Section X
“Adoption of new and revised International Financial
Reporting Standards”.
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 effective in achieving offsetting changes in cash flows and
are assessed on an on-going 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
prospective testing is not satisfactorily completed, all fair value
movements on the hedging instrument should be recorded in the
Consolidated 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.
V Provisions
Provisions for onerous leases, property restoration costs,
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.
W Contingent Liabilities
Contingent liabilities are possible obligations that arise from
past events and whose existence will be confirmed only by uncertain
future events or present obligations that arise from past events
where the transfer of economic resources is uncertain or cannot be
reliability estimated. Contingent liabilities are not
recognised in the consolidated financial information, except if
they arise from a business combination; they are disclosed in the
notes to the consolidated financial information unless the
likelihood of an outflow of economic resources is
remote.
Micro Focus International plc
Notes to the consolidated financial information
continued
I Significant Accounting policies continued
X Adoption of new and revised International Financial Reporting
Standards
The accounting policies adopted in these Preliminary results are
consistent with those of the annual financial statements for the 18
months ended 31 October 2018, with the exception of the following
standards, amendments to or interpretations of published standards
that are now effective and have been adopted during the
period:
-
IFRS 15 “Revenue from contracts with
customers” established the principles that an entity should
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 was mandatory for annual reporting periods starting
from 1 January 2018 onwards. The standard replaced IAS 18
“Revenue” and IAS 11 “Construction
contracts” and related interpretations
clarifications. Clarifications
to IFRS 15 “Revenue from Contracts with Customers”
comprised guidance on identifying performance obligations,
accounting for licences of intellectual property and the principal
versus agent assessment (gross versus net revenue
presentation).
-
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. 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. This amendment
has no material impact on the reported results and financial
position.
-
Annual
improvements 2014–2016 (which includes 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) and IFRIC 22 Foreign currency transactions and advance
consideration were adopted on 1 November 2018 and had no
impact on the reported results and financial position.
Impact of IFRS 15 “Revenue from contracts with
customers”
IFRS 15 establishes a comprehensive framework for determining
whether, how much and when revenue and certain incremental contract
costs are recognised. IFRS 15 is effective for accounting periods
beginning on or after 1 January 2018 and has been adopted by the
Group with effect from 1 November 2018. The Group adopted the
standard using the modified retrospective approach which means that
the cumulative impact of the adoption was recognised in retained
earnings as of 1 November 2018 and the comparatives are not
restated and continue to be presented in accordance with IAS 18 and
IAS 11. The accounting policies applied in the comparative period
are presented in Section D ‘Revenue recognition’ above
under the heading ‘Revenue recognition policy in the prior
period’.
The effect of initially applying this standard is mainly attributed
to:
●
the
earlier recognition of revenue from consideration paid to a
customer; and
●
later
recognition of costs of obtaining customer contracts.
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.
Set out below are the three primary areas of difference of the new
accounting policy under IFRS 15.
Cost of obtaining customer contracts
The Group has considered the impact of IFRS 15 on the recognition
of sales commission costs, which meet the definition of incremental
costs of obtaining a contract under IFRS 15. The Group applies a
practical expedient to expense the sales commission’s costs
as incurred where the expected amortisation period is one year or
less. An asset is recognised for the 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 five years for the Group and six years in the
SUSE business, until the date of disposal.
At transition date, the Group has only capitalised commissions paid
for uncompleted contracts at 1 November 2018 and has amortised
those balances in the year ended 31 October 2019, as compared to
capitalising all relevant commissions in future periods. By taking
this practical expedient there is a benefit to profit before tax
and Adjusted EBITDA in the 12 months ended 31 October 2019 as the
capitalisation of commissions is greater than the amortisation and
consequently the overall commission costs is reduced under IFRS 15
compared to prior accounting policies where sales commissions were
expensed as incurred.
Micro Focus International plc
Notes to the consolidated financial information
continued
I Significant Accounting policies continued
X Adoption of new and revised International Financial Reporting
Standards continued
Impact of IFRS 15 “Revenue from contracts with
customers” continued
Rebillable expenses
The Group now reports expenses that are recharged to customers,
such as travel and accommodation, as Consulting revenue. Under
previous accounting policies, these were presented as an offsetting
entry within cost of sales.
Consideration payable to a customer
The Group makes payments, including rebates, to customers. The
Group accounts for consideration payable to a customer as a
reduction of the transaction price and therefore revenue. An
adjustment is recorded as the total expected considerations payable
over the contract term is accounted for as variable consideration
at the outset of the contract and treated as a reduction in the
transaction price to be recognised over the life of the contract,
previously amounts were treated as revenue reductions when
incurred. Where the payment is for a distinct good or service, then
the Group accounts for the purchase in the same way as it does for
purchases from suppliers in the normal course of business. Certain
marketing costs, which were previously presented as an offsetting
entry within revenue, are now presented as a Selling and
Distribution cost
Presentation
Under the new IFRS 15 based policies, the Group no longer reports
items as deferred revenue and accrued revenue. Instead, we 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.
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, de-recognition 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 has been adopted by the Group with effect from 1
November 2018.
The classification and measurement basis for the Groups financial
assets is largely unchanged by the adoption of IFRS 9.
There is 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 de-recognition 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 continue to qualify
as hedges under IFRS 9.
The main impact of adopting IFRS 9 is 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 was the case under the prior
standard, IAS 39.
The new impairment requirements apply to the consolidated
Group’s financial assets classified at amortised cost,
particularly to its trade receivables and contract assets. 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. The adoption of IFRS 9 resulted in an increase to
trade receivables loss reserves of $20.0m being recorded on 1
November 2018 against retained earnings. IFRS 9 has no material
impact on the carrying value of contract assets. There is no
material impact on the Group’s basic or diluted EPS for the
periods ended 31 October 2018 or 2019.
Micro Focus International plc
Notes to the consolidated financial information
continued
I Significant Accounting policies continued
X Adoption of new and revised International Financial Reporting
Standards continued
IFRS 9 “Financial Instruments” continued
Reclassification of financial instruments on adoption of IFRS
9
Upon adoption of IFRS 9 on 1 November 2018, there were no changes
to the measurement categories of financial instruments. The
adoption of IFRS 9 did not result in any changes to the measurement
of financial instruments other than as a result of applying the new
expected credit loss methodology when determining the trade
receivables loss allowance. The change in measure of the
trade receivables loss allowance had no material impact on the
Group’s basic or diluted earnings per share for the 12 months
ended 31 October 2019 or the 18 months ended 31 October
2018.
|
|
|
Measurement Category
|
Carrying amount
|
|
|
Note
|
IAS 39
|
IFRS 9
|
31 October
2018
|
IFRS 9 Adjustments1
|
1 November
2018
|
|
|
|
|
|
$m
|
$m
|
$m
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
|
|
|
|
|
|
|
|
Long-term pension assets
|
16
|
Available-for-sale financial
assets
|
Fair value through other comprehensive income
|
16.7
|
-
|
16.7
|
|
Derivative financial instruments
|
|
Fair value through profit and loss
|
Fair value through profit and loss
|
86.4
|
-
|
86.4
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
Cash and cash
|
12
|
Amortised cost
|
Amortised cost
|
620.9
|
-
|
620.9
|
|
Trade and other receivables
|
11
|
Amortised cost
|
Amortised cost
|
1,212.0
|
(20.0)
|
1,192.0
|
|
|
|
|
|
|
|
|
|
Financial liabilities – financial liabilities at amortised
cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
|
|
|
|
|
|
|
|
Borrowings (gross)
|
14
|
Amortised cost
|
Amortised cost
|
4,946.6
|
-
|
4,946.6
|
|
Finance leases
|
|
Amortised cost
|
Amortised cost
|
14.9
|
-
|
14.9
|
|
Provisions
|
15
|
Amortised cost
|
Amortised cost
|
35.4
|
-
|
35.4
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
Borrowings (gross)
|
14
|
Amortised cost
|
Amortised cost
|
50.3
|
-
|
50.3
|
|
Finance leases
|
|
Amortised cost
|
Amortised cost
|
13.6
|
-
|
13.6
|
|
Trade and other payables
|
13
|
Amortised cost
|
Amortised cost
|
676.9
|
-
|
676.9
|
|
Provisions
|
15
|
Amortised cost
|
Amortised cost
|
57.4
|
-
|
57.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 The IFRS 9 adjustment of an increase in the trade
receivables loss allowance of $20.0m resulted in a corresponding
decrease in retained earnings of $20.0m, net of $4.4m of deferred
tax.
Summary of quantitative impact of IFRS 15 “Revenue from
contracts with customers” and IFRS 9 “Financial
Instruments”
Under the IFRS 15 and IFRS 9, adoption methods 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 12 months to 31 October 2019 is impacted by the
new policies.
We have set out below the estimated impacts on the Group of the
areas described above, including the adjustment to retained
earnings recorded on the transition date of 1 November 2018, which
resulted in a corresponding $52.4m asset being recorded relating to
IFRS 15 and a $20.0m liability and related deferred tax asset of
$4.4m being recorded relating to IFRS 9 on the balance sheet. The
in-year impact of IFRS 9 therefore is immaterial.
The following tables summarises the impact of adopting IFRS 15 on
the Group's Consolidated statement of financial position as at 31
October 2019 and its Consolidated statement of comprehensive income
for the 12 months then ended for each of the lines affected. There
was no material impact on the Group's Consolidated statement of
cash flows for the 12 months ended 31 October 2019.
Micro Focus International plc
Notes to the consolidated financial information
continued
I Significant Accounting policies continued
X Adoption of new and revised International Financial Reporting
Standards continued
Summary of quantitative impact of IFRS 15 “Revenue from
contracts with customers” and IFRS 9 “Financial
Instruments” continued
Consolidated Statement of Comprehensive Income – impact of
IFRS 15 in the year ended 31 October 2019
|
|
|
12 months ended
31 October 2019
|
18 months ended
31 October 2018
|
|
|
|
Post
IFRS 15
|
IFRS 15
Adjustments
|
Pre
IFRS 15
|
|
|
|
Note
|
$m
|
$m
|
$m
|
$m
|
|
Revenue
|
1,2
|
3,348.4
|
(16.1)
|
3,332.3
|
4,754.4
|
|
|
|
|
|
|
|
|
Operating profit
|
|
221.7
|
(22.1)
|
199.6
|
376.8
|
|
Finance costs
|
4
|
(282.4)
|
-
|
(282.4)
|
(350.4)
|
|
Finance income
|
4
|
26.6
|
-
|
26.6
|
7.7
|
|
(Loss)/profit before tax
|
|
(34.1)
|
(22.1)
|
(56.2)
|
34.1
|
|
Taxation
|
6
|
16.0
|
1.6
|
17.6
|
673.1
|
|
(Loss)/profit from continuing operations
|
|
(18.1)
|
(20.5)
|
(38.6)
|
707.2
|
|
Profit from discontinued operation (attributable to equity
shareholders of the company)
|
20
|
1,487.2
|
30.6
|
1,517.8
|
76.9
|
|
Profit for the period
|
|
1,469.1
|
10.1
|
1,479.2
|
784.1
|
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
|
|
Equity shareholders of the parent
|
|
1,468.8
|
10.1
|
1,478.9
|
784.0
|
|
Non-controlling interests
|
|
0.3
|
-
|
0.3
|
0.1
|
|
Profit for the period
|
|
1,469.1
|
10.1
|
1,479.2
|
784.1
|
|
|
|
|
|
|
|
|
Earnings per share (cents)
|
|
|
|
|
|
|
From continuing and discontinued operations
|
|
cents
|
cents
|
cents
|
cents
|
|
-
Basic
|
8
|
388.50
|
2.67
|
391.17
|
201.70
|
|
-
Diluted
|
8
|
384.35
|
2.64
|
386.99
|
196.17
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
|
|
|
|
|
-
Basic
|
8
|
(4.87)
|
(5.42)
|
(10.29)
|
181.91
|
|
-
Diluted
|
8
|
(4.87)
|
(5.42)
|
(10.29)
|
176.92
|
|
|
|
|
|
|
|
|
Earnings per share (pence)
|
|
|
|
|
|
|
From continuing and discontinued operations
|
|
pence
|
pence
|
pence
|
pence
|
|
-
Basic
|
8
|
305.07
|
2.10
|
307.17
|
151.61
|
|
-
Diluted
|
8
|
301.81
|
2.08
|
303.89
|
147.45
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
|
|
|
|
|
-
Basic
|
8
|
(3.82)
|
(4.26)
|
(8.08)
|
136.73
|
|
-
Diluted
|
8
|
(3.82)
|
(4.26)
|
(8.08)
|
132.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Micro Focus International plc
Notes to the consolidated financial information
continued
I Significant Accounting policies continued
X Adoption of new and revised International Financial Reporting
Standards continued
Summary of quantitative impact of IFRS 15 “Revenue from
contracts with customers” and IFRS 9 “Financial
Instruments” continued
Consolidated Statement of Financial Position – impact of IFRS
15 on year ended 31 October 2019
|
|
|
12 months ended
31 October 2019
|
18 months ended 31 October 2018
|
|
|
|
Post
IFRS 15
|
IFRS 15
Adjustments
|
Pre
IFRS 15
|
|
|
|
Note
|
$m
|
$m
|
$m
|
$m
|
|
ASSETS
|
|
|
|
|
|
|
Non-current Assets
|
|
|
|
|
|
|
Contract-related costs
|
|
31.5
|
(31.5)
|
-
|
-
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
Trade and other receivables
|
11
|
1,032.9
|
(0.9)
|
1,032.0
|
1,272.0
|
|
Contract-related costs
|
|
19.3
|
(19.3)
|
-
|
-
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
Trade and other payables
|
13
|
(611.0)
|
-
|
(611.0)
|
(676.9)
|
|
Contract liabilities
|
|
(1,045.9)
|
-
|
(1,045.9)
|
(1,134.7)
|
|
|
|
|
|
|
|
|
Non-current liabilities
|
|
|
|
|
|
|
Contract liabilities
|
|
(149.9)
|
-
|
(149.9)
|
(178.1)
|
|
Deferred tax liabilities
|
|
(987.1)
|
9.0
|
(978.1)
|
(1,170.5)
|
Table below shows the impact of IFRS 15 on opening retained
earnings at 1 November 2018 and the continuing operations and
discontinued operation for the 12 months ended 31 October
2019.
|
|
|
Continuing operations
|
|
Discontinued operation
|
|
|
Increase / (decrease) in opening retained earnings on
1 November 2018
|
Increase / (decrease) inRevenuein the
12 months ended
31 October 2019
|
Increase / (decrease) in Operating expensesin the
12 months ended
31 October 2019
|
Increase / (decrease) inProfit before tax and Adjusted EBITDAin
the
12 months ended
31 October 2019
|
|
Profit/(loss) from discontinued operation (attributable to equity
shareholders
of the company) in the 12 months ended
31 October 2019
|
|
|
$m
|
$m
|
$m
|
$m
|
|
$m
|
|
Cost of obtaining customer contracts
|
64.7
|
-
|
(21.2)
|
21.2
|
|
(35.4)
|
|
Rebillable Expenses
|
-
|
2.4
|
2.4
|
-
|
|
-
|
|
Consideration payable to a customer
|
5.0
|
13.7
|
12.8
|
0.9
|
|
(5.0)
|
|
Deferred tax
|
(17.3)
|
-
|
-
|
-
|
|
9.8
|
|
|
52.4
|
16.1
|
(6.0)
|
22.1
|
|
(30.6)
|
During the 12 months ending 31 October 2019, the Group amortised
$10.2m contract related costs and capitalised $31.4m, resulting in
a net increase in profit before tax of $21.2m.
Micro Focus International plc
Notes to the consolidated financial information
continued
I Significant Accounting policies continued
X Adoption of new and revised International Financial Reporting
Standards continued
Summary of quantitative impact of IFRS 15 “Revenue from
contracts with customers” and IFRS 9 “Financial
Instruments” continued
Retained earnings – impact of IFRS 15 and IFRS 9
|
|
Retained earnings at
31 October
2018
|
IFRS 15 Adjustment
|
IFRS 9 Adjustment
|
Retained earnings at
1 November
2018
|
|
|
$m
|
$m
|
$m
|
$m
|
|
Retained earnings
|
3,275.2
|
52.4
|
(15.6)
|
3,312.0
|
The impact of the application of future new and revised IFRSs,
which are expected to have a material impact to the Group is
described below:
IFRS 16 ‘Leases’
In January 2016, the IASB published IFRS 16 “Leases”,
which will replace IAS 17 “Leases” and IFRIC 4
“Determining whether an arrangement contains a lease”.
