TIDMMCRO
RNS Number : 7561D
Micro Focus International plc
01 July 2021
1 July 2021
Micro Focus International plc
Interim results for the six months ended 30 April 2021
Micro Focus International plc ("the Company" or "the Group",
LSE: MCRO.L, NYSE: MFGP), the international software product group,
announces unaudited interim results for the six months ended 30
April 2021 ("H1 21").
Key highlights:
-- Revenue was $1.4bn for the period. This performance was ahead
of market expectations and represents a decline of 4.6% on a
constant currency ("CCY") basis and a decline of 2.0% at actual
rates when compared to H1 20.
-- Sales execution in the period was strong, resulting in an
improvement in sales conversion rates and a number of deals closing
earlier than expected. The H2 weighting of prior year revenue due
to COVID-19 was also a factor.
-- The Group continues to target a meaningful improvement in the
rate of CCY revenue decline in FY21 when compared to FY20, in line
with current revenue consensus.
-- Adjusted EBITDA margin of 36.4% (H1 20: 37.7% CCY) reflecting
the strong licence revenue performance and cost savings from
back-office simplification, largely funding the planned product
investment.
-- The Group generated a statutory operating loss from
continuing operations (after exceptional items and amortisation of
purchased intangibles) of $154.8m (H1 20: Operating loss of
$906.7m, including a goodwill impairment charge of $922.2m).
-- Cash generated from operating activities of $468.1m for H1 21
(H1 20: $560.4m) , which after exceptional items resulted in
Adjusted Cash Conversion(1) of 124.5% (H1 20: 131.5%).
-- Significant milestone reached on digital transformation with
employees recently transitioned to our new, single IT platform.
Given the complexities of executing this transition during
COVID-19, we will continue to run with a level of duplicate costs
until the system is fully operational.
-- Strategic partnership with AWS, and good progress across the
product portfolios including key partnerships announced with
Microsoft Azure, Snowflake, Dell EMC and others.
-- Matt Ashley joins the Board as Chief Financial Officer from 1 July 2021.
Results at a glance
H1 21 H1 20 Growth /(Decline)
=============================================== ============== =========== ===================
Alternative performance measures from
continuing operations(1)
$1,425.7 $1,493.9
Revenue (versus CCY comparatives) m m (4.6) %
Adjusted EBITDA (versus CCY comparatives) $519.0 m $562.6 m (7.7) %
% Adjusted EBITDA margin (versus CCY
comparatives) 36.4% 37.7% (1.3) ppt
Adjusted Diluted Earnings per Share
("EPS") - continuing operations 66.15 c 72.10 c (8.3) %
$4,118.4 $4,312.0
Net Debt m m (4.5) %
Net Debt/ Adjusted EBITDA ratio 3.6 times 3.4 times
Statutory Results
$1,425.7 $1,454.2
Revenue - continuing operations m m (2.0) %
$(154.8) $(906.7)
Operating loss - continuing operations m m 82.9 %
$(218.9) $(1,032.0)
Loss for the period m m 78.8 %
(308.40)
Basic and Diluted EPS - continuing operations (65.09) c c 78.9 %
(1) The definition and reconciliations of Adjusted EBITDA,
Adjusted EBITDA Margin, Adjusted Diluted EPS, Net Debt, Adjusted
Cash Conversion, Free Cash Flow and Constant Currency ("CCY") are
in the "Alternative Performance Measures" section of this Interim
Statement.
Stephen Murdoch, Chief Executive Officer, commented:
"We are pleased with a period of further solid progress in most
areas of our business. The product investments and operational
changes we are making are beginning to deliver performance
improvements, and our value propositions are resonating with
customers and partners, as demonstrated by the signing of the
significant, long term commercial agreement with AWS.
Our recovery programme and specifically our systems
transformation are progressing as planned despite the challenges of
executing this within the constraints of a global lockdown. I am
proud of the resilience, flexibility and professionalism of our
teams across the organisation. As a business, we continue to
monitor the impact of COVID-19 on our workforce, with particular
focus currently on supporting our colleagues in India.
Whilst there is a great deal to do, we are encouraged by our
progress and remain committed to delivering revenue stabilisation
and sustainable cash flow generation for our shareholders."
This announcement contains information that was previously
Inside Information, as that term is defined in the Market Abuse
Regulation (Regulation (EU) No 596/2014 of the European Parliament
and of the Council of 16 April 2014) and successor UK
legislation.
Results conference call
A conference call to cover the results for H1 21 will be held
today at 12.30pm GMT. The call will be accompanied by slides.
A live webcast and recording of the presentation will be
available at https://www.microfocus.com/en-us/investors during and
after the event. For dial in only, access numbers are as
follows:
UK & International: +44 (0) 33 0551 0200
UK Toll Free: 0808 109 0700
US: +1 212 999 6659
USA Toll Free: 1 866 966 5335
Enquiries:
Micro Focus Tel: +44 (0) 1635 565200
Stephen Murdoch, Chief Executive Investors@microfocus.com
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, Security, and Information
Management & Governance. For more information, visit:
www.microfocus.com .
Forward-looking statements
Certain statements in these interim results are forward-looking.
Although the Group believes that the expectations reflected in
these forward-looking statements are reasonable, it can give no
assurance that these expectations will prove to be correct. Because
these statements involve risks and uncertainties, actual results
may differ materially from those expressed or implied by these
forward-looking statements. The Group undertakes no obligation to
update any forward-looking statements whether as a result of new
information, future events or otherwise.
Operational review
Performance in the period
The first half of FY21 represents another period of solid
progress in most areas of our business. The product investments and
operational changes we are making are beginning to deliver
performance improvements, and our value propositions are resonating
with customers and partners.
The Group reported revenues of $1,425.7m (H1 20: $1,493.9m CCY,
$1,454.2m reported). This is a decline of 4.6% on a CCY basis and
2.0% on a reported basis.
CCY % change to
H1 21 H1 20
----------------------------------------------------------- ----------------------------------------------- --------
Licence Maintenance SaaS Consulting Total Licence Maintenance SaaS Consulting Total
& other &
recurring other
recurring
$m $m $m $m $m % % % % %
---------------- -------- ------------ ---------- ----------- ---------- -------- ------------ ---------- ----------- --------
Product
portfolio:
Application
Modernisation
&
Connectivity (0.6) (3.2) (7.3) (2.6)
("AMC") 62.1 158.5 - 5.1 225.7 % % - % %
Application
Delivery
Management (8.8) (8.3) (6.4)
("ADM") 49.6 208.9 36.6 9.2 304.3 3.1 % % % 15.0% %
IT Operations
Management 30.0 (10.4) (9.2) (3.3)
("ITOM") 92.8 262.2 2.0 54.6 411.6 % % 33.3% % %
(7.9) (21.2) (5.1)
Security 70.1 193.6 18.6 14.5 296.8 4.5 % % 9.4% % %
Information
Management
& Governance (6.9) (8.2) (10.8) (6.0)
("IM&G") 27.1 89.3 62.6 8.3 187.3 4.6 % % % % %
---------------- -------- ------------ ---------- ----------- ---------- -------- ------------ ---------- ----------- --------
(8.0) (5.4) (9.5) (4.6)
Revenue* 301.7 912.5 119.8 91.7 1,425.7 9.7 % % % % %
---------------- -------- ------------ ---------- ----------- ---------- -------- ------------ ---------- ----------- --------
*Total revenue presented before haircut of $0.4m in H1 20 .
We delivered growth in Licence revenue of 9.7%, demonstrating
the continuation of sales execution improvements delivered in the
second half of FY20. Sales conversion rates improved, and a small
number of deals closed earlier in FY21 than initially forecast. The
performance also reflected the onset of COVID-19 in the comparable
period. We are pleased with improved levels of discipline and
accountability across our sales leadership teams, specifically in
the development of pipeline for future periods and delivery of more
complete customer propositions. In the period, the Group witnessed
a material improvement in Licence performance across all product
groups.
Maintenance revenue declined by 8.0%, with the current period
performance impacted by a reduction in licence volume over multiple
previous financial periods combined with elevated attrition rates
in four sub-portfolios. This is a major area of management focus
for us, and over the past 18 months we have implemented material
changes across these product portfolios driven by direct customer
feedback and focused on improving the overall user experience.
There have also been significant new capabilities introduced to
expand cloud, artificial intelligence and analytics capabilities.
In addition, we have made multiple leadership changes within
underperforming portfolios and the compensation of sales leadership
is now linked to customer retention. We firmly believe these
actions will lead to an improvement in maintenance performance but
recognise this to be a multi-year initiative.
Our SaaS and other recurring revenue declined by 5.4% when
compared to the first half of FY20. This performance represents the
second period of sequential improvement, and performance in
bookings is beginning to improve. In addition, the SaaS-related
product enhancements we have been delivering within ADM, ITOM and
IM&G are nearing completion and our new offerings in Security
and Big Data have launched. As a result, we anticipate SaaS
performance will continue to improve in the second half and is
expected to return to growth in FY22.
Consulting revenue declined by 9.5% but is now broadly in line
with the revenue generated in the second half of FY20. More
importantly, this business is now well positioned to deliver the
type of consulting projects which add value to customers,
accelerate return on investment and ultimately support an increase
in software revenue for the business.
The Group generated Adjusted EBITDA of $519.0m at a margin of
36.4% (CCY H1 20: $562.6m Adjusted EBITDA at 37.7% margin). The
Adjusted EBITDA margin benefited from the strong licence
performance and a continuation of cost and efficiency programmes,
which largely funded the planned product investment . Statutory
loss before taxation for the period was $280.0m (H1 20: loss
$1,036.0m).
The Group continues to generate significant operating cash
flows, with cash generated from operating activities of $468.1m for
H1 21 (H1 20: $560.4m, giving Adjusted Cash Conversion(1) of 124.5%
(H1 20: 131.5%).
Net debt reduced from $4.3 billion to $4.1 billion, with Free
Cash Flow for the period of $139.5m impacted by the remaining
system-related exceptional costs and a number of other one-off
costs in respect of taxation.
Further narrative in respect of the financial performance can be
found in the Financial Review section of this report.
Delivering innovation across the portfolio
We take a differentiated approach to innovation at Micro Focus
in support of our customers' digital transformation programmes. We
focus on helping customers deliver the right balance of cost, risk
and speed as they deal with the often competing challenges of
running the business effectively and securely whilst simultaneously
driving the change needed to capture new opportunities or deal with
new threats.
This means delivering innovation that enables customers to
bridge existing investments and capabilities with new use cases and
business models.
In FY21, this innovation is continuing at pace in all five of
our product groups, with examples such as:
- Application Modernisation and Connectivity: in addition to our
direct customer relationships in this area, our strong partnerships
with leading cloud and services companies underline the relevance
of our customer proposition. Furthermore, our strategic partnership
with AWS will enable customers to accelerate the modernisation of
mainframe applications and workloads to the AWS Cloud.
- Application Delivery Management: we have continued to add
artificial intelligence capabilities across the testing portfolios
and released new integrations with MS Teams and SAP Solution
Manager.
- IT Operations & Management: the release of Operations
Platform for Transformation, Intelligence and Cloud ("OPTIC")
empowers IT operations with built-in, unlimited-use intelligence at
the core and the ability to optimise cloud and on-premise
environments.
- Information, Management & Governance: our partnership with
Dell EMC means Vertica in Eon Mode is available with Dell EMC
Elastic Cloud Storage (ECS), delivering data-driven organisations
more freedom to leverage cloud innovation for analytics.
- Security: our partnership with Snowflake enables Voltage
customers to seamlessly and securely shift workloads to Snowflake's
platform without the risk of compromising business-sensitive data,
while adhering to privacy regulations.
Our experience over the last 18 months in applying a
differentiated approach within Security and Big Data, combined with
our leadership position and the market growth trend within
mainframe modernisation, gives us increasing conviction around the
long-term revenue growth rates achievable in these markets. As a
result, we continue to prioritise targeted incremental investment
in these areas as we seek to accelerate growth.
Continued operational progress
The Group's transformation activities continue at pace and
within this the IT system consolidation programme ("Stack C")
remains on track.
The IT programme is the key remaining integration activity from
the HPE acquisition and its completion will mark a significant
milestone for the company.
In June, we transitioned our remaining employees to the new IT
system, which means we will exit FY21 on one single IT stack with
one unified set of processes. This is a complex migration touching
every aspect of our business and will cause short term disruption
to the business. This is compounded by the challenges of executing
this degree of change during a lockdown and specifically with the
situation in India. As a result, we have put additional resources
in place to mitigate transition challenges as effectively as
possible. IT programmes of this scale typically take 6-9 months to
bed down and ramp to full operational effectiveness at which point
we will be able to remove duplicative costs and begin to drive the
significant efficiencies and productivity improvements planned from
this programme.
Wapp
On 2 July 2018, Wapp Tech Limited Partnership and Wapp Tech Corp
(collectively "Wapp") brought a claim against Micro Focus in the
Eastern District of Texas, accusing the Company of infringing three
patents in connection with Micro Focus' sale of certain products in
the ADM product line, including LoadRunner and Performance
Centre.
The Board is considering a range of factors, including the
possible time, cost and significant resources required for the
appeal process and to establish whether a settlement could be
reached.
Taking into account the range of options under consideration at
this time, the Directors' best estimate of the expenditure required
to resolve the case is $70 million including potential prospective
external legal costs and accordingly a provision has been recorded
for this amount at 30 April 2021. In line with our accounting
policy, the cost of recording this provision has been treated as an
exceptional cost in the Consolidated Statement of Comprehensive
Income for the six months ended 30 April 2021 (see note 7).
Board changes
On 1 June 2021, the Group announced the appointment of Matt
Ashley to the role of Chief Financial Officer. Matt joined the
business with effect from 28 June 2021 and will join the Board and
assume his executive duties from 1 July 2021. Matt brings a highly
relevant mix of operational experience together with a history of
delivering significant value creation. He joins our Board and
leadership team at an important stage in the execution of our
recovery plan and we are confident he will make a significant
contribution to the business from the outset.
Brian McArthur-Muscroft left Micro Focus with effect from 30
June 2021, to assume the CFO position at a technology-based
financial services company. The Board would like to thank Brian for
the significant contribution he has made to the Group during his
tenure and wishes him well in his new role.
Micro Focus' social purpose
In our FY20 annual report we set out our purpose to deliver
mission critical enterprise software that powers the digital
economy. Our aim is to make sustainable and responsible business
part of the way we operate, and in doing so support the local
communities within which we operate, as well as reducing our own
environmental footprint.
We launched our INSPIRE programme approximately 18 months ago
and I am proud of the efforts and progress we have made in this
area. The recognition we have received is encouraging. Micro Focus
received an AA rating in the MSCI ESG Ratings assessment, a
low-risk rating on Sustainalytics and a Prime status rating from
ISS.
The challenges of COVID-19 have given all of us a fresh
perspective on our broader responsibilities to all stakeholders and
we are committed to harnessing the increasingly passionate and
engaged involvement of our employees. As such, I am pleased to
announce our new Environmental, Social and Governance Committee,
which we have formed to ensure we continue to embed ESG into the
core of our operations. This formal committee of the Board is
comprised of a combination of both Board members and employees.
I look forward to sharing more about the work of the committee
and what ESG means for Micro Focus as part of our FY21 Annual
Report and Accounts.
Dividend
We are pleased to announce that the interim dividend will be
8.80 cents. This dividend is consistent with our dividend policy of
five times covered adjusted earnings for the full year, which we
intend to pay approximately one third by way of interim and two
thirds by way of final dividend.
