Form 6-K MICRO FOCUS INTERNATIONA For: Jun 22
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 6-K
|
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13A-16 OR 15D-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the
Month of: June 2022
Commission
File Number: 001-38187
MICRO FOCUS INTERNATIONAL PLC
(Exact name of registrant as specified in its charter)
|
The Lawn, 22-30 Old Bath Road
Newbury, Berkshire
RG14 1QN
United Kingdom
+44 (0) 1635-565-459
(Address of principal executive office)
|
Indicate
by check mark whether this registrant files or will file annual
reports under cover of Form 20-F or Form 40-F.
Form
20-F ☒ Form 40-F ☐
Indicate by check mark if the registrant is submitting the Form 6-K
in paper as permitted by Regulation S-T Rule
101(b)(1): ☐
Indicate by check mark if the registrant is submitting the Form 6-K
in paper as permitted by Regulation S-T Rule
101(b)(7): ☐
CONTENTS
Exhibit No.
|
Exhibit Description
|
99.1
|
Interim
Results for six months ended 30 April 2022, dated 22 June
2022
|
22 June 2022
Micro Focus International plc
Interim results for the six months ended 30
April 2022
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 2022
("H122").
"Delivering on our objectives, improving free cash flow and
reducing leverage"
Financial highlights
● Revenue of $1.3bn (H121: $1.4bn),
representing a year-on-year decline of 6.8% on a constant currency
("CCY") basis1 excluding
Digital Safe and 11.0% on a reported basis (including Digital Safe
at actual rates).
● Several sub-portfolios are now delivering
consistent growth not yet visible at a Product Group level, but we
anticipate this will deliver overall growth in CyberRes ahead of
schedule and AMC as our mainframe modernisation offering continues
to ramp.
● Encouraging progress in delivering group
simplification with our cost base reducing by approximately $150m
on an annualised basis gross of inflation.
● Adjusted EBITDA1 of
$449m (H121: CCY $511m) at a margin of 35.4% (H121: CCY
36.7%), reflecting the reduction in revenue in the period,
partially offset by our cost reduction
programme.
● Operating profit of $35m for H122 (H121: loss of
$155m) reflecting the above impacts as well as a significant
reduction in exceptional spend and the one-off profit on disposal
of Digital Safe of $63m. Cash generated from operations also
increased to $485m (H1 21: $468m).
● This improved quality of earnings underpinned free
cash flow1 growth
of 36.2% year-on-year to $190m (H121: $140m).
● Net debt1 of
$3,651m (Oct-21: $4,196m), representing a net leverage ratio of 3.7
times with a 0.3 decrease since 31 October
2021.
● Interim dividend of 8 cents per share (H121: 8.8
cents), consistent with 5x covered policy.
Operational highlights
● Customer attrition rates have stabilised or
improved across a number of key portfolios for a further two
quarters.
● Mainframe modernisation offering continues to
deliver strong revenue growth and the launch of the AWS' offering
in June 2022 as planned provides further opportunity to accelerate
this growth.
● Completion of Debricked acquisition within
CyberRes, a developer-centric
open source intelligence company aimed at innovating how
organisations secure their software supply chain for today and the
future.
● Sale of Digital Safe for $375m now
completed.
● Continued improvements across all product
portfolios with 28 major product launches in the period, including
multiple new SaaS offerings.
● Key milestones achieved in our planned transition
to product group operating model, with expectation that we will be
able to report individual segments from FY23.
Outlook
● No change to expectations for revenue, costs or
cash for FY22.
● We are working to mitigate the increased risks
arising from the macro-economic environment.
● Our strategic priorities for FY23 exit trajectory
remain unchanged.
|
H122
|
H121
|
Growth /(Decline)
|
|
Reported
|
(CCY)
|
|
|
|
|
|
Alternative performance measures from
continuing operations1
|
|
|
|
|
|
|
|
Micro Focus (excluding Digital Safe)
|
$1,243.7m
|
$1,334.7m
|
(6.8)%
|
Digital Safe
|
$25.9m
|
$56.5m
|
(54.2)%
|
Revenue
|
$1,269.6m
|
$1,391.2m
|
(8.7)
%
|
|
|
|
|
Micro Focus (excluding Digital Safe)
|
$436.8m
|
$482.6m
|
(9.5) %
|
Digital Safe
|
$12.3m
|
$28.1m
|
(56.2) %
|
Adjusted EBITDA*
|
$449.1m
|
$510.7m
|
(12.1) %
|
% Adjusted EBITDA margin*
|
35.4%
|
36.7%
|
(1.3) ppt
|
|
|
|
|
|
|
|
|
|
Reported
|
Reported
|
|
Statutory Results
|
|
|
|
Revenue - continuing operations
|
$1,269.6m
|
$1,425.7m
|
(11.0) %
|
Operating profit / (loss) - continuing operations
|
$35.3m
|
$(154.8)m
|
122.8 %
|
Loss for the period
|
$(24.4)m
|
$(218.9)m
|
88.9%
|
|
|
|
|
|
|
|
|
1 The
definition and reconciliations of Adjusted EBITDA, Adjusted EBITDA
Margin, Net Debt, Free Cash Flow, Adjusted Free Cash Flow and
Constant Currency ("CCY") are in the "Alternative Performance
Measures" section of this Interim Statement. The definition of
Adjusted EBITDA has been amended as set out in the "Alternative
Performance Measures" section of this Interim Statement. This
change has consequential impacts on the calculated values for
Adjusted EBITDA Margin and Adjusted Cash Conversion. All
comparative amounts are stated under the amended
definition.
Stephen Murdoch, Chief Executive Officer,
commented:
"In H1 we improved free cash flow, reduced leverage, and made
progress against the strategic objectives we outlined in November.
I am encouraged by the strides taken to become increasingly
customer centric, building growth in key portfolios, and increasing
our quality of earnings.
We have delivered these results against an increasingly volatile
market backdrop with customer demand to date remaining robust,
demonstrating the mission critical nature of our
solutions."
Results conference call
A conference call to cover the results for H122 will be held today
at 1.30pm UK Time. The call will be accompanied by
slides.
A live webcast and recording of the presentation will be available
at https://www.microfocus.com/en-us/investors during
and after the event. For dial in only, access numbers are as
follows:
UK &
International:
+44 (0) 33 0551 0200
UK Toll
Free:
0808 109 0700
US:
+1 212 999 6659
USA Toll
Free:
1 866 966 5335
Enquiries:
Micro Focus
|
Tel: +44 (0) 1635 565200
|
Stephen Murdoch, Chief Executive Officer
|
|
Matt Ashley, Chief Financial Officer
|
|
Ben Donnelly, Head of Investor Relations
|
|
Brunswick
|
Tel:
+44 (0) 20 7404 5959
|
Sarah
West
|
|
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
We have delivered on our objectives for the first half of FY22. In
summarising progress in the first half, we are marginally behind
our original revenue plans in part due to the suspension of our
operations in Russia. This impacted revenue performance by
approximately half a point, and we are working to absorb the
revenue impact of this. Our cost control and cash performance in
the half has been strong.
