a7567d
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: July 2021
Commission
File Number: 001-38187
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.
|
Exhibit Description
|
99.1
|
Interim
results for six months ended 30 April 2021, dated 01 July
2021
|
1 July
2021
Micro Focus International plc
Interim results for the six months ended 30 April
2021
Micro
Focus International plc ("the Company" or "the Group", LSE: MCRO.L,
NYSE: MFGP), the international software product group, announces
unaudited interim results for the six months ended 30 April 2021
("H1 21").
Key highlights:
●
Revenue was $1.4bn for
the period. This performance was ahead of market expectations and
represents a decline of 4.6% on a constant currency ("CCY") basis
and a decline of 2.0% at actual rates when compared to H1
20.
●
Sales execution in the
period was strong, resulting in an improvement in sales conversion
rates and a number of deals closing earlier than expected. The H2
weighting of prior year revenue due to COVID-19 was also a
factor.
●
The Group continues to
target a meaningful improvement in the rate of CCY revenue decline
in FY21 when compared to FY20, in line with current revenue
consensus.
●
Adjusted EBITDA margin
of 36.4% (H1 20: 37.7% CCY) reflecting the strong licence revenue
performance and cost savings from back-office simplification,
largely funding the planned product investment.
●
The Group
generated a statutory operating loss from continuing operations
(after exceptional items and amortisation of purchased intangibles)
of $154.8m (H1 20: Operating loss of $906.7m, including a goodwill
impairment charge of $922.2m).
●
Cash generated from
operating activities of $468.1m for H1 21 (H1 20: $560.4m), which
after exceptional items resulted in Adjusted Cash
Conversion1 of
124.5% (H1 20: 131.5%).
●
Significant milestone
reached on digital transformation with employees recently
transitioned to our new, single IT platform. Given the complexities
of executing this transition during COVID-19, we will continue to
run with a level of duplicate costs until the system is fully
operational.
●
Strategic
partnership with AWS, and good progress across the product
portfolios including key partnerships announced with Microsoft
Azure, Snowflake, Dell EMC and others.
●
Matt Ashley joins
the Board as Chief Financial Officer from 1 July
2021.
Results at a glance
|
H1 21
|
H1 20
|
Growth /(Decline)
|
|
|
|
|
Alternative performance measures from
continuing operations1
|
|
|
|
|
|
|
|
Revenue (versus CCY comparatives)
|
$1,425.7 m
|
$1,493.9 m
|
(4.6) %
|
Adjusted EBITDA (versus CCY comparatives)
|
$519.0 m
|
$562.6 m
|
(7.7) %
|
% Adjusted EBITDA margin (versus CCY
comparatives)
|
36.4%
|
37.7%
|
(1.3) ppt
|
|
|
|
|
Adjusted Diluted Earnings per Share ("EPS") - continuing
operations
|
66.15 c
|
72.10 c
|
(8.3) %
|
|
|
|
|
Net Debt
|
$4,118.4 m
|
$4,312.0 m
|
(4.5) %
|
Net Debt/ Adjusted EBITDA ratio
|
3.6 times
|
3.4 times
|
|
|
|
|
|
Statutory Results
|
|
|
|
Revenue - continuing operations
|
$1,425.7 m
|
$1,454.2 m
|
(2.0) %
|
Operating loss - continuing operations
|
$(154.8) m
|
$(906.7) m
|
82.9 %
|
Loss for the period
|
$(218.9) m
|
$(1,032.0) m
|
78.8 %
|
Basic and Diluted EPS - continuing operations
|
(65.09) c
|
(308.40) c
|
78.9 %
|
|
|
|
|
1 The
definition and reconciliations of Adjusted EBITDA, Adjusted EBITDA
Margin, Adjusted Diluted EPS, Net Debt, Adjusted Cash Conversion,
Free Cash Flow and Constant Currency ("CCY") are in the
"Alternative Performance Measures" section of this Interim
Statement.
Stephen Murdoch, Chief Executive Officer, commented:
"We are pleased with a period of further solid progress in most
areas of our business. The product investments and operational
changes we are making are beginning to deliver performance
improvements, and our value propositions are resonating with
customers and partners, as demonstrated by the signing of the
significant, long term commercial agreement with AWS.
Our recovery programme and specifically our systems transformation
are progressing as planned despite the challenges of executing this
within the constraints of a global lockdown. I am proud of the
resilience, flexibility and professionalism of our teams across the
organisation. As a business, we continue to monitor the impact of
COVID-19 on our workforce, with particular focus currently on
supporting our colleagues in India.
Whilst there is a great deal to do, we are encouraged by our
progress and remain committed to delivering revenue stabilisation
and sustainable cash flow generation for our
shareholders."
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.
Results conference call
A conference call to cover the results for H1 21 will be held today
at 12.30pm GMT. The call will be accompanied by
slides.
A live webcast and recording of the presentation will be available
at https://www.microfocus.com/en-us/investors during
and after the event. For dial in only, access numbers are as
follows:
UK &
International:
+44 (0) 33 0551 0200
UK Toll Free:
0808 109
0700
US:
+1 212 999 6659
USA Toll
Free:
1 866 966 5335
Enquiries:
Micro Focus
|
Tel: +44 (0) 1635 565200
|
Stephen Murdoch, Chief Executive Officer
|
Investors@microfocus.com
|
Ben Donnelly, Head of Investor Relations
|
|
|
|
Brunswick
|
Tel:
+44 (0) 20 7404 5959
|
Sarah
West
|
MicroFocus@brunswickgroup.com
|
Jonathan
Glass
|
|
|
|
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 interim 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.
Operational
review
Performance in the period
The
first half of FY21 represents another period of solid progress in
most areas of our business. The product investments and
operational changes we are making are beginning to deliver
performance improvements, and our value propositions are resonating
with customers and partners.
The
Group reported revenues of $1,425.7m (H1 20: $1,493.9m CCY,
$1,454.2m reported). This is a decline of 4.6% on a CCY basis and
2.0% on a reported basis.
|
H1 21
|
|
CCY %
change toH1 20
|
|
|
Licence
|
Maintenance
|
SaaS
& other recurring
|
Consulting
|
Total
|
|
Licence
|
Maintenance
|
SaaS
&
other
recurring
|
Consulting
|
Total
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
|
%
|
%
|
%
|
%
|
%
|
Product portfolio:
|
|
|
|
|
|
|
|
|
|
|
|
Application
Modernisation & Connectivity ("AMC")
|
62.1
|
158.5
|
-
|
5.1
|
225.7
|
|
(0.6) %
|
(3.2) %
|
-
|
(7.3) %
|
(2.6) %
|
Application
Delivery Management ("ADM")
|
49.6
|
208.9
|
36.6
|
9.2
|
304.3
|
|
3.1 %
|
(8.8) %
|
(8.3) %
|
15.0%
|
(6.4) %
|
IT
Operations Management ("ITOM")
|
92.8
|
262.2
|
2.0
|
54.6
|
411.6
|
|
30.0 %
|
(10.4) %
|
33.3%
|
(9.2) %
|
(3.3) %
|
Security
|
70.1
|
193.6
|
18.6
|
14.5
|
296.8
|
|
4.5 %
|
(7.9) %
|
9.4%
|
(21.2) %
|
(5.1) %
|
Information
Management & Governance ("IM&G")
|
27.1
|
89.3
|
62.6
|
8.3
|
187.3
|
|
4.6 %
|
(6.9) %
|
(8.2) %
|
(10.8) %
|
(6.0) %
|
Revenue*
|
301.7
|
912.5
|
119.8
|
91.7
|
1,425.7
|
|
9.7 %
|
(8.0) %
|
(5.4) %
|
(9.5) %
|
(4.6) %
|
*Total revenue presented before
haircut of $0.4m in H1 20.
We
delivered growth in Licence revenue of 9.7%, demonstrating the
continuation of sales execution improvements delivered in the
second half of FY20. Sales conversion rates improved, and a small
number of deals closed earlier in FY21 than initially forecast. The
performance also reflected the onset of COVID-19 in the comparable
period. We are pleased with improved levels of discipline and
accountability across our sales leadership teams, specifically in
the development of pipeline for future periods and delivery of more
complete customer propositions. In the period, the Group witnessed
a material improvement in Licence performance across all product
groups.
Maintenance
revenue declined by 8.0%, with the current period performance
impacted by a reduction in licence volume over multiple previous
financial periods combined with elevated attrition rates in four
sub-portfolios. This is a major area of management focus for us,
and over the past 18 months we have implemented material changes
across these product portfolios driven by direct customer feedback
and focused on improving the overall user experience. There have
also been significant new capabilities introduced to expand cloud,
artificial intelligence and analytics capabilities. In addition, we
have made multiple leadership changes within underperforming
portfolios and the compensation of sales leadership is now linked
to customer retention. We firmly believe these actions will lead to
an improvement in maintenance performance but recognise this to be
a multi-year initiative.
Our SaaS and other recurring revenue declined by 5.4% when compared
to the first half of FY20. This performance represents the second
period of sequential improvement, and performance in bookings is
beginning to improve. In addition, the SaaS-related product
enhancements we have been delivering within ADM, ITOM and IM&G
are nearing completion and our new offerings in Security and Big
Data have launched. As a result, we anticipate SaaS performance
will continue to improve in the second half and is expected to
return to growth in FY22.
Consulting
revenue declined by 9.5% but is now broadly in line with the
revenue generated in the second half of FY20. More importantly,
this business is now well positioned to deliver the type of
consulting projects which add value to customers, accelerate return
on investment and ultimately support an increase in software
revenue for the business.
The Group generated Adjusted EBITDA of $519.0m at a margin of 36.4%
(CCY H1 20: $562.6m Adjusted EBITDA at 37.7% margin). The Adjusted
EBITDA margin benefited from the strong licence performance and a
continuation of cost and efficiency programmes, which largely
funded the planned product investment. Statutory loss before
taxation for the period was $280.0m (H1 20: loss
$1,036.0m).
The Group continues to generate significant operating cash flows,
with cash generated from operating activities of $468.1m for H1 21
(H1 20: $560.4m, giving Adjusted Cash Conversion1 of
124.5% (H1 20: 131.5%).
Net debt reduced from $4.3 billion to $4.1 billion, with Free Cash
Flow for the period of $139.5m impacted by the remaining
system-related exceptional costs and a number of other one-off
costs in respect of taxation.
Further narrative in respect of the financial performance can be
found in the Financial Review section of this report.
Delivering innovation across the portfolio
We take
a differentiated approach to innovation at Micro Focus in support
of our customers' digital transformation programmes. We focus on
helping customers deliver the right balance of cost, risk and speed
as they deal with the often competing challenges of running the
business effectively and securely whilst simultaneously driving the
change needed to capture new opportunities or deal with new
threats.
This
means delivering innovation that enables customers to bridge
existing investments and capabilities with new use cases and
business models.
In FY21, this innovation is continuing at pace in all five of our
product groups, with examples such as:
− Application Modernisation and
Connectivity: in addition
to our direct customer relationships in this area, our strong
partnerships with leading cloud and services companies underline
the relevance of our customer proposition. Furthermore, our
strategic partnership with AWS will enable customers to accelerate
the modernisation of mainframe applications and workloads to the
AWS Cloud.
− Application Delivery
Management: we have
continued to add artificial intelligence capabilities across the
testing portfolios and released new integrations with MS Teams and
SAP Solution Manager.
− IT Operations &
Management: the release of
Operations Platform for Transformation, Intelligence and Cloud
("OPTIC") empowers IT operations with built-in, unlimited-use
intelligence at the core and the ability to optimise cloud and
on-premise environments.
− Information, Management &
Governance: our
partnership with Dell EMC means Vertica in Eon Mode is available
with Dell EMC Elastic Cloud Storage (ECS), delivering data-driven
organisations more freedom to leverage cloud innovation for
analytics.
− Security: our partnership with Snowflake enables
Voltage customers to seamlessly and securely shift workloads to
Snowflake's platform without the risk of compromising
business-sensitive data, while adhering to privacy
regulations.
Our experience over the last 18 months in applying a differentiated
approach within Security and Big Data, combined with our leadership
position and the market growth trend within mainframe
modernisation, gives us increasing conviction around the long-term
revenue growth rates achievable in these markets. As a result, we
continue to prioritise targeted incremental investment in these
areas as we seek to accelerate growth.
Continued operational progress
The
Group's transformation activities continue at pace and within this
the IT system consolidation programme ("Stack C") remains on
track.
The
IT programme is the key remaining integration activity from the HPE
acquisition and its completion will mark a significant milestone
for the company.
In June, we transitioned our remaining employees to the new IT
system, which means we will exit FY21 on one single IT stack with
one unified set of processes. This is a complex migration touching
every aspect of our business and will cause short term disruption
to the business. This is compounded by the challenges of executing
this degree of change during a lockdown and specifically with the
situation in India. As a result, we have put additional resources
in place to mitigate transition challenges as effectively as
possible. IT programmes of this scale typically take 6-9 months to
bed down and ramp to full operational effectiveness at which point
we will be able to remove duplicative costs and begin to drive the
significant efficiencies and productivity improvements planned from
this programme.
Wapp
On 2 July 2018, Wapp Tech Limited Partnership and Wapp Tech Corp
(collectively "Wapp") brought a claim against Micro Focus in the
Eastern District of Texas, accusing the Company of infringing three
patents in connection with Micro Focus' sale of certain products in
the ADM product line, including LoadRunner and Performance
Centre.
The Board is considering a range of factors, including the possible
time, cost and significant resources required for the appeal
process and to establish whether a settlement could be
reached.
Taking into account the range of options under consideration at
this time, the Directors' best estimate of the expenditure required
to resolve the case is $70 million including potential prospective
external legal costs and accordingly a provision has been recorded
for this amount at 30 April 2021. In line with our accounting
policy, the cost of recording this provision has been treated as an
exceptional cost in the Consolidated Statement of Comprehensive
Income for the six months ended 30 April 2021 (see note
7).
Board changes
On
1 June 2021, the Group announced the appointment of Matt
Ashley to the role of Chief Financial Officer. Matt joined the
business with effect from 28 June 2021 and will join the Board and
assume his executive duties from 1 July 2021. Matt brings a highly
relevant mix of operational experience together with a history of
delivering significant value creation. He joins our Board and
leadership team at an important stage in the execution of our
recovery plan and we are confident he will make a significant
contribution to the business from the outset.
Brian McArthur-Muscroft left Micro Focus with effect from 30 June
2021, to assume the CFO position at a technology-based financial
services company. The Board would like to thank Brian for the
significant contribution he has made to the Group during his tenure
and wishes him well in his new role.
Micro Focus' social purpose
In
our FY20 annual report we set out our purpose to deliver
mission critical enterprise software that powers the digital
economy. Our aim is to make sustainable and responsible business
part of the way we operate, and in doing so support the local
communities within which we operate, as well as reducing our own
environmental footprint.
We
launched our INSPIRE programme approximately 18 months ago and I am
proud of the efforts and progress we have made in this area. The
recognition we have received is encouraging. Micro Focus received
an AA rating in the MSCI ESG Ratings assessment, a low-risk rating
on Sustainalytics and a Prime status rating from ISS.
The challenges of COVID-19 have given all of us a fresh perspective
on our broader responsibilities to all stakeholders and we are
committed to harnessing the increasingly passionate and engaged
involvement of our employees. As such, I am pleased to announce our
new Environmental, Social and Governance Committee, which we have
formed to ensure we continue to embed ESG into the core of our
operations. This formal committee of the Board is comprised of a
combination of both Board members and employees.
I look forward to sharing more about the work of the committee and
what ESG means for Micro Focus as part of our FY21 Annual Report
and Accounts.
Dividend
We are pleased to announce that the interim dividend will be
8.80 cents. This dividend is consistent with our dividend policy of
five times covered adjusted earnings for the full year, which we
intend to pay approximately one third by way of interim and two
thirds by way of final dividend.
The dividend will be paid on 6 August 2021 to shareholders on the
register as at 23 July 2021. The dividend will be paid in pounds
sterling and the sterling amount payable per share will be fixed
and announced approximately two weeks prior to the payment date,
based on the average spot exchange rate over the five business days
preceding the announcement date.