IFRS 16 is effective for the Group from 1 November
2019.
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
are required to account for all leases in a similar manner to
finance lease accounting under IAS 17. Current finance lease
accounting remains largely unchanged and so the primary impact of
the standard is on leases that are currently classified as
operating leases.
The determination of when an arrangement contains a lease is
largely unchanged from current requirements and the Group does not
expect to recognise any new leases as a result of adopting IFRS
16.
The Group’s portfolio of leases materially comprises office
facilities around the world that the Group uses to conduct its
business, and vehicles for use by the workforce.
The Group has elected to implement IFRS 16 on a modified
retrospective basis, which means the cumulative effect of initially
applying the standard will be adjusted in retained earnings on 1
November 2019. The Group has a choice, on a lease-by-lease basis,
to measure the right-of-use asset at either:
●
its
carrying amount as if IFRS 16 had been applied since the
commencement of the lease; or
●
an
amount equal to the lease liability, adjusted for accruals or
prepayments.
Where historical information is readily available for property
leases, we intend to apply the former accounting method. For all
other leases, we intend to apply the latter method.
The Group has other elections and accounting policy choices to make
in adopting IFRS 16 and as such, the Group has elected not to apply
IFRS 16 to leases for which the underlying asset is of low value,
nor does the Group intend to apply IFRS 16 to leases of intangible
assets.
In adopting IFRS 16, the Group has applied the following practical
expedients that are available in IFRS 16:
●
We
have not reassessed whether an arrangement is, or contains, a lease
at 1 November 2019. Instead, the Group has applied IFRS 16 to
leases that had previously been identified as leases under IAS 17
‘Leases’ and IFRIC 4 ‘Determining whether an
arrangement contains a lease’;
●
Where
there is a group of leases with reasonably similar characteristics,
we have applied a single discount rate to each lease
portfolio;
●
The
Group intends to rely on its assessment of whether leases are
onerous by applying IAS 37 Provisions, Contingent Liabilities and
Contingent Assets at 31 October 2019 as an alternative to
performing an impairment review on the application date. The Group
will adjust the right-of-use asset at 1 November 2019 by the amount
of any provision for onerous leases recognised in the Consolidated
statement of financial position on 31 October 2019;
●
The
Group will exclude initial direct costs from the measurement of the
right-of-use asset at 1 November 2019; and
●
Where
the Group has measured a right-of-use asset as its carrying amount
as if IFRS 16 had been applied since its inception, The Group has
applied hindsight in assessing extension or termination
options.
Micro Focus International plc
Notes to the consolidated financial information
continued
I Significant Accounting policies continued
X Adoption of new and revised International Financial Reporting
Standards continued
IFRS 16 ‘Leases’ continued
Effect of IFRS 16 on the Consolidated Statement of Financial
Position
While the Group is still evaluating the effect that IFRS 16 will
have on the Consolidated financial statements, the Group expects to
recognise in the Consolidated Statement of Financial Position on 1
November 2019:
●
an
asset of between $241.0m and $261.0m representing the Group’s
right to use leased assets, including $20.9m of assets currently
classified as finance leases within property, plant and
equipment;
●
a
liability of between $286.0m and $306.0m representing the
Group’s contractual obligation to make lease payments
(including $23.5m of liabilities currently classified as finance
leases); and
●
a
reduction of between $7.0m and $7.8m in retained
earnings.
The asset of between $241.0m and $261.0m disclosed above excludes
costs related to obligations to restore leased properties, which
are capitalised as part of property, plant and equipment under IAS
17, which will be reclassified to right-of-use assets on adoption
of IFRS 16.
The recognition of the new lease liability will increase the
Group’s debt and therefore Net Debt.
The operating lease expense currently recognised in the
Consolidated statement of comprehensive Income will be replaced by
a depreciation expense against the right-of-use asset and a finance
expense related to the lease liability. As a result, EBITDA will
increase. The impact on profit before tax for the year ended 31
October 2020 is not expected to be material.
The impact on tax balances as a result of the above changes is
still being assessed. There will be no net impact on the
Consolidated statement of cash flows, however the operating lease
cash out-flows within operating cash flows will largely be replaced
by a financing cash-outflow.
Key judgements and estimates made in calculating the initial impact
of adoption include the determination of the lease term, the
grouping of leases for the purpose of assigning a discount rate and
calculating the discount rate.
The Group’s undiscounted non-cancellable operating lease
commitments is $301.2m at 31 October 2019 (31 October 2018:
$228.0m) under IAS 17 “Leases”.
The
lease liability of between $286.0m and $306.0m (inclusive of
amounts already reported as finance leases under IAS 17) shown
above will be included in Net Debt as at 1 November
2019.
Micro Focus International plc
Notes to the consolidated financial information
continued
I Significant Accounting policies continued
X Adoption of new and revised International Financial Reporting
Standards continued
Interpretations and amendments
The
following interpretations and amendments to existing standards are
not yet effective and have not been adopted early by the
Group:
-
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. The Group does not expect a
material impact upon adoption of IFRIC23.
-
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.
-
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.
-
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.
-
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.
-
Amendments
to IFRS 3 Business Combinations, effective 1 January 2020, subject
to EU endorsement.
-
Amendments
to IFRS9, IAS 39 and IFRS 7: Interest rate benchmark reforms,
effective 1 January 2020.
The impact of the amendments and interpretations listed above will
not have a material impact on the consolidated financial
information.
II Critical accounting estimates, assumptions and
judgements
In preparing these consolidated financial information, the Group
has made its best estimates and judgements of certain amounts
included in the financial information, 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 a 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 and judgements, 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 value in use of its
CGU’s. These value in use calculations are dependent on
estimates of future cash flows including long-term growth rates,
the medium-term annual revenue growth rate by product group and an
appropriate discount rate to be applied to future cash flows.
Further details on these estimates and sensitivity of the carrying
value of goodwill to the discount rate and the medium-term annual
revenue growth rate by product group in particular are provided in
note 9.
B Retirement benefit obligations
The valuation of retirement benefit obligations is dependent upon a
number of assumptions that are estimated at the period end date,
including estimates of mortality rates, inflation, salary growth
rates and the rate at which scheme liabilities are discounted.
Further detail on these estimates and the sensitivity of the
carrying value of the defined benefit obligation to these is
provided in note 16.
Micro Focus International plc
Notes to the consolidated financial information
continued
II Critical accounting estimates, assumptions and judgements
continued
Critical accounting judgements
C 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.
Revenue recognition under IFRS 15 is significantly more complex
than under previous reporting requirements and necessitates the
increased use of management judgements and estimates to produce
financial information. IFRS 15 also introduces management judgement
in relation to the timing of recognition of certain categories of
cost. The most significant accounting judgements in applying IFRS
15 are disclosed below.
Identification of performance obligations
Revenue recognition requires significant judgement in identifying
each distinct performance obligation requiring separate recognition
in a multi element contract (e.g. licence, maintenance, material
rights for option to acquire additional products or services at
discounted prices). This judgment impacts the timing of revenue
recognition, as certain performance obligations are recognised at a
point in time and others are recognised over the life of the
contract, as explained in Accounting Policy D, and therefore the
quantum of revenue and profit recognised in each
period.
D Exceptional item classification
The Group classifies items as exceptional in line with Accounting
Policy H. 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.
Micro Focus International plc
Notes to the consolidated financial information
continued
II Critical accounting estimates, assumptions and judgements
continued
Critical accounting judgements
E 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 judgements 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;
●
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.
Key judgements in the period were related to the structuring
activities undertaken in relation to the disposal of SUSE and
whether these activities would create an additional tax charge
through US and other overseas tax legislation. Based on their
assessment, the directors have concluded that no additional
material 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. There
is no estimate associated with the provision for income taxes that
could be expected to result in a material change within the next 12
months.
III 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 credit
losses. 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,
Japanese Yen 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 2019 and 31 October 2018. 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 potential increases in the LIBOR interest
rate.
Micro Focus International plc
Notes to the consolidated financial information
continued
II Critical accounting estimates, assumptions and judgements
continued
III Financial risk factors continued
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 are 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 2019 gross borrowings of $4,775.0m (31 October 2018:
$4,996.9m) related to our senior secured debt facilities (note 14).
$nil (31 October 2018: $50.3m) is current of which $nil (31 October
2018: $nil) is the revolving credit facility. The borrowings
disclosed in the balance sheet are net of pre-paid facility costs
and original issue discounts.
Micro Focus International plc
Notes to the consolidated financial information
continued
1 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 Operating
Committee.
For the 12 months to 31 October 2019, the CODM consisted of the
Chief Executive Officer, Chief Financial Officer, Chief Operating
Officer, Vice President Stategy and Planning and the Chief HR
Officer. With the disposal of the SUSE business completed, the
Group is organised into a single reporting segment.
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-Market
organisation. 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 Operating
Committee is Adjusted EBITDA.
The internal management reporting that the Operating Committee
receives includes a pool of centrally managed costs, which were
allocated between Micro Focus and the SUSE business (up to the date
of disposal) based on identifiable segment specific costs with the
remainder allocated based on other criteria including revenue and
headcount.
|
|
|
12 months ended
31 October 2019
|
18 months ended
31 October 2018
|
|
|
Note
|
$m
|
$m
|
|
Reconciliation to Adjusted EBITDA:
|
|
|
|
|
(Loss)/profit before tax
|
|
(34.1)
|
34.1
|
|
Finance costs
|
4
|
282.4
|
350.4
|
|
Finance income
|
4
|
(26.6)
|
(7.7)
|
|
Depreciation of property, plant and equipment
|
|
66.5
|
88.6
|
|
Amortisation of intangible assets
|
10
|
716.5
|
903.1
|
|
Exceptional items (reported in Operating profit)
|
3
|
294.2
|
538.2
|
|
Share-based compensation charge
|
|
68.8
|
64.3
|
|
Product development intangible costs capitalised
|
10
|
(16.5)
|
(44.4)
|
|
Foreign exchange loss/(credit)
|
|
11.3
|
(37.4)
|
|
Adjusted EBITDA
|
|
1,362.5
|
1,889.2
|
For the reportable segment, the total assets were $14,294.8m and
the total liabilities were $8,018.5m as at 31 October
2019.
Micro Focus International plc
Notes to the consolidated financial information
continued
2 Supplementary information
Analysis by geography
The Group is domiciled in the UK. The Group’s total segmental
revenue from external customers by geographical location is
detailed below:
|
|
12 months ended
31 October 2019
|
18 months ended
31 October 2018
|
|
|
$m
|
$m
|
|
UK
|
206.9
|
299.6
|
|
USA
|
1,523.0
|
2,279.8
|
|
Germany
|
220.7
|
309.5
|
|
France
|
123.3
|
195.5
|
|
Japan
|
108.6
|
145.8
|
|
Other
|
1,165.9
|
1,524.2
|
|
Total
|
3,348.4
|
4,754.4
|
The total of non-current assets other than financial instruments
and deferred tax assets as at 31 October 2019 located in the USA is
$4,623.0m (31 October 2018: $5,145.8m), the total in the non-USA is
$8,192.2m (31 October 2018: $8,488.3m). They exclude trade and
other receivables, derivative financial instruments and deferred
tax.
Analysis of revenue from contracts with customers
|
|
12 months ended
31 October 2019
|
18 months ended
31 October 2018
|
|
|
$m
|
$m
|
|
Revenue from contracts with customers
|
3,348.4
|
4,754.4
|
|
|
|
|
|
Being:
|
|
|
|
Recognised over time:
|
|
|
|
Maintenance revenue
|
2,051.6
|
2,818.9
|
|
SaaS & other recurring revenue
|
278.9
|
365.1
|
|
|
2,330.5
|
3,184.0
|
|
Recognised at point in time:
|
|
|
|
Licence revenue
|
800.0
|
1,206.1
|
|
Consulting revenue
|
217.9
|
364.3
|
|
|
1,017.9
|
1,570.4
|
|
|
|
|
|
Total Revenue
|
3,348.4
|
4,754.4
|
Analysis of revenue by product
Set out below is an analysis of revenue from continuing operations
recognised between the principal product portfolios for the 12
months ended 31 October 2019 and 18 months ended 31 October
2018.
12 months ended 31 October 2019:
|
|
Licence
|
Maintenance
|
Consulting
|
SaaS & other
recurring
|
Total
|
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
|
Application
Modernisation & Connectivity
|
170.9
|
326.1
|
11.7
|
-
|
508.7
|
|
Application
Delivery Management
|
130.3
|
485.4
|
18.2
|
87.8
|
721.7
|
|
IT
Operations Management
|
237.5
|
645.8
|
127.5
|
11.0
|
1,021.8
|
|
Security
|
185.7
|
416.7
|
43.9
|
35.0
|
681.3
|
|
Information
Management & Governance
|
75.6
|
183.6
|
16.6
|
145.9
|
421.7
|
|
Subtotal
|
800.0
|
2,057.6
|
217.9
|
279.7
|
3,355.2
|
|
Deferred
revenue haircut
|
-
|
(6.0)
|
-
|
(0.8)
|
(6.8)
|
|
Total Revenue
|
800.0
|
2,051.6
|
217.9
|
278.9
|
3,348.4
|
Micro Focus International plc
Notes to the consolidated financial information
continued
2 Supplementary information continued
18 months ended 31 October 2018:
|
|
Licence
|
Maintenance
|
Consulting
|
SaaS & other
recurring
|
Total
|
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
|
Application
Modernisation & Connectivity
|
256.3
|
497.6
|
17.9
|
-
|
771.8
|
|
Application
Delivery Management
|
185.5
|
646.7
|
41.6
|
114.1
|
987.9
|
|
IT
Operations Management
|
363.1
|
869.9
|
192.8
|
15.1
|
1,440.9
|
|
Security
|
291.6
|
580.2
|
81.4
|
41.6
|
994.8
|
|
Information
Management & Governance
|
117.2
|
267.2
|
32.6
|
203.1
|
620.1
|
|
Subtotal
|
1,213.7
|
2,861.6
|
366.3
|
373.9
|
4,815.5
|
|
Deferred
revenue haircut
|
(7.6)
|
(42.7)
|
(2.0)
|
(8.8)
|
(61.1)
|
|
Total Revenue
|
1,206.1
|
2,818.9
|
364.3
|
365.1
|
4,754.4
|
|
|
|
12 months ended
31 October 2019
|
18 months ended
31 October 2018
|
|
Reported within Operating profit:
|
Note
|
$m
|
$m
|
|
Integration costs
|
|
245.9
|
279.0
|
|
Pre-acquisition costs
|
|
-
|
43.0
|
|
Acquisition costs
|
|
1.5
|
27.1
|
|
Property related costs
|
|
16.3
|
38.1
|
|
Severance and legal costs
|
|
32.1
|
129.7
|
|
Divestiture
|
|
2.1
|
21.3
|
|
Gain on disposal of Atalla
|
|
(3.7)
|
-
|
|
|
|
294.2
|
538.2
|
|
Reported within finance costs:
|
|
|
|
|
Finance costs incurred in escrow period
|
4
|
-
|
6.4
|
|
Reported within finance income:
|
|
|
|
|
Finance income earned in escrow period
|
4
|
-
|
(0.6)
|
|
|
|
-
|
5.8
|
|
|
|
|
|
|
Exceptional costs before tax
|
|
294.2
|
544.0
|
|
|
|
|
|
|
Tax:
|
|
|
|
|
Tax effect of exceptional items
|
|
(54.3)
|
(105.9)
|
|
Tax exceptional item
|
|
-
|
(692.3)
|
|
|
|
(54.3)
|
(798.2)
|
|
Reported within profit from discontinued operation (attributable to
equity shareholders of the Company):
|
|
|
|
|
Gain on disposal of discontinued operation
|
20
|
(1,458.5)
|
-
|
|
|
|
|
|
|
Exceptional profit after tax
|
|
(1,218.6)
|
(254.2)
|
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.
Integration costs
Integration costs of $245.9m for the 12 months ended 31 October
2019 arose from the continuing work being done in integrating the
HPE Software business into Micro Focus as referred to in the Chief
Financial Officers report. Other activities include system and
processes integration costs. Integration costs of $279.0m in the 18
months ended 31 October 2018 arose mainly from the work done to
integrate Serena, GWAVA and the HPE Software business into the
Micro Focus.