The
Group reported revenues of $1,270m (H121: $1,391m CCY, $1,426m
reported). This is a decline of 6.8% for the on-going group (i.e.
excluding Digital Safe) on a CCY basis. Our revenues in Russia in
FY21 were $39m and we anticipated a similar level of performance in
FY22. We are working to mitigate the associated EBITDA impact
through tight cost management. To date, we have seen limited
tangible impact from the threat of a more challenging
macro-environment. Typically, such environments tend to delay
rather than stop digital transformation agendas as customer project
spend gets increased scrutiny and approval cycles extend. Execution
becomes key in ensuring projects leveraging our software remain a
priority for our customers. As a Company, we deliver proven
products to a wide distribution of customers, sectors, and
geographies. Our value proposition resonates with our
customers who rely on us to maximise ROI on existing investments
and bridge their existing technology investments to the emerging
themes.
|
H122
|
|
CCY %
change toH121
|
|
|||||||
|
Licence
|
Maintenance
|
SaaS
|
Consulting
|
Total
|
|
Licence
|
Maintenance
|
SaaS
|
Consulting
|
Total
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
|
%
|
%
|
%
|
%
|
%
|
Product portfolio (excl. Digital Safe):
|
|
|
|
|
|
|
|
|
|
|
|
AMC
|
53.1
|
152.9
|
-
|
5.7
|
211.7
|
|
(11.1) %
|
(1.1) %
|
-
|
14.0 %
|
(3.5) %
|
ADM
|
42.0
|
188.5
|
40.5
|
7.7
|
278.7
|
|
(13.4) %
|
(7.9) %
|
13.1 %
|
(12.5) %
|
(6.4) %
|
ITOM
|
63.6
|
195.9
|
2.3
|
48.4
|
310.2
|
|
(16.9) %
|
(8.5) %
|
15.0 %
|
(6.4) %
|
(9.9) %
|
CyberRes
|
67.1
|
168.7
|
20.5
|
13.8
|
270.1
|
|
1.1 %
|
(5.8) %
|
10.8 %
|
(3.5) %
|
(2.9) %
|
IM&G
|
43.4
|
119.9
|
4.5
|
5.2
|
173.0
|
|
5.3 %
|
(14.0) %
|
(26.2) %
|
(38.8) %
|
(11.4) %
|
Micro Focus (excl. Digital Safe)
|
269.2
|
825.9
|
67.8
|
80.8
|
1,243.7
|
|
(7.9) %
|
(7.4) %
|
8.7 %
|
(8.5) %
|
(6.8) %
|
Digital
safe
|
-
|
-
|
25.9
|
-
|
25.9
|
|
-
|
-
|
(54.2) %
|
-
|
(54.2) %
|
Total Revenue
|
269.2
|
825.9
|
93.7
|
80.8
|
1,269.6
|
|
(7.9) %
|
(7.4) %
|
(21.2) %
|
(8.5) %
|
(8.7) %
|
Licence
revenue declined by 7.9%, against what was strong growth in the
previous period. Whilst we are in line with our expectations
overall, our performance in Licence revenue is disappointing. This
decline is because we are still witnessing more volatility within
individual periods than we would like. Our growth portfolios are
not yet at a scale to fully offset the volatility of our more
mature portfolios in which new Licence deals are by nature often
large and more cyclical. We have made progress in correcting this,
but our work is not yet complete. Our overall goal is to
deliver consistent and sustainable growth in Licence revenue. We
have delivered growth in new Licence revenue in CyberRes overall
and Big Data for multiple reporting periods and within AMC our
Mainframe Modernisation solutions continue to grow strongly even
before the contribution from strategic initiatives with AWS.
Further improvements are required here, as well as broader based
improvements across the target areas within the other portfolios as
we seek to reduce volatility. The changes we are making in moving
to a Product Portfolio based approach are key to this and are on
track but not completed.
Maintenance
revenue declined by 7.4%, this represents a 2ppt improvement from
the exit run rate in H221. This improvement was driven by a
combination of the prior year growth in Licence revenue,
demonstrating the importance of our Licence objectives; an
improvement in the overall renewal rates and a further moderation
due to the change in portfolio mix. The actions taken in FY21 are
beginning to impact maintenance trends which remains a core
objective of the business.
SaaS revenue increased by 8.7%, when compared to
the first half of FY21. This performance
represents the third period of sequential improvement which has
been underpinned by the improvements made to our SaaS
offerings. We now are in
position where SaaS revenues will continue to deliver growth and
over the medium term we expect this to accelerate to double digit
growth.
Consulting
revenue declined by 8.5% and broadly trends in line with new
Licence revenue. At a portfolio level, the growth is focused on
delivering customer projects to support future software revenue
pipeline as demonstrated by the growth in mainframe modernisation
projects (within
AMC).
The Group generated Adjusted EBITDA of $449m at a margin of 35.4%
(CCY H121: $511m Adjusted EBITDA at 36.7% margin). The Adjusted
EBITDA margin reflects the reduction in revenue partially offset by
our cost reduction programmes which are phasing ahead of our
expectations combined with an element of workforce
attrition.
The
significant change in workforce behaviours as we begin to emerge
from Covid-19 has resulted in elevated employee attrition, wage
inflation and a more challenging recruitment environment across the
technology sector. As a Company, we have taken several important
actions to address this including taking comprehensive actions to
address remuneration in key roles and geographies and where
possible, we have used attrition to deliver our cost saving
programme by redeploying staff and reducing the level of
exceptional spend required to restructure the Group.
Statutory loss before taxation for the period was $43m (H121: loss
$280m) driven by a significant reduction in exceptional spend
year-on-year, in addition to profit on disposal of Digital Safe of
$63.0m in current period.
The Group continues to generate significant operating cash flows,
with cash generated from operating activities of $485m for H122
(H121: $468m), giving Adjusted Cash Conversion1 of
113.3% (H121: 120.9%). This improvement has driven free cash flow
to increase by 36.2% year-on-year to $190m.
Following the disposal of Digital Safe, the Group has reduced both
leverage and gross debt since the year end position. As a result,
leverage reduced by 0.3x to 3.7x and net debt reduced from $4.2bn
at 31 October 2021 to $3.7bn at 30 April 2022. It remains our
intention to reduce leverage to approximately 3.0x over the medium
term.
Further narrative in respect of the financial performance can be
found in the Financial Review section of this report.
Our 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 FY22, we delivered our innovation agenda at pace across our
portfolio, with examples such as:
− Application
Modernisation and Connectivity: AWS
launched its Mainframe Modernisation offering in June and together
we are already enabling customers to accelerate the modernisation
of mainframe applications and workloads to the AWS
Cloud.
− Application
Delivery Management: we
released our ValueEdge platform, a modular, cloud-based solution
that integrates with our customers' existing toolchains to improve
productivity and remove friction with smart
automation.
− CyberRes: Our
continued investment in our portfolio included the acquisition of
Debricked which meant our application security testing solution was
recognised as a Magic Quadrant leader for the 9th consecutive
year.
− IT
Operations & Management: the
release of Operations Bridge - SaaS, combines the company's proven
Full-Stack AIOps platform with the agility of
software-as-a-service. This new offering enables IT organisations
to gain complete observability, resolve problems faster, drive
efficiencies with automation, and transform their data into
actionable insights.
− Information,
Management & Governance: Our
Big Data platform launched its Subscription based solution Vertica
Accelerator in Q4 2021 and continues to grow subscription bookings.
Micro Focus' social purpose
Our
purpose is to deliver mission critical enterprise software that
powers the digital economy. In delivering our purpose we aim to
make sustainable and responsible business part of the way we
operate, supporting the local communities we are part of and
reducing our own environmental footprint.