The dividend will be paid on 6 August 2021 to shareholders on
the register as at 23 July 2021. The dividend will be paid in
pounds sterling and the sterling amount payable per share will be
fixed and announced approximately two weeks prior to the payment
date, based on the average spot exchange rate over the five
business days preceding the announcement date.
Outlook
Revenue stabilisation by the end of FY23 remains our most
important business objective. To deliver against this goal, we are
targeting incremental improvements in revenue trajectory annually
and continuing our targeted investment in product portfolios to
achieve this.
We are pleased with this period of further solid progress in
most areas of our business, and remain committed to delivering
strong, sustainable levels of free cash flow over the
long-term.
Stephen Murdoch
Chief Executive Officer
30 June 2021
Financial Review
The Group uses certain measures to assess the financial
performance of its business. These measures are termed "Alternative
Performance Measures" because they exclude amounts that are
included in, or include amounts that are excluded from, the most
directly comparable measure calculated and presented in accordance
with IFRS or are calculated using financial measures that are not
calculated in accordance with IFRS.
The Group uses such measures to assess operating performance and
liquidity in presentations to the Board and as a basis for
strategic planning and forecasting, as well as monitoring certain
aspects of its operating cash flow and liquidity. The Group
believes that these and similar measures are used widely by certain
investors, securities analysts and other interested parties as
supplemental measures of performance and liquidity.
The Alternative Performance Measures may not be comparable to
other similarly titled measures used by other companies and have
limitations as analytical tools and should not be considered in
isolation or as a substitute for, or superior to, the equivalent
measures calculated and presented in accordance with IFRS.
An explanation of the relevance of each of the Alternative
Performance Measures, a reconciliation of the Alternative
Performance Measures to the most directly comparable measures
calculated and presented in accordance with IFRS and a discussion
of their limitations is set out below. All results discussed in
this section are from continuing operations, unless otherwise
stated.
H1 21 H1 20
As reported CCY CCY Change
Alternative performance measures: $m $m %
--------------------------------------- ------------ ------------ -----------
Revenue 1,425.7 1,493.9 (4.6) %
Operating costs included in Adjusted
EBITDA (906.7) (931.3) (2.6) %
Adjusted EBITDA 519.0 562.6 (7.7) %
Adjusted EBITDA margin % 36.4% 37.7% (1.3) ppt
--------------------------------------- ------------ ------------ -----------
H1 21 H1 20
As reported As reported Change
Statutory performance measures: $m $m %
--------------------------------------- ------------ ------------ -----------
Revenue 1,425.7 1,454.2 (2.0) %
Operating loss (154.8) (906.7) 82.9 %
Loss for the period from continuing
operations (218.9) (1,029.3) 78.7 %
Loss for the period from discontinued
operation - (2.7) n/a
Loss for the period from continuing
and discontinued operations (218.9) (1,032.0) 78.8 %
--------------------------------------- ------------ ------------ -----------
Revenue
The Group generated revenue of $1,425.7m in H1 21, which
represents a decline of 2.0% on the results for H1 20 at actual
rates of foreign exchange. In order to fully understand the
underlying trading performance of the continuing operations, the
directors feel revenue is better considered on a constant currency
basis ("CCY") between H1 21 and H1 20. Excluding the impact of
foreign exchange, revenue declined by 4.6%.
The Group has set out a clear goal of revenue stability as we
exit FY23. In delivering this objective, the Group is seeking to
moderate the rate of decline gradually in each financial year. This
stability comes primarily from two key drivers. Firstly, a
consistent improvement in execution across the business, supported
by the end-to-end transformation of our Go-to-Market function and
capturing incremental efficiencies enabled through the Stack C
program. Secondly, the capturing of opportunities within growing
markets which over time will deliver a mix effect to stabilise and
ultimately grow the top line.
As previously guided, in H1 21, the Group has delivered a
material improvement in the rate of trajectory when compared to
FY20. This performance is encouraging and includes a significant
improvement in execution, and we anticipate the full year
trajectory to be in line with our original guidance and
consensus.
Revenue performance has been discussed in further detail within
the CEO statement in this document.
Operating costs (included in Adjusted EBITDA)
Operating costs within Adjusted EBITDA declined by 2.6% to
$906.7m in H1 21 (H1 20: $931.3m) on a constant currency basis.
This decline has been driven by a combination of continued progress
in delivering in-year cost savings and the annualised impact from
initiatives actioned in FY20. These cost savings have been used to
fund continued investment in key product areas, as outlined
previously.
Adjusted EBITDA
The Group generated an Adjusted EBITDA of $519.0m, at an
Adjusted EBITDA margin of 36.4% in H1 21 (H1 20: $562.6m, 37.7% on
a CCY basis).
Currency impact
During H1 21 , 57.3 % of our revenues were contracted in US
Dollars, 21.3% in Euros, 4.5% in Sterling, 3.6% in Australian
Dollars, 3.3% in Japanese Yen, 3.2% in Canadian Dollars and 6.8% in
other currencies (H1 20: 59.9% US Dollars, 19.1% Euros, 5.1%
Sterling, 3.3% Canadian Dollars and 12.6% other currencies). In
comparison, 45.7% of our costs were US Dollar denominated, 13.1% in
Euros, 12.6% in Sterling, 5.9% in Indian Rupee, 4.3% in Israeli New
Shekel, 3.3% in Chinese Yuan and 15.1% in other currencies (H1 20:
44.3% US Dollar, 14.4% Euros, 13.1% Sterling, 5.7% Indian rupee and
22.5% other currencies).
The weighting of revenue and costs means that if the USD to EUR
, CAD, JPY or AUD exchange rates move during the period, the
revenue impact is greater than the costs impact, whilst if USD to
GBP, INR or ISL rates move during the period the cost impact
exceeds the revenue impact. Consequently, actual USD Adjusted
EBITDA can be impacted by significant movements in USD to EUR, AUD,
CAD , JPY, GBP, ISL and INR exchange rates.
The currency movement for the US Dollar against Euro, GBP, CAD,
AUD, INR, JPY, ILS and CNY was a weakening of 9.1 %, 6.3%, 6.8%,
15.2%, 2.2 %, 3.4% and 7.1% respectively, whilst INR remained flat
when looking at the average exchange rates in H1 21 compared to
those in H1 20.
In order to provide CCY comparatives, the Group has restated the
revenue and Adjusted EBITDA for H1 20 at the same average exchange
rates as those used in the reported results for H121. In the six
months ended 30 April 2020 , the currency impact has increased the
H1 20 comparable revenue and costs by 2.7% and 3.2% respectively.
The net impact for the Group results using CCY was an increase of
the H1 20 comparable revenue of $39.7m and an increase of $10.4m in
Adjusted EBITDA.
Operating loss to Adjusted EBITDA
The Operating loss for H1 21 was $154.8m, compared to an
Operating loss of $906.7m, after a goodwill impairment charge of
$922.2m in H1 20.
The Operating loss includes the impact of certain items that
management believes do not directly reflect our underlying
performance. These include exceptional items, share based
compensation, amortisation of purchased intangibles and
depreciation of property, plant and equipment.
A reconciliation between Operating loss and Adjusted EBITDA is
shown below:
H1 21 H1 20
As reported As reported Change
$m $m %
--------------------------------- -------------- -------------- ---------
Operating loss (154.8) (906.7) 82.9%
Exceptional items (reported
in Operating loss) 143.0 1,048.4 (86.4)%
Share-based compensation charge 8.5 8.2 3.7%
Amortisation of intangible
assets 472.2 340.4 38.7%
Depreciation of property,
plant and equipment 17.6 21.1 (16.6)%
Depreciation of right-of-use
assets 38.6 40.0 (3.5)%
Product development intangible
costs capitalised (11.2) (6.9) (62.3)%
Foreign exchange losses 5.1 7.7 (33.8)%
--------------------------------- -------------- -------------- ---------
Adjusted EBITDA at reported
rates 519.0 552.2 (6.0)%
CCY impact - 10.4 n/a
--------------------------------- -------------- -------------- ---------
Adjusted EBITDA at CCY 519.0 562.6 (7.7)%
--------------------------------- -------------- -------------- ---------
Exceptional items (included within Operating loss)
H1 21 H1 20
As reported As reported
$m $m
---------------------------------------------------- -------------- --------------
System and IT infrastructure costs 29.2 71.5
Integration costs incurred as a result of HPE
Software business acquisition 16.4 31.4
Severance as a result of the HPE Software business
acquisition (0.4) 21.7
Property costs as a result of the HPE Software
business acquisition (0.7) 1.6
---------------------------------------------------- -------------- --------------
MF/HPE Software business integration related
costs 44.5 126.2
Restructuring property costs 4.7 -
Legal settlement and associated costs 74.6 -
Severance and legal costs 13.4 -
Other restructuring costs 5.8 -
Goodwill impairment charge - 922.2
Other exceptional spend 98.5 922.2
---------------------------------------------------- -------------- --------------
Total exceptional costs (reported in Operating
loss) * 143.0 1,048.4
---------------------------------------------------- -------------- --------------
*Exceptional costs for H1 20 exclude the loss from discontinued
operation relating to the disposal of SUSE of $2.7m, which is
separately included in the loss from discontinued operations.
In H1 21, exceptional costs reported in the Operating loss
decreased from $1,048.4m to $143.0m.
The exceptional spend includes $44.5m in relation to the
remaining HPE integration, of which $29.2m relates to the migration
to a single IT platform. The IT System development for the legacy
Micro Focus business transitioned to the new IT environment in
January 2021 and the legacy HPE Software business transitioned in
June 2021. It is expected that costs in relation to the HPE
integration will be completed over the next 12 months.
Other exceptional spend totalled $98.5m of which $74.6m relates
to the provision for the Wapp patent infringement case. The
remaining exceptional spend reflects severance costs of $13.4m in
relation to ongoing headcount reductions as the Group continues to
remove duplication and simplify the continuing operations. Other
restructuring costs of $5.8m are mainly due to transformation
projects and property costs of $4.7m as the Group continues the
process of simplifying its real estate footprint.
Further information on exceptional costs can be found in note 7
to the Condensed Consolidated Interim Financial Statements.
Net finance costs
Net finance costs were $125.2m in H1 21, compared to $129.3m in
H1 20.
Taxation
Tax for H1 21 was a credit of $61.1m (H1 20: credit of $6.7m) on
continuing operations. The tax charge on Adjusted Profit before tax
for H1 21 was $94.3m (H1 20: $77.0m), which represents an effective
tax rate ("ETR") on Adjusted Profit before Tax ("Adjusted ETR") of
29.8% (H1 20: 24.0%). The Group's Adjusted tax charge is subject to
various factors, many of which are outside the control of the
Group. The current economic environment creates an increase in the
level of uncertainty and may result in changes to this tax rate in
future accounting periods.
In April 2019, the European Commission published its final
decision on its State Aid investigation into the UK's 'Financing
Company Partial Exemption' legislation and concluded that part of
the legislation is in breach of EU State Aid rules. Similar to
other UK-based international groups that have acted in accordance
with the UK legislation in force at the time, the Group may be
affected by the finding and is monitoring developments. The UK
government and UK-based international companies, including the
Group, have appealed to the General Court of the European Union
against the decision. In February 2021, the Group received and
settled State Aid charging notices (excluding interest) totalling
$44.2m (the cash impact of which has been recorded as exceptional),
issued by HM Revenue and Customs, following the requirement for the
UK government to start collection proceedings. During the period,
the Group received State Aid interest charging notices from HM
Revenue and Customs totalling $2.9m, which were settled in June
2021. In addition, the UK tax authorities continue to challenge the
historic financing arrangements of the Group. Based on its current
assessment and supported by external professional advice, the Group
consider the maximum liability in respect of both of these items to
be $60m. Based on its current assessment and also supported by
external professional advice, the Group believes that no provision
is required in respect of these issues and a long-term current tax
receivable has been recognised in respect of the amounts paid
(including movements due to exchange rates). No additional
liability should accrue in future periods in respect of these
matters, following (i) an amendment of the UK legislation affected
by the EU Commission finding on 1 January 2019, to be compliant
with EU law, and (ii) the unwind of the financing company
arrangements in question.
Earnings per share
The Group's earnings per share ("EPS") on a basic, diluted and
adjusted basis are as follows:
Growth
H1 21 H1 20 /(Decline)
cents cents %
---------------------------------------- -------- --------- -------------
EPS from continuing operations:
Basic EPS (65.09) (308.40) 78.9 %
Diluted EPS (65.09) (308.40) 78.9 %
Basic Adjusted EPS 66.15 73.04 (9.4) %
Diluted Adjusted EPS 66.15 72.10 (8.3) %
Total EPS attributable to the ordinary
equity shareholders of the Company
Basic EPS (65.09) (309.21) 78.9 %
Diluted EPS (65.09) (309.21) 78.9 %
Basic Adjusted EPS 66.15 73.04 (9.4) %
Diluted Adjusted EPS 66.15 72.10 (8.3) %
---------------------------------------- -------- --------- -------------
Full details are set out in the "Alternative performance
measures" section of these Condensed Consolidated Interim Financial
Statements.
Cash Generation
The Group's Adjusted cash conversion ratio, defined as cash
generated from operations divided by Adjusted EBITDA less
exceptional items (reported in Operating profit/(loss) and
excluding any goodwill impairment charge, as this is deemed
non-cash related), for H1 21 was 124.5% compared to 131.5% in the
comparable period. Adjusted cash conversion is presented after the
recording of the Wapp provision which improved adjusted cash
conversion by approximately 20 percentage points. Excluding this,
adjusted cash conversion was 105%. In addition, cash conversion in
H1 20 included the continued collection of aged receivables which
are now trending at more normalised levels.
H1 21 H1 20
$m $m
------------------------------------------------- ------- ---------
Cash generated from operations 468.1 560.4
Total Adjusted EBITDA 519.0 552.2
Less: Exceptional items (reported in Operating
loss) (143.0) (1,048.4)
Exclude: Goodwill impairment charge - 922.2
------------------------------------------------- ------- ---------
Adjusted EBITDA less exceptional items 376.0 426.0
Adjusted Cash conversion ratio 124.5% 131.5%
------------------------------------------------- ------- ---------
The cash flow for the Group for H1 21 was:
H1 21 H1 20
$m $m
------------------------------------------------ -------- ----------
Total Adjusted EBITDA 519.0 552.2
Less:
Exceptional items (reported in Operating loss) (143.0) (1,048.4)
Movements in provisions 102.4 22.1
Goodwill impairment charge - 922.2
Other non-cash items 23.3 13.3
------------------------------------------------ -------- ----------
Cash generated from operations before working
capital 501.7 461.4
Movement in working capital (33.6) 99.0
------------------------------------------------ -------- ----------
Cash generated from operations 468.1 560.4
Interest payments (110.7) (105.5)
Bank loan costs (0.6) (1.1)
Tax payments (128.9) (65.5)
Purchase of intangible assets (35.8) (36.5)
Purchase of property, plant and equipment (10.3) (6.1)
Lease related capital payments (42.3) (40.8)
------------------------------------------------ -------- ----------
Free cash flow 139.5 304.9
------------------------------------------------ -------- ----------
The Group generated a free cash flow of $139.5m (H1 20:
$304.9m). The year-on-year comparison of free cash flow has been
impacted by certain one-off taxation items which have suppressed
free cash flow in the period including $44.2m of EU State Aid
payment (noted above) and a $33.0m payment in respect of US payroll
taxes related to prior periods.