Pre-acquisition costs
Pre-acquisition costs for the 18 months ended 31 October 2018 of
$43.0m, related to the evaluation of the acquisition of HPE
Software, including due diligence work, legal work on the
acquisition agreements, professional advisors on the transaction
and pre-integration costs. No such costs arose in the 12 months
ended 31 October 2019.
Micro Focus International plc
Notes to the consolidated financial information
continued
3 Exceptional items continued
Acquisition costs
The acquisition costs of $1.5m in the 12 months ended 31 October
2019 related mostly to acquisition of Interset Software Inc. (note
21). The acquisition costs in the 18 months ended 31 October 2018
of $27.1m included external costs in completing the acquisition of
the HPE Software business and costs relating to the acquisition of
COBOL-IT SAS. The external costs mainly relate to due diligence
work, legal work on the acquisition agreements and professional
advisors on the transaction.
Property related costs
Property related costs of $16.3m for the 12 months ended 31 October
2019 (18 months ended 31 October 2018: $38.1m) relate 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 resulting from the ongoing integration of the
HPE Software business into Micro Focus.
Severance and legal costs
Severance and legal costs of $32.1m for the 12 months ended 31
October 2019 (18 months ended 31 October 2018: $129.7m) relate
mostly to termination costs for employees after acquisition
relating to the integration of the HPE Software business into Micro
Focus.
Divestiture
Divestiture costs of $2.1m for the 12 months ended 31 October 2019
relate mostly to employee activities (18 months ended 31 October
2018: $21.3m, related mostly to fees paid to professional advisors)
involved in the disposal of the SUSE business completed in 2019
(note 20).
Gain on disposal of Atalla
The non-recurring gain on disposal of $3.7m for the 12 months ended
31 October 2019 (18 months ended 31 October 2018: $nil) relates to
Atalla business disposal (note 20).
Finance income and finance costs
Finance costs of $6.4m and finance income of $0.6m for the 18
months ended 31 October 2018 related 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. No
such income or costs arose in the 12 months ended 31 October
2019.
Tax
The tax effect of exceptional items on the income statement is a
credit of $54.3m for the 12 months ended 31 October 2019 (18 months
ended 31 October 2018: $798.2m credit). The exceptional tax credit
of $692.3m 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.
Gain on disposal of discontinued operation
The element of the profit for the period on the discontinued
operation related to the gain on disposal is included as an
exceptional item (note 20).
Micro Focus International plc
Notes to the consolidated financial information
continued
4 Finance income and finance
costs
|
|
Note
|
12 months ended
31 October 2019
|
18 months ended
31 October 2018
|
|
|
|
$m
|
$m
|
|
Finance costs
|
|
|
|
|
Interest on bank borrowings
|
|
225.4
|
276.5
|
|
Commitment fees
|
|
1.9
|
3.3
|
|
Amortisation of facility costs and original issue
discounts
|
|
46.7
|
60.4
|
|
Finance costs on bank borrowings
|
|
274.0
|
340.2
|
|
|
|
|
|
|
Net interest expense on retirement obligations
|
16
|
2.4
|
2.8
|
|
Finance lease expense
|
|
2.0
|
2.7
|
|
Interest rate swaps: cash flow hedges, transfer from
equity
|
|
-
|
3.4
|
|
Other
|
|
4.0
|
1.3
|
|
Total
|
|
282.4
|
350.4
|
|
|
|
12 months ended
31 October 2019
|
18 months ended
31 October 2018
|
|
|
|
$m
|
$m
|
|
Finance income
|
|
|
|
|
Bank interest
|
|
16.3
|
3.6
|
|
Interest on non-plan pension assets
|
16
|
0.3
|
0.6
|
|
Interest rate swaps: cash flow hedges, transfer to
equity
|
|
9.9
|
-
|
|
Other
|
|
0.1
|
3.5
|
|
Total
|
|
26.6
|
7.7
|
|
|
|
|
|
|
Net finance cost
|
|
255.8
|
342.7
|
|
|
|
|
|
|
Included within exceptional items
|
|
|
|
|
Finance costs incurred in escrow period
|
3
|
-
|
6.4
|
|
Finance income earned in escrow period
|
3
|
-
|
(0.6)
|
|
|
|
-
|
5.8
|
5 Share-based payments
|
|
12 months ended
31 October 2019
|
18 months ended
31 October 2018
|
|
|
$m
|
$m
|
|
Share-based compensation – IFRS 2 charge
|
62.0
|
70.9
|
|
Employer taxes
|
6.8
|
(6.6)
|
|
|
68.8
|
64.3
|
As at 31 October 2019, accumulated employer taxes of $1.9m (31
October 2018: $20.6m) is included in trade and other payables and
$nil (31 October 2018: $0.5m) is included in other non-current
liabilities.
6 Taxation
|
|
12 months ended
31 October 2019
|
18 months ended
31 October 2018
|
|
|
$m
|
$m
|
|
Current tax
|
|
|
|
Current period
|
163.9
|
245.8
|
|
Adjustments to tax in respect of previous periods
|
(35.3)
|
(14.7)
|
|
|
128.6
|
231.1
|
|
Deferred tax
|
|
|
|
Origination and reversal of temporary differences
|
(139.7)
|
26.4
|
|
Adjustments to tax in respect of previous periods
|
24.5
|
1.2
|
|
Previously
unrecognised temporary differences
|
(29.4)
|
-
|
|
Impact of change in tax rates
|
-
|
(931.8)
|
|
|
(144.6)
|
(904.2)
|
|
|
|
|
|
Total tax credit
|
(16.0)
|
(673.1)
|
For the 12 months ended 31 October 2019, a deferred tax debit of
$7.6m (18 months ended 31 October 2018: $23.7m debit) and current
tax credit of $13.1m (18 months ended 31 October 2018: $4.1m
credit) have been recognised in equity in relation to share
options. A current tax credit of $23.3m (18 months ended 31 October
2018: $16.4m debit) has been recognised in the hedging reserve
(note 18). In addition, a deferred tax credit of $13.0m (18 months
ended 31 October 2018: $4.3m credit) has been recognised in the
consolidated statement of comprehensive income in relation to
defined benefit pension schemes and a deferred tax credit of $14.0m
(18 months ended 31 October 2018: $nil) in relation to foreign
exchange movements on intangibles.
Micro Focus International plc
Notes to the consolidated financial information
continued
6 Taxation continued
The tax charge for the 12 months ended 31 October 2019 is higher
than the standard rate of corporation tax in the UK of 19.00% (18
months ended 31 October 2018: 19.00%). The differences are
explained below:
|
|
12 months ended
31 October 2019
|
18 months ended
31 October 2018
|
|
|
$m
|
$m
|
|
(Loss)/profit before taxation
|
(34.1)
|
34.1
|
|
|
|
|
|
Tax at UK corporation tax rate 19.00% (2018: 19.00%)
|
(6.5)
|
6.5
|
|
Effects of:
|
|
|
|
Tax rates other than the UK standard rate
|
(4.4)
|
17.8
|
|
Intra-Group financing
|
(42.8)
|
(52.5)
|
|
Interest restrictions
|
-
|
31.8
|
|
Innovation tax credit benefits
|
(13.5)
|
(21.4)
|
|
US foreign inclusion income
|
43.7
|
39.0
|
|
US transition tax
|
-
|
238.3
|
|
Share options
|
7.1
|
10.2
|
|
Movement in deferred tax not recognised
|
14.4
|
7.3
|
|
Previously
unrecognised temporary differences
|
(29.4)
|
-
|
|
Effect of change in tax rates
|
-
|
(931.8)
|
|
Expenses not deductible and other permanent
differences
|
26.2
|
(4.8)
|
|
|
(5.2)
|
(659.6)
|
|
Adjustments to tax in respect of previous periods:
|
|
|
|
Current tax
|
(35.3)
|
(14.7)
|
|
Deferred tax
|
24.5
|
1.2
|
|
|
(10.8)
|
(13.5)
|
|
|
|
|
|
Total taxation
|
(16.0)
|
(673.1)
|
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 12
months ended 31 October 2019 being $13.5m (18 months ended 31
October 2018: $21.4m). The Group realised benefits in relation to
intra-Group financing of $42.8m for the 12 months ended 31 October
2019 (18 months ended 31 October 2018: $52.5.m). The benefits
mostly relate to arrangements put in place to facilitate the
acquisitions of the HPE Software business and The Attachmate
Group.
US foreign inclusion income of $43.7m arising in the 12 months
ended 31 October 2019 (18 months ended 31 October 2018: $39.0m) is
largely driven by new US tax legislation introduced as part of US
tax reforms in 2018.
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.
During the period the directors reassessed the deferred tax asset
recognised in relation to interest restrictions and have recognised
an asset to the extent that sufficient taxable temporary
differences exist at the balance sheet date. Previously a deferred
tax asset was not recognised as the directors forecast that the
Group would be unable to utilise the interest restrictions in
future periods. This has resulted in a credit of $29.4m in the
period in respect of historical interest amounts, recognised as
previously unrecognised temporary differences above.
The expenses not deductible and other permanent differences charge
of $26.2m (18 months ended 31 October 2018: $4.8m credit) included
$8.1m in relation to uncertain tax positions and $6.1m related to
irrecoverable withholding tax.
The Group realised a net credit in relation to the true-up of prior
period, current and deferred tax estimates of $10.8m for the 12
months ended 31 October 2019 (18 months ended 31 October 2018:
$13.5m).
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.
In April 2019, the European Commission published its final decision
on its state aid investigation into the UK’s ‘Financing
Company Partial Exemption’ legislation and concluded that
part of the legislation is in breach of EU State Aid rules. Similar
to other UK based international groups that have acted in
accordance with the UK legislation in force at the time, the Group
may be affected by the finding and is monitoring developments. The
UK government and UK-based international companies, including the
Group, have appealed to the General Court of the European Union
against the decision. The UK government is required to start
collection proceedings in advance of the appeal results and it is
possible that the Group will be required to make a payment in the
year ending 31 October 2020. If the decision of the European
Commission is upheld, the Group have calculated the maximum
potential liability to be $60.3m. Based on its current assessment
the Group believes that no provision is required in respect of this
issue. The UK legislation affected by this EU commission finding
was amended on 1 January 2019 to be compliant with EU law and
therefore no longer impacts the Group and so no additional tax
liability will accrue in future periods that could be subject to
the same challenge.
Micro Focus International plc
Notes to the consolidated financial information
continued
7 Dividends
|
|
12 months ended
31 October 2019
|
18 months ended
31 October 2018
|
|
Equity - ordinary
|
$m
|
$m
|
|
Final paid 58.33 cents (2018: 58.33 cents) per ordinary
share
|
240.7
|
133.9
|
|
First Interim paid 58.33 cents (2018: 34.60 cents) per ordinary
share
|
198.5
|
156.2
|
|
Second Interim paid nil cents (2018: 58.33 cents) per ordinary
share
|
-
|
252.1
|
|
|
439.2
|
542.2
|
The directors announced a final dividend of 58.33 cents per share
payable on 7 May 2020 to shareholders who are registered at 14
April 2020. This final dividend, amounting to $194.5m, has not been
recognised, as a liability as at 31 October 2019.
8 Earnings per share
The calculation of the basic earnings per share has been based on
the earnings attributable to owners of the parent and the weighted
average number of shares for each period.
Reconciliation
of the earnings and weighted average number of shares:
|
|
12 months ended
31 October 2019
|
18 months ended
31 October 2018
|
|
Earnings ($m)
|
|
|
|
(Loss)/profit for the period from continuing
operations
|
(18.1)
|
707.2
|
|
Profit for the period from discontinued operation
|
1,487.2
|
76.9
|
|
|
1,469.1
|
784.1
|
|
|
|
|
|
Number of shares (m)
|
|
|
|
Weighted average number of shares
|
378.1
|
388.7
|
|
Dilutive effects of shares
|
4.1
|
11.0
|
|
|
382.2
|
399.7
|
|
|
|
|
|
Earnings per share
|
|
|
|
Basic earnings per share (cents)
|
|
|
|
Continuing operations
|
(4.87)
|
181.91
|
|
Discontinued operation
|
393.37
|
19.79
|
|
Total Basic earnings per share
|
388.50
|
201.70
|
|
|
|
|
|
Diluted earnings per share (cents)
|
|
|
|
Continuing operations 1
|
(4.87)
|
176.92
|
|
Discontinued operation
|
389.16
|
19.25
|
|
Total Diluted earnings per
share 1
|
384.35
|
196.17
|
|
|
|
|
|
Basic earnings per share (pence)
|
|
|
|
Continuing operations
|
(3.82)
|
136.73
|
|
Discontinued operation
|
308.89
|
14.88
|
|
Total Basic earnings per share
|
305.07
|
151.61
|
|
|
|
|
|
Diluted earnings per share (pence)
|
|
|
|
Continuing operations 1
|
(3.82)
|
132.98
|
|
Discontinued operation
|
305.59
|
14.47
|
|
Total Diluted earnings per
share 1
|
301.81
|
147.45
|
|
|
|
|
|
Earnings attributable to ordinary shareholders
|
|
|
|
From continuing operations
|
(18.1)
|
707.2
|
|
Excluding non-controlling interests
|
(0.3)
|
(0.1)
|
|
(Loss)/profit for the period from continuing
operations
|
(18.4)
|
707.1
|
|
From discontinued operation
|
1,487.2
|
76.9
|
|
|
1,468.8
|
784.0
|
|
Average exchange rate
|
$1.27/£1
|
$1.33/£1
|
1 As there is a loss from
continuing operations attributable to the ordinary equity
shareholders of the Company for the 12 months ended 31 October 2019
($18.4m), the Diluted EPS is reported as equal to Basic EPS, as no
account can be taken of the effect of dilutive securities under IAS
33. There was total earnings attributable to ordinary equity
shareholders of the Company for the 12 months ended 31 October 2019
of $1,468.8m and therefore the effect of dilutive securities can be
reflected in the total Diluted EPS above.
The weighted average number of shares excludes treasury shares that
do not have dividend rights (note 17).
Micro Focus International plc
Notes to the consolidated financial information
continued
9 Goodwill
|
|
|
31 October 2019
|
31 October 2018
|
|
|
Note
|
$m
|
$m
|
|
Cost and net book amount
|
|
|
|
|
At 1 November / 1 May
|
|
6,805.0
|
2,828.6
|
|
Acquisitions
|
21
|
26.8
|
4,863.9
|
|
Effects of movements in exchange rates
|
|
(160.5)
|
-
|
|
Reclassification to assets held for sale
|
20
|
-
|
(887.5)
|
|
|
|
6,671.3
|
6,805.0
|
|
A segment-level summary of the goodwill allocation is presented
below:
|
|
|
|
|
Micro Focus
|
|
6,671.3
|
6,805.0
|
Goodwill acquired through business combinations has been allocated
to a cash-generating unit (“CGU”) for the purpose of
impairment testing.
The goodwill arising in the 12 months ended 31 October 2019,
related to the acquisition of Interset Software Inc. of $26.8m
(note 21) has been allocated to the Micro Focus CGU as this is
consistent with the segment reporting that is used in internal
management reporting. Of the additions to goodwill, all amounts are
expected to be deductible for tax purposes.
The goodwill arising in the 18 months ended 31 October 2018 related
to the acquisition of the HPE Software business of $4,858.3m (note
21) and COBOL-IT, SAS (“COBOL-IT”) $5.6m (note 21),
have been allocated to the Micro Focus CGU as this is consistent
with the segment reporting that is used in internal management
reporting. Of the additions to goodwill, there were no amounts
expected to be deductible for tax purposes.
In addition, during the year, following a review of the allocation
of goodwill to foreign operations, the directors have determined
that goodwill of $6,497.5m, which arose on previous acquisitions
(in particular the acquisitions of the HPE Software business on 1
September 2017 and The Attachmate Group on 20 November 2014, being
the two most significant) should have been allocated into
functional currencies of the underlying foreign operations. The
re-denomination has given rise to a total reduction in the carrying
value of goodwill of $160.5m, as a result of foreign exchange
movement, that has been recognised in the 12 months ended 31
October 2019. Had this allocation taken place from the acquisition
dates, a $154.9m decrease in the carrying value of goodwill would
have been recognised in the 18 months ended 31 October 2018 and a
cumulative decrease of $69.4m in the carrying value would have been
recognised as at 30 April 2017. As this change has no impact on the
Group’s key performance metrics, including profit before
taxation, or statement of cash flows and as the net prior-period
impact of $224.3m is not material in the context of the overall
value of goodwill or net assets, it is, in the judgement of the
directors, appropriate to affect the change in allocation in the
current period. Movements in Other comprehensive income are
not considered a key performance metric.