We continue to make encouraging progress including the formation of
our Environmental, Social and Governance Committee, which we have
established to ensure we embed ESG into the core of our operations.
In the coming period, we will publish our first sustainability
report which outlines our achievements in FY21 and our key areas of
focus for the coming periods. I look forward to sharing more about
the work of the committee as part of our FY22 Annual Report and
Accounts.
Delivering our objectives
The
Group entered the financial period with three clear strategic
objectives.
Firstly,
to transition our business to be product group centric end-to-end
such that our competitive positioning and depth of capability are
more sharply defined and focused consistently on the right market
opportunities. This transition is well advanced in CyberRes and Big
Data and we have made encouraging progress in H122 as we begin to
extend this across the remaining product portfolios. Core to this
is increased levels of specialism in all customer facing roles. Our
goal is to accelerate this transition and begin to report more
detail by product portfolio to increase visibility of underlying
performance from FY23.
Secondly,
delivering the innovation our customers need packaged such that
they can consume it effectively. This centres around improving
customer retention rates and ensuring we have the right consumption
model (Licence, SaaS or Subscription) for our customers evolving
needs. In the period, we have delivered new innovation in each
portfolio, improved product roadmaps and enhanced customer
communication of these roadmaps. Within this we have released new
SaaS capabilities and are helping some of the world's largest
companies with their SaaS transformation strategies. These efforts
are key to the acceleration of SaaS revenue growth and moderation
in the rate of maintenance revenue decline.
Finally,
capturing the cost efficiencies enabled by the enterprise-wide
platform. We are on track to deliver our cost saving targets for
FY22 and currently planning the key actions to deliver for
FY23.
Outlook
Looking
forward, based on our year-to-date performance our expectations for
revenue, costs and cash for FY22 remain unchanged. We are working
to mitigate the increased risks arising from the macro-economic
environment wherever possible, and our strategic priorities for
FY23 exit trajectory remain unchanged.
Stephen Murdoch
Chief Executive Officer
21 June 2022
Financial Review
The financial review provides a summary of Micro Focus' results on
a statutory basis combined with several Alternative Performance
measures ("APMs") which the Board believes are used widely by
certain investors to understand the financial performance of
business. Further detail on APMs can be found later in this
document.
|
H122
|
H121
|
|
|
As reported
|
CCY
|
CCY Change
|
Alternative performance measures:
|
$m
|
$m
|
%
|
|
|
|
|
Micro Focus (excluding Digital Safe)
|
$1,243.7m
|
$1,334.7m
|
(6.8)
%
|
Digital Safe
|
$25.9m
|
$56.5m
|
(54.2)
%
|
Revenue
|
$1,269.6m
|
$1,391.2m
|
(8.7)
%
|
|
|
|
|
Micro Focus (excluding Digital Safe)
|
$436.8m
|
$482.6m
|
(9.5) %
|
Digital Safe
|
$12.3m
|
$28.1m
|
(56.2) %
|
Adjusted EBITDA*
|
$449.1m
|
$510.7m
|
(12.1) %
|
% Adjusted EBITDA* margin
|
35.4%
|
36.7%
|
(1.3) ppt
|
|
|
|
|
|
|
|
|
|
H122
|
H121
|
|
|
As reported
|
As reported
|
Change
|
Statutory performance measures:
|
$m
|
$m
|
%
|
Revenue
|
1,269.6
|
1,425.7
|
(11.0) %
|
Operating profit/(loss)
|
35.3
|
(154.8)
|
122.8%
|
|
|
|
|
Operating profit prior to depreciation, amortisation and
exceptional items
|
448.4
|
516.6
|
(13.2) %
|
Loss for the period
|
(24.4)
|
(218.9)
|
88.9%
|
Revenue
The Group generated revenue of $1,270m in H122 which represents a
decline of 11.0% on the results for H121. This decline includes a
reduction in revenue following the disposal of Digital Safe and the
impact of foreign exchange movements. Excluding these items, the
Group's revenues decline by 6.8%.
Included within the 6.8% decline is a marginal headwind due to the
impact of sanctions imposed following the Russia and Ukraine
conflict. During the second quarter, the Group suspended operations
in Russia, reducing revenues in H1 by $5.8m (0.3%). In FY21, Russia
revenue was approximately $40m, we do not expect to earn any
revenue in Russia in the near future.
The Group has set out the goal of flat or better revenue as we exit
FY23. This stability comes primarily from two key
drivers.
1. The
capturing of opportunities within growing
markets. Over time this is
expected to deliver a mix effect to stabilise and ultimately grow
Group revenue. In H122, we have continued to make progress with
several sub-portfolios now delivering consistent growth over
consecutive quarters. This performance is not yet visible at a
Product Group level, but we anticipate this will deliver overall
growth in CyberRes ahead of schedule and AMC as our mainframe
modernisation offering continues to
ramp.
2. The
moderation of maintenance decline through improvements in customer
retention.
The
work we have done here has driven stabilisation in retention rates
and improvements in several portfolios. This in turn has driven a
2ppt improvement in maintenance performance when compared to the
exit run rate in H2 21.
Revenue performance by Product Group and stream has been discussed
in further detail within the CEO statement in this
document.
Operating costs included in Adjusted EBITDA ("Operating
costs")
|
Operating costs (excluding Digital Safe)
|
Operating costs (including Digital Safe)
|
||||
|
H122(Actual) $m
|
H121(CCY) $m
|
Year-on-yearchange %
|
H122(Actual) $m
|
H121(CCY) $m
|
Year-on-yearchange %
|
Cost of sales
|
215.0
|
211.8
|
1.5%
|
220.2
|
223.4
|
(1.4)%
|
Selling and distribution
|
288.6
|
316.7
|
(8.9)%
|
289.3
|
318.4
|
(9.1)%
|
Research and development
|
215.9
|
236.2
|
(8.6)%
|
219.6
|
244.2
|
(10.1)%
|
Administrative
|
96.4
|
87.4
|
10.3%
|
100.4
|
94.5
|
6.1%
|
Other operating income
|
(9.0)
|
-
|
n/a
|
(9.0)
|
-
|
n/a
|
Operating costs
|
806.9
|
852.1
|
(5.3)%
|
820.5
|
880.5
|
(6.8)%
|
On
30 November 2021, the Group announced the intention to remove
$400-500m of gross annual recurring cost to achieve a reduction
from the FY21 exit cost base.
Operating
costs declined by 6.8% to $821m in H122 (H121: $881m) on a CCY
basis. This decline reflects a reduction of 5.3% of operating costs
excluding Digital Safe combined with a further 1.5% in relation to
the disposal.
Excluding
the disposal, the reduction in Operating costs reflects the in-year
impact of cost actions and offsetting inflationary increases to the
cost base. In H122, the cost programmes have delivered annualised
cost savings of approximately $150m of the planned $400m-$500m.
This has been partially offset by planned inflationary increases
primarily in respect of payroll costs totalling $41m. Like most
technology companies, wage inflation and staff attrition have run
at elevated levels in H122. Where possible, the Group has sought to
use attrition to deliver the cost saving programme by redeploying
staff and reducing the level of exceptional spend required to
restructure the group (see below).