Outlook
Revenue
stabilisation by the end of FY23 remains our most important
business objective. To deliver against this goal, we are targeting
incremental improvements in revenue trajectory annually and
continuing our targeted investment in product portfolios to achieve
this.
We
are pleased with this period of further solid progress in most
areas of our business, and remain committed to delivering strong,
sustainable levels of free cash flow over the
long-term.
Stephen Murdoch
Chief Executive Officer
30 June 2021
Financial Review
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 assess 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. All results discussed
in this section are from continuing operations, unless otherwise
stated.
|
H1 21
|
H1 20
|
|
|
As reported
|
CCY
|
CCY Change
|
Alternative performance measures:
|
$m
|
$m
|
%
|
Revenue
|
1,425.7
|
1,493.9
|
(4.6) %
|
Operating costs included in Adjusted EBITDA
|
(906.7)
|
(931.3)
|
(2.6) %
|
Adjusted EBITDA
|
519.0
|
562.6
|
(7.7) %
|
Adjusted EBITDA margin %
|
36.4%
|
37.7%
|
(1.3) ppt
|
|
|
|
|
|
H1 21
|
H1 20
|
|
|
As reported
|
As reported
|
Change
|
Statutory performance measures:
|
$m
|
$m
|
%
|
Revenue
|
1,425.7
|
1,454.2
|
(2.0) %
|
Operating loss
|
(154.8)
|
(906.7)
|
82.9 %
|
Loss for the period from continuing operations
|
(218.9)
|
(1,029.3)
|
78.7 %
|
Loss for the period from discontinued operation
|
-
|
(2.7)
|
n/a
|
Loss for the period from continuing and discontinued
operations
|
(218.9)
|
(1,032.0)
|
78.8 %
|
Revenue
The Group generated revenue of $1,425.7m in H1 21, which represents
a decline of 2.0% on the results for H1 20 at actual rates of
foreign exchange. 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 H1 21 and H1 20. Excluding the impact of foreign
exchange, revenue declined by 4.6%.
The Group has set out a clear goal of revenue stability as we exit
FY23. In delivering this objective, the Group is seeking to
moderate the rate of decline gradually in each financial year. This
stability comes primarily from two key drivers. Firstly, a
consistent improvement in execution across the business, supported
by the end-to-end transformation of our Go-to-Market function and
capturing incremental efficiencies enabled through the Stack C
program. Secondly, the capturing of opportunities within growing
markets which over time will deliver a mix effect to stabilise and
ultimately grow the top line.
As previously guided, in H1 21, the Group has delivered a material
improvement in the rate of trajectory when compared to FY20. This
performance is encouraging and includes a significant improvement
in execution, and we anticipate the full year trajectory to be in
line with our original guidance and consensus.
Revenue performance has been discussed in further detail within the
CEO statement in this document.
Operating costs (included in Adjusted EBITDA)
Operating
costs within Adjusted EBITDA declined by 2.6% to $906.7m in H1 21
(H1 20: $931.3m) on a constant currency basis. This decline has
been driven by a combination of continued progress in delivering
in-year cost savings and the annualised impact from initiatives
actioned in FY20. These cost savings have been used to fund
continued investment in key product areas, as outlined
previously.
Adjusted EBITDA
The Group generated an Adjusted EBITDA of $519.0m, at an Adjusted
EBITDA margin of 36.4% in H1 21 (H1 20: $562.6m, 37.7% on a CCY
basis).
Currency impact
During
H1 21, 57.3% of our revenues were contracted in US Dollars, 21.3%
in Euros, 4.5% in Sterling, 3.6% in Australian Dollars, 3.3% in
Japanese Yen, 3.2% in Canadian Dollars and 6.8% in other currencies
(H1 20: 59.9% US Dollars, 19.1% Euros, 5.1% Sterling, 3.3% Canadian
Dollars and 12.6% other currencies). In comparison, 45.7% of our
costs were US Dollar denominated, 13.1% in Euros, 12.6%
in Sterling, 5.9% in Indian Rupee, 4.3% in Israeli New Shekel,
3.3% in Chinese Yuan and 15.1% in other currencies (H1 20:
44.3% US Dollar, 14.4% Euros, 13.1% Sterling, 5.7% Indian rupee and
22.5% other currencies).
The
weighting of revenue and costs means that if the USD
to EUR, CAD, JPY or AUD exchange rates move
during the period, the revenue impact is greater than the costs
impact, whilst if USD to GBP, INR or ISL rates move
during the period the cost impact exceeds the revenue impact.
Consequently, actual USD Adjusted EBITDA can be impacted
by significant movements in USD to
EUR, AUD, CAD, JPY, GBP, ISL and INR exchange
rates.
The
currency movement for the US Dollar against Euro, GBP, CAD,
AUD, INR, JPY, ILS and CNY was a weakening of 9.1%, 6.3%,
6.8%, 15.2%, 2.2%, 3.4% and 7.1% respectively, whilst INR remained
flat when looking at the average exchange rates in H1 21 compared
to those in H1 20.
In
order to provide CCY comparatives, the Group has restated the
revenue and Adjusted EBITDA for H1 20 at the same average exchange
rates as those used in the reported results for H121. In the six
months ended 30 April 2020, the currency impact has
increased the H1 20 comparable revenue and costs by 2.7%
and 3.2% respectively. The net impact for the Group results using
CCY was an increase of the H1 20
comparable revenue of $39.7m and an increase of
$10.4m in Adjusted EBITDA.
Operating loss to Adjusted EBITDA
The Operating loss for H1 21 was $154.8m, compared to an Operating
loss of $906.7m, after a goodwill impairment charge of $922.2m in
H1 20.
The Operating loss includes the impact of certain items that
management believes do not directly reflect our underlying
performance. These include exceptional items, share based
compensation, amortisation of purchased intangibles and
depreciation of property, plant and equipment.
A reconciliation between Operating loss and Adjusted EBITDA is
shown below:
|
H1 21
As reported
|
H1
20
As
reported
|
Change
|
|
$m
|
$m
|
%
|
Operating loss
|
(154.8)
|
(906.7)
|
82.9%
|
Exceptional items (reported in Operating loss)
|
143.0
|
1,048.4
|
(86.4)%
|
Share-based compensation charge
|
8.5
|
8.2
|
3.7%
|
Amortisation of intangible assets
|
472.2
|
340.4
|
38.7%
|
Depreciation of property, plant and equipment
|
17.6
|
21.1
|
(16.6)%
|
Depreciation of right-of-use assets
|
38.6
|
40.0
|
(3.5)%
|
Product development intangible costs capitalised
|
(11.2)
|
(6.9)
|
(62.3)%
|
Foreign exchange losses
|
5.1
|
7.7
|
(33.8)%
|
Adjusted EBITDA at reported rates
|
519.0
|
552.2
|
(6.0)%
|
CCY impact
|
-
|
10.4
|
n/a
|
Adjusted EBITDA at CCY
|
519.0
|
562.6
|
(7.7)%
|
Exceptional items (included within Operating loss)
|
H1 21
As reported
|
H1
20
As
reported
|
|
$m
|
$m
|
System
and IT infrastructure costs
|
29.2
|
71.5
|
Integration
costs incurred as a result of HPE Software business
acquisition
|
16.4
|
31.4
|
Severance
as a result of the HPE Software business acquisition
|
(0.4)
|
21.7
|
Property
costs as a result of the HPE Software business
acquisition
|
(0.7)
|
1.6
|
MF/HPE Software business integration related costs
|
44.5
|
126.2
|
Restructuring
property costs
|
4.7
|
-
|
Legal
settlement and associated costs
|
74.6
|
-
|
Severance
and legal costs
|
13.4
|
-
|
Other
restructuring costs
|
5.8
|
-
|
Goodwill
impairment charge
|
-
|
922.2
|
Other exceptional spend
|
98.5
|
922.2
|
Total exceptional costs (reported in Operating loss) *
|
143.0
|
1,048.4
|
*Exceptional costs for H1 20 exclude the loss from discontinued
operation relating to the disposal of SUSE of $2.7m, which is
separately included in the loss from discontinued
operations.
In H1 21, exceptional costs reported in the Operating loss
decreased from $1,048.4m to $143.0m.
The exceptional spend includes $44.5m in relation to the remaining
HPE integration, of which $29.2m relates to the migration to a
single IT platform. The IT System development for the legacy Micro
Focus business transitioned to the new IT environment in January
2021 and the legacy HPE Software business transitioned in June
2021. It is expected that costs in relation to the HPE integration
will be completed over the next 12 months.
Other exceptional spend totalled $98.5m of which $74.6m relates to
the provision for the Wapp patent infringement case. The remaining
exceptional spend reflects severance costs of $13.4m in relation to
ongoing headcount reductions as the Group continues to remove
duplication and simplify the continuing operations. Other
restructuring costs of $5.8m are mainly due to transformation
projects and property costs of $4.7m as the Group continues the
process of simplifying its real estate footprint.
Further
information on exceptional costs can be found in note 7 to the
Condensed Consolidated Interim Financial Statements.
Net finance costs
Net finance costs were $125.2m in H1 21, compared to $129.3m in H1
20.
Taxation
Tax for H1 21 was a credit of $61.1m (H1 20: credit of $6.7m) on
continuing operations. The tax charge on Adjusted Profit before tax
for H1 21 was $94.3m (H1 20: $77.0m), which represents an effective
tax rate ("ETR") on Adjusted Profit before Tax ("Adjusted ETR") of
29.8% (H1 20: 24.0%). The Group's Adjusted tax charge is subject to
various factors, many of which are outside the control of the
Group. The current economic environment creates an increase in the
level of uncertainty and may result in changes to this tax rate in
future accounting periods.
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. In February 2021, the Group received and settled State
Aid charging notices (excluding interest) totalling $44.2m (the
cash impact of which has been recorded as exceptional), issued by
HM Revenue and Customs, following the requirement for the UK
government to start collection proceedings. During the period, the
Group received State Aid interest charging notices from HM Revenue
and Customs totalling $2.9m, which were settled in June 2021. In
addition, the UK tax authorities continue to challenge the historic
financing arrangements of the Group. Based on its current
assessment and supported by external professional advice, the Group
consider the maximum liability in respect of both of these items to
be $60m. Based on its current assessment and also supported by
external professional advice, the Group believes that no provision
is required in respect of these issues and a long-term current tax
receivable has been recognised in respect of the amounts paid
(including movements due to exchange rates). No additional
liability should accrue in future periods in respect of these
matters, following (i) an amendment of the UK legislation affected
by the EU Commission finding on 1 January 2019, to be compliant
with EU law, and (ii) the unwind of the financing company
arrangements in question.
Earnings per share
The Group's earnings per share ("EPS") on a basic, diluted and
adjusted basis are as follows:
|
H1 21
|
H1
20
|
Growth
/(Decline)
|
|
cents
|
cents
|
%
|
EPS from continuing operations:
|
|
|
|
Basic
EPS
|
(65.09)
|
(308.40)
|
78.9
%
|
Diluted
EPS
|
(65.09)
|
(308.40)
|
78.9
%
|
|
|
|
|
Basic
Adjusted EPS
|
66.15
|
73.04
|
(9.4)
%
|
Diluted
Adjusted EPS
|
66.15
|
72.10
|
(8.3)
%
|
|
|
|
|
Total EPS attributable to the ordinary equity shareholders of the
Company
|
|
|
|
Basic
EPS
|
(65.09)
|
(309.21)
|
78.9
%
|
Diluted
EPS
|
(65.09)
|
(309.21)
|
78.9
%
|
|
|
|
|
Basic
Adjusted EPS
|
66.15
|
73.04
|
(9.4)
%
|
Diluted
Adjusted EPS
|
66.15
|
72.10
|
(8.3)
%
|
Full details are set out in the "Alternative performance measures"
section of these Condensed Consolidated Interim Financial
Statements.
Cash Generation
The Group's Adjusted cash conversion ratio, defined as cash
generated from operations divided by Adjusted EBITDA less
exceptional items (reported in Operating profit/(loss) and
excluding any goodwill impairment charge, as this is deemed
non-cash related), for H1 21 was 124.5% compared to 131.5% in the
comparable period. Adjusted cash conversion is presented after the
recording of the Wapp provision which improved adjusted cash
conversion by approximately 20 percentage points. Excluding this,
adjusted cash conversion was 105%. In addition, cash conversion in
H1 20 included the continued collection of aged receivables which
are now trending at more normalised levels.
|
H1
21
|
H1
20
|
|
$m
|
$m
|
Cash generated from operations
|
468.1
|
560.4
|
|
|
|
Total Adjusted EBITDA
|
519.0
|
552.2
|
Less:
Exceptional items (reported in Operating loss)
|
(143.0)
|
(1,048.4)
|
Exclude:
Goodwill impairment charge
|
-
|
922.2
|
Adjusted EBITDA less exceptional items
|
376.0
|
426.0
|
|
|
|
Adjusted Cash conversion ratio
|
124.5%
|
131.5%
|
The cash flow for the Group for H1 21 was:
|
H1 21
|
H1
20
|
|
$m
|
$m
|
Total Adjusted EBITDA
|
519.0
|
552.2
|
Less:
|
|
|
Exceptional
items (reported in Operating loss)
|
(143.0)
|
(1,048.4)
|
Movements
in provisions
|
102.4
|
22.1
|
Goodwill
impairment charge
|
-
|
922.2
|
Other
non-cash items
|
23.3
|
13.3
|
Cash generated from operations before working capital
|
501.7
|
461.4
|
Movement
in working capital
|
(33.6)
|
99.0
|
Cash generated from operations
|
468.1
|
560.4
|
Interest
payments
|
(110.7)
|
(105.5)
|
Bank
loan costs
|
(0.6)
|
(1.1)
|
Tax
payments
|
(128.9)
|
(65.5)
|
Purchase
of intangible assets
|
(35.8)
|
(36.5)
|
Purchase
of property, plant and equipment
|
(10.3)
|
(6.1)
|
Lease
related capital payments
|
(42.3)
|
(40.8)
|
Free cash flow
|
139.5
|
304.9
|
The Group generated a free cash flow of $139.5m (H1 20: $304.9m).
The year-on-year comparison of free cash flow has been impacted by
certain one-off taxation items which have suppressed free cash flow
in the period including $44.2m of EU State Aid payment (noted
above) and a $33.0m payment in respect of US payroll taxes related
to prior periods.
The Group had a working capital outflow of $33.6m in H1 21 (H1 20:
inflow $99.0m). The movement from H1 20 primarily related to a
reduction in the inflow from trade and other receivables due to H1
20 benefitting from improved cash collection which has now
stabilised. In addition, strong licence performance offset the
decline in maintenance, which has a disproportionate impact on cash
as maintenance payments are typically received in advance. The
Group continues to target a cash conversion of between 95-100% over
the medium-term.
The Group's free cash flow generation is typically first half
weighted and this trend is expected to be relevant in FY21. In the
second half of FY21, we also expect to face headwinds in free cash
flow as we conclude the remaining legacy tax payments, deal with
any potential developments in the WAPP patent dispute and manage
through the operational impacts as we ramp the new
systems.
Net Debt
|
30 April 2021
|
30
April 2020
|
|
$m
|
$m
|
Borrowings
|
(4,597.4)
|
(4,855.4)
|
Cash
and cash equivalents
|
698.1
|
808.1
|
Lease
obligations
|
(219.1)
|
(264.7)
|
Net Debt
|
(4,118.4)
|
(4,312.0)
|
|
|
|
Trailing 12 months Adjusted EBITDA (continuing
operations):
|
|
|
Six
months to 30 April
|
519.0
|
552.2
|
Six
months to 31 October
|
621.5
|
730.5
|
|
1,140.5
|
1,282.7
|
|
|
|
Net
Debt / Adjusted EBITDA ratio
|
3.6 times
|
3.4
times
|
Net Debt was $4,118.4m as at 30 April 2021, compared to $4,312.0m
as at 30 April 2020.