This change in the carrying value of $160.5m is a part of the
amount reflected in the line “effect of movements in exchange
rates” in the table above. The change has been recognised
within “currency translation differences – continuing
operations” in other comprehensive income, and subsequently
the translation reserve in equity.
This adjustment has had no impact on the conclusion of the
Group’s annual impairment review.
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 Group performed its
annual test for impairment as at 31 October 2019 (2018: 31 October
2018), incorporating its knowledge of the business into that
testing and noting at that date the market capitalisation was less
than the net assets of the Group, which was taken into account
during the impairment test.
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
five-year projections and then a terminal value calculation. It
utilises discounted board approved forecasts for the first four
years and the fifth year reflects management’s expectation of
the 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. The VIU
calculation excludes the cash outflow and resulting cash inflow
assumptions arising from the investment decisions made in the
Strategic Review and which are included within the board approved
forecasts. Impairment reviews under IAS 36 are required to exclude
the estimated cash inflow and outflows arising from improving or
enhancing the performance of existing assets, and therefore the
impairment test performed in the current year considers the
recoverable amount of the CGU based on its current condition
without the impact of the approved investment plans.
Micro Focus International plc
Notes to the consolidated financial information
continued
9 Goodwill continued
Key assumptions
Key assumptions in the VIU are considered to be the discount rate,
medium term annual revenue growth rate by product group and the
long-term cash flow growth rate. These have been assessed taking
into consideration the current economic climate and the resulting
impact on expected growth and discount rates.
The medium term annual revenue growth rate by product group,
long-term cash flow growth rate and discount rate used in the VIU
calculation are:
|
|
2019
|
2018
|
|
Long-term cash flow growth rate
|
1.0%
|
1.0%
|
|
Pre-tax discount rate1
|
10.3%
|
9.7%
|
|
Medium term annual revenue growth rate by product
group2
|
(2.0)% to 2.1%
|
-
|
1 This equates to a Post-tax
discount rate of 8.0% (2018: 7.8%).
2 Medium term annual revenue
growth rate by product group was not a key assumption in 2018 and
so has not been presented.
Sensitivity analysis
The result of the sensitivity analysis are set out below. In
undertaking this analysis, 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 headroom and breakeven
sensitivities disclosed below are on the VIU calculation, which, as
explained above, excludes the cash outflow and resulting cash
inflow assumptions arising from the investment decisions made in
the Strategic Review.
The
directors have assessed that a reasonably possible change in the
discount rate is an absolute movement of 2.0% (2018: 2.0%) and this
increase would cause the carrying value of the Micro Focus CGU to
exceed its recoverable amount. An increase in the discount rate of
0.4% to 10.7% (2018: increase of 1.3% to 11.0%) would reduce the
amount by which the recoverable amount exceeds its carrying value
from $0.5bn to $nil (2018: from $2.2bn to $nil).
The
directors have assessed that a reasonably possible change in the
average of the medium term annual revenue growth rate by product
group is an absolute reduction of 2.0% and this decrease would
cause the carrying value of the Micro Focus CGU to exceed its
recoverable amount (2018: not a reasonably possible change). A
decrease in the average of the medium term annual revenue growth
rate by product group of 0.7% would reduce the amount by which the
recoverable amount exceeds its carrying value from $0.5bn to $nil.
This sensitivity has been presented exclusive of mitigating
actions, such as cost saving, that would be taken in such a
scenario and which would at least partially offset such a reduction
in cash flows.
The directors have also assessed that there is not a reasonably
possible change in the long-term cash flow growth rate that would
reduce the recoverable amount to below its carrying
value.
No impairment charge resulted from the goodwill tests for
impairment in the 12 months ended 31 October 2019 (31 October 2018:
no impairment).
10 Other intangible assets
|
|
|
|
|
Purchased intangibles
|
|
|
|
|
Purchased software
|
Product development costs
|
Technology
|
Trade names
|
Customer relationships
|
Lease
contracts
|
Total
|
|
|
Note
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
|
Cost
|
|
|
|
|
|
|
|
|
|
At 1 November 2018
|
|
141.1
|
259.1
|
2,158.5
|
267.7
|
5,377.2
|
15.0
|
8,218.6
|
|
Acquisitions – Interset Software Inc
|
21
|
-
|
-
|
44.5
|
4.2
|
12.5
|
-
|
61.2
|
|
Additions
|
|
12.3
|
16.5
|
-
|
-
|
-
|
-
|
28.8
|
|
Additions – external consultants
|
|
-
|
0.5
|
-
|
-
|
-
|
-
|
0.5
|
|
Disposals
|
|
(7.4)
|
(19.1)
|
-
|
-
|
-
|
-
|
(26.5)
|
|
Effects of movements in exchange rates
|
|
0.7
|
-
|
(24.4)
|
(4.6)
|
(66.4)
|
(0.1)
|
(94.8)
|
|
At 31 October 2019
|
|
146.7
|
257.0
|
2,178.6
|
267.3
|
5,323.3
|
14.9
|
8,187.8
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortisation
|
|
|
|
|
|
|
|
|
|
At 1 November 2018
|
|
50.1
|
206.7
|
478.9
|
48.9
|
801.5
|
3.2
|
1,589.3
|
|
Amortisation charge for the period
|
|
34.1
|
26.7
|
200.1
|
20.9
|
424.8
|
9.9
|
716.5
|
|
Disposals
|
|
(7.4)
|
(19.1)
|
-
|
-
|
-
|
-
|
(26.5)
|
|
Effects of movements in exchange rates
|
|
0.1
|
-
|
(10.1)
|
(1.8)
|
(22.0)
|
-
|
(33.8)
|
|
At 31 October 2019
|
|
76.9
|
214.3
|
668.9
|
68.0
|
1,204.3
|
13.1
|
2,245.5
|
|
|
|
|
|
|
|
|
|
|
|
Net book amount at 31 October 2019
|
|
69.8
|
42.7
|
1,509.7
|
199.3
|
4,119.0
|
1.8
|
5,942.3
|
|
Net book amount at 31 October 2018
|
|
91.0
|
52.4
|
1,679.6
|
218.8
|
4,575.7
|
11.8
|
6,629.3
|
During the period, the estimated useful life of certain purchased
software was revised. The net effect of the changes in the current
financial period was an increase in amortisation expense by
$8.9m.
Micro Focus International plc
Notes to the consolidated financial information
continued
10 Other intangible assets continued
|
|
|
|
|
Purchased intangibles
|
|
|
|
|
Purchased software
|
Product development costs
|
Technology
|
Trade names
|
Customer relationships
|
Lease
contracts
|
Total
|
|
|
Note
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
|
Cost
|
|
|
|
|
|
|
|
|
|
At 1 May 2017
|
|
24.6
|
213.8
|
398.9
|
239.6
|
972.4
|
-
|
1,849.3
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations:
|
|
|
|
|
|
|
|
|
|
Acquisitions - HPE Software business
|
21
|
72.8
|
-
|
1,809.0
|
163.0
|
4,480.0
|
15.0
|
6,539.8
|
|
Acquisitions – COBOL-IT
|
21
|
-
|
-
|
1.5
|
0.2
|
12.3
|
-
|
14.0
|
|
Acquisitions – Covertix
|
21
|
2.5
|
-
|
-
|
-
|
-
|
-
|
2.5
|
|
Additions
|
|
46.8
|
44.4
|
-
|
-
|
-
|
-
|
91.2
|
|
Additions – external consultants
|
|
-
|
0.9
|
-
|
-
|
-
|
-
|
0.9
|
|
Effects of movements in exchange rates
|
|
(0.4)
|
-
|
-
|
-
|
-
|
-
|
(0.4)
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operation:
|
|
|
|
|
|
|
|
|
|
Reclassification to current assets classified as held for
sale
|
20
|
(5.2)
|
-
|
(50.9)
|
(135.1)
|
(87.5)
|
-
|
(278.7)
|
|
At 31 October 2018
|
|
141.1
|
259.1
|
2,158.5
|
267.7
|
5,377.2
|
15.0
|
8,218.6
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortisation
|
|
|
|
|
|
|
|
|
|
At 1 May 2017
|
|
21.0
|
164.7
|
223.0
|
38.8
|
312.5
|
-
|
760.0
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations:
|
|
|
|
|
|
|
|
|
|
Amortisation charge for the period
|
|
30.7
|
42.0
|
280.5
|
26.7
|
520.0
|
3.2
|
903.1
|
|
Effects of movements in exchange rates
|
|
(0.9)
|
-
|
-
|
-
|
-
|
-
|
(0.9)
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operation:
|
|
|
|
|
|
|
|
|
|
Amortisation charge for the period
|
|
0.8
|
-
|
13.4
|
9.1
|
16.9
|
-
|
40.2
|
|
Reclassification to current assets classified as held for
sale
|
20
|
(1.5)
|
-
|
(38.0)
|
(25.7)
|
(47.9)
|
-
|
(113.1)
|
|
At 31 October 2018
|
|
50.1
|
206.7
|
478.9
|
48.9
|
801.5
|
3.2
|
1,589.3
|
|
|
|
|
|
|
|
|
|
|
|
Net book amount at 31 October 2018
|
|
91.0
|
52.4
|
1,679.6
|
218.8
|
4,575.7
|
11.8
|
6,629.3
|
|
Net book amount at 30 April 2017
|
|
3.6
|
49.1
|
175.9
|
200.8
|
659.9
|
-
|
1,089.3
|
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 - see Accounting
Policy K.
In addition during the year, following a review of the allocation
of purchased intangible assets to foreign operations, the directors
have determined that intangible assets of $7,321.0m which arose on
previous acquisitions (in particular the acquisitions of the HPE
Software business on 1 September 2017 and The Attachmate Group on
20 November 2014, being the two most significant) should have been
allocated into functional currencies of the underlying foreign
operations.
The re-denomination has given rise to a total reduction in the
carrying value of purchased intangible assets of $61.0m that has
been recognised in the 12 months ended 31 October 2019. Had this
allocation taken place from the acquisition dates, a $40.5m
decrease in the carrying value of purchased intangible assets would
have been recognised in the 18 months ended 31 October 2018 and a
cumulative decrease of $20.8m in the carrying value would have been
recognised as at 30 April 2017. As this change has no impact on the
Group’s key performance metrics, including profit before
taxation, or the statement of cash flows and as the net
prior-period impact of $61.3m is not material in the context of the
overall value of purchased intangible assets or net assets, it is,
in the judgement of the directors, appropriate to effect the change
in allocation in the current period.
Movements
in Other comprehensive income are not considered a key performance
metric.
This change in the carrying value of $61.0m consists of $94.8m and
$33.8m reflected in the lines “effect of movements in
exchange rates” for cost, this includes the cumulative impact
on amortisation of acquisition intangible assets which is not
considered material, and cumulative amortisation respectively in
the table above. $83.3m of this has been recognised as
“currency translation differences – continuing
operations” in other comprehensive income, and subsequently
the translation reserve in equity, and an offsetting $21.6m of this
has been recognised as “currency translation differences
– continuing operations” in other comprehensive income
and subsequently retained earnings within equity.
Expenditure totalling $29.3m (18 months to 31 October 2018: $91.2m)
was made in the 12 months ended 31 October 2019, including $17.0m
in respect of development costs and $12.3m of purchased software.
The acquisition of Interset Software Inc. in the 12 months ended 31
October 2019 gave rise to an addition of $61.2m to purchased
intangibles (note 21). The acquisitions of the HPE Software
business ($6,539.8m), COBOL-IT ($14.0m) and Covertix ($2.5m) in the
18 months ended 31 October 2018 gave rise to an addition of
$6,556.3m to purchased intangibles (note 21).
Micro Focus International plc
Notes to the consolidated financial information
continued
10 Other intangible assets continued
Of the $17.0m of additions to product development costs, $16.5m (18
months to 31 October 2018: $44.4m) relates to internal product
development costs and $0.5m (18 months ended 31 October 2018:
$0.9m) to external consultants' product development
costs.
At 31 October 2019, the unamortised lives of technology assets were
in the range of two to 10 years, customer relationships in the
range of one to 13 years and trade names in the range of 10 to 20
years. The HPE Software business acquired purchased intangibles,
the largest component of the Group, have another 10 years life
remaining for technology and 13 years life remaining for customer
relationships purchased intangibles.
Included in the consolidated statement of comprehensive income for
the 12 months ended 31 October 2019 and the 18 months ended 31
October 2018 was:
|
|
12 months ended
31 October 2019
|
18 months ended
31 October 2018
|
|
For continuing operations:
|
$m
|
$m
|
|
Cost of sales:
|
|
|
|
-
amortisation
of product development costs
|
26.7
|
42.0
|
|
-
amortisation
of acquired purchased technology
|
200.1
|
280.5
|
|
Selling and distribution:
|
|
|
|
-
amortisation
of acquired purchased trade names, customer relationships and lease
contracts
|
455.6
|
549.9
|
|
Administrative expenses:
|
|
|
|
-
amortisation
of purchased software
|
34.1
|
30.7
|
|
Total amortisation charge for the period
|
716.5
|
903.1
|
|
|
|
|
|
Research and development:
|
|
|
|
-
capitalisation
of product development costs
|
16.5
|
44.4
|
11 Trade and other receivables
|
|
31 October 2019
|
31 October 2018
|
|
|
$m
|
$m
|
|
Trade receivables
|
877.9
|
1,089.6
|
|
Loss allowance
|
(42.4)
|
(41.9)
|
|
Trade receivables net
|
835.5
|
1,047.7
|
|
Prepayments
|
53.9
|
60.0
|
|
Other receivables
|
87.2
|
79.0
|
|
Contract assets
|
56.3
|
85.3
|
|
|
1,032.9
|
1,272.0
|
Concentrations of credit risk with respect to trade receivables are
limited due to the Group’s customer base being large and
unrelated. The Group considers the credit quality of trade and
other receivables on a customer-by-customer basis. The Group
considers that the carrying value of the trade and other
receivables that is disclosed below gives a fair presentation of
the credit quality of the assets. This is considered to be the case
as there is a low risk of default due to the high number of
recurring customers and credit control policies. In determining the
recoverability of a trade receivable, the Group considers the
ageing of each debtor and any change in the circumstances of the
individual receivable. Due to this, management believes there is no
further credit risk provision required in excess of the normal
provision determined by the expected credit loss methodology
applied.
At 31 October 2019 and 31 October 2018, the carrying amount
approximates the fair value of the instrument due to the short-term
nature of the instrument. The trade receivables of $877.9m at 31
October 2019 (31 October 2018: $1,089.6m) are net of the $nil (31
October 2018: $21.5m) loss allowance in the opening balance sheet
for the HPE Software business (note 21) as amounts provided in the
prior period have been utilised in the current period.
As at 31 October 2019, a loss allowance of $42.4m (31 October 2018:
$41.9m) was recognised for trade receivables.
The ageing of these receivables is as follows:
|
|
Current
|
Up to three
months
|
Three to four
months
|
Over four
months
|
Total
|
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
|
31 October 2019:
|
|
|
|
|
|
|
Gross trade receivables
|
696.0
|
110.1
|
8.9
|
62.9
|
877.9
|
|
Loss allowance
|
(8.9)
|
(3.8)
|
(1.5)
|
(28.2)
|
(42.4)
|
|
Net trade receivables
|
687.1
|
106.3
|
7.4
|
34.7
|
835.5
|
|
|
|
|
|
|
|
|
31 October 2018:
|
|
|
|
|
|
|
Gross trade receivables
|
798.5
|
153.4
|
13.6
|
124.1
|
1,089.6
|
|
Loss allowance
|
-
|
-
|
(3.6)
|
(38.3)
|
(41.9)
|
|
Net trade receivables
|
798.5
|
153.4
|
10.0
|
85.8
|
1,047.7
|
Micro Focus International plc
Notes to the consolidated financial information
continued
11 Trade and other receivables continued
Movements in the Group provision for impairment of trade
receivables were as follows:
|
|
31 October 2019
|
31 October 2018
|
|
|
$m
|
$m
|
|
At 1 November / 1 May (calculated under IAS 39)
|
41.9
|
2.6
|
|
Accounting policy change (IFRS 9 - recognised against retained
earnings on 1 November 2018)
|
20.0
|
-
|
|
Revised 1 November / 1 May
|
61.9
|
2.6
|
|
Loss allowance provided in the period
|
16.0
|
40.0
|
|
Receivables written off as uncollectable
|
(35.5)
|
(0.7)
|
|
At 31 October
|
42.4
|
41.9
|
The creation and release of the loss allowance for receivables have
been included in selling and distribution costs in the consolidated
statement of comprehensive income. Amounts charged in the allowance
account are generally written off when there is no expectation of
recovering additional cash. The Group does not hold any collateral
as security.