The
Group has reduced costs across all cost categories except for
administrative expenses. The cost reduction programmes to date are
primarily focused on support roles as we seek to maintain sales
capacity and software development. The increase in administrative
expenses reflects a year-on-year increase in the staff bonus scheme
to support retention efforts combined with some incremental
investment in our IT platform. In prior periods, such IT costs
would have been treated as exceptional however following the
completion of integration activities last year these costs are now
considered operating costs and are being absorbed by the business
as previously guided.
The progress made in H1 gives clear line of sight to the cost
savings required for FY22. The Group has identified
approximately half of the required cost savings for FY23 and is
currently working through the planning process to identify the
balance. Currently, we are within the parameters of our original
inflation assumptions but remain vigilant of the challenges ahead
given the wider macro-economic environment.
Adjusted EBITDA
The Group generated an Adjusted EBITDA* of $449m, at margin of
35.4% in H122 (H121: $511m, 36.7% on a CCY basis). This adjusted
EBITDA included $12m in respect of the 3 months trading of Digital
Safe (H121: 6 months trading $28m).
Operating profit to Adjusted EBITDA
The Operating profit for H122 was $35m, compared to an Operating
loss of $155m in H121. This figure includes depreciation,
amortisation and exceptional items totalling $413m (H121:
$671m).
The Group generated an operating profit prior to depreciation,
amortisation and exceptional items of $448m in H122 (H121: $517m).
This decline reflecting the reduction in revenue largely offset by
an overall reduction in operating costs and exceptional items (as
outlined below).
A reconciliation between Operating loss and Adjusted EBITDA is
shown below:
|
H122
As reported
|
H121
As
reported
|
Change
|
|
$m
|
$m
|
%
|
Operating profit/(loss)
|
35.3
|
(154.8)
|
122.8%
|
Exceptional items (reported in Operating loss)
|
(41.8)
|
143.0
|
(129.2)%
|
Amortisation of intangible assets
|
412.9
|
472.2
|
(12.6)%
|
Depreciation of property, plant and equipment and right of use
assets
|
42.0
|
56.2
|
(25.3)%
|
Operating profit prior to depreciation, amortisation and
exceptional items
|
448.4
|
516.6
|
(13.2)%
|
Share-based compensation charge
|
12.4
|
8.5
|
45.9%
|
Foreign exchange (gain)/loss
|
(11.7)
|
5.1
|
(329.4%)
|
Adjusted EBITDA* at reported rates
|
449.1
|
530.2
|
(15.3)%
|
CCY impact
|
-
|
(19.5)
|
n/a
|
Adjusted EBITDA* at CCY
|
449.1
|
510.7
|
(12.1)%
|
Exceptional items (included within Operating profit /
(Loss))
|
H122
As reported $m
|
H121
As
reported $m
|
FY22 /
FY23 Cost programme
|
20.9
|
-
|
Profit
on disposal of Digital Safe
|
(63.0)
|
-
|
MF/HPE
Software business integration-related costs
|
-
|
44.5
|
Legal
settlement and associated costs
|
-
|
74.6
|
Other
restructuring property costs, severance and legal, acquisition and
divestiture costs
|
0.3
|
23.9
|
Total exceptional costs (reported in Operating profit /
(loss))
|
(41.8)
|
143.0
|
In H122, the Group generated an exceptional credit of $42m compared
to an exceptional charge of $143m in H121. The current year
exceptional credit reflects a profit on disposal of Digital Safe of
$63m partially offset by the costs associated with delivering the
FY22 / FY23 cost reduction programme. As a Board, we are committed
to reducing the level of exceptional spend incurred by the Group
and in the period and following the completion of integration
related activity and the IT programme we absorbed such costs within
operating costs as outlined above.
The aim here is to improve the quality of earnings and ultimately
the cash generation of the business in line with our overall
targets.
The Group originally anticipated a total cash cost of delivering
these savings of $200m split evenly between FY22 and FY23. In H122,
the Group has incurred $21m in respect of this programme and have
successfully delivered approximately $150m of annualised
savings.
The value of annualised cost savings for the programme is slightly
ahead of our original expectation, however due to effective
management of attrition and redeployment of resources, the total
cost of the programme is now expected to be c. $50m in FY22 and
$100m in FY23.
In H121, exceptional spend predominately related to the remaining
HPE integration, the migration to the single IT platform and the
settlement of the WAPP legal claim.
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 $78.2m in H122, compared to $125.2m in H121.
Finance income includes $58.6m (H121 nil) of foreign exchange gains
following the successful refinancing of $1.6bn of Group debt in
January 2022 which ended the net investment hedge on some of our
Euro debt. The impact of the Group's cash interest costs is
discussed below.
Taxation
The following table presents both actual and adjusted
profit/(losses) before and after taxation:
|
H1 22
|
H1 21
|
||||
|
Reported
$m
|
Adjusting items
$m
|
Adjusted measures*
$m
|
Reported
$m
|
Adjusting items
$m
|
Adjusted measures*
$m
|
(Loss)/profit before tax
|
(42.9)
|
287.3
|
244.4
|
(280.0)
|
601.9
|
321.9
|
Taxation
|
15.0
|
(71.9)
|
(56.9)
|
61.1
|
(156.9)
|
(95.8)
|
(Loss)/profit after tax
|
(27.9)
|
215.4
|
187.5
|
(218.9)
|
445.0
|
226.1
|
Effective tax rate
|
35.0%
|
|
23.3%
|
21.8%
|
|
29.8%
|
The interim tax charge is affected by the timing of certain
discrete items such as adjustments to tax in respect of previous
periods which may result in an interim rate higher or lower than
the full year aETR.
Exceptional tax charges include $19.4m in respect of the disposal
of the Digital Safe business.
Last year, the Group made a payment of approximately $45m to HMRC
in respect of the State aid case which is currently being
challenged by the UK government and taxpayer. We have recognised a
receivable on the balance sheet in respect of this
payment.
On 8 June 2022, the General Court of the Europe Union found against
the UK Government/taxpayer. This was a disappointing but not
unexpected outcome. We have studied the judgment and, after
consulting our advisers, remain of the view that the more likely
final outcome is that the UK Government/taxpayer will appeal and
will win on appeal. We have therefore concluded that we
should continue to recognise the receivable in full. We will
continue to monitor the progress of the case.
Earnings per share
The Group's earnings per share ("EPS") on a basic, diluted and
adjusted basis are as follows:
|
H122
|
H121
|
Growth
/(Decline)
|
|
cents
|
cents
|
%
|
Total EPS attributable to the ordinary equity shareholders of the
Company
|
|
|
|
Basic
EPS
|
(7.46)
|
(65.09)
|
88.5
%
|
Diluted
EPS
|
(7.46)
|
(65.09)
|
88.5
%
|
|
|
|
|
Basic
Adjusted EPS*
|
57.34
|
67.23
|
(14.7)
%
|
Diluted
Adjusted EPS*
|
57.34
|
67.23
|
(14.7)
%
|
Full details are set out in the "Alternative performance measures"
section of these Condensed Consolidated Interim Financial
Statements.
