a9541a
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13A-16 OR 15D-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the
Month of: February 2022
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
|
Full
Year results year ending 31 October 2021, dated 08 February
2022
|
8
February 2022
Micro Focus International plc
Full Year results for the year ended 31 October 2021
Micro
Focus International plc ("the Company" or "the Group", LSE: MCRO.L,
NYSE: MFGP), the global enterprise software group, announces Full
Year results for the year ended 31 October 2021
("FY21").
"Progress made in transforming systems, re-positioning products and
strengthening Go-to-Market will provide the platform to deliver on
our targets for FY23"
Financial highlights
●
Revenue of $2.9bn
(FY20: $3.0bn), improving the rate of year-on-year decline
from -10% in FY20 to -5% in FY21 on a constant currency basis
("CCY")
●
Adjusted EBITDA of
$1,040.2m (FY20: CCY $1,187.0m) at a margin of 36% (FY20:
39%), reflecting the reduction in revenue in the year partially
offset by cost actions.
●
Statutory operating loss
of $265.6m for FY21, which includes depreciation, amortisation, and
exceptional items totalling $1,310.5m. (FY20: loss of $2,661.4m).
FY20 included total depreciation, amortisation and exceptional
items of $3,804.6m (including an exceptional impairment charge of
$2,799.2m against goodwill).
●
Adjusted free cash flow
of $292.4m (FY20: $660.1m), with current year impacted by
significant cash outflows in respect of working capital and one-off
tax payments.
●
Net debt of $4,195.9m
(FY20: $4,153.5m), representing a net leverage ratio of 4.0x. This
reduces to 3.8x on a pro-forma basis, assuming the disposal of
Digital Safe.
●
Successful refinancing
of term loans totalling $1.6bn in January 2022, extending the
average maturity of the Group's debt from 2.7 years to 3.6
years.
●
Final dividend of 20.3
cents per share (FY20: 15.5 cents) recommended resulting in total
FY21 dividend of 29.1 cents, consistent with 5x covered
policy.
Operational highlights
●
Sale of Digital Safe for
$375m now completed with cash from net proceeds received on 31
January 2022.
●
Single enterprise-wide
IT platform launched, with three quarters now successfully closed
on new platform.
●
Continued improvements
across all product portfolios with 56 major product launches in the
year, including new SaaS offerings in each product
portfolio.
●
Key milestones achieved
in Go-to-Market transformation, with increased specialism in
CyberRes and Big Data, combined with transition to single global
approach to sales.
●
Growth in Licence
revenue underpinned by improvement across all product groups and
double-digit growth in key
sub-portfolios.
●
Actions to moderate the
rate of decline in Maintenance are progressing as planned and
operational metrics highlight early indications of improvement in
the underlying renewal rates.
Outlook
●
On track to deliver
goals of FY23 exit with a flat or better revenue trajectory,
reducing cost base from $1.9bn to c.$1.5bn-$1.6bn (allowing for
cost inflation) and a run rate Adjusted free cash flow of
approximately $500m.
Stephen Murdoch, Chief Executive Officer, commented:
"We made good progress in FY21 as we continued to reposition the
product portfolio to focus on growth opportunities, restructured
the go-to-market organisation and implemented a single platform
across the group. These customer-centric investments started to
deliver meaningful improvements in sales and operating performance,
and the sale of the Digital Safe business demonstrated the
underlying value of our assets. In addition we announced the
refinancing of $1.6bn of our debt on attractive terms as we
continue to reposition and invest in the portfolio.
These results provide a good foundation from which to deliver the
strategic priorities that we announced at the end of last
year. We remain focused on achieving our previously announced
financial objectives as we exit FY23: a flat or better revenue
trajectory, which combined with significant cost efficiencies
should deliver $500m of run rate Adjusted free cash
flow."
|
Year ended
31 October 2021
|
Year ended
31 October 2020
|
Growth/
Decline %
|
Alternative performance measures from
continuing operations1
|
|
|
|
|
|
|
|
Revenue (versus CCY comparatives)
|
$2,899.9m
|
$3,063.4m
|
(5.3)%
|
Adjusted EBITDA (versus CCY comparatives)
|
$1,040.2m
|
$1,187.0m
|
(12.4)%
|
% Adjusted EBITDA margin (versus CCY
comparatives)
|
35.9%
|
38.7%
|
(2.8)ppt
|
|
|
|
|
Adjusted Diluted Earnings per Share ("EPS") - continuing
operations
|
144.93 cents
|
154.37 cents
|
(6.1)%
|
Dividends per share
|
29.1 cents
|
15.5 cents
|
87.7%
|
|
|
|
|
Net Debt
|
$4,195.9m
|
$4,153.5m
|
1.0%
|
Net Debt / Adjusted EBITDA ratio
|
4.0x
|
3.5x
|
|
Statutory results - continuing operations
|
|
|
|
|
|
|
|
Revenue
|
$2,899.9m
|
$3,001.0m
|
(3.4)%
|
Operating profit prior to depreciation, amortisation, and
exceptional items
|
$1,044.9m
|
$1,143.2m
|
(8.6)%
|
Operating loss
|
$(265.6)m
|
$(2,661.4)m
|
90.0%
|
Loss for the year
|
$(435.1)m
|
$(2,974.6)m
|
85.4%
|
Basic and diluted EPS
|
(129.3) cents
|
(886.15) cents
|
85.4%
|
|
|
|
|
1 The
definition and reconciliations of Adjusted EBITDA, Adjusted Diluted
EPS, Free Cash Flow, Net Debt and Constant Currency ("CCY") are in
the "Alternative Performance Measures" section of this Full Year
Results announcement.
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) as it forms part of domestic law by
virtue of The European Union (Withdrawal) Act 2018.
Results conference call
A
conference call to cover the results for the year ended 31 October
2021 will be held today at 1.30pm UK time.
A live webcast and recording of
the presentation will be available on our
website 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
USA:
+1 212 999 6659
USA
Toll
Free:
1 866
966 5335
Enquiries:
Micro Focus
|
Tel:
+44 (0) 1635 565200
|
Stephen
Murdoch, Chief Executive Officer
|
|
Matt
Ashley, Chief Financial Officer
|
|
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, Cyber Resilience, and
Information Management & Governance. For more information,
visit: www.microfocus.com.
Forward-looking statements
Certain statements in these preliminary results are
forward-looking. Although the Group believes that the expectations
reflected in these forward-looking statements are reasonable, it
can give no assurance that these expectations will prove to be
correct. Because these statements involve risks and uncertainties,
actual results may differ materially from those expressed or
implied by these forward-looking statements. The Group undertakes
no obligation to update any forward-looking statements whether as a
result of new information, future events or otherwise.
Delivering the next stage.
"We are now able to focus the energy of the entire organisation
externally onto customers and capturing the significant
opportunities for value creation."
Chief Executive's Strategic review
Stephen Murdoch
Chief Executive Officer
Performance
in the period
Delivering
on our
objectives
At the beginning of this year our operational objectives
were:
1.
To complete the transition to one single enterprise-wide platform
as effectively as possible with minimum disruption to day-to-day
operations.
2.
To create one global Go-to-Market organisation that can deliver
consistent, sustained improvement to our revenue performance
through improved sales productivity and the more effective
alignment of our resources to opportunity.
3.
To improve our product positions across the portfolio making us
more competitive and delivering the innovation our customers
want.
I
am proud of how our team has executed against all three of these
objectives in parallel.
In terms of progress, we now have a single set of systems and
standardised global processes. This significant milestone is an
important foundation of our drive to improve business agility and
has already enabled us to start to simplify the organisation and
identify very material opportunities for efficiency and
productivity improvements.
We have restructured our Go-to-Market teams, moving from three
distinct geographic organisations to one consistent global
approach. This is enabling us to build deeper, more specialist
skills that are better aligned by product portfolio. This is
underpinned by a management system aimed at ensuring improved
consistency of execution and accountability, supported by a single
set of sales tools and improved data accuracy. Whilst further
improvements are required to achieve the levels of productivity and
effectiveness we believe possible, the foundations are now in place
to support delivery of this goal.
Additionally, we have invested in building a dedicated customer
success team and increased the number of specialist resources
within our Maintenance Renewals and Professional Services teams.
These actions are intended to help accelerate customer adoption of
the product innovation and improvements delivered in the past year
and planned for this year. Compared to 12 months ago each of our
product portfolios is better positioned competitively and better
aligned to the growth opportunities that exist in the
marketplace.
We have delivered significant new innovation in each portfolio and
packaged that innovation through Licence, SaaS and subscription
offerings to enable customers to consume it more effectively and
quickly.
Key examples of progress include: the removal of dependencies on
third-party products embedded in the core of some of our key
solutions, the delivery of comprehensive artificial intelligence,
machine learning and analytics capabilities in every portfolio, and
the work to rearchitect many of our products to support new cloud
and hybrid deployment options. Within each portfolio we have
introduced new SaaS offerings, improved the existing SaaS offerings
and invested significantly in our SaaS delivery
infrastructure.
Overall, we exited the year with improved competitive positioning,
with highlights by portfolio including:
●
AMC - we made continued progress with our AWS
relationship and are a strategic partner enabling their new AWS
Mainframe Modernisation service.
●
ADM - we delivered material improvements to our
existing SaaS offerings and launched new native cloud
solutions.
●
ITOM - we released OPTIC (Operations Platform for
Transformation, Intelligence and Cloud), empowering IT operations
with built-in, unlimited-use intelligence at the core and the
ability to optimise the cloud. Additionally, we have revitalised
roadmaps to focus on the delivery of artificial intelligence and
SaaS capabilities.
● CyberRes - in data security, integration with Amazon
Macie provides a new and unique solution allowing AWS customers to
automate data-centric protection onto data discovery,
classification, and remediation processes. New SaaS capabilities in
Identity Management enable customers to exploit new use cases and
advanced analytics enable threat detection and remediation at scale
with ArcSight.
● IM&G - our new unified SaaS offering, Vertica
Accelerator, delivers high-performance and scalable analytics as
well as end-to-end, in-database machine
learning.
Improving the product portfolios through a return to our
customer-centric innovation roots and targeted investment is
fundamental to our competitiveness and more specifically to
improving Maintenance renewal rates as it underpins customer
confidence in our ability to deliver what they need now and for the
longer term. This longer-term perspective, grounded in our
customer-centric approach to innovation, is an historic strength of
the Company. Improvements to our Maintenance performance are a
critical focus area.
Through the combination of these three initiatives - systems,
products and Go-to-Market - we are building a business that is much
more specialist and focused by product portfolio and able to be
agile in pursuit of the right opportunities to improve performance
overall. This enhanced agility is required to be delivered within
the context of a very dynamic set of global influences on the
workplace resulting from the impact of the pandemic on customer
purchasing behaviours and new working practices. These impacts are
cross-industry and like many companies, we are responding by
developing new hybrid working models aimed at addressing the
challenges and opportunities of developing a global team that is
characterised by increased mobility, flexibility and heightened
levels of attrition.
In essence, we aim to deliver the right balance between agility,
efficiency and focus such that our employees are highly skilled and
engaged, our customer service value propositions are excellent, and
through this combination we compete more effectively in the markets
addressed by each of our product portfolios.
Early
indicators of an improvement in financial performance
The results of these actions are beginning to show within our
financial performance. For the year ended 31 October 2021 ("FY21"),
we reported revenues of $2,899.9m (FY20: $3,001.0m). This
represents a 3.4% decline on an actual basis and a 5.3% decline on
a constant currency basis. On a constant currency basis, the rate
of revenue decline has halved in the period, demonstrating the
progress we are making.
|
FY21Actual $m
|
CCYChange
%
|
Licence
|
688.6
|
4.9%
|
Maintenance
|
1,791.7
|
(8.7%)
|
SaaS
& other recurring
|
239.8
|
(3.8%)
|
Consulting
|
179.8
|
(8.4%)
|
Revenue
|
2,899.9
|
(5.3%)
|
*
CCY Revenue by stream performance presented before $0.6m deferred
revenue haircut in FY20.
Within this performance, an increase in Licence revenue, with
growth of 4.9%, is underpinned by improvements in sales execution
and the benefit of investments made in our portfolios as outlined
above.
Maintenance revenue declined by 8.7% with the current period
performance driven broadly by a reduction in Licence volume over
multiple previous financial periods combined with elevated
attrition rates in four sub-portfolios. Over the past 12 months we
have implemented significant changes across these four
sub-portfolios based on direct customer feedback and focused on
improving the overall customer experience. We have also invested in
additional resources, including the customer success team
referenced earlier, added new leadership capability in several key
areas and changed sales compensation to improve focus. Driving
improvements in this area is a key management focus.
SaaS and other recurring revenue declined by 3.8%. Included within
this is $108m of revenue from the Digital Safe business which we
have sold and are in the process of performing operational
separation. This business declined approximately 9% on a constant
currency basis. Excluding the Digital Safe business, SaaS revenue
increased 0.2% year-on-year.
Consulting revenue declined by 8.4% in the current period. The
repositioning of this revenue stream is now complete and going
forward our focus is on supporting new and existing customers as
they implement and drive return on investment from our
products.
We generated a statutory operating loss of $265.6m for FY21 (FY20:
$2,661.4m). The improvement driven by the prior year inclusion of a
$2,799.2m impairment charge against the Group's
goodwill.
From an operational standpoint, Micro Focus remains highly
profitable and cash generative delivering $1.0bn in Adjusted EBITDA
at a margin of 35.9% (FY20: CCY: $1.2bn Adjusted EBITDA at 38.7%
margin).
Our Adjusted free cash flow of $292.4m (FY20: $660.1m) was impacted
by a significant outflow in working capital in the period, some of
which was driven by timing differences in the payment of
receivables and additional tax charges not expected to repeat.
Further details of our financial performance can be found on the
Chief Financial Officer's report.
Micro
Focus' purpose
In FY20 we set out our purpose: to deliver mission-critical
enterprise software that powers the digital economy. Our aim is to
put sustainability and responsibility at the core of the way we
operate.
We continue to make progress in this area and the impact we have on
our stakeholders will be disclosed in the Annual Report and
Accounts 2021.
Our new Environmental, Social and Governance committee was launched
in the summer with the goal of ensuring we continue to embed ESG
into the core of our operations.
Our
plan to exit FY23
On 30 November 2021, we set out our objectives for the business in
a Strategy Update to investors and analysts. In summary, our
priorities are to continue and where possible accelerate
the:
●
Transition of our
business model to be product group-centric
end-to-end.
●
Delivery of the
innovation our customers need in the way they want to consume
it.
●
Capture of cost
efficiencies enabled by the enterprise-wide
platform.
As we exit FY23, we believe successful execution can
deliver:
●
A flat or better
year-on-year revenue trajectory.
●
The removal of $400m to
$500m gross annual costs from the FY21 exit cost base to leave
between c.$1.5bn to c.$1.6bn (allowing for cost
inflation).
●
Adjusted free cash flow
run rate of $500m.
Over the medium-term our revenue growth target is 1-2%, with AMC,
CyberRes and IM&G all growing in the low-to-mid single-digit
percentages, and ITOM and ADM achieving low single-digit declines
or better.
Summary
In summary, we believe that the foundations we committed to deliver
are now in place and we are at an inflection point where we can put
the challenges of integration and the unavoidable internal focus it
required behind us. As we turn the energy of the Company and all of
our team to delivering for customers we believe we are much better
positioned to be able to capture the significant opportunities we
see in the market for our products.
Karen Salford, after 11 years on the board, has decided not to
offer herself for re-election at the AGM. I want to record a very
special thank you to Karen who, as Senior Independent Director has
given outstanding support and insight in our efforts to improve our
prospects and operations. She has been exemplary!
I would like to finish by saying thank you to our employees for the
commitment, passion, and skill they brought to bear in FY21 in
delivering for our customers and improving the operational
fundamentals of our business.
Stephen Murdoch
Chief Executive Officer
7 February 2022
FY21 saw us make solid progress across the business.
"I joined Micro Focus because I could see a significant value
opportunity. We have many customers in many attractive markets
spending record levels on enterprise software. The challenges faced
by the Company have been well documented, and a lot of the heavy
lifting has been done and we are entering an exciting phase of our
development."
Chief Financial Officer's report
Matt Ashley
Chief Financial Officer
FY21 highlights
|
Revenue
$2.9bn
|
(i) Adjusted EBITDA
$1.0bn
|
(ii) Loss
before tax
6. $0.5bn
|
Cash
generated from operations
$691m
|
Adjusted
free cash flow
$292m
|
Introduction
Since joining in July I have been pleased with the progress made
against our strategic objectives, highlights include:
●
The rate of constant
currency revenue decline has halved year-on-year driven by material
improvements in our customer propositions across the product
groups, supported by the roll-out of a consistent global sales
approach.
●
The go-live of the new
enterprise-wide platform has meant the transition of our entire
employee base to one single IT platform providing a foundation to
materially simplify the Group's operations.
●
The sale of Digital Safe
for $375m demonstrates the value of our portfolio and highlights
how improvements made to the underlying assets over the last two
years can deliver incremental value to
shareholders.
●
On 17 January 2022, the
Group announced the successful re-financing of approximately
$1.6bn. Following the consummation of the transaction, the average
maturity of Micro Focus' debt has been extended from 2.7 years to
3.6 years.
My priorities over the next two years are to support Stephen in our
delivery of the turnaround of the business which manifests itself
in three ways. Firstly, prioritising investment in products to
improve our revenue trajectory. Secondly, to utilise our new
enterprise-wide platform to reduce the cost of operation. Thirdly,
to optimise cash generation and ensure we use our cash efficiently
to generate future revenues, reduce debt and continue to pay the
dividend.
To this end, on 30 November 2021, the board set out the financial
objectives for the business exiting FY23. These are:
●
To achieve flat or
better revenues;
●
To remove c.$400m to
c.$500m gross annual costs from the FY21 exit cost base to leave
between c.$1.5bn to c.$1.6bn (allowing for cost inflation);
and
●
To generate an Adjusted
free cash flow target of approximately $500m.
We remain on track to deliver against each of these and believe
these outcomes will deliver significant value creation for our
shareholders.
Statutory
results
Continuing operations
|
FY21$m
|
FY20$m
|
Revenue
|
2,899.9
|
3,001.0
|
Operating profit prior to depreciation, amortisation and
exceptional items
|
1,044.9
|
1,143.2
|
Depreciation and amortisation
|
(1,063.4)
|
(793.0)
|
Exceptional items
|
(247.1)
|
(3,011.6)
|
Operating loss
|
(265.6)
|
(2,661.4)
|
Net finance costs
|
(252.2)
|
(279.0)
|
Loss before tax
|
(517.8)
|
(2,940.4)
|
Taxation
|
82.7
|
(34.2)
|
Loss from continuing operations
|
(435.1)
|
(2,974.6)
|
Profit from discontinued operations
|
10.7
|
5.1
|
Loss for the year
|
(424.4)
|
(2,969.5)
|
Revenue
In the year ended 31 October 2021 ("FY21"), the Group generated
revenue of $2,899.9m, which represents a decrease of 3.4% on the
results for the year ended 31 October 2020 ("FY20"). The rate of
decline includes a 1.9% offset due to the weakening of the US
dollar against most major currencies.
In order to fully understand the underlying trading performance of
the continuing operations, the directors feel revenue is better
considered on a constant currency basis ("CCY") when comparing FY21
and FY20. Excluding the impact of foreign exchange, revenue
declined by 5.3%. Revenue performance presented on a CCY basis can
be found later in this report.
Operating
profit prior to depreciation, amortisation and exceptional
items
The Group generated an operating profit prior to depreciation,
amortisation and exceptional items of $1,044.9m in the period
(FY20: $1,143.2m) with the year-on-year decline due to the
reduction in revenue in the period.
Operating
loss
In FY21, the Group generated an operating loss of $265.6m (FY20:
$2,661.4m). The improvement from the prior year was due to an
impairment charge of $2,799.2m against the Group's goodwill in FY20
which compares to no impairment in the current period. This benefit
was partially offset by the reduction in revenue outlined above and
an increase in the amortisation expense of intangible assets of
$282.3m following a review of intangible asset lives acquired as
part of the HPE Software business acquisition.
Exceptional
items (included within operating loss)
|
FY21$m
|
FY20$m
|
System and IT infrastructure costs
|
98.0
|
100.6
|
Integration, Severance and Property costs
|
38.4
|
83.9
|
MF/HPE Software business integration-related costs
|
136.4
|
184.5
|
Legal settlement and associated costs
|
75.4
|
-
|
Other restructuring property costs, severance and legal,
acquisition and divesture costs
|
35.3
|
27.9
|
Impairment charge
|
-
|
2,799.2
|
Total exceptional costs (reported in operating loss)
|
247.1
|
3,011.6
|
In FY21, exceptional costs totalled $247.1m, and can be split into
two categories. Firstly, the Group incurred $136.4m (FY20: $184.5m)
of integration-related costs in respect of the HPE Software
business. This figure primarily relates to the migration of Micro
Focus to one single enterprise-wide platform. In total, exceptional
costs incurred in relation to the integration of the HPE Software
business since the acquisition are $1,036.2m at 31 October 2021
(total cumulative cost at 31 October 2020: $899.8m). In the period,
the Group incurred incremental HPE-related exceptional spend in
order to accelerate the completion of the integration programme and
systems migration and as a result no further exceptional spend in
relation to the HPE Software business integration is
expected.
Secondly, other exceptional spend totalled $110.7m of which $75.4m
relates to the cost of settling the Wapp patent infringement case.
The remaining exceptional spend mainly reflects severance and other
costs incurred as part of the continued simplification of the
Group's continuing operations resulting from the further review of
the Group's required operating model.
On 30 November 2021, the Group announced the objective to remove a
further c.$400m to c.$500m of gross annualised operating costs
which is anticipated to be undertaken during FY22 and FY23. As a
result of this programme, exceptional spend in relation to
delivering these plans is expected to total approximately $200m
over the next two financial years.
The cash impact of exceptional spend is presented later within this
report.
Net
finance costs
Net finance costs were $252.2m in FY21, compared to $279.0m in
FY20. Included within the net finance costs is $34.0m (FY20:
$58.0m) in relation to the amortisation of facility costs and
original issue discounts, which were paid on initiation of the term
loans. The decrease on the prior year related to an acceleration of
fees and discounts resulting from the refinancing completed in that
period.
On 17 January 2022, the Group announced the refinancing of $1.6bn
of existing term loans. This refinancing comprised a €750m
and a $750m Senior Secured Term Loan B. The new 5-year Facilities
will be used by the Group to fully refinance its existing Senior
Secured Term Loan B Euro facility due June 2024 as well as
partially refinance the existing Senior Secured Term Loan B USD
facilities also due in June 2024.
The new 5-year facilities incur interest at 4.00% above EURIBOR
(subject to 0% floor) at an original issue discount of 0.5% on the
Euro denominated tranche, and 4.00% above SOFR and CSA (subject to
0.5% floor) at an original issue discount of 1.0% on the US Dollar
denominated tranche. This represents an increase in annualised
interest costs of approximately $23.0m.
The Group holds interest rate swaps to hedge against the cash flow
risk in the LIBOR rate charged on $2,250.0m of the debt which
expires on 30 September 2022. Under the terms of the interest rate
swaps, the Group pays a fixed rate of 1.95% and receives one-month
USD LIBOR. In addition, the Group has transacted interest rate
swaps to hedge the cash flow risk on one-month Term SOFR related to
its newly issued $750m debt. The SOFR swaps have an effective date
of 21 September 2022 and a maturity date of 28 February 2027 fixing
SOFR at 1.656%. The Group continually reviews the currency mix of
its borrowings and the projected forward curves associated with the
benchmark rates of its debt to assess market risk.
Taxation
The Group reported a tax credit for FY21 of $82.7m (FY20: charge
$34.2m).
Profit
from discontinued operation
The profit on the disposal of discontinued operation of $10.7m in
FY21 (FY20: $5.1m) results from the finalisation of
indemnity-related balances in relation to SUSE.
Reconciliation
from statutory results to Alternative Performance Measures
This section sets out a reconciliation from the statutory results
presented above to Alternative Performance Measures used by the
business to assess operating performance and liquidity including
Adjusted EBITDA, Adjusted Profit before and after tax and Adjusted
EPS. The Group believes that these and similar measures are used
widely by certain investors, securities analysts and other
interested parties as supplemental measures of performance and
liquidity.