The loss allowance for trade receivables is measured at an amount
equal to the life-time expected credit losses as allowed for by
IFRS 9. Prior to the adoption of IFRS 9 on 1 November 2018, trade
receivables were stated net of allowances for estimated
irrecoverable amounts due to the identification of a loss event
(the incurred loss method).
Contract assets relate to amounts not yet due from customers and
contain no amounts past due.
12 Cash and cash equivalents
|
|
|
31 October 2019
|
31 October 2018
|
|
|
Note
|
$m
|
$m
|
|
Cash at bank and in hand
|
|
292.2
|
387.1
|
|
Short-term bank deposits
|
|
63.5
|
236.7
|
|
|
|
355.7
|
623.8
|
|
Reclassification to current assets classified as held for
sale
|
20
|
-
|
(2.9)
|
|
Cash and cash equivalents
|
|
355.7
|
620.9
|
At 31 October 2019 and 31 October 2018, the carrying amount
approximates to the fair value. The Group’s credit risk on
cash and cash equivalents is limited as the counterparties are well
established banks with high credit ratings. The credit quality of
cash and cash equivalents is as follows:
|
|
31 October 2019
|
31 October 2018
|
|
|
$m
|
$m
|
|
S&P/Moody’s/Fitch rating:
|
|
|
|
AAA
|
69.8
|
231.5
|
|
AA-
|
87.6
|
81.0
|
|
A+
|
144.4
|
260.4
|
|
A
|
23.4
|
20.1
|
|
A-
|
14.4
|
3.8
|
|
BBB+
|
1.7
|
4.5
|
|
BBB
|
4.5
|
1.0
|
|
BBB-
|
0.8
|
0.6
|
|
BB+
|
0.8
|
2.0
|
|
BB
|
0.3
|
-
|
|
BB-
|
6.3
|
15.2
|
|
B+
|
0.2
|
-
|
|
CCC+
|
-
|
0.2
|
|
C-
|
-
|
0.3
|
|
Not Rated
|
1.5
|
0.3
|
|
|
355.7
|
620.9
|
Where the opinions of the rating agencies differ, the lowest
applicable rating has been assigned to the
counterparty.
Micro Focus International plc
Notes to the consolidated financial information
continued
13 Trade and other payables – current
|
|
31 October 2019
|
31 October 2018
|
|
|
$m
|
$m
|
|
Trade payables
|
105.0
|
46.1
|
|
Tax and social security
|
80.7
|
46.5
|
|
Accruals
|
425.3
|
584.3
|
|
|
611.0
|
676.9
|
At 31 October 2019 and at 31 October 2018, the carrying amount
approximates to the fair value. At 31 October 2019 accruals include
vacation and payroll – $88.4m (31 October 2018: $147.0m),
commission and employee bonuses - $74.9m (31 October 2018:
$162.7m), integration and divestiture expenses - $26.4m (31 October
2018: $44.5m) and consulting and audit fees - $36.9m (31 October
2018: $30.3m).
14 Borrowings
|
|
31 October 2019
|
31 October 2018
|
|
|
$m
|
$m
|
|
Bank loan secured
|
4,775.0
|
4,996.9
|
|
Unamortised prepaid facility arrangement fees and original issue
discounts
|
(104.3)
|
(151.0)
|
|
|
4,670.7
|
4,845.9
|
|
|
31 October 2019
|
|
31 October 2018
|
|
|
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:
|
$m
|
$m
|
$m
|
|
$m
|
$m
|
$m
|
|
Current liabilities
|
-
|
-
|
-
|
|
50.3
|
(46.6)
|
3.7
|
|
Non-current liabilities
|
4,775.0
|
(104.3)
|
4,670.7
|
|
4,946.6
|
(104.4)
|
4,842.2
|
|
|
4,775.0
|
(104.3)
|
4,670.7
|
|
4,996.9
|
(151.0)
|
4,845.9
|
In April 2019, early repayments totalling $200.0m in total were
made against the existing term loans, utilising some of the
proceeds from the sale of the SUSE business. As a result of this no
further repayments are expected within the next 12 months. The term
of the loans remains unchanged.
The following facilities were drawn as at 31 October
2019:
●
The
$1,414.7m 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
$368.2m 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%;
●
The
$2,486.3m 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%;
and
●
The
€452.8m m (equivalent to $505.8m) 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
2019:
●
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 2019, $nil of the Revolving Facility was drawn together
with $4,775.0m of Term Loans giving gross debt of $4,775.0m 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 2019, no covenant test is
applicable.
Micro Focus International plc
Notes to the consolidated financial information
continued
14 Borrowings continued
The movements on the Group loans in the period were as
follows:
|
|
Term Loan
B-2
|
Term Loan
B-3
|
Seattle Spinco
Term Loan B
|
Euro Term
Loan B
|
Revolving
Facility
|
Total
|
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
|
At 1 May 2017
|
1,515.2
|
-
|
-
|
-
|
80.0
|
1,595.2
|
|
Acquisitions
|
-
|
-
|
2,600.0
|
-
|
-
|
2,600.0
|
|
Draw downs
|
-
|
385.0
|
-
|
523.8
|
135.0
|
1,043.8
|
|
Repayments
|
(11.4)
|
(2.9)
|
(19.5)
|
(4.1)
|
(215.0)
|
(252.9)
|
|
Foreign exchange
|
-
|
-
|
-
|
10.8
|
-
|
10.8
|
|
At 31 October 2018
|
1,503.8
|
382.1
|
2,580.5
|
530.5
|
-
|
4,996.9
|
|
|
|
|
|
|
|
|
|
At 1 November 2018
|
1,503.8
|
382.1
|
2,580.5
|
530.5
|
-
|
4,996.9
|
|
Draw downs
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Repayments
|
(89.1)
|
(13.9)
|
(94.2)
|
(15.4)
|
-
|
(212.6)
|
|
Foreign exchange
|
-
|
-
|
-
|
(9.3)
|
-
|
(9.3)
|
|
At 31 October 2019
|
1,414.7
|
368.2
|
2,486.3
|
505.8
|
-
|
4,775.0
|
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.
Long term borrowings with a carrying value of $4,775.0m before
unamortised prepaid facility fees, have a fair value estimate of
$4,686.0m based on trading prices as at 31 October
2019.
Maturity of borrowings
The maturity profile of the anticipated future cash flows including
interest in relation to the Group’s borrowings on an
undiscounted basis, which therefore, differs from both the carrying
value and fair value, is as follows:
As at 31 October 2019:
|
|
Term Loan B-2
|
Term
Loan B-3
|
Seattle Spinco
Term Loan B
|
Euro Term
Loan B
|
Revolving Facility
|
Total
|
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
|
Within one year
|
61.6
|
17.0
|
114.6
|
14.1
|
1.9
|
209.2
|
|
In one to two years
|
61.5
|
16.9
|
114.3
|
14.6
|
1.9
|
209.2
|
|
In two to three years
|
1,419.8
|
18.5
|
124.1
|
19.3
|
1.6
|
1,583.3
|
|
In three to four years
|
-
|
20.6
|
139.4
|
19.1
|
-
|
179.1
|
|
In four to five years
|
-
|
373.5
|
2,522.6
|
503.6
|
-
|
3,399.7
|
|
In more than five years
|
-
|
-
|
-
|
-
|
-
|
-
|
|
At 31 October 2019
|
1,542.9
|
446.5
|
3,015.0
|
570.7
|
5.4
|
5,580.5
|
|
|
Less than 1 year
|
1-3 years
|
3-5 years
|
After
5 years
|
Total
|
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
|
Debt principal repayment
|
-
|
1,431.7
|
3,343.3
|
-
|
4,775.0
|
|
Interest payment on debt
|
209.2
|
360.6
|
235.7
|
-
|
805.5
|
|
At 31 October 2019
|
209.2
|
1,792.3
|
3,579.0
|
-
|
5,580.5
|
As at 31 October 2018:
|
|
Term Loan B-2
|
Term
Loan B-3
|
Seattle Spinco
Term Loan B
|
Euro Term
Loan B
|
Revolving Facility
|
Total
|
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
|
Within one year
|
84.3
|
22.4
|
151.2
|
20.1
|
1.9
|
279.9
|
|
In one to two years
|
83.8
|
22.2
|
150.2
|
20.0
|
1.9
|
278.1
|
|
In two to three years
|
82.9
|
22.0
|
148.6
|
19.8
|
1.9
|
275.2
|
|
In three to four years
|
1,462.1
|
21.8
|
147.4
|
19.6
|
1.6
|
1,652.5
|
|
In four to five years
|
-
|
21.6
|
146.1
|
19.5
|
-
|
187.2
|
|
In more than five years
|
-
|
374.2
|
2,526.8
|
512.7
|
-
|
3,413.7
|
|
At 31 October 2018
|
1,713.1
|
484.2
|
3,270.3
|
611.7
|
7.3
|
6,086.6
|
Micro Focus International plc
Notes to the consolidated financial information
continued
14 Borrowings continued
|
|
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 payment on debt
|
229.6
|
452.6
|
310.9
|
96.6
|
1,089.7
|
|
At 31 October 2018
|
279.9
|
553.3
|
1,839.7
|
3,413.7
|
6,086.6
|
Assets pledged as collateral
An all assets security has been granted in the US and England &
Wales by certain members of the Micro Focus Group organised in such
jurisdictions, including security over intellectual property rights
and shareholdings of such members of the Micro Focus
Group.
15 Provisions
|
|
31 October 2019
|
31 October 2018
|
|
|
$m
|
$m
|
|
Onerous leases and dilapidations
|
34.2
|
35.1
|
|
Restructuring
|
36.4
|
50.7
|
|
Legal
|
5.7
|
7.0
|
|
Other
|
2.1
|
-
|
|
Total
|
78.4
|
92.8
|
|
|
|
|
|
Current
|
29.3
|
57.4
|
|
Non-current
|
49.1
|
35.4
|
|
Total
|
78.4
|
92.8
|
|
|
|
Onerous leases and dilapidations
|
Restructuring
|
Legal
|
Other
|
Total
|
|
|
Note
|
$m
|
$m
|
$m
|
$m
|
$m
|
|
At 1 November 2018
|
|
35.1
|
50.7
|
7.0
|
-
|
92.8
|
|
|
|
|
|
|
|
|
|
Acquisitions – Interset Software Inc.
|
21
|
-
|
-
|
-
|
0.7
|
0.7
|
|
Additional provision in the period
|
|
19.2
|
49.4
|
5.4
|
2.1
|
76.1
|
|
Released
|
|
(7.4)
|
(19.8)
|
(6.2)
|
-
|
(33.4)
|
|
Utilisation of provision
|
|
(13.9)
|
(43.5)
|
(0.5)
|
(0.7)
|
(58.6)
|
|
Unwinding of discount
|
|
1.1
|
-
|
-
|
-
|
1.1
|
|
Effects of movements in exchange rates
|
|
0.1
|
(0.4)
|
-
|
-
|
(0.3)
|
|
At 31 October 2019
|
|
34.2
|
36.4
|
5.7
|
2.1
|
78.4
|
|
|
|
|
|
|
|
|
|
Current
|
|
9.5
|
12.0
|
5.7
|
2.1
|
29.3
|
|
Non-current
|
|
24.7
|
24.4
|
-
|
-
|
49.1
|
|
Total
|
|
34.2
|
36.4
|
5.7
|
2.1
|
78.4
|
Micro Focus International plc
Notes to the consolidated financial information
continued
15 Provisions continued
|
|
|
Onerous
leases and
dilapidations
|
Restructuring
|
Legal
|
Other
|
Total
|
|
|
Note
|
$m
|
$m
|
$m
|
$m
|
$m
|
|
At 1 May 2017
|
|
16.3
|
12.1
|
3.2
|
0.5
|
32.1
|
|
|
|
|
|
|
|
|
|
Continuing operations:
|
|
|
|
|
|
|
|
Acquisitions – HPE Software business
|
21
|
11.3
|
21.4
|
36.5
|
-
|
69.2
|
|
Additional provision in the period
|
|
17.7
|
133.4
|
1.4
|
-
|
152.5
|
|
Released
|
|
(3.9)
|
(3.7)
|
(4.7)
|
(0.4)
|
(12.7)
|
|
Utilisation of provision
|
|
(5.6)
|
(110.0)
|
(29.3)
|
(0.1)
|
(145.0)
|
|
Effects of movements in exchange rates
|
|
(0.7)
|
(2.5)
|
(0.1)
|
-
|
(3.3)
|
|
|
|
|
|
|
|
|
|
Discontinued operation:
|
|
|
|
|
|
|
|
Additional provision in the period
|
|
2.8
|
0.2
|
-
|
-
|
3.0
|
|
Reclassification of current assets classified as held for
sale
|
20
|
(2.8)
|
(0.2)
|
-
|
-
|
(3.0)
|
|
At 31 October 2018
|
|
35.1
|
50.7
|
7.0
|
-
|
92.8
|
|
|
|
|
|
|
|
|
|
Current
|
|
11.2
|
39.2
|
7.0
|
-
|
57.4
|
|
Non-current
|
|
23.9
|
11.5
|
-
|
-
|
35.4
|
|
Total
|
|
35.1
|
50.7
|
7.0
|
-
|
92.8
|
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. An additional provision of $19.2m was recorded
in the 12 months ended 31 October 2019, mainly across European and
US sites, as the property portfolio was reassessed, including
planned site vacations and a review of obligations to restore
leased property at the end of the lease period.
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.
Restructuring provisions
Restructuring provisions relate to severance resulting from
headcount reductions. The majority of provisions are expected to be
fully utilised within 24 months. Restructuring costs are reported
within exceptional costs (note 3).
Legal provisions
Legal provisions include the directors’ best estimate of the
likely outflow of economic benefits associated with on-going legal
matters. Further information on legal matters can be found in note
19, contingent liabilities.
Other provisions
Other provisions during the 12 months ended 31 October 2019 relate
to interest on uncertain tax provisions of $2.1m. Releases of other
provisions during the 18 months ended 31 October 2018 relate to
future fees no longer considered likely to be
incurred.
Micro Focus International plc
Notes to the consolidated financial information
continued
16 Pension commitments
The Group has established a number of pension schemes around the
world covering many of its employees. The principal funds are those
in the US, UK and Germany. These were funded schemes of the defined
contribution type.
Pension costs for defined contributions schemes are as
follows:
|
|
|
12 months ended
31 October 2019
|
18 months ended
31 October 2018
|
|
Continuing operations
|
|
$m
|
$m
|
|
Defined contribution schemes
|
|
32.7
|
43.3
|
b) Defined benefit
|
|
31 October 2019
|
31 October 2018
|
|
|
$m
|
$m
|
|
Within non-current assets:
|
|
|
|
Long-term pension assets
|
17.1
|
16.7
|
|
Within non-current liabilities:
|
|
|
|
Retirement benefit obligations
|
(141.4)
|
(110.4)
|
The acquisition and subsequent integration of the software segment
of Hewlett Packard Enterprise Company (“HPE Software”)
on September 1, 2017 added 27 defined benefit plans primarily in
France, Germany and Switzerland.
As of 31 October 2019 there are a total of 30 defined benefit plans
in 10 countries around the world (31 October 2018: 30). The highest
concentration of the pension schemes are in Germany, where the
Group sponsors 11 separate schemes that comprise over 85% of the
total net retirement benefit obligation recorded on our
consolidated statement of financial position. Our German schemes
are primarily final salary pension plans, which provide benefits to
members in the form of a guaranteed level of pension payable for
life in the case of retirement, disability and death. The level of
benefits provided depends not only on the final salary but also on
member’s length of service, social security ceiling and other
factors. Although most of these schemes in Germany are funded at
some level, there are no funding requirements in Germany. There are
no requirements for the appointment of independent trustees in
Germany, and all of these schemes are administered locally with the
assistance of German pension experts. Final pension entitlements,
including benefits for death in service and disability amounts, are
calculated by these experts. Plan assets for three of our German
schemes include re-insurance contracts with guaranteed interest
rates, while the majority of the schemes invest in a funds focusing
on equities and debt instruments. Most of our German schemes are
closed to new entrants, however, two of the schemes are open to new
members.