Cash Generation
The cash flow for the Group for H122 was:
|
H122
|
H121
|
|
$m
|
$m
|
Adjusted EBITDA*
|
449.1
|
530.2
|
Exceptional
items (excluding gain on disposal)
|
(21.2)
|
(143.0)
|
Other
non-cash items
|
0.8
|
2.1
|
Movement
in working capital
|
55.9
|
78.8
|
Interest
payments and bank loan costs
|
(129.0)
|
(111.3)
|
Tax
payments
|
(77.6)
|
(128.9)
|
Purchase
of intangible assets, PPE and lease related capital
payments
|
(88.0)
|
(88.4)
|
Free cash flow
|
190.0
|
139.5
|
Cash
cost of exceptional items
|
36.8
|
107.4
|
Adjusted Free cash flow
|
226.8
|
246.9
|
|
|
|
Adjusted Cash conversion ratio*
|
113.3%
|
120.9%
|
The Group generated a free cash flow of $190.0m (H121: $140m). This
increase was driven by a significant reduction in both operating
and exceptional spend year-on-year as outlined above and a
reduction in the taxation payments due primarily to the outflow in
relation to the EU state aid payment in H121, which we still expect
to recoup in the future once the case is resolved. In addition, the
Group's Free cash flow was reduced due to the impact of Digital
Safe disposal. Digital Safe's Adjusted EBITDA less finance lease
payments totalled $6m (H1 21: $17m).
The Group had a working capital inflow of $56m in H122 (H121:
inflow $79m). The H121 inflow included the provision movement in
respect to the WAPP legal provision of $75m, which was recorded but
not paid in the first half of FY21. Normalising for this figure,
the group improved working capital year-on-year by
$52m.
The Group generated Adjusted free cash flow in the period of $227m
(H121: $247m).
Net Debt
The Group's net debt has decreased from $4.2bn at 31 October 2021
to $3.7bn at 30 April 2022. The reduction in net debt in the period
is summarised in the table below:
|
|
30 April 2022
|
|
|
$m
|
Net debt at 1 November
|
|
(4,195.9)
|
Free
cash flow
|
|
190.0
|
Leases
included within Free cash flow
|
|
35.8
|
New
leases
|
|
(20.0)
|
Net
proceeds from the disposal of Digital Safe
|
|
363.5
|
Leases
transferred on disposal of Digital Safe
|
|
11.4
|
Lease
receivable to be reimbursed by the Digital Safe
business
|
|
17.2
|
Net
cash for acquisition of DeBricked
|
|
(28.4)
|
Purchase
of EBT shares
|
|
(67.2)
|
Dividends
paid
|
|
(65.2)
|
FX
movement and other
|
|
108.3
|
Net Debt at 30 April
|
|
(3,650.5)
|
|
|
|
Leverage
Following the disposal of Digital Safe, the Group has successfully
reduced leverage and gross debt since the 31 October 2021 balance
sheet date:
|
30 April 2022
$m
|
31
October 2021
$m
|
Borrowings
|
(4,067.0)
|
(4,548.4)
|
Cash
and cash equivalents
|
578.7
|
558.4
|
Lease
obligations
|
(179.4)
|
(205.9)
|
Lease
receivable to be reimbursed by the Digital Safe
business1
|
17.2
|
-
|
Net debt
|
(3,650.5)
|
(4,195.9)
|
Net Debt / Adjusted EBITDA* ratio
|
3.7 times
|
4.0
times
|
1 Lease
receivable to be reimbursed by the Digital Safe business reflects
lease obligations which are retained on the Group's balance sheet
but are reimbursed as they are incurred by the Digital Safe
business.
On 17 January 2022, the Group announced the refinancing of $1.6bn
of existing term loans. This refinancing comprised a €750m
and a $750m Senior Secured Term Loan B. The new 5-year Facilities
were used by the Group to fully refinance its existing Senior
Secured Term Loan B Euro facility due June 2024 as well as
partially refinance the existing Senior Secured Term Loan B USD
facilities also due in June 2024.
The new 5-year facilities incur interest at 4.00% above EURIBOR
(subject to 0% floor) at an original issue discount of 0.5% on the
Euro denominated tranche, and 4.00% above SOFR and CSA (subject to
0.5% floor) at an original issue discount of 1.0% on the US Dollar
denominated tranche.
The Group continues to manage its exposure to movements in interest
rates. The Group holds interest rate swaps to hedge against the
cash flow risk in the LIBOR rate charged on $2,250.0m of the debt
which expires on 30 September 2022. Under the terms of the interest
rate swaps, the Group pays a fixed rate of 1.95% and receives
one-month USD LIBOR. In addition, the Group has transacted interest
rate swaps to hedge the cash flow risk on one-month Term SOFR
related to its newly issued $750m debt. The SOFR swaps have an
effective date of 21 September 2022 and a maturity date of 28
February 2027 fixing SOFR at 1.656%. The Group continually reviews
the currency mix of its borrowings and the projected forward curves
associated with the benchmark rates of its debt to assess market
risk.
In addition to the term loans and cash reserves, the Group has
access to a $250.0m revolving credit facility, currently
undrawn.
Consolidated statement of financial position
The Group's Consolidated statement of financial position is
presented later in this document. A summarised version is presented
below.
|
30 April 2022
$m
|
31
October 2021
$m
|
Non-current
assets
|
7,890.0
|
8,439.5
|
Current
assets
|
1,290.7
|
1,907.1
|
Total assets
|
9,180.7
|
10,346.6
|
|
|
|
Current
liabilities
|
1,517.0
|
1,860.9
|
Non-current
liabilities
|
5,011.4
|
5,664.7
|
Total liabilities
|
6,528.4
|
7,525.6
|
Net assets
|
2,652.3
|
2,821.0
|
|
|
|
Total equity
|
2,652.3
|
2,821.0
|
|
The net assets of the Group decreased by $169m from $2,821m at 31
October 2021 to $2,652m at 30 April 2022.
In the period, the key movements were as follows:
● Non-current assets decreased by $550m to $7,890m
primarily due to a $444m decrease in other intangible assets
(including primarily $413m of amortisation and $99m of exchange
rate changes offset by $48m of additions and $23m in relation to
the Debricked acquisition), a decrease in goodwill of $98m
primarily resulting from exchange rate changes and a decrease of
$34m in plant, property and equipment.
● Current assets decreased by $616m to $1,291m
primarily due to a $239m decrease in trade and other receivables
and a $370m reduction in current assets held for sale following
completion of the disposal of the Digital Safe
business.
● Current liabilities decreased by $344m to $1,517m
primarily due to a decrease in contract liabilities of $81m, a
decrease in trade and other payables of $115m, a decrease in
Financial liabilities and a $68m reduction in current liabilities
held for sale following completion of the disposal of the Digital
Safe business.
● Non-current liabilities decreased by $653m to
$5,011m, primarily due to a $485m decrease of Financial liabilities
resulting from repayment of borrowings of $364m using the Digital
Safe proceeds and a further $126m reduction in borrowings due to
foreign exchange movements, a decrease of $62m in retirement
benefit obligations and a decrease of $77m in deferred tax
liabilities primarily resulting from the impact of amortisation of
the Group's intangible assets.
● Total equity decreased by $169m from $2,821m to
$2,652m in the six months ended 30 April 2022.This was primarily
driven by the loss in the period of $24m, purchase of treasury
shares of $67m, dividends paid of $65m and other comprehensive
income movements of $27m.