The Group had a working capital outflow of $33.6m in H1 21 (H1
20: inflow $99.0m). The movement from H1 20 primarily related to a
reduction in the inflow from trade and other receivables due to H1
20 benefitting from improved cash collection which has now
stabilised. In addition, strong licence performance offset the
decline in maintenance, which has a disproportionate impact on cash
as maintenance payments are typically received in advance. The
Group continues to target a cash conversion of between 95-100% over
the medium-term.
The Group's free cash flow generation is typically first half
weighted and this trend is expected to be relevant in FY21. In the
second half of FY21, we also expect to face headwinds in free cash
flow as we conclude the remaining legacy tax payments, deal with
any potential developments in the WAPP patent dispute and manage
through the operational impacts as we ramp the new systems.
Net Debt
30 April 30 April 2020
2021
$m $m
------------------------------------------------ ---------- --------------
Borrowings (4,597.4) (4,855.4)
Cash and cash equivalents 698.1 808.1
Lease obligations (219.1) (264.7)
------------------------------------------------ ---------- --------------
Net Debt (4,118.4) (4,312.0)
Trailing 12 months Adjusted EBITDA (continuing
operations):
Six months to 30 April 519.0 552.2
Six months to 31 October 621.5 730.5
------------------------------------------------ ---------- --------------
1,140.5 1,282.7
Net Debt / Adjusted EBITDA ratio 3.6 times 3.4 times
------------------------------------------------ ---------- --------------
Net Debt was $4,118.4m as at 30 April 2021, compared to
$4,312.0m as at 30 April 2020.
The movements on the Group loans, before unamortised facility
costs, in the six months to 30 April 2021 were as follows:
Term Loan Term Loan Term Loan HPE Software Euro Revolving
B-1 EUR B-3 B-4 Term Loan Loan Facility Total
$m $m $m $m $m $m $m
------------------ ---------- ---------- ---------- ------------- ------- ---------- --------
At 1 November
2020 700.3 368.2 650.0 2,486.3 528.4 - 4,733.2
Repayments (13.4) (8.7) (12.2) (58.4) (12.8) - (105.5)
Foreign exchange 26.6 - - - 20.1 - 46.7
------------------ ---------- ---------- ---------- ------------- ------- ---------- --------
At 30 April 2021 713.5 359.5 637.8 2,427.9 535.7 - 4,674.4
------------------ ---------- ---------- ---------- ------------- ------- ---------- --------
In addition to the term loans and cash reserves, the Group has
access to a $350.0m revolving credit facility.
Consolidated statement of financial position
The Group's Consolidated statement of financial position is
presented later in this document. A summarised version is presented
below:
30 April 2021 31 October 2020
$m $m
------------------------ ------------- ---------------
Non-current assets 9,329.0 9,605.0
Current assets 1,404.7 1,541.8
Total assets 10,733.7 11,146.8
------------------------ ------------- ---------------
Current liabilities 1,760.4 1,788.3
Non-current liabilities 5,913.3 6,143.4
------------------------ ------------- ---------------
Total liabilities 7,673.7 7,931.7
------------------------ ------------- ---------------
Net assets 3,060.0 3,215.1
------------------------ ------------- ---------------
Total equity 3,060.0 3,215.1
------------------------ ------------- ---------------
The net assets of the Group decreased by $155.1m from $3,215.1m
at 31 October 2020 to $3,060.0m at 30 April 2021.
In the period, the key movements were as follows:
-- Non-current assets decreased by $276.0m to $9,329.0m
primarily due to a $359.0m decrease in other intangible assets
(including primarily $472.2m of amortisation, which includes
$130.0m additional amortisation resulting from a reassessment of
useful economic lives (see note 12), offset by $77.4m of exchange
rate changes and $35.8m of additions), a decrease of $27.9m in
right-of-use assets offset by a foreign exchange gain of $66.9m on
goodwill and the recognition of a non-current tax receivable of
$44.9m in relation to the EU State Aid claim. Following the
impairment at the end of the last financial year management has
reviewed the estimated lives of other intangible assets which
resulted in an increase in the amortisation charge in the period of
$130m.
-- Current assets decreased by $137.1m to $1,404.7m primarily
due to a $101.7m decrease in trade and other receivables and a
$39.1m decrease in cash and cash equivalents (including the payment
of $51.8m in dividends) .
-- Current liabilities decreased by $27.9m to $1,760.4m,
primarily due to a decrease in contract liabilities of $48.1m, a
decrease in trade and other payables of $38.4m, a decrease in
current tax liabilities of $13.4m, offset by an increase in
short-term provisions of $74.8m.
-- Non-current liabilities decreased by $230.1m to $5,913.3m,
primarily due to a decrease of $105.8m in deferred tax liabilities,
a decrease of $45.7m in long-term borrowings, a decrease of $28.3m
in retirement benefit obligations, a decrease of $25.7m in lease
obligations and a decrease of $20.8m in the derivative
liability.
-- Total equity decreased by $155.1m from $3,215.1m to $3,060.0m
in the six months to 30 April 2021.This was primarily driven by the
loss in the period of $218.9m, purchase of treasury shares of
$27.2m and dividends paid of $51.8m, offset by other comprehensive
income movements of $137.8m (including $86.8m foreign exchange
reserve movements and $16.8m of hedging reserve movements).
Dividend
The board proposes an interim dividend of 8.80 cents. The
dividend will be paid on 6 August 2021 to shareholders on the
register as at 23 July 2021. The dividend will be paid in pounds
sterling and the sterling amount payable per share will be fixed
and announced approximately two weeks prior to the payment date,
based on the average spot exchange rate over the five business days
preceding the announcement date.
Group Risk Factors
In common with all businesses, the Group could be affected by
risks and uncertainties that may have a material adverse effect on
its business operations and achieving its strategic objectives
including its business model, future performance, solvency,
liquidity and/or reputation.
COVID-19 still presents fast moving, and in some areas
unpredictable, direct and indirect risks to the Group's business
and developments continue to be monitored on a cross-functional
basis. The Board continues to closely monitor how matters develop
and is taking prudent steps to mitigate any potential impacts to
the health and safety of employees, customers, partners, suppliers
and other stakeholders, and to the successful operation of the
business. The Group continues to follow the guidance of the World
Health Organisation and other governmental health agencies,
including with respect to travel restrictions. In common with many
businesses, the outbreak has resulted in a heightened operating
risk environment for the Group, and so has impacts, both direct and
indirect, across the Group's principal risks and uncertainties to
varying degrees.
Accepting that risk is an inherent part of doing business, the
Board is mindful of the interdependencies of some risks. The Group
remains prepared to implement appropriate new mitigation
strategies, and adapt those already in place, to minimise any
potential business disruption and will continue to carry out
regular and robust assessments and management of the Group's risks,
including the regular assessment of COVID-19 impacts. Where
possible, the Group seeks to mitigate risks through its Risk
Management Framework, internal controls and insurance, but this can
only provide reasonable assurance and not absolute assurance
against material losses. In particular, insurance policies may not
fully cover all of the consequences of any event, including damage
to persons or property, business interruptions, failure of
counterparties to conform to the terms of an agreement or other
liabilities.
As noted in the Operational Review (page 4), in the period the
Group transitioned its remaining employees to the new IT system,
enabling the Group to exit FY21 on one single IT stack with one
unified set of processes. This migration remains complex and will
cause short term disruption to the business given the scale and
speed of change being affected. This is compounded by the
challenges of executing such a complex programme during a lockdown
and specifically with the situation in India. In addition, in
relation to the emerging risk of Environmental, Social and
Governance ("ESG") matters, please refer to page 5, where an update
is provided on new governance arrangements the Group has
established.
The underlying principal risks and uncertainties facing the
Group have not changed, from those set out in the Annual Report and
Accounts for the 12 months ended 31 October 2020 (pages 64 to
73):
-- Products;
-- Go-to-Market models;
-- Competition;
-- Employees and culture;
-- IT systems and information;
-- Business strategy and change management;
-- Legal and regulatory compliance;
-- Intellectual property;
-- Treasury;
-- Tax;
-- Macro-economic environment, pandemic and Brexit;
-- COVID-19;
-- Cyber security; and
-- Internal Controls over Financial Reporting.
These risks could cause future results to differ materially from
historic results. The Group still considers these to be the most
relevant risks and uncertainties to the business.
Brian McArthur-Muscroft
Chief Financial Officer
30 June 2021
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors confirm that, to the best of their knowledge:
-- the condensed set of financial statements has been prepared
in accordance with IAS 34 "Interim Financial Reporting" adopted
pursuant to Regulation (EC) No. 1606/2002 as it applies in the
European Union;
-- the interim management report includes a fair review of the information required by:
a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules
, being an indication of important events that have occurred during
the first six months of the financial year and their impact on the
condensed set of financial statements; and a description of the
principal risks and uncertainties for the remaining six months of
the year; and
b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules,
being related party transactions that have taken place in the first
six months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last annual report that could do so.
The current executive directors of the Company are Stephen
Murdoch and Brian McArthur-Muscroft.
The current non-executive directors of the Company are Greg
Lock, Karen Slatford, Richard Atkins, Amanda Brown, Lawton Fitt,
Robert Youngjohns and Sander van 't Noordende. All of the
non-executive directors are independent with the exception of Greg
Lock, the Chairman.
Biographies for each director are included on the Company's
website: www.microfocus.com.
By order of the board,
Stephen Murdoch Brian McArthur-Muscroft
Chief Executive Officer Chief Financial Officer
30 June 2021
Alternative performance measures
The Group uses certain measures to assess the financial
performance of its business. These measures are termed "Alternative
Performance Measures" because they exclude amounts that are
included in, or include amounts that are excluded from, the most
directly comparable measure calculated and presented in accordance
with IFRS or are calculated using financial measures that are not
calculated in accordance with IFRS.
The Group uses such measures to measure operating performance
and liquidity in presentations to the Board and as a basis for
strategic planning and forecasting, as well as monitoring certain
aspects of its operating cash flow and liquidity. The Group
believes that these and similar measures are used widely by certain
investors, securities analysts and other interested parties as
supplemental measures of performance and liquidity.
The Alternative Performance Measures may not be comparable to
other similarly titled measures used by other companies and have
limitations as analytical tools and should not be considered in
isolation or as a substitute for analysis of the Group's operating
results as reported under IFRS.
An explanation of the relevance of each of the Alternative
Performance Measures, a reconciliation of the Alternative
Performance Measures to the most directly comparable measures
calculated and presented in accordance with IFRS and a discussion
of their limitations is set out below. The Group does not regard
these Alternative Performance Measures as a substitute for, or
superior to, the equivalent measures calculated and presented in
accordance with IFRS.
The Group has reported unaudited results for the six months
ended 30 April 2021 with a comparative unaudited period of the six
months ended 30 April 2020.
1. Impact of Deferred Revenue Haircut
The following table shows the impact of the acquisition
accounting adjustment of deferred revenue haircut (i.e. the
unwinding of fair value adjustment to acquired deferred revenue) on
reported revenues. The unwinding of fair value adjustments to
acquired deferred revenue has now been completed.
Six months Six months
ended ended
30 April 2021 30 April
2020
$m $m
------------------------------------------------- --------------- -----------
Revenue before deferred revenue haircut 1,425.7 1,454.6
Unwinding of fair value adjustments to acquired
deferred revenue - (0.4)
------------------------------------------------- --------------- -----------
Revenue 1,425.7 1,454.2
------------------------------------------------- --------------- -----------
2. EBITDA and Adjusted EBITDA
EBITDA is defined as net earnings before finance costs, finance
income, taxation, share of results of associates, depreciation of
property, plant and equipment, right-of-use asset depreciation and
amortisation of intangible assets. The Group presents EBITDA
because it is widely used by securities analysts, investors and
other interested parties to evaluate the profitability of
companies. EBITDA eliminates potential differences in performance
caused by variations in capital structures (affecting net finance
costs), tax positions (such as the availability of net operating
losses against which to relieve taxable profits), the cost and age
of tangible assets (affecting relative depreciation expense) and
the extent to which intangible assets are identifiable (affecting
relative amortisation expense).
The Group defines Adjusted EBITDA as comprising of EBITDA (as
defined above), exceptional items including the loss/(profit) on
disposal of discontinued operation, share-based compensation,
product development intangible cost capitalised and foreign
exchange gains/losses. Adjusted EBITDA is the primary measure used
internally to measure performance and to incentivise and reward
employees.
Adjusted EBITDA Margin refers to each measure defined above as a
percentage of actual revenue recorded in accordance with IFRS for
the period.
Adjusted EBITDA is a key profit measure used by the Board to
assess the underlying financial performance of the Group. Adjusted
EBITDA is stated before the following items for the following
reasons:
-- Exceptional items (note 7), including the loss on disposal of
discontinued operation, are excluded by virtue of their size,
nature or incidence, in order to show the underlying business
performance of the Group.
Alternative performance measures continued
2. EBITDA and Adjusted EBITDA (continued)
-- Share-based payment charges are excluded from the calculation
of Adjusted EBITDA because these represent a non-cash accounting
charge for transactions that could otherwise have been settled in
cash or not be limited to employee compensation. These charges also
represent long-term incentives designed for long-term employee
retention, rather than reflecting the short-term underlying
operations of the Group's business. The directors acknowledge that
there is an ongoing debate on the appropriateness of adding-back
share-based payment charges in calculating Adjusted EBITDA but
believe that as they are not included in the analysis of segment
performance used by the Chief Operating Decision Maker and their
add-back is consistent with metrics used by a number of other
companies in the technology sector, that this treatment remains
appropriate.
-- Actual spend on product development costs during the period
is deducted from EBITDA as this reflects the required underlying
expenditure. This is because the capitalisation and subsequent
amortisation of such costs are based on judgements about whether
they meet the capitalisation criteria set out in IAS38 "Intangible
Assets" and on the period of their estimated economic benefit. In
addition, product development costs for the period are included in
the analysis of segment performance used by the Chief Operating
Decision Maker.
-- Foreign exchange movements are excluded from Adjusted EBITDA
in order to exclude foreign exchange volatility when evaluating the
underlying performance of the business.
The following table is a reconciliation from loss for the period
to EBITDA and Adjusted EBITDA:
Six months Six months
ended ended
30 April 2021 30 April 2020
-------------------------------------- ---------------------------------------
Continuing Discontinued Continuing Discontinued
operations operation Total operations operation Total
$m $m $m $m $m $m
------------------------------- ------------ ------------- --------- ------------ ------------- ----------
Loss for the period (218.9) - (218.9) (1,029.3) (2.7) (1,032.0)
Finance costs 125.9 - 125.9 130.9 - 130.9
Finance income (0.7) - (0.7) (1.6) - (1.6)
Taxation (61.1) - (61.1) (6.7) (0.3) (7.0)
Depreciation of property,
plant and equipment 17.6 - 17.6 21.1 - 21.1
Depreciation of right-of-use
assets 38.6 - 38.6 40.0 - 40.0
Amortisation of intangible
assets 472.2 - 472.2 340.4 - 340.4
------------------------------- ------------ ------------- --------- ------------ ------------- ----------
EBITDA 373.6 - 373.6 (505.2) (3.0) (508.2)
Exceptional items (reported
in loss from discontinued
operation) - - - - 3.0 3.0
Exceptional items (reported
in Operating loss) 143.0 - 143.0 1,048.4 - 1,048.4
Share-based compensation
charge 8.5 - 8.5 8.2 - 8.2
Product development
intangible costs capitalised (11.2) - (11.2) (6.9) - (6.9)
Foreign exchange loss 5.1 - 5.1 7.7 - 7.7
Adjusted EBITDA 519.0 - 519.0 552.2 - 552.2
------------------------------- ------------ ------------- --------- ------------ ------------- ----------
Revenue 1,425.7 - 1,425.7 1,454.2 - 1,454.2
Adjusted EBITDA Margin 36.4% n/a 36.4% 38.0% n/a 38.0%
------------------------------- ------------ ------------- --------- ------------ ------------- ----------
Alternative performance measures continued
3. Adjusted profit before tax
Adjusted profit before tax is defined as profit/(loss) before
tax excluding the effects of, share-based compensation, the
amortisation of purchased intangible assets and all exceptional
items including loss on disposal of discontinued operation. These
items are individually material items and/or that are not
considered to be representative of the trading performance of the
Group:
-- Exceptional items (note 7), including the loss on disposal of
discontinued operation, are excluded by virtue of their size,
nature or incidence, in order to show the underlying business
performance of the Group.