The remainder of the Group’s defined benefit schemes are
comprised of a mix of final salary plans, termination or retirement
indemnity plans and other types of statutory plans that provide a
one-time benefit at termination. Final pension entitlements are
calculated by local administrators in the applicable country. They
also complete calculations for cases of death in service and
disability. 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. Many of the
Group’s plans outside of Germany are funded and the Group
makes at least the minimum contributions required by local
government, funding and taxing authorities. Plan assets for these
schemes include a range of assets including investment funds or
re-insurance contracts. Not all of these plans are closed for new
membership. The Group sponsors 10 plans outside of Germany that are
open to new members, most of which are termination or retirement
indemnity plans or statutory plans providing a one-time benefit at
termination, retirement, death or disability. As a result of the
acquisition of HPE Software, the Group participates in
multi-employer plans in Switzerland and Japan. These plans are
accounted for as defined benefit plans and the Group’s
obligations are limited to the liabilities of our
employees.
Micro Focus International plc
Notes to the consolidated financial information
continued
16 Pension commitments continued
Long-term pension assets
Long-term pension assets relate to the contractual arrangement
under insurance policies held by 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 or beneficiaries
and are subject to the creditors of the Group. Such arrangements
are recorded in the consolidated statement of financial position as
long-term pension assets. These contractual arrangements are
treated as financial assets measured at fair value through other
comprehensive income. Movement in the fair value of long-term
pension assets is included in other comprehensive income. All
non-plan assets are held in Germany.
The movement on the long-term pension asset is as
follows:
|
|
|
31 October 2019
|
31 October 2018
|
|
|
Note
|
$m
|
$m
|
|
As at 1 November / May
|
|
16.7
|
22.0
|
|
Reclassification to assets held for sale
|
|
0.1
|
(1.5)
|
|
Interest on non-plan assets
|
4
|
0.3
|
0.6
|
|
Benefits paid
|
|
(0.1)
|
(0.2)
|
|
Contributions
|
|
0.3
|
0.5
|
|
|
|
|
|
|
Included within other comprehensive income:
|
|
|
|
|
-
Change
in fair value assessment
|
|
0.4
|
(6.1)
|
|
-
Actuarial
gain on non-plan assets
|
|
-
|
0.3
|
|
|
|
0.4
|
(5.8)
|
|
|
|
|
|
|
Effects of movements in exchange rates
|
|
(0.6)
|
1.1
|
|
As at 31 October
|
|
17.1
|
16.7
|
|
|
|
|
|
|
Included within other comprehensive income:
|
|
|
|
|
Continuing operations
|
|
0.3
|
(5.3)
|
|
Discontinued operation
|
|
0.1
|
(0.5)
|
|
|
|
0.4
|
(5.8)
|
The non-plan assets are considered to be Level 3 asset under the
fair value hierarchy as of 31 October 2019. These assets have been
valued by an external insurance expert by applying a discount rate
to the future cash flows and taking into account the fixed interest
rate, mortality rates and term of the insurance contract. There
have been no transfers between levels for the period ended 31
October 2019 (31 October 2018: none).
Retirement benefit obligations
The following amounts have been included in the consolidated
statement of comprehensive income for defined benefit pension
arrangements:
|
|
|
12 months ended
31 October 2019
|
18 months ended
31 October 2018
|
|
|
Note
|
$m
|
$m
|
|
Current service charge
|
|
9.0
|
12.6
|
|
Past service credit
|
|
-
|
(5.5)
|
|
Charge to operating profit
|
|
9.0
|
7.1
|
|
|
|
|
|
|
Current service charge – discontinued operations
|
|
0.1
|
0.3
|
|
|
|
|
|
|
Interest on pension scheme liabilities
|
|
4.2
|
5.2
|
|
Interest on pension scheme assets
|
|
(1.8)
|
(2.4)
|
|
Charge to finance costs
|
4
|
2.4
|
2.8
|
|
|
|
|
|
|
Total continuing charge to profit for the period
|
|
11.5
|
10.2
|
Past service credits are the result of headcount reductions under
the Group’s restructuring and integration activities relating
to the acquisition of the HPE Software business (note
21).
The contributions for the year ended 31 October 2020 are expected
to be broadly in line with the 12 months to 31 October 2019. The
Group funds the schemes so that it makes at least the minimum
contributions required by local government, funding and taxing
authorities.
Micro Focus International plc
Notes to the consolidated financial information
continued
16 Pension commitments continued
The following amounts have been recognised as movements in the
statement of other comprehensive income:
|
|
12 months ended
31 October 2019
|
18 months ended
31 October 2018
|
|
|
$m
|
$m
|
|
Actuarial return on assets excluding amounts included in interest
income
|
5.9
|
0.6
|
|
|
|
|
|
Re-measurements – actuarial gains/(losses):
|
|
|
|
-
Demographic
|
(1.6)
|
0.3
|
|
-
Financial
|
(38.8)
|
(11.1)
|
|
-
Experience
|
8.4
|
1.9
|
|
|
(32.0)
|
(8.9)
|
|
|
|
|
|
Reclassification from defined contribution scheme to defined
benefit scheme
|
-
|
(2.1)
|
|
|
|
|
|
Movement in the period
|
(26.1)
|
(10.4)
|
|
|
|
|
|
Continuing operations
|
(26.2)
|
(8.9)
|
|
Discontinued operation
|
0.1
|
(1.5)
|
|
|
(26.1)
|
(10.4)
|
The weighted average key assumptions used for the valuation of the
schemes were:
|
|
31 October 2019
|
|
31 October 2018
|
|
|
Germany
|
Rest of World
|
Total
|
|
Germany
|
Rest of World
|
Total
|
|
Rate of increase in final pensionable salary
|
2.50%
|
3.09%
|
2.65%
|
|
2.50%
|
2.75%
|
2.61%
|
|
Rate of increase in pension payments
|
1.75%
|
1.50%
|
1.75%
|
|
2.00%
|
1.50%
|
1.99%
|
|
Discount rate
|
1.09%
|
1.71%
|
1.20%
|
|
1.83%
|
2.14%
|
1.92%
|
|
Inflation
|
1.75%
|
1.16%
|
1.69%
|
|
2.00%
|
1.26%
|
1.89%
|
During the 12 months ended 31 October 2019, the model used to
derive our discount rates was updated to better reflect yields on
corporate bonds over the life of our schemes. The key difference in
the revised model lies in the extrapolation of yields in the
outlying years of the curve and uses AA government bond rates to
determine these yields. This change resulted in a decrease in our
defined benefit obligation of approximately $14.0m. The old and
revised models are both considered standard models devised by our
external consolidating actuary.
The mortality assumptions for the German schemes are set based on
the ‘Richttafeln 2018 G’ by Prof. Dr. Klaus Heubeck.
The mortality assumptions for the remaining schemes are set based
on actuarial advice in accordance with published statistics and
experience in each territory.
These assumptions translate into a weighted average life expectancy
in years for a pensioner retiring at age 65:
|
|
31 October 2019
|
|
31 October 2018
|
|
|
Germany
|
Rest of World
|
Total
|
|
Germany
|
Rest of World
|
Total
|
|
Retiring at age 65 at the end of the reporting period:
|
|
|
|
|
|
|
|
|
Male
|
20
|
20
|
20
|
|
20
|
20
|
20
|
|
Female
|
23
|
23
|
23
|
|
23
|
23
|
23
|
|
|
|
|
|
|
|
|
|
|
Retiring 15 years after the end of the reporting
period:
|
|
|
|
|
|
|
|
|
Male
|
22
|
23
|
22
|
|
22
|
22
|
22
|
|
Female
|
25
|
26
|
25
|
|
25
|
25
|
25
|
The net liability included in the consolidated statement of
financial position arising from obligations in respect of defined
benefit schemes is as follows:
|
|
31 October 2019
|
|
31 October 2018
|
|
|
Germany
|
Rest of World
|
Total
|
|
Germany
|
Rest of World
|
Total
|
|
Present value of defined benefit obligations
|
213.5
|
48.0
|
261.5
|
|
173.8
|
47.4
|
221.2
|
|
Fair values of plan assets
|
(92.0)
|
(28.1)
|
(120.1)
|
|
(82.1)
|
(28.7)
|
(110.8)
|
|
|
121.5
|
19.9
|
141.4
|
|
91.7
|
18.7
|
110.4
|
Micro Focus International plc
Notes to the consolidated financial information
continued
16 Pension commitments continued
The defined benefit obligation has moved as follows:
|
|
31 October 2019
|
|
|
Germany
|
Rest of World
|
Total
|
|
Defined benefit obligations
|
Defined benefit obligations
|
Scheme
assets
|
Retirement benefit obligations
|
Defined benefit obligations
|
Scheme assets
|
Retirement benefit obligations
|
Defined benefit obligations
|
Scheme assets
|
Retirement benefit obligations
|
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
|
At 1 November 2018
|
173.8
|
(82.1)
|
91.7
|
47.4
|
(28.7)
|
18.7
|
221.2
|
(110.8)
|
110.4
|
|
Reclassification to assets held for sale
|
0.3
|
-
|
0.3
|
0.2
|
(0.2)
|
-
|
0.5
|
(0.2)
|
0.3
|
|
Current service cost
|
6.0
|
-
|
6.0
|
3.1
|
-
|
3.1
|
9.1
|
-
|
9.1
|
|
Past service credit
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Benefits paid
|
(0.4)
|
0.3
|
(0.1)
|
(4.2)
|
4.1
|
(0.1)
|
(4.6)
|
4.4
|
(0.2)
|
|
Contributions by plan participants
|
1.5
|
(1.5)
|
-
|
0.3
|
(0.3)
|
-
|
1.8
|
(1.8)
|
-
|
|
Contribution by employer
|
-
|
(0.3)
|
(0.3)
|
-
|
(4.2)
|
(4.2)
|
-
|
(4.5)
|
(4.5)
|
|
Interest cost/(income)
(note 4)
|
3.1
|
(1.5)
|
1.6
|
1.1
|
(0.3)
|
0.8
|
4.2
|
(1.8)
|
2.4
|
|
|
|
|
|
|
|
|
|
|
|
|
Included within other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
Re-measurements - actuarial (gains) and losses:
|
|
|
|
|
|
|
|
|
|
|
- Demographic
|
1.6
|
-
|
1.6
|
-
|
-
|
-
|
1.6
|
-
|
1.6
|
|
-
Financial
|
34.0
|
-
|
34.0
|
4.8
|
-
|
4.8
|
38.8
|
-
|
38.8
|
|
- Experience
|
(3.2)
|
-
|
(3.2)
|
(5.2)
|
-
|
(5.2)
|
(8.4)
|
-
|
(8.4)
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial return on assets excluding amounts included in interest
income
|
-
|
(8.0)
|
(8.0)
|
-
|
2.1
|
2.1
|
-
|
(5.9)
|
(5.9)
|
|
|
32.4
|
(8.0)
|
24.4
|
(0.4)
|
2.1
|
1.7
|
32.0
|
(5.9)
|
26.1
|
|
Effects of movements in exchange rates
|
(3.2)
|
1.1
|
(2.1)
|
0.5
|
(0.6)
|
(0.1)
|
(2.7)
|
0.5
|
(2.2)
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 October 2019
|
213.5
|
(92.0)
|
121.5
|
48.0
|
(28.1)
|
19.9
|
261.5
|
(120.1)
|
141.4
|
Micro Focus International plc
Notes to the consolidated financial information
continued
16 Pension commitments continued
|
|
31 October 2018
|
|
|
Germany
|
Rest of World
|
Total
|
|
Defined benefit
obligations
|
Defined benefit
obligations
|
Scheme
assets
|
Retirement
benefit
obligations
|
Defined
benefit
obligations
|
Scheme
assets
|
Retirement
benefit
obligations
|
Defined
benefit
obligations
|
Scheme
assets
|
Retirement
benefit
obligations
|
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
|
At 1 May 2017
|
36.5
|
(5.7)
|
30.8
|
-
|
-
|
-
|
36.5
|
(5.7)
|
30.8
|
|
HPE Software business acquisition
|
121.1
|
(77.0)
|
44.1
|
60.4
|
(33.0)
|
27.4
|
181.5
|
(110.0)
|
71.5
|
|
Reclassification to assets held for sale
|
(4.8)
|
0.7
|
(4.1)
|
(4.3)
|
2.9
|
(1.4)
|
(9.1)
|
3.6
|
(5.5)
|
|
Current service cost
|
7.7
|
-
|
7.7
|
5.2
|
-
|
5.2
|
12.9
|
-
|
12.9
|
|
Past service credit
|
(0.8)
|
-
|
(0.8)
|
(4.7)
|
-
|
(4.7)
|
(5.5)
|
-
|
(5.5)
|
|
Benefits paid
|
(0.3)
|
0.1
|
(0.2)
|
(9.3)
|
9.3
|
-
|
(9.6)
|
9.4
|
(0.2)
|
|
Contributions by plan participants
|
1.5
|
(1.5)
|
-
|
1.0
|
(0.8)
|
0.2
|
2.5
|
(2.3)
|
0.2
|
|
Contribution by employer
|
-
|
(0.1)
|
(0.1)
|
-
|
(3.9)
|
(3.9)
|
-
|
(4.0)
|
(4.0)
|
|
Interest cost/(income)
(note 4)
|
4.0
|
(2.0)
|
2.0
|
1.2
|
(0.4)
|
0.8
|
5.2
|
(2.4)
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
Included within other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
Re-measurements - actuarial (gains) and losses:
|
|
|
|
|
|
|
|
|
|
|
–
Demographic
|
(0.1)
|
-
|
(0.1)
|
(0.2)
|
-
|
(0.2)
|
(0.3)
|
-
|
(0.3)
|
|
–
Financial
|
13.8
|
-
|
13.8
|
(2.7)
|
-
|
(2.7)
|
11.1
|
-
|
11.1
|
|
–
Experience
|
0.5
|
-
|
0.5
|
(2.4)
|
-
|
(2.4)
|
(1.9)
|
-
|
(1.9)
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial return on assets excluding amounts included in interest
income
|
-
|
(0.2)
|
(0.2)
|
-
|
(0.4)
|
(0.4)
|
-
|
(0.6)
|
(0.6)
|
|
Reclassification from defined contribution scheme to defined
benefit scheme
|
-
|
-
|
-
|
5.5
|
(3.4)
|
2.1
|
5.5
|
(3.4)
|
2.1
|
|
|
14.2
|
(0.2)
|
14.0
|
0.2
|
(3.8)
|
(3.6)
|
14.4
|
(4.0)
|
10.4
|
|
Effects of movements in exchange rates
|
(5.3)
|
3.6
|
(1.7)
|
(2.3)
|
1.0
|
(1.3)
|
(7.6)
|
4.6
|
(3.0)
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 October 2018
|
173.8
|
(82.1)
|
91.7
|
47.4
|
(28.7)
|
18.7
|
221.2
|
(110.8)
|
110.4
|
Micro Focus International plc
Notes to the consolidated financial information
continued
16 Pension commitments continued
None of the plan assets are represented by financial instruments of
the Group. None of the plan assets are occupied or used by the
Group. The major categories of the plan assets are as
follows:
|
|
31 October 2019
|
|
|
Germany
|
Rest of World
|
Total
|
|
|
Quoted
|
Unquoted
|
Total
|
Quoted
|
Unquoted
|
Total
|
Quoted
|
Unquoted
|
Total
|
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
|
Funds that invest in:
|
|
|
|
|
|
|
|
|
|
|
- Equity instruments
|
39.8
|
-
|
39.8
|
-
|
5.5
|
5.5
|
39.8
|
5.5
|
45.3
|
|
- Debt instruments
|
46.6
|
-
|
46.6
|
3.0
|
6.0
|
9.0
|
49.6
|
6.0
|
55.6
|
|
- Real estate
|
-
|
-
|
-
|
-
|
3.1
|
3.1
|
-
|
3.1
|
3.1
|
|
Cash and cash equivalents
|
-
|
-
|
-
|
-
|
1.7
|
1.7
|
-
|
1.7
|
1.7
|
|
Re-insurance contracts with guaranteed interest rates
*
|
-
|
5.6
|
5.6
|
-
|
-
|
-
|
-
|
5.6
|
5.6
|
|
Other
|
-
|
-
|
-
|
-
|
8.8
|
8.8
|
-
|
8.8
|
8.8
|
|
Total
|
86.4
|
5.6
|
92.0
|
3.0
|
25.1
|
28.1
|
89.4
|
30.7
|
120.1
|
|
|
31 October 2018
|
|
|
Germany
|
Rest of World
|
Total
|
|
|
Quoted
|
Unquoted
|
Total
|
Quoted
|
Unquoted
|
Total
|
Quoted
|
Unquoted
|
Total
|
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
|
Funds that invest in:
|
|
|
|
|
|
|
|
|
|
|
- Equity instruments
|
42.3
|
-
|
42.3
|
7.6
|
1.6
|
9.2
|
49.9
|
1.6
|
51.5
|
|
- Debt instruments
|
34.3
|
-
|
34.3
|
3.1
|
5.1
|
8.2
|
37.4
|
5.1
|
42.5
|
|
- Real estate
|
-
|
-
|
-
|
2.0
|
0.1
|
2.1
|
2.0
|
0.1
|
2.1
|
|
Cash and cash equivalents
|
-
|
-
|
-
|
-
|
2.3
|
2.3
|
-
|
2.3
|
2.3
|
|
Re-insurance contracts with guaranteed interest rates
*
|
-
|
5.5
|
5.5
|
-
|
-
|
-
|
-
|
5.5
|
5.5
|
|
Other
|
-
|
-
|
-
|
-
|
6.9
|
6.9
|
-
|
6.9
|
6.9
|
|
Total
|
76.6
|
5.5
|
82.1
|
12.7
|
16.0
|
28.7
|
89.3
|
21.5
|
110.8
|
* The majority of the re-insurance contracts have guaranteed
interest rates of 4.0%, with the remaining at 3.25% or
2.75%.