Adjusted
EBITDA
A reconciliation between Operating loss and Adjusted EBITDA is
shown below:
|
FY21$m
|
FY20$m
|
Operating (loss)
|
(265.6)
|
(2,661.4)
|
Add back/(deduct):
|
|
|
Amortisation of intangible assets
|
956.4
|
674.1
|
Exceptional items (reported in Operating loss)
|
247.1
|
3,011.6
|
Depreciation of property, plant and equipment and right-of-use
assets
|
107.0
|
118.9
|
Share-based compensation charge
|
14.3
|
17.0
|
Foreign exchange loss
|
0.1
|
29.7
|
Product development intangible costs capitalised
|
(19.1)
|
(16.2)
|
Adjusted EBITDA* at actual rates
|
1,040.2
|
1,173.7
|
Constant currency adjustment
|
-
|
13.3
|
Constant currency Adjusted EBITDA*
|
1,040.2
|
1,187.0
|
*
Adjusted EBITDA is for continuing operations only.
Adjusted
Profit after taxation
Adjusted Profit before tax is defined as loss before tax excluding
the effects of share-based compensation, the amortisation of
purchased intangible assets, and all exceptional items. Adjusted
profit after taxation reflects adjusted profit before tax less the
taxation charge associated with these profits.
The following table presents both actual and adjusted
profit/(losses) before and after taxation:
|
FY21
|
FY20
|
|
Reported
$m
|
Adjusting items
$m
|
Adjusted measures
$m
|
Reported
$m
|
Adjusting items
$m
|
Adjusted measures
$m
|
(Loss)/profit before tax
|
(517.8)
|
1,160.8
|
643.0
|
(2,940.4)
|
3,632.7
|
692.3
|
Taxation
|
82.7
|
(238.0)
|
(155.3)
|
(34.2)
|
(139.9)
|
(174.1)
|
(Loss)/profit after tax
|
(435.1)
|
922.8
|
487.7
|
(2,974.6)
|
3,492.8
|
518.2
|
Effective tax rate
|
16.0%
|
|
24.2%
|
(1.2)%
|
|
25.1%
|
In computing adjusted Profit before tax for FY21, $1,160.8m of
Adjusting items have been added back. These items are made up as
follows:
|
FY21$m
|
FY20$m
|
Share-based compensation charge
|
14.3
|
17.0
|
Amortisation of purchased intangibles
|
899.4
|
604.1
|
Exceptional items
|
247.1
|
3,011.6
|
Adjusting items
|
1,160.8
|
3,632.7
|
The tax charge on Adjusted Profit before tax for FY21 was $155.3m
(FY20: $174.1m), which represents an effective tax rate ("ETR") on
Adjusted Profit before tax ("Adjusted ETR") of 24.2% (FY20: 25.1%).
The tax associated with the Adjusting items is $238.0m (FY20:
$139.9m).
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 increases the level of uncertainty that may result in
changes to this tax rate in future accounting periods.
As previously disclosed, 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, issued by HM Revenue and Customs,
following the requirement for the UK government to start collection
proceedings. In May 2021, the Group received and settled State Aid
interest charging notices from HM Revenue and Customs totalling
$2.6m. In addition, there has been a challenge from the UK Tax
Authorities into the historic financing arrangements of the Group.
Based on its current assessment and supported by external
professional advice, the Group considers 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.
Earnings
per share and Adjusted Earnings per share
The table below sets out the Earnings per Share ("EPS") on both a
reported and Adjusted basis. The Group is also required to present
EPS for both the continuing and discontinued
operations.
|
FY21
|
FY20
|
|
Basic Cents
|
Diluted1 Cents
|
Basic Cents
|
Diluted1 Cents
|
Continuing operations
|
(129.30)
|
(129.30)
|
(886.15)
|
(886.15)
|
Discontinued operations
|
3.18
|
3.18
|
1.52
|
1.52
|
Total EPS
|
(126.12)
|
(126.12)
|
(884.63)
|
(884.63)
|
Adjusted EPS
|
|
|
|
|
Continuing operations
|
144.93
|
144.93
|
154.37
|
154.37
|
Discontinued operations
|
-
|
-
|
2.17
|
2.17
|
Adjusted EPS
|
144.93
|
144.93
|
156.54
|
156.54
|
1
The Group reported a loss from continuing
operations attributable to the ordinary equity shareholders of the
Company for the years ended 31 October 2021 and 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 Adjusted EPS is defined as Basic EPS where the earnings
attributable to ordinary shareholders are adjusted by adding back
gains on discontinued operations, exceptional items, share-based
compensation charge and the amortisation of purchased intangibles
and the tax attributable to these charges. These are presented as
management believes they are important to understanding the impact
that the underlying trading performance has on the Group's
EPS.
In FY21, the Group generated an Adjusted EPS from continuing
operations of 144.93 cents, this compares to 154.37 cents in FY20.
The decrease was primarily related to a reduction in Adjusted
EBITDA as the Group seeks to stabilise the business as part of the
three-year turnaround plan.
Micro
Focus - Alternative Performance Measures
|
FY21(Actual) $m
|
FY20(CCY) $m
|
Year-on-yearchange %
|
Licence
|
688.6
|
656.7
|
4.9%
|
Maintenance
|
1,791.7
|
1,961.0
|
(8.6%)
|
SaaS & other recurring
|
239.8
|
249.4
|
(3.8%)
|
Consulting
|
179.8
|
196.3
|
(8.4%)
|
Revenue
|
2,899.9
|
3,063.4
|
(5.3%)
|
Cost of sales
|
(463.9)
|
(462.9)
|
0.2%
|
Selling and distribution
|
(685.1)
|
(690.6)
|
(0.8%)
|
Research and development
|
(514.6)
|
(509.2)
|
1.1%
|
Administrative
|
(196.1)
|
(213.6)
|
(8.2%)
|
Total costs (included in Adjusted EBITDA)
|
(1,859.7)
|
(1,876.4)
|
(0.9%)
|
Adjusted EBITDA
|
1,040.2
|
1,187.0
|
(12.4%)
|
Adjusted EBITDA margin %
|
35.9%
|
38.7%
|
(2.8ppt)
|
1
Total costs included in Adjusted EBITDA reflect costs included
within the definition of Adjusted EBITDA only.
Revenue
by stream performance (versus constant currency
comparatives)
Licence revenue grew by
4.9%. The Group's Licence revenue performance in the year benefited
from improvements in sales execution and the benefit of investments
made in our growth portfolios.
Maintenance revenue declined by 8.6% 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,
and over the past 18 months the Group has 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, multiple leadership changes have been made within
underperforming portfolios and the compensation of sales leadership
is now linked to customer retention. These actions were embedded in
the first half of FY21 and the operational metrics highlight early
indications of improvement in the underlying renewal rates in the
second half of FY21, however actions will take time to yield more
material benefits.
SaaS and other recurring revenue declined by 3.8%. Included within SaaS and
other recurring revenue is $108m of revenue for the Digital Safe
business. The SaaS Digital Safe revenue declined approximately 9%
on a constant currency basis. Excluding the Digital Safe business,
SaaS revenue increased 0.2% year-on-year.
Consulting revenue declined by 8.4%. The repositioning of this
revenue stream is complete and is now focused on improving return
on investment to new and existing customers supporting new Licence
and SaaS installations.
Revenue
by product group (versus constant currency comparatives)
|
FY21
|
|
Licence$m
|
Maintenance$m
|
SaaS & otherrecurring$m
|
Consulting$m
|
Total$m
|
Product group*:
|
|
|
|
|
|
AMC
|
155.3
|
315.9
|
-
|
10.3
|
481.5
|
ADM
|
106.1
|
408.5
|
78.9
|
18.6
|
612.1
|
ITOM
|
172.7
|
507.8
|
4.3
|
106.3
|
791.1
|
CyberRes
|
174.5
|
383.9
|
36.3
|
29.1
|
623.8
|
IM&G
|
80.0
|
175.6
|
120.3
|
15.5
|
391.4
|
Haircut
|
-
|
-
|
-
|
-
|
-
|
Revenue
|
688.6
|
1,791.7
|
239.8
|
179.8
|
2,899.9
|
|
CCY %
change to FY20
|
|
Licence%
|
Maintenance%
|
SaaS
& otherrecurring%
|
Consulting%
|
Total%
|
Product group*:
|
|
|
|
|
|
AMC
|
9.8%
|
(3.2%)
|
-
|
(1.0%)
|
0.7%
|
ADM
|
2.1%
|
(8.9%)
|
3.3%
|
13.4%
|
(5.1%)
|
ITOM
|
(2.7%)
|
(11.3%)
|
(17.3%)
|
(10.8%)
|
(9.5%)
|
CyberRes
|
5.9%
|
(9.5%)
|
6.5%
|
(14.7%)
|
(5.1%)
|
IM&G
|
15.8%
|
(7.6%)
|
(10.2%)
|
(4.3%)
|
(4.3%)
|
Haircut
|
-
|
(100.0%)
|
(100.0%)
|
-
|
(100.0%)
|
Revenue
|
4.9%
|
(8.6%)
|
(3.8%)
|
(8.4%)
|
(5.3%)
|
*
The product group trends discussed in this section are presented
before the impact of the deferred revenue haircut of $0.6m in
FY20.
Application Modernisation & Connectivity
("AMC")$482m(17% of total FY21
revenue)
|
Licence revenue increased by 9.8% in FY21 underpinned by strong
performance in mainframe modernisation. On 3 March 2021, the Group
signed a strategic commercial agreement with Amazon Web Services
("AWS") to accelerate the modernisation of mainframe applications
and workloads of large public and private enterprises to the AWS
Cloud. This contract is expected to generate Consulting revenue in
FY22 and Licence and Maintenance revenue from FY23
onwards.
Maintenance declined by 3.2% and Consulting revenue was broadly
flat.
|
Application Delivery Management ("ADM")
$612m
(21% of total FY21 revenue)
|
Licence revenue increased by 2.1%, SaaS and other recurring
revenues increased by 3.3%, Consulting revenue increased by 13.4%
while Maintenance revenue declined by 8.9% in FY21.
In the period, the Group has made good progress in repositioning
our ADM portfolio, which has led to improved performance in all
revenue streams. This included launching a number of cloud-native
products which was the primary driver of the increase in SaaS and
other recurring revenues in the period. The Maintenance performance
in the period was driven by a weak Licence performance in FY20
combined with an element of transitioning some customers to
SaaS-based solutions within our performance testing
portfolio.
|
IT Operations Management ("ITOM")
$791m
(27% of total FY21 revenue)
|
Licence revenue declined by 2.7% and Maintenance revenue by 11.3%
in FY21. This performance reflects a moderation in the rate of
revenue decline in both revenue streams compared to FY20 but
remains below our medium-term expectations for the product group.
The improvements made to the product roadmaps and in refocusing
resources are key to improving attrition in sub-portfolios which
will impact overall performance if successful.
SaaS revenue declined by 17.3% in the year ended 31 October 2021 as
we completed the repositioning of historic offerings. This revenue
stream is currently very small but during FY21 the Group launched a
number of new SaaS-based products, with a clear roadmap for further
releases in the next 12 months intended to form the foundations for
growth in this important area.
Consulting revenue declined by 10.8% in the year ended 31 October
2021.
|
Cyber Resilience ("CyberRes")
$624m
(22% of total FY21 revenue)
|
Investments made in this product portfolio have resulted in new
offerings and significant enhancements to existing offerings
yielding growth in Licence for the portfolio and growth in total
revenue for two of the four sub-portfolios. Licence revenue
increased by 5.9% in FY21 with growth in three out of the four sub
portfolios.
Maintenance revenue declined by 9.5% in the year ended 31 October
2021. This performance is broadly driven by one single product
portfolio where we witnessed elevated attrition rates. This product
has had significant investment over the last 24 months resulting in
material improvements to both the underlying architecture and
overall capabilities. It is now much better positioned
competitively and we expect to drive a significant moderation in
the overall rate of Maintenance decline in the
medium-term.
SaaS revenue increased by 6.5% in the year ended 31 October 2021
reflecting the continued investment in delivering new and improved
solutions in this important area.
Consulting revenue declined by 14.7% in the year ended 31 October
2021 as we work to more closely align our consulting offerings to
product implementation and growth in new Licence
sales.
|
Information Management & Governance ("IM&G")
$391m
(13% of total FY21 revenue)
|
Licence revenue increased by 15.8% in FY21. This increase is
primarily driven by growth in Vertica, the Group's Big Data
offering. In the fourth quarter, the Group launched Vertica
Accelerator which is delivered in a subscription form as a managed
service. The Group has made encouraging progress with this
transition to subscriptions, with both bookings and new logos up
substantially year-on-year.
Maintenance revenues declined by 7.6%, partly driven by mix within
the portfolio and weaker Licence performance in the prior
year.
In addition, SaaS and other recurring revenue declined 10.2% due to
performance from the Digital Safe business. On 3 November 2021, the
Group announced the sale of this business for $375m. This
transaction completed on 31 January 2022.
Consulting revenue declined by 4.3% over the same
period.
|
Adjusted
EBITDA performance (versus constant currency comparatives)
The Group generated an Adjusted EBITDA of $1,040.2m in FY21, at an
Adjusted EBITDA margin of 35.9%. This represents a 2.8 ppt decrease
in Adjusted EBITDA margin between the periods on a continuing
basis. This decline was driven by the overall revenue decline and
the full run-rate impact of investments in the product portfolio in
FY20.
On 30 November 2021, the Group announced the intention to reduce
gross annual recurring overheads by between c.$400m to c.$500m by
the end of FY23. As a result, the Group's cost base is expected to
reduce from $1.9bn reported in FY21 to between $1.5bn and $1.6bn
(allowing for inflation) as we exit FY23.
Adjusted
free cash flow
The table presented below focuses on those items which specifically
relate to the Group's Adjusted free cash flow, which is considered
to be a Key Performance Indicator ("KPI") of the
Group.
|
FY21
$m
|
FY20
$m
|
Adjusted EBITDA
|
1,040.2
|
1,173.7
|
Less:
|
|
|
Exceptional items (reported in Operating loss)
|
(247.1)
|
(3,011.6)
|
Goodwill impairment charge
|
-
|
2,799.2
|
Other non-cash items
|
24.8
|
26.5
|
Movement in working capital
|
(127.4)
|
95.0
|
Cash generated from operations
|
690.5
|
1,082.8
|
Interest payments
|
(218.1)
|
(207.1)
|
Bank loan costs
|
(1.5)
|
(47.9)
|
Tax payments
|
(270.3)
|
(149.6)
|
Purchase of intangible assets
|
(47.5)
|
(60.6)
|
Purchase of property, plant and equipment
|
(17.7)
|
(26.3)
|
Lease-related capital payments
|
(79.5)
|
(80.1)
|
Free cash flow
|
55.9
|
511.2
|
Cash impact of exceptional items
|
236.5
|
148.9
|
Adjusted free cash flow
|
292.4
|
660.1
|
The Group has continued to be cash generative in FY21 despite
significant one-off items impacting free cash flow. As a result,
the Group generated $55.9m of free cash flow compared to $511.2m in
FY20. The Group generated an Adjusted free cash flow of $292.4m
(FY20: $660.1m).
The Group had a working capital outflow in the period of $127.4m in
the period which is presented in the table below:
|
FY21
$m
|
FY20
$m
|
Inventories
|
-
|
0.1
|
Trade and other receivables and contract related costs
|
(195.2)
|
251.6
|
Payables and other liabilities
|
36.9
|
(62.4)
|
Provisions
|
14.1
|
8.8
|
Contract liabilities - deferred income
|
16.8
|
(103.1)
|
Movement in working capital
|
(127.4)
|
95.0
|
The Group had a cash outflow of $195.2m in relation to Trade and
other receivables caused primarily by an increase in year-on-year
billings towards the end of Q4 FY21. This improvement in billings
also caused a cash inflow in respect of deferred income of $16.8m.
This resulted in an Adjusted cash conversion rate of 87.1% (FY20:
112.6%).
The Group made tax payments totalling $270.3m in FY21, including a
payment made in respect of EU State Aid (excluding interest) of
$44.2m and another c.$42.0m of payments relating to a catch up of
prior year tax liabilities in certain jurisdictions. These payments
are not expected to recur in future accounting
periods.
In FY21, purchases of intangible assets (relating predominantly to
software licences) totalled $47.5m compared to $60.6m in FY20. In
addition, purchase of property, plant and equipment decreased from
$26.3m to $17.7m over the same period.
The Group's ability to continue to generate free cash flow whilst
transforming our business demonstrates the resilience of our
business model. The cash impact of exceptional items reduced FY21
cash flow by $236.5m (2020: $148.9m) and includes the payment to
settle the Wapp patent infringement case and the EU State Aid
payment. Excluding these items, the Group generated an Adjusted
free cash flow of $292.4m (2020: $660.1m).
On 30 November 2021, the Group set out expectations to grow
Adjusted free cash flow such that we exit FY23 with a run rate
Adjusted free cash flow of $500m.
Non-operating
cash flows
|
FY21
|
FY20
|
Net cash used in investing
|
(75.9)
|
(89.2)
|
Net cash used in financing
|
(301.5)
|
(198.2)
|
Cash used in investing of $75.9m declined from $89.2m in FY20
reflecting the lower purchase of intangibles and property, plant
and equipment partially offset by an increase in small bolt-on
acquisitions in the period.
Cash used in financing of $301.5m increased from $198.2m in FY20 as
a result of the reintroduction of the dividend ($81.1m) and the
purchase of shares into the Group's Employee Benefit Trust to
settle employee share options ($27.2m).
On 20 December 2021, the Group's Employee Benefit Trust commenced
the purchase of 12 million shares. These shares will be purchased
on the open market and will be used for the settlement of existing
and future employee share schemes awarded to senior leaders and
employees who are critical to achieving the strategic initiatives
set out by Stephen in the Chief Executive Officer's
report.
Net
debt
As at 31 October 2021, net debt was $4,195.9m (31 October 2020:
$4,153.5m). The small increase in net debt reflects the reduction
in cash during the period of $178.8m mostly offset by repayments
made against the Group's term loans. In addition to the term loans
and cash reserves, the Group has access to a $250m Revolving Credit
Facility which remains undrawn.
This represents a net debt to Adjusted EBITDA ratio as
follow:
|
Year ended31 October 2021$m
|
Year ended31 October 2020$m
|
Adjusted EBITDA
|
1,040.2
|
1,173.7
|
Net debt*
|
(4,195.9)
|
(4,153.5)
|
Net debt/Adjusted EBITDA ratio
|
4.0 times
|
3.5 times
|
*
Includes lease obligations included in current liabilities held for
sale.
The Group's medium-term leverage target is 3.0x Adjusted EBITDA.
The Group intends to reduce leverage back to this level in the
medium-term and will balance debt repayments and equity returns in
the short-term in order to deliver on this.
Consolidated statement of financial position
A summarised version is presented below:
|
31 October 2021$m
|
31 October 2020$m
|
Non-current assets
|
8,439.5
|
9,605.0
|
Current assets
|
1,907.1
|
1,541.8
|
Total assets
|
10,346.6
|
11,146.8
|
Current liabilities
|
1,860.9
|
1,788.3
|
Non-current liabilities
|
5,664.7
|
6,143.4
|
Total liabilities
|
7,525.6
|
7,931.7
|
Net assets
|
2,821.0
|
3,215.1
|
Total equity attributable to owners of the parent
|
2,821.0
|
3,215.1
|
Total equity
|
2,821.0
|
3,215.1
|
The net assets of the Group have decreased from $3,215.1m to
$2,821.0m between 31 October 2020 and 31 October 2021.
In the year, the key movements were as follows:
● Non-current assets decreased by $1,165.5m to
$8,439.5m primarily due to the annual amortisation charge on
intangible assets of $956.4m. In addition, $340.9m of non-current
assets were reclassified as current assets driven by the
recognition of the Digital Safe business as held for sale and
right-of-use assets decreased by $54.0m primarily due to
depreciation of $73.3m.
● Current assets increased by $365.3m to $1,907.1m
driven, mostly by the recognition of the Digital Safe business as
held for sale ($370.3m) and an increase in trade and other
receivables of $154.9m, which were offset by a reduction in cash
and cash equivalents of $178.8m. Trade and other receivables
increased due to an increase in both trade receivables and contract
assets resulting from the high level of Licence revenue recognised
in October compared to the prior year. The decrease in cash and
cash equivalents reflects the debt repayments and dividends paid in
the period of $114.1m and $81.1m respectively offset by the $55.9m
of free cash flow discussed above.
● Current liabilities increased by $72.6m to
$1,860.9m primarily due to the recognition of the Digital Safe
business as held for sale ($68.4m) and the recognition of
derivative financial liabilities of $35.7m as a current liability
due to the September 2022 maturity date. This was partially offset
by a reduction in current tax liabilities of
$56.0m.
● Non-current liabilities decreased by $478.7m to
$5,664.7m, primarily due to a $242.0m reduction in deferred tax
liabilities, a decrease in borrowings of $94.8m, a decrease in
lease obligations of $48.6m and a $77.9m decrease in the derivative
liability as a result of the reclassification to current
liabilities, in combination with a reduction in the derivative
valuation year-on-year.
Other financial matters
Changes
to key performance indicators
On 30 November 2021, the Group announced the intention to change
the definition of Adjusted EBITDA to exclude capitalised
development costs. It is intended that the Group will report
Adjusted EBITDA under this new definition from FY22
onwards.
The purpose of this change is to align the presentation to the
definition included within our facility loan agreements and
therefore simplify the reporting of profitability for the
Group.
The impact of this change on FY21 and FY20 would have been as
follows:
|
FY21
|
FY20
|
Adjusted EBITDA (reported)
|
1,040.2
|
1,173.7
|
Add back: capitalised development costs
|
19.1
|
16.2
|
Restated Adjusted EBITDA
|
1,059.3
|
1,189.9
|
Contractual
cash obligations
The following table reflects a summary of obligations and
commitments outstanding as of 31 October 2021.
|
Payment due by period
|
|
Less than 1 year$m
|
1-3 years$m
|
3-5 years$m
|
After 5 years$m
|
Total$m
|
Debt principal repayment
|
42.0
|
3,365.5
|
1,200.5
|
-
|
4,608.0
|
Interest payments on debt
|
160.6
|
279.2
|
35.0
|
-
|
474.8
|
Total excluding lease obligations
|
202.6
|
3,644.7
|
1,235.5
|
-
|
5,082.8
|
Lease obligations
|
74.9
|
69.6
|
28.5
|
49.1
|
222.1
|
Total including leases
|
277.5
|
3,714.3
|
1,264.0
|
49.1
|
5,304.9
|
The table above does not include any amounts that the Group may pay
to fund its retirement benefit plans as the timing and amount of
any such future funding is unknown and dependent on, among other
things, the future performance of defined benefit pension plan
assets, interest rate assumptions and other factors. The net
retirement benefit scheme liabilities totalled $147.1m as of 31
October 2021 which is net of pension assets of $173.6m. The Group
expects to contribute approximately $7.7m to its defined benefits
plans during 2022.
Dividend
The board proposes a final dividend of 20.3 cents, taking total
dividend per share to 29.1 cents for the year. The dividend will be
paid in Pound 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. Subject to approval
by shareholders, the dividend will be paid on 21 April 2022 to
shareholders on the register as at 11 March 2022.
Financial
guidance
Revenue
|
On track to exit FY23 with flat or better revenues. No change in
assumptions on FY22, with progress not expected to be
linear.
|
Costs included within Adj EBITDA
|
On track to exit FY23 with a c. $300m reduction in the cost base
net of inflation.
|
Exceptional spend
|
Approximately $100m in both FY22 and FY23.
|
Capital expenditure and leases
|
FY22 total of approximately $200m per annum.
|
Taxation
|
FY22 cash tax of approximately $130m.
|
Interest
|
FY22 Estimated cash interest including fees associated with
refinancing of c.$230m based on current rates.
|
Digital Safe disposal
|
Disposal completed on 31 January 2022, The three months trading to
this date resulted in c. $25m revenue and Adjusted EBITDA of
c.$13m. Net proceeds of $335m plus reduction in lease obligations
of c. $40m.
|
Other
|
EBT purchase of 12m shares at estimated cost of approximately
$70m.
|
The Group has robust and granular plans for the next two years that
give us confidence to achieve our core financial objectives as we
exit FY23, and a strong foundation from which to execute
thereafter.
The core financial objectives remain:
●
A flat or better
year-on-year revenue trajectory as we exit FY23, from 5% revenue
decline in FY21.
●
Over the medium-term,
revenue growth target of 1-2%, with AMC, CyberRes, IM&G all
growing in the low-to-mid single digit percentages, and ITOM and
ADM achieving low single digit declines or
better.
●
Removing c.$400m to
c.$500m of gross annual recurring cost to achieve a reduction from
the FY21 exit cost base to between c.$1.5bn and c.$1.6bn (allowing
for cost inflation) by the end of FY23, requiring Exceptional spend
of c.$200m to deliver the savings.