-- Share-based payment charges are excluded from the calculation
of Adjusted EBITDA because these represent a non-cash accounting
charge for transactions that could otherwise have been settled in
cash or not be limited to employee compensation. These charges also
represent long-term incentives designed for long-term employee
retention, rather than reflecting the short-term underlying
operations of the Group's business. The directors acknowledge that
there is an ongoing debate on the appropriateness of adding-back
share-based payment charges in calculating Adjusted EBITDA but
believe that as they are not included in the analysis of segment
performance used by the Chief Operating Decision Maker and their
add-back is consistent with metrics used by a number of other
companies in the technology sector, that this treatment remains
appropriate.
-- Charges for the amortisation of intangibles are excluded from
the calculation of Adjusted Profit before tax. This is because
these charges are based on judgements about their value and
economic life, are the result of the application of acquisition
accounting rather than core operations, and whilst revenue
recognised in the income statement does benefit from the underlying
intangibles that has been acquired, the amortisation costs bear no
relation to the Group's underlying ongoing operational performance.
In addition, amortisation of acquired intangibles is not included
in the analysis of segment performance used by the Chief Operating
Decision Maker.
Adjusted Profit before tax is presented as it is required for
the calculation of the Group's effective tax rate.
The following table is a reconciliation from loss before tax for
the period to Adjusted profit before tax:
Six months Six months
ended ended
30 April 2021 30 April 2020
------------------------------------- ---------------------------------------
Continuing Discontinued Total Continuing Discontinued Total
operations operation operations operation
$m $m $m $m $m $m
--------------------------- ------------ ------------- -------- ------------ ------------- ----------
Loss before tax (280.0) - (280.0) (1,036.0) (3.0) (1,039.0)
Share-based compensation
charge 8.5 - 8.5 8.2 - 8.2
Amortisation of
purchased intangibles 445.3 - 445.3 300.3 - 300.3
Exceptional items,
including loss on
disposal of discontinued
operation 143.0 - 143.0 1,048.4 3.0 1,051.4
--------------------------- ------------ ------------- -------- ------------ ------------- ----------
Adjusting items 596.8 - 596.8 1,356.9 3.0 1,359.9
Adjusted profit
before tax 316.8 - 316.8 320.9 - 320.9
--------------------------- ------------ ------------- -------- ------------ ------------- ----------
Alternative performance measures continued
4. Adjusted Effective Tax Rate
The Adjusted Effective Tax Rate is defined as the reported tax
(charge)/credit on continuing operations, less tax on adjusting
items on continuing operations ( share-based compensation, the
amortisation of purchased intangible assets and exceptional items)
, divided by the Adjusted Profit Before Tax on continuing
operations (defined above). This is an Alternative Performance
Measure and is presented because management believe it is important
to understanding the Group's tax position on its trading
performance.
The tax charge on Adjusted profit before tax for the six months
ended 30 April 2021 was $94.3 m (2020: $77.0m charge), which
represents an effective tax rate on Adjusted profit before tax
("Adjusted ETR") of 29.8% (2020: 24.0%). The calculation of the
Adjusted ETR is set out below.
Six months
ended
30 April 2021
Effective tax rate (continuing
operations)
---------------------- ----------
Statutory Adjusting Adjusted
items Measures
$m $m $m
---------------------------------- ---------- ---------- ----------
(Loss)/profit before tax (280.0) 596.8 316.8
Taxation 61.1 (155.4) (94.3)
---------------------------------- ---------- ---------- ----------
(Loss)/profit after tax (218.9) 441.4 222.5
---------------------------------- ---------- ---------- ----------
Effective tax rate 21.8% 29.8%
---------------------------------- ---------- ---------- ----------
Six months
ended
30 April 2020
Effective tax rate (continuing
operations)
---------------------- ----------
Statutory Adjusting Adjusted
items Measures
$m $m $m
---------------------------------- ---------- ---------- ----------
(Loss)/profit before tax (1,036.0) 1,356.9 320.9
Taxation 6.7 (83.7) (77.0)
---------------------------------- ---------- ---------- ----------
(Loss)/profit after tax (1,029.3) 1,273.2 243.9
---------------------------------- ---------- ---------- ----------
Effective tax rate 0.6% 24.0%
---------------------------------- ---------- ---------- ----------
In computing Adjusted profit before tax for the six months ended
30 April 2021, $596.8m (six months to 30 April 2020: $1,356.9m) of
adjusting items have been added back along with the associated tax
credit of $155.4m (six months ended 30 April 2020: $83.7m) (see
Adjusted profit before tax section above).
Alternative performance measures continued
5. Adjusted Earnings per Share and Diluted Adjusted Earnings per Share
The Adjusted Earnings per Share ("EPS") is defined as Basic EPS
where the earnings attributable to ordinary shareholders are
adjusted by adding back all exceptional items including the
loss/(profit) on the disposal of discontinued operation,
share-based compensation charge and the amortisation of purchased
intangibles because they are individually or collectively material
items that are not considered to be representative of the trading
performance of the Group. These are presented as management believe
they are important to understanding the change in the Group's
EPS.
Six months Six months
ended ended
30 April 2021 30 April 2020
Cents
EPS from continuing operations attributable
to the ordinary equity shareholders of the
Company
Basic EPS (65.09) (308.40)
Diluted EPS(1) (65.09) (308.40)
Basic Adjusted EPS 66.15 73.04
Diluted Adjusted EPS 66.15 72.10
EPS from discontinued operation
Basic EPS - (0.81)
Diluted EPS(1) - (0.81)
Basic Adjusted EPS - -
Diluted Adjusted EPS - -
Total EPS attributable to the ordinary equity
shareholders of the Company
Basic EPS (65.09) (309.21)
Diluted EPS(1) (65.09) (309.21)
Basic Adjusted EPS 66.15 73.04
Diluted Adjusted EPS 66.15 72.10
----------------------------------------------- ---------------- ----------------
Pence
EPS from continuing operations attributable
to the ordinary equity shareholders of the
Company
Basic EPS (47.71) (240.89)
Diluted EPS(1) (47.71) (240.89)
Basic Adjusted EPS 48.49 57.05
Diluted Adjusted EPS 48.49 56.31
EPS from discontinued operation
Basic EPS - (0.63)
Diluted EPS(1) - (0.63)
Basic Adjusted EPS - -
Diluted Adjusted EPS - -
Total EPS attributable to the ordinary equity
shareholders of the Company
Basic EPS (47.71) (241.52)
Diluted EPS(1) (47.71) (241.52)
Basic Adjusted EPS 48.49 57.05
Diluted Adjusted EPS 48.49 56.31
----------------------------------------------- ---------------- ----------------
(1) The Group reported a loss from continuing and discontinued
operations attributable to the ordinary equity shareholders of the
Company for the six months ended 30 April 2021. The Diluted EPS is
reported as equal to Basic EPS, as no account can be taken of the
effect of dilutive securities under IAS 33.
Alternative performance measures continued
5. Adjusted Earnings per Share and Diluted Adjusted Earnings per Share (continued)
Six months Six months
ended ended
30 April 2021 30 April 2020
$m $m
---------------------------------------------- ---------------- ----------------
Loss for the period (218.9) (1,032.0)
Non-controlling interests - (0.1)
---------------------------------------------- ---------------- ----------------
Loss attributable to ordinary shareholders (218.9) (1,032.1)
From continuing operations(1) (218.9) (1,029.4)
From discontinued operation - (2.7)
---------------------------------------------- ---------------- ----------------
Loss attributable to ordinary shareholders (218.9) (1,032.1)
Adjusting items:
Loss on discontinued operation - 3.0
Exceptional items 143.0 1,048.4
Share-based compensation charge 8.5 8.2
Amortisation of purchased intangibles 445.3 300.3
---------------------------------------------- ---------------- ----------------
596.8 1,359.9
Tax relating to above adjusting items (155.4) (84.0)
Adjusted earnings attributable to ordinary
shareholders 222.5 243.8
---------------------------------------------- ---------------- ----------------
From continuing operations 222.5 243.8
From discontinued operation - -
---------------------------------------------- ---------------- ----------------
Adjusted earnings attributable to ordinary
shareholders 222.5 243.8
---------------------------------------------- ---------------- ----------------
Weighted average number of shares: Number (m) Number (m)
---------------------------------------------- ---------------- ----------------
Basic 336.3 333.8
Effect of dilutive securities - Options - 4.4
---------------------------------------------- ---------------- ----------------
Diluted 336.3 338.2
---------------------------------------------- ---------------- ----------------
(1) For the purposes of calculating EPS measures Earnings and
Adjusted earnings attributable to ordinary shareholders from
continuing operations excludes the impact of non-controlling
interests since these are not attributable to ordinary
shareholders.
Six months Six months
ended ended
30 April 2021 30 April 2020
--------------------------------------- ---------------------------------------
Continuing Discontinued Total Continuing Discontinued Total
operations operation operations operation
$m $m $m $m $m $m
----------------------------- ------------ ------------- ---------- ------------ ------------- ----------
Adjusting items:
Exceptional items,
including loss on disposal
of discontinued operation 143.0 - 143.0 1,048.4 3.0 1,051.4
Share-based compensation
charge 8.5 - 8.5 8.2 - 8.2
Amortisation of purchased
intangibles 445.3 - 445.3 300.3 - 300.3
596.8 - 596.8 1,356.9 3.0 1,359.9
Tax relating to above
adjusting items (155.4) - (155.4) (83.7) (0.3) (84.0)
----------------------------- ------------ ------------- ---------- ------------ ------------- ----------
441.4 - 441.4 1,273.2 2.7 1,275.9
----------------------------- ------------ ------------- ---------- ------------ ------------- ----------
Alternative performance measures continued
6. Free cash flow and Adjusted free cash flow
Free cash flow is defined as cash generated from operations less
interest payments, bank loan costs, tax payments, purchase of
intangible assets, purchase of property, plant and equipment and
interest and capital payments in relation to leases. This is
presented as management believe it is important to the
understanding of the Group's Cash flow.
A new alternative performance measure Adjusted free cash flow
was introduced in the year ended 31 October 2020. Adjusted free
cash flow, which is Free cash flow as previously defined, excluding
the cash impact of exceptional items. This adjusted measure is
intended to present the cash generating qualities of the Group from
trading performance only. In our view, this enables a better
understanding of the Group's underlying trajectory as we deliver
our plans. This adjustment was not made for the six months ended 30
April 2020, as this definition did not apply for that period.
Six months Six months
ended ended
30 April 2021 30 April 2020
$m $m
------------------------------------------- --------------- ---------------
Cash generated from operations 468.1 560.4
Less:
Interest payments (110.7) (105.5)
Bank loan costs (0.6) (1.1)
Tax payments (128.9) (65.5)
Purchase of intangible assets (35.8) (36.5)
Purchase of property, plant and equipment (10.3) (6.1)
Lease related capital payments (42.3) (40.8)
------------------------------------------- --------------- ---------------
Free cash flow 139.5 304.9
------------------------------------------- --------------- ---------------
Exclude the cash impact of exceptional
items 107.4
------------------------------------------- ---------------
Adjusted free cash flow 246.9
------------------------------------------- ---------------
7. Net Debt
Net Debt is defined as cash and cash equivalents less net
borrowings and lease obligations.
30 April 2021 31 October 30 April
2020 2020
$m $m $m
--------------------------- -------------- ----------- ----------
Borrowings (4,597.4) (4,640.3) (4,855.4)
Cash and cash equivalents 698.1 737.2 808.1
Lease obligations (219.1) (250.4) (264.7)
--------------------------- -------------- ----------- ----------
Net debt (4,118.4) (4,153.5) (4,312.0)
--------------------------- -------------- ----------- ----------
8. Adjusted cash conversion ratio
The Group's adjusted cash conversion ratio is defined as cash
generated from operations divided by Adjusted EBITDA less
exceptional items (reported in Operating profit/(loss) and
excluding any goodwill impairment charge, as this is deemed
non-cash related). This is presented as management believe it is
important to the understanding the Group's conversion of underlying
results to cash.
Six months Six months
ended ended
30 April 2021 30 April 2020
$m $m
---------------------------------------- --------------- ---------------
Cash generated from operations 468.1 560.4
Adjusted EBITDA 519.0 552.2
Less: exceptional items (reported in
Operating loss) (note 7) (143.0) (1,048.4)
Excluded: Goodwill impairment charge
(note 7) - 922.2
---------------------------------------- --------------- ---------------
Adjusted EBITDA less exceptional items 376.0 426.0
Adjusted cash conversion ratio 124.5 % 131.5%
---------------------------------------- --------------- ---------------
Alternative performance measures continued
9. Constant Currency
The Group's reporting currency is the US Dollar however, the
Group's significant international operations give rise to
fluctuations in foreign exchange rates. To neutralise foreign
exchange impact and to better illustrate the underlying change in
results from one year to the next, the Group has adopted the
practice of discussing results on an as reported basis and in
constant currency.
The Group uses US Dollar based constant currency models to
measure performance. These are calculated by restating the results
of the Group for the comparable period at the same average exchange
rates as those used in reported results for the current period.
This gives a US Dollar denominated income statement, which excludes
any variances attributable to foreign exchange rate movements.