Currency impact
The
below table presents the key currencies impacting the Group's
trading performance. In addition to this, following the
re-financing in Q1, the Group holds 33.6% of the group's term loans
in Euros. This change has meant the Group is more naturally hedged
with operating cash flows and funding mix.
|
Revenue
|
Costs
|
||
|
H122
|
H121
|
H122
|
H121
|
US Dollar
|
58.0%
|
57.3%
|
41.3%
|
45.1%
|
Euros
|
20.6%
|
21.3%
|
12.3%
|
13.3%
|
GBP
|
4.8%
|
4.5%
|
15.0%
|
12.7%
|
CAD
|
2.9%
|
3.2%
|
2.4%
|
2.1%
|
Other
|
13.7%
|
13.7%
|
29.0%
|
26.8%
|
Total
|
100%
|
100%
|
100%
|
100%
|
The currency movement for the US Dollar against
Euro, GBP,
AUD, INR and JPY
was a strengthening of 7.0%, 2.6%, 4.7%, 2.0%, and 9.4%
respectively, whilst CAD remained flat when looking at the average
exchange rates in H122 compared to those in
H121.
In order to provide CCY comparatives, the Group has restated the
revenue and Adjusted EBITDA for H121 at the same average exchange
rates as those used in the reported results for H122. In the six
months ended 30 April 2021,
the currency impact has decreased the
H121 comparable revenue
and costs by 2.3% and 1.7% respectively. The net impact for the
Group results using CCY was a decrease of the
H121 comparable revenue of
$34.5m and
a decrease of $19.5m in Adjusted EBITDA.
Following
the refinancing of the Group's debt in February, the amount held in
Euros increased by approximately €750m. This increase meant
that the currency mix of the Group's debt is closer aligned to the
Group's operating cash flows. As a result, the movement in the euro
has resulted in a reduction in the Group's debt of approximately
$125m in the period, which more than offsets the reduction in
Adjusted EBITDA because of currency movements.
Dividend
The board proposes an interim dividend of 8
cents. The
dividend will be paid on 5 August 2022 to shareholders on the
register as at 22 July 2022. 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.
Revenue
|
No change to expectations, working to mitigate impact of
Russia.
|
Costs included within Adj. EBITDA
|
Expect annualised cost savings of approximately $200m by end of
FY22.
|
Exceptional spend
|
Now expected to be approximately $50m in FY22 (previously
$100m).
|
Capital expenditure and leases
|
Approximately $200m per annum.
|
Taxation
|
Cash tax of approximately $130m.
|
Interest
|
Estimated cash interest including fees associated with refinancing
of c.$230m based on current rates.
|
Principal Risks and Uncertainties
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. This includes any new, emerging or
continuing direct or indirect risks posed by COVID-19. These risks
could cause actual results to differ materially from forecasts or
historic results. 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. 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, the threat of more challenging macro-economic conditions
and its effect on customer buying behaviour continues to be closely
monitored by the Group. Additionally, the
significant change in workforce behaviours as the Group emerges
from Covid-19 has resulted in elevated employee attrition, wage
inflation and a more challenging recruitment environment across the
technology sector. The Group has taken several important actions to
address this including taking comprehensive actions to address
renumeration in key roles and geographies and where possible,
attrition has been used to deliver our cost saving programme by
redeploying staff and reducing the level of exceptional spend
required to restructure the group.
The underlying principal risks and uncertainties facing the Group
have not materially changed, from those set out in the Annual
Report and Accounts for the 12 months ended 31 October 2021 (the
"2021 Annual Report") (pages 61 to 73). The principal risks and
uncertainties are set out on pages 61-73 of the 2021 Annual Report
under the headings below. They do not comprise all of the risks
associated with the Group and are not set out in priority order.
Additional risks not presently known to management, or currently
deemed to be less material, may also have an adverse effect on the
Group:
● Products;
● Sales/Go-to-Market models;
● Competition;
● Employees and
culture;
● Cyber
security;
● IT systems and
information;
● Business strategy
and change management;
● Legal and
regulatory compliance;
● Intellectual
property;
● Treasury;
● Tax;
● Macro-economic
environment, political unrest and pandemics;
● COVID-19;
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.
Matt Ashley
Chief Financial Officer
21 June 2022
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors confirm that, to the best of their
knowledge:
● This condensed set of financial statements has
been prepared in accordance with IAS 34 Interim Financial Reporting
as adopted for use in the UK;
● 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 Matt Ashley.
The current non-executive directors of the Company are Greg Lock,
Richard Atkins, Amanda Brown, Pauline Campbell, Lawton Fitt and
Robert Youngjohns. All of the non-executive directors are
independent with the exception of Greg Lock, the Chairman who was
considered independent on appointment.
Biographies for each director are included on the Company's
website: www.microfocus.com.
By
order of the board,
Stephen Murdoch
|
Matt Ashley
|
Chief Executive Officer
|
Chief Financial Officer
|
21 June 2022
Alternative performance measures
The Group uses certain measures to assess the financial performance
of its business. These measures are termed "Alternative Performance
Measures" because they exclude amounts that are included in, or
include amounts that are excluded from, the most directly
comparable measure calculated and presented in accordance with IFRS
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.
As announced on 30 November 2021 the Group has changed the
definition of Adjusted EBITDA to exclude capitalised development
costs. This change aligns the definition to the definition included
in our loan agreements. This change also impacts the calculation of
the Adjusted cash conversion ratio and Adjusted EBITDA
margin.
In addition, the Group has amended the definition of Adjusted
Profit before tax, Adjusted profit after tax, Adjusted Effective
tax rate and Adjusted EPS to exclude foreign exchange gains/losses
in order to exclude foreign exchange volatility when evaluating the
underlying performance of the business and to align the treatment
with Adjusted EBITDA. All
amended measures are presented on the new basis throughout the
document and are indicated by *.
A reconciliation to the Alternative Performance Measures prepared
on the previous basis is given in the table below:
|
Six months
ended
30 April 2022
|
Six months
ended
30 April 2021
|
Adjusted
EBITDA (FY21 reported basis)
|
409.8
|
519.0
|
Add
back: capitalised development
|
39.3
|
11.2
|
Adjusted EBITDA* (FY22 definition)
|
449.1
|
530.2
|
|
|
|
Adjusted
EBITDA margin (FY21 reported basis)
|
32.3%
|
36.4%
|
Adjusted
EBITDA* margin (FY22 definition)
|
35.4%
|
37.2%
|
|
|
|
Cash
conversion ratio (FY21 reported basis)
|
124.7%
|
124.5%
|
Cash
generated from Operations (unchanged)
|
484.6
|
468.1
|
|
|
|
Adjusted
EBITDA* (FY22 definition)
|
449.1
|
530.2
|
Less:
exceptional items (reported in Operating loss)
|
(21.2)
|
(143.0)
|
Adjusted
EBITDA less exceptional items (FY22 definition)
|
427.9
|
387.2
|
Adjusted cash conversion ratio* (FY22 definition)
|
113.3%
|
120.9%
|
|
|
|
Adjusted
Profit before Tax (FY21 reported basis)
Adjusted
Profit before Tax* (FY22 definition)
|
314.7
244.4
|
316.8
321.9
|
|
|
|
Adjusted
Profit after Tax (FY21 reported basis)
Adjusted
Profit after Tax* (FY22 definition)
|
255.6
187.5
|
222.5
226.1
|
Adjusted
Effective Tax Rate (FY21 reported basis)
|
18.8%
|
29.8%
|
Adjusted
Effective Tax Rate* (FY22 definition)
|
23.3%
|
29.8%
|
|
|
|
Adjusted
Earnings per share (FY21 reported basis)
Adjusted
Earnings per share* (FY22 definition)
|
78.17
57.34
|
66.15
67.23
|
The Group has reported unaudited results for the six months ended
30 April 2022 with a comparative unaudited period of the six months
ended 30 April 2021.