●
Adjusted free cash flow
run rate of $500m by the end of FY23.
Matt Ashley
Chief Financial Officer
7 February 2022
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.
The Group uses such measures to measure operating performance and
liquidity in presentations to the board and as a basis for
strategic planning and forecasting, as well as monitoring certain
aspects of its operating cash flow and liquidity. The Group
believes that these and similar measures are used widely by certain
investors, securities analysts and other interested parties as
supplemental measures of performance and liquidity.
The Alternative Performance Measures may not be comparable to other
similarly titled measures used by other companies and have
limitations as analytical tools and should not be considered in
isolation or as a substitute for, or superior to, the equivalent
measures calculated and presented in accordance with
IFRS.
An explanation of the relevance of each of the Alternative
Performance Measures, a reconciliation of the Alternative
Performance Measures to the most directly comparable measures
calculated and presented in accordance with IFRS and a discussion
of their limitations is set out below. 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 impact of deferred revenue haircut APM is no longer presented
as due to the period of time since the last major acquisition the
impact on reported revenue is not material.
1. EBITDA and Adjusted EBITDA
The Group presents EBITDA because it is widely used by securities
analysts, investors and other interested parties to evaluate the
profitability of companies. EBITDA is defined as net earnings
before finance costs, finance income, taxation, depreciation of
property, plant and equipment, right-of-use asset depreciation and
amortisation of intangible assets. 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).
Adjusted EBITDA is the primary measure used internally to measure
performance and to incentivise and reward employees. The Group
defines Adjusted EBITDA as comprising of EBITDA (as defined above),
adding back exceptional items including the profit on disposal of
discontinued operations, share-based compensation and foreign
exchange (gains)/losses, and adjusting for product development
intangible cost capitalised.
Adjusted EBITDA margin refers to the measure defined above as a
percentage of actual revenue recorded in accordance with IFRS for
the year.
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 8), including the profit
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 on-going debate on the add-back of
share-based payment charges but believe that as they are not
included in the analysis of segment performance used by the Chief
Operating Decision Maker and their add-back is consistent with
metrics used by a number of other companies in the technology
sector, that this treatment remains
appropriate.
● Actual spend on product development costs during
the year is deducted from Adjusted 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 IAS
38 "Intangible Assets" and on the period of their estimated
economic benefit. In addition, product development costs
capitalised for the year 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.
1. EBITDA and
Adjusted EBITDA continued
The following table is a reconciliation from statutory results for
the period to EBITDA and Adjusted EBITDA:
Year ended 31 October 2021
|
|
Statutory
|
Intangibles
amortisation
|
Depreciation
|
Revenue
to EBITDA
|
Exceptional
costs
|
Share-based
payments
|
Capitalised
Product development costs
|
FX
loss
|
Revenue
to Adjusted EBITDA
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
Revenue
|
2,899.9
|
-
|
-
|
2,899.9
|
-
|
-
|
-
|
-
|
2,899.9
|
Cost of
Sales
|
(776.3)
|
276.8
|
33.0
|
(466.5)
|
2.6
|
-
|
-
|
-
|
(463.9)
|
Gross
profit
|
2,123.6
|
276.8
|
33.0
|
2,433.4
|
2.6
|
-
|
-
|
-
|
2,436.0
|
Selling
&
Distribution
|
(1,344.6)
|
642.2
|
12.4
|
(690.0)
|
4.8
|
0.1
|
-
|
-
|
(685.1)
|
Research &
Development
|
(521.8)
|
-
|
26.7
|
(495.1)
|
(0.4)
|
-
|
(19.1)
|
-
|
(514.6)
|
Administrative
expenses
|
(522.8)
|
37.4
|
34.9
|
(450.5)
|
240.1
|
14.2
|
-
|
0.1
|
(196.1)
|
Operating
loss/
EBITDA/AEBITDA
|
(265.6)
|
956.4
|
107.0
|
797.8
|
247.1
|
14.3
|
(19.1)
|
0.1
|
1,040.2
|
Finance
costs
|
(253.9)
|
|
|
|
|
|
|
|
|
Finance
income
|
1.7
|
|
|
|
|
|
|
|
|
Taxation
|
82.7
|
|
|
|
|
|
|
|
|
Loss
for
the
period from continuing operations
|
(435.1)
|
|
|
|
|
|
|
|
|
Profit
from discontinued operation
|
10.7
|
|
|
|
|
|
|
|
|
Loss
for the period
|
(424.4)
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA margin
|
|
|
|
|
|
|
|
|
35.9%
|
1. EBITDA and Adjusted
EBITDA continued
Year
ended 31 October 2020
|
|
|
Statutory
|
Intangibles
amortisation
|
Depreciation
|
Revenue
to EBITDA
|
Exceptional
costs
|
Share-based
payments
|
Capitalised
Product development costs
|
FX
loss
|
Revenue
to Adjusted EBITDA
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
Revenue
|
3,001.0
|
-
|
-
|
3,001.0
|
-
|
-
|
-
|
-
|
3,001.0
|
Cost of
Sales
|
(702.7)
|
213.7
|
33.1
|
(455.9)
|
4.0
|
-
|
-
|
-
|
(451.9)
|
Gross profit
|
2,298.3
|
231.7
|
33.1
|
2,545.1
|
4.0
|
-
|
-
|
-
|
2.549.1
|
Selling
&
Distribution
|
(1,112.1)
|
413.9
|
12.0
|
(686.2)
|
12.9
|
-
|
-
|
-
|
(673.3)
|
Research
& Development
|
(513.6)
|
-
|
30.3
|
(483.3)
|
0.9
|
-
|
(16.2)
|
-
|
(498.6)
|
Administrative
expenses
|
(3,334.0)
|
46.5
|
43.5
|
(3,244.0)
|
2,993.8
|
17.0
|
-
|
29.7
|
(203.5)
|
Operating loss/
EBITDA/AEBITDA
|
(2,661.4)
|
674.1
|
118.9
|
(1,868.4)
|
3,011.6
|
17.0
|
(16.2)
|
29.7
|
1,173.7
|
Finance
costs
|
(281.6)
|
|
|
|
|
|
|
|
|
Finance
income
|
2.6
|
|
|
|
|
|
|
|
|
Taxation
|
(34.2)
|
|
|
|
|
|
|
|
|
Loss for
the period from continuing operations
|
(2,974.6)
|
|
|
|
|
|
|
|
|
Profit from discontinued operation
|
5.1
|
|
|
|
|
|
|
|
|
Loss for the period
|
(2,969.5)
|
|
|
|
|
|
|
|
|
Adjusted EBITDA margin
|
|
|
|
|
|
|
|
|
39.1%
|
|
|
|
|
|
|
|
|
|
|
|
2. Adjusted Profit before
tax
Adjusted Profit before tax is presented as it is required for the
calculation of the Group's adjusted effective tax
rate.
Adjusted Profit before tax is defined as (loss)/profit before tax
excluding the effects of, share-based compensation, the
amortisation of intangible assets acquired in a business
combination and all exceptional items including profit on disposal
of discontinued operation. These adjusting items are items that are
not considered to be representative of the trading performance of
the Group:
● Exceptional items (note 8), including the profit
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 Profit before tax because these represent a
non-cash accounting item. These charges also represent long-term
incentives designed for long-term employee retention, rather than
reflecting the short-term trading performance of the Group's
business. The directors acknowledge that there is an on-going
debate on the add-back of share-based payment charges but believe
that as they are not included in the analysis of segment
performance used by the Chief Operating Decision Maker and their
add-back is consistent with metrics used by a number of other
companies in the technology sector, that this treatment remains
appropriate.
● Charges for the amortisation of purchased
intangibles are excluded from the calculation of Adjusted Profit
before tax. This is because these charges are a non-cash accounting
item based on judgements about their value and economic life, are
the result of the application of acquisition accounting, and whilst
revenue recognised in the income statement does benefit from the
intangibles that have been acquired, the amortisation costs bear no
relation to the Group's trading performance in the period. In
addition, amortisation of acquired intangibles is not included in
the analysis of segment performance used by the Chief Operating
Decision Maker.
The following table is a reconciliation from profit before tax for
the year to Adjusted Profit before tax:
|
Year ended
31 October 2021
|
|
Year
ended
31
October 2020
|
|
Continuing
operations
|
Discontinued
operation
|
Total
|
|
Continuing
operations
|
Discontinued
operation
|
Total
|
|
$m
|
$m
|
$m
|
|
$m
|
$m
|
$m
|
(Loss)/profit before tax
|
(517.8)
|
10.7
|
(507.1)
|
|
(2,940.4)
|
(3.0)
|
(2,943.4)
|
|
|
|
|
|
|
|
|
Share-based
compensation charge
|
14.3
|
-
|
14.3
|
|
17.0
|
-
|
17.0
|
Amortisation
of purchased intangibles
|
899.4
|
-
|
899.4
|
|
604.1
|
-
|
604.1
|
Exceptional
items, including profit on disposal of discontinued
operation
|
247.1
|
(10.7)
|
236.4
|
|
3,011.6
|
3.0
|
3,014.6
|
Adjusting items
|
1,160.8
|
(10.7)
|
1,150.1
|
|
3,632.7
|
3.0
|
3,635.7
|
|
|
|
|
|
|
|
|
Adjusted Profit before tax
|
643.0
|
-
|
643.0
|
|
692.3
|
-
|
692.3
|
3. Adjusted Profit After Tax and Adjusted Effective Tax
Rate
This is an Alternative Performance Measure and is presented because
management believe it is important to understanding the Group's tax
position on its operating performance. Adjusted Effective Tax Rate
is used to assess the trend in the Group tax rate. Adjusted profit
after taxation reflects adjusted profit before tax (see above) less
the taxation charge associated with these profits. 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).
The tax charge on Adjusted Profit before tax for the year ended 31
October 2021 was $155.3m (2020: $174.1m). This represents an
Adjusted Effective Tax Rate ("Adjusted ETR") of 24.2% (2020:
25.1%). The calculation of the Adjusted ETR is set out
below.
|
Year
ended
31
October 2021
|
|
Year
ended
31
October 2020
|
|
Statutory
|
Adjusting
items
|
Adjusted
measures
|
|
Statutory
|
Adjusting
items
|
Adjusted
Measures
|
Effective
tax rate (continuing operations)
|
$m
|
$m
|
$m
|
|
$m
|
$m
|
$m
|
(Loss)/profit
before tax
|
(517.8)
|
1,160.8
|
643.0
|
|
(2,940.4)
|
3,632.7
|
692.3
|
Taxation
|
82.7
|
(238.0)
|
(155.3)
|
|
(34.2)
|
(139.9)
|
(174.1)
|
(Loss)/profit after
tax
|
(435.1)
|
922.8
|
487.7
|
|
(2,974.6)
|
3,492.8
|
518.2
|
Effective tax
rate
|
16.0%
|
|
24.2%
|
|
(1.2)%
|
|
25.1%
|
In computing Adjusted Profit before tax for the year ended 31
October 2021, $1,160.8m (2020: $3,632.7m) of adjusting items have
been added back (see Adjusted Profit before tax section above) and
the associated tax credit is $238.0m (2020: $139.9m) which relates
to share-based payments compensation charge of $1.1m (2020: credit
$0.6m), amortisation of intangibles acquired in a business
combination of $160.6m (2020: $101.8m) and exceptional items of
$76.3m (2020: $38.7m).
4. Adjusted Earnings per Share and Diluted Adjusted
Earnings per Share
Adjusted Earnings per share ("EPS") are presented as management
believe they are important to understanding the change in the
Group's EPS. Adjusted EPS is used in certain LTIP awards, awarded
in 2019, as disclosed in the Directors' Remuneration
report.
The Adjusted EPS is defined as Basic EPS where the earnings
attributable to ordinary shareholders are adjusted by adding back
all exceptional items including the 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.
CENTS
|
Year
ended
31
October 2021
|
Year
ended
31
October 2020
|
EPS from continuing operations attributable to the ordinary equity
shareholders of the Company
|
|
|
Basic
EPS - cents
|
(129.30)
|
(886.15)
|
Diluted
EPS - cents 1
|
(129.30)
|
(886.15)
|
Basic
Adjusted EPS - cents
|
144.93
|
154.37
|
Diluted
Adjusted EPS - cents1
|
144.93
|
154.37
|
|
|
|
EPS from discontinued operation
|
|
|
Basic
EPS - cents
|
3.18
|
1.52
|
Diluted
EPS - cents
|
3.18
|
1.52
|
Basic
Adjusted EPS - cents
|
-
|
2.17
|
Diluted
Adjusted EPS - cents
|
-
|
2.17
|
|
|
|
Total EPS attributable to the ordinary equity shareholders of the
Company
|
|
|
Basic
EPS - cents
|
(126.12)
|
(884.63)
|
Diluted
EPS - cents 1
|
(126.12)
|
(884.63)
|
Basic
Adjusted EPS - cents
|
144.93
|
156.54
|
Diluted
Adjusted EPS - cents1
|
144.93
|
156.54
|
|
|
|
PENCE
|
|
|
|
|
|
EPS from continuing operations attributable to the ordinary equity
shareholders of the Company
|
|
|
Basic
EPS - pence
|
(94.09)
|
(693.45)
|
Diluted
EPS - pence 1
|
(94.09)
|
(693.45)
|
Basic
Adjusted EPS - pence
|
105.46
|
120.81
|
Diluted
Adjusted EPS - pence1
|
105.46
|
120.81
|
|
|
|
EPS from discontinued operation
|
|
|
Basic
EPS - pence
|
2.31
|
1.19
|
Diluted
EPS - pence
|
2.31
|
1.19
|
Basic
Adjusted EPS - pence
|
-
|
1.70
|
Diluted
Adjusted EPS - pence
|
-
|
1.70
|
|
|
|
Total EPS attributable to the ordinary equity shareholders of the
Company
|
|
|
Basic
EPS - pence
|
(91.78)
|
(692.26)
|
Diluted
EPS - pence 1
|
(91.78)
|
(692.26)
|
Basic
Adjusted EPS - pence
|
105.46
|
122.51
|
Diluted
Adjusted EPS - pence1
|
105.46
|
122.51
|
1 The Group reported a
loss from continuing and discontinued operations and a loss for the
year attributable to the ordinary equity shareholders of the
Company for the years ended 31 October 2021 and 31 October 2020.
The Diluted EPS is reported as equal to Basic EPS (similarly for
Adjusted EPS) as no account can be taken of the effect of dilutive
securities under IAS 33.
4. Adjusted
Earnings per Share and Diluted Adjusted Earnings per
Share continued
|
Year
ended
31
October 2021
|
Year
ended
31
October 2020
|
|
$m
|
$m
|
Loss for the year and Earnings attributable to ordinary
shareholders
|
(424.4)
|
(2,969.5)
|
From
continuing operations
|
(435.1)
|
(2,974.6)
|
From
discontinued operation
|
10.7
|
5.1
|
Earnings attributable to ordinary shareholders
|
(424.4)
|
(2,969.5)
|
Adjusting items:
|
|
|
(Profit)/loss
on discontinued operation
|
(10.7)
|
3.0
|
Exceptional
items
|
247.1
|
3,011.6
|
Share-based
compensation charge
|
14.3
|
17.0
|
Amortisation
of purchased intangibles
|
899.4
|
604.1
|
|
1,150.1
|
3,635.7
|
Tax relating to above adjusting items
|
(238.0)
|
(140.7)
|
Adjusted earnings attributable to ordinary
shareholders
|
487.7
|
525.5
|
|
|
|
From
continuing operations
|
487.7
|
518.2
|
From
discontinued operation
|
-
|
7.3
|
Adjusted earnings attributable to ordinary
shareholders
|
487.7
|
525.5
|
|
|
|
Weighted average number of shares:
|
Number
m
|
Number
m
|
Basic
|
336.5
|
335.7
|
Effect
of dilutive securities - Options
|
-
|
-
|
Diluted
|
336.5
|
335.7
|
|
Year ended
31 October 2021
|
Year
ended
31
October 2020
|
|
Continuing
operations
|
Discontinued
operation
|
Total
|
Continuing
operations
|
Discontinued
operation
|
Total
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
Adjusting items:
|
|
|
|
|
|
|
Exceptional
items, including loss/(profit) on disposal of discontinued
operation
|
247.1
|
(10.7)
|
236.4
|
3,011.6
|
3.0
|
3,014.6
|
Share-based
compensation charge
|
14.3
|
-
|
14.3
|
17.0
|
-
|
17.0
|
Amortisation
of intangible assets acquired in a business
combination
|
899.4
|
-
|
899.4
|
604.1
|
-
|
604.1
|
|
1,160.8
|
(10.7)
|
1,150.1
|
3,632.7
|
3.0
|
3,635.7
|
Tax relating to above adjusting items
|
(238.0)
|
-
|
(238.0)
|
(139.9)
|
(0.8)
|
(140.7)
|
|
922.8
|
(10.7)
|
912.1
|
3,492.8
|
2.2
|
3,495.0
|
5. Free cash flow and Adjusted free cash
flow
Free cash flow is presented as it is widely used by securities
analysts, investors and other interested parties to understand the
Group's cash flow as it provides an indication of the Group's cash
generation in the period which is available for investment in debt
repayments, dividend payments or other discretionary
activity.
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.
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 an understanding of the Group's underlying trajectory
as we deliver our plans.
|
Year
ended
31
October 2021
|
Year
ended
31
October 2020
|
|
$m
|
$m
|
Cash generated from operations
|
690.5
|
1,082.8
|
Less:
|
|
|
Interest
payments
|
(218.1)
|
(207.1)
|
Bank
loan costs
|
(1.5)
|
(47.9)
|
Tax
payments
|
(270.3)
|
(149.6)
|
Purchase
of intangible assets
|
(47.5)
|
(60.6)
|
Purchase
of property, plant and equipment
|
(17.7)
|
(26.3)
|
Lease-related
interest and capital payments
|
(79.5)
|
(80.1)
|
Free cash flow
|
55.9
|
511.2
|
Exclude the cash impact of exceptional items*
|
236.5
|
148.9
|
Adjusted free cash flow
|
292.4
|
660.1
|
* Cash impact of exceptional items is exceptional charge for the
period $247.1m (2020: $3,011.6m) adjusted for the related movements
in payables $1.4m (2020: $(23.0)m) and provisions $3.6m (2020:
$6.7m) and non-cash items $(8.9)m (2020: $2,804.4m), and tax on
exceptional items $53.5m (2020: $42.0m) calculated at the weighted
average rate of tax applied in the territories the exceptional
charges are recognised in. An additional payment of the EU State
Aid tax item $46.8m (2020: nil), (see notes 8, "Exceptional items
and 9, "Taxation") has been recorded as an exceptional cash item by
virtue of size and nature as it relates to historic tax structures
and is not indicative of current trading performance.
6. Net debt
Net debt is presented as it is a key component of the Net Debt to
Adjusted EBITDA ratio which is the primary liquidity measure used
by management.
Net debt is defined as cash and cash equivalents less borrowings
and lease obligations.
|
31
October 2021
|
31
October 2020
|
|
$m
|
$m
|
Borrowings
|
(4,548.4)
|
(4,640.3)
|
Cash
and cash equivalents
|
558.4
|
737.2
|
Lease
obligations*
|
(205.9)
|
(250.4)
|
Net debt
|
(4,195.9)
|
(4,153.5)
|
* Includes lease obligations included in current liabilities held
for sale, see note 18 "Discontinued operation and assets held for
sale".
7. Adjusted cash conversion ratio
Adjusted cash conversion ratio is presented as management believe
it is important to the understanding the Group's conversion of
underlying results to cash. Adjusted cash conversion ratio is used
to track and measure timing differences between profitability and
cash generation through working capital management, including
seasonality or one-offs The Group's adjusted cash conversion ratio
is defined as cash generated from operations divided by Adjusted
EBITDA less exceptional items (reported in Operating loss and
excluding any goodwill impairment charge, as this is deemed
non-cash related).
|
Year
ended
31
October 2021
|
Year
ended
31
October 2020
|
|
$m
|
$m
|
Cash generated from operations
|
690.5
|
1,082.8
|
|
|
|
Adjusted
EBITDA
|
1,040.2
|
1,173.7
|
Less:
exceptional items (reported in Operating loss)
|
(247.1)
|
(3,011.6)
|
Excluded:
Goodwill impairment charge
|
-
|
2,799.2
|
Adjusted
EBITDA less exceptional items
|
793.1
|
961.3
|
Adjusted cash conversion ratio
|
87.1%
|
112.6%
|
8. 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 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 year at the same average exchange rates as
those used in reported results for the current year. 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, Japanese Yen,
Indian Rupee and Chinese Yuan. The exchange rates used are as
follows:
|
Year ended
31 October 2021
|
Year
ended
31
October 2020
|
|
Average
|
Closing
|
Average
|
Closing
|
£1
= $
|
1.37
|
1.37
|
1.28
|
1.30
|
€1
= $
|
1.19
|
1.16
|
1.13
|
1.17
|
C$ =
$
|
0.80
|
0.81
|
0.74
|
0.75
|
100 INR
= $
|
1.36
|
1.33
|
1.36
|
1,34
|
100 JPY
= $
|
0.92
|
0.88
|
0.93
|
0.96
|
Consolidated statement of comprehensive income
For the year ended 31 October 2021
Continuing operations
|
Note
|
Year ended31 October 2021$m
|
Year
ended31 October 2020$m
|
Revenue
|
7
|
2,899.9
|
3,001.0
|
Cost of sales
|
|
(776.3)
|
(702.7)
|
Gross profit
|
|
2,123.6
|
2,298.3
|
Selling and distribution expenses
|
|
(1,344.6)
|
(1,112.1)
|
Research and development expenses
|
|
(521.8)
|
(513.6)
|
Administrative expenses
|
|
(522.8)
|
(3,334.0)
|
Operating loss
|
|
(265.6)
|
(2,661.4)
|
|
|
|
|
Operating profit prior to depreciation, amortisation and
exceptional items
|
|
1,044.9
|
1,143.2
|
Depreciation and amortisation
|
|
(1,063.4)
|
(793.0)
|
Exceptional items
|
8
|
(247.1)
|
(3,011.6)
|
Operating loss
|
|
(265.6)
|
(2,661.4)
|
|
|
|
|
Finance costs
|
|
(253.9)
|
(281.6)
|
Finance income
|
|
1.7
|
2.6
|
Net finance costs
|
|
(252.2)
|
(279.0)
|
|
|
|
|
Loss before tax
|
|
(517.8)
|
(2,940.4)
|
Taxation*
|
9
|
82.7
|
(34.2)
|
Loss from continuing operations
|
|
(435.1)
|
(2,974.6)
|
Profit from discontinued operation (attributable to equity
shareholders of the Company)
|
|
10.7
|
5.1
|
Loss for the year
|
|
(424.4)
|
(2,969.5)
|
Attributable to:
|
|
|
|
Equity shareholders of the Company
|
|
(424.4)
|
(2,969.5)
|
Loss for the year
|
|
(424.4)
|
(2,969.5)
|
*Taxation includes a credit of $76.3m (2020: credit $38.7m)
relating to exceptional items, see note 8, "Exceptional
items".
The accompanying notes form part of the financial
statements.
Consolidated statement of comprehensive
income continued
For the year ended 31 October 2021
|
Note
|
Year ended31 October 2021$m
|
Year
ended 31 October 2020$m
|
Loss for the year
|
|
(424.4)
|
(2,969.5)
|
Other comprehensive income/(expense) for the year:
|
|
|
|
Items that will not be reclassified to profit or loss
|
|
|
|
Continuing operations:
|
|
|
|
Actuarial gain/(loss) on pension schemes liabilities
|
16
|
33.4
|
(0.4)
|
Actuarial gain on non-plan pension assets
|
16
|
0.2
|
0.4
|
Deferred tax movement on pension schemes
|
|
-
|
(5.0)
|
Continuing operations: Items that may be subsequently reclassified
to profit or loss
|
|
|
|
Cash flow hedge movements
|
|
42.2
|
(41.3)
|
Current tax movement on cash flow hedge movements
|
|
(8.0)
|
7.8
|
Deferred tax movement on currency translation
differences
|
|
(7.8)
|
(8.7)
|
Current tax movement on Euro loan foreign exchange
hedging
|
|
6.0
|
-
|
Deferred tax movement on Euro loan foreign exchange
hedging
|
|
(8.1)
|
11.1
|
Currency translation differences
|
|
68.6
|
(67.0)
|
Other comprehensive income/(expense) for the year
|
|
126.5
|
(103.1)
|
Total comprehensive expense for the year
|
|
(297.9)
|
(3,072.6)
|
Attributable to:
|
|
|
|
Equity shareholders of the Company
|
|
(297.9)
|
(3,072.6)
|
Total comprehensive expense for the year
|
|
(297.9)
|
(3,072.6)
|
Total comprehensive expense attributable to the equity shareholders
of the Company arises from:
|
|
|
|
Continuing operations
|
|
(308.6)
|
(3,077.7)
|
Discontinued operation
|
|
10.7
|
5.1
|
Total comprehensive expense for the year
|
|
(297.9)
|
(3,072.6)
|
Earnings per share (cents)
|
|
|
|
From continuing and discontinued operations
|
|
cents
|
cents
|
- basic
|
11
|
(126.12)
|
(884.63)
|
- diluted
|
11
|
(126.12)
|
(884.63)
|
From continuing operations
|
|
|
|
- basic
|
11
|
(129.30)
|
(886.15)
|
- diluted
|
11
|
(129.30)
|
(886.15)
|
Earnings per share (pence)
|
|
|
|
From continuing and discontinued operations
|
|
|
pence
|
- basic
|
11
|
(91.78)
|
(692.26)
|
- diluted
|
11
|
(91.78)
|
(692.26)
|
From continuing operations
|
|
|
|
- basic
|
11
|
(94.09)
|
(693.45)
|
- diluted
|
11
|
(94.09)
|
(693.45)
|
The
accompanying notes form part of the financial
statements.