The movements on the Group loans, before unamortised facility
costs, in the six months to 30 April 2021 were as
follows:
|
Term Loan
B-1 EUR
|
Term Loan
B-3
|
Term Loan
B-4
|
HPE Software
Term Loan
|
Euro
Loan
|
Revolving
Facility
|
Total
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
At 1 November 2020
|
700.3
|
368.2
|
650.0
|
2,486.3
|
528.4
|
-
|
4,733.2
|
Repayments
|
(13.4)
|
(8.7)
|
(12.2)
|
(58.4)
|
(12.8)
|
-
|
(105.5)
|
Foreign
exchange
|
26.6
|
-
|
-
|
-
|
20.1
|
-
|
46.7
|
At 30 April 2021
|
713.5
|
359.5
|
637.8
|
2,427.9
|
535.7
|
-
|
4,674.4
|
|
|
|
|
|
|
|
|
|
In addition to the term loans and cash reserves, the Group has
access to a $350.0m revolving credit facility.
Consolidated statement of financial position
The
Group's Consolidated statement of financial position is presented
later in this document. A summarised version is presented
below:
|
|
|
|
30 April 2021
$m
|
31
October 2020
$m
|
Non-current
assets
|
9,329.0
|
9,605.0
|
Current
assets
|
1,404.7
|
1,541.8
|
Total assets
|
10,733.7
|
11,146.8
|
|
|
|
Current
liabilities
|
1,760.4
|
1,788.3
|
Non-current
liabilities
|
5,913.3
|
6,143.4
|
Total liabilities
|
7,673.7
|
7,931.7
|
Net assets
|
3,060.0
|
3,215.1
|
|
|
|
Total equity
|
3,060.0
|
3,215.1
|
The net assets of the Group decreased by $155.1m from $3,215.1m at
31 October 2020 to $3,060.0m at 30 April 2021.
In the period, the key movements were as follows:
●
Non-current assets decreased by
$276.0m to $9,329.0m primarily due to a $359.0m decrease in other
intangible assets (including primarily $472.2m of amortisation,
which includes $130.0m additional amortisation resulting from a
reassessment of useful economic lives (see note 12), offset by
$77.4m of exchange rate changes and $35.8m of additions), a
decrease of $27.9m in right-of-use assets offset by a foreign
exchange gain of $66.9m on goodwill and the recognition of a
non-current tax receivable of $44.9m in relation to the EU State
Aid claim. Following the impairment at the end of the last
financial year management has reviewed the estimated lives of other
intangible assets which resulted in an increase in the amortisation
charge in the period of $130m.
●
Current assets decreased by $137.1m to
$1,404.7m primarily due to a $101.7m decrease in trade and other
receivables and a $39.1m decrease in cash and cash equivalents
(including the payment of $51.8m in dividends).
●
Current liabilities decreased by
$27.9m to $1,760.4m, primarily due to a decrease in contract
liabilities of $48.1m, a decrease in trade and other payables of
$38.4m, a decrease in current tax liabilities of $13.4m, offset by
an increase in short-term provisions of $74.8m.
●
Non-current
liabilities decreased by $230.1m to $5,913.3m, primarily due to a
decrease of $105.8m in deferred tax liabilities, a decrease of
$45.7m in long-term borrowings, a decrease of $28.3m in retirement
benefit obligations, a decrease of $25.7m in lease obligations and
a decrease of $20.8m in the derivative
liability.
●
Total equity decreased by $155.1m from
$3,215.1m to $3,060.0m in the six months to 30 April 2021.This was
primarily driven by the loss in the period of $218.9m, purchase of
treasury shares of $27.2m and dividends paid of $51.8m, offset by
other comprehensive income movements of $137.8m (including $86.8m
foreign exchange reserve movements and $16.8m of hedging reserve
movements).
Dividend
The board proposes an interim dividend of 8.80 cents. The
dividend will be paid on 6 August 2021 to shareholders on the
register as at 23 July 2021. The dividend will be paid in pounds
sterling and the sterling amount payable per share will be fixed
and announced approximately two weeks prior to the payment date,
based on the average spot exchange rate over the five business days
preceding the announcement date.
Group Risk Factors
In
common with all businesses, the Group could be affected by risks
and uncertainties that may have a material adverse effect on its
business operations and achieving its strategic objectives
including its business model, future performance, solvency,
liquidity and/or reputation.
COVID-19 still presents fast moving, and in some areas
unpredictable, direct and indirect risks to the Group's business
and developments continue to be monitored on a cross-functional
basis. The Board continues to closely monitor how matters develop
and is taking prudent steps to mitigate any potential impacts to
the health and safety of employees, customers, partners, suppliers
and other stakeholders, and to the successful operation of the
business. The Group continues to follow the guidance of the World
Health Organisation and other governmental health agencies,
including with respect to travel restrictions. In common with many
businesses, the outbreak has resulted in a heightened operating
risk environment for the Group, and so has impacts, both direct and
indirect, across the Group's principal risks and uncertainties to
varying degrees.
Accepting
that risk is an inherent part of doing business, the Board is
mindful of the interdependencies of some risks. The Group remains
prepared to implement appropriate new mitigation strategies, and
adapt those already in place, to minimise any potential business
disruption and will continue to carry out regular and robust
assessments and management of the Group's risks, including the
regular assessment of COVID-19 impacts. Where possible, the Group
seeks to mitigate risks through its Risk Management Framework,
internal controls and insurance, but this can only provide
reasonable assurance and not absolute assurance against material
losses. In particular, insurance policies may not fully cover all
of the consequences of any event, including damage to persons or
property, business interruptions, failure of counterparties to
conform to the terms of an agreement or other
liabilities.
As noted in the Operational Review (page 4), in the period the
Group transitioned its remaining employees to the new IT system,
enabling the Group to exit FY21 on one single IT stack with one
unified set of processes. This migration remains complex and will
cause short term disruption to the business given the scale and
speed of change being affected. This is compounded by the
challenges of executing such a complex programme during a lockdown
and specifically with the situation in India. In addition, in
relation to the emerging risk of Environmental, Social and
Governance ("ESG") matters, please refer to page 5, where an update
is provided on new governance arrangements the Group has
established.
The underlying principal risks and uncertainties facing the Group
have not changed, from those set out in the Annual Report and
Accounts for the 12 months ended 31 October 2020 (pages 64 to
73):
●
Products;
●
Go-to-Market
models;
●
Competition;
●
Employees and
culture;
●
IT systems and
information;
●
Business strategy
and change management;
●
Legal and
regulatory compliance;
●
Intellectual
property;
●
Treasury;
●
Tax;
●
Macro-economic environment, pandemic and
Brexit;
●
COVID-19;
●
Cyber
security; and
●
Internal
Controls over Financial Reporting.
These risks could cause future results to differ materially from
historic results. The Group still considers these to be the most
relevant risks and uncertainties to the business.
Brian McArthur-Muscroft
Chief Financial Officer
30 June 2021
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors confirm that, to the best of their
knowledge:
● the condensed set of financial statements has been
prepared in accordance with IAS 34 "Interim Financial
Reporting" adopted pursuant to
Regulation (EC) No. 1606/2002 as it applies in the European
Union;
● the interim management report includes a fair
review of the information required by:
a) DTR
4.2.7R of
the Disclosure
Guidance and Transparency Rules , being an indication of
important events that have occurred during the first six months of
the financial year and their impact on the condensed set of
financial statements; and a description of the principal risks and
uncertainties for the remaining six months of the year;
and
b) DTR
4.2.8R of
the Disclosure
Guidance and Transparency Rules, being related party
transactions that have taken place in the first six months of the
current financial year and that have materially affected the
financial position or performance of the entity during that period;
and any changes in the related party transactions described in the
last annual report that could do so.
The current executive directors of the Company are Stephen Murdoch
and Brian McArthur-Muscroft.
The current non-executive directors of the Company are Greg Lock,
Karen Slatford, Richard Atkins, Amanda Brown, Lawton Fitt, Robert
Youngjohns and Sander van 't Noordende. All of the non-executive
directors are independent with the exception of Greg Lock, the
Chairman.
Biographies for each director are included on the Company's
website: www.microfocus.com.
By
order of the board,
Stephen Murdoch
|
Brian McArthur-Muscroft
|
Chief Executive Officer
|
Chief Financial Officer
|
30 June 2021
Alternative performance measures
The
Group uses certain measures to assess the financial performance of
its business. These measures are termed "Alternative Performance
Measures" because they exclude amounts that are included in, or
include amounts that are excluded from, the most directly
comparable measure calculated and presented in accordance with IFRS
or are calculated using financial measures that are not calculated
in accordance with IFRS.
The
Group uses such measures to measure operating performance and
liquidity in presentations to the Board and as a basis for
strategic planning and forecasting, as well as monitoring certain
aspects of its operating cash flow and liquidity. The Group
believes that these and similar measures are used widely by certain
investors, securities analysts and other interested parties as
supplemental measures of performance and liquidity.
The
Alternative Performance Measures may not be comparable to other
similarly titled measures used by other companies and have
limitations as analytical tools and should not be considered in
isolation or as a substitute for analysis of the Group's operating
results as reported under IFRS.
An
explanation of the relevance of each of the Alternative Performance
Measures, a reconciliation of the Alternative Performance Measures
to the most directly comparable measures calculated and presented
in accordance with IFRS and a discussion of their limitations is
set out below. The Group does not regard these Alternative
Performance Measures as a substitute for, or superior to, the
equivalent measures calculated and presented in accordance with
IFRS.
The
Group has reported unaudited results for the six months ended 30
April 2021 with a comparative unaudited period of the six months
ended 30 April 2020.
1.
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. The unwinding of fair value adjustments to acquired
deferred revenue has now been completed.
|
Six months
ended
30 April 2021
$m
|
Six
months
ended
30
April 2020
$m
|
Revenue before deferred revenue haircut
|
1,425.7
|
1,454.6
|
Unwinding
of fair value adjustments to acquired deferred revenue
|
-
|
(0.4)
|
Revenue
|
1,425.7
|
1,454.2
|
2.
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, right-of-use asset depreciation 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 loss/(profit) on disposal
of discontinued operation, share-based compensation, product
development intangible cost capitalised and foreign exchange
gains/losses. Adjusted EBITDA is the primary measure used
internally to measure performance and to incentivise and reward
employees.
Adjusted
EBITDA Margin refers to each measure defined above as a percentage
of actual revenue recorded in accordance with IFRS for the
period.
Adjusted
EBITDA is a key profit measure used by the Board to assess the
underlying financial performance of the Group. Adjusted EBITDA is
stated before the following items for the following
reasons:
● Exceptional
items (note 7), including the loss on disposal of discontinued
operation, are excluded by virtue of their size, nature or
incidence, in order to show the underlying business performance of
the Group.
Alternative performance measures continued
2.
EBITDA and Adjusted EBITDA (continued)
● Share-based
payment charges are excluded from the calculation of Adjusted
EBITDA because these represent a non-cash accounting charge for
transactions that could otherwise have been settled in cash or not
be limited to employee compensation. These charges also represent
long-term incentives designed 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 appropriateness of adding-back share-based
payment charges in calculating Adjusted EBITDA 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.
● Actual
spend on product development costs during the period is deducted
from EBITDA 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.
● Foreign
exchange movements are excluded from Adjusted EBITDA in order to
exclude foreign exchange volatility when evaluating the underlying
performance of the business.
The
following table is a reconciliation from loss for the period to
EBITDA and Adjusted EBITDA:
|
Six months
ended
30 April 2021
|
|
Six
months
ended
30
April 2020
|
|
Continuing
operations
|
Discontinued
operation
|
Total
|
|
Continuing
operations
|
Discontinued
operation
|
Total
|
|
$m
|
$m
|
$m
|
|
$m
|
$m
|
$m
|
Loss for the period
|
(218.9)
|
-
|
(218.9)
|
|
(1,029.3)
|
(2.7)
|
(1,032.0)
|
Finance
costs
|
125.9
|
-
|
125.9
|
|
130.9
|
-
|
130.9
|
Finance
income
|
(0.7)
|
-
|
(0.7)
|
|
(1.6)
|
-
|
(1.6)
|
Taxation
|
(61.1)
|
-
|
(61.1)
|
|
(6.7)
|
(0.3)
|
(7.0)
|
Depreciation
of property, plant and equipment
|
17.6
|
-
|
17.6
|
|
21.1
|
-
|
21.1
|
Depreciation
of right-of-use assets
|
38.6
|
-
|
38.6
|
|
40.0
|
-
|
40.0
|
Amortisation
of intangible assets
|
472.2
|
-
|
472.2
|
|
340.4
|
-
|
340.4
|
EBITDA
|
373.6
|
-
|
373.6
|
|
(505.2)
|
(3.0)
|
(508.2)
|
Exceptional
items (reported in loss from discontinued operation)
|
-
|
-
|
-
|
|
-
|
3.0
|
3.0
|
Exceptional
items (reported in Operating loss)
|
143.0
|
-
|
143.0
|
|
1,048.4
|
-
|
1,048.4
|
Share-based
compensation charge
|
8.5
|
-
|
8.5
|
|
8.2
|
-
|
8.2
|
Product
development intangible costs capitalised
|
(11.2)
|
-
|
(11.2)
|
|
(6.9)
|
-
|
(6.9)
|
Foreign
exchange loss
|
5.1
|
-
|
5.1
|
|
7.7
|
-
|
7.7
|
Adjusted EBITDA
|
519.0
|
-
|
519.0
|
|
552.2
|
-
|
552.2
|
|
|
|
|
|
|
|
|
Revenue
|
1,425.7
|
-
|
1,425.7
|
|
1,454.2
|
-
|
1,454.2
|
Adjusted EBITDA Margin
|
36.4%
|
n/a
|
36.4%
|
|
38.0%
|
n/a
|
38.0%
|
Alternative performance measures continued
3.
Adjusted profit before tax
Adjusted profit before tax is defined as profit/(loss) before tax
excluding the effects of, share-based compensation, the
amortisation of purchased intangible assets and all exceptional
items including loss on disposal of discontinued operation. These
items are individually material items and/or that are not
considered to be representative of the trading performance of the
Group:
● Exceptional
items (note 7), including the loss on disposal of discontinued
operation, are excluded by virtue of their size, nature or
incidence, in order to show the underlying business performance of
the Group.
● Share-based
payment charges are excluded from the calculation of Adjusted
EBITDA because these represent a non-cash accounting charge for
transactions that could otherwise have been settled in cash or not
be limited to employee compensation. These charges also represent
long-term incentives designed 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 appropriateness of adding-back share-based
payment charges in calculating Adjusted EBITDA 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 intangibles are excluded from the
calculation of Adjusted Profit before tax. 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.
Adjusted Profit before tax is presented as it is required for the
calculation of the Group's effective tax rate.
The following table is a reconciliation from loss before tax for
the period to Adjusted profit before tax:
|
Six months
ended30 April 2021
|
|
Six
months
ended30
April 2020
|
|
Continuing operations
|
Discontinued operation
|
Total
|
|
Continuing
operations
|
Discontinued
operation
|
Total
|
|
$m
|
$m
|
$m
|
|
$m
|
$m
|
$m
|
Loss before tax
|
(280.0)
|
-
|
(280.0)
|
|
(1,036.0)
|
(3.0)
|
(1,039.0)
|
|
|
|
|
|
|
|
|
Share-based
compensation charge
|
8.5
|
-
|
8.5
|
|
8.2
|
-
|
8.2
|
Amortisation
of purchased intangibles
|
445.3
|
-
|
445.3
|
|
300.3
|
-
|
300.3
|
Exceptional
items, including loss on disposal of discontinued
operation
|
143.0
|
-
|
143.0
|
|
1,048.4
|
3.0
|
1,051.4
|
Adjusting items
|
596.8
|
-
|
596.8
|
|
1,356.9
|
3.0
|
1,359.9
|
|
|
|
|
|
|
|
|
Adjusted profit before tax
|
316.8
|
-
|
316.8
|
|
320.9
|
-
|
320.9
|
Alternative performance measures continued
4.
Adjusted Effective Tax Rate
The
Adjusted Effective Tax Rate is defined as the reported tax
(charge)/credit on continuing operations, less tax on adjusting
items on continuing operations (share-based compensation, the amortisation of
purchased intangible assets and exceptional items), divided
by the Adjusted Profit Before Tax on continuing operations (defined
above). This is an Alternative Performance Measure and is
presented because management
believe it is important to understanding the Group's tax position
on its trading performance.