The most important foreign currencies for the Group are: Pounds
Sterling, the Euro, Canadian Dollar, Israeli Shekel, Indian Rupee,
Chinese Yuan, Australian Dollar and Japanese Yen. The exchange
rates used are as follows:
Six months 12 months Six months
ended ended ended
30 April 2021 31 October 30 April 2020
2020
------------------ ------------------ ------------------
Average Closing Average Closing Average Closing
------------ -------- -------- -------- -------- -------- --------
GBP1 = $ 1.36 1.39 1.28 1.30 1.28 1.25
EUR1 = $ 1.20 1.21 1.13 1.17 1.10 1.09
C$ = $ 0.79 0.81 0.74 0.75 0.74 0.72
ILS = $ 0.30 0.31 0.29 0.29 0.29 0.29
INR = $ 0.01 0.01 0.01 0.01 0.01 0.01
CNY = $ 0.15 0.15 0.14 0.15 0.14 0.14
AUD = $ 0.76 0.78 0.68 0.70 0.66 0.65
100 JPY = $ 0.94 0.92 0.93 0.96 0.92 0.94
------------ -------- -------- -------- -------- -------- --------
Micro Focus International plc
Condensed Consolidated Statement of Comprehensive Income
For the six months ended 30 April 2021
Six months ended Six months ended
30 April 2021 30 April 2020
---------------------------------- ------------------------------------
Before Exceptional Before Exceptional
Exceptional Items Exceptional Items
Items (note 7) Total Items (note 7) Total
Continuing operations Note $m $m $m $m $m $m
--------------------------------- ---- ------------ ----------- ------- ------------ ----------- ---------
Revenue 6 1,425.7 - 1,425.7 1,454.2 - 1,454.2
Cost of sales (383.1) (1.8) (384.9) (349.7) (3.2) (352.9)
Gross profit 1,042.6 (1.8) 1,040.8 1,104.5 (3.2) 1,101.3
Selling and distribution
costs (649.8) (4.3) (654.1) (538.7) (9.8) (548.5)
Research and development
expenses (259.8) 0.4 (259.4) (242.9) (0.5) (243.4)
Administrative expenses (144.8) (137.3) (282.1) (181.2) (1,034.9) (1,216.1)
Operating (loss)/profit (11.8) (143.0) (154.8) 141.7 (1,048.4) (906.7)
--------------------------------- ---- ------------ ----------- ------- ------------ ----------- ---------
Finance costs (125.9) - (125.9) (130.9) - (130.9)
Finance income 0.7 - 0.7 1.6 - 1.6
--------------------------------- ---- ------------ ----------- ------- ------------ ----------- ---------
Net finance costs (125.2) - (125.2) (129.3) - (129.3)
(Loss)/profit before tax (137.0) (143.0) (280.0) 12.4 (1,048.4) (1,036.0)
Taxation 10 28.5 32.6 61.1 (24.1) 30.8 6.7
--------------------------------- ---- ------------ ----------- ------- ------------ ----------- ---------
Loss from continuing operations (108.5) (110.4) (218.9) (11.7) (1,017.6) (1,029.3)
Loss from discontinued operation
(attributable to equity
shareholders of the company) - - - - (2.7) (2.7)
--------------------------------- ---- ------------ ----------- ------- ------------ ----------- ---------
Loss for the period (108.5) (110.4) (218.9) (11.7) (1,020.3) (1,032.0)
--------------------------------- ---- ------------ ----------- ------- ------------ ----------- ---------
Attributable to:
Equity shareholders of the
parent (108.5) (110.4) (218.9) (11.8) (1,020.3) (1,032.1)
Non-controlling interests - - - 0.1 - 0.1
--------------------------------- ---- ------------ ----------- ------- ------------ ----------- ---------
Loss for the period (108.5) (110.4) (218.9) (11.7) (1,020.3) (1,032.0)
--------------------------------- ---- ------------ ----------- ------- ------------ ----------- ---------
The accompanying notes are an integral part of these unaudited
Condensed Consolidated Interim Financial Statements.
Micro Focus International plc
Condensed Consolidated Statement of Comprehensive Income
For the six months ended 30 April 2021
Six months ended Six months ended
30 April 2021 30 April 2020
-------------------------------- ---- ---------------------------------------- ------------------------------------
Exceptional Before Exceptional
Before exceptional Items exceptional Items
Items (note 7) Total Items (note 7) Total
Note $m $m $m $m $m $m
-------------------------------- ---- ------------------ ----------- ------- ------------ ----------- ---------
Loss for the period (108.5) (110.4) (218.9) (11.7) (1,020.3) (1,032.0)
Other comprehensive
income/(expense):
Items that will not be
reclassified
to profit or loss
Continuing operations:
Actuarial gain on pension
schemes liabilities 15 34.0 - 34.0 4.8 - 4.8
Actuarial gain on non-plan
pension assets 15 0.2 - 0.2 0.4 - 0.4
Deferred tax movement on
pension schemes - - - (1.4) - (1.4)
Items that may be subsequently
reclassified to profit or
loss
Cash flow hedge movements 14 20.7 - 20.7 (58.2) - (58.2)
Current tax movement on cash
flow hedge movements (3.9) - (3.9) 11.1 - 11.1
Current tax movement on Euro
loan foreign exchange hedging 7.6 - 7.6 - - -
Deferred tax movement on
currency translation
differences (17.3) - (17.3) 11.4 - 11.4
Currency translation differences 96.5 - 96.5 (207.2) - (207.2)
Other comprehensive
income/(expense)
for the period 137.8 - 137.8 (239.1) - (239.1)
Total comprehensive
income/(expense)
for the period 29.3 (110.4) (81.1) (250.8) (1,020.3) (1,271.1)
-------------------------------- ---- ------------------ ----------- ------- ------------ ----------- ---------
Attributable to:
Equity shareholders of the
parent 29.3 (110.4) (81.1) (250.9) (1,020.3) (1,271.2)
Non-controlling interests - - - 0.1 - 0.1
-------------------------------- ---- ------------------ ----------- ------- ------------ ----------- ---------
Total comprehensive
income/(expense)
for the period 29.3 (110.4) (81.1) (250.8) (1,020.3) (1,271.1)
-------------------------------- ---- ------------------ ----------- ------- ------------ ----------- ---------
Total comprehensive
income/(expense)
attributable to the equity
shareholders of the company
arises from:
Continuing operations 29.3 (110.4) (81.1) (250.8) (1,017.6) (1,268.4)
Discontinued operations - - - - (2.7) (2.7)
-------------------------------- ---- ------------------ ----------- ------- ------------ ----------- ---------
29.3 (110.4) (81.1) (250.8) (1,020.3) (1,271.1)
-------------------------------- ---- ------------------ ----------- ------- ------------ ----------- ---------
Earnings per share (cents)
From continuing and discontinued cents cents
operations
- basic 9 (65.09) (309.21)
- diluted 9 (65.09) (309.21)
From continuing operations
- basic 9 (65.09) (308.40)
- diluted 9 (65.09) (308.40)
Earnings per share (pence)
From continuing and discontinued pence pence
operations
- basic 9 (47.71) (241.52)
- diluted 9 (47.71) (241.52)
From continuing operations
- basic 9 (47.71) (240.89)
- diluted 9 (47.71) (240.89)
The accompanying notes are an integral part of these unaudited
Condensed Consolidated Interim Financial Statements.
Micro Focus International plc
Condensed Consolidated Statement of Financial Position
30 April 2021 31 October
2020
Note $m $m
------------------------------------- ---- ------------- ----------
Non-current assets
Goodwill 11 3,902.3 3,835.4
Other intangible assets 12 5,024.0 5,383.0
Property, plant and equipment 88.5 93.7
Right-of-use assets 179.3 207.2
Long-term pension assets 15 18.7 18.2
Contract-related costs 37.8 35.7
Non-current tax receivables 44.9 -
Other non-current assets 33.5 31.8
9,329.0 9,605.0
Current assets
Trade and other receivables 629.7 731.4
Contract-related costs 22.6 27.9
Current tax receivables 10 54.3 45.3
Cash and cash equivalents 698.1 737.2
Total current assets 1,404.7 1,541.8
------------------------------------- ---- ------------- ----------
Total assets 10,733.7 11,146.8
------------------------------------- ---- ------------- ----------
Current liabilities
Trade and other payables 465.1 503.5
Borrowings 13 24.2 21.4
Lease obligations 76.6 82.2
Provisions 16 124.5 49.7
Current tax liabilities 10 136.7 150.1
Contract liabilities 933.3 981.4
1,760.4 1,788.3
Non-current liabilities
Contract liabilities 131.6 117.2
Borrowings 13 4,573.2 4,618.9
Lease obligations 142.5 168.2
Derivative liability 14 57.1 77.9
Retirement benefit obligations 15 126.7 155.0
Provisions 16 23.9 22.5
Other non-current liabilities 31.2 39.9
Current tax liabilities 10 91.8 102.7
Deferred tax liabilities 10 735.3 841.1
5,913.3 6,143.4
------------------------------------- ---- ------------- ----------
Total liabilities 7,673.7 7,931.7
------------------------------------- ---- ------------- ----------
Net assets 3,060.0 3,215.1
Capital and reserves
Share capital 47.3 47.3
Share premium account 46.5 46.5
Merger reserve 1,767.4 1,767.4
Capital redemption reserve 2,485.0 2,485.0
Hedging reserve (46.3) (63.1)
Retained earnings (1,000.0) (741.3)
Foreign currency translation deficit (239.9) (326.7)
------------------------------------- ---- ------------- ----------
Total equity 3,060.0 3,215.1
------------------------------------- ---- ------------- ----------
The accompanying notes are an integral part of these unaudited
Condensed Consolidated Interim Financial Statements.
Micro Focus International plc
Condensed Consolidated Statement of Changes in Equity
Foreign
currency Equity
Share Retained translation Capital attributable
Share premium earnings/ reserve/ redemption Hedging Merger to the Non-controlling Total
capital account (deficit) (deficit) reserves reserve reserve parent interests equity
$m $m $m $m $m $m $m $m $m $m
----------------- ------- ------- --------- ----------- ---------- -------- ------- ------------ --------------- --------
Balance at 1
November 2020 47.3 46.5 (741.3) (326.7) 2,485.0 (63.1) 1,767.4 3,215.1 - 3,215.1
Loss for the
financial period - - (218.9) - - - - (218.9) - (218.9)
Other
comprehensive
income for the
period - - 34.2 86.8 - 16.8 - 137.8 - 137.8
Total
comprehensive
(expense)/income
for the period - - (184.7) 86.8 - 16.8 - (81.1) - (81.1)
Share options:
Movement in
relation to
share options - - 6.2 - - - - 6.2 - 6.2
Deferred tax
on share options - - (1.2) - - - - (1.2) - (1.2)
Purchase of
treasury
shares(1) - - (27.2) - - - - (27.2) - (27.2)
Transactions
with owners:
Dividends paid - - (51.8) - - - - (51.8) - (51.8)
------------------ ------- ------- --------- ----------- ---------- -------- ------- ------------ --------------- --------
Balance as at
30 April 2021 47.3 46.5 (1,000.0) (239.9) 2,485.0 (46.3) 1,767.4 3,060.0 - 3,060.0
------------------ ------- ------- --------- ----------- ---------- -------- ------- ------------ --------------- --------
(1) During the six months ended 30 April 2021 the Micro Focus
Employee Benefit Trust ("EBT") purchased 4 million of the Group's
shares from the market. The EBT will hold these shares to satisfy
future exercises of share options. In accordance with the
requirement of IFRS 10 the EBT is treated as if it is a subsidiary
of the Group. As a result, the purchase of shares held by the EBT
is reported as a purchase of Treasury shares by the Group.
Foreign
currency Equity
Share translation Capital attributable
Share premium Retained reserve/ redemption Hedging Merger to the Non-controlling Total
capital account earnings (deficit) reserves reserve reserve parent interests equity
$m $m $m $m $m $m $m $m $m $m
----------------- ------- ------- ----------- ----------- ---------- -------- ------- ------------ --------------- -----------
Balance at 1
November 2019 47.2 44.0 2,250.7 (262.1) 2,485.0 (29.6) 1,739.8 6,275.0 1.3 6,276.3
Impact of adoption
of IFRS 16 - - (11.3) - - - - (11.3) - (11.3)
------------------ ------- ------- ----------- ----------- ---------- -------- ------- ------------ --------------- -----------
Revised balance
at 1 November
2019 47.2 44.0 2,239.4 (262.1) 2,485.0 (29.6) 1,739.8 6,263.7 1.3 6,265.0
Loss for the
financial period - - (1,032.1) - - - - (1,032.1) 0.1 (1,032.0)
Other
comprehensive
income/(expense)
for the period - - 3.8 (195.8) - (47.1) - (239.1) - (239.1)
Total
comprehensive
(expense)/income
for the period - - (1,028.3) (195.8) - (47.1) - (1,271.2) 0.1 (1,271.1)
Share options:
Movement in
relation
to share options - 2.7 9.9 - - - - 12.6 - 12.6
Current tax on
share options - - (0.6) - - - - (0.6) - (0.6)
Deferred tax
on share options - - (1.6) - - - - (1.6) - (1.6)
Balance as at
30 April 2020 47.2 46.7 1,218.8 (457.9) 2,485.0 (76.7) 1,739.8 5,002.9 1.4 5,004.3
------------------ ------- ------- ----------- ----------- ---------- -------- ------- ------------ --------------- -----------
The accompanying notes are an integral part of these unaudited
Condensed Consolidated Interim Financial Statements.
Micro Focus International plc
Condensed Consolidated Statement of Cash Flows
Six months ended Six months ended
30 April 2021 30 April 2020
Note $m $m
------------------------------------------------- ---- ---------------- ----------------
Cash flows from operating activities
Cash generated from operations 17 468.1 560.4
Interest paid (110.7) (105.5)
Bank loan costs (0.6) (1.1)
Tax paid (128.9) (65.5)
------------------------------------------------- ---- ---------------- ----------------
Net cash generated from operating activities 227.9 388.3
Cash flows from investing activities
Payments for intangible assets 12 (35.8) (36.5)
Purchase of property, plant and equipment (10.3) (6.1)
Interest received 0.7 1.6
Investing cash flows generated from discontinued
operation, net of cash disposed - 1.3
Net cash used in investing activities (45.4) (39.7)
Cash flows from financing activities
Proceeds from issue of ordinary share
capital - 2.7
Purchase of treasury shares and related
expenses (27.2) -
Payment for lease liabilities (42.3) (40.8)
Settlement of foreign exchange derivative - (21.8)
Proceeds from bank borrowings - 175.0
Repayment of bank borrowings (105.5) -
Dividends paid to owners 8 (51.8) -
------------------------------------------------- ---- ---------------- ----------------
Net cash (used in)/generated from financing
activities (226.8) 115.1
Effects of exchange rate changes 5.2 (11.3)
------------------------------------------------- ---- ---------------- ----------------
Net (decrease)/increase in cash and cash
equivalents (39.1) 452.4
Cash and cash equivalents at beginning
of period 737.2 355.7
------------------------------------------------- ---- ---------------- ----------------
Cash and cash equivalents at end of period 698.1 808.1
------------------------------------------------- ---- ---------------- ----------------
The accompanying notes are an integral part of these unaudited
Condensed Consolidated Interim Financial Statements.
Micro Focus International plc
Notes to the consolidated interim financial statements
1. General information
Micro Focus International plc ("Company") is a public limited
company incorporated and domiciled in England, UK. The address of
its registered office is: The Lawn, 22-30 Old Bath Road, Newbury,
RG14 1QN, UK.
Micro Focus International plc and its subsidiaries (together
"Group") provide innovative software to clients around the world
enabling them to dramatically improve the business value of their
enterprise applications. As at 30 April 2021, the Group had a
presence in 45 countries (31 October 2020: 48) worldwide and
employed approximately 11,600 people (31 October 2020: 11,900).
The Company is listed on the London Stock Exchange and its
American Depositary Shares are listed on the New York Stock
Exchange.
These unaudited Condensed Consolidated Interim Financial
Statements were authorised for issuance by the board of directors
on 30 June 2021.
These Condensed Consolidated Interim Financial Statements do not
comprise statutory accounts within the meaning of section 434 of
the Companies Act 2006. Statutory accounts for the year ended 31
October 2020 were approved by the board of directors on 8 February
2021 and delivered to the Registrar of Companies. The auditor has
reported on the 31 October 2020 accounts; their report was (i)
unqualified, (ii) did not include a reference to any matters to
which the auditor drew attention by way of emphasis without
qualifying their report and (iii) did not contain a statement under
section 498 (2) or (3) of the Companies Act 2006.
2. Basis of preparation
These Condensed Consolidated Interim Financial Statements for
the six months ended 30 April 2021 have been prepared in accordance
with IAS 34, "Interim Financial Reporting" and should be read in
conjunction with the Annual Report and Accounts for the year ended
31 October 2020. They do not include all of the information
required for a complete set of financial statements prepared in
accordance with International Financial Reporting Standards.