Risk Management
Through its defined benefit schemes the Group is exposed to a
number of risks, the most significant of which are detailed
below:
– Changes in bond yields – A decrease in corporate bond
yields will increase the Group’s IAS 19 plan liabilities,
although this will be partially offset by increases in the value of
scheme assets.
– Inflation – Some of the Group pension obligations are
linked to inflation, and higher inflation will lead to higher
liabilities.
– Life expectancy – The majority of the plan
obligations are to provide benefits over the life of the member, so
increases in life expectancy will result in an increase in the plan
liabilities as benefits would be paid over a longer
period.
– Asset returns – Returns on plan assets are subject to
volatility and may not move in line with plan liabilities. The
Group ensures that the investment positions are managed within an
asset liability matching (“ALM”) to achieve long-term
investments that are in line with the obligations under the pension
schemes. Within this framework the Group’s objective is to
match assets to the pension obligations by investing in assets that
match the benefit payments as they fall due and in the appropriate
currency.
Micro Focus International plc
Notes to the consolidated financial information
continued
16 Pension commitments continued
Sensitivities
The table below provides information on the sensitivity of the
defined benefit obligation to changes to the most significant
actuarial assumptions. The table shows the impact of changes to
each assumption in isolation, although, in practice, changes to
assumptions may occur at the same time and can either offset or
compound the overall impact on the defined benefit
obligation.
These sensitivities have been calculated using the same methodology
as used for the main calculations. The weighted average duration of
the defined benefit obligation is 25 years for Germany and 14 years
for all other schemes.
|
|
Germany
|
Rest of World
|
|
|
Change in assumption
|
Change in defined benefit obligation
|
Change in assumption
|
Change in defined benefit obligation
|
|
Discount rate for scheme liabilities
|
0.50%
|
(11.5%)
|
0.50%
|
(6.7%)
|
|
Price inflation
|
0.25%
|
3.8%
|
0.25%
|
0.9%
|
|
Salary growth rate
|
0.50%
|
1.0%
|
0.50%
|
3.6%
|
|
Life expectancy
|
1 year
|
3.7%
|
1 year
|
1.3%
|
17 Share capital
Ordinary shares at 10 pence each as at 31 October 2019 (31 October
2018: 10 pence each)
|
|
|
31 October 2019
|
|
31 October 2018
|
|
|
Note
|
Shares
|
$m
|
|
Shares
|
$m
|
|
Issued and fully paid
|
|
|
|
|
|
|
|
At 1 November / 1 May
|
|
436,800,513
|
65.8
|
|
229,674,479
|
39.7
|
|
Shares issued to satisfy option awards
|
|
6,109,091
|
0.1
|
|
1,894,673
|
0.2
|
|
Shares utilised to satisfy option awards
|
|
(4,804,817)
|
-
|
|
-
|
-
|
|
Share reorganisation
|
|
(74,521,459)
|
(18.7)
|
|
(16,935,536)
|
(2.9)
|
|
Shares issued relating to acquisition of the HPE Software
business
|
21
|
-
|
-
|
|
222,166,897
|
28.8
|
|
At 31 October
|
|
363,583,328
|
47.2
|
|
436,800,513
|
65.8
|
“B” shares at 335.859391 pence each (31 October 2018:
168 pence each)
|
|
31 October 2019
|
|
31 October 2018
|
|
|
Shares
|
$m
|
|
Shares
|
$m
|
|
Issued and fully paid
|
|
|
|
|
|
|
At 1 November / 1 May
|
-
|
-
|
|
-
|
-
|
|
Issue
of B shares
|
413,784,754
|
1,800.0
|
|
229,799,802
|
500.0
|
|
Redemption of B shares
|
(413,784,754)
|
(1,800.0)
|
|
(229,799,802)
|
(500.0)
|
|
At 31 October
|
-
|
-
|
|
-
|
-
|
Deferred D Shares at 10 pence each
|
|
31 October 2019
|
|
31 October 2018
|
|
|
Shares
|
$m
|
|
Shares
|
$m
|
|
Issued and fully paid
|
|
|
|
|
|
|
At 1 November / 1 May
|
-
|
-
|
|
-
|
-
|
|
Issue
of Deferred shares
|
74,521,459
|
-
|
|
-
|
-
|
|
Redemption of Deferred shares
|
(74,521,459)
|
-
|
|
-
|
-
|
|
At 31 October
|
-
|
-
|
|
-
|
-
|
Share issuances during the 12 months to 31 October
2019
In the 12 months to 31 October 2019, 6,109,091
ordinary shares of 10 pence
each (18 months to 31 October 2018: 1,894,673 ordinary shares of 10
pence) were issued and 4,804,817 treasury shares were utilised by
the Company to settle exercised share options. The gross
consideration received in the 12 months to 31 October 2019 was
$3.1m (18 months to 31 October 2018: $5.8m). 222,166,897 ordinary
shares of 10 pence
each were issued by the Company as consideration for the
acquisition of the HPE Software business in the 18 months ended 31
October 2018 (note 21).
At
31 October 2019, 30,200,905 treasury shares were held (31 October
2018: 9,858,205) such that the number of ordinary shares with
voting rights was 333,382,423 (31 October 2018: 426,942,308) and
the number of listed shares at 31 October 2019 was 363,583,328 (31
October 2018: 436,800,513).
Potential issues of shares
Certain
employees hold options to subscribe for shares in the Company at
prices ranging from nil pence to 1,963.00 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 2019 was
14,533,973 (31 October 2018: 18,156,060).
Micro Focus International plc
Notes to the consolidated financial information
continued
17 Share capital continued
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 a total value of $400m (including
the initial tranche). On 14 February 2019, the buy-back programme
was extended into a third tranche of up to $110m up until the day
before the AGM which took 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
expired.
On 17 July 2019, the Company announced a new share buy-back
programme with an initial tranche of up to $200m. The Programme was
effected in accordance with the terms of the authority granted by
shareholders at the 2019 AGM and the Listing Rules. On 3 October
2019, the Company completed the $200m share buy-back programme. The
total amount bought back under share buy-back programmes was
$710.0m, excluding expenses.
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.
Shares bought back under these programmes are held as treasury
shares. Treasury share movements and share buy-back costs are shown
below:
|
|
12 months ended
31 October 2019
|
18 months ended
31 October 2018
|
Total
|
|
Treasury shares
|
Number
|
Number
|
Number
|
|
Share buy-backs
|
29,160,054
|
9,858,205
|
39,018,259
|
|
Shares issued to satisfy option awards
|
(4,804,817)
|
-
|
(4,804,817)
|
|
Share reorganisation
|
(4,012,537)
|
-
|
(4,012,537)
|
|
|
20,342,700
|
9,858,205
|
30,200,905
|
|
|
|
|
|
|
Share buy-backs numbers:
|
|
|
|
|
Ordinary shares bought on the London Stock Exchange
|
25,766,919
|
8,567,659
|
34,334,578
|
|
ADRs purchased on the New York Stock Exchange
|
3,393,135
|
1,290,546
|
4,683,681
|
|
|
29,160,054
|
9,858,205
|
39,018,259
|
|
|
|
|
|
|
Share buy-back cost:
|
$m
|
$m
|
$m
|
|
Share buy-back cost
|
538.8
|
171.2
|
710.0
|
|
Expenses
|
5.9
|
0.5
|
6.4
|
|
|
544.7
|
171.7
|
716.4
|
The weighted average price of shares bought back in the 12 months
ended 31 October 2019 was £14.61 per share (18 months ended 31
October 2018 was £13.82 per share).
Return of Value
On 29 April 2019, a Return of Value was made to shareholders
amounting to $1,800.0m (£1,389.7m) in cash (335.89 pence per
existing Ordinary Share and American Depositary Shares
(“ADS”) held at the Record Time of 6.00 pm on 29 April
2019). The Return of Value was approved by shareholders on 29 April
2019. The Return of Value was effected through an issue and
redemption of B shares and resulted in a $1,800.0m increase in
capital redemption reserve and a $1,800.0m reduction in the merger
reserve. 413,784,754 “B” shares were issued at
335.859391 pence each, resulting in a total $1,800.0m being
credited to the “B” share liability account.
Subsequently and on the same date, 413,784,754 “B”
shares were redeemed at 335.859391pence each and an amount of
$1,800.0m was debited from the “B share liability account.
The Group entered into a forward exchange contract to protect the
Company from any foreign exchange movement and the resulting
payment to shareholders of $1,800.0m incurred net transaction costs
of $1.0m. The Return of Value was accompanied by a 0.8296 share
consolidation and the share consolidation resulted in the issue of
D deferred shares which were subsequently bought back for 1 pence,
resulting in a transfer of $18.7m to the capital redemption
reserve. The settlement date was 13 May 2019 for the Ordinary
Shares.
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.
229,799,802 “B” shares were issued at 168 pence each,
resulting in a total $500.0m being credited to the “B”
share liability account. Subsequently and on the same date,
229,799,802 “B” shares were redeemed at 168 pence each
and an amount of $500.0m was debited from the “B share
liability account. The 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 (note 18) to the capital
redemption reserve.
Micro Focus International plc
Notes to the consolidated financial information
continued
18 Other reserves
|
|
|
Capital redemption reserve
|
Merger
reserve
|
Hedging reserve
|
Total
|
|
|
Note
|
$m
|
$m
|
$m
|
$m
|
|
|
|
|
|
|
|
|
As at 1 May 2017
|
|
163.4
|
338.1
|
-
|
501.5
|
|
Return of Value - share consolidation
|
17
|
2.9
|
-
|
-
|
2.9
|
|
Return of Value - issue and redemption of B shares
|
17
|
500.0
|
(343.3)
|
-
|
156.7
|
|
Hedge accounting1
|
|
-
|
-
|
86.4
|
86.4
|
|
Current tax movement on hedging1
|
|
-
|
-
|
(16.4)
|
(16.4)
|
|
Acquisition of the HPE Software business2
|
21
|
-
|
6,485.4
|
-
|
6,485.4
|
|
Reallocation of merger reserve 3
|
|
-
|
(2,755.8)
|
-
|
(2,755.8)
|
|
As at 31 October 2018
|
|
666.3
|
3,724.4
|
70.0
|
4,460.7
|
|
As at 1 November 2018
|
|
666.3
|
3,724.4
|
70.0
|
4,460.7
|
|
|
Return of Value - share consolidation
|
17
|
18.7
|
-
|
-
|
18.7
|
|
|
Return of Value - issue and redemption of B shares
|
17
|
1,800.0
|
(1,800.0)
|
-
|
-
|
|
|
Hedge accounting1
|
|
-
|
-
|
(122.9)
|
(122.9)
|
|
|
Current tax movement on hedging1
|
|
-
|
-
|
23.3
|
23.3
|
|
|
Reallocation of merger reserve 3
|
|
|
(184.6)
|
-
|
(184.6)
|
|
|
As at 31 October 2019
|
|
2,485.0
|
1,739.8
|
(29.6)
|
4,195.2
|
|
1 Hedging
reserve
A debit of $99.6m was recognised in the hedging reserve in relation
to hedging transactions entered into in the 12 months ended 31
October 2019 (18 months ended 31 October 2018: $70.0m
credit).
2 Acquisition of HPE
Software
On 1 September 2017, the acquisition of the HPE Software business
was completed (note 21). 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).
3 Reallocation of merger
reserve
In the 12 months ended 31 October 2019, an amount of $184.6m was
transferred from the merger reserve to retained earnings. The
merger reserve is an unrealised profit until it can be realised by
the settlement of the intercompany loan by qualifying
consideration. In the 18 months ended 31 October 2018, it was
disclosed that $2,755.8m of the merger reserve would be settled in
the period. However, as at 31 October 2019, only $2,540.4m of the
balance was settled as the balance of $215.4m was not required for
any Returns of Value to shareholders. However, the remaining
$215.4m and an additional $184.6m is expected to be settled in
qualifying consideration during the year ended 31 October 2020 (18
months ended 31 October 2018: $2,540.4m) and as such an equivalent
proportion of the merger reserve is considered realised, in
accordance with section 3.11(d) of Tech 02/17 and therefore has
been transferred to retained earnings.
Micro Focus International plc
Notes to the consolidated financial information
continued
19 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.
Patent litigation
Several indirect subsidiaries of Micro Focus International plc are
involved in a patent infringement lawsuit in which plaintiffs
allege that certain Micro Focus ADM software products infringe
three patents in the field of mobile application development and
testing. Plaintiffs are seeking monetary damages in an amount
that has yet to be specified. No liability has been recognised
in these cases as they are still at an early stage in proceedings,
and it is too soon to estimate whether there will be any financial
impact.
20 Discontinued operation, assets classified as held for sale and
disposals
Net Assets classified as held for sale
There are no disposal groups classified as held for sale in the
current period. At 31 October 2018, the assets and liabilities
relating to the SUSE and Atalla businesses were presented as held
for sale.
|
|
31 October 2019
|
31 October 2018
|
|
Reported in:
|
Current
Assets
|
Current
liabilities
|
Total
|
Current
assets
|
Current
liabilities
|
Total
|
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
|
SUSE
|
-
|
-
|
-
|
1,114.5
|
(427.4)
|
687.1
|
|
Atalla
|
-
|
-
|
-
|
28.0
|
(10.3)
|
17.7
|
|
|
-
|
-
|
-
|
1,142.5
|
(437.7)
|
704.8
|
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.
On 2 July 2018, the Group announced the proposed sale of the SUSE
business segment to Blitz 18-679 GmbH (subsequently renamed to
Marcel Bidco GmbH), a newly incorporated directly wholly owned
subsidiary of EQTVIII SCSp, which is advised by EQT Partners. The
total cash consideration of $2.5bn was 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 agreed to sell its SUSE business
segment to Marcel Bidco GmbH, for a total cash consideration of
approximately $2.5bn, subject to customary closing adjustments.
Following this vote, all applicable antitrust, competition, merger
control and governmental clearances was obtained. The sale was
completed on 15 March 2019 and the SUSE business segment has been
treated as discontinued in these Preliminary results.
Discontinued operation – Financial performance
|
|
12 months ended
31 October 2019
|
18 months ended
31 October 2018
|
|
|
Before
Exceptional
Items
|
Exceptional
Items
|
Total
|
Total
|
|
|
$m
|
$m
|
$m
|
$m
|
|
Revenue
|
127.0
|
-
|
127.0
|
538.2
|
|
Operating costs
|
(89.3)
|
-
|
(89.3)
|
(425.3)
|
|
Operating profit
|
37.7
|
-
|
37.7
|
112.9
|
|
Share of results of associate
|
(0.3)
|
-
|
(0.3)
|
(1.8)
|
|
Profit on disposal of the SUSE business
|
-
|
1,767.9
|
1,767.9
|
-
|
|
Profit before taxation
|
37.4
|
1,767.9
|
1,805.3
|
111.1
|
|
Taxation
|
(8.7)
|
(309.4)
|
(318.1)
|
(34.2)
|
|
Profit for the period from discontinued operation
|
28.7
|
1,458.5
|
1,487.2
|
76.9
|
Micro Focus International plc
Notes to the consolidated financial information
continued
20 Discontinued operation, assets classified as held for sale and
disposals continued
A.