The tax
charge on Adjusted profit before tax for the six months ended 30
April 2021 was $94.3m (2020: $77.0m
charge), which represents an effective tax rate on Adjusted profit
before tax ("Adjusted ETR") of 29.8% (2020: 24.0%). The calculation
of the Adjusted ETR is set out below.
Effective tax rate (continuing operations)
|
Six months
ended
30 April 2021
|
|
|
Statutory
|
Adjusting
items
|
Adjusted
Measures
|
|
$m
|
$m
|
$m
|
(Loss)/profit before tax
|
(280.0)
|
596.8
|
316.8
|
Taxation
|
61.1
|
(155.4)
|
(94.3)
|
(Loss)/profit after tax
|
(218.9)
|
441.4
|
222.5
|
Effective tax rate
|
21.8%
|
|
29.8%
|
|
|
|
|
|
Effective
tax rate (continuing operations)
|
Six months
ended
30 April 2020
|
|
|
Statutory
|
Adjusting
items
|
Adjusted
Measures
|
|
$m
|
$m
|
$m
|
(Loss)/profit before tax
|
(1,036.0)
|
1,356.9
|
320.9
|
Taxation
|
6.7
|
(83.7)
|
(77.0)
|
(Loss)/profit after tax
|
(1,029.3)
|
1,273.2
|
243.9
|
Effective tax rate
|
0.6%
|
|
24.0%
|
|
|
|
|
|
In computing Adjusted profit before tax for the six months ended 30
April 2021, $596.8m (six months to 30 April 2020: $1,356.9m) of
adjusting items have been added back along with the associated tax
credit of $155.4m (six months ended 30 April 2020: $83.7m) (see
Adjusted profit before tax section above).
Alternative performance measures continued
5.
Adjusted Earnings per Share and Diluted Adjusted Earnings per
Share
The Adjusted Earnings per Share ("EPS") is defined as Basic EPS
where the earnings attributable to ordinary shareholders are
adjusted by adding back all exceptional items including the
loss/(profit) on the 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.
|
Six months
ended
30 April 2021
|
Six
monthsended30 April 2020
|
|
|
|
Cents
|
|
|
|
|
|
EPS from continuing operations attributable to the ordinary equity
shareholders of the Company
|
|
|
Basic
EPS
|
(65.09)
|
(308.40)
|
Diluted
EPS1
|
(65.09)
|
(308.40)
|
Basic
Adjusted EPS
|
66.15
|
73.04
|
Diluted
Adjusted EPS
|
66.15
|
72.10
|
|
|
|
EPS from discontinued operation
|
|
|
Basic
EPS
|
-
|
(0.81)
|
Diluted
EPS1
|
-
|
(0.81)
|
Basic
Adjusted EPS
|
-
|
-
|
Diluted
Adjusted EPS
|
-
|
-
|
|
|
|
Total EPS attributable to the ordinary equity shareholders of the
Company
|
|
|
Basic
EPS
|
(65.09)
|
(309.21)
|
Diluted
EPS1
|
(65.09)
|
(309.21)
|
Basic
Adjusted EPS
|
66.15
|
73.04
|
Diluted
Adjusted EPS
|
66.15
|
72.10
|
|
|
|
Pence
|
|
|
|
|
|
EPS from continuing operations attributable to the ordinary equity
shareholders of the Company
|
|
|
Basic
EPS
|
(47.71)
|
(240.89)
|
Diluted
EPS1
|
(47.71)
|
(240.89)
|
Basic
Adjusted EPS
|
48.49
|
57.05
|
Diluted
Adjusted EPS
|
48.49
|
56.31
|
|
|
|
EPS from discontinued operation
|
|
|
Basic
EPS
|
-
|
(0.63)
|
Diluted
EPS1
|
-
|
(0.63)
|
Basic
Adjusted EPS
|
-
|
-
|
Diluted
Adjusted EPS
|
-
|
-
|
|
|
|
Total EPS attributable to the ordinary equity shareholders of the
Company
|
|
|
Basic
EPS
|
(47.71)
|
(241.52)
|
Diluted
EPS1
|
(47.71)
|
(241.52)
|
Basic
Adjusted EPS
|
48.49
|
57.05
|
Diluted
Adjusted EPS
|
48.49
|
56.31
|
1 The Group reported a
loss from continuing and discontinued operations attributable to
the ordinary equity shareholders of the Company for the six months
ended 30 April 2021. 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.
Alternative performance measures continued
5.
Adjusted Earnings per Share and Diluted Adjusted Earnings per Share
(continued)
|
Six months
ended
30 April 2021
|
Six
monthsended30 April 2020
|
|
$m
|
$m
|
Loss for the period
|
(218.9)
|
(1,032.0)
|
Non-controlling
interests
|
-
|
(0.1)
|
Loss attributable to ordinary shareholders
|
(218.9)
|
(1,032.1)
|
|
|
|
From
continuing operations1
|
(218.9)
|
(1,029.4)
|
From
discontinued operation
|
-
|
(2.7)
|
Loss attributable to ordinary shareholders
|
(218.9)
|
(1,032.1)
|
|
|
|
Adjusting items:
|
|
|
Loss on
discontinued operation
|
-
|
3.0
|
Exceptional
items
|
143.0
|
1,048.4
|
Share-based
compensation charge
|
8.5
|
8.2
|
Amortisation
of purchased intangibles
|
445.3
|
300.3
|
|
596.8
|
1,359.9
|
Tax relating to above adjusting items
|
(155.4)
|
(84.0)
|
|
|
|
Adjusted earnings attributable to ordinary
shareholders
|
222.5
|
243.8
|
|
|
|
From
continuing operations
|
222.5
|
243.8
|
From
discontinued operation
|
-
|
-
|
Adjusted
earnings attributable to ordinary shareholders
|
222.5
|
243.8
|
|
|
|
Weighted average number of shares:
|
Number (m)
|
Number
(m)
|
Basic
|
336.3
|
333.8
|
Effect
of dilutive securities - Options
|
-
|
4.4
|
Diluted
|
336.3
|
338.2
|
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.
|
Six months
ended
30 April 2021
|
|
Six
months
ended
30
April 2020
|
|
Continuing operations
|
Discontinued operation
|
Total
|
|
Continuing
operations
|
Discontinued
operation
|
Total
|
|
$m
|
$m
|
$m
|
|
$m
|
$m
|
$m
|
Adjusting items:
|
|
|
|
|
|
|
|
Exceptional
items, including loss on disposal of discontinued
operation
|
143.0
|
-
|
143.0
|
|
1,048.4
|
3.0
|
1,051.4
|
Share-based
compensation charge
|
8.5
|
-
|
8.5
|
|
8.2
|
-
|
8.2
|
Amortisation
of purchased intangibles
|
445.3
|
-
|
445.3
|
|
300.3
|
-
|
300.3
|
|
596.8
|
-
|
596.8
|
|
1,356.9
|
3.0
|
1,359.9
|
Tax relating to above adjusting items
|
(155.4)
|
-
|
(155.4)
|
|
(83.7)
|
(0.3)
|
(84.0)
|
|
441.4
|
-
|
441.4
|
|
1,273.2
|
2.7
|
1,275.9
|
Alternative performance
measures continued
6.
Free cash flow and Adjusted free cash flow
Free cash flow is defined as cash generated from operations less
interest payments, bank loan costs, tax payments, purchase of
intangible assets, purchase of property, plant and equipment and
interest and capital payments in relation to leases. This is
presented as management believe it is important to the
understanding of the Group's Cash flow.
A new alternative performance measure Adjusted free cash flow was
introduced in the year ended 31 October 2020. Adjusted free cash
flow, which is Free cash flow as previously defined, excluding the
cash impact of exceptional items. This adjusted measure is intended
to present the cash generating qualities of the Group from trading
performance only. In our view, this enables a better understanding
of the Group's underlying trajectory as we deliver our plans. This
adjustment was not made for the six months ended 30 April 2020, as
this definition did not apply for that period.
|
Six months
ended
30 April 2021
|
Six
months
ended
30
April 2020
|
|
$m
|
$m
|
Cash generated from operations
|
468.1
|
560.4
|
Less:
|
|
|
Interest
payments
|
(110.7)
|
(105.5)
|
Bank
loan costs
|
(0.6)
|
(1.1)
|
Tax
payments
|
(128.9)
|
(65.5)
|
Purchase
of intangible assets
|
(35.8)
|
(36.5)
|
Purchase
of property, plant and equipment
|
(10.3)
|
(6.1)
|
Lease
related capital payments
|
(42.3)
|
(40.8)
|
Free cash flow
|
139.5
|
304.9
|
Exclude the cash impact of exceptional items
|
107.4
|
|
Adjusted free cash flow
|
246.9
|
|
7.
Net Debt
Net Debt is defined as cash and cash equivalents less net
borrowings and lease obligations.
|
30 April 2021
|
31
October 2020
|
30
April 2020
|
|
$m
|
$m
|
$m
|
Borrowings
|
(4,597.4)
|
(4,640.3)
|
(4,855.4)
|
Cash
and cash equivalents
|
698.1
|
737.2
|
808.1
|
Lease
obligations
|
(219.1)
|
(250.4)
|
(264.7)
|
Net debt
|
(4,118.4)
|
(4,153.5)
|
(4,312.0)
|
8. 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/(loss) and
excluding any goodwill impairment charge, as this is deemed
non-cash related). This is presented as management believe it is
important to the understanding the Group's conversion of underlying
results to cash.
|
Six months
ended
30 April 2021
|
Six
months
ended
30
April 2020
|
|
$m
|
$m
|
Cash generated from operations
|
468.1
|
560.4
|
|
|
|
Adjusted
EBITDA
|
519.0
|
552.2
|
Less:
exceptional items (reported in Operating loss) (note
7)
|
(143.0)
|
(1,048.4)
|
Excluded:
Goodwill impairment charge (note 7)
|
-
|
922.2
|
Adjusted
EBITDA less exceptional items
|
376.0
|
426.0
|
|
|
|
Adjusted cash conversion ratio
|
124.5 %
|
131.5%
|
Alternative performance
measures continued
9.
Constant Currency
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, Indian Rupee,
Chinese Yuan, Australian Dollar and Japanese Yen. The exchange
rates used are as follows:
|
Six monthsended30 April 2021
|
|
12
months
ended
31
October 2020
|
|
Six
monthsended30 April 2020
|
|
Average
|
Closing
|
|
Average
|
Closing
|
|
Average
|
Closing
|
£1
= $
|
1.36
|
1.39
|
|
1.28
|
1.30
|
|
1.28
|
1.25
|
€1
= $
|
1.20
|
1.21
|
|
1.13
|
1.17
|
|
1.10
|
1.09
|
C$ =
$
|
0.79
|
0.81
|
|
0.74
|
0.75
|
|
0.74
|
0.72
|
ILS =
$
|
0.30
|
0.31
|
|
0.29
|
0.29
|
|
0.29
|
0.29
|
INR =
$
|
0.01
|
0.01
|
|
0.01
|
0.01
|
|
0.01
|
0.01
|
CNY =
$
|
0.15
|
0.15
|
|
0.14
|
0.15
|
|
0.14
|
0.14
|
AUD =
$
|
0.76
|
0.78
|
|
0.68
|
0.70
|
|
0.66
|
0.65
|
100 JPY
= $
|
0.94
|
0.92
|
|
0.93
|
0.96
|
|
0.92
|
0.94
|
Micro Focus International plc
Condensed Consolidated Statement of Comprehensive
Income
For the six months ended 30 April 2021
|
|
Six months ended
30 April 2021
|
Six
months ended
30
April 2020
|
|
|
Before
Exceptional
Items
|
Exceptional
Items
(note 7)
|
Total
|
Before
Exceptional
Items
|
Exceptional
Items
(note
7)
|
Total
|
Continuing operations
|
Note
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
Revenue
|
6
|
1,425.7
|
-
|
1,425.7
|
1,454.2
|
-
|
1,454.2
|
Cost of
sales
|
|
(383.1)
|
(1.8)
|
(384.9)
|
(349.7)
|
(3.2)
|
(352.9)
|
Gross profit
|
|
1,042.6
|
(1.8)
|
1,040.8
|
1,104.5
|
(3.2)
|
1,101.3
|
Selling
and distribution costs
|
|
(649.8)
|
(4.3)
|
(654.1)
|
(538.7)
|
(9.8)
|
(548.5)
|
Research
and development expenses
|
|
(259.8)
|
0.4
|
(259.4)
|
(242.9)
|
(0.5)
|
(243.4)
|
Administrative
expenses
|
|
(144.8)
|
(137.3)
|
(282.1)
|
(181.2)
|
(1,034.9)
|
(1,216.1)
|
Operating (loss)/profit
|
|
(11.8)
|
(143.0)
|
(154.8)
|
141.7
|
(1,048.4)
|
(906.7)
|
|
|
|
|
|
|
|
|
Finance
costs
|
|
(125.9)
|
-
|
(125.9)
|
(130.9)
|
-
|
(130.9)
|
Finance
income
|
|
0.7
|
-
|
0.7
|
1.6
|
-
|
1.6
|
Net
finance costs
|
|
(125.2)
|
-
|
(125.2)
|
(129.3)
|
-
|
(129.3)
|
|
|
|
|
|
|
|
|
(Loss)/profit before tax
|
|
(137.0)
|
(143.0)
|
(280.0)
|
12.4
|
(1,048.4)
|
(1,036.0)
|
Taxation
|
10
|
28.5
|
32.6
|
61.1
|
(24.1)
|
30.8
|
6.7
|
Loss from continuing operations
|
|
(108.5)
|
(110.4)
|
(218.9)
|
(11.7)
|
(1,017.6)
|
(1,029.3)
|
Loss from discontinued operation (attributable to equity
shareholders of the company)
|
|
-
|
-
|
-
|
-
|
(2.7)
|
(2.7)
|
Loss for the period
|
|
(108.5)
|
(110.4)
|
(218.9)
|
(11.7)
|
(1,020.3)
|
(1,032.0)
|
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
|
|
|
Equity
shareholders of the parent
|
|
(108.5)
|
(110.4)
|
(218.9)
|
(11.8)
|
(1,020.3)
|
(1,032.1)
|
Non-controlling
interests
|
|
-
|
-
|
-
|
0.1
|
-
|
0.1
|
Loss for the period
|
|
(108.5)
|
(110.4)
|
(218.9)
|
(11.7)
|
(1,020.3)
|
(1,032.0)
|
The
accompanying notes are an integral part of these unaudited
Condensed Consolidated Interim Financial Statements.