Consolidated statement of financial position
As at 31 October 2021
|
Note
|
31 October 2021$m
|
31
October 2020$m
|
Non-current assets
|
|
|
|
Goodwill
|
12
|
3,725.5
|
3,835.4
|
Other intangible assets
|
13
|
4,331.2
|
5,383.0
|
Property, plant and equipment
|
|
75.4
|
93.7
|
Right-of-use assets
|
|
153.2
|
207.2
|
Long-term pension assets
|
|
17.1
|
18.2
|
Contract-related costs
|
|
31.9
|
35.7
|
Non-current tax receivable
|
9
|
48.0
|
-
|
Deferred tax asset
|
|
15.0
|
-
|
Other non-current assets
|
|
42.2
|
31.8
|
|
|
8,439.5
|
9,605.0
|
Current assets
|
|
|
|
Trade and other receivables
|
|
886.3
|
731.4
|
Contract-related costs
|
|
33.0
|
27.9
|
Current tax receivables
|
9
|
59.1
|
45.3
|
Cash and cash equivalents
|
|
558.4
|
737.2
|
|
|
1,536.8
|
1,541.8
|
Current assets classified as held for sale
|
|
370.3
|
-
|
|
|
1,907.1
|
1,541.8
|
Total assets
|
|
10,346.6
|
11,146.8
|
Current liabilities
|
|
|
|
Trade and other payables
|
|
513.0
|
503.5
|
Borrowings
|
14
|
24.3
|
21.4
|
Lease obligations
|
|
74.9
|
82.2
|
Provisions
|
15
|
65.7
|
49.7
|
Current tax liabilities
|
9
|
94.1
|
150.1
|
Derivative liability
|
17
|
35.7
|
-
|
Contract liabilities
|
|
984.6
|
981.4
|
Other current liabilities
|
|
0.2
|
-
|
|
|
1,792.5
|
1,788.3
|
|
|
|
|
Current liabilities classified as held for sale
|
|
68.4
|
-
|
|
|
1,860.9
|
1,788.3
|
Non-current liabilities
|
|
|
|
Contract liabilities
|
|
131.8
|
117.2
|
Borrowings
|
14
|
4,524.1
|
4,618.9
|
Lease obligations
|
|
119.6
|
168.2
|
Derivative liability
|
17
|
-
|
77.9
|
Retirement benefit obligations
|
16
|
147.1
|
155.0
|
Provisions
|
15
|
19.8
|
22.5
|
Other non-current liabilities
|
|
31.3
|
39.9
|
Non-current tax liabilities
|
9
|
91.9
|
102.7
|
Deferred tax liabilities
|
|
599.1
|
841.1
|
|
|
5,664.7
|
6,143.4
|
Total liabilities
|
|
7,525.6
|
7,931.7
|
Net assets
|
|
2,821.0
|
3,215.1
|
Capital and reserves
|
|
|
|
Share capital
|
|
47.4
|
47.3
|
Share premium account
|
|
46.8
|
46.5
|
Merger reserve
|
|
1,659.1
|
1,767.4
|
Capital redemption reserve
|
|
2,485.0
|
2,485.0
|
Hedging reserve
|
|
(28.9)
|
(63.1)
|
Retained earnings
|
|
(1,120.4)
|
(741.3)
|
Foreign currency translation reserve
|
|
(268.0)
|
(326.7)
|
Total equity attributable to owners of the parent
|
|
2,821.0
|
3,215.1
|
Total equity
|
|
2,821.0
|
3,215.1
|
|
|
|
|
|
The
accompanying notes form part of the financial
statements.
Consolidated statement of changes in equity
For the year ended 31 October 2021
Note
|
Share capital$m
|
Share premium account$m
|
Retained earnings$m
|
Foreign currency translation reserve $m
|
Capital redemption reserves$m
|
Hedging reserve$m
|
Merger reserve$m
|
Total equity attributable to owners of the parent$m
|
Total equity$m
|
Balance as at1 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 year
|
|
-
|
-
|
(424.4)
|
-
|
-
|
-
|
-
|
(424.4)
|
(424.4)
|
Other comprehensive income for the year
|
|
-
|
-
|
33.6
|
58.7
|
-
|
34.2
|
-
|
126.5
|
126.5
|
Total comprehensive expense for the year
|
|
-
|
-
|
(390.8)
|
58.7
|
-
|
34.2
|
-
|
(297.9)
|
(297.9)
|
Transactions with owners
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
10
|
-
|
-
|
(81.1)
|
-
|
-
|
-
|
-
|
(81.1)
|
(81.1)
|
Share options:
|
|
|
|
|
|
|
|
|
|
|
Issue of share capital - share options
|
|
0.1
|
0.3
|
(0.1)
|
-
|
-
|
-
|
-
|
0.3
|
0.3
|
Share-based payment charge
|
|
-
|
-
|
12.0
|
-
|
-
|
-
|
-
|
12.0
|
12.0
|
Deferred tax on share options
|
|
-
|
-
|
(0.2)
|
-
|
-
|
-
|
-
|
(0.2)
|
(0.2)
|
Purchase of treasury
shares1
|
|
-
|
-
|
(27.2)
|
-
|
-
|
-
|
-
|
(27.2)
|
(27.2)
|
Transfer from merger reserve
|
|
-
|
-
|
108.3
|
-
|
-
|
-
|
(108.3)
|
-
|
-
|
Total movements for the year
|
|
0.1
|
0.3
|
(379.1)
|
58.7
|
-
|
34.2
|
(108.3)
|
(394.1)
|
(394.1)
|
Balance as at 31 October 2021
|
|
47.4
|
46.8
|
(1,120.4)
|
(268.0)
|
2,485.0
|
(28.9)
|
1,659.1
|
2,821.0
|
2,821.0
|
1During the 12 months ended 31
October 2021 the Micro Focus Employee Benefit Trust ("EBT")
purchased four 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.
The
accompanying notes form part of the financial
statements.
Consolidated statement of changes in equity
For the year ended 31 October 2020
|
Note
|
Share
capital
$m
|
Share
premium account
$m
|
Retained
earnings
$m
|
Foreign
currency translation reserve
$m
|
Capital
redemption reserves
$m
|
Hedging
reserve
$m
|
Merger
reserve
$m
|
Total
equity attributable to owners of the parent
$m
|
Non-controlling
interests
$m
|
Total
equity
$m
|
Balance as at 1 November 2019
|
|
47.2
|
44.0
|
2,250.7
|
(262.1)
|
2,485.0
|
(29.6)
|
1,739.8
|
6,275.0
|
1.3
|
6,276.3
|
Impact of adoption of IFRS 16
|
|
-
|
-
|
(8.4)
|
-
|
-
|
-
|
-
|
(8.4)
|
-
|
(8.4)
|
Revised balance at 1 November 2019
|
|
47.2
|
44.0
|
2,242.3
|
(262.1)
|
2,485.0
|
(29.6)
|
1,739.8
|
6,266.6
|
1.3
|
6,267.9
|
Loss for the financial year
|
|
-
|
-
|
(2,969.5)
|
-
|
-
|
-
|
-
|
(2,969.5)
|
-
|
(2,969.5)
|
Other comprehensive expense for the year
|
|
-
|
-
|
(5.0)
|
(64.6)
|
-
|
(33.5)
|
-
|
(103.1)
|
-
|
(103.1)
|
Total comprehensive expense for the year
|
|
-
|
-
|
(2,974.5)
|
(64.6)
|
-
|
(33.5)
|
-
|
(3,072.6)
|
-
|
(3,072.6)
|
Share options:
|
|
|
|
|
|
|
|
|
|
|
|
Issue of share capital - share options
|
|
0.1
|
2.5
|
0.3
|
-
|
-
|
-
|
-
|
2.9
|
-
|
2.9
|
Share-based payment charge
|
|
-
|
-
|
18.3
|
-
|
-
|
-
|
-
|
18.3
|
-
|
18.3
|
Current tax on share options
|
9
|
-
|
-
|
0.1
|
-
|
-
|
-
|
-
|
0.1
|
-
|
0.1
|
Deferred tax on share options
|
|
-
|
-
|
(1.5)
|
-
|
-
|
-
|
-
|
(1.5)
|
-
|
(1.5)
|
Purchase of remaining non-controlling interest
|
|
-
|
-
|
1.3
|
-
|
-
|
-
|
-
|
1.3
|
(1.3)
|
-
|
Transfer to merger reserve
|
|
-
|
-
|
(27.6)
|
-
|
-
|
-
|
27.6
|
-
|
-
|
-
|
Total movements for the year
|
|
0.1
|
2.5
|
(2,983.6)
|
(64.6)
|
-
|
(33.5)
|
27.6
|
(3,051.5)
|
(1.3)
|
(3,052.8)
|
Balance as at 31 October 2020
|
|
47.3
|
46.5
|
(741.3)
|
(326.7)
|
2,485.0
|
(63.1)
|
1,767.4
|
3,215.1
|
-
|
3,215.1
|
The
accompanying notes form part of the financial
statements.
Consolidated statement of cash flows
For the year ended 31 October 2021
|
Note
|
Year ended31 October 2021$m
|
Year
ended31 October 2020$m
|
Cash flows from operating activities
|
|
|
|
Cash generated from operations
|
19
|
690.5
|
1,082.8
|
Interest paid
|
|
(218.1)
|
(207.1)
|
Bank loan costs
|
|
(1.5)
|
(47.9)
|
Tax paid
|
|
(270.3)
|
(149.6)
|
Net cash generated from operating activities
|
|
200.6
|
678.2
|
Cash flows from investing activities
|
|
|
|
Payments for intangible assets
|
13
|
(47.5)
|
(60.6)
|
Purchase of property, plant and equipment
|
|
(17.7)
|
(26.3)
|
Interest received
|
|
1.7
|
2.4
|
Payment for acquisition of business and net cash acquired with
acquisitions
|
|
(12.4)
|
(6.0)
|
Investing cash flows generated from disposals
|
|
-
|
1.3
|
Net cash used in investing activities
|
|
(75.9)
|
(89.2)
|
Cash flows used in financing activities
|
|
|
|
Proceeds from issue of ordinary share capital
|
|
0.4
|
2.6
|
Purchase of treasury shares and related expenses
|
|
(27.2)
|
-
|
Payment for lease liabilities
|
|
(79.5)
|
(80.1)
|
Settlement of foreign exchange derivative
|
17
|
-
|
(21.8)
|
Repayment of bank borrowings
|
14
|
(114.1)
|
(1,589.7)
|
Proceeds from bank borrowings
|
14
|
-
|
1,490.8
|
Dividends paid to owners
|
10
|
(81.1)
|
-
|
Net cash used in financing activities
|
|
(301.5)
|
(198.2)
|
Effects of exchange rate changes
|
|
(2.0)
|
(9.3)
|
Net (decrease)/increase in cash and cash equivalents
|
|
(178.8)
|
381.5
|
Cash and cash equivalents at beginning of the year
|
|
737.2
|
355.7
|
Cash and cash equivalents at end of the year
|
|
558.4
|
737.2
|
The
accompanying notes form part of these financial
statements.
1. General information
Micro Focus International plc ("Company") is a public limited
company incorporated and domiciled in England and Wales. The
address of its registered office is: The Lawn, 22-30 Old Bath Road,
Newbury, RG14 1QN, UK.
Micro Focus International plc and its subsidiaries (together
"Group") provide innovative software to clients around the world
enabling them to dramatically improve the business value of their
enterprise applications. As at 31 October 2021, the Group had a
presence in 48 countries (31 October 2020: 48) worldwide and
employed approximately 11,355 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.
The Group consolidated financial statements were authorised for
issuance by the board of directors on 7 February 2022.
2. Basis of preparation
The summary financial information set out above does not constitute
the Group's statutory consolidated Financial Statements for the
year ended 31 October 2021 or the year ended 31 October 2020.
Statutory consolidated Financial Statements for the Group for the
year ended 31 October 2020, prepared in accordance with adopted
IFRS, have been delivered to the Registrar of Companies and those
for the 12 months ended 31 October 2021 will be delivered in due
course. The auditors have reported on those accounts; their report
was (i) unqualified, (ii) did not include a reference to any
matters to which the auditors drew attention by way of any emphasis
without qualifying their report and (iii) did not contain a
statement under Section 498 (2) or (3) of the Companies Act
2006.
The summary financial information for the 12 months ended 31
October 2021 has been prepared by the directors based upon the
results and position that are reflected in the consolidated
Financial Statements of the Group.
The consolidated financial statements have been prepared on a going
concern basis under the historical cost convention.
The preparation of financial statements in conformity with IFRS
requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of
applying the Group's accounting policies. The areas involving a
higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the consolidated
financial statements are disclosed below in note 4, "Critical
accounting estimates, assumptions and judgements".
The accounting policies 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 year, as set out in 3 "Adoption of new
and revised IFRS".
Consolidated statement of comprehensive income
The Group has revised the presentation of the consolidated
statement of comprehensive income to remove the additional two
columns showing exceptional items and the pre-exceptional item
results which were included in prior periods. Instead additional
disclosure has been included on the face of the consolidated
statement of comprehensive income to show operating loss before
depreciation, amortisation and exceptional items. The revised
presentation is considered to be simpler to the users of the
accounts and reflects the significant impact of amortisation,
depreciation and exceptional items on the results of the Group. The
comparatives have been represented to be consistent with the
revised presentation format.
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 available information about the future for a period of at
least, but not limited to, 12 months from the date of approval of
the consolidated financial statements when assessing the Group's
ability to continue as a going concern.
The Chief Executive's Strategic review includes information on the
Group's strategy. The Chief Financial Officer's report includes
information on our Group financial results, financial outlook, cash
flow and net debt, and the balance sheet position. This report also
covers the agreed disposal of the Group's Digital Safe business for
net consideration of $335m. The transaction completed on 31 January
2022 therefore this going concern assessment is prepared for the
Group excluding the Digital Safe business.
2. Basis of
preparation continued
The Group manages solvency and liquidity as part of its budgeting
and performance management. The Group's forecasting and planning
cycle consists of a budget and a long-range plan which are used to
generate income statement and cash flow projections. The cash flow
projections also forecast the headroom on the Group's undrawn RCF
and expected net leverage. Actual and forecast liquidity are
reviewed at least weekly by the Group's working capital management
group which reports to the Chief Financial Officer.
In making this assessment, the directors considered the Group's
liquidity and solvency position. Since year end the Group has
refinanced $1.6bn of the 2024 term loans extending the maturity
until 2027 and extended its Revolving Credit Facilities ("RCF") by
18 months to December 2026, reducing the facility to $250m and
increasing the Group's ability to utilise the facility. See note
14, "Borrowings" for further details of the Groups borrowings,
including the RCF, and the refinancing. Whilst the Group has
quarterly instalment payments due and, dependent on leverage, may
be subject to an excess cash sweep against its external borrowing
in the period to February 2023, the Group has no term loans
maturing until June 2024. Under the amended RCF agreement the net
leverage covenant applies when the RCF is more than 40% drawn at
the quarter end. Under the Group's forecast the RCF is not forecast
to be drawn in the period to February 2023, and therefore no tests
of this covenant are expected to apply.
Also, in assessing liquidity, the board considered the reported net
current liability position of $255.7m at 31 October 2021. This is
the result of $984.6m 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.
Sensitivity
In assessing going concern the Group has estimated the financial
impact of the severe but plausible scenarios considered in
assessing viability on the going concern assessment period. This
stress testing confirmed that existing projected cash flows and
cash management activities provide us with significant headroom
over the going concern assessment period. In addition, under the
severe but plausible scenarios, there is no point at which the
Group would likely need to draw upon the RCF in the period to
February 2023 and therefore the covenant test on the RCF would not
be expected to apply.
Conclusion
Having performed the assessments discussed above, the directors
considered it appropriate to adopt the going concern basis of
accounting when preparing the Consolidated and Company financial
statements. This assessment covers the period to February 2023,
which is consistent with the FRC guidance.
3. Adoption of new and revised IFRS
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.
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 IAS 1 and
IAS 8: guidance on the definition of material.
●
Amendments to IFRS 9,
IAS 39, IFRS 7, IFRS 16 and IFRS 4: Interest rate benchmark
reforms. Phase 1 covering hedge accounting impacts and
discontinuance exemptions. Managing the transition to new interest
rate benchmarks is discussed further in note 17, "Financial risk
management and financial instruments".
The following interpretations and amendments to existing standards
are not yet effective and have not been adopted early by the Group.
These interpretations and amendments were not endorsed by the EU as
at 31 December 2020 and have not yet been endorsed by the UK
Endorsement Board ("UK EB") except where stated below:
3. Adoption of new
and revised IFRS continued
Effective for periods commencing after 1 January 2021 (applicable
to the Group from 1 November 2021):
●
Amendments to IFRS 9,
IAS 39, IFRS 7, IFRS 16 and IFRS 4: Interest rate benchmark reforms
phase 2. Phase 2 covers further disclosures on transition to a new
benchmark, UK EB endorsed 5 January 2021.
Effective for periods commencing after 1 January 2022 (applicable
to the Group from 1 November 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. 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".
Effective for periods commencing after 1 January 2023, (applicable
to the Group from 1 November 2023) subject to UK endorsement except
as noted below:
●
Amendments to IAS 1
"Presentation of financial statements". Amendment is presentational
and relates to the classification of liabilities as 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.
●
IFRS 17 "Insurance
contracts" and Amendments to IFRS 17 "Insurance
contracts".
●
The impact of the
amendments and interpretations listed above are not expected to
have a material impact on the consolidated financial
statements.
4. Critical accounting estimates, assumptions and
judgements
In preparing these consolidated financial statements, the Group has
made its best estimates and judgements of certain amounts included
in the financial statements, giving due consideration to
materiality. The Group regularly reviews these estimates and
judgements and updates them as required. The Group has reviewed its
critical accounting estimates, assumptions and judgements and a new
critical accounting estimate has been identified in relation to the
useful economic lives of the Group's purchased intangible assets.
The critical judgement identified in the prior year in relation to
the assessment of lease term is no longer considered critical as
IFRS 16 has been applied for two years and the level of remaining
judgement has reduced following changes to the Group's largest
leases over the last two years.
Actual results could differ from these estimates. Unless otherwise
indicated, the Group does not believe that there is a significant
risk of a material change to the carrying value of assets and
liabilities within the next financial year related to the
accounting estimates and assumptions described below. The Group
considers the following to be a description of the most significant
estimates and judgements which require the Group to make subjective
and complex judgements and matters that are inherently
uncertain.
Critical accounting estimates
A Potential impairment of goodwill and other intangible
assets
Each year, or whenever there are changes in circumstances
indicating that the carrying amounts may not be recoverable, the
Group carries out impairment tests of goodwill and other intangible
assets which require estimates to be made of the value in use of
its CGUs. These value in use calculations are dependent on
estimates of future cash flows including long-term growth rates,
the average annual revenue growth rate by product group and an
appropriate discount rate to be applied to future cash flows.
Further details on these estimates and sensitivity of the carrying
value of goodwill to the discount rate, the average annual revenue
growth rate by product group and the long-term growth rate are
provided in note 12, "Goodwill".
B Retirement benefit obligations
The valuation of retirement benefit obligations is dependent upon a
number of assumptions that are estimated at the year end date,
including estimates of mortality rates, inflation, salary growth
rates and the rate at which scheme liabilities are discounted.
Further detail on these estimates and the sensitivity of the
carrying value of the defined benefit obligation to these is
provided in note 16, "Pension and other long-term benefit
commitments".
C Useful economic lives of purchased intangible assets
The economic lives of the Group's purchased intangible assets 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 reviewed the estimated lives of purchased
intangible assets. The assessment performed in the current year
resulted in a reduction in the economic lives of certain purchased
intangible assets, see note 13 "Other intangible assets" for
details on the impacts in the current period, expected impact in
future periods and sensitivity.
Critical accounting judgements
D Revenue recognition
Revenue recognition requires significant use of management
judgement to produce financial information. The most significant
accounting judgements in applying IFRS 15 are the identification of
performance obligations and the determination of the transaction
price when the contract contains variable
considerations.
Judgement is required to (i) identify each distinct performance
obligation requiring separate recognition in a multi element
contract (e.g. licence, maintenance, material rights for option to
acquire additional products or services at discounted prices), and
(ii) allocate the transaction price to the various performance
obligations. This judgement impacts the timing of revenue
recognition, as certain performance obligations are recognised at a
point in time and others are recognised over the life of the
contract and therefore the judgement impacts the quantum of revenue
and profit recognised in a period.
E Exceptional item classification
The classification of these items as an exceptional is a matter of
judgement. This judgement is made by management after evaluating
each item deemed to be exceptional against the criteria set out
within the defined accounting policy.
F Provision for income taxes
The Group is subject to income taxes in numerous jurisdictions.
Significant judgement is required in determining the worldwide
provision for income taxes including structuring activities
undertaken by the Group and the application of complex transfer
pricing rules. The Group recognises liabilities for anticipated
settlement of tax issues based on judgements of whether additional
taxes will be due. Significant issues may take several periods to
resolve. In making judgements on the probability and amount of any
tax charge, management takes into account:
●
Status of the unresolved
matter;
●
Strength of technical
argument and clarity of legislation;
●
External
advice;
●
Resolution process, past
experience and precedents set with the particular taxing
authority;
●
Agreements previously
reached in other jurisdictions on comparable issues;
and
●
Statute of
limitations.
Key judgements in the year were related to the EU State Aid and UK
tax authority challenge in respect of prior periods. Specifically,
these judgements covered (i) the probability of success of either
the appeal by the UK Government or the appeal by the Group itself
in respect of the EU State Aid, (ii) the probability of success of
UK tax authority challenge, and therefore recovery of the $48m
current tax receivable, and (iii) the interaction of the two
matters in the context of the maximum liability, which we consider
to be $60m, associated with both the UK State Aid and UK tax
authority challenge. Based on their assessment (and supported by
advice received by the Group's tax advisors), the directors have
concluded that no additional tax provisions are required with
regards to these matters. See note 9, "Taxation" for additional
details.
The ultimate tax liability may differ from the amount provided
depending on interpretations of tax law, settlement negotiations or
changes in legislation. Where the final tax outcome of these
matters is different from the amounts that were initially recorded,
such differences will impact the income tax and deferred tax
provisions in the year in which such determination is
made.
5. 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.
6. 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 year ended 31 October 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 (to 7
August 2021). The Group is organised into a single reporting
segment.
The Group's segment under IFRS 8 is the 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 one single Go-to-Market organisation with
specialist skills targeted by sub-portfolio. 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 ("AMC"), Application Delivery Management ("ADM"), IT
Operations Management ("ITOM"), CyberRes and Information Management
& Governance ("IM&G").
The segmental reporting is consistent with that used in internal
management reporting and the profit measure used by the Operating
Committee is Adjusted EBITDA.
|
Note
|
Year ended 31 October 2021$m
|
Year
ended 31 October 2020$m
|
Reconciliation to Adjusted EBITDA:
|
|
|
|
Loss before tax
|
|
(517.8)
|
(2,940.4)
|
Finance costs
|
|
253.9
|
281.6
|
Finance income
|
|
(1.7)
|
(2.6)
|
Depreciation of property, plant and equipment
|
|
33.7
|
42.0
|
Right-of-use asset depreciation
|
|
73.3
|
76.9
|
Amortisation of intangible assets
|
13
|
956.4
|
674.1
|
Exceptional items (reported in Operating loss)
|
8
|
247.1
|
3,011.6
|
Share-based compensation charge
|
|
14.3
|
17.0
|
Product development intangible costs capitalised
|
13
|
(19.1)
|
(16.2)
|
Foreign exchange credit
|
|
0.1
|
29.7
|
Adjusted EBITDA
|
|
1,040.2
|
1,173.7
|
For the reportable segment, the total assets were $10,346.6m (2020:
$11,146.8m) and the total liabilities were $7,525.6m (2020:
$7,931.7m) as at 31 October 2021.