SUSE Business
continued
Discontinued operation – Cash flow
The cash flow statement shows amounts related to the discontinued
operations:
|
|
12 months ended
31 October 2019
|
18 months ended
31 October 2018
|
|
|
$m
|
$m
|
|
Net cash inflows from operating activities
|
18.6
|
136.1
|
|
Net cash outflows from investing activities
|
-
|
(2.5)
|
|
Net cash flows from financing activities
|
-
|
-
|
The assets and liabilities relating to SUSE were presented as held
for sale following the shareholder approval on 21 August 2018.
Costs to sell have been included in trade and other
payables.
|
|
|
31 October 2019
|
31 October 2018
|
|
|
Note
|
$m
|
$m
|
|
Non-current assets
|
|
|
|
|
Goodwill
|
9
|
-
|
859.6
|
|
Other Intangible assets
|
10
|
-
|
165.6
|
|
Property, plant and equipment
|
|
-
|
5.7
|
|
Investment in associates
|
|
-
|
9.6
|
|
Deferred tax assets
|
|
-
|
1.6
|
|
Long-term pension assets
|
16
|
-
|
1.5
|
|
Other non-current assets
|
|
-
|
2.2
|
|
|
|
-
|
1,045.8
|
|
Current assets
|
|
|
|
|
Trade and other receivables
|
|
-
|
65.8
|
|
Cash and cash equivalents
|
|
-
|
2.9
|
|
|
|
-
|
68.7
|
|
Total assets held for sale
|
|
-
|
1,114.5
|
|
Current liabilities
|
|
|
|
|
Trade and other payables
|
|
-
|
(38.0)
|
|
Provisions
|
15
|
-
|
(0.7)
|
|
Current tax liabilities
|
|
-
|
(1.2)
|
|
Deferred income
|
|
-
|
(218.3)
|
|
|
|
-
|
(258.2)
|
|
Non-current liabilities
|
|
|
|
|
Deferred income
|
|
-
|
(160.8)
|
|
Retirement benefit obligations
|
16
|
-
|
(5.5)
|
|
Long-term provisions
|
15
|
-
|
(2.3)
|
|
Other non-current liabilities
|
|
-
|
(0.6)
|
|
|
|
-
|
(169.2)
|
|
Total liabilities held for sale
|
|
-
|
(427.4)
|
|
Net assets classified as held for sale
|
|
-
|
687.1
|
Disposal of the SUSE business
On 15 March 2019, the Group disposed of the SUSE business for
$2,540.3m. Details of net assets disposed of and the profit on
disposal are as follows:
|
|
Carrying value pre-disposal
|
|
|
$m
|
|
Non-current assets classified as held for sale
|
989.8
|
|
Current assets classified as held for sale
|
127.3
|
|
Current liabilities classified as held for sale
|
(288.5)
|
|
Non-current liabilities classified as held for sale
|
(177.3)
|
|
Net assets disposed
|
651.3
|
Micro Focus International plc
Notes to the consolidated financial information
continued
20 Discontinued operation, assets classified as held for sale and
disposals continued
A.
SUSE Business
continued
The profit on disposal is calculated as follows:
|
|
$m
|
|
Disposal proceeds
|
2,540.3
|
|
Costs to sell recognised in the period
|
(45.3)
|
|
Disposal proceeds, less costs to sell recognised in the
period
|
2,495.0
|
|
Net assets disposed
|
(651.3)
|
|
Profit on disposal
|
1,843.7
|
|
Cumulative exchange gain in respect of the net assets of the
subsidiaries, reclassified from equity on disposal
|
(75.8)
|
|
Profit on disposal
|
1,767.9
|
The profit on disposal is reflected in the profit for the period
from discontinued operations in the Consolidated statement of
comprehensive income. All cash flows occurred in the current
period.
The inflow of cash and cash equivalents on the disposal of the SUSE
business is calculated as follows:
|
|
$m
|
|
Disposal proceeds, less total costs to sell
|
2,495.0
|
|
Cash disposed
|
(21.5)
|
|
Investing cash flows generated from discontinued operations, net of
cash disposed
|
2,473.5
|
On 18 May 2018 the Company entered into an agreement with Utimaco
Inc. (“Utimaco”), under which Utimaco would acquire
Atalla for $20m 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 information at 31 October 2018 amount to
$17.7m.
|
|
|
31 October 2019
|
31 October 2018
|
|
|
|
$m
|
$m
|
|
Goodwill
|
9
|
-
|
27.9
|
|
Property, plant and equipment
|
|
-
|
0.1
|
|
Non-current assets
|
|
-
|
28.0
|
|
|
|
|
|
|
Deferred income
|
|
-
|
(10.3)
|
|
Current Liabilities
|
|
-
|
(10.3)
|
|
|
|
|
|
|
Net assets classified as held for sale
|
|
-
|
17.7
|
On 5 November 2018, the Group disposed of the Atalla business for a
net cash consideration of $20.0m. Details of net assets disposed of
and the profit on disposal are as follows:
|
|
Carrying value pre-disposal
|
|
|
$m
|
|
Goodwill
|
28.0
|
|
Property, plant and equipment
|
0.3
|
|
Non-current assets
|
28.3
|
|
Deferred income
|
(12.0)
|
|
Current liabilities
|
(12.0)
|
|
Net assets disposed
|
16.3
|
The profit on disposal which has been recorded as exceptional (note
3) is calculated as follows:
|
|
$m
|
|
Disposal proceeds
|
20.0
|
|
Net assets disposed
|
(16.3)
|
|
Profit on disposal
|
3.7
|
Micro Focus International plc
Notes to the consolidated financial information
continued
21 Acquisitions
Summary of acquisitions
|
|
|
|
|
Consideration
|
|
|
Carrying value at acquisition
|
Fair value adjustments
|
Goodwill
|
Shares
|
Cash
|
Total
|
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
|
|
|
|
|
|
|
|
|
Acquisitions in the 12 months ended
31 October 2019:
|
|
|
|
|
|
|
|
Interset software Inc.
|
0.9
|
61.3
|
26.8
|
-
|
89.0
|
89.0
|
|
|
0.9
|
61.3
|
26.8
|
-
|
89.0
|
89.0
|
|
|
|
|
|
|
|
|
|
Acquisitions in the 18 months ended
31 October 2018:
|
|
|
|
|
|
|
|
HPE Software business
|
(2,487.8)
|
4,143.7
|
4,858.3
|
6,514.2
|
-
|
6,514.2
|
|
COBOL-IT
|
(3.0)
|
14.0
|
5.6
|
-
|
16.7
|
16.7
|
|
|
(2,490.8)
|
4,157.7
|
4,863.9
|
6,514.2
|
16.7
|
6,530.9
|
|
|
|
|
|
|
|
|
|
|
(2,489.8)
|
4,219.0
|
4,890.7
|
6,514.2
|
105.7
|
6,619.9
|
Acquisitions in the 12 months ended 31 October 2019:
1
Acquisition of Interset Software Inc.
On 15 February 2019, the Group completed the acquisition of
Interset Software Inc. (“Interset”), a worldwide leader
in security analytics software that provides highly intelligent and
accurate cyber-threat protection. The addition of this predictive
analytics technology adds depth to Micro Focus’ Security,
Risk & Governance portfolio, and aligns with the
Company’s strategy to help customers quickly and accurately
validate and assess risk as they digitally transform their
businesses.
Consideration of $89.0m consists of completion payment of $85.0m,
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, given
that it was an acquisition of a business with a carrying value of
$5.5m of assets and $4.6m of liabilities.
A provisional fair value review was carried out on the assets and
liabilities of the acquired business, resulting in the
identification of intangible assets. Adjustments to the
provisional fair values have been recorded in the period which has
reduced the amount of Goodwill recognised by $7.4m. At the time these consolidated financial
information were authorised for issue, the Group had not yet fully
completed its assessment of the Interset Software Inc.
acquisition.
The fair value review will be finalised in the 12-month period
following completion.
|
|
|
Carrying value
at acquisition
|
Fair value
adjustments
|
Fair value
|
|
|
Note
|
$m
|
$m
|
$m
|
|
Intangible assets – purchased
1
|
10
|
-
|
61.2
|
61.2
|
|
Property,
plant and equipment
|
|
0.3
|
-
|
0.3
|
|
Other
non-current assets
|
|
0.2
|
-
|
0.2
|
|
Trade
and other receivables
|
|
3.8
|
-
|
3.8
|
|
Cash
and cash equivalent
|
|
1.2
|
-
|
1.2
|
|
Trade
and other payables
|
|
(1.5)
|
-
|
(1.5)
|
|
Finance
leases obligations – short term
|
|
(0.1)
|
-
|
(0.1)
|
|
Provisions
– short-term
|
15
|
(0.7)
|
-
|
(0.7)
|
|
Deferred income – short-term
2
|
|
(2.1)
|
0.1
|
(2.0)
|
|
Deferred income – long-term
2
|
|
(0.2)
|
-
|
(0.2)
|
|
Net
assets
|
|
0.9
|
61.3
|
62.2
|
|
Goodwill
(note 9)
|
|
|
|
26.8
|
|
Consideration
|
|
|
|
89.0
|
|
|
|
|
|
|
|
Consideration satisfied by:
|
|
|
|
|
|
Cash
|
|
|
|
89.0
|
Micro Focus International plc
Notes to the consolidated financial information
continued
21 Acquisitions
Acquisitions in the 12 months ended 31 October 2019
continued:
1
Acquisition of Interset
Software Inc. continued
The
fair value adjustments relate to:
1
Purchased
intangible assets of $61.2m ($44.5m Technology, $4.2m Trade names,
$12.5m Customer Relationships) 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 Interset.
2
Deferred income has been valued
taking account of the remaining performance
obligations.
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.
Acquisitions in the year ended 31 October 2018:
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 3) and include costs relating to due
diligence work, legal work on the acquisition agreement and
professional advisors on the transaction.
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 body of the combined entity, composition of senior
management of the combined entity, the entity that issued equity
interest, terms of exchange of equity interests, the entity which
initiated the combination, relative size of each entity, the
existence of a large minority voting interest in the combined
entity and other factors (e.g. location of headquarters of the
combined entity 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 value
at acquisition
|
Fair value
adjustments
|
Fair value
|
|
|
Note
|
$m
|
$m
|
$m
|
|
Intangible assets1
|
10
|
72.8
|
6,467.0
|
6,539.8
|
|
Property,
plant and equipment
|
|
160.1
|
-
|
160.1
|
|
Other
non-current assets
|
|
41.9
|
-
|
41.9
|
|
Inventories
|
|
0.2
|
-
|
0.2
|
|
Trade
and other receivables
|
|
721.2
|
-
|
721.2
|
|
Current
tax recoverable
|
|
0.5
|
-
|
0.5
|
|
Cash
and cash equivalents
|
|
320.7
|
-
|
320.7
|
|
Trade
and other payables
|
|
(686.8)
|
1.6
|
(685.2)
|
|
Current
tax liabilities
|
|
(9.9)
|
-
|
(9.9)
|
|
Borrowings
|
|
(2,547.6)
|
-
|
(2,547.6)
|
|
Short-term
provisions
|
15
|
(30.2)
|
-
|
(30.2)
|
|
Short-term deferred income 2
|
|
(701.2)
|
58.0
|
(643.2)
|
|
Long-term deferred income 2
|
|
(116.9)
|
8.7
|
(108.2)
|
|
Long-term
provisions
|
15
|
(39.0)
|
-
|
(39.0)
|
|
Retirement
benefit obligations
|
16
|
(71.5)
|
-
|
(71.5)
|
|
Other
non-current liabilities
|
|
(52.3)
|
12.1
|
(40.2)
|
|
Deferred tax assets/(liabilities)
3
|
|
450.2
|
(2,403.7)
|
(1,953.5)
|
|
Net (liabilities)/assets
|
|
(2,487.8)
|
4,143.7
|
1,655.9
|
|
Goodwill
|
9
|
-
|
|
4,858.3
|
|
Consideration
|
|
|
|
6,514.2
|
|
|
|
|
|
|
|
Consideration satisfied by:
|
|
|
|
|
|
Shares
|
|
|
|
6,514.2
|
The Group has used acquisition accounting for the purchase and the
goodwill arising on consolidation of $4,858.3m 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.
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.
Micro Focus International plc
Notes to the consolidated financial information
continued
21 Acquisitions
Acquisitions in the year ended 31 October 2018 continued:
1
Acquisition of the HPE Software
business continued
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; and
3
A
deferred tax liability has been established relating to the
purchase of intangibles.
The purchased intangible assets acquired as part of the acquisition
can be analysed as follows (note 10):
|
|
Fair value
|
|
|
$m
|
|
Technology
|
1,809.0
|
|
Customer
relationships
|
4,480.0
|
|
Trade
names
|
163.0
|
|
Leases
|
15.0
|
|
|
6,467.0
|
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 on-going
consultation with its tax advisors, to ensure no such triggering
actions are taken.
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 did
not present the full IFRS 3 “Business Combinations”
disclosures as this acquisition was 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 9), deferred tax liabilities of $3.9m,
purchased intangibles of $14.0m (note 10) (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.
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 $2.5m 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 was 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.
Micro Focus International plc
Notes to the consolidated financial information
continued
22 Cash flow statement
|
|
|
12 months ended
31 October 2019
|
18 months ended
31 October 2018
|
|
|
Note
|
$m
|
$m
|
|
Cash flows from operating activities
|
|
|
|
|
(Loss) / Profit from continuing operations
|
|
(18.1)
|
707.2
|
|
Profit from discontinued operation
|
|
1,487.2
|
76.9
|
|
Profit for the period
|
|
1,469.1
|
784.1
|
|
Adjustments for:
|
|
|
|
|
Gain on disposal of discontinued operation
|
20
|
(1,767.9)
|
-
|
|
Net finance costs
|
4
|
255.8
|
342.7
|
|
Taxation – continuing operations
|
6
|
(16.0)
|
(673.1)
|
|
Taxation – discontinued operation
|
20
|
318.1
|
34.2
|
|
Share of results of associates
|
20
|
0.3
|
1.8
|
|
Operating profit (attributable to continuing and discontinued
operations)
|
|
259.4
|
489.7
|
|
|
|
|
|
|
- continuing
operations
|
|
221.7
|
376.8
|
|
- discontinued
operation
|
20
|
37.7
|
112.9
|
|
|
|
259.4
|
489.7
|
|
|
|
|
|
|
Research and development tax credits
|
|
(1.2)
|
(2.0)
|
|
Depreciation
|
|
66.5
|
95.2
|
|
Loss on disposal of property, plant and equipment
|
|
3.6
|
4.7
|
|
Gain on disposal of Atalla
|
20,3
|
(3.7)
|
-
|
|
Amortisation of intangible assets
|
10
|
716.5
|
943.3
|
|
Amortisation of contract-related costs
|
|
10.2
|
-
|
|
Share-based compensation charge
|
|
71.3
|
72.2
|
|
Foreign
exchange movements
|
|
11.1
|
(34.6)
|
|
Provisions movements
|
16
|
43.8
|
142.8
|
|
Changes in working
capital :
|
|
|
|
|
Inventories
|
|
-
|
0.1
|
|
Trade and other receivables
|
|
183.0
|
(408.8)
|
|
Increase in contract-related costs
|
|
(36.7)
|
-
|
|
Payables and other liabilities
|
|
(114.8)
|
131.3
|
|
Provision utilisation
|
16
|
(58.6)
|
(145.0)
|
|
Contract liabilities - deferred income
|
|
(98.5)
|
131.4
|
|
Pension funding in excess of charge to operating
profit
|
|
4.4
|
4.0
|
|
Cash generated from operations
|
|
1,056.3
|
1,424.3
|
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:
04 February 2020
Micro
Focus International plc
|
|
By:
|
/s/
Brian McArthur-Muscroft
|
|
|
Name:
|
Brian
McArthur-Muscroft
|
|
|
Title:
|
Chief
Financial Officer
|