Micro Focus International plc
Condensed Consolidated Statement of Comprehensive
Income
For the six months ended 30 April 2021
|
|
Six months ended
30 April 2021
|
Six
months ended
30 April 2020
|
|
|
Before exceptional Items
|
Exceptional Items
(note 7)
|
Total
|
Before
exceptional Items
|
Exceptional
Items
(note
7)
|
Total
|
|
Note
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
Loss for the period
|
|
(108.5)
|
(110.4)
|
(218.9)
|
(11.7)
|
(1,020.3)
|
(1,032.0)
|
Other comprehensive income/(expense):
|
|
|
|
|
|
|
|
Items that will not be reclassified to profit or loss
|
|
|
|
|
|
|
|
Continuing operations:
|
|
|
|
|
|
|
|
Actuarial
gain on pension schemes liabilities
|
15
|
34.0
|
-
|
34.0
|
4.8
|
-
|
4.8
|
Actuarial
gain on non-plan pension assets
|
15
|
0.2
|
-
|
0.2
|
0.4
|
-
|
0.4
|
Deferred
tax movement on pension schemes
|
|
-
|
-
|
-
|
(1.4)
|
-
|
(1.4)
|
Items that may be subsequently reclassified to profit or
loss
|
|
|
|
|
|
|
|
Cash
flow hedge movements
|
14
|
20.7
|
-
|
20.7
|
(58.2)
|
-
|
(58.2)
|
Current
tax movement on cash flow hedge movements
|
|
(3.9)
|
-
|
(3.9)
|
11.1
|
-
|
11.1
|
Current
tax movement on Euro loan foreign exchange hedging
|
|
7.6
|
-
|
7.6
|
-
|
-
|
-
|
Deferred
tax movement on currency translation differences
|
|
(17.3)
|
-
|
(17.3)
|
11.4
|
-
|
11.4
|
Currency
translation differences
|
|
96.5
|
-
|
96.5
|
(207.2)
|
-
|
(207.2)
|
Other comprehensive income/(expense) for the period
|
|
137.8
|
-
|
137.8
|
(239.1)
|
-
|
(239.1)
|
Total comprehensive income/(expense) for the period
|
|
29.3
|
(110.4)
|
(81.1)
|
(250.8)
|
(1,020.3)
|
(1,271.1)
|
Attributable to:
|
|
|
|
|
|
|
|
Equity
shareholders of the parent
|
|
29.3
|
(110.4)
|
(81.1)
|
(250.9)
|
(1,020.3)
|
(1,271.2)
|
Non-controlling
interests
|
|
-
|
-
|
-
|
0.1
|
-
|
0.1
|
Total comprehensive income/(expense) for the period
|
|
29.3
|
(110.4)
|
(81.1)
|
(250.8)
|
(1,020.3)
|
(1,271.1)
|
|
|
|
|
|
|
|
|
Total comprehensive income/(expense) attributable to the equity
shareholders of the company arises from:
|
|
|
|
|
|
|
|
Continuing
operations
|
|
29.3
|
(110.4)
|
(81.1)
|
(250.8)
|
(1,017.6)
|
(1,268.4)
|
Discontinued
operations
|
|
-
|
-
|
-
|
-
|
(2.7)
|
(2.7)
|
|
|
29.3
|
(110.4)
|
(81.1)
|
(250.8)
|
(1,020.3)
|
(1,271.1)
|
Earnings per share (cents)
|
|
|
|
|
|
|
|
From continuing and discontinued operations
|
|
|
|
cents
|
|
|
cents
|
-
basic
|
9
|
|
|
(65.09)
|
|
|
(309.21)
|
-
diluted
|
9
|
|
|
(65.09)
|
|
|
(309.21)
|
From continuing operations
|
|
|
|
|
|
|
|
-
basic
|
9
|
|
|
(65.09)
|
|
|
(308.40)
|
-
diluted
|
9
|
|
|
(65.09)
|
|
|
(308.40)
|
|
|
|
|
|
|
|
|
Earnings per share (pence)
|
|
|
|
|
|
|
|
From continuing and discontinued operations
|
|
|
|
pence
|
|
|
pence
|
-
basic
|
9
|
|
|
(47.71)
|
|
|
(241.52)
|
-
diluted
|
9
|
|
|
(47.71)
|
|
|
(241.52)
|
From continuing operations
|
|
|
|
|
|
|
|
-
basic
|
9
|
|
|
(47.71)
|
|
|
(240.89)
|
-
diluted
|
9
|
|
|
(47.71)
|
|
|
(240.89)
|
The
accompanying notes are an integral part of these unaudited
Condensed Consolidated Interim Financial Statements.
Micro Focus International plc
Condensed Consolidated Statement of Financial Position
|
Note
|
30 April 2021
$m
|
31 October 2020
$m
|
Non-current assets
|
|
|
|
Goodwill
|
11
|
3,902.3
|
3,835.4
|
Other
intangible assets
|
12
|
5,024.0
|
5,383.0
|
Property,
plant and equipment
|
|
88.5
|
93.7
|
Right-of-use
assets
|
|
179.3
|
207.2
|
Long-term
pension assets
|
15
|
18.7
|
18.2
|
Contract-related
costs
|
|
37.8
|
35.7
|
Non-current
tax receivables
|
|
44.9
|
-
|
Other
non-current assets
|
|
33.5
|
31.8
|
|
|
9,329.0
|
9,605.0
|
Current assets
|
|
|
|
Trade
and other receivables
|
|
629.7
|
731.4
|
Contract-related
costs
|
|
22.6
|
27.9
|
Current
tax receivables
|
10
|
54.3
|
45.3
|
Cash
and cash equivalents
|
|
698.1
|
737.2
|
Total
current assets
|
|
1,404.7
|
1,541.8
|
Total assets
|
|
10,733.7
|
11,146.8
|
|
|
|
|
Current liabilities
|
|
|
|
Trade
and other payables
|
|
465.1
|
503.5
|
Borrowings
|
13
|
24.2
|
21.4
|
Lease
obligations
|
|
76.6
|
82.2
|
Provisions
|
16
|
124.5
|
49.7
|
Current
tax liabilities
|
10
|
136.7
|
150.1
|
Contract
liabilities
|
|
933.3
|
981.4
|
|
|
1,760.4
|
1,788.3
|
Non-current liabilities
|
|
|
|
Contract
liabilities
|
|
131.6
|
117.2
|
Borrowings
|
13
|
4,573.2
|
4,618.9
|
Lease
obligations
|
|
142.5
|
168.2
|
Derivative
liability
|
14
|
57.1
|
77.9
|
Retirement
benefit obligations
|
15
|
126.7
|
155.0
|
Provisions
|
16
|
23.9
|
22.5
|
Other
non-current liabilities
|
|
31.2
|
39.9
|
Current
tax liabilities
|
10
|
91.8
|
102.7
|
Deferred
tax liabilities
|
10
|
735.3
|
841.1
|
|
|
5,913.3
|
6,143.4
|
Total liabilities
|
|
7,673.7
|
7,931.7
|
Net assets
|
|
3,060.0
|
3,215.1
|
|
|
|
|
Capital and reserves
|
|
|
|
Share
capital
|
|
47.3
|
47.3
|
Share
premium account
|
|
46.5
|
46.5
|
Merger
reserve
|
|
1,767.4
|
1,767.4
|
Capital
redemption reserve
|
|
2,485.0
|
2,485.0
|
Hedging
reserve
|
|
(46.3)
|
(63.1)
|
Retained
earnings
|
|
(1,000.0)
|
(741.3)
|
Foreign
currency translation deficit
|
|
(239.9)
|
(326.7)
|
Total equity
|
|
3,060.0
|
3,215.1
|
The
accompanying notes are an integral part of these unaudited
Condensed Consolidated Interim Financial Statements.
Micro Focus International plc
Condensed Consolidated Statement of Changes in Equity
|
|
Share capital
|
Share premium account
|
Retained
earnings/
(deficit)
|
Foreign currency translation reserve/ (deficit)
|
Capital redemption reserves
|
Hedging reserve
|
Merger reserve
|
Equity attributable to the
parent
|
Non-controlling interests
|
Total
equity
|
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
Balance at 1 November 2020
|
|
47.3
|
46.5
|
(741.3)
|
(326.7)
|
2,485.0
|
(63.1)
|
1,767.4
|
3,215.1
|
-
|
3,215.1
|
Loss
for the financial period
|
|
-
|
-
|
(218.9)
|
-
|
-
|
-
|
-
|
(218.9)
|
-
|
(218.9)
|
Other
comprehensive income for the period
|
|
-
|
-
|
34.2
|
86.8
|
-
|
16.8
|
-
|
137.8
|
-
|
137.8
|
Total
comprehensive (expense)/income for the period
|
|
-
|
-
|
(184.7)
|
86.8
|
-
|
16.8
|
-
|
(81.1)
|
-
|
(81.1)
|
Share options:
|
|
|
|
|
|
|
|
|
|
|
|
Movement
in relation to share options
|
|
-
|
-
|
6.2
|
-
|
-
|
-
|
-
|
6.2
|
-
|
6.2
|
Deferred
tax on share options
|
|
-
|
-
|
(1.2)
|
-
|
-
|
-
|
-
|
(1.2)
|
-
|
(1.2)
|
Purchase of treasury shares1
|
|
-
|
-
|
(27.2)
|
-
|
-
|
-
|
-
|
(27.2)
|
-
|
(27.2)
|
Transactions with owners:
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
paid
|
|
-
|
-
|
(51.8)
|
-
|
-
|
-
|
-
|
(51.8)
|
-
|
(51.8)
|
Balance as at 30 April 2021
|
|
47.3
|
46.5
|
(1,000.0)
|
(239.9)
|
2,485.0
|
(46.3)
|
1,767.4
|
3,060.0
|
-
|
3,060.0
|
1 During
the six months ended 30 April 2021 the Micro Focus Employee Benefit
Trust ("EBT") purchased 4 million of the Group's shares from the
market. The EBT will hold these shares to satisfy future exercises
of share options. In accordance with the requirement of IFRS 10 the
EBT is treated as if it is a subsidiary of the Group. As a result,
the purchase of shares held by the EBT is reported as a purchase of
Treasury shares by the Group.
|
|
Share capital
|
Share premium account
|
Retained
earnings
|
Foreign currency translation reserve/ (deficit)
|
Capital redemption reserves
|
Hedging reserve
|
Merger reserve
|
Equity attributable to the
parent
|
Non-controlling interests
|
Total
equity
|
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
Balance at 1 November 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
|
Impact
of adoption of IFRS 16
|
|
-
|
-
|
(11.3)
|
-
|
-
|
-
|
-
|
(11.3)
|
-
|
(11.3)
|
Revised balance at 1 November 2019
|
|
47.2
|
44.0
|
2,239.4
|
(262.1)
|
2,485.0
|
(29.6)
|
1,739.8
|
6,263.7
|
1.3
|
6,265.0
|
Loss
for the financial period
|
|
-
|
-
|
(1,032.1)
|
-
|
-
|
-
|
-
|
(1,032.1)
|
0.1
|
(1,032.0)
|
Other
comprehensive income/(expense) for the period
|
|
-
|
-
|
3.8
|
(195.8)
|
-
|
(47.1)
|
-
|
(239.1)
|
-
|
(239.1)
|
Total
comprehensive (expense)/income for the period
|
|
-
|
-
|
(1,028.3)
|
(195.8)
|
-
|
(47.1)
|
-
|
(1,271.2)
|
0.1
|
(1,271.1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Share options:
|
|
|
|
|
|
|
|
|
|
|
|
Movement
in relation to share options
|
|
-
|
2.7
|
9.9
|
-
|
-
|
-
|
-
|
12.6
|
-
|
12.6
|
Current
tax on share options
|
|
-
|
-
|
(0.6)
|
-
|
-
|
-
|
-
|
(0.6)
|
-
|
(0.6)
|
Deferred
tax on share options
|
|
-
|
-
|
(1.6)
|
-
|
-
|
-
|
-
|
(1.6)
|
-
|
(1.6)
|
Balance as at 30 April 2020
|
|
47.2
|
46.7
|
1,218.8
|
(457.9)
|
2,485.0
|
(76.7)
|
1,739.8
|
5,002.9
|
1.4
|
5,004.3
|
The
accompanying notes are an integral part of these unaudited
Condensed Consolidated Interim Financial Statements.
Micro Focus International plc
Condensed
Consolidated Statement of Cash Flows
|
Note
|
Six months ended
30 April 2021
$m
|
Six
months ended
30
April 2020
$m
|
Cash flows from operating activities
|
|
|
|
Cash generated from operations
|
17
|
468.1
|
560.4
|
Interest
paid
|
|
(110.7)
|
(105.5)
|
Bank
loan costs
|
|
(0.6)
|
(1.1)
|
Tax
paid
|
|
(128.9)
|
(65.5)
|
Net cash generated from operating activities
|
|
227.9
|
388.3
|
Cash flows from investing activities
|
|
|
|
Payments
for intangible assets
|
12
|
(35.8)
|
(36.5)
|
Purchase of
property, plant and equipment
|
|
(10.3)
|
(6.1)
|
Interest
received
|
|
0.7
|
1.6
|
Investing
cash flows generated from discontinued operation, net of cash
disposed
|
|
-
|
1.3
|
Net cash used in investing activities
|
|
(45.4)
|
(39.7)
|
Cash
flows from financing activities
|
|
|
|
Proceeds
from issue of ordinary share capital
|
|
-
|
2.7
|
Purchase
of treasury shares and related expenses
|
|
(27.2)
|
-
|
Payment
for lease liabilities
|
|
(42.3)
|
(40.8)
|
Settlement
of foreign exchange derivative
|
|
-
|
(21.8)
|
Proceeds
from bank borrowings
|
|
-
|
175.0
|
Repayment
of bank borrowings
|
|
(105.5)
|
-
|
Dividends
paid to owners
|
8
|
(51.8)
|
-
|
Net
cash (used in)/generated from financing activities
|
|
(226.8)
|
115.1
|
Effects
of exchange rate changes
|
|
5.2
|
(11.3)
|
Net
(decrease)/increase in cash and cash equivalents
|
|
(39.1)
|
452.4
|
Cash
and cash equivalents at beginning of period
|
|
737.2
|
355.7
|
Cash and cash equivalents at end of period
|
|
698.1
|
808.1
|
The
accompanying notes are an integral part of these unaudited
Condensed Consolidated Interim Financial Statements.
Micro
Focus International plc
Notes
to the consolidated interim financial statements
1. General
information
Micro
Focus International plc ("Company") is a public limited company
incorporated and domiciled in England, 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 30 April 2021, the Group had a presence in 45
countries (31 October 2020: 48) worldwide and employed
approximately 11,600 people (31 October 2020: 11,900).
The
Company is listed on the London Stock Exchange and its American
Depositary Shares are listed on the New York Stock Exchange.
These
unaudited Condensed Consolidated Interim Financial Statements were
authorised for issuance by the board of directors on 30 June
2021.
These
Condensed Consolidated Interim Financial Statements do not comprise
statutory accounts within the meaning of section 434 of the
Companies Act 2006. Statutory accounts for the year ended 31
October 2020 were approved by the board of directors on 8 February
2021 and delivered to the Registrar of Companies. The auditor
has reported on the 31 October 2020 accounts; their report was (i)
unqualified, (ii) did not include a reference to any matters to
which the auditor drew attention by way of emphasis without
qualifying their report and (iii) did not contain a statement under
section 498 (2) or (3) of the Companies Act 2006.
2. Basis of
preparation
These
Condensed Consolidated Interim Financial Statements for the six
months ended 30 April 2021 have been prepared in accordance with
IAS 34, "Interim Financial Reporting" and should be read in
conjunction with the Annual Report and Accounts for the year ended
31 October 2020. They do not include all of the information
required for a complete set of financial statements prepared in
accordance with International Financial Reporting Standards.
However, selected explanatory notes are included to explain events
and transactions that are significant to an understanding of the
changes in the Group's financial position and performance since the
last annual financial statements.
Going
concern
In
line with IAS 1 'Presentation of financial statements', and the FRC
guidance on 'risk management, internal control and related
financial and business reporting', management has taken into
account all available information about the future for a period of
at least, but not limited to, 12 months from the date of approval
of the interim financial statements when assessing the Group's
ability to continue as a going concern.
Having
assessed the principal risks, the directors considered it
appropriate to adopt the going concern basis of accounting when
preparing the interim financial statements. This assessment covers
the period from the date of approval of these interim financial
statements to July 2022 ("the going concern period"), which is
consistent with the FRC guidance on "risk management, internal
control and related financial and business reporting".
The
Group's $350 million revolving credit facility was undrawn at 30
April 2021 and the Group had $698.1 million of cash balances at 30
April 2021 providing total liquidity of $1,048.1 million. Further
details of the Group's credit facilities are provided in note 13
Borrowings.
In
making this assessment, the board considered the Group's business
model which results in revenue typically being paid upfront and the
majority of revenues being recurring in nature. In addition to the
base case scenario, it considered the financial impacts for severe
but plausible scenarios impacting both revenue and Adjusted EBITDA
which take into account the Group's principal risks, including the
wider macro-economic impacts from COVID-19 continuing over the
going concern period. The Group has no significant exposure to any
individual customer or concentration of customers in any specific
industry therefore the differential impacts of COVID-19 on
different companies and sectors has limited impact on the Group.
This stress testing confirmed that projected cash flows and cash
management activities provide the Group with significant headroom
over the going concern assessment period with no requirement to
access the revolving credit facility during the going concern
assessment period.
Finally,
the board also considered the reported net current liability
position of $355.7m at 30 April 2021. This is the result of advance
billing for services which is required to be recognised as a
contract liability. The cost of delivering these services is fully
included in the Group's forecasting and sensitivities.