7. Supplementary information
The Group is domiciled in the UK. The Group's total segmental
revenue from external customers by geographical location is
detailed below:
|
Year ended
31 October 2021$m
|
Year
ended 31 October 2020$m
|
UK
|
160.0
|
173.0
|
US
|
1,263.0
|
1,289.8
|
Germany
|
223.0
|
218.7
|
Canada
|
110.3
|
108.0
|
France
|
100.7
|
101.4
|
Japan
|
95.6
|
96.9
|
Other
|
947.3
|
1,013.2
|
Total
|
2,899.9
|
3,001.0
|
The total of non-current assets as at 31 October 2021 located in
the US is $2,783.2m (31 October 2020: $3,301.0m), the total in the
rest of the world is $5,641.2m (31 October 2020:
$6,304.0m).
7. Supplementary
information continued
Analysis of revenue from contracts with customers
|
Year ended 31 October 2021$m
|
Year
ended 31 October 2020$m
|
Revenue from contracts with customers
|
2,899.9
|
3,001.0
|
|
|
|
Being:
|
|
|
Recognised over time:
|
|
|
Maintenance revenue
|
1,791.7
|
1,920.8
|
SaaS & other recurring revenue
|
239.8
|
245.3
|
|
2,031.5
|
2,166.1
|
Recognised at point in time:
|
|
|
Licence revenue
|
688.6
|
646.5
|
Consulting revenue
|
179.8
|
188.4
|
|
868.4
|
834.9
|
Total Revenue
|
2,899.9
|
3,001.0
|
Analysis of revenue by product
Set out below is an analysis of revenue recognised between the
principal Product Portfolios for the year ended 31 October 2021
with comparatives:
Year ended 31 October 2021:
|
Licence$m
|
Maintenance$m
|
SaaS & other recurring$m
|
Consulting$m
|
Total$m
|
AMC
|
155.3
|
315.9
|
-
|
10.3
|
481.5
|
ADM
|
106.1
|
408.5
|
78.9
|
18.6
|
612.1
|
ITOM
|
172.7
|
507.8
|
4.3
|
106.3
|
791.1
|
CyberRes
|
174.5
|
383.9
|
36.3
|
29.1
|
623.8
|
IM&G
|
80.0
|
175.6
|
120.3
|
15.5
|
391.4
|
Total Revenue
|
688.6
|
1,791.7
|
239.8
|
179.8
|
2,899.9
|
Year ended 31 October 2020:
|
Licence$m
|
Maintenance$m
|
SaaS
& other recurring$m
|
Consulting$m
|
Total$m
|
AMC
|
138.6
|
321.6
|
-
|
10.1
|
470.3
|
ADM
|
102.0
|
439.2
|
73.9
|
15.9
|
631.0
|
ITOM
|
175.1
|
559.4
|
4.6
|
113.9
|
853.0
|
CyberRes
|
162.6
|
416.8
|
33.6
|
33.1
|
646.1
|
IM&G
|
68.2
|
184.2
|
133.4
|
15.4
|
401.2
|
Subtotal
|
646.5
|
1,921.2
|
245.5
|
188.4
|
3,001.6
|
Deferred revenue haircut
|
-
|
(0.4)
|
(0.2)
|
-
|
(0.6)
|
Total Revenue
|
646.5
|
1,920.8
|
245.3
|
188.4
|
3,001.0
|
8. Exceptional items
|
|
Year ended
31 October 2021$m
|
Year
ended 31 October 2020$m
|
Reported within Operating loss:
|
|
|
|
Integration
costs
|
|
98.0
|
152.6
|
Divestiture
and acquisition costs
|
|
3.6
|
0.2
|
Property-related
costs
|
|
11.1
|
15.2
|
Severance
and legal costs
|
|
27.3
|
33.7
|
Legal
settlement and associated costs
|
|
75.4
|
-
|
Other
restructuring costs
|
|
31.7
|
10.7
|
Goodwill
impairment
|
|
-
|
2,799.2
|
Exceptional costs before tax
|
|
247.1
|
3,011.6
|
Tax
effect of exceptional items
|
|
(76.3)
|
(38.7)
|
Reported within profit from discontinued operation (attributable to
equity shareholders of the Company):
|
|
|
|
(Gain)/loss
on disposal of discontinued operation
|
|
(10.7)
|
2.2
|
Exceptional costs after tax
|
|
160.1
|
2,975.1
|
Exceptional items are allocated to the financial statement lines
(for example: cost of sales) in the Consolidated statement of
comprehensive income based on the nature and function of the costs;
for example restructuring costs related to employees are classified
where their original employment costs are recorded. Exceptional
items included in operating profit are reported in the following
financial statement lines Cost of sales $2.6m (FY20: $4.0m),
Selling and distribution expenses $4.8m (FY20: $12.9m). Research
and development expense $0.4m credit (FY20: $0.9m) and
Administrative expenses $240.1m (FY20: $2,993.8m).
Integration costs
Integration costs of $98.0m for the year ended 31 October 2021
(2020: $152.6m) reflect the costs incurred in the IT design, build
and migration onto a single new transformative IT platform for the
entire group and a wide range of projects undertaken to conform,
simplify and increase efficiency across the business and are
exceptional by virtue of size and nature.
Divestiture and acquisition costs
Acquisition costs of $1.3m in the year ended 31 October 2021 relate
to the acquisitions of Streamworx and Full 360 and are exceptional
by virtue of nature. Acquisition costs of $0.2m in the year ended
31 October 2020 relate to the acquisition of Atar Labs. Divestiture
costs of $2.3m in the year ended 31 October 2021 relate to the
disposal of the Digital Safe business and are exceptional by virtue
of nature.
Property-related costs
Property-related costs of $11.1m for the year ended 31 October 2021
(2020: $15.2m) relate to the impairment or amendment to the
impairments of right-of-use assets for empty or sublet properties
held by the Group, any related onerous non-rental costs and the
cost of site consolidations. These costs are incurred as the Group
simplifies and rationalises its real estate footprint as a result
of the acquisition of HPE Software or other significant
restructuring projects and are exceptional by virtue of
nature.
Severance and legal costs
Severance and legal costs of $27.3m for the year ended 31 October
2021 (2020: $33.7m) relate mostly to termination costs for
employees as the Group continues to remove duplication and simplify
the continuing operations as it executes the target operating model
resulting from the Strategic & Operational review and are
exceptional by virtue of nature.
Legal settlements and associated costs
Legal settlements and associated costs of $75.4m for the year ended
31 October 2021 (2020: $nil) relate to the settlement of the Wapp
patent infringement case and are exceptional by virtue of size and
incidence. 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 Company reached a settlement with Wapp on
15 July 2021 for payment of $67.5m for complete resolution of the
dispute without admission of liability. This amount was recognised
as a provision in the Group's statement of financial position as at
30 April 2021.
In concluding this matter, the board considered a range of factors,
including the possible time, cost and significant resources
required for the appeal process and concluded that it was in the
best interests of the Company that a settlement should be
reached.
8. Exceptional
items continued
Pursuant to the settlement, the Company has been granted a fully
paid-up, worldwide, irrevocable licence for the patents asserted by
Wapp for current and future Micro Focus products and services,
covering the Company as well as its customers. No consideration was
allocated to the licence received.
The agreed settlement amount of $67.5m was paid in September 2021
therefore no remaining balances are held in relation to Wapp at 31
October 2021.
Other restructuring costs
Other restructuring costs of $31.7m for the year ended 31 October
2021 (2020: $10.7m) relates to the costs of implementing the
initiatives included in the Strategic & Operational Review and
are exceptional by virtue of nature. These include costs of
restructuring of the Group to deliver the target operating model
design and cost base and certain IT expenditure required to support
the related simplification of the Group.
Goodwill impairment
No goodwill impairment charge was made in the year ended 31 October
2021 (2020: $2,799.2m), see note 12, "Goodwill" for additional
information.
Tax effect of exceptional items
The tax effect of exceptional items on the income statement is a
credit of $76.3m for the year ended 31 October 2021 (2020: $38.7m
credit). Exceptional items include a tax credit of $19.1m (FY20
charge: $19.1m) in relation to the transfer of assets between tax
jurisdictions as a result of acquisitions by the Group in FY19.
This is considered exceptional in nature as it has resulted from
the integration activities to simplify and increase efficiency
across the business.
Gain on disposal of discontinued operation
The gain on disposal of discontinued operation of $10.7m in the
year ended 31 October 2021 (2020: loss of $2.2m) relates to
adjustments in indemnification amounts owed to SUSE as part of the
disposal agreement and is exceptional by virtue of
nature.
EU State Aid
Whilst no income statement charge has been recognised in the
period, payments totalling $46.8m have been made in relation to the
EU State Aid case which we consider to be exceptional. Details of
this case are set out in note 9, "Taxation". Further information is
included in APM 5, Free Cash Flow and Adjusted free cash
flow.
9. Taxation
A Taxation in the Consolidated statement of comprehensive
income
Continuing operations
|
Year ended
31 October 2021$m
|
Year
ended
31 October
2020$m
|
Current tax
|
|
|
Current
year
|
145.7
|
175.4
|
Adjustments
to tax in respect of previous periods
|
0.9
|
7.8
|
|
146.6
|
183.2
|
Deferred tax
|
|
|
Origination
and reversal of temporary differences
|
(237.9)
|
(195.3)
|
Adjustments
to tax in respect of previous periods
|
(23.3)
|
10.7
|
Impact
of changes in tax rates
|
31.9
|
35.6
|
|
(229.3)
|
(149.0)
|
Total tax (credit)/charge
|
(82.7)
|
34.2
|
For the year ended 31 October 2021, a deferred tax charge of $0.2m
(2020: $1.5m charge) and no current tax impact (2020: $0.1m credit)
have been recognised in equity in relation to share options. A
current tax charge of $8.0m (2020: $7.8m credit) has been
recognised in the hedging reserve. There is also current tax credit
of $6.0m (2020: no tax impact) and a deferred tax charge of $8.1m
(2020: $11.1m credit) in relation to the currency translation
differences. In addition, a deferred tax charge of $7.8m (2020:
$8.7m) has been recognised in the Consolidated statement of
comprehensive income in relation to foreign exchange movements on
intangibles and no charge (2020: $5.0m charge) in relation to
defined benefit pension schemes.
There are also profits of $10.7m in respect of discontinued
operations and we do not expect a tax charge to arise on
these.
The tax charge for the year ended 31 October 2021 is higher than
the standard rate of corporation tax in the UK of 19.00% (2020:
19.00%). The differences are explained below:
9.
Taxation continued
|
Year ended 31 October 2021$m
|
Year
ended 31 October 2020$m
|
Loss before taxation
|
(517.8)
|
(2,940.4)
|
Tax at UK corporation tax rate 19.00% (2020: 19.00%)
|
(98.4)
|
(558.7)
|
Effects of:
|
|
|
Tax rates other than the UK standard rate
|
(8.6)
|
(78.0)
|
Intra-Group financing
|
0.3
|
(21.0)
|
Innovation tax credit benefits
|
(22.3)
|
(31.8)
|
US foreign inclusion income
|
15.5
|
20.4
|
Share options
|
1.6
|
4.1
|
Movement in deferred tax not recognised
|
5.3
|
11.1
|
Impact of rate changes
|
31.9
|
35.6
|
Goodwill impairment
|
-
|
592.8
|
Expenses not deductible and other permanent
differences
|
14.4
|
41.2
|
|
(60.3)
|
15.7
|
|
|
|
Adjustments to tax in respect of previous periods:
|
|
|
Current tax
|
0.9
|
7.8
|
Deferred tax
|
(23.3)
|
10.7
|
|
(22.4)
|
18.5
|
Total taxation
|
(82.7)
|
34.2
|
The Group continues to benefit from the UK's Patent Box regime, US
R&D tax credits and other innovation-based tax credits offered
by certain jurisdictions, the benefit for the year ended 31 October
2021 being $22.3m (2020: $31.8m). Following the unwind of the
intra-Group financing in FY20, the Group does not realise a benefit
from this for this period onwards (2020: $21.0m).
US foreign inclusion income of $15.5m arising in the year ended 31
October 2021 (2020: $20.4m) is largely driven by new US tax
legislation introduced as part of US tax reforms in
2018.
A change to the future main UK corporation tax rate, announced in
the 2021 UK Budget, was substantively enacted for IFRS purposes on
24 May 2021. The rate applicable from 1 April 2023 will be
increased from 19% to 25%. The Group has remeasured its UK deferred
tax assets and liabilities at the end of the reporting period at a
blended rate, based on when the UK temporary differences are
expected to reverse. The impact of this and other changes in tax
rate across the Group has resulted in a tax charge of $31.9m in the
income statement.
The expenses not deductible and other permanent differences charge
of $14.4m (2020: $41.2m) includes $6.4m in relation to uncertain
tax positions, $16.3m in respect of US Base Erosion (BEAT) rules
and $9.9m related to irrecoverable withholding tax. Following an
election made in the US for an intangible asset previously
transferred into the US, tax deductions are now available on the
amortisation of the asset. There is a tax benefit of $19.1m in the
year ended 31 October 2021 which is included in expenses not
deductible and other permanent differences.
The Group realised a net credit in relation to the true-up of prior
periods, current and deferred tax estimates of $22.4m credit for
the year ended 31 October 2021 (2020: $18.5m charge).
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 additional changes expected to be
introduced in the US and global tax reform as governments respond
to COVID-19 and the OECD's Base Erosion and Profit Shifting
project.
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, issued by
HM Revenue and Customs, following the requirement for the UK
Government to start collection proceedings. In May 2021, the Group
received and settled State Aid interest charging notices from HM
Revenue and Customs totalling $2.6m. In addition, there has been a
challenge from the UK Tax Authorities into 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
$60m.
9. Taxation continued
Based on its current assessment and also supported by external
professional advice, the Group believes that no provision is
required in respect of these issues and a long-term current tax
receivable has been recognised in respect of the amounts paid
(including movements due to FX) at the balance sheet date. No
additional liability should accrue in future periods in respect of
these matters, following (i) an amendment of the UK legislation
affected by the EU Commission finding on 1 January 2019, to be
compliant with EU law, and (ii) the unwind of the financing company
arrangements in question. A judgement in respect of the appeal that
was heard in the General Court in November 2021 is expected in 2022
and Management intend to reassess the above position at that
time.
B Current tax receivables
|
31 October 2021$m
|
31 October
2020$m
|
Corporation
tax
|
59.1
|
45.3
|
C Non-current tax receivables
|
31 October 2021$m
|
31 October
2020$m
|
Corporation tax
|
48.0
|
-
|
The non-current tax receivable is $48.0m (2020: nil). This
non-current receivable reflects the payment that was made following
the final decision published by the European Commission on its
State Aid investigation into the UK's 'Financing Company Partial
Exemption' legislation. As this amount was paid in GBP, the
long-term debtor balance will vary year-on-year as a result of
foreign exchange movements.
D Current tax liabilities
|
31 October 2021$m
|
31 October
2020$m
|
Corporation tax
|
94.1
|
150.1
|
The current tax creditor at 31 October 2021 is $94.1m (2020:
$150.1m). The current tax creditor includes liabilities in respect
of uncertain tax positions, net of overpayments.
Within current tax liabilities is $75.1m (2020: $84.8m) in respect
of the Group income tax reserve, the majority of which relates to
the risk of challenge from the local tax authorities, Due to the
uncertainty associated with such tax items, it is possible that at
a future date, on conclusion of open tax matters, the final outcome
may vary significantly.
E Non-current tax liabilities
|
31 October 2021$m
|
31 October
2020$m
|
Corporation tax
|
91.9
|
102.7
|
The non-current tax creditor is $91.9m (2020: $102.7m). The
non-current creditor reflects the US transition tax payable more
than 12 months after the balance sheet date.
10. Dividends
Equity - ordinary
|
Year ended
31 October 2021$m
|
Year
ended 31 October 2020$m
|
Final paid 15.5 cents (2020: nil cents) per ordinary
share
|
51.7
|
-
|
Interim paid 8.8 cents (2020: nil cents) per ordinary
share
|
29.4
|
-
|
|
81.1
|
-
|
The directors announced a final dividend of 20.3 cents per share
payable on 21 April 2022 to shareholders who are registered at 11
March 2022. This final dividend, amounting to $68.2m, has not been
recognised as a liability as at 31 October 2021.
11. Earnings per share
The calculation of the basic earnings per share has been based on
the earnings attributable to owners of the parent and the weighted
average number of shares for each year.
Reconciliation of the earnings and weighted average number of
shares:
|
Year ended 31 October 2021
|
Year
ended 31 October 2020
|
Earnings ($m)
|
|
|
Loss for the year from continuing operations
|
(435.1)
|
(2,974.6)
|
Profit for the year from discontinued operation
|
10.7
|
5.1
|
|
(424.4)
|
(2,969.5)
|
Number of shares (m)
|
|
|
Weighted average number of shares
|
336.5
|
335.7
|
Dilutive effects of shares
|
-
|
-
|
|
336.5
|
335.7
|
Earnings per share
|
|
|
Basic earnings per share (cents)
|
|
|
Continuing operations
|
(129.30)
|
(886.15)
|
Discontinued operation
|
3.18
|
1.52
|
Total Basic earnings per share
|
(126.12)
|
(884.63)
|
|
|
|
Diluted earnings per share (cents)
|
|
|
Continuing operations1
|
(129.30)
|
(886.15)
|
Discontinued operation
|
3.18
|
1.52
|
Total Diluted earnings per
share1
|
(126.12)
|
(884.63)
|
|
|
|
Basic earnings per share (pence)
|
|
|
Continuing operations
|
(94.09)
|
(693.45)
|
Discontinued operation
|
2.31
|
1.19
|
Total Basic earnings per share
|
(91.78)
|
(692.26)
|
|
|
|
Diluted earnings per share (pence)
|
|
|
Continuing operations1
|
(94.09)
|
(693.45)
|
Discontinued operation
|
2.31
|
1.19
|
Total Diluted earnings per
share1
|
(91.78)
|
(692.26)
|
|
|
|
Earnings attributable to ordinary shareholders
|
|
|
From continuing operations
|
(435.1)
|
(2,974.6)
|
Excluding non-controlling interests
|
-
|
-
|
Loss for the year from continuing operations
|
(435.1)
|
(2,974.6)
|
From discontinued operation
|
10.7
|
5.1
|
|
(424.4)
|
(2,969.5)
|
Average exchange rate
|
$1.37/£1
|
$1.28/£1
|
1The Group reported a loss from
continuing operations and a loss for the year attributable to the
ordinary equity shareholders of the Company for the years ended 31
October 2021 and 31 October 2020. The Diluted EPS is reported as
equal to Basic EPS, as no account can be taken of the effect of
dilutive securities under IAS 33.
The weighted average number of shares excludes treasury shares that
do not have dividend rights.
12. Goodwill
|
Note
|
31 October 2021$m
|
31 October
2020$m
|
Net book value
|
|
|
|
At
1 November
|
|
3,835.4
|
6,671.3
|
Acquisitions
|
|
7.2
|
1.4
|
Impairment
charge
|
|
-
|
(2,799.2)
|
Effects
of movements in exchange rates
|
|
30.1
|
(38.1)
|
Transferred
to assets held for sale
|
18
|
(147.2)
|
-
|
At 31 October
|
|
3,725.5
|
3,835.4
|
|
|
|
|
A
CGU-level summary of the goodwill allocation is presented
below:
|
|
|
|
Micro
Focus
|
|
3,725.5
|
3,835.4
|
Goodwill acquired through business combinations has been allocated
to a cash-generating unit ("CGU") for the purpose of impairment
testing.
The goodwill arising in the year ended 31 October 2021, related to
the Streamworx and Full 360 acquisitions of $7.2m (2020: $1.4m
related to the acquisition of Atar Labs), has been allocated to the
Micro Focus CGU as this is consistent with the segment reporting
that is used in internal management reporting. Of the addition to
goodwill, all amounts are expected to be deductible for tax
purposes.
Goodwill with a net book value of $147.2m (Costs $253.4m,
impairment ($106.2)m) has been allocated to the Digital Safe
business and been reclassified as held for sale in the period and
is shown as part of the current assets held for sale in the
consolidated statement of financial position and not included in
the balance at 31 October 2021 shown above.
Impairment test
Goodwill is tested annually for impairment, or more frequently
where there is an indication of impairment. An impairment test is a
comparison of the carrying value of the assets of the CGU with
their recoverable amount. Where the recoverable amount is less than
the carrying value, an impairment results. The Group's annual test
is performed at 31 October.
The Group has performed the impairment test at 31 October 2021
incorporating its knowledge of the business into that testing and
noting at that date the market capitalisation was less than the net
assets of the Group, which was taken into account during the
impairment test. The recoverable amount of the Micro Focus CGU is
$9.3bn and excludes the Digital Safe business which is held for
sale (2020: $9.3bn including the Digital Safe business) based on
its value in use ("VIU") calculation. As of 31 October 2021 the
Group's recoverable amount exceeds the carrying value of the net
assets of the CGU by $1.2bn (31 October 2020: an impairment charge
of $2.8bn, solely related to goodwill, was recognised in
administrative expenses as an exceptional cost in the consolidated
statement of comprehensive income).
The recoverable amount of the Micro Focus CGU is determined based
on its VIU. The VIU includes estimates about the future financial
performance of the CGU and is based on five-year projections and
then a terminal value calculation. It utilises board approved
forecasts for the first four years discounted to present value and
the fifth year reflects management's expectations of the long-term
growth prospects which have been applied based upon the expected
operating performance of the CGU and Growth prospects in the CGU's
market. The cash flow projections and inputs combine past
performance with adjustments as appropriate where the directors
believe that past performance and rates are not indicative of
future performance and rates.
Impairment reviews under IAS 36 are required to exclude cost
savings resulting from restructuring activities which have not yet
commenced. The VIU calculation excludes such cost saving impacts,
which are included in the board approved forecasts.
Key assumptions
Key assumptions in the VIU are considered to be the discount rate,
average annual revenue growth rate by product group and the
long-term cash flow growth rate. These have been assessed taking
into consideration the current economic climate and the resulting
impact on expected growth and discount rates.
12.
Goodwill continued
The average annual revenue growth rate by product group, long-term
cash flow growth rate and discount rate used in the VIU calculation
are:
|
31 October 2021
|
31
October 2020
|
Basis of assumptions
|
Long-term cash flow growth rate for terminal value
|
1.0%
|
1.0%
|
Long-term
growth rate into perpetuity is based on nominal long-term GDP
growth forecasts for the main countries in which the CGU operates
adjusted where deemed relevant by management to factor in
competition and the maturity of the business.
|
Pre-tax discount rate1
|
10.6%
|
10.9%
|
The
discount rate applied to the cash flows is based on the risk-free
rate for thirty-year US government bonds. This rate is adjusted for
a risk premium to reflect the increased risk of investing in
equities. This risk premium is derived by observing an equity
market risk premium (that is the required return over and above a
risk-free rate by an investor who is investing in the market as a
whole) based on external sources and adjusting this with reference
to both a beta and a size premium to reflect the risk of the
cash-generating unit relative to the market as a whole to provide a
cost of equity. Cost of debt is based on external indices
reflecting the Group's credit rating. Cost of equity and debt are
then weighted based on market participant leverage.
|
Average annual revenue growth rate by product group
|
(4.2)% to 4.5%
|
(8.1)%
to 2.2%
|
Average
annual growth rates by product group are based on a combination of
management's past experience, management's plans and observable
trends in the markets in which the Group's products operate in and
updated for the impact of significant new agreements entered into
where relevant, for example, the agreement with AWS on the
modernization of mainframe applications and workloads signed in
FY21.
|
1 This equates to a post-tax
discount rate of 8.0% (2020: 8.2%).
Sensitivity analysis
In undertaking this analysis, the directors have considered
reasonably possible changes in the key assumptions, taking into
consideration that the Group is insulated from some significant
adverse impacts by its geographical spread and could quickly
respond to market changes. The sensitivities are prepared on the
basis that the reasonably possible change in each key assumption
would not have a consequential impact on other key assumptions used
in the impairment review. The sensitivities disclosed below are on
the VIU calculation, which, as explained above, excludes the cost
savings expected from restructuring which has not commenced as at
31 October 2021.
The directors have assessed that a reasonably possible change in
the discount rate is an absolute movement of 1.0% (2020: 1.0%). An
increase in the discount rate of 1% to 11.6% would reduce the
headroom at 31 October 2021 by $0.8bn to $0.4bn. An increase in the
discount rate of 1.5% would reduce the amount by which the
recoverable amount exceeds its carrying value from $1.2bn to $nil.