Alternative performance measures continued
1.
EBITDA and Adjusted EBITDA
The Group presents EBITDA because it is widely used by securities
analysts, investors and other interested parties to evaluate the
profitability of companies. EBITDA is defined as net earnings
before finance costs, finance income, taxation, depreciation of
property, plant and equipment, right-of-use asset depreciation and
amortisation of intangible assets. EBITDA eliminates potential
differences in performance caused by variations in capital
structures (affecting net finance costs), tax positions (such as
the availability of net operating losses against which to relieve
taxable profits), the cost and age of tangible assets (affecting
relative depreciation expense) and the extent to which intangible
assets are identifiable (affecting relative amortisation
expense).
Adjusted EBITDA is the primary measure used internally to measure
performance and to incentivise and reward employees. The Group
defines Adjusted EBITDA as comprising of EBITDA (as defined above),
adding back exceptional items including the profit on disposal of
discontinued operations, share-based compensation and foreign
exchange (gains)/losses.
Adjusted EBITDA margin refers to the measure defined above as a
percentage of actual revenue recorded in accordance with IFRS for
the year.
Adjusted EBITDA is a key profit measure used by the board to assess
the underlying financial performance of the Group. Adjusted EBITDA
is stated before the following items for the following
reasons:
● Exceptional items (note 7), including the profit
on disposal of discontinued operation, are excluded by virtue of
their size, nature or incidence, in order to show the underlying
business performance of the Group.
● Share-based payment charges are
excluded from the calculation of Adjusted EBITDA because these
represent a non-cash accounting charge for transactions that could
otherwise have been settled in cash or not be limited to employee
compensation. These charges also represent long-term incentives
designed for long-term employee retention, rather than reflecting
the short-term underlying operations of the Group's business. The
directors acknowledge that there is an on-going debate on the
add-back of
share-based payment charges but believe that as they are not
included in the analysis of segment performance used by the Chief
Operating Decision Maker and their add-back is consistent with
metrics used by a number of other companies in the technology
sector, that this treatment remains
appropriate.
● 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 statutory results for
the period to EBITDA and Adjusted EBITDA:
|
Six months ended 30 April 2022
|
|
|||||||
|
Statutory
$m
|
Intangibles amortisation
$m
|
Depreciation1
$m
|
Revenue to EBITDA
$m
|
Exceptional costs
$m
|
Share-based payments
$m
|
FX gain
$m
|
Revenue to Adjusted EBITDA*
$m
|
|
Revenue
|
1,269.6
|
-
|
-
|
1,269.6
|
-
|
-
|
-
|
1,269.6
|
|
Cost of
sales
|
(364.6)
|
131.8
|
11.1
|
(221.7)
|
1.5
|
-
|
-
|
(220.2)
|
|
Gross profit
|
905.0
|
131.8
|
11.1
|
1,047.9
|
1.5
|
-
|
-
|
1,049.4
|
|
Selling
& Distribution
|
(561.3)
|
265.5
|
5.5
|
(290.3)
|
1.0
|
-
|
-
|
(289.3)
|
|
Research
& Development
|
(231.1)
|
0.5
|
10.5
|
(220.1)
|
0.5
|
-
|
-
|
(219.6)
|
|
Administrative
expenses
|
(86.3)
|
15.1
|
14.9
|
(56.3)
|
(44.8)
|
12.4
|
(11.7)
|
(100.4)
|
|
Other
Operating Income
|
9.0
|
-
|
-
|
9.0
|
-
|
-
|
-
|
9.0
|
|
Operating Profit/EBITDA/AEBITDA*
|
35.3
|
412.9
|
42.0
|
490.2
|
(41.8)
|
12.4
|
(11.7)
|
449.1
|
|
Finance
costs
|
(139.8)
|
|
|
|
|
|
|
|
|
Finance
income
|
61.6
|
|
|
|
|
|
|
|
|
Taxation
|
15.0
|
|
|
|
|
|
|
|
|
Loss After Tax
|
(27.9)
|
|
|
|
|
|
|
|
|
Profit from discontinued operations
|
3.5
|
|
|
|
|
|
|
|
|
Loss for the period
|
(24.4)
|
|
|
|
|
|
|
|
|
Adjusted EBITDA margin*
|
|
|
|
|
|
|
35.4%
|
||
|
|
|
|
|
|
|
|
|
|
Alternative performance measures continued
Six
months ended 30 April 2021
|
Statutory
$m
|
Intangibles
amortisation
$m
|
Depreciation1
$m
|
Revenue
to EBITDA
$m
|
Exceptional
costs
$m
|
Share-based
payments
$m
|
FX
loss
$m
|
Revenue
to Adjusted EBITDA*
$m
|
Revenue
|
1,425.7
|
-
|
-
|
1,425.7
|
-
|
-
|
-
|
1,425.7
|
Cost of
sales
|
(384.9)
|
138.3
|
16.9
|
(229.7)
|
1.8
|
-
|
-
|
(227.9)
|
Gross
profit
|
1,040.8
|
138.3
|
16.9
|
1,196.0
|
1.8
|
-
|
-
|
1,197.8
|
Selling
& Distribution
|
(654.1)
|
317.8
|
6.7
|
(329.6)
|
4.3
|
-
|
-
|
(325.3)
|
Research
& Development
|
(259.4)
(259.4)
|
-
|
14.4
14.4
|
(245.0)
(245.0)
|
(0.4)
(0.4)
|
-
-
|
-
-
|
(245.4)
(245.4)
|
Administrative
expenses
|
(282.1)
(282.1)
|
16.1
16.1
|
18.2
18.3
|
(247.8)
(247.8)
|
137.3
137.3
|
8.5
8.5
|
5.1
5.1
|
(96.9)
(96.9)
|
Operating
loss/EBITDA/AEBITDA*
|
(154.8)
|
472.2
|
56.2
|
373.6
|
143.0
|
8.5
|
5.1
|
530.2
|
Finance
costs
|
(125.9)
|
|
|
|
|
|
|
|
Finance
income
|
0.7
|
|
|
|
|
|
|
|
Taxation
|
61.1
|
|
|
|
|
|
|
|
Loss
for the period
|
(218.9)
|
|
|
|
|
|
|
|
Adjusted
EBITDA margin*
|
|
|
|
|
|
|
|
37.2%
|
1 Includes
depreciation of property, plant and equipment and right-of-use
assets.
2.
Adjusted Profit before tax
Adjusted Profit before tax is presented as it is required for the
calculation of the Group's adjusted effective tax
rate.
Adjusted profit before tax is defined as loss before tax excluding
the effects of, share-based compensation, the amortisation of
purchased intangible assets, foreign exchange gains/losses and all
exceptional items including profit on disposal of discontinued
operation. These items are individually material items and/or are
not considered to be representative of the trading performance of
the Group:
● Exceptional items (note 7), including the profit
on disposal of discontinued operation, are excluded by virtue of
their size, nature or incidence, in order to show the underlying
business performance of the Group.
● Share-based payment charges are excluded from the
calculation of Adjusted Profit before tax because these represent a
non-cash accounting item. These charges also represent long-term
incentives designed for long-term employee retention, rather than
reflecting the short-term trading performance of the Group's
business. The directors acknowledge that there is an on-going
debate on the add-back of share-based payment charges but believe
that as they are not included in the analysis of segment
performance used by the Chief Operating Decision Maker and their
add-back is consistent with metrics used by a number of other
companies in the technology sector, that this treatment remains
appropriate.