However, selected explanatory notes are included to explain events
and transactions that are significant to an understanding of the
changes in the Group's financial position and performance since the
last annual financial statements.
Going concern
In line with IAS 1 'Presentation of financial statements', and
the FRC guidance on 'risk management, internal control and related
financial and business reporting', management has taken into
account all available information about the future for a period of
at least, but not limited to, 12 months from the date of approval
of the interim financial statements when assessing the Group's
ability to continue as a going concern.
Having assessed the principal risks, the directors considered it
appropriate to adopt the going concern basis of accounting when
preparing the interim financial statements. This assessment covers
the period from the date of approval of these interim financial
statements to July 2022 ("the going concern period"), which is
consistent with the FRC guidance on "risk management, internal
control and related financial and business reporting".
The Group's $350 million revolving credit facility was undrawn
at 30 April 2021 and the Group had $698.1 million of cash balances
at 30 April 2021 providing total liquidity of $1,048.1 million.
Further details of the Group's credit facilities are provided in
note 13 Borrowings.
In making this assessment, the board considered the Group's
business model which results in revenue typically being paid
upfront and the majority of revenues being recurring in nature. In
addition to the base case scenario, it considered the financial
impacts for severe but plausible scenarios impacting both revenue
and Adjusted EBITDA which take into account the Group's principal
risks, including the wider macro-economic impacts from COVID-19
continuing over the going concern period. The Group has no
significant exposure to any individual customer or concentration of
customers in any specific industry therefore the differential
impacts of COVID-19 on different companies and sectors has limited
impact on the Group. This stress testing confirmed that projected
cash flows and cash management activities provide the Group with
significant headroom over the going concern assessment period with
no requirement to access the revolving credit facility during the
going concern assessment period.
Finally, the board also considered the reported net current
liability position of $355.7m at 30 April 2021. This is the result
of advance billing for services which is required to be recognised
as a contract liability. The cost of delivering these services is
fully included in the Group's forecasting and sensitivities.
Critical estimates, assumptions and judgements
In preparing these Condensed Consolidated Interim Financial
Statements, the Group has made its best estimates and judgements of
certain amounts included in the financial statements, giving due
consideration to materiality. The Group regularly reviews these
estimates and updates them as required. The Group has reviewed its
critical accounting estimates, assumptions and judgements and two
new critical accounting estimates have been identified in relation
to the useful economic lives of the Group's purchased intangibles
and the carrying value of the patent litigation provision. Aside
from these new estimates the critical accounting estimates,
assumptions and judgements set out in section II of the Group's
Annual Report and Accounts for the 12 months ended 31 October 2020
remain relevant to these Condensed Consolidated Interim Financial
Statements.
Notes to the consolidated interim financial statements
2. Basis of preparation (continued)
Useful economic lives of purchased intangibles
The economic lives of the Group's purchased intangibles are
determined on initial acquisition and reassessed annually or
whenever there are changes in circumstances indicating that the
economic lives may not be appropriate. In reassessing the lives
factors such as changes in actual and expected trading performance
of the Group and how these compare to the initial acquisition
assessment are considered. Using this information an estimate of
the remaining useful economic lives is determined and if different
to the currently applied life the remaining life is adjusted
prospectively.
Following the goodwill impairment in the year ended 31 October
2020, management has reviewed the estimated lives of intangible
assets. The assessment performed in the current year has resulted
in a reduction in the economic lives of certain purchased
intangibles, see note 12 for details on the impacts in the current
period, expected impact in future periods and sensitivity.
Carrying value of the patent litigation provision
The Group has recorded a provision in relation to the patent
litigation case brought by Wapp Tech Limited Partnership and Wapp
Tech Corp. (collectively, "Wapp"). Note 16, Provisions and
Contingent liabilities, provides further details on this estimate.
As set out in Note 16, the magnitude of the damages the jury
awarded totalling $172.5m and the provision now recorded of $70m
means that the Group believes that this is a critical estimate. The
carrying value of the provision is sensitive to the potential
options the Group is considering to resolve the case given the
range of those potential options. The period of time until a final
conclusion on this case is reached may exceed 12 months and
therefore there could remain uncertainty as to the value of the
provision beyond the next 12 months.
3 Accounting policies
Other than as described below, the accounting policies,
presentation and methods of calculation adopted are consistent with
those of the Annual Report and Accounts for the year ended 31
October 2020, apart from standards, amendments to or
interpretations of published standards adopted during the period.
Income taxes are accrued using the tax rate that is expected to be
applicable for the full financial year, adjusted for certain
discrete items which occurred in the interim period in accordance
with IAS 34.
The following standards, interpretations and amendments to
existing standards are now effective and have been adopted by the
Group. The impacts of applying these policies are not considered
material:
- Amendments to References to the Conceptual Framework in IFRS
Standards - Amendments to IFRS 2, IFRS 3, IFRS 6, IFRS 14, IAS 1,
IAS 8, IAS 34, IAS 37, IAS 38, IFRIC 12, IFRIC 19, IFRIC 20, IFRIC
22, and SIC-32 to update those pronouncements with regard to the
revised the Conceptual Framework.
- Amendments to IFRS 3 "Business Combinations", clarifies the definition of a business in acquisitions.
- Amendments to IAS1 and IAS 8: guidance on the definition of material.
- Amendments to IFRS9, IAS 39, IFRS 7, IFRS 16 and IFRS 4:
Interest rate benchmark reforms. Phase 1 covering hedge accounting
impacts and discontinuance exemptions.
The following interpretations and amendments to existing
standards are not yet effective and have not been adopted early by
the Group:
Effective for periods commencing after 1 January 2021:
- Amendments to IFRS9, IAS 39, IFRS 7, IFRS 16 and IFRS 4:
Interest rate benchmark reforms. Phase 2 effective January 2021
covers further disclosures on transition to a new benchmark, EU
endorsed 14 January 2021.
Effective for periods commencing after 1 January 2022:
- Annual Improvements cycle 2018-2020 includes relevant
amendments clarifying capitalisation of transaction fees/ inclusion
of specific fees in modification/extinguishment test within IFRS 9
Financial Instruments, subject to EU endorsement. Other included
improvement in IFRS 1 (First time adoption) and IAS 41
(agriculture) are not applicable to the Group.
- Amendments to IFRS 3 Business combinations, IAS 16 "Property,
plant and equipment" and IAS 37 "Provisions, Contingent assets and
Contingent liabilities" are all subject to EU endorsement.
- Amendments to IAS 37 "Provisions, Contingent assets and
liabilities" - guidance on costs in fulfilling onerous contracts,
subject to EU endorsement.
Notes to the consolidated interim financial statements
3. Accounting policies (continued)
Effective for periods commencing after 1 January 2023, all
subject to EU endorsement:
- Amendments to IAS 1 "Presentation of financial statements".
Amendment is presentational relates to the classification of
liabilities current and non-current.
- Amendments to IAS 1 "Presentation of financial statements"
aims to provide guidance on the application of materiality
judgements to policy disclosures.
- Amendments to IAS 8 "Accounting policies, changes in
accounting estimates and errors" provides clarifications around the
definition of accounting estimates and further clarification around
the difference between policy changes and estimates.
- Amendments to IAS 12 "Income taxes" covering temporary timing
differences for deferred tax on the recognition of asset and
liabilities from a single transaction.
- Amendments to IFRS 17 "Insurance contracts". Rent concessions
is not relevant for the Group.
The impact of the amendments and interpretations listed above
are not expected to have a material impact on the consolidated
financial statements.
4. Presentation currency
The presentation currency of the Group is US dollars. Items
included in the financial statements of each of the Group's
entities are measured in the functional currency of each
entity.
5. Segmental reporting
In accordance with IFRS 8 "Operating Segments", the Group has
derived the information for its segmental reporting using the
information used by the Chief Operating Decision Maker for the
purposes of resource allocation and assessment of segment
performance. The Chief Operating Decision Maker ("CODM") is defined
as the Operating Committee.
For the six months ended 30 April 2021, the Operating Committee
consisted of the Chief Executive Officer, the Chief Financial
Officer, Chief Operating Officer, Chief HR Officer and Senior Vice
President Business Operations and the Chief Legal Officer. The
Group is organised into a single reporting segment.
The Group's segment under IFRS 8 is:
Micro Focus Product Portfolio - The Micro Focus Product
Portfolio segment contains mature infrastructure software products
that are managed on a portfolio basis akin to a "fund of funds"
investment portfolio. This portfolio is managed with a single
product group that makes and maintains the software, whilst the
software is sold and supported through a geographic Go-to-Market
organisation. The products within the existing Micro Focus Product
Portfolio are grouped together into five sub-portfolios based on
industrial logic and management of the Micro Focus sub-portfolios:
Application Modernisation & Connectivity, Application Delivery
Management, IT Operations Management, Security and Information
Management & Governance.
The segmental reporting is consistent with that used in internal
management reporting and the profit measure used by the Operating
Committee is Adjusted EBITDA.
Six months Six months
ended ended
30 April 30 April
2021 2020
Reconciliation to Adjusted EBITDA: Note $m $m
-------------------------------------------------- ----- ----------- -----------
Loss before tax (280.0) (1,036.0)
Finance costs 125.9 130.9
Finance income (0.7) (1.6)
Depreciation of property, plant and equipment 17.6 21.1
Depreciation of right-of-use assets 38.6 40.0
Amortisation of intangible assets 12 472.2 340.4
Exceptional items (reported in Operating loss) 7 143.0 1,048.4
Share-based compensation charge 8.5 8.2
Product development intangible costs capitalised (11.2) (6.9)
Foreign exchange loss 5.1 7.7
-------------------------------------------------- ----- ----------- -----------
Adjusted EBITDA 519.0 552.2
-------------------------------------------------- ----- ----------- -----------
For the reportable segment, the total assets were $10,733.7m (31
October 2020: $11,146.8m) and the total liabilities were $7,673.7m
(31 October 2020: $7,931.7m) as at 30 April 2021.
Notes to the consolidated interim financial statements
6. Analysis of revenue
Revenue from contracts with customers
Six months Six months
ended ended
30 April 30 April
2021 2020
$m $m
--------------------------------------- ----------- -----------
Revenue from contracts with customers 1,425.7 1,454.2
Being:
Recognised over time:
Maintenance revenue 912.5 966.0
SaaS & other recurring revenue 119.8 124.5
--------------------------------------- ----------- -----------
1,032.3 1,090.5
Recognised at point in time:
Licence revenue 301.7 267.6
Consulting revenue 91.7 96.1
--------------------------------------- ----------- -----------
393.4 363.7
--------------------------------------- ----------- -----------
Total revenue 1,425.7 1,454.2
--------------------------------------- ----------- -----------
By Product
Set out below is an analysis of revenue recognised between the
principal product portfolios for the six months ended 30 April 2021
with comparatives:
SaaS &
other
Licence Maintenance recurring Consulting Total
$m $m $m $m $m
------------------------------------- ---------- -------------- ----------- ------------- --------
Six months ended 30 April 2021:
Micro Focus Product Portfolio
Application Modernisation &
Connectivity ("ADC") 62.1 158.5 - 5.1 225.7
Application Delivery Management
("ADM") 49.6 208.9 36.6 9.2 304.3
IT Operations Management ("ITOM") 92.8 262.2 2.0 54.6 411.6
Security 70.1 193.6 18.6 14.5 296.8
Information Management & Governance
("IM&G") 27.1 89.3 62.6 8.3 187.3
Subtotal 301.7 912.5 119.8 91.7 1,425.7
Deferred revenue haircut - - - - -
------------------------------------- ---------- -------------- ----------- ------------- --------
Total Micro Focus Product Portfolio 301.7 912.5 119.8 91.7 1,425.7
------------------------------------- ---------- -------------- ----------- ------------- --------
SaaS &
other
Licence Maintenance recurring Consulting Total
$m $m $m $m $m
------------------------------------- ---------- -------------- ----------- ------------- --------
Six months ended 30 April 2020:
Micro Focus Product Portfolio
Application Modernisation &
Connectivity ("ADC") 60.4 160.5 - 5.2 226.1
Application Delivery Management
("ADM") 46.7 223.2 38.4 7.7 316.0
IT Operations Management ("ITOM") 69.7 284.0 1.4 56.7 411.8
Security 65.6 206.2 16.7 17.7 306.2
Information Management & Governance
("IM&G") 25.2 92.4 68.1 8.8 194.5
Subtotal 267.6 966.3 124.6 96.1 1,454.6
Deferred revenue haircut - (0.3) (0.1) - (0.4)
------------------------------------- ---------- -------------- ----------- ------------- --------
Total Micro Focus Product Portfolio 267.6 966.0 124.5 96.1 1,454.2
------------------------------------- ---------- -------------- ----------- ------------- --------
Notes to the consolidated interim financial statements
7. Exceptional items
Six months Six months
ended ended
30 April 30 April
2021 2020
Reported within Operating loss: $m $m
-------------------------------------------------------- ----------- -----------
Integration costs 45.6 102.9
Property related costs 4.0 1.6
Legal settlement and associated costs 74.6 -
Severance and legal costs 13.0 21.7
Other restructuring costs 5.8 -
Goodwill impairment - 922.2
Exceptional costs before tax 143.0 1,048.4
Tax effect of exceptional items (32.6) (30.8)
Reported within loss from discontinued operation
(attributable to equity shareholders of the Company):
Loss on disposal of discontinued operation - 2.7
Exceptional costs after tax 110.4 1,020.3
-------------------------------------------------------- ----------- -----------
Integration costs
Integration costs of $45.6m for the six months ended 30 April
2021 (six months ended 30 April 2020: $102.9m) reflect the IT
design, build and migration onto a single IT platform and a wide
range of projects undertaken to conform, simplify and increase
efficiency across the business.
Property related costs
Property related costs of $4.0m for the six months ended 30
April 2021 (six months ended 30 April 2020: $1.6m) relate to the
assessment and reassessment of leases on empty or sublet properties
held by the Group and the cost of site consolidations as the Group
simplifies its real estate footprint.
Legal settlement and associated costs
Legal settlements and associated costs of $74.6m for the six
months ended 30 April 2021 (six months ended 30
April 2020: $nil) relate to the provision for the Wapp patent infringement case.
Severance and legal costs
Severance and legal costs of $13.0m for the six months ended 30
April 2021 (six months ended 30 April 2020: $21.7m) relate mostly
to legal fees and termination costs for employees as the Group
continues to remove duplication and simplify the continuing
operations as a result of the acquisition of HPE Software.
Other restructuring costs
Other restructuring costs of $5.8m for the six months ended 30
April 2021 (six months ended 30 April 2020: $nil) relates to the
costs of implementing the initiatives included in the Strategic
& Operational Review.
Goodwill impairment
A goodwill impairment charge of $922.2m was made in the six
months ended 30 April 2020.
Tax effect of exceptional items
The tax effect of exceptional items on the income statement is a
credit of $32.6m for the six months ended 30 April 2021 (six months
ended 30 April 2020: $30.8m).
Loss on the disposal of discontinued operation
The loss on the disposal of discontinued operation of $2.7m in
the six months ended 30 April 2020 related to conclusion of the
working capital settlement on the disposal of the SUSE
business.
8. Dividends
Six months Six months
ended ended
30 April 2021 30 April
2020
Equity - ordinary $m $m
--------------------------------------------------- --------------- -----------
Final paid 31 October 2020 15.5 cents per ordinary 51.8 -
share (31 October 2019: $nil)
51.8 -
--------------------------------------------------- --------------- -----------
The directors announce an interim dividend of 8.80 cents per
share payable on 6 August 2021 to shareholders who are registered
at 23 July 2021. This interim dividend, amounting to $29.5m has not
been recognised as a liability as at 30 April 2021.