A decrease in the discount rate of 1% to 9.6% would increase the
headroom at 31 October 2021 by $1.0bn to $2.2bn.
The directors have assessed that a reasonably possible change in
the average annual revenue growth rate by product group is an
absolute reduction of 2.0% (2020: 2.0%). A decrease in the average
annual revenue growth rate by product group of 2.0% would result in
an impairment recognised at 31 October 2021 of $0.8bn. A decrease
in the average annual revenue growth rate by product group of 1.2%
would reduce the amount by which the recoverable amount exceeds its
carrying value from $1.2bn to $nil. This sensitivity has been
presented before the impact of mitigating actions, such as cost
saving that would be taken in such a scenario and which would at
least partially offset such a reduction in cash
inflows.
The directors have assessed that a reasonably possible change in
the long-term growth rate is an absolute change of 0.5% (2020:
0.5%). An increase of 0.5% would increase the headroom at 31
October 2021 by $0.4bn to $1.6bn. A decrease of 0.5% would decrease
the headroom at 31 October 2021 by $0.3bn to $0.9bn. The directors
have assessed that there is not a reasonable possible change in the
long-term growth rate that would reduce the recoverable amount to
below its carrying value.
13. Other intangible assets
|
|
|
|
Purchased intangibles
|
|
|
Note
|
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
|
Acquisitions
|
|
-
|
-
|
7.8
|
-
|
-
|
7.8
|
Additions
|
|
28.4
|
19.1
|
-
|
-
|
-
|
47.5
|
Disposals
|
|
(13.5)
|
-
|
-
|
-
|
-
|
(13.5)
|
Effects of movements in exchange rates
|
|
1.2
|
(0.1)
|
10.4
|
1.2
|
26.3
|
39.0
|
Transferred to current assets classified as held for
sale
|
18
|
-
|
-
|
(82.0)
|
(7.0)
|
(185.5)
|
(274.5)
|
At 31 October 2021
|
|
207.6
|
293.0
|
2,137.4
|
263.4
|
5,204.8
|
8,106.2
|
|
|
|
|
|
|
|
|
Accumulated amortisation
|
|
|
|
|
|
|
|
At 1 November 2020
|
|
113.5
|
237.9
|
865.7
|
87.9
|
1,611.9
|
2,916.9
|
Amortisation charge for the year
|
|
37.4
|
19.6
|
257.2
|
20.7
|
621.5
|
956.4
|
Disposals
|
|
(13.5)
|
-
|
-
|
-
|
-
|
(13.5)
|
Effects of movements in exchange rates
|
|
0.6
|
-
|
2.6
|
0.2
|
4.2
|
7.6
|
Transferred to current assets classified as held for
sale
|
18
|
-
|
-
|
(37.6)
|
(1.9)
|
(52.9)
|
(92.4)
|
At 31 October 2021
|
|
138.0
|
257.5
|
1,087.9
|
106.9
|
2,184.7
|
3,775.0
|
Net book amount at 31 October 2021
|
|
69.6
|
35.5
|
1,049.5
|
156.5
|
3,020.1
|
4,331.2
|
Net book amount at 31 October 2020
|
|
78.0
|
36.1
|
1,335.5
|
181.3
|
3,752.1
|
5,383.0
|
|
|
|
|
Purchased intangibles
|
|
|
|
Purchased
software
$m
|
Product
development costs
$m
|
Technology
$m
|
Trade
names
$m
|
Customer
relationships
$m
|
Lease
contracts
$m
|
Total
$m
|
Cost
|
|
|
|
|
|
|
|
|
At 31 October 2019
|
|
146.7
|
257.0
|
2,178.6
|
267.3
|
5,323.3
|
14.9
|
8,187.8
|
Transfers to right-of-use assets1
|
|
-
|
-
|
-
|
-
|
-
|
(14.9)
|
(14.9)
|
At 1 November 2019
|
|
146.7
|
257.0
|
2,178.6
|
267.3
|
5,323.3
|
-
|
8,172.9
|
Acquisitions - Atar Labs
|
|
-
|
-
|
6.6
|
-
|
-
|
-
|
6.6
|
Additions
|
|
55.5
|
16.2
|
-
|
-
|
-
|
-
|
71.7
|
Additions - external consultants
|
|
-
|
0.8
|
-
|
-
|
-
|
-
|
0.8
|
Disposals
|
|
(11.2)
|
-
|
-
|
-
|
-
|
-
|
(11.2)
|
Effects of movements in exchange rates
|
|
0.5
|
-
|
16.0
|
1.9
|
40.7
|
-
|
59.1
|
At 31 October 2020
|
|
191.5
|
274.0
|
2,201.2
|
269.2
|
5,364.0
|
-
|
8,299.9
|
|
|
|
|
|
|
|
|
|
Accumulated amortisation
|
|
|
|
|
|
|
|
|
At 31 October 2019
|
|
76.9
|
214.3
|
668.9
|
68.0
|
1,204.3
|
13.1
|
2,245.5
|
Transfers to right-of-use assets1
|
|
-
|
-
|
-
|
-
|
-
|
(13.1)
|
(13.1)
|
At 1 November 2019
|
|
76.9
|
214.3
|
668.9
|
68.0
|
1,204.3
|
-
|
2,232.4
|
Amortisation charge for the year
|
|
46.5
|
23.5
|
190.2
|
19.1
|
394.8
|
-
|
674.1
|
Disposals
|
|
(10.6)
|
-
|
-
|
-
|
-
|
-
|
(10.6)
|
Effects of movements in exchange rates
|
|
0.7
|
0.1
|
6.6
|
0.8
|
12.8
|
-
|
21.0
|
At 31 October 2020
|
|
113.5
|
237.9
|
865.7
|
87.9
|
1,611.9
|
-
|
2,916.9
|
Net book amount at 31 October 2020
|
|
78.0
|
36.1
|
1,335.5
|
181.3
|
3,752.1
|
-
|
5,383.0
|
Net book amount at 31 October 2019
|
|
69.8
|
42.7
|
1,509.7
|
199.3
|
4,119.0
|
1.8
|
5,942.3
|
1 Lease contracts have
been reclassified to right-of-use assets following the adoption of
IFRS 16 on 1 November 2019.
Intangible assets, with the exception of purchased software and
internally generated product development costs, relate to
identifiable assets purchased as part of the Group's business
combinations. Intangible assets are amortised on a straight-line
basis over their expected useful economic life.
Expenditure totalling $47.5m (2020: $72.5m) was made in the year
ended 31 October 2021, including $19.1m in respect of development
costs and $28.4m of purchased software primarily related to the
development of the Group's single enterprise-wide
platform.
The acquisition of Streamworx and Full 360 in the year ended 31
October 2021 gave rise to additions of $7.8m to purchased
intangibles. The acquisition of Atar Labs in the year ended 31
October 2020 gave rise to an addition of $6.6m to purchased
intangibles.
All of the $19.1m of additions to product development costs (2020:
$16.2m of $17m) relates to internal product development costs and
$nil (2020: $0.8m) to external consultants' product development
costs.
At 31 October 2021, the unamortised lives of technology assets were
in the range of two to eight years, customer relationships in the
range of one to 11 years and trade names in the range of three to
15 years. The HPE Software business acquired purchased intangibles,
the largest component of the Group's purchased intangibles, have up
to another eight years' life remaining for technology (carrying
value $1.0bn) and up to 11 years' life remaining for customer
relationships purchased intangibles (carrying value $3.0bn),
assuming no further investments were made.
13. Other intangible
assets continued
Included in the consolidated statement of comprehensive income
was:
For continuing operations:
|
Year ended 31 October 2021$m
|
Year
ended 31 October 2020$m
|
Cost of sales:
|
|
|
- amortisation of product development
costs
|
19.6
|
23.5
|
- amortisation of acquired purchased
technology
|
257.2
|
190.2
|
Selling and distribution:
|
|
|
- amortisation of acquired purchased trade names
and customer relationships
|
642.2
|
413.9
|
Administrative expenses:
|
|
|
- amortisation of purchased software
|
37.4
|
46.5
|
Total amortisation charge for the year
|
956.4
|
674.1
|
Research and development:
|
|
|
- capitalisation of product development
costs
|
19.1
|
16.2
|
On 1 November 2020, 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 technology and customer
relationship 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 IFRS 3, 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
$166.4m higher than that shown in the table above in the year ended
31 October 2021, with consequential impacts in subsequent
years.
14. Borrowings
|
31 October 2021$m
|
31
October 2020$m
|
Bank loan secured
|
4,608.0
|
4,733.2
|
Unamortised prepaid facility arrangement fees and original issue
discounts
|
(59.6)
|
(92.9)
|
Carrying value
|
4,548.4
|
4,640.3
|
|
31 October 2021
|
31 October 2020
|
Reported within:
|
Bank loan secured
$m
|
Unamortised prepaid facility arrangement fees and original issue
discounts
$m
|
Total
$m
|
Bank
loan
secured
$m
|
Unamortised
prepaid facility arrangement fees and original issue
discounts
$m
|
Total
$m
|
Current liabilities
|
42.0
|
(17.7)
|
24.3
|
34.2
|
(12.8)
|
21.4
|
Non-current liabilities
|
4,566.0
|
(41.9)
|
4,524.1
|
4,699.0
|
(80.1)
|
4,618.9
|
|
4,608.0
|
(59.6)
|
4,548.4
|
4,733.2
|
(92.9)
|
4,640.3
|
The carrying value for borrowings are stated after deducting
unamortised prepaid facility fees and original issue discounts.
Facility arrangement costs and original issue discounts are
originally amortised between three and six years. The remaining
unamortised fees of $59.6m have a remaining period of amortisation
of two years. Long-term borrowings have a drawn value of $4,608.0m
before unamortised prepaid facility fees. The fair value of the
long-term borrowings before unamortised prepaid facility fees can
be found in note 17, "Financial risk management and financial
instruments".
Short-term borrowing of $24.3m represents capital repayments of
$42.0m falling due on the Group borrowings within one year less
unamortised prepaid facility arrangement fees and original issue
discounts of $17.7m.
The Group's earliest debt maturity is in June 2024, however as
described below, annual instalment payments are
required.
The following facilities were drawn as at 31 October
2021:
●
The €585.0m
(equivalent to $676.0m) 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 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 $633.7m 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 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 $510.9m) 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 31 October
2021:
●
A senior secured
revolving credit facility of $350.0m ("Revolving Facility"), with
an interest rate of 3.25% above LIBOR on amounts drawn (and 0.5% on
amounts undrawn) thereunder (subject to a LIBOR floor of
0.00%).
At 31 October 2021, none of the Revolving Facility was drawn (31
October 2020: $nil), together with $4,608.0m of term loans giving
gross debt of $4,608.0m drawn.
On 17 January 2022, the Group announced the refinancing of $1.6bn
of existing term loans. This refinancing comprised a €750m
and a $750m Senior Secured Term Loan B. The new 5-year Facilities
have been used by the Group to fully refinance its existing Senior
Secured Term Loan B Euro facility issued by MA FinanceCo., LLC due
June 2024 as well as partially refinance the existing Senior
Secured Term Loan B USD facilities issued by Seattle SpinCo, Inc.,
($750m refinance, $1,678m remaining) and MA FinanceCo., LLC,
($359.5m B-3 fully replaced by additional Euro borrowing) due June
2024.
The new 5-year Facilities incur interest at 4.00% above EURIBOR
(subject to 0% floor) at an original issue discount of 0.5% on the
Euro denominated tranche, and 4.00% above SOFR and CSA (subject to
0.5% floor) at an original issue discount of 1.0% on the US Dollar
denominated tranche. This represents an increase in annualised
interest costs of approximately $23.0m.
14.
Borrowings continued
The following covenants related to net leverage apply to the
Group's term-loan borrowing facilities:
● The Revolving Facility is subject to a single
financial covenant, only in circumstances when more than 35% of the
Revolving Facility is outstanding at a fiscal quarter end.
Throughout the year the applicable covenant threshold was 3.85x,
however no test was applicable at 31 October 2021 or any previous
test date, as the facility was not drawn in excess of the 35%
threshold. This facility has been amended post year end with the
facility reduced to $250m and with maturity extended until December
2026, subject to tests for the term loan maturities in June 2024
and June 2025. The amended facility is subject to a covenant test
when more than 40% of the revolving credit facility is outstanding
at a fiscal quarter end with a 5.00x net leverage covenant being
applied.
● Additional debt repayments when the Group's net
leverage at 31 October exceeds 3.00x, when 25% of excess cash flow
for the year is required to be paid, and 3.30x, when 50% of excess
cash flow for the year is required to be paid;
● Net proceeds from divestitures in excess of $45m
are required to be used to make debt repayments. When the Group's
net leverage exceeds 3.00x, 100% of net proceeds must be used for
debt repayments. When net leverage is below 3.00x, 50% of net
proceeds must be used to make a debt repayment, however no further
debt repayment is required once repayment reduces net leverage
below 2.50x on a pro forma basis therefore use of excess disposal
proceeds at this point is at the Group's discretion;
and
● An additional 25 basis points of margin is
required to be paid on the term loans maturing in June 2024 when
net leverage exceeds 3.00x. The Group is currently paying this
margin.
These covenants are not expected to inhibit the Group's future
operations or funding plans.
Net leverage is defined as net debt (see note 17) /Adjusted EBITDA.
The credit facility agreements apply frozen GAAP for IFRS 16 and
allows certain expected cost savings to be included in the
measurement therefore the calculated value differs from that using
net debt/ Adjusted EBITDA as presented in this annual report. The
difference has not exceeded 0.20x during the current
period.
In addition to the net leverage related payments the Group's
borrowing arrangements include annual repayments of 1% of the
initial par value for the B-3, Seattle Spinco and Euro term B loans
and 2.5% of the initial par value for the B-1 and B4 loans with the
amount paid in four equal quarterly instalments and then a final
balloon payment on maturity.
The movements on the Group loans in the year were as
follows:
|
Term loanB-1 EUR$m
|
Term loanB-2 USD$m
|
Term loanB-3 USD$m
|
Term loanB-4 USD$m
|
Seattle Spinco term loan B$m
|
Euro term loan B$m
|
Revolving Facility$m
|
Total
$m
|
At 1 November 2020
|
700.3
|
-
|
368.2
|
650.0
|
2,486.3
|
528.4
|
-
|
4,733.2
|
Draw downs
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Repayments
|
(17.9)
|
-
|
(8.7)
|
(16.3)
|
(58.4)
|
(12.8)
|
-
|
(114.1)
|
Foreign exchange
|
(6.4)
|
-
|
-
|
-
|
-
|
(4.7)
|
-
|
(11.1)
|
At 31 October 2021
|
676.0
|
-
|
359.5
|
633.7
|
2,427.9
|
510.9
|
-
|
4,608.0
|
At 1 November 2019
|
-
|
1,414.7
|
368.2
|
-
|
2,486.3
|
505.8
|
-
|
4,775.0
|
Draw downs
|
665.8
|
-
|
-
|
650.0
|
-
|
-
|
175.0
|
1,490.8
|
Repayments
|
-
|
(1,414.7)
|
-
|
-
|
-
|
-
|
(175.0)
|
(1,589.7)
|
Foreign exchange
|
34.5
|
-
|
-
|
-
|
-
|
22.6
|
-
|
57.1
|
At 31 October 2020
|
700.3
|
-
|
368.2
|
650.0
|
2,486.3
|
528.4
|
-
|
4,733.2
|
The maturity of borrowings can be seen in note 17, "Financial risk
management and financial instruments".
Assets pledged as collateral
An all-assets security has been granted in the US and England &
Wales by certain members of the Micro Focus Group organised in such
jurisdictions, including security over intellectual property rights
and shareholdings of such members of the Micro Focus
Group.
15. Provisions and contingent liabilities
|
31
October 2021
|
31
October 2020
|
|
$m
|
$m
|
Onerous
leases and dilapidations
|
25.4
|
16.9
|
Restructuring
|
23.0
|
30.8
|
Legal
|
25.0
|
9.7
|
Other
|
12.1
|
14.8
|
Total
|
85.5
|
72.2
|
|
|
|
Current
|
65.7
|
49.7
|
Non-current
|
19.8
|
22.5
|
Total
|
85.5
|
72.2
|
|
|
Onerous
contracts and dilapidations
|
Restructuring
|
Legal
|
Other
|
Total
|
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
At 1 November 2020
|
|
16.9
|
30.8
|
9.7
|
14.8
|
72.2
|
|
|
|
|
|
|
|
Acquisitions
|
|
-
|
-
|
-
|
0.1
|
0.1
|
Additional
provision in the year
|
|
17.9
|
32.6
|
93.3
|
3.1
|
146.9
|
Released
|
|
(2.5)
|
(7.6)
|
(2.5)
|
(2.8)
|
(15.4)
|
Utilisation
of provision
|
|
(5.9)
|
(32.8)
|
(75.6)
|
(3.1)
|
(117.4)
|
Effects
of movements in exchange rates
|
|
0.2
|
-
|
0.1
|
-
|
0.3
|
Transferred
to current liabilities classified as held for
sale
|
|
(1.2)
|
-
|
-
|
-
|
(1.2)
|
At 31 October 2021
|
|
25.4
|
23.0
|
25.0
|
12.1
|
85.5
|
|
|
|
|
|
|
|
Current
|
|
11.6
|
19.0
|
25.0
|
10.1
|
65.7
|
Non-current
|
|
13.8
|
4.0
|
-
|
2.0
|
19.8
|
Total
|
|
25.4
|
23.0
|
25.0
|
12.1
|
85.5
|
Onerous contracts and dilapidations provisions
The onerous contracts include onerous non-rental related property
costs and other onerous contracts. Additional onerous contracts in
relation to property of $4.8m was recorded in the year ended 31
October 2021 (2020: $3.2m), mainly across European and US sites, as
the property portfolio was reassessed, including planned site
vacations. Additional provisions of $10.4m were also recorded for
other onerous contracts principally related to IT contracts in
relation to the Group's former enterprise platforms.
The dilapidations provision relates to obligations to restore
leased Group properties. The positions regarding the non-rental
related property costs are expected to be fully utilised within
thirteen years. An additional provision of $2.7m was recorded in
the year ended 31 October 2021 (2020: $3.2m) following a review of
obligations to restore leased property at the end of the lease
period.
Restructuring provisions
Restructuring provisions relate to severance resulting from
headcount reductions. The majority of provisions are expected to be
fully utilised within 12 months. Restructuring costs are reported
within exceptional costs (note 8, "Exceptional
items").
Legal provisions and Contingent liabilities
Legal provisions include the directors' best estimate of the likely
outflow of economic benefits associated with on-going legal
matters.
This includes the following two matters:
Patent litigation
On the matter of litigation with Wapp the Company reached a
settlement with Wapp for payment of $67.5m to completely resolve
the dispute for itself and its customers without admission of
liability during the year. The matter was previously disclosed as a
contingent liability. The provision movement in the period includes
this settlement and associated costs. 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 year ended 31 October 2021 and further details can
be found in note 8, "Exceptional items".
15.
Provisions and contingent liabilities continued
Shareholder litigation
The shareholder litigation complaint in the United States District
Court for the Southern District of New York, previously disclosed
as a contingent liability, 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, the charge to establish the provision nets to zero 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 on-going. No
liability has been recognised in this case as it is too soon to
estimate whether there will be any financial impact.
California employee claim
In 2018, a putative class action complaint was filed alleging that
HPE pays California-based female employees "systemically lower
compensation" than male employees performing substantially similar
work. This action remains ongoing. As part of the Group's
acquisition of the HPE Software business, terms were agreed
that allocate potential financial responsibility for
litigation between both parties. The Group has recognised no
liability in this case as we are unable to estimate whether there
will be any financial impact.
Other provisions
Other provisions at 31 October 2021 predominantly relate to
interest on uncertain tax provisions of $5.6m (2020: $7.6m) and a
provision for estimated unclaimed property exposure pertaining to
accounts payable of $4.2m (2020: $4.4m). Discussion on the EU State
Aid tax contingent liability in relation to the EU State Aid case
is included in note 9, "Taxation".
16. Pension and other
long-term benefit commitments
a) Defined contribution
The Group has established a number of pension schemes around the
world covering many of its employees. The principal funds are those
in the US, UK and Germany. These were funded schemes of the defined
contribution type.
Pension costs for defined contribution schemes are as
follows:
Continuing operations
|
Year ended31 October 2021$m
|
Year
ended31 October 2020$m
|
Defined contribution schemes
|
34.2
|
31.2
|
b) Defined benefit
|
31 October 2021$m
|
31
October 2020$m
|
Within non-current assets:
|
|
|
Long-term pension assets
|
17.1
|
18.2
|
Within non-current liabilities:
|
|
|
Retirement and other benefit obligations
|
(147.1)
|
(155.0)
|
As of 31 October 2021, there are a total of 36 defined benefit
plans in 12 countries around the world (2020: 33). The highest
concentration of the defined benefit plans are in Germany, where
the Group sponsors 12 (2020: 12) separate schemes that comprise
over 73% (2020: 83%) of the total net retirement benefit obligation
recorded in the Group's consolidated statement of financial
position. The Group's German schemes are primarily final salary
pension plans, which provide benefits to members either in the form
of a lump sum payment or a guaranteed level of pension payable for
life in the case of retirement, disability and death. The level of
benefits provided depends not only on the final salary but also on
member's length of service, social security ceiling and other
factors. Although most of these schemes in
16.
Pension and other long-term benefit
commitments continued
Germany are funded at some level, there are typically no funding
requirements in Germany. There are no requirements for the
appointment of independent trustees in Germany, and all of these
schemes are administered locally with the assistance of German
pension experts. Final pension entitlements, including benefits for
death in service and disability amounts, are calculated by these
experts. Plan assets for three of our German schemes include
re-insurance contracts with guaranteed interest rates, while the
majority of the schemes invest in funds focusing on equities and
debt instruments. Most of the Group's German schemes are closed to
new entrants, however, three of the schemes are open to new
members.
The remainder of the Group's defined benefit schemes are comprised
of a mix of final salary plans, termination or retirement indemnity
plans, other types of statutory plans that provide a one-time
benefit at termination and leave plans which allow the participants
to carry over leave time earned for a period of time exceeding one
year. Final pension entitlements are calculated by local
administrators in the applicable country. They also complete
calculations for cases of death in service and disability. Where
required by local or statutory requirements, some of the schemes
are governed by an independent Board of Trustees that is
responsible for the investment strategies with regard to the assets
of the funds; however, other schemes are administered locally with
the assistance of local pension experts. Many of the Group's plans
outside of Germany are funded and the Group makes at least the
minimum contributions required by local government, funding and
taxing authorities. Plan assets for these schemes include a range
of assets including investment funds or re-insurance contracts. Not
all of these plans are closed to new members. The Group sponsors 24
plans outside of Germany (2020: 12). Of these, 17 plans are open to
new members, most of which are termination or retirement indemnity
plans, statutory plans providing a one-time benefit at termination,
retirement, death or disability and leave plans. The Group
participates in multi-employer plans in Switzerland and Japan.
These plans are accounted for as defined benefit plans and the
Group's obligations are limited to the liabilities of our
employees.
There were seven leave plans reclassified to the net retirement and
other defined benefit obligation during the year ended 31 October
2021 and three plans reclassified to the net retirement obligation
during the year ended 31 October 2020. None of the plans are final
salary plans and none are material.
Long-term pension assets
Long-term pension assets relate to the contractual arrangement
under insurance policies held by the Group with guaranteed interest
rates that do not meet the definition of a qualifying insurance
policy, as they have not been pledged to the plan or beneficiaries
and are subject to the creditors of the Group. Such arrangements
are recorded in the consolidated statement of financial position as
long-term pension assets. During the years ended 31 October 2021
and 2020, some of the insurance policies previously unpledged were
pledged to the pension plans and transferred to plan assets. These
contractual arrangements are treated as financial assets measured
at fair value through other comprehensive income. Movement in the
fair value of long-term pension assets is included in other
comprehensive income. All non-plan assets are held in
Germany.