Critical estimates, assumptions and judgements
In
preparing these Condensed Consolidated Interim Financial
Statements, the Group has made its best estimates and judgements of
certain amounts included in the financial statements, giving due
consideration to materiality. The Group regularly reviews these
estimates and updates them as required. The Group has reviewed its
critical accounting estimates, assumptions and judgements and two
new critical accounting estimates have been identified in relation
to the useful economic lives of the Group's purchased intangibles
and the carrying value of the patent litigation provision. Aside
from these new estimates the critical accounting estimates,
assumptions and judgements set out in section II of the Group's
Annual Report and Accounts for the 12 months ended 31 October 2020
remain relevant to these Condensed Consolidated Interim Financial
Statements.
Notes to the consolidated interim financial statements
2. Basis of preparation
(continued)
Useful economic lives of purchased intangibles
The
economic lives of the Group's purchased intangibles are determined
on initial acquisition and reassessed annually or whenever there
are changes in circumstances indicating that the economic lives may
not be appropriate. In reassessing the lives factors such as
changes in actual and expected trading performance of the Group and
how these compare to the initial acquisition assessment are
considered. Using this information an estimate of the remaining
useful economic lives is determined and if different to the
currently applied life the remaining life is adjusted
prospectively.
Following
the goodwill impairment in the year ended 31 October 2020,
management has reviewed the estimated lives of intangible assets.
The assessment performed in the current year has resulted in a
reduction in the economic lives of certain purchased intangibles,
see note 12 for details on the impacts in the current period,
expected impact in future periods and sensitivity.
Carrying value of the patent litigation provision
The
Group has recorded a provision in relation to the patent litigation
case brought by Wapp Tech Limited Partnership and Wapp Tech
Corp. (collectively, "Wapp"). Note 16, Provisions and Contingent
liabilities, provides further details on this estimate. As set out
in Note 16, the magnitude of the damages the jury awarded totalling
$172.5m and the provision now recorded of $70m means that the Group
believes that this is a critical estimate. The carrying value of
the provision is sensitive to the potential options the Group is
considering to resolve the case given the range of those potential
options. The period of time until a final conclusion on this case
is reached may exceed 12 months and therefore there could remain
uncertainty as to the value of the provision beyond the next 12
months.
3 Accounting
policies
Other
than as described below, the accounting policies, presentation and
methods of calculation adopted are consistent with those of the
Annual Report and Accounts for the year ended 31 October 2020,
apart from standards, amendments to or interpretations of published
standards adopted during the period. Income taxes are accrued using
the tax rate that is expected to be applicable for the full
financial year, adjusted for certain discrete items which occurred
in the interim period in accordance with IAS 34.
The
following standards, interpretations and amendments to existing
standards are now effective and have been adopted by the Group. The
impacts of applying these policies are not considered
material:
-
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.
-
Amendments to IFRS 3 "Business Combinations", clarifies the
definition of a business in acquisitions.
-
Amendments to IAS1 and IAS 8: guidance on the definition of
material.
-
Amendments to IFRS9, IAS 39, IFRS 7, IFRS 16 and IFRS 4: Interest
rate benchmark reforms. Phase 1 covering hedge accounting impacts
and discontinuance exemptions.
The
following interpretations and amendments to existing standards are
not yet effective and have not been adopted early by the
Group:
Effective
for periods commencing after 1 January 2021:
-
Amendments to IFRS9, IAS 39, IFRS 7, IFRS 16
and IFRS 4: Interest rate benchmark reforms. Phase 2 effective
January 2021 covers further disclosures on transition to a new
benchmark, EU endorsed 14 January 2021.
Effective
for periods commencing after 1 January 2022:
-
Annual Improvements cycle 2018-2020
includes relevant amendments clarifying capitalisation of
transaction fees/ inclusion of specific fees in
modification/extinguishment test within IFRS 9 Financial
Instruments, subject to EU endorsement. Other included improvement
in IFRS 1 (First time adoption) and IAS 41 (agriculture) are not
applicable to the Group.
-
Amendments to IFRS 3 Business combinations, IAS
16 "Property, plant and equipment" and IAS 37 "Provisions,
Contingent assets and Contingent liabilities" are all subject to EU
endorsement.
-
Amendments to IAS 37 "Provisions, Contingent assets and
liabilities" - guidance on costs in fulfilling onerous contracts,
subject to EU endorsement.
Notes to the consolidated interim financial statements
3. Accounting policies
(continued)
Effective
for periods commencing after 1 January 2023, all subject to EU
endorsement:
-
Amendments to IAS 1 "Presentation of financial statements".
Amendment is presentational relates to the classification of
liabilities current and non-current.
-
Amendments to IAS 1 "Presentation of financial statements" aims to
provide guidance on the application of materiality judgements to
policy disclosures.
-
Amendments to IAS 8 "Accounting policies, changes in accounting
estimates and errors" provides clarifications around the definition
of accounting estimates and further clarification around the
difference between policy changes and estimates.
-
Amendments to IAS 12 "Income taxes" covering temporary timing
differences for deferred tax on the recognition of asset and
liabilities from a single transaction.
-
Amendments to IFRS 17 "Insurance contracts". Rent concessions is
not relevant for the Group.
The
impact of the amendments and interpretations listed above are not
expected to have a material impact on the consolidated financial
statements.
4.
Presentation
currency
The
presentation currency of the Group is US dollars. Items included in
the financial statements of each of the Group's entities are
measured in the functional currency of each entity.
5.
Segmental
reporting
In
accordance with IFRS 8 "Operating Segments", the Group has derived
the information for its segmental reporting using the information
used by the Chief Operating Decision Maker for the purposes of
resource allocation and assessment of segment performance. The
Chief Operating Decision Maker ("CODM") is defined as the Operating
Committee.
For
the six months ended 30 April 2021, the Operating Committee
consisted of the Chief Executive Officer, the Chief Financial
Officer, Chief Operating Officer, Chief HR Officer and Senior Vice
President Business Operations and the Chief Legal Officer. 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.
|
|
Six months
ended
30 April 2021
|
Six
months
ended
30
April 2020
|
Reconciliation to Adjusted EBITDA:
|
Note
|
$m
|
$m
|
Loss before tax
|
|
(280.0)
|
(1,036.0)
|
Finance
costs
|
|
125.9
|
130.9
|
Finance
income
|
|
(0.7)
|
(1.6)
|
Depreciation of property, plant and equipment
|
|
17.6
|
21.1
|
Depreciation of right-of-use assets
|
|
38.6
|
40.0
|
Amortisation of intangible assets
|
12
|
472.2
|
340.4
|
Exceptional items (reported in Operating loss)
|
7
|
143.0
|
1,048.4
|
Share-based compensation charge
|
|
8.5
|
8.2
|
Product development intangible costs capitalised
|
|
(11.2)
|
(6.9)
|
Foreign
exchange loss
|
|
5.1
|
7.7
|
Adjusted EBITDA
|
|
519.0
|
552.2
|
For
the reportable segment, the total assets were $10,733.7m (31
October 2020: $11,146.8m) and the total liabilities were $7,673.7m
(31 October 2020: $7,931.7m) as at 30 April 2021.
Notes to the consolidated interim financial statements
6.
Analysis of
revenue
Revenue
from contracts with customers
|
Six months ended
30 April 2021
|
Six months
ended
30 April 2020
|
|
$m
|
$m
|
Revenue from contracts with customers
|
1,425.7
|
1,454.2
|
|
|
|
Being:
|
|
|
Recognised over time:
|
|
|
Maintenance revenue
|
912.5
|
966.0
|
SaaS & other recurring revenue
|
119.8
|
124.5
|
|
1,032.3
|
1,090.5
|
Recognised at point in time:
|
|
|
Licence revenue
|
301.7
|
267.6
|
Consulting revenue
|
91.7
|
96.1
|
|
393.4
|
363.7
|
|
|
|
Total revenue
|
1,425.7
|
1,454.2
|
By
Product
Set
out below is an analysis of revenue recognised between the
principal product portfolios for the six months ended 30 April 2021
with comparatives:
|
Licence
$m
|
Maintenance
$m
|
SaaS &
other
recurring
$m
|
Consulting
$m
|
Total
$m
|
Six months ended 30 April 2021:
|
|
|
|
|
|
Micro Focus Product Portfolio
|
|
|
|
|
|
Application
Modernisation & Connectivity ("ADC")
|
62.1
|
158.5
|
-
|
5.1
|
225.7
|
Application
Delivery Management ("ADM")
|
49.6
|
208.9
|
36.6
|
9.2
|
304.3
|
IT
Operations Management ("ITOM")
|
92.8
|
262.2
|
2.0
|
54.6
|
411.6
|
Security
|
70.1
|
193.6
|
18.6
|
14.5
|
296.8
|
Information
Management & Governance ("IM&G")
|
27.1
|
89.3
|
62.6
|
8.3
|
187.3
|
Subtotal
|
301.7
|
912.5
|
119.8
|
91.7
|
1,425.7
|
Deferred
revenue haircut
|
-
|
-
|
-
|
-
|
-
|
Total Micro Focus Product Portfolio
|
301.7
|
912.5
|
119.8
|
91.7
|
1,425.7
|
|
Licence
$m
|
Maintenance
$m
|
SaaS
&
other
recurring
$m
|
Consulting
$m
|
Total
$m
|
Six
months ended 30 April 2020:
|
|
|
|
|
|
Micro
Focus Product Portfolio
|
|
|
|
|
|
Application
Modernisation & Connectivity ("ADC")
|
60.4
|
160.5
|
-
|
5.2
|
226.1
|
Application
Delivery Management ("ADM")
|
46.7
|
223.2
|
38.4
|
7.7
|
316.0
|
IT
Operations Management ("ITOM")
|
69.7
|
284.0
|
1.4
|
56.7
|
411.8
|
Security
|
65.6
|
206.2
|
16.7
|
17.7
|
306.2
|
Information
Management & Governance ("IM&G")
|
25.2
|
92.4
|
68.1
|
8.8
|
194.5
|
Subtotal
|
267.6
|
966.3
|
124.6
|
96.1
|
1,454.6
|
Deferred
revenue haircut
|
-
|
(0.3)
|
(0.1)
|
-
|
(0.4)
|
Total
Micro Focus Product Portfolio
|
267.6
|
966.0
|
124.5
|
96.1
|
1,454.2
|
Notes to the consolidated interim financial statements
7.
Exceptional items
|
Six months
ended
30 April 2021
|
Six
months
ended
30
April 2020
|
Reported within Operating loss:
|
$m
|
$m
|
Integration
costs
|
45.6
|
102.9
|
Property
related costs
|
4.0
|
1.6
|
Legal
settlement and associated costs
|
74.6
|
-
|
Severance
and legal costs
|
13.0
|
21.7
|
Other
restructuring costs
|
5.8
|
-
|
Goodwill
impairment
|
-
|
922.2
|
Exceptional costs before tax
|
143.0
|
1,048.4
|
|
|
|
Tax effect of exceptional items
|
(32.6)
|
(30.8)
|
|
|
|
Reported within loss from discontinued operation (attributable to
equity shareholders of the Company):
|
|
|
Loss on
disposal of discontinued operation
|
-
|
2.7
|
|
|
|
Exceptional costs after tax
|
110.4
|
1,020.3
|
Integration
costs
Integration
costs of $45.6m for the six months ended 30 April 2021 (six months
ended 30 April 2020: $102.9m) reflect the IT design, build and
migration onto a single IT platform and a wide range of projects
undertaken to conform, simplify and increase efficiency across the
business.
Property related costs
Property
related costs of $4.0m for the six months ended 30 April 2021 (six
months ended 30 April 2020: $1.6m) relate to the assessment and
reassessment of leases on empty or sublet properties held by the
Group and the cost of site consolidations as the Group simplifies
its real estate footprint.
Legal settlement and associated costs
Legal
settlements and associated costs of $74.6m for the six months ended
30 April 2021 (six months ended 30 April 2020: $nil) relate
to the provision for the Wapp patent infringement
case.
Severance and legal
costs
Severance
and legal costs of $13.0m for the six months ended 30 April 2021
(six months ended 30 April 2020: $21.7m) relate mostly to legal
fees and termination costs for employees as the Group continues to
remove duplication and simplify the continuing operations as a
result of the acquisition of HPE Software.
Other restructuring costs
Other
restructuring costs of $5.8m for the six months ended 30 April 2021
(six months ended 30 April 2020: $nil) relates to the costs of
implementing the initiatives included in the Strategic &
Operational Review.
Goodwill impairment
A
goodwill impairment charge of $922.2m was made in the six months
ended 30 April 2020.
Tax effect of exceptional items
The
tax effect of exceptional items on the income statement is a credit
of $32.6m for the six months ended 30 April 2021 (six months ended
30 April 2020: $30.8m).
Loss on the disposal of discontinued operation
The
loss on the disposal of discontinued operation of $2.7m in the
six months ended 30 April 2020 related to conclusion of the working
capital settlement on the disposal of the SUSE
business.
8.
Dividends
|
Six months
ended
30 April 2021
|
Six months
ended
30 April 2020
|
Equity - ordinary
|
$m
|
$m
|
Final paid 31 October 2020 15.5 cents per ordinary share (31
October 2019: $nil)
|
51.8
|
-
|
|
51.8
|
-
|
The
directors announce an interim dividend of 8.80 cents per share
payable on 6 August 2021 to shareholders who are registered at 23
July 2021. This interim dividend, amounting to $29.5m has not been
recognised as a liability as at 30 April 2021.
Notes to the consolidated interim financial statements
9. Earnings per
share
The
calculation of the basic earnings per share has been based on the
earnings attributable to owners of the parent and the weighted
average number of shares for each period.
Reconciliation of the earnings and weighted average number of
shares:
|
Six monthsended30 April 2021
|
Six months ended30 April 2020
|
Earnings ($m)
|
|
|
Loss for the period from continuing operations
|
(218.9)
|
(1,029.3)
|
Loss for the period from discontinued operations
|
-
|
(2.7)
|
Loss for the period
|
(218.9)
|
(1,032.0)
|
|
|
|
Number of shares ('m)
|
|
|
Weighted average number of shares
|
336.3
|
333.8
|
Dilutive effects of shares
|
-
|
4.4
|
|
336.3
|
338.2
|
Earnings per share
|
|
|
|
|
|
Cents
|
|
|
Basic earnings per share
|
|
|
Continuing operations
|
(65.09)
|
(308.40)
|
Discontinued operation
|
-
|
(0.81)
|
Total Basic earnings per share
|
(65.09)
|
(309.21)
|
|
|
|
Diluted earnings per share
|
|
|
Continuing operations1
|
(65.09)
|
(308.40)
|
Discontinued operation1
|
-
|
(0.81)
|
Total Diluted earnings per
share1
|
(65.09)
|
(309.21)
|
|
|
|
Pence
|
|
|
Basic earnings per share
|
|
|
Continuing operations
|
(47.71)
|
(240.89)
|
Discontinued operation
|
-
|
(0.63)
|
Total Basic earnings per share
|
(47.71)
|
(241.52)
|
|
|
|
Diluted earnings per share
|
|
|
Continuing operations1
|
(47.71)
|
(240.89)
|
Discontinued operations1
|
-
|
(0.63)
|
Total Diluted earnings per
share1
|
(47.71)
|
(241.52)
|
|
|
|
Loss attributable to ordinary shareholders ($m)
|
|
|
From continuing operations
|
(218.9)
|
(1,029.4)
|
Excluding non-controlling interests
|
-
|
0.1
|
Loss for the period from continuing operations
|
(218.9)
|
(1,029.3)
|
Loss from discontinued operation
|
-
|
(2.7)
|
|
(218.9)
|
(1,032.0)
|
Average exchange rate
|
$1.36 / £1
|
$1.28 / £1
|
1 The
Group reported a loss from continuing and discontinued operations
attributable to the ordinary equity shareholders of the Company for
the six months ended 30 April 2020. 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.
The
weighted average number of shares excludes treasury shares that do
not have dividend rights.
Notes to the consolidated interim financial statements
10.