Notes to the consolidated interim financial statements
9. Earnings per share
The calculation of the basic earnings per share has been based
on the earnings attributable to owners of the parent and the
weighted average number of shares for each period.
Reconciliation of the earnings and weighted average number of
shares:
Six months Six months
ended ended
30 April 2021 30 April
2020
-------------------------------------------------- --------------- -------------
Earnings ($m)
Loss for the period from continuing operations (218.9) (1,029.3)
Loss for the period from discontinued operations - (2.7)
-------------------------------------------------- --------------- -------------
Loss for the period (218.9) (1,032.0)
-------------------------------------------------- --------------- -------------
Number of shares ('m)
Weighted average number of shares 336.3 333.8
Dilutive effects of shares - 4.4
-------------------------------------------------- --------------- -------------
336.3 338.2
-------------------------------------------------- --------------- -------------
Earnings per share
Cents
Basic earnings per share
Continuing operations (65.09) (308.40)
Discontinued operation - (0.81)
Total Basic earnings per share (65.09) (309.21)
Diluted earnings per share
Continuing operations(1) (65.09) (308.40)
Discontinued operation(1) - (0.81)
Total Diluted earnings per share(1) (65.09) (309.21)
Pence
Basic earnings per share
Continuing operations (47.71) (240.89)
Discontinued operation - (0.63)
Total Basic earnings per share (47.71) (241.52)
Diluted earnings per share
Continuing operations(1) (47.71) (240.89)
Discontinued operations(1) - (0.63)
Total Diluted earnings per share(1) (47.71) (241.52)
Loss attributable to ordinary shareholders ($m)
From continuing operations (218.9) (1,029.4)
Excluding non-controlling interests - 0.1
-------------------------------------------------- --------------- -------------
Loss for the period from continuing operations (218.9) (1,029.3)
Loss from discontinued operation - (2.7)
-------------------------------------------------- --------------- -------------
(218.9) (1,032.0)
-------------------------------------------------- --------------- -------------
Average exchange rate $1.36 / GBP1 $1.28 / GBP1
-------------------------------------------------- --------------- -------------
(1) The Group reported a loss from continuing and discontinued
operations attributable to the ordinary equity shareholders of the
Company for the six months ended 30 April 2020. The Diluted EPS is
reported as equal to Basic EPS, as no account can be taken of the
effect of dilutive securities under IAS 33.
The weighted average number of shares excludes treasury shares
that do not have dividend rights.
Notes to the consolidated interim financial statements
10. Taxation
Tax for the six-month period ended 30 April 2021 was a credit of
$61.1m (30 April 2020: credit of $6.7m) with the Group's Effective
Tax Rate ("ETR") being 21.8% (30 April 2020: 0.6%).
There is a net credit of $13m in relation to prior year
adjustments arising following the submission of certain tax returns
and claims for the years ended 31 October 2019 and 2020 and a
release of provisions for uncertain tax positions as relevant tax
returns are closed and historic tax audits are completed. Following
the unwind of the intra-Group financing in FY20, the Group does not
realise a benefit from this for this period onwards (30 April 2020:
$20.7m). The benefit mostly related to arrangements put in place to
facilitate the acquisition of the HPE Software business.
The Group's cash taxes paid in the six months ended 30 April
2021 were $128.9m (30 April 2020: $65.5m). Cash taxes are higher
than the prior year comparative period primarily due to the payment
in relation to State Aid charging notices ($44.2m) received from
HMRC (see below).
The Group is recognising a short-term current tax liability of
$136.7m (31 October 2020: $150.1m), a long-term current tax
liability relating to US tax of $91.8m (31 October 2020: $102.7m)
and a short-term current tax receivable of $54.3m (31 October 2020:
$45.3m) and a long-term current tax receivable relating to the UK
of $44.9m. The Group is also recognising a deferred tax liability
of $735.3m (31 October 2020: $841.1m), after jurisdictional
offsetting.
The long-term current tax liability relates to US tax reforms
announced in 2018 and is payable in instalments over eight years to
2026. Within current tax liabilities is $70.5m (31 October 2020:
$84.8m) in respect of provisions for uncertain tax positions, the
majority of which relate to the risk of challenge from local tax
authorities to the transfer pricing arrangements of the Group. The
Group does not anticipate that there will be any material change to
these provisions in the next 12 months. Due to the uncertainty
associated with such tax items, it is possible that at a future
date, on conclusion of open tax matters, the final outcome may vary
significantly. The Group's tax charge is subject to various
factors, many of which are outside the control of the Group,
including changes in local tax legislation and specifically changes
President Biden will introduce and global tax reform as governments
respond to COVID-19, the OECD's Base Erosion and Profit Shifting
project and the consequences of Brexit.
In April 2019, the European Commission published its final
decision on its State Aid investigation into the UK's 'Financing
Company Partial Exemption' legislation and concluded that part of
the legislation is in breach of EU State Aid rules. Similar to
other UK-based international groups that have acted in accordance
with the UK legislation in force at the time, the Group may be
affected by the finding and is monitoring developments. The UK
government and UK-based international companies, including the
Group, have appealed to the General Court of the European Union
against the decision. In February 2021 the Group received and
settled State Aid charging notices (excluding interest) totalling
$44.2m (the cash impact of which has been recorded as exceptional),
issued by HM Revenue and Customs, following the requirement for the
UK government to start collection proceedings. During the period,
the Group received State Aid interest charging notices from HM
Revenue and Customs totalling $2.9m, which were settled in June
2021. In addition, the UK Tax Authorities continue to challenge the
historic financing arrangements of the Group. Based on its current
assessment and supported by external professional advice, the Group
consider that the maximum liability of both of these items to be
$60m. Based on its current assessment and also supported by
external professional advice, the Group believes that no provision
is required in respect of these issues and a long-term current tax
receivable has been recognised in respect of the amounts paid
(including movement due to exchange rates) at the balance sheet
date. No additional liability should accrue in future periods in
respect of these matters, following (i) an amendment of the UK
legislation affected by the EU Commission finding on 1 January
2019, to be compliant with EU law, and (ii) the unwind of the
financing company arrangements in question.
11. Goodwill
30 April 31 October
2021 2020
Cost $m $m
---------------------------------------------- ---------- -----------
At 30 April 2021 /31 October 2020 6,753.2 6,634.6
----------------------------------------------- ---------- -----------
Impairment losses
At 30 April 2021 / 31 October 2020 (2,850.9) (2,799.2)
----------------------------------------------- ---------- -----------
Net book value at 30 April 2021 / 31 October
2020 3,902.3 3,835.4
The movement in cost and impairment losses in the period of
$66.9m arises from foreign currency movements. Goodwill acquired
through business combinations has been allocated to a cash
generating unit ("CGU") for the purpose of impairment testing. All
goodwill relates to the Micro Focus product portfolio segment.
Impairment test
Impairment of goodwill is tested annually, or more frequently
where there is an indication of impairment. The Group's annual test
is performed at 31 October. A review for potential impairment
indicators in the six months ended 30 April 2021 was performed and
no indicators have been identified and therefore no impairment test
has been performed. Details of the assumptions used in the 31
October 2020 impairment test and the sensitivity of this impairment
test to changes in the key assumptions are disclosed in note 10
"Goodwill" in the Annual Report and Accounts for the year ended 31
October 2020.
Notes to the consolidated interim financial statements
12. Other intangibles assets
Purchased intangibles
Product
Purchased development Trade Customer
software costs Technology names relationships Total
$m $m $m $m $m $m
------------------------------- ------------ ------------- ------------- -------- ---------------- --------
Cost
At 1 November 2020 191.5 274.0 2,201.2 269.2 5,364.0 8,299.9
Additions 24.6 11.2 - - - 35.8
Disposals (0.4) - - - - (0.4)
Effects of movements in
exchange rates 2.1 0.2 30.5 3.6 77.7 114.1
------------------------------- ------------
At 30 April 2021 217.8 285.4 2,231.7 272.8 5,441.7 8,449.4
------------------------------- ------------
Accumulated amortisation
At 1 November 2020 113.5 237.9 865.7 87.9 1,611.9 2,916.9
Amortisation charge for
the period 16.1 10.8 127.5 10.2 307.6 472.2
Disposals (0.4) - - - - (0.4)
Effects of movements in
exchange rates 1.4 0.1 11.6 1.2 22.4 36.7
At 30 April 2021 130.6 248.8 1,004.8 99.3 1,941.9 3,425.4
------------------------------- ------------
Net book amount at 30 April
2021 87.2 36.6 1,226.9 173.5 3,499.8 5,024.0
------------------------------- ------------
Net book amount at 31 October
2020 78.0 36.1 1,335.5 181.3 3,752.1 5,383.0
------------------------------- ------------
During the six months ended 30 April 2021, the Group conducted a
review on the estimated lives of its intangible assets with
specific focus on those recognised as part of the HPE Software
acquisition. This review considered the actual and expected trading
performance of the Group compared to the original projections
produced at the time of HPE Software acquisition as the directors
believe these forecasts better reflect the expected future use of
the economic benefits in these acquired intangibles. As a result of
this review, the expected lives of certain purchased intangibles
with a carrying value of $3,736.8m as at 1 November 2020, have been
reduced with the shorter lives applied from 1 November 2020.
The intangibles assets impacted by this change are customer
relationships in the ITOM and ADM product groups and customer
relationships within certain products in IM&G(1) , which had a
total carrying value of $2,770.4m as at 1 November 2020. These have
reduced from 12 years remaining life to between five and 11 years.
In addition, purchased technology in the ITOM and ADM product
groups and certain purchased technology in IM&G, which had a
carrying value of $966.4m as at 1 November 2020, have reduced from
seven years remaining life to five years.
In line with the requirements of IFRS3, these technology assets
were originally recognised at the acquisition date in September
2017 and so the asset life represented the estimated period of time
before the technology became obsolete if no future investment into
that technology were made. However there has been and continues to
be significant R&D activity across these portfolios with the
Group releasing c.500 product releases each year to ensure that the
technology remains relevant beyond the life assigned under the
requirements of IFRS 3.
The effect of these changes on actual and expected amortisation
expense is as follows:
Impact in the year ended 31
October
2021 2022 2023 2024 2025 2026 Impact
in all
$m later
periods
Increase/(decrease) in amortisation
expense 261 261 261 261 192 (145) (1,091)
Recognised in:
Costs of sales (amortisation
of acquired purchased) 59 59 59 59 25 (141) (120)
Selling and distribution expenses
(amortisation of customer relationships) 202 202 202 202 167 (4) (971)
261 261 261 261 192 (145) (1,091)
If the remaining economic lives of all purchased intangibles
were one year longer than the revised lives, expected amortisation
would be $158.1m lower than that shown in the table above in the
year ended 31 October 2021, with consequential impacts in
subsequent years. If the remaining economic lives of all purchased
intangibles were one year shorter than the revised lives,
amortisation would be $166.4m higher than that shown in the table
above in the year ended 31 October 2021, with consequential impacts
in subsequent years.
(1) Defined in note 6
Notes to the consolidated interim financial statements
13. Borrowings
30 April 2021 31 October
2020
$m $m
Bank loan secured 4,674.4 4,733.2
Unamortised prepaid facility arrangement fees
and original issue discounts (77.0) (92.9)
4,597.4 4,640.3
Short-term borrowings 24.2 21.4
Long-term borrowings 4,573.2 4,618.9
4,597.4 4,640.3
The following facilities were drawn as at 30 April 2021:
-- The EUR588.8m (equivalent to $713.6m) (31 October 2020:
EUR600m, equivalent to $700.3m) senior secured five year term loan
B-1 issued by MA FinanceCo., LLC, maturing in June 2025, is priced
at EURIBOR plus 4.5% (subject to a EURIBOR floor of 0.00%) with an
original issue discount of 3.0%;
-- The $359.5m (31 October 2020: $368.2m) senior secured
seven-year term loan B-3 issued by MA FinanceCo., LLC, maturing in
June 2024, is priced at LIBOR plus 2.75% (subject to a LIBOR floor
of 0.00%) with an original issue discount of 0.25%;
-- The $637.8m (31 October 2020: $650.0m) senior secured
five-year term loan B-4 issued by MA FinanceCo., LLC, maturing in
June 2025, is priced at LIBOR plus 4.25% (subject to a LIBOR floor
of 1.00%) with an original issue discount of 2.5%;
-- The $2,427.9m (31 October 2020: $2,486.3m) senior secured
seven-year term loan B issued by Seattle SpinCo, Inc., maturing in
June 2024, is priced at LIBOR plus 2.75% (subject to a LIBOR floor
of 0.00%) with an original issue discount of 0.25%; and
-- The EUR442.2m (equivalent to $535.6m) (31 October 2020:
EUR452.8m, equivalent to $528.4m) senior secured seven year term
loan B issued by MA FinanceCo., LLC, maturing in June 2024, is
priced at EURIBOR plus 3.00% (subject to a EURIBOR floor of 0.00%)
with an original issue discount of 0.25%.
The following facilities were undrawn at 30 April 2021:
-- A senior secured revolving credit facility of $350.0m ($nil
drawn), ("Revolving Facility"), with an interest rate of 3.50%
above LIBOR on amounts drawn (and 0.5% on amounts undrawn)
thereunder (subject to a LIBOR floor of 0.00%).
At 30 April 2021, $nil of the Revolving Facility was drawn (31
October 2020: $nil), together with $4,674.4m of term loans giving
gross debt of $4,674.4m drawn.
There are no financial covenants on the Group's term-loan
borrowing facilities. The Revolving Facility is subject to a single
financial covenant, being an aggregate net leverage covenant only
in circumstances where more than 35% of the Revolving Facility is
outstanding at a fiscal quarter end. Throughout the period the
applicable covenant threshold was 3.85x, however no test was
applicable at 30 April 2021 or any previous test date, as the
facility was not drawn in excess of the 35% threshold. This
covenant is not expected to inhibit the Group's future operations
or funding plans.
The Group's borrowing arrangements include annual repayments of
1% of the initial par value for the B-3, Seattle Spinco and Euro
term B loans and 2.5% of the initial par value for the B-1 and B4
loans with the amount paid in four equal quarterly instalments and
then a final balloon payment on maturity. Repayments required under
these instalment arrangements amounted to $25.6m for the six months
ended 30 April 2021.
In addition, the borrowing arrangements require additional debt
repayments where the Group's net leverage exceeds 3.00x, when 25%
of excess cash flow for the prior year is required to be paid, and
3.30x, when 50% of excess cash flow for the prior year is required
to be paid. No amount was required to be paid under these
arrangements however a voluntary repayment of $79.9m was made for
the six months ended 30 April 2021. Total voluntary and instalment
repayments amounted to $105.5m for the six months ended 30 April
2021.
Notes to the consolidated interim financial statements
14. Financial instruments
The tables below sets out the measurement categories and
carrying values of financial assets and liabilities with fair value
inputs where relevant.