The movement on the long-term pension assets is as
follows:
|
31
October 2021
|
31
October 2020
|
|
$m
|
$m
|
As at 1
November
|
18.2
|
17.1
|
Transfer
to plan assets
|
(1.2)
|
(0.4)
|
Interest
on non-plan assets
|
0.2
|
0.2
|
Benefits
paid
|
(0.2)
|
(0.1)
|
Contributions
|
0.1
|
0.3
|
|
|
|
Included within other comprehensive income:
|
|
|
- Change
in fair value assessment
|
0.2
|
0.4
|
|
0.2
|
0.4
|
|
|
|
Effects
of movements in exchange rates
|
(0.2)
|
0.7
|
As at 31 October
|
17.1
|
18.2
|
|
|
|
Included within other comprehensive income:
|
|
|
Continuing
operations
|
0.2
|
0.4
|
|
0.2
|
0.4
|
The non-plan assets are considered to be Level 3 asset under the
fair value hierarchy as of 31 October 2021. These assets have been
valued by an external insurance expert by applying a discount rate
to the future cash flows and taking into account the fixed interest
rate, mortality rates and term of the insurance contract. There
have been no transfers between levels for the year ended 31 October
2021 (2020: none).
16. Pension
and other long-term benefit commitments continued
Retirement and other long-term benefit obligations
The following amounts have been included in the consolidated
statement of comprehensive income for defined benefit
arrangements:
|
Year ended31 October 2021$m
|
Year
ended31 October 2020$m
|
Current service charge
|
11.3
|
10.4
|
Changes in other long-term benefits
|
1.4
|
-
|
Charge to operating loss
|
12.7
|
10.4
|
Interest on defined benefit liabilities
|
2.6
|
3.1
|
Interest on defined benefit assets
|
(1.1)
|
(1.3)
|
Charge to finance costs
|
1.5
|
1.8
|
Total continuing charge to loss for the year
|
14.2
|
12.2
|
The contributions for the year ended 31 October 2022 are expected
to be broadly in line with the year ended 31 October 2021. The
Group funds the schemes so that it makes at least the minimum
contributions required by local government, funding and taxing
authorities. There are no funding requirements in
Germany.
The following amounts have been recognised as movements in the
statement of other comprehensive income:
|
Year ended31 October 2021$m
|
Year
ended31 October 2020$m
|
Actuarial return on assets excluding amounts included in interest
income
|
20.7
|
1.8
|
Re-measurements - actuarial gains/(losses):
|
|
|
- Demographic
|
1.3
|
-
|
- Financial
|
9.8
|
(0.6)
|
- Experience
|
1.6
|
3.0
|
|
12.7
|
2.4
|
Reclassification from defined contribution scheme or other assets
and liabilities to defined benefit scheme
|
-
|
(4.6)
|
Movement in the year
|
33.4
|
(0.4)
|
|
|
|
Continuing operations
|
33.4
|
(0.4)
|
|
33.4
|
(0.4)
|
The weighted average key assumptions used for the valuation of the
schemes were:
|
31 October 2021
|
31 October 2020
|
|
Germany
|
Rest of World
|
Total
|
Germany
|
Rest
of World
|
Total
|
Rate of increase in final pensionable salary
|
2.50%
|
3.10%
|
2.69%
|
2.50%
|
3.09%
|
2.64%
|
Rate of increase in pension payments
|
1.75%
|
1.50%
|
1.75%
|
1.50%
|
1.50%
|
1.50%
|
Discount rate
|
1.07%
|
1.87%
|
1.25%
|
0.79%
|
1.41%
|
0.90%
|
Inflation
|
1.75%
|
1.36%
|
1.69%
|
1.50%
|
1.25%
|
1.47%
|
The mortality assumptions for the German schemes are set based on
the 'Richttafeln 2018 G' by Prof. Dr. Klaus Heubeck. The mortality
assumptions for the remaining schemes are set based on actuarial
advice in accordance with published statistics and experience in
each territory.
16.
Pension and other long-term benefit
commitments continued
These assumptions translate into a weighted average life expectancy
in years for a pensioner retiring at age 65:
|
31 October 2021
|
31 October 2020
|
|
Germany
|
Rest of World
|
Total
|
Germany
|
Rest
of World
|
Total
|
Retiring at age 65 at the end of the reporting year:
|
|
|
|
|
|
|
Male
|
20
|
21
|
21
|
20
|
22
|
20
|
Female
|
24
|
24
|
24
|
24
|
25
|
24
|
|
|
|
|
|
|
|
Retiring 15 years after the end of the reporting year:
|
|
|
|
|
|
|
Male
|
23
|
22
|
23
|
22
|
23
|
22
|
Female
|
26
|
25
|
26
|
26
|
26
|
25
|
The net liability included in the consolidated statement of
financial position arising from obligations in respect of defined
benefit schemes is as follows:
|
31 October 2021
|
31 October 2020
|
|
Germany
|
Rest of World
|
Total
|
Germany
|
Rest
of World
|
Total
|
Present value of defined benefit obligations
|
246.1
|
74.5
|
320.6
|
248.4
|
54.9
|
303.3
|
Fair values of plan assets
|
(138.8)
|
(34.7)
|
(173.5)
|
(119.1)
|
(29.2)
|
(148.3)
|
|
107.3
|
39.8
|
147.1
|
129.3
|
25.7
|
155.0
|
The defined benefit obligation has moved as follows:
|
31 October 2021
|
|
Germany
|
Rest of World
|
Total
|
Defined benefit obligations
|
Defined benefit obligations
|
Scheme
assets
|
Net defined benefit obligations
|
Defined benefit obligations
|
Scheme assets
|
Net defined benefit obligations
|
Defined benefit obligations
|
Scheme assets
|
Net defined benefit obligations
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
At 1 November 2020
|
248.4
|
(119.1)
|
129.3
|
54.9
|
(29.2)
|
25.7
|
303.3
|
(148.3)
|
155.0
|
Current
service cost
|
6.1
|
-
|
6.1
|
5.2
|
-
|
5.2
|
11.3
|
-
|
11.3
|
Changes
in other long-term benefits
|
1.4
|
-
|
1.4
|
-
|
-
|
-
|
1.4
|
-
|
1.4
|
Reclassification
from other liabilities/assets
|
-
|
-
|
-
|
20.2
|
-
|
20.2
|
20.2
|
-
|
20.2
|
Transferred
to current assets classified as held for sale
|
-
|
-
|
-
|
(0.2)
|
-
|
(0.2)
|
(0.2)
|
-
|
(0.2)
|
Transfer
from long-term pension assets
|
-
|
(1.2)
|
(1.2)
|
-
|
-
|
-
|
-
|
(1.2)
|
(1.2)
|
Benefits
paid
|
(1.9)
|
1.9
|
-
|
(1.9)
|
1.9
|
-
|
(3.8)
|
3.8
|
-
|
Contributions
by plan participants
|
1.2
|
(1.2)
|
-
|
0.6
|
(0.6)
|
-
|
1.8
|
(1.8)
|
-
|
Contribution
by employer
|
-
|
(1.7)
|
(1.7)
|
-
|
(6.0)
|
(6.0)
|
-
|
(7.7)
|
(7.7)
|
Interest
cost/(income)
|
1.9
|
(0.8)
|
1.1
|
0.7
|
(0.3)
|
0.4
|
2.6
|
(1.1)
|
1.5
|
|
|
|
|
|
|
|
|
|
|
Included within other comprehensive income:
|
|
|
|
|
|
|
|
|
|
Re-measurements
- actuarial (gains) and losses:
|
|
|
|
|
|
|
|
|
|
- Demographic
|
-
|
-
|
-
|
(1.3)
|
-
|
(1.3)
|
(1.3)
|
-
|
(1.3)
|
- Financial
|
(6.7)
|
-
|
(6.7)
|
(3.1)
|
-
|
(3.1)
|
(9.8)
|
-
|
(9.8)
|
- Experience
|
(2.1)
|
-
|
(2.1)
|
0.5
|
-
|
0.5
|
(1.6)
|
-
|
(1.6)
|
|
|
|
|
|
|
|
|
|
|
Actuarial
return on assets excluding amounts included in interest
income
|
-
|
(18.8)
|
(18.8)
|
-
|
(1.9)
|
(1.9)
|
-
|
(20.7)
|
(20.7)
|
|
(8.8)
|
(18.8)
|
(27.6)
|
(3.9)
|
(1.9)
|
(5.8)
|
(12.7)
|
(20.7)
|
(33.4)
|
|
|
|
|
|
|
|
|
|
|
Effects
of movements in exchange rates
|
(2.2)
|
2.1
|
(0.1)
|
(1.1)
|
1.4
|
0.3
|
(3.3)
|
3.5
|
0.2
|
|
|
|
|
|
|
|
|
|
|
31 October 2021
|
246.1
|
(138.8)
|
107.3
|
74.5
|
(34.7)
|
39.8
|
320.6
|
(173.5)
|
147.1
|
16.
Pension and other long-term benefit
commitments continued
|
31 October 2020
|
|
Germany
|
Rest
of World
|
Total
|
Defined benefit obligations
|
Defined benefit obligations
|
Scheme
assets
|
Net defined benefit obligations
|
Defined benefit obligations
|
Scheme assets
|
Net defined benefit obligations
|
Defined benefit obligations
|
Scheme assets
|
Net defined benefit obligations
|
At 1 November 2019
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
Current
service cost
|
213.5
|
(92.0)
|
121.5
|
48.0
|
(28.1)
|
19.9
|
261.5
|
(120.1)
|
141.4
|
Reclassification
from other liabilities/assets
|
6.9
|
-
|
6.9
|
3.5
|
-
|
3.5
|
10.4
|
-
|
10.4
|
Transferred
to current assets classified as held for sale
|
14.7
|
(17.8)
|
(3.1)
|
1.5
|
-
|
1.5
|
16.2
|
(17.8)
|
(1.6)
|
Transfer
from long-term pension assets
|
-
|
(0.4)
|
(0.4)
|
-
|
-
|
-
|
-
|
(0.4)
|
(0.4)
|
Benefits
paid
|
(0.6)
|
0.6
|
-
|
(2.9)
|
2.9
|
-
|
(3.5)
|
3.5
|
-
|
Contributions
by plan participants
|
1.1
|
(1.1)
|
-
|
0.6
|
(0.6)
|
-
|
1.7
|
(1.7)
|
-
|
Contribution
by employer
|
-
|
(0.7)
|
(0.7)
|
-
|
(2.3)
|
(2.3)
|
-
|
(3.0)
|
(3.0)
|
Interest
cost/(income)
|
2.3
|
(1.0)
|
1.3
|
0.8
|
(0.3)
|
0.5
|
3.1
|
(1.3)
|
1.8
|
|
|
|
|
|
|
|
|
|
|
Included within other comprehensive income:
|
|
|
|
|
|
|
|
|
|
Re-measurements
- actuarial (gains) and losses:
|
|
|
|
|
|
|
|
|
|
- Demographic
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
- Financial
|
(0.4)
|
-
|
(0.4)
|
1.0
|
-
|
1.0
|
0.6
|
-
|
0.6
|
- Experience
|
(2.0)
|
-
|
(2.0)
|
(1.0)
|
-
|
(1.0)
|
(3.0)
|
-
|
(3.0)
|
Actuarial
return on assets excluding amounts included in interest
income
|
-
|
(2.4)
|
(2.4)
|
-
|
0.6
|
0.6
|
-
|
(1.8)
|
(1.8)
|
Reclassification
to defined benefit scheme
|
3.1
|
-
|
3.1
|
1.5
|
-
|
1.5
|
4.6
|
-
|
4.6
|
|
0.7
|
(2.4)
|
(1.7)
|
1.5
|
0.6
|
2.1
|
2.2
|
(1.8)
|
0.4
|
Effects
of movements in exchange rates
|
9.8
|
(4.3)
|
5.5
|
1.9
|
(1.4)
|
0.5
|
11.7
|
(5.7)
|
6.0
|
|
|
|
|
|
|
|
|
|
|
31 October 2020
|
248.4
|
(119.1)
|
129.3
|
54.9
|
(29.2)
|
25.7
|
303.3
|
(148.3)
|
155.0
|
None of the plan assets are represented by financial instruments of
the Group. None of the plan assets are occupied or used by the
Group. The major categories of the plan assets are as
follows:
|
31 October 2021
|
|
Germany
|
Rest of World
|
Total
|
|
Quoted
$m
|
Unquoted
$m
|
Total
$m
|
Quoted
$m
|
Unquoted
$m
|
Total
$m
|
Quoted
$m
|
Unquoted
$m
|
Total
$m
|
Funds that invest in:
|
|
|
|
|
|
|
|
|
|
- Equity instruments
|
69.0
|
-
|
69.0
|
4.9
|
3.0
|
7.9
|
73.9
|
3.0
|
76.9
|
- Debt instruments
|
61.7
|
-
|
61.7
|
4.1
|
5.4
|
9.5
|
65.8
|
5.4
|
71.2
|
- Real estate
|
-
|
-
|
-
|
3.5
|
0.1
|
3.6
|
3.5
|
0.1
|
3.6
|
Cash and cash equivalents
|
-
|
-
|
-
|
-
|
1.6
|
1.6
|
-
|
1.6
|
1.6
|
Re-insurance contracts with guaranteed interest rates*
|
-
|
8.1
|
8.1
|
-
|
-
|
-
|
-
|
8.1
|
8.1
|
Other
|
-
|
-
|
-
|
-
|
12.1
|
12.1
|
-
|
12.1
|
12.1
|
Total
|
130.7
|
8.1
|
138.8
|
12.5
|
22.2
|
34.7
|
143.2
|
30.3
|
173.5
|
|
|
|
|
|
|
|
|
|
|
|
*The majority of the re-insurance contracts have guaranteed
interest rates of 4.0%, with the remaining at 3.25% or
2.75%.
16.
Pension and other long-term benefit
commitments continued
|
31 October 2020
|
|
Germany
|
Rest of World
|
Total
|
|
Quoted
$m
|
Unquoted
$m
|
Total
$m
|
Quoted
$m
|
Unquoted
$m
|
Total
$m
|
Quoted
$m
|
Unquoted
$m
|
Total
$m
|
Funds that invest in:
|
|
|
|
|
|
|
|
|
|
- Equity instruments
|
49.3
|
-
|
49.3
|
-
|
6.4
|
6.4
|
49.3
|
6.4
|
55.7
|
- Debt instruments
|
63.3
|
-
|
63.3
|
2.6
|
4.9
|
7.5
|
65.9
|
4.9
|
70.8
|
- Real estate
|
-
|
-
|
-
|
-
|
2.9
|
2.9
|
-
|
2.9
|
2.9
|
Cash and cash equivalents
|
-
|
-
|
-
|
-
|
2.6
|
2.6
|
-
|
2.6
|
2.6
|
Re-insurance contracts with guaranteed interest rates*
|
-
|
6.5
|
6.5
|
-
|
-
|
-
|
-
|
6.5
|
6.5
|
Other
|
-
|
-
|
-
|
-
|
9.8
|
9.8
|
-
|
9.8
|
9.8
|
Total
|
112.6
|
6.5
|
119.1
|
2.6
|
26.6
|
29.2
|
115.2
|
33.1
|
148.3
|
|
|
|
|
|
|
|
|
|
|
|
Risk management
Through its defined benefit schemes the Group is exposed to a
number of risks, the most significant of which are detailed
below:
●
Changes in bond yields -
A decrease in corporate bond yields will increase the Group's IAS
19 plan liabilities, although this will be partially offset by
increases in the value of scheme assets.
●
Inflation - Some of the
Group pension obligations are linked to inflation, and higher
inflation will lead to higher liabilities.
●
Life expectancy - The
majority of the plan obligations are to provide benefits over the
life of the member, so increases in life expectancy will result in
an increase in the plan liabilities as benefits would be paid over
a longer period.
●
Asset returns - Returns
on plan assets are subject to volatility and may not move in line
with plan liabilities. The Group ensures that the investment
positions are managed within an asset liability matching ("ALM") to
achieve long-term investments that are in line with the obligations
under the pension schemes. Within this framework the Group's
objective is to match assets to the pension obligations by
investing in assets that match the benefit payments as they fall
due and in the appropriate currency.
Sensitivities
The table below provides information on the sensitivity of the
defined benefit obligation to changes to the most significant
actuarial assumptions. The table shows the impact of changes to
each assumption in isolation, although, in practice, changes to
assumptions may occur at the same time and can either offset or
compound the overall impact on the defined benefit
obligation.
These sensitivities have been calculated using the same methodology
as used for the main calculations. The weighted average duration of
the defined benefit obligation is 22 years for Germany and 12 years
for all other schemes.
|
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%
|
(10.1%)
|
0.50%
|
11.8%
|
0.50%
|
(5.5%)
|
0.50%
|
6.1%
|
Price inflation/rate of increase in pension payments*
|
0.25%
|
3.67%
|
0.25%
|
(3.49%)
|
0.25%
|
1.0%
|
0.25%
|
(1.0%)
|
Salary growth rate
|
0.50%
|
1.1%
|
0.50%
|
(1.0%)
|
0.50%
|
3.0%
|
0.50%
|
(3.0%)
|
Life expectancy
|
1
year
|
4.0%
|
--
|
--
|
1
year
|
2.0%
|
--
|
--
|
* For the German schemes the same values are used for both the
inflation assumption and the rate of increase in pension
payments.
17. Financial risk
management and financial instruments
Risk factors and treasury risk management
The Group's treasury function aims to reduce exposures to interest
rate, foreign exchange and other financial risks, to ensure
liquidity is available as and when required, and to invest cash
assets safely and profitably. The Group does not engage in
speculative trading in financial instruments. The treasury
function's policies and procedures are reviewed and monitored by
the audit committee and are subject to internal audit
review.
The Group's multi-national operations expose it to a variety of
financial risks that include the effects of changes in credit risk,
foreign currency risk, interest rate risk and liquidity/capital
risk. Treasury risk management is carried out by a central treasury
department under policies approved by the board of
directors.
Group treasury identifies and evaluates financial risks alongside
business management. The board provides written principles for risk
management together with specific policies covering areas such as
foreign currency risk, interest rate risk, credit risk and
liquidity risk, the use of derivative and non-derivative financial
instruments as appropriate, and investment of excess
funds.
Liquidity and capital risk
Central treasury carries out cash flow forecasting for the Group to
ensure that it has sufficient cash to meet operational requirements
and to allow the repayment of the bank facilities. Surplus cash in
the operating units over and above what is required for working
capital needs is transferred to Group treasury. These funds are
used to repay bank borrowings or are invested in interest bearing
current accounts, time deposits, earning credit programmes or money
market deposits of the appropriate maturity period determined by
consolidated cash forecasts.
The Group seeks to maximise financial flexibility and minimise
refinancing risk by issuing debt from a variety of sources and with
a range of maturities. The level of facilities required are
determined through the preparation of cash flow forecasts which
consider a range of business performance scenarios. Borrowings are
refinanced substantially prior to falling current to minimise
refinancing risk.
The Group's objective when managing its capital structures is to
minimise the cost of capital while maintaining adequate capital to
protect against volatility in earnings and net asset values. The
strategy is designed to maximise shareholder return over the
long-term.
In the current year, a conservative dividend policy has been
reinstated and the Company announced an interim dividend of 8.80
cents per share. Final dividends for the current year are set out
in note 10, "Dividends".
On 17 January 2022, the Group announced the refinancing of $1.6bn
of existing term loans and the RCF was refinanced in December 2021,
see note 14, "Borrowings".
The financial covenants related to the RCF and term loans are
disclosed in note 14, "Borrowings".
The Group uses cash pooling structures and intercompany loans to
mobilise cash efficiently within the Group. The key objectives of
the treasury function with respect to cash and cash equivalents are
to protect their principal value, concentrate cash centrally,
minimise the requirements for external borrowing and optimise
yield.
As part of its short-term cash management the Group invests in a
range of cash and cash equivalents, including money market funds,
which are considered to be highly liquid and not exposed to
significant changes in fair value.
Subsidiary companies are funded through share capital, retained
earnings and loans from central finance companies on commercial
terms. Subsidiary companies do not enter into local borrowings with
external counterparties.
Interest rate risk
The Group's income and cash generated from operations are
substantially independent of changes in market interest rates. The
Group's interest rate risk arises from short-term and long-term
borrowings. Borrowings issued at variable rates expose the Group to
cash flow interest rate risk. The Group currently uses four
interest rate swaps to manage its cash flow interest rate risk
arising from potential increases in the LIBOR interest
rate.
The objective of the Group's interest rate risk management policy
is to manage the uncertainty and adverse impact on the Group's net
interest charge due to changes in interest rates to an acceptable
level. In doing so, the Group seeks to minimise the cost of hedging
and the level of associated counterparty risk.
The Group has set a target of approximately half its borrowings
being subject to fixed interest rates in order to minimise its
exposure to changes in interest rates. This is achieved through
four US dollar interest swaps for a total notional value of
$2.25bn, with a maturity date of September 2022. The hedge
accounting is discussed further later in the note.
The Group's borrowing facilities do not contain any covenants with
respect to interest cover ratios.
17.
Financial risk management and financial
instruments continued
Foreign exchange risk
The Group operates internationally and is exposed to foreign
exchange risk arising from various currency exposures, primarily
with respect to the Euro, UK Pound Sterling, Indian Rupee, Israeli
Shekel, Japanese Yen, Australian Dollar and the Canadian Dollar.
Foreign exchange risk arises from future commercial transactions,
recognised assets and liabilities and net investments in foreign
operations where the transactions are denominated in a currency
that is not the entity's functional currency.
The Group is subject to exposure on the translation of the net
assets of foreign currency subsidiaries into its reporting
currency, US dollar. The Group's primary balance sheet translation
exposures are noted in the exposure analysis below. These exposures
are kept under regular review with the Group treasury function
providing reporting to the treasury risk committee and the audit
committee.
Group borrowings are denominated in US dollars and Euros. The Group
seeks to match the currency profile of borrowings to the cash flows
arising from the Group's operations used to service those
borrowings. The May 2020 and January 2022 debt refinancings both
included an additional proportion of Euro debt and a reduction in
US dollar debt which is intended to better match the currency
profile of the Group's debt with the cash flows used to service
that debt (note 14, "Borrowings"). Group Treasury will continually
review the EBITDA currency profile of the business and to take
actions to align the group's debt profile with its
EBITDA.
The Group has certain investments in foreign operations, whose net
assets are exposed to foreign currency translation risk. The Group
faces currency exposures arising from the translation of profits
earned in foreign currency subsidiaries into the Group's reporting
currency of US dollars. As at 31 October 2021 two net investment
hedges totalling €1.03bn have been designated using
non-derivative Euro debt instruments to minimise the volatility in
shareholders' equity arising from foreign currency translation
(2020: two net investment hedges totalling
€1.05bn).
Exposures also arise from foreign currency denominated trading
transactions undertaken by subsidiaries and exposures here are not
hedged. The Group utilises constant currency reporting to enable
management and investors to understand the underlying performance
of the Group excluding exchange rate impacts. Please refer to
Alternative Performance Measure 8, "Constant currency", for
additional information.
Credit risk
The Group provides credit to customers in the normal course of
business. Collateral is not required for those receivables but the
Group has policies in place requiring appropriate credit checks on
potential customers before sales commence and a monitoring process
for assessing overdue receivables and customer payment behaviour
post sale. These policies and procedures include assessing customer
credit limits and the use of third party financial and risk
reporting to control our exposure and credit risk.
Financial instruments which potentially expose the Group to a
concentration of credit risk consist primarily of cash and cash
equivalents and accounts receivable.
The Group maintains a provision for impairment based upon the
measurement of lifetime expected credit losses for all trade
receivables using the IFRS 9 simplified approach.
The risk management practices noted above provide the historical
customer payment profiles and a view on customer behaviour with any
historical credit losses experienced. The loss allowance is
adjusted for forward-looking factors specific to the debtor and the
economic environment resulting in an overall assessment of any
provision required.
The Group sells products and services to a wide range of customers
around the world and therefore believes there is no significant
concentration of customer credit risk.
The Group's credit risk on cash and cash equivalents is limited as
the counterparties are generally well established financial
institutions with generally high credit ratings.
Cash deposits and other financial instruments give rise to credit
risk on the amounts due from the related counterparties. Generally,
the Group aims to transact with counterparties with strong
investment grade credit ratings. However, the Group recognises that
due to the need to operate over a large geographic footprint, this
will not always be possible. Counterparty credit risk is managed on
a global basis by limiting the aggregate amount of exposure to any
one counterparty, taking into account its credit rating. The credit
ratings of all counterparties are reviewed regularly. All
derivatives are subject to ISDA (International Swaps and
Derivatives Association) agreements or equivalent
documentation.
The maximum exposure to the credit risk of financial assets at the
balance sheet date is reflected by the carrying values included in
the Group's balance sheet. Please refer to the credit risk table
further below.
17.