Taxation
Tax
for the six-month period ended 30 April 2021 was a credit of $61.1m
(30 April 2020: credit of $6.7m) with the Group's Effective Tax
Rate ("ETR") being 21.8% (30 April 2020: 0.6%).
There
is a net credit of $13m in relation to prior year adjustments
arising following the submission of certain tax returns and claims
for the years ended 31 October 2019 and 2020 and a release of
provisions for uncertain tax positions as relevant tax returns are
closed and historic tax audits are completed. Following the unwind
of the intra-Group financing in FY20, the Group does not realise a
benefit from this for this period onwards (30 April 2020: $20.7m).
The benefit mostly related to arrangements put in place to
facilitate the acquisition of the HPE Software
business.
The
Group's cash taxes paid in the six months ended 30 April 2021 were
$128.9m (30 April 2020: $65.5m). Cash taxes are higher than the
prior year comparative period primarily due to the payment in
relation to State Aid charging notices ($44.2m) received from HMRC
(see below).
The
Group is recognising a short-term current tax liability of $136.7m
(31 October 2020: $150.1m), a long-term current tax liability
relating to US tax of $91.8m (31 October 2020: $102.7m) and a
short-term current tax receivable of $54.3m (31 October 2020:
$45.3m) and a long-term current tax receivable relating to the UK
of $44.9m. The Group is also recognising a deferred tax liability
of $735.3m (31 October 2020: $841.1m), after jurisdictional
offsetting.
The
long-term current tax liability relates to US tax reforms announced
in 2018 and is payable in instalments over eight years to 2026.
Within current tax liabilities is $70.5m (31 October 2020: $84.8m)
in respect of provisions for uncertain tax positions, the majority
of which relate to the risk of challenge from local tax authorities
to the transfer pricing arrangements of the Group. The Group does
not anticipate that there will be any material change to these
provisions in the next 12 months. Due to the uncertainty associated
with such tax items, it is possible that at a future date, on
conclusion of open tax matters, the final outcome may vary
significantly. 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 changes
President Biden will introduce and global tax reform as governments
respond to COVID-19, 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. In February 2021 the Group received and settled State Aid
charging notices (excluding interest) totalling $44.2m (the cash
impact of which has been recorded as exceptional), issued by HM
Revenue and Customs, following the requirement for the UK
government to start collection proceedings. During the period, the
Group received State Aid interest charging notices from HM Revenue
and Customs totalling $2.9m, which were settled in June 2021. In
addition, the UK Tax Authorities continue to challenge the historic
financing arrangements of the Group. Based on its current
assessment and supported by external professional advice, the Group
consider that the maximum liability of both of these items to be
$60m. Based on its current assessment and also supported by
external professional advice, the Group believes that no provision
is required in respect of these issues and a long-term current tax
receivable has been recognised in respect of the amounts paid
(including movement due to exchange rates) at the balance sheet
date. No additional liability should accrue in future periods in
respect of these matters, following (i) an amendment of the UK
legislation affected by the EU Commission finding on 1 January
2019, to be compliant with EU law, and (ii) the unwind of the
financing company arrangements in question.
11. Goodwill
|
|
30 April 2021
|
31
October 2020
|
Cost
|
|
$m
|
$m
|
|
At 30 April 2021 /31 October 2020
|
|
6,753.2
|
6,634.6
|
|
|
|
|
|
|
Impairment losses
|
|
|
|
|
At 30 April 2021 / 31 October 2020
|
|
(2,850.9)
|
(2,799.2)
|
|
|
|
|
|
|
Net book value at 30 April 2021 / 31 October 2020
|
|
3,902.3
|
3,835.4
|
|
|
|
|
|
|
The
movement in cost and impairment losses in the period of $66.9m
arises from foreign currency movements. Goodwill acquired through
business combinations has been allocated to a cash generating unit
("CGU") for the purpose of impairment testing. All goodwill relates
to the Micro Focus product portfolio segment.
Impairment test
Impairment
of goodwill is tested annually, or more frequently where there is
an indication of impairment. The Group's annual test is performed
at 31 October. A review for potential impairment indicators in the
six months ended 30 April 2021 was performed and no indicators have
been identified and therefore no impairment test has been
performed. Details of the assumptions used in the 31 October 2020
impairment test and the sensitivity of this impairment test to
changes in the key assumptions are disclosed in note 10 "Goodwill"
in the Annual Report and Accounts for the year ended 31 October
2020.
Notes to the consolidated interim financial statements
12. Other intangibles
assets
|
|
|
Purchased intangibles
|
|
Purchased software
$m
|
Product development costs
$m
|
Technology
$m
|
Trade names
$m
|
Customer relationships
$m
|
Total
$m
|
Cost
|
|
|
|
|
|
|
At 1
November 2020
|
191.5
|
274.0
|
2,201.2
|
269.2
|
5,364.0
|
8,299.9
|
Additions
|
24.6
|
11.2
|
-
|
-
|
-
|
35.8
|
Disposals
|
(0.4)
|
-
|
-
|
-
|
-
|
(0.4)
|
Effects
of movements in exchange rates
|
2.1
|
0.2
|
30.5
|
3.6
|
77.7
|
114.1
|
At 30 April 2021
|
217.8
|
285.4
|
2,231.7
|
272.8
|
5,441.7
|
8,449.4
|
|
|
|
|
|
|
|
Accumulated amortisation
|
|
|
|
|
|
|
At 1
November 2020
|
113.5
|
237.9
|
865.7
|
87.9
|
1,611.9
|
2,916.9
|
Amortisation
charge for the period
|
16.1
|
10.8
|
127.5
|
10.2
|
307.6
|
472.2
|
Disposals
|
(0.4)
|
-
|
-
|
-
|
-
|
(0.4)
|
Effects
of movements in exchange rates
|
1.4
|
0.1
|
11.6
|
1.2
|
22.4
|
36.7
|
At 30 April 2021
|
130.6
|
248.8
|
1,004.8
|
99.3
|
1,941.9
|
3,425.4
|
|
|
|
|
|
|
|
Net book amount at 30 April 2021
|
87.2
|
36.6
|
1,226.9
|
173.5
|
3,499.8
|
5,024.0
|
Net
book amount at 31 October 2020
|
78.0
|
36.1
|
1,335.5
|
181.3
|
3,752.1
|
5,383.0
|
During
the six months ended 30 April 2021, the Group conducted a review on
the estimated lives of its intangible assets with specific focus on
those recognised as part of the HPE Software acquisition. This
review considered the actual and expected trading performance of
the Group compared to the original projections produced at the time
of HPE Software acquisition as the directors believe these
forecasts better reflect the expected future use of the economic
benefits in these acquired intangibles. As a result of this
review, the expected lives of certain purchased intangibles with a
carrying value of $3,736.8m as at 1 November 2020, have been
reduced with the shorter lives applied from 1 November
2020.
The intangibles assets impacted by this change are
customer relationships in the ITOM and ADM product groups and
customer relationships within certain products in
IM&G1,
which had a total carrying value of $2,770.4m as at 1 November
2020. These have reduced from 12 years remaining life to between
five and 11 years. In addition, purchased technology in the ITOM
and ADM product groups and certain purchased technology in
IM&G, which had a carrying value of $966.4m as at 1 November
2020, have reduced from seven years remaining life to five
years.
In
line with the requirements of IFRS3, these technology assets were
originally recognised at the acquisition date in September 2017 and
so the asset life represented the estimated period of time before
the technology became obsolete if no future investment into that
technology were made. However there has been and continues to be
significant R&D activity across these portfolios with the Group
releasing c.500 product releases each year to ensure that the
technology remains relevant beyond the life assigned under the
requirements of IFRS 3.
The
effect of these changes on actual and expected amortisation expense
is as follows:
|
Impact in the year ended 31 October
|
|
$m
|
2021
|
2022
|
2023
|
2024
|
2025
|
2026
|
Impact in all later periods
|
Increase/(decrease) in amortisation expense
|
261
|
261
|
261
|
261
|
192
|
(145)
|
(1,091)
|
|
|
|
|
|
|
|
|
Recognised in:
|
|
|
|
|
|
|
|
Costs
of sales (amortisation of acquired purchased)
|
59
|
59
|
59
|
59
|
25
|
(141)
|
(120)
|
Selling
and distribution expenses (amortisation of customer
relationships)
|
202
|
202
|
202
|
202
|
167
|
(4)
|
(971)
|
|
261
|
261
|
261
|
261
|
192
|
(145)
|
(1,091)
|
If
the remaining economic lives of all purchased intangibles were one
year longer than the revised lives, expected amortisation would be
$158.1m lower than that shown in the table above in the year ended
31 October 2021, with consequential impacts in subsequent years. If
the remaining economic lives of all purchased intangibles were one
year shorter than the revised lives, amortisation would be $166.4m
higher than that shown in the table above in the year ended 31
October 2021, with consequential impacts in subsequent
years.
1 Defined
in note 6
Notes to the consolidated interim financial statements
13.
Borrowings
|
30 April 2021
|
31
October 2020
|
|
$m
|
$m
|
Bank
loan secured
|
4,674.4
|
4,733.2
|
Unamortised
prepaid facility arrangement fees and original issue
discounts
|
(77.0)
|
(92.9)
|
|
4,597.4
|
4,640.3
|
|
|
|
Short-term
borrowings
|
24.2
|
21.4
|
Long-term
borrowings
|
4,573.2
|
4,618.9
|
|
4,597.4
|
4,640.3
|
The
following facilities were drawn as at 30 April 2021:
●
The €588.8m (equivalent to
$713.6m) (31 October 2020: €600m, equivalent to $700.3m)
senior secured five year term loan B-1 issued by MA FinanceCo.,
LLC, maturing in June 2025, is priced at EURIBOR plus 4.5% (subject
to a EURIBOR floor of 0.00%) with an original issue discount of
3.0%;
●
The $359.5m (31 October 2020: $368.2m)
senior secured seven-year term loan B-3 issued by MA FinanceCo.,
LLC, maturing in June 2024, is priced at LIBOR plus 2.75% (subject
to a LIBOR floor of 0.00%) with an original issue discount of
0.25%;
●
The $637.8m (31 October 2020: $650.0m)
senior secured five-year term loan B-4 issued by MA FinanceCo.,
LLC, maturing in June 2025, is priced at LIBOR plus 4.25% (subject
to a LIBOR floor of 1.00%) with an original issue discount of
2.5%;
●
The $2,427.9m (31 October 2020:
$2,486.3m) senior secured seven-year term loan B issued by Seattle
SpinCo, Inc., maturing in June 2024, is priced at LIBOR plus 2.75%
(subject to a LIBOR floor of 0.00%) with an original issue discount
of 0.25%; and
●
The €442.2m (equivalent to
$535.6m) (31 October 2020: €452.8m, equivalent to $528.4m)
senior secured seven year term loan B issued by MA FinanceCo., LLC,
maturing in June 2024, is priced at EURIBOR plus 3.00% (subject to
a EURIBOR floor of 0.00%) with an original issue discount of
0.25%.
The
following facilities were undrawn at 30 April 2021:
●
A senior secured revolving credit
facility of $350.0m ($nil drawn), ("Revolving Facility"), with an
interest rate of 3.50% above LIBOR on amounts drawn (and 0.5% on
amounts undrawn) thereunder (subject to a LIBOR floor of
0.00%).
At
30 April 2021, $nil of the Revolving Facility was drawn (31 October
2020: $nil), together with $4,674.4m of term loans giving gross
debt of $4,674.4m drawn.
There
are no financial covenants on the Group's term-loan borrowing
facilities. The Revolving Facility is subject to a single financial
covenant, being an aggregate net leverage covenant only in
circumstances where more than 35% of the Revolving Facility is
outstanding at a fiscal quarter end. Throughout the period the
applicable covenant threshold was 3.85x, however no test was
applicable at 30 April 2021 or any previous test date, as the
facility was not drawn in excess of the 35% threshold. This
covenant is not expected to inhibit the Group's future operations
or funding plans.
The
Group's borrowing arrangements include annual repayments of 1% of
the initial par value for the B-3, Seattle Spinco and Euro term B
loans and 2.5% of the initial par value for the B-1 and B4 loans
with the amount paid in four equal quarterly instalments and then a
final balloon payment on maturity. Repayments required under these
instalment arrangements amounted to $25.6m for the six months ended
30 April 2021.
In
addition, the borrowing arrangements require additional debt
repayments where the Group's net leverage exceeds 3.00x, when 25%
of excess cash flow for the prior year is required to be paid, and
3.30x, when 50% of excess cash flow for the prior year is required
to be paid. No amount was required to be paid under these
arrangements however a voluntary repayment of $79.9m was made for
the six months ended 30 April 2021. Total voluntary and instalment
repayments amounted to $105.5m for the six months ended 30 April
2021.
Notes
to the consolidated interim financial statements
14.
Financial instruments
The
tables below sets out the measurement categories and carrying
values of financial assets and liabilities with fair value inputs
where relevant.
|
|
Measurement category
|
Carrying value
30 April
2021
|
Fair value
2021
|
Fair value
Hierarchy
2021/2020
|
Carrying
value
31 October 2020
|
|
|
|
$m
|
|
|
$m
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
|
|
|
|
|
|
|
Long-term
pension asset
|
|
FV
OCI
|
18.7
|
Fair
value insurance
based
input
|
Level
3
|
18.2
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Cash
and cash equivalent
|
|
Amortised
cost
|
698.1
|
-
|
-
|
737.2
|
Trade
and other receivables
|
|
Amortised
cost
|
522.3
|
-
|
-
|
648.6
|
Contract
assets
|
|
Amortised
cost
|
42.3
|
-
|
-
|
33.7
|
|
|
|
1,281.4
|
|
|
1,437.7
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
|
|
|
|
|
|
|
Derivative
financial instruments - interest rate swaps1
|
|
FV
OCI
|
57.1
|
Fair
value Bank
Institutions
|
Level
2
|
77.9
|
Borrowings
(gross)2
|
|
Amortised
cost
|
4,636.6
|
4,637.3
|
-
|
4,699.0
|
Lease
obligations
|
|
Amortised
cost
|
142.5
|
-
|
-
|
168.2
|
Provisions
|
|
Amortised
cost
|
23.9
|
-
|
-
|
22.5
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Borrowings
(gross)2
|
|
Amortised
cost
|
37.8
|
-
|
-
|
34.2
|
Lease
obligations
|
|
Amortised
cost
|
76.6
|
-
|
-
|
82.2
|
Provisions
|
|
Amortised
cost
|
124.5
|
-
|
-
|
49.7
|
Trade
and other payables - accruals
|
|
Amortised
cost
|
387.9
|
-
|
-
|
419.2
|
|
|
|
5,486.9
|
|
|
5,552.9
|
1 Derivative
interest rate swaps are measured at FV OCI as a result of hedge
accounting. All interest rate swaps are in designated hedge
relationships and there are no other derivative financial
instruments held as FVTPL.
2 Borrowings
have a carrying value (net of unamortised prepaid facility
arrangement fees and original issue discount) of $4,597.4m (31
October 2020: $4,640.3m). Total borrowings (Gross) are shown in
this table as $4,674.4m (31 October 2020: $4,733.2m) for the fair
value comparison.
Fair value measurement
For
trade and other receivables, cash and cash equivalents, provisions,
trade and other payables, fair values approximate to book values
due to the short maturity periods of these financial instruments.
For trade receivables, allowances are made for credit
risk.
Long-term
borrowings with a carrying value of $4,597.4m (31 October 2020:
$4,640.3m) (note 13 "Borrowings") including unamortised prepaid
facility fees and discounts, have a fair value estimate of
$4,637.3m (31 October 2020: $4,535.1m) based on trading prices
obtained from external banking providers as at 30 April
2021.
Derivative
financial instruments measured at fair value are classified as
Level 2 in the fair value measurement hierarchy as they have been
determined using significant inputs based on observable market
data. The fair values of interest rate derivatives are derived from
forward interest rates based on yield curves observable at the
balance sheet date together with the contractual interest rates.
Valuations are updated by the counter-party banks on a monthly
basis.