Carrying Carrying
value Fair value
Measurement 30 April Fair value value 31 October
category 2021 2021 Hierarchy 2020
2021/2020
$m $m
Financial assets:
Non-current
Fair value
insurance Level
Long-term pension asset FV OCI 18.7 based input 3 18.2
Current
Amortised
Cash and cash equivalent cost 698.1 - - 737.2
Amortised
Trade and other receivables cost 522.3 - - 648.6
Amortised
Contract assets cost 42.3 - - 33.7
1,281.4 1,437.7
Financial liabilities:
Non-current
Derivative financial Fair value
instruments - interest Bank Level
rate swaps(1) FV OCI 57.1 Institutions 2 77.9
Amortised
Borrowings (gross)(2) cost 4,636.6 4,637.3 - 4,699.0
Amortised
Lease obligations cost 142.5 - - 168.2
Amortised
Provisions cost 23.9 - - 22.5
Current
Amortised
Borrowings (gross)(2) cost 37.8 - - 34.2
Amortised
Lease obligations cost 76.6 - - 82.2
Amortised
Provisions cost 124.5 - - 49.7
Trade and other payables Amortised
- accruals cost 387.9 - - 419.2
5,486.9 5,552.9
(1) Derivative interest rate swaps are measured at FV OCI as a
result of hedge accounting. All interest rate swaps are in
designated hedge relationships and there are no other derivative
financial instruments held as FVTPL.
(2) Borrowings have a carrying value (net of unamortised prepaid
facility arrangement fees and original issue discount) of $4,597.4m
(31 October 2020: $4,640.3m). Total borrowings (Gross) are shown in
this table as $4,674.4m (31 October 2020: $4,733.2m) for the fair
value comparison.
Fair value measurement
For trade and other receivables, cash and cash equivalents,
provisions, trade and other payables, fair values approximate to
book values due to the short maturity periods of these financial
instruments. For trade receivables, allowances are made for credit
risk.
Long-term borrowings with a carrying value of $4,597.4m (31
October 2020: $4,640.3m) (note 13 "Borrowings") including
unamortised prepaid facility fees and discounts, have a fair value
estimate of $4,637.3m (31 October 2020: $4,535.1m) based on trading
prices obtained from external banking providers as at 30 April
2021.
Derivative financial instruments measured at fair value are
classified as Level 2 in the fair value measurement hierarchy as
they have been determined using significant inputs based on
observable market data. The fair values of interest rate
derivatives are derived from forward interest rates based on yield
curves observable at the balance sheet date together with the
contractual interest rates. Valuations are updated by the
counter-party banks on a monthly basis.
The impact of changes in the fair value of interest rate swaps
in the six months ended 30 April 2021 is shown in the Consolidated
statement of comprehensive income. The foreign exchange
gains/(losses) for the revaluation of the net investment hedging
instruments are compared against the translation of goodwill and
intangibles affecting the cumulative translation reserve on
consolidation. No amounts have been reclassified from the hedging
reserve to the loss for the period.
Hedge effectiveness may be affected by credit risk (in the case
of the interest rate swaps) and the net investment hedged items may
be affected by events impacting the carrying value of goodwill and
intangible assets such as asset disposals or impairment reviews.
There were no material adjustments made for credit risk or other
ineffectiveness in the period for the hedging arrangements.
Notes to the consolidated interim financial statements
14. Financial instruments
The long-term pension assets are considered to be a Level 3
asset under the fair value hierarchy as of 30 April 2021. These
assets have been valued by an external insurance expert, by
applying a discount rate to the future cash flows and taking into
account the fixed interest rate, mortality rates and term of the
insurance contract. The movement in the long-term pension asset is
disclosed in note 15 "Retirement benefit obligations".
For derivatives and long-term pension assets there were no
transfers of assets or liabilities between levels of the fair value
hierarchy during the year.
Interest rate and foreign currency risk
Details of the Group's risks and treasury policies in relation
to interest rate risk and currency risk are set out in note 24 of
the Group's Annual Report and Accounts for the year ended 31
October 2020. There have been no changes in the Group's approach to
managing these risks, the instruments held to manage these risks or
the hedge relationships.
The Group four interest rate swaps have a fair value of ($57.1m)
(31 October 2020: ($77.9m)) with the movement in fair value
recognised in the hedging reserve. The hedge ratio remains at 1:1
and the impact of credit risk remains low at $0.8m (31 October
2020: $1.4m). For the six months ended 30 April 2021, net interest
(finance cost) paid for the swaps amounted to $20.7m. For the life
of the swap, net interest paid to date amounted to $37.8m.
The notional amount of designated Euro borrowings has increased
to $1,249.1m (31 October 2020: $1,194.3m) as movements in exchange
rates have outweighed the impacts of repayments in the period.
Exchange losses of $46.7m have been recognised in other
comprehensive income in the period (year ended 31 October 2020:
$58.7m) as a result of the net investment hedge. Minor
ineffectiveness has arisen on the second net investment hedge where
the hedge is 1:0.98 (31 October 2020: 1:1) which has not resulted
in any exchange losses being recognised in profit or loss.
15. Retirement benefit obligations
30 April 2021 31 October 2020
Rest of Rest of
Germany World Total Germany World Total
$m $m $m $m $m $m
Within non-current assets:
Long-term pension assets 18.7 - 18.7 18.2 - 18.2
Within non-current liabilities:
Present value of defined
benefit obligations 241.6 58.7 300.3 248.4 54.9 303.3
Fair values of plan assets (139.6) (34.0) (173.6) (119.1) (29.2) (148.3)
Retirement benefit obligations 102.0 24.7 126.7 129.3 25.7 155.0
The decrease in the retirement benefit obligation was due
primarily in relation to the plans in Germany. The main changes in
relation to the German plans were actuarial gains resulting from
increases in our discount rates of $19.4m and $14.3m from actuarial
returns on assets excluding amounts included in interest income.
These gains were partially offset by service costs and net interest
costs of $3.2m and the effects of movements in exchange rates of
$4.9m during the period.
The movement on the long-term pension asset is as follows:
30 April 2021 31 October
2020
$m $m
As at 1 November 18.2 17.1
Transfer to plan assets (0.7) (0.4)
Interest on non-plan assets 0.1 0.2
Benefits paid (0.1) (0.1)
Contributions 0.2 0.3
Included within other comprehensive income:
* Change in fair value assessment 0.2 0.4
0.2 0.4
Effects of movements in exchange rates 0.8 0.7
As at 30 April / 31 October 18.7 18.2
Included within other comprehensive income:
Continuing operations 0.2 0.4
0.2 0.4
Notes to the consolidated interim financial statements
15. Retirement benefit obligations (continued)
The following amounts have been included in the Consolidated
Statement of Comprehensive Income for defined benefit pension
arrangements.
Six months Six months
ended ended
30 April 2021 30 April 2020
$m $m
Charge to operating loss 4.6 5.1
Charge to finance costs 0.9 0.9
Total continuing charge to loss for the
period 5.5 6.0
The following amounts have been recognised as movements in the
statement of other comprehensive income:
Six months Six months
ended ended
30 April 2021 30 April 2020
$m $m
Actuarial return/(loss) on assets excluding
amounts included in interest income 15.2 (6.2)
Re-measurements - actuarial gains: 18.8 11.0
Movement in the period 34.0 4.8
The weighted average key assumptions used for the valuation of
the schemes were:
30 April 2021 31 October 2020
Germany Rest Total Germany Rest Total
of World of World
Rate of increase in final pensionable
salary 2.50% 3.13% 2.66% 2.50% 3.09% 2.64%
Rate of increase in pension
payments 1.50% 1.50% 1.50% 1.50% 1.50% 1.50%
Discount rate 1.14% 1.73% 1.25% 0.79% 1.41% 0.90%
Inflation 1.50% 1.23% 1.46% 1.50% 1.25% 1.47%
The mortality assumptions for the pension schemes are set based
on actuarial advice in accordance with published statistics and
experience in the territory.
Sensitivities
The net present value of our defined benefit obligation is
sensitive to both actuarial assumptions and market conditions. The
table below provides information on the sensitivity of the defined
benefit obligation to changes to the discount rate assumption as
this assumption is the key driver of the movement in the net
obligation in the period. The table shows the impact of changes to
the discount rate in isolation, although, in practice, changes to
assumptions may occur at the same time and can either offset or
compound the overall impact on the defined benefit obligation.
These sensitivities have been calculated using the same
methodology as used for the main calculations.
Germany Rest of World
Increase Change Decrease Change Increase Change Decrease Change
in in defined in in defined in in defined in in defined
assumption benefit assumption benefit assumption benefit assumption benefit
obligation obligation obligation obligation
Discount
rate for
scheme
liabilities 0.50% (10.3%) 0.50% 12.0% 0.50% (6.6%) 0.50% 7.3%
Notes to the consolidated interim financial statements
16. Provisions and Contingent liabilities
30 April 31 October
2021 2020
$m $m
Onerous leases and dilapidations 19.0 16.9
Restructuring 21.7 30.8
Legal 95.0 9.7
Other 12.7 14.8
Total 148.4 72.2
Current 124.5 49.7
Non-current 23.9 22.5
Total 148.4 72.2
A description of the Group's provisions by category and
contingent liabilities is included in notes 21 and 30 of the Annual
Report and Accounts for the year ended 31 October 2020. During the
six months ended 30 April 2021 two significant change in the
Group's provisions and contingent liabilities have arisen.
On 2 July 2018, Wapp Tech Limited Partnership and Wapp Tech Corp
(collectively "Wapp") brought a claim against Micro Focus in the
Eastern District of Texas, accusing the Company of infringing three
patents in connection with Micro Focus' sale of certain products in
the ADM product line, including LoadRunner and Performance
Centre.
The case was tried during the period and, on 5 March 2021, the
jury delivered a verdict in favour of Wapp and awarded damages
totalling approximately $172.5 million. On 22 April 2021, the Court
denied Wapp's request for enhanced damages and entered final
judgment based on the jury award of approximately $172.5 million.
On 5 May 2021, Wapp filed a motion for prejudgment and
post-judgment interest, seeking approximately $18.4 million in
prejudgment interest.
Micro Focus continues to maintain that it has not and does not
infringe Wapp's patents and that those patents are invalid. On 20
May 2021, Micro Focus filed a motion for judgment of
non-infringement as a matter of law and/or a new trial, including
on the question of damages. Additionally, on 3 June 2021, Micro
Focus filed an opposition to Wapp's request for approximately $18.4
million in prejudgment interest. The Court is yet to rule on Micro
Focus' motion or on the issue of prejudgment interest.
After post-trial motions have been decided by the Court, the
parties will have an opportunity to appeal to the Federal Circuit
Court of Appeals. An appeal could take a number of years and would
require significant resources and success may result in the case
being referred back to the Eastern District of Texas to be re-tried
before a jury. Therefore it is in the best interests of the Group
to consider a range of options including to appeal and to establish
whether a settlement could be reached.
Taking into account the range of options under consideration at
this time, the Directors' best estimate of the expenditure required
to resolve the case is $70 million including potential prospective
external legal costs and accordingly a provision has been recorded
for this amount at 30 April 2021. In line with our accounting
policy, the cost of recording this provision has been treated as an
exceptional cost in the Consolidated Statement of Comprehensive
Income for the six months ended 30 April 2021 (see note 7).
The shareholder litigation complaint in the United States
District Court for the Southern District of New York has been
followed by a mediation during the period where the parties have
reached an agreement to settle the case on terms including a
payment of $15.0m to a settlement class. The proposed settlement is
subject to the court's approval. The Group has recognised a legal
provision of $15.0m and an insurance receivable, within other
receivables, of $15.0m. Therefore, no amounts have been recognised
in the Consolidated Statement of Comprehensive Income for the
shareholder litigation. The settlement amount will be paid from
insurance coverage. The Company and all defendants have denied, and
continue to deny, the claims alleged in the case and the settlement
does not reflect any admission of fault, wrongdoing or liability as
to any defendant. In the Superior Court of California, the matter
is ongoing. No liability has been recognised in this case as it is
too soon to estimate whether there will be any financial
impact.
Together, these two changes are responsible for $85.0m of the
$76.2m increase in provisions during the six months ended 30 April
2021.
Notes to the consolidated interim financial statements
17. Cash flow statement
Six months ended Six months ended
30 April 2021 30 April 2020
Note $m $m
------------------------------------------- ---- ---------------- ----------------
Cash flows from operating activities
Loss from continuing operations (218.9) (1,029.3)
Loss from discontinued operation - (2.7)
------------------------------------------- ---- ---------------- ----------------
Loss for the period (218.9) (1,032.0)
Adjustments for:
Loss on disposal of SUSE - 3.0
Net interest 125.2 129.3
Taxation - continuing operations 10 (61.1) (6.7)
Taxation - discontinued operations - (0.3)
Operating loss (154.8) (906.7)
Goodwill impairment charge 7,11 - 922.2
Research and development tax credits (0.4) (1.0)
Property, plant and equipment depreciation 17.6 21.1
Gain on disposal of property, plant and
equipment (0.1) -
Right-of-use asset depreciation 38.6 40.0
Right-of-use asset impairment 2.6 -
Amortisation of intangible assets 12 472.2 340.4
Amortisation of contract-related assets 10.0 7.4
Share-based compensation charge 8.5 8.2
Exchange movements 5.1 7.7
Provisions movements 102.4 22.1
------------------------------------------- ---- ---------------- ----------------
Cash generated from operations before
working capital 501.7 461.4
Changes in working capital:
Inventories - (0.2)
Trade and other receivables 112.3 270.7
Increase in contract-related costs (5.2) (12.7)
Payables and other liabilities (59.0) (102.6)
Provision utilisation (27.5) (24.2)
Contract liabilities (54.4) (36.7)
Pension funding in excess of charge to
operating loss 0.2 4.7
------------------------------------------- ---- ---------------- ----------------
Cash generated from operations 468.1 560.4
------------------------------------------- ---- ---------------- ----------------
18. P o st Balance Sheet events
Tax
In the March 2021 Budget, the UK Government announced that
legislation will be introduced in Finance Bill 2021 to increase the
main rate of UK corporation tax from 19% to 25%, effective 1 April
2023.
As the changes had not been substantively enacted at the balance
sheet date, the UK related deferred tax balances as at 30 April
2021 continue to be measured at a rate of 19%. If the 25% tax rate
had been used at the balance sheet date, the deferred tax liability
would have been $56.9m higher.
INDEPENDENT REVIEW REPORT TO MICRO FOCUS INTERNATIONAL PLC
Conclusion
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 April 2021 which comprises the Condensed
Consolidated Statement of Comprehensive Income, Condensed
Consolidated Statement of Financial Position, Condensed
Consolidated Statement of Changes in Equity, Condensed Consolidated
Statement of Cash Flows and the related explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
April 2021 is not prepared, in all material respects, in accordance
with IAS 34 Interim Financial Reporting adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union
and the Disclosure Guidance and Transparency Rules ("the DTR") of
the UK's Financial Conduct Authority ("the UK FCA").
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
half-yearly financial report and consider whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
As disclosed in note 2, the latest annual financial statements
of the Group were prepared in accordance with International
Financial Reporting Standards as adopted by the EU and the next
annual financial statements will be prepared in accordance with
International Financial Reporting Standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union
and in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006. The
directors are responsible for preparing the condensed set of
financial statements included in the half-yearly financial report
in accordance with IAS 34 adopted pursuant to Regulation (EC) No
1606/2002 as it applies in the European Union.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the company in accordance with the
terms of our engagement to assist the company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the company for our
review work, for this report, or for the conclusions we have
reached.
John Edwards
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square, London, E14 5GL
30 June 2021
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
IR EADKEDAKFEAA
(END) Dow Jones Newswires
July 01, 2021 02:00 ET (06:00 GMT)
Micro Focus (LSE:MCRO)
Historical Stock Chart
From Apr 2024 to May 2024
Micro Focus (LSE:MCRO)
Historical Stock Chart
From May 2023 to May 2024