Financial risk management and financial
instruments continued
Financial instruments
The tables below set out the measurement categories and carrying
values of financial assets and liabilities with fair value inputs
where relevant.
|
Note
|
Measurementcategory
|
Carrying value31 October 2021$m
|
Fair value 2021
|
Fair valueHierarchy2021/2020
|
Carrying value31 October 2020$m
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
|
|
|
|
|
|
|
Long-term pension assets
|
|
FV
OCI
|
17.1
|
Fair value insurance-based input
|
Level 3
|
18.2
|
Current
|
|
|
|
|
|
|
Cash and cash equivalent
|
|
Amortised
cost
|
558.4
|
-
|
-
|
737.2
|
Trade and other receivables
|
|
Amortised
cost
|
784.2
|
-
|
-
|
648.6
|
Contract assets
|
|
Amortised
cost
|
62.0
|
-
|
-
|
33.7
|
|
|
|
1,421.7
|
|
|
1,437.7
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
|
|
|
|
|
|
|
Derivative financial instruments - interest rate
swaps1
|
|
FV
OCI
|
-
|
Fair value Bank institutions
|
Level 2
|
77.9
|
Borrowings (gross)2
|
14
|
Amortised
cost
|
4,566.0
|
4,556.5
|
-
|
4,699.0
|
Lease obligations
|
|
Amortised
cost
|
119.6
|
-
|
-
|
168.2
|
Current
|
|
|
|
|
|
|
Derivative financial instruments - interest rate
swaps1
|
|
FV
OCI
|
35.7
|
Fair value Bank Institutions
|
Level 2
|
-
|
Borrowings (gross)2
|
14
|
Amortised
cost
|
42.0
|
41.9
|
-
|
34.2
|
Lease obligations
|
|
Amortised
cost
|
74.9
|
-
|
-
|
82.2
|
Trade payables and accruals
|
|
Amortised
cost
|
440.1
|
-
|
-
|
419.2
|
|
|
|
5,278.3
|
|
|
5,480.7
|
1 Derivative interest rate
swaps are measured at Fair Value through Other Comprehensive Income
("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 Fair Value through Profit
or Loss ("FVTPL").
2 Borrowings have a
carrying value (net of unamortised prepaid facility arrangement
fees and original issue discount) of $4,548.4m (2020: $4,640.4m).
Total borrowings (gross) are shown in this table as $4,608.0.m
(2020: $4,733.2m) for the fair value
comparison.
Fair value measurement
For trade and other receivables, cash and cash equivalents, 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 $4,548.4m (2020:
$4,640.3m) (note 14, "Borrowings") including unamortised prepaid
facility fees and discounts, have a fair value estimate of
$4,598.4m (2020: $4,535.1m) based on trading prices obtained from
external banking providers as at 31 October 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 long-term pension assets are considered to be Level 3 assets
under the fair value hierarchy as of 31 October 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 assets is disclosed
in note 16, "Pension and other long-term benefit
commitments".
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 risk
|
31 October 2021
$m
|
31
October 2020
$m
|
|
Interest rate swaps (receive variable, pay fixed)
|
|
|
|
Fair value of Derivative liability (total of 4 swaps)
|
(35.7)
|
(77.9)
|
|
Notional amount (4 x $562.5m)
|
2,250.0
|
2,250.0
|
|
Maturity date
|
30 September 2022
|
30
September 2022
|
|
Change in fair value of outstanding hedging instruments (OCI
hedging reserve excluding deferred tax)
|
42.2
|
(41.3)
|
|
Change in value of hedging instruments (as above adjusted for
impact of credit risk)
|
41.9
|
(39.9)
|
|
Hedging ratio
|
1:1
|
1:1
|
|
17.
Financial risk management and financial
instruments continued
The Group has four interest rate swaps, which are designated in a
hedge relationship.
The Group's approved strategy in accordance with our risk
management policies is to minimise the risk of cash flow
fluctuations due to interest rate changes in relation to the 1M-USD
LIBOR rate for up to half of the Group's external borrowings for
the period 19 October 2017 to 30 September 2022.
The specific risk management objective of the four interest rate
swaps is to hedge the interest rate risk (cash flow risk) due to
changes in the 1M-USD LIBOR rate charged on $2,250.0m of the debt
issued by Seattle Spin Co Inc. between 19 October 2017 and 30
September 2022.
Derivatives are only used for economic hedging purposes and not as
speculative investments.
The swap contracts require settlement of net interest receivable or
payable on a monthly basis. The fixed interest rate for each swap
is 1.949% and the Group receives a variable rate in line with
LIBOR. The Seattle loan is priced at LIBOR (with a 0% floor) plus a
current margin of 2.75% with the swaps aimed at addressing the risk
of a rising LIBOR element. As such, the total interest cost of the
hedged element of the Seattle loan is 4.699%. For the year to 31
October 2021, net interest (finance cost) paid for the swaps
amounted to $41.3m. For the life of the swap, net interest paid to
date amounted to $58.5m.
Non-Derivative financial instruments - Designated Euro
borrowings
Foreign exchange risk
|
31 October 2021$m
|
31
October 2020$m
|
Debt designated in hedge relationships
|
|
|
Euro B-1 2020 tranche €600m, (Borrowing maturity date: June
2025), €585m designated
|
676.0
|
700.3
|
Foreign exchange gain/(loss) on revaluation transferred to OCI-CTA
- No sources of ineffectiveness observed in review
|
6.5
|
(34.5)
|
Euro 2017 tranche €453m (Borrowing maturity date: June 2024)
€442m designated
|
510.9
|
528.5
|
Foreign exchange gain/(loss) on revaluation transferred to OCI-CTA
- No sources of ineffectiveness observed in review
|
4.8
|
(24.2)
|
Hedge ratio for each of the two Net investment hedges
|
1:1
|
1:1
|
The Group has designated two tranches of non-derivative Euro
borrowings in two hedge relationships The borrowings in place have
a designated carrying value of approximately €1.03bn (note
14, "Borrowings") hedged against Euro designated net investments in
foreign operations.
The specific risk management objective is to carry out a net
investment hedge in the consolidated financial statements of the
Group, to reduce the foreign currency translation exposure arising
from the Group's investments in foreign entities with Euro
functional currency through the use of Euro currency borrowings as
hedging instruments as permitted by the Group's Treasury
policy.
Hedge effectiveness
Hedge effectiveness is determined at the inception of the hedge
relationship, and through periodic effectiveness assessments to
ensure that an economic relationship exists between the hedged item
and the hedging instrument. The testing determined that the hedges
met the IFRS 9 requirements for the financial reporting year. The
IFRS 9 hedging requirements apply to both the interest swaps and
the net investment hedges.
The impact of changes in the fair value of interest rate swaps in
the year ended 31 October 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 year.
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.
17.
Financial risk management and financial
instruments continued
IBOR transition
Managing interest rate benchmark reform
A fundamental reform of major interest rate benchmarks is being
undertaken globally, including the replacement of some interbank
offered rates ("IBORs") with alternative nearly risk-free rates
(referred to as 'IBOR reform').
The Group has exposures to IBORs on its financial instruments that
may be replaced or reformed as part of these market-wide
initiatives. The Group holds four interest rate swaps for risk
management purposes which are designated in cash flow hedging
relationships. The interest rate swaps have floating legs that are
indexed to US LIBOR. The Group's exposure to LIBOR designated in
hedging relationships is $2,250m nominal amount at 31 October 2021,
representing the nominal amount of the four interest rate
swaps.
The Treasury risk management committee monitors and manages the
Group's transition to alternative rates. The committee evaluates
the extent to which contracts reference IBOR cash flows, whether
such contracts will need to be amended as a result of IBOR reform
and how to manage communication about IBOR reform with
counterparties. The committee reports to the Company's board of
directors quarterly and collaborates with other business functions
as needed. It provides periodic reports to management of interest
rate risk and risks arising from IBOR reform.
Possible (phase 1) reliefs available for hedging exposures have not
been applied as the benchmark quotes will continue to be available
through to the maturity of the swaps in September 2022. The
interest rate cash flows for the hedged debt have not been and will
not be impacted by any IBOR-related matters in the period as
referenced benchmarks were still available in the reporting
period.
The Group has evaluated the extent to which its cash flow hedging
relationships are subject to uncertainty driven by IBOR reform as
at 31 October 2021. The Group's hedged items and hedging
instruments continue to be referenced to US LIBOR. These benchmark
rates are quoted each day and the IBOR cash flows are exchanged
with counterparties as usual. This allows market participants to
continue to use LIBOR for existing contracts and the Group expects
that LIBOR will continue to exist as a benchmark rate until June
2023. The Group is actively working to refinance the near-term debt
of the group into SOFR based debt instruments to address the
cessation of LIBOR. The Group plans to have all LIBOR denominated
debt repaid or refinanced prior to the planned LIBOR cessation date
of June 2023.
The Group has measured its hedging instruments indexed to LIBOR
using available quoted market rates for LIBOR-based instruments of
the same tenor and similar maturity and has measured the cumulative
change in the present value of hedged cash flows attributable to
changes in LIBOR on a similar basis.
Credit risk
The carrying amount of financial assets represents the maximum
credit exposure. The maximum exposure to credit risk at 31 October
2021 was:
|
31 October 2021$m
|
31
October 2020$m
|
Trade receivables (gross)
|
738.8
|
628.4
|
Cash and cash equivalents
|
558.4
|
737.2
|
|
1,297.2
|
1,365.6
|
The Group applies the IFRS 9 expedited approach to measuring
expected credit losses, which uses a lifetime expected credit loss
allowance for all trade receivables.
A provision of the lifetime expected credit loss is established
upon initial recognition of the underlying asset by predicting the
future cash flows based upon the days past due status of an invoice
and other relevant information. The model uses historical
collection data along with historical credit losses experienced.
The loss allowance is adjusted for forward-looking factors specific
to the receivable and the economic environment.
Trade receivables are written off when there is no reasonable
expectation of recovery. Impairment losses on trade receivables are
presented as net impairment losses within operating profit.
Subsequent recoveries of amounts previously written off are
credited against the same line item.
Ageing is the main internal rating assessment around credit quality
for trade receivables. Contract assets relate to amounts not yet
due from customers and contain no amounts past due.
17.
Financial risk management and financial
instruments continued
Foreign exchange risk
The Group's currency exposures comprise those that give rise to net
currency gains and losses to be recognised in the Consolidated
statement of comprehensive income as well as gains and losses on
consolidation, which go to reserves. Such exposures reflect the
monetary assets and liabilities of the Group that are not
denominated in the operating or functional currency of the
operating unit involved and the Group's investment in net assets in
currencies other than US Dollar.
The Consolidated statement of comprehensive income includes foreign
exchange losses in the year ended 31 October 2021 of $0.1m (2020:
$29.7m loss). The foreign exchange loss in the prior year includes
the loss of $21.8m due to the settlement of the foreign exchange
contract regarding the cancelled dividend.
Exposure report analysis
The Group's principal exposures in relation to market risks are the
changes in the exchange rates between the US dollar and
transactions made in other currencies as well as changes in
interest rates from US and Euro capital markets. Foreign exchange
exposures for all re-measuring balances are tracked and reported to
management.
The key drivers for foreign exchange exposure are cash, borrowings
and inter-company positions with trade receivables and trade
payables having less relative aggregate exposure. The table below
represents a key currency extract from the Group exposures to
movements in currency presenting exposures in excess of $10m
equivalent. The key exposure relates to the increased Euro debt
profile since the May refinancing. This Euro exposure is shown in
its totality and is not represented by the offsetting net
investment hedge The GB Pound, Japanese Yen, Indian Rupee,
Australian Dollar, Canadian Dollar and Israeli Shekel also had key
inter-company positions during the year.
Foreign exchange analysis is shown as for reporting to the Treasury
Risk committee. Please note that aggregate foreign exchange
exposures for the Euro below do not consider the impact of the net
investment hedges. However, the impact can be seen in the hedging
table above.
Key aggregate currency exposures*
|
Group exposure
$m
|
+/- 5%
$m
|
+/- 10%
$m
|
Euro (EUR)
|
1,504.6
|
75.2
|
150.4
|
GB Pounds (GBP)
|
156.7
|
7.8
|
15.6
|
Indian Rupee (INR)
|
64.4
|
3.2
|
6.4
|
Japanese Yen (JPY)
|
53.0
|
2.7
|
5.3
|
Australian Dollar (AUD)
|
32.5
|
1.6
|
3.3
|
Canadian Dollar (CAD)
|
31.9
|
1.6
|
3.2
|
Israeli Shekel (ILS)
|
29.5
|
1.5
|
3.0
|
Chinese Yuan (CNY)
|
27.3
|
1.4
|
2.7
|
Swedish Krona (SEK)
|
24.3
|
1.2
|
2.4
|
United Arab Emirates Dirham (AED)
|
24.2
|
1.2
|
2.4
|
Czech Koruna (CZK)
|
12.0
|
0.6
|
1.2
|
Mexican Peso (MXN)
|
10.4
|
0.5
|
1.0
|
Turkish Lira (TRY)
|
10.2
|
0.5
|
1.0
|
Danish Krone (DKK)
|
10.1
|
0.5
|
1.0
|
*Presenting aggregate foreign exchange exposures in excess of $10m
equivalent.
Interest rate exposure
Borrowings exposures to variable interest rate changes(based on
gross debt excluding the effects of hedging)
|
Note
|
Group exposure
$m
|
LIBOR, EURIBOR +1%
$m
|
Euro
|
|
1,186.9
|
11.9
|
US Dollar
|
|
3,421.1
|
34.2
|
Total gross debt
|
14
|
4,608.0
|
46.1
|
Net debt
The net debt of the Group at the Consolidated statement of
financial position date is as follows:
|
Note
|
31 October 2021$m
|
31
October 2020$m
|
Borrowings
|
14
|
(4,548.4)
|
(4,640.3)
|
Cash and cash equivalents
|
|
558.4
|
737.2
|
Lease obligations
|
|
(194.5)
|
(250.4)
|
Net debt
|
|
(4,184.5)
|
(4,153.5)
|
Borrowings are shown net of unamortised prepaid facility
arrangement fees of $59.6m (2020: $92.9m). Gross borrowings are
$4,608.0m (2020: $4,733.2m).
17.
Financial risk management and financial
instruments continued
Change in liabilities arising from financing activities for
interest bearing loans (note 14, "Borrowings") and lease
obligations were as follows:
|
Interest bearing loans
$m
|
Lease obligations
$m
|
Total
$m
|
At 1 November 2020
|
4,733.2
|
250.4
|
4,983.6
|
Movements arising from financing cash flows
|
|
|
|
Repayments
|
(114.1)
|
(89.5)
|
(203.6)
|
Other changes
|
|
|
|
New leases
|
-
|
35.1
|
35.1
|
Interest
|
-
|
10.0
|
10.0
|
Transfer to held for sale
|
-
|
(11.4)
|
(11.4)
|
The effect of change in foreign exchange rates
|
(11.1)
|
(0.1)
|
(11.2)
|
At 31 October 2021
|
4,608.0
|
194.5
|
4,802.5
|
Maturity analysis of non-derivative and derivative financial
liabilities
The following table summarises the contractual maturities of the
Group's financial liabilities as at 31 October 2021. The amounts
are reported gross and un-discounted and include contractual
interest payments where applicable. As a result, these amounts can
differ from both the reported carrying value and fair
value.
As at 31 October 2021
|
Borrowings
$m
|
Lease obligations
$m
|
Derivatives - interest rate swaps
$m
|
Trade payables & accruals
$m
|
Total
$m
|
Within one year
|
202.6
|
74.9
|
35.7
|
440.1
|
753.3
|
In one to two years
|
191.1
|
39.9
|
-
|
-
|
231.0
|
In two to three years
|
3,453.6
|
29.7
|
-
|
-
|
3,483.3
|
In three to five years
|
1,235.5
|
28.5
|
-
|
-
|
1,264.0
|
In more than five years
|
-
|
49.1
|
-
|
-
|
49.1
|
Total
|
5,082.8
|
222.1
|
35.7
|
440.1
|
5,780.7
|
Impact of discount/financing rates
|
-
|
(27.6)
|
-
|
-
|
(27.6)
|
Total
|
5,082.8
|
194.5
|
35.7
|
440.1
|
5,753.1
|
As at 31 October 2020
|
Borrowings
$m
|
Lease
obligations$m
|
Derivatives -
interest rate swaps$m
|
Trade
payables & accruals$m
|
Total
$m
|
Within one year
|
203.6
|
82.2
|
-
|
419.2
|
705.0
|
In one to two years
|
224.2
|
69.5
|
77.9
|
-
|
371.6
|
In two to three years
|
230.3
|
43.3
|
-
|
-
|
273.6
|
In three to five years
|
3,487.7
|
49.3
|
-
|
-
|
3,537.0
|
In more than five years
|
1,242.0
|
36.3
|
-
|
-
|
1,278.3
|
Total
|
5,387.8
|
280.6
|
77.9
|
419.2
|
6,165.5
|
Impact of discount/financing rates
|
-
|
(30.2)
|
-
|
-
|
(30.2)
|
Total
|
5,387.8
|
250.4
|
77.9
|
419.2
|
6,135.3
|
18. Discontinued
operation and assets held for sale
A. SUSE business
The sale of the SUSE business was completed on 15 March 2019. The
profit on disposal of the SUSE business for the year ended 31
October 2021 of $10.7m (year ended 31 October 2020 profit $5.1m)
related to adjustments in indemnification amounts owed to SUSE as
part of the disposal agreement. The profit in the year ended 31
October 2020 related to the conclusion of the working capital
settlement and adjustments in respect of income tax balances owed
in respect of pre-transaction periods.
B. Archiving and Risk Management portfolio
On 3 November 2021, the Group announced the agreement of definitive
terms to sell its Archiving and Risk Management portfolio (the
"Digital Safe business") to Smarsh Inc., for a total cash
consideration of $375m (subject to customary completion accounts
adjustments based on net debt and working capital) which is payable
in full on completion of the transaction. On 31 January 2022, the
sale was completed.
As a consequence, the assets and liabilities of the Digital Safe
business have been classified as held for sale in these financial
statements.
The Digital Safe business forms part of the IM&G Product Group
and includes the Digital Safe products and the complementary
offerings of Social Media Governance, Supervisor and
eDiscovery.
Net assets classified as held for sale
|
Year ended 31 October 2021
|
Reported in:
|
Current assets$m
|
Current liabilities$m
|
Total$m
|
Digital
Safe
|
370.3
|
68.4
|
301.9
|
The net asset assets classified as held for sale relating to the
disposal of Digital Safe are detailed in the tables below. These
include non-current assets and non-current liabilities that are
shown as current assets and liabilities in the Consolidated
statement of financial position.
|
Note
|
Year ended
31 October 2021
$m
|
Non-current assets
|
|
|
Goodwill
|
12
|
147.2
|
Other
Intangible assets (including purchased software)
|
13
|
182.1
|
Property,
plant and equipment (including right-of-use assets)
|
|
11.5
|
Other
non-current assets
|
|
0.1
|
|
|
340.9
|
Current assets
|
|
|
Trade
and other receivables
|
|
24.6
|
Other
current assets
|
|
4.8
|
|
|
29.4
|
Total assets held for sale
|
|
370.3
|
Current liabilities
|
|
|
Trade
and other payables
|
|
1.8
|
Lease
obligations <1 year
|
|
3.1
|
Contract
Liabilities
|
|
4.8
|
Other
current liabilities
|
|
3.0
|
|
|
12.7
|
Non-current liabilities
|
|
|
Deferred
tax liabilities
|
|
45.5
|
Lease
obligations >1 year
|
|
8.3
|
Contract
Liabilities
|
|
0.5
|
Other
non-current liabilities
|
|
1.4
|
|
|
55.7
|
Total liabilities held for sale
|
|
68.4
|
Allocation of assets and liabilities to the Digital Safe business
and held for sale
Assets and liabilities related to the Digital Safe business are
included as held for sale where they can be allocated directly or
allocated on a reasonable and consistent basis to the Digital Safe
business.
18.
Discontinued operation and assets held for
sale continued
Goodwill and intangible assets allocated to the Digital Safe
business
Trade names and acquired technology-related intangibles were
separately valued as part of the HPE software business acquisition
and are included based on their current carrying
values.
Customer relationships were valued at an IM&G level as part of
the HPE software business therefore an allocation to the Digital
Safe business based on a relative value of the Digital Safe
business versus the total value of IM&G has been
performed.
The goodwill allocated to the Digital Safe business has been
allocated based on a relative value of the Digital Safe business
versus the total Micro Focus Product Portfolio. Information on the
basis of the Group's value in use, used in the allocations for
goodwill and customer relationships, including the key assumptions
made are included in note 12, "Goodwill". We have considered the
sensitivity of the allocation to these key assumptions and no
reasonably possible movements would result in a material change in
the allocation.
19. Cash flow
statement
|
Note
|
Year ended
31 October 2021
$m
|
Year
ended
31
October 2020
$m
|
Cash flows from operating activities
|
|
|
|
(Loss) from continuing operations
|
|
(435.1)
|
(2,974.6)
|
Profit from discontinued operation
|
|
10.7
|
5.1
|
Loss) for the year
|
|
(424.4)
|
(2,969.5)
|
Adjustments for:
|
|
|
|
(Gain)/Loss on disposal of discontinued operation
|
|
(10.7)
|
3.0
|
Net finance costs
|
|
252.2
|
279.0
|
Taxation - continuing operations
|
9
|
(82.7)
|
34.2
|
Taxation - discontinued operation
|
|
-
|
(8.1)
|
Operating loss (attributable to continuing and discontinued
operations)
|
|
(265.6)
|
(2,661.4)
|
Goodwill impairment charge
|
12
|
-
|
2,799.2
|
Research and development tax credits
|
|
(1.1)
|
(1.8)
|
Property, plant and equipment depreciation
|
|
33.7
|
42.0
|
Right-of-use asset depreciation
|
|
73.3
|
76.9
|
Loss on disposal of property, plant and equipment
|
|
1.2
|
5.6
|
Loss on disposal of intangible assets
|
13
|
-
|
0.6
|
Amortisation of intangible assets
|
13
|
956.4
|
674.1
|
Leases impairment
|
|
5.6
|
5.9
|
Share-based compensation charge
|
|
14.3
|
17.0
|
Foreign exchange movements
|
|
0.1
|
29.7
|
Changes in working capital:
|
|
|
|
Inventories
|
|
-
|
0.1
|
Trade and other receivables and contract related
costs1
|
|
(195.2)
|
251.6
|
Payables and other liabilities
|
|
36.9
|
(62.4)
|
Provisions2
|
15
|
14.1
|
8.8
|
Contract liabilities - deferred income
|
|
16.8
|
(103.1)
|
Cash generated from operations
|
|
690.5
|
1,082.8
|
1 Change in trade and
other receivables and contract related costs is adjusted for
non-cash movements of ($19.0m) (2020: ($51.7)m)
2 In the year ended 31
October 2021 provisions movements have been presented net, in the
year ended 31 October 2020 they were presented gross as provision
movements $46.3m and provision utilisation
($37.5m).
20. Post balance sheet
events
Subsequent to the end of the reporting period for the year ended 31
October 2021 the following events have taken place:
Re-purchase of shares
On 20 December 2021, the Group's employee benefit trust ("EBT")
commenced the purchase of 12m shares, equivalent to £43.4m at
the share price on 20 December 2021. These shares will be purchased
on the open market and will be used for the settlement of existing
and future employee share schemes awarded to senior leaders and
employees who are critical to achieving the strategic initiatives
set out in the Chief Executive Officer's report. 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 will reported as the purchase of Treasury shares by the
Group.
Archiving and Risk management portfolio: Completion of Digital Safe
disposal
On 3 November 2021, the Group announced the agreement of definitive
terms to sell its Archiving and Risk Management portfolio (the
"Digital Safe business") to Smarsh Inc., for a total cash
consideration of $375m. On 31 January 2022, this disposal was
completed.
Re-financing of long-term debt and revolving credit
facility
On 17 January 2022, the Group announced the refinancing of $1.6bn
of existing term loans and updates to the revolving credit facility
were announced in December. Further details can be found in Note
14, "Borrowings".
Standard overnight financing rate ("SOFR") 1M USD interest rate
swap
On 19 January 2022, the Group executed a new 1m USD SOFR swap with
J.P Morgan Securities plc with a notional value of $750m and a
maturity date of 28 February 2027. The forward swap is effective on
21 September 2022 with a fixed interest rate of 1.656% swapped
against the variable 1m SOFR USD rates. Further details can be
found in Note 17, "Financial risk management and financial
instruments".
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereto duly authorized.
Date:
08 February 2022
Micro
Focus International plc
|
By:
|
/s/
Matt Ashley
|
|
Name:
|
Matt
Ashley
|
|
Title:
|
Chief
Financial Officer
|