The
impact of changes in the fair value of interest rate swaps in the
six months ended 30 April 2021 is shown in the Consolidated
statement of comprehensive income. The foreign exchange
gains/(losses) for the revaluation of the net investment hedging
instruments are compared against the translation of goodwill and
intangibles affecting the cumulative translation reserve on
consolidation. No amounts have been reclassified from the hedging
reserve to the loss for the period.
Hedge
effectiveness may be affected by credit risk (in the case of the
interest rate swaps) and the net investment hedged items may be
affected by events impacting the carrying value of goodwill and
intangible assets such as asset disposals or impairment reviews.
There were no material adjustments made for credit risk or other
ineffectiveness in the period for the hedging
arrangements.
Notes to the consolidated interim financial statements
14. Financial
instruments
The
long-term pension assets are considered to be a Level 3 asset under
the fair value hierarchy as of 30 April 2021. 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.
The movement in the long-term pension asset is disclosed in note 15
"Retirement benefit obligations".
For
derivatives and long-term pension assets there were no transfers of
assets or liabilities between levels of the fair value hierarchy
during the year.
Interest rate and foreign currency risk
Details
of the Group's risks and treasury policies in relation to interest
rate risk and currency risk are set out in note 24 of the
Group's Annual Report and Accounts for the year ended 31
October 2020. There have been no changes in the Group's approach to
managing these risks, the instruments held to manage these risks or
the hedge relationships.
The
Group four interest rate swaps have a fair value of ($57.1m) (31
October 2020: ($77.9m)) with the movement in fair value recognised
in the hedging reserve. The hedge ratio remains at 1:1 and the
impact of credit risk remains low at $0.8m (31 October 2020:
$1.4m). For the six months ended 30 April 2021, net interest
(finance cost) paid for the swaps amounted to $20.7m. For the life
of the swap, net interest paid to date amounted to
$37.8m.
The
notional amount of designated Euro borrowings has increased to
$1,249.1m (31 October 2020: $1,194.3m) as movements in exchange
rates have outweighed the impacts of repayments in the period.
Exchange losses of $46.7m have been recognised in other
comprehensive income in the period (year ended 31 October 2020:
$58.7m) as a result of the net investment hedge. Minor
ineffectiveness has arisen on the second net investment hedge where
the hedge is 1:0.98 (31 October 2020: 1:1) which has not resulted
in any exchange losses being recognised in profit or
loss.
15. Retirement benefit
obligations
|
30 April 2021
|
|
31 October 2020
|
|
Germany
$m
|
Rest of World
$m
|
Total
$m
|
|
Germany
$m
|
Rest of
World
$m
|
Total
$m
|
Within non-current assets:
|
|
|
|
|
|
|
|
Long-term pension assets
|
18.7
|
-
|
18.7
|
|
18.2
|
-
|
18.2
|
|
|
|
|
|
|
|
|
Within non-current liabilities:
|
|
|
|
|
|
|
|
Present value of defined benefit obligations
|
241.6
|
58.7
|
300.3
|
|
248.4
|
54.9
|
303.3
|
Fair values of plan assets
|
(139.6)
|
(34.0)
|
(173.6)
|
|
(119.1)
|
(29.2)
|
(148.3)
|
Retirement benefit obligations
|
102.0
|
24.7
|
126.7
|
|
129.3
|
25.7
|
155.0
|
The
decrease in the retirement benefit obligation was due primarily in
relation to the plans in Germany. The main changes in relation to
the German plans were actuarial gains resulting from increases in
our discount rates of $19.4m and $14.3m from actuarial returns on
assets excluding amounts included in interest income. These gains
were partially offset by service costs and net interest costs of
$3.2m and the effects of movements in exchange rates of $4.9m
during the period.
The
movement on the long-term pension asset is as follows:
|
30 April 2021
|
31
October 2020
|
|
$m
|
$m
|
As at 1
November
|
18.2
|
17.1
|
Transfer
to plan assets
|
(0.7)
|
(0.4)
|
Interest
on non-plan assets
|
0.1
|
0.2
|
Benefits
paid
|
(0.1)
|
(0.1)
|
Contributions
|
0.2
|
0.3
|
|
|
|
Included within other comprehensive income:
|
|
|
-
Change in fair value assessment
|
0.2
|
0.4
|
|
0.2
|
0.4
|
|
|
|
Effects
of movements in exchange rates
|
0.8
|
0.7
|
As at 30 April / 31 October
|
18.7
|
18.2
|
|
|
|
Included within other comprehensive income:
|
|
|
Continuing
operations
|
0.2
|
0.4
|
|
0.2
|
0.4
|
Notes to the consolidated interim financial statements
15. Retirement benefit obligations
(continued)
The
following amounts have been included in the Consolidated Statement
of Comprehensive Income for defined benefit pension
arrangements.
|
Six months
ended
30 April 2021
|
Six months
ended
30 April 2020
|
|
$m
|
$m
|
Charge to operating loss
|
4.6
|
5.1
|
Charge to finance costs
|
0.9
|
0.9
|
Total continuing charge to loss for the period
|
5.5
|
6.0
|
The
following amounts have been recognised as movements in the
statement of other comprehensive income:
|
Six months
ended
30 April 2021
|
Six months
ended
30 April 2020
|
|
$m
|
$m
|
Actuarial return/(loss) on assets excluding amounts included in
interest income
|
15.2
|
(6.2)
|
Re-measurements - actuarial gains:
|
18.8
|
11.0
|
Movement in the period
|
34.0
|
4.8
|
|
|
|
The
weighted average key assumptions used for the valuation of the
schemes were:
|
30 April 2021
|
|
31
October 2020
|
|
Germany
|
Rest of World
|
Total
|
|
Germany
|
Rest of
World
|
Total
|
Rate of
increase in final pensionable salary
|
2.50%
|
3.13%
|
2.66%
|
|
2.50%
|
3.09%
|
2.64%
|
Rate of
increase in pension payments
|
1.50%
|
1.50%
|
1.50%
|
|
1.50%
|
1.50%
|
1.50%
|
Discount
rate
|
1.14%
|
1.73%
|
1.25%
|
|
0.79%
|
1.41%
|
0.90%
|
Inflation
|
1.50%
|
1.23%
|
1.46%
|
|
1.50%
|
1.25%
|
1.47%
|
The
mortality assumptions for the pension schemes are set based on
actuarial advice in accordance with published statistics and
experience in the territory.
Sensitivities
The
net present value of our defined benefit obligation is sensitive to
both actuarial assumptions and market conditions. The table below
provides information on the sensitivity of the defined benefit
obligation to changes to the discount rate assumption as this
assumption is the key driver of the movement in the net obligation
in the period. The table shows the impact of changes to the
discount rate 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.
|
Germany
|
|
Rest of World
|
|
Increase in assumption
|
Change in defined benefit obligation
|
Decrease in assumption
|
Change in defined benefit obligation
|
|
Increase in assumption
|
Change in defined benefit obligation
|
Decrease in assumption
|
Change in defined benefit obligation
|
Discount
rate for scheme liabilities
|
0.50%
|
(10.3%)
|
0.50%
|
12.0%
|
|
0.50%
|
(6.6%)
|
0.50%
|
7.3%
|
Notes
to the consolidated interim financial statements
16.
Provisions and Contingent liabilities
|
|
30 April 2021
|
31 October 2020
|
|
|
$m
|
$m
|
Onerous
leases and dilapidations
|
|
19.0
|
16.9
|
Restructuring
|
|
21.7
|
30.8
|
Legal
|
|
95.0
|
9.7
|
Other
|
|
12.7
|
14.8
|
Total
|
|
148.4
|
72.2
|
|
|
|
|
Current
|
|
124.5
|
49.7
|
Non-current
|
|
23.9
|
22.5
|
Total
|
|
148.4
|
72.2
|
A
description of the Group's provisions by category and contingent
liabilities is included in notes 21 and 30 of the Annual Report and
Accounts for the year ended 31 October 2020. During the six months
ended 30 April 2021 two significant change in the Group's
provisions and contingent liabilities have arisen.
On
2 July 2018, Wapp Tech Limited Partnership and Wapp Tech Corp
(collectively "Wapp") brought a claim against Micro Focus in the
Eastern District of Texas, accusing the Company of infringing three
patents in connection with Micro Focus' sale of certain products in
the ADM product line, including LoadRunner and Performance
Centre.
The
case was tried during the period and, on 5 March 2021, the jury
delivered a verdict in favour of Wapp and awarded damages
totalling approximately $172.5 million. On 22 April 2021, the
Court denied Wapp's request for enhanced damages and entered final
judgment based on the jury award of approximately $172.5 million.
On 5 May 2021, Wapp filed a motion for prejudgment and
post-judgment interest, seeking approximately $18.4 million in
prejudgment interest.
Micro
Focus continues to maintain that it has not and does not infringe
Wapp's patents and that those patents are invalid. On 20 May
2021, Micro Focus filed a motion for judgment of non-infringement
as a matter of law and/or a new trial, including on the question of
damages. Additionally, on 3 June 2021, Micro Focus filed an
opposition to Wapp's request for approximately $18.4 million in
prejudgment interest. The Court is yet to rule on Micro Focus'
motion or on the issue of prejudgment interest.
After
post-trial motions have been decided by the Court, the parties will
have an opportunity to appeal to the Federal Circuit Court of
Appeals. An appeal could take a number of years and would
require significant resources and success may result in the case
being referred back to the Eastern District of Texas to be re-tried
before a jury. Therefore it is in the best interests of the Group
to consider a range of options including to appeal and to establish
whether a settlement could be reached.
Taking
into account the range of options under consideration at this time,
the Directors' best estimate of the expenditure required to resolve
the case is $70 million including potential prospective external
legal costs and accordingly a provision has been recorded for this
amount at 30 April 2021. In line with our accounting policy, the
cost of recording this provision has been treated as an exceptional
cost in the Consolidated Statement of Comprehensive Income for the
six months ended 30 April 2021 (see note 7).
The
shareholder litigation complaint in the United States District
Court for the Southern District of New York has been followed by a
mediation during the period where the parties have reached an
agreement to settle the case on terms including a payment of $15.0m
to a settlement class. The proposed settlement is subject to
the court's approval. The Group has recognised a legal provision of
$15.0m and an insurance receivable, within other receivables, of
$15.0m. Therefore, no amounts have been recognised in the
Consolidated Statement of Comprehensive Income for the shareholder
litigation. The settlement amount will be paid from insurance
coverage. The Company and all defendants have denied, and
continue to deny, the claims alleged in the case and the settlement
does not reflect any admission of fault, wrongdoing or liability as
to any defendant. In the Superior Court of California, the
matter is ongoing. No liability has been recognised in this case as
it is too soon to estimate whether there will be any financial
impact.
Together,
these two changes are responsible for $85.0m of the $76.2m increase
in provisions during the six months ended 30 April
2021.
Notes to the consolidated interim financial statements
17. Cash flow statement
|
Note
|
Six months ended
30 April 2021
$m
|
Six
months ended
30
April 2020
$m
|
Cash flows from operating activities
|
|
|
|
Loss
from continuing operations
|
|
(218.9)
|
(1,029.3)
|
Loss
from discontinued operation
|
|
-
|
(2.7)
|
Loss
for the period
|
|
(218.9)
|
(1,032.0)
|
Adjustments for:
|
|
|
|
Loss on
disposal of SUSE
|
|
-
|
3.0
|
Net
interest
|
|
125.2
|
129.3
|
Taxation
- continuing operations
|
10
|
(61.1)
|
(6.7)
|
Taxation
- discontinued operations
|
|
-
|
(0.3)
|
Operating loss
|
|
(154.8)
|
(906.7)
|
|
|
|
|
Goodwill
impairment charge
|
7,11
|
-
|
922.2
|
Research
and development tax credits
|
|
(0.4)
|
(1.0)
|
Property,
plant and equipment depreciation
|
|
17.6
|
21.1
|
Gain on
disposal of property, plant and equipment
|
|
(0.1)
|
-
|
Right-of-use
asset depreciation
|
|
38.6
|
40.0
|
Right-of-use
asset impairment
|
|
2.6
|
-
|
Amortisation
of intangible assets
|
12
|
472.2
|
340.4
|
Amortisation
of contract-related assets
|
|
10.0
|
7.4
|
Share-based
compensation charge
|
|
8.5
|
8.2
|
Exchange
movements
|
|
5.1
|
7.7
|
Provisions
movements
|
|
102.4
|
22.1
|
Cash generated from operations before working capital
|
|
501.7
|
461.4
|
Changes in working capital:
|
|
|
|
Inventories
|
|
-
|
(0.2)
|
Trade
and other receivables
|
|
112.3
|
270.7
|
Increase
in contract-related costs
|
|
(5.2)
|
(12.7)
|
Payables
and other liabilities
|
|
(59.0)
|
(102.6)
|
Provision utilisation
|
|
(27.5)
|
(24.2)
|
Contract
liabilities
|
|
(54.4)
|
(36.7)
|
Pension
funding in excess of charge to operating loss
|
|
0.2
|
4.7
|
Cash generated from operations
|
|
468.1
|
560.4
|
18. Post Balance Sheet events
Tax
In
the March 2021 Budget, the UK Government announced that legislation
will be introduced in Finance Bill 2021 to increase the main rate
of UK corporation tax from 19% to 25%, effective 1 April
2023.
As
the changes had not been substantively enacted at the balance sheet
date, the UK related deferred tax balances as at 30 April 2021
continue to be measured at a rate of 19%. If the 25% tax rate had
been used at the balance sheet date, the deferred tax liability
would have been $56.9m higher.
INDEPENDENT
REVIEW REPORT TO MICRO FOCUS INTERNATIONAL PLC
Conclusion
We
have been engaged by the company to review the condensed set of
financial statements in the half-yearly financial report for the
six months ended 30 April 2021 which comprises the Condensed
Consolidated Statement of Comprehensive Income, Condensed
Consolidated Statement of Financial Position, Condensed
Consolidated Statement of Changes in Equity, Condensed Consolidated
Statement of Cash Flows and the related explanatory
notes.
Based
on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the
half-yearly financial report for the six months ended 30 April 2021
is not prepared, in all material respects, in accordance with IAS
34 Interim Financial Reporting adopted pursuant to Regulation (EC)
No 1606/2002 as it applies in the European Union and the Disclosure
Guidance and Transparency Rules ("the DTR") of the UK's Financial
Conduct Authority ("the UK FCA").
Scope of review
We
conducted our review in accordance with International Standard on
Review Engagements (UK and Ireland) 2410 Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity issued by the Auditing Practices Board for use in the UK. A
review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
half-yearly financial report and consider whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial
statements.
A
review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit
opinion.
Directors' responsibilities
The
half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for
preparing the half-yearly financial report in accordance with the
DTR of the UK FCA.
As
disclosed in note 2, the latest annual financial statements of the
Group were prepared in accordance with International Financial
Reporting Standards as adopted by the EU and the next annual
financial statements will be prepared in accordance with
International Financial Reporting Standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union
and in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006. The
directors are responsible for preparing the condensed set of
financial statements included in the half-yearly financial report
in accordance with IAS 34 adopted pursuant to Regulation (EC) No
1606/2002 as it applies in the European Union.
Our responsibility
Our
responsibility is to express to the company a conclusion on the
condensed set of financial statements in the half-yearly financial
report based on our review.
The purpose of our review work and to whom we owe our
responsibilities
This
report is made solely to the company in accordance with the terms
of our engagement to assist the company in meeting the requirements
of the DTR of the UK FCA. Our review has been undertaken so that we
might state to the company those matters we are required to state
to it in this report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the company for our review work, for this
report, or for the conclusions we have reached.
John Edwards
for and on behalf of KPMG LLP
Chartered
Accountants
15
Canada Square, London, E14 5GL
30
June 2021
This information is provided by RNS, the news service of the London
Stock Exchange. RNS is approved by the Financial Conduct Authority
to act as a Primary Information Provider in the United Kingdom.
Terms and conditions relating to the use and distribution of this
information may apply. For further information, please
contact rns@lseg.com or
visit www.rns.com.
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:
01 July 2021
Micro
Focus International plc
|
By:
|
/s/
Brian McArthur-Muscroft
|
|
Name:
|
Brian
McArthur-Muscroft
|
|
Title:
|
Chief
Financial Officer
|