● Charges for the amortisation of intangible assets
acquired in a business combination are excluded from the
calculation of Adjusted Profit before tax. This is because these
charges are a non-cash accounting item based on judgements about
their value and economic life, are the result of the application of
acquisition accounting, and whilst revenue recognised in the income
statement does benefit from the intangibles that have been
acquired, the amortisation costs bear no relation to the Group's
trading performance in the period. In addition, amortisation of
acquired intangibles is not included in the analysis of segment
performance used by the Chief Operating Decision
Maker.
● Foreign exchange movements are excluded from
calculation of Adjusted Profit before tax in order to exclude
foreign exchange volatility when evaluating the underlying
performance of the business.
Alternative performance measures continued
The following table is a reconciliation from loss before tax for
the period to Adjusted profit before tax:
|
|
|
|
Six months ended 30 April 2022
|
|
Six months ended 30 April 2021
|
|
|
|||
|
|
|
|
|
|
|
|
|
||
|
Continuing Operations
|
Discontinued Operation
|
Total
|
|
Discontinued Operation
|
Total
|
|
|||
|
$m
|
$m
|
$m
|
|
$m
|
$m
|
|
|||
Profit/(loss) before tax
|
(42.9)
|
3.5
|
(39.4)
|
|
-
|
(280.0)
|
|
|||
Share-based compensation charge
|
12.4
|
-
|
12.4
|
|
-
|
8.5
|
|
|||
Amortisation of intangibles acquired in a business
combination
|
387.0
|
-
|
387.0
|
|
-
|
445.3
|
|
|||
Exceptional items
|
(41.8)
|
(3.5)
|
(45.3)
|
|
-
|
|
|
|||
Foreign exchange (gain)/loss1
|
(70.3)
|
-
|
(70.3)
|
|
-
|
|
|
|||
Adjusting items
|
287.3
|
(3.5)
|
283.8
|
|
-
|
|
|
|||
Adjusted profit before tax*
|
244.4
|
-
|
244.4
|
|
-
|
|
|
This is presented because management believe it is important to
understanding the Group's tax position on its operating
performance. Adjusted Effective Tax Rate is used to assess the
trend in the Group tax rate. Adjusted profit after taxation
reflects adjusted profit before tax (see above) less the taxation
charge associated with these profits. The Adjusted Effective Tax
Rate is defined as the reported tax (charge)/credit on continuing
operations, less tax on adjusting items on continuing operations
(share-based compensation, the amortisation of intangible assets
acquired in a business combination, exceptional items and foreign
exchange gains/losses), divided by the Adjusted Profit Before Tax
on continuing operations (defined above).
|
|
|
|
The tax charge on Adjusted profit before tax for the six months
ended 30 April 2022 was $56.9m (2021:
$95.8m charge), which represents an effective tax rate on Adjusted
profit before tax ("Adjusted ETR") of 23.3% (2021: 29.8%). The
calculation of the Adjusted ETR is set out
below.
Effective tax rate
|
Six months
ended
30 April 2022
|
|
||
|
Statutory
|
Adjusting
items
|
Adjusted
Measures
|
|
|
$m
|
$m
|
$m
|
|
(Loss)/profit before tax
|
(42.9)
|
287.3
|
244.4
|
|
Taxation
|
15.0
|
(71.9)
|
(56.9)
|
|
(Loss)/profit after tax*
|
(27.9)
|
215.4
|
187.5
|
|
Effective tax rate*
|
35.0%
|
|
23.3%
|
|
|
|
|
|
|
Effective
tax rate
|
Six months
ended
30 April 2021
|
|
||
|
Statutory
|
Adjusting
items
|
Adjusted
Measures
|
|
|
$m
|
$m
|
$m
|
|
(Loss)/profit before tax
|
(280.0)
|
601.9
|
321.9
|
|
Taxation
|
61.1
|
(156.9)
|
(95.8)
|
|
(Loss)/profit after tax*
|
(218.9)
|
445.0
|
226.1
|
|
Effective tax rate*
|
21.8%
|
|
29.8%
|
|
|
|
|
|
|
In computing Adjusted profit before tax for the six months ended 30
April 2022, $287.3m (six months ended 30 April 2021: $601.9m) of
adjusting items have been added back along with the associated tax
credit of $71.9m (six months ended 30 April 2021: $156.9m credit
) which
relates to share-based payments compensation charge of $1.4m credit
(six months ended 30 April 2021: $2.1m credit), amortisation of
intangible assets acquired in a business combination of $86.2m
credit (2021: $120.7m credit), exceptional items of $13.5m charge
(six months ended 30 April 2021: $32.6m credit) and foreign
exchange gain of $2.2m charge (2021: $1.5m
credit).
Alternative performance measures continued
4.
Adjusted Earnings per Share and Diluted Adjusted Earnings per
Share
Adjusted Earnings per Share ("EPS") are presented as management
believe they are important to understanding the change in the
Group's EPS. The Adjusted EPS is defined as Basic EPS where the
earnings attributable to ordinary shareholders are adjusted by
adding back all exceptional items including the profit on the
disposal of discontinued operation, share-based compensation charge
and the amortisation of purchased intangibles, as well as foreign
exchange gains/losses because they are individually or collectively
material items that are not considered to be representative of the
trading performance of the Group.
|
Six months
ended
30 April 2022
|
Six
monthsended30 April 2021
|
|
|
|
Cents
|
|
|
|
|
|
EPS from continuing operations attributable to the ordinary equity
shareholders of the Company
|
|
|
Basic
EPS
|
(8.53)
|
(65.09)
|
Diluted
EPS1
|
(8.53)
|
(65.09)
|
Basic
Adjusted EPS*
|
57.34
|
67.23
|
Diluted
Adjusted EPS*
|
57.34
|
67.23
|
|
|
|
EPS from discontinued operation
|
|
|
Basic
EPS
|
1.07
|
-
|
Diluted
EPS1
|
1.07
|
-
|
Basic
Adjusted EPS*
|
-
|
-
|
Diluted
Adjusted EPS*
|
-
|
-
|
|
|
|
Total EPS attributable to the ordinary equity shareholders of the
Company
|
|
|
Basic
EPS
|
(7.46)
|
(65.09)
|
Diluted
EPS1
|
(7.46)
|
(65.09)
|
Basic
Adjusted EPS *
|
57.34
|
67.23
|
Diluted
Adjusted EPS*
|
57.34
|
67.23
|
|
|
|
Pence
|
|
|
|
|
|
EPS from continuing operations attributable to the ordinary equity
shareholders of the Company
|
|
|
Basic
EPS
|
(6.42)
|
(47.71)
|
Diluted
EPS1
|
(6.42)
|
(47.71)
|
Basic
Adjusted EPS*
|
43.15
|
49.28
|
Diluted
Adjusted EPS*
|
43.15
|
49.28
|
|
|
|
EPS from discontinued operation
|
|
|
Basic
EPS
|
0.81
|
-
|
Diluted
EPS1
|
0.81
|
-
|
Basic
Adjusted EPS*
|
-
|
-
|
Diluted
Adjusted EPS*
|
-
|
-
|
|
|
|
Total EPS attributable to the ordinary equity shareholders of the
Company
|
|
|
Basic
EPS
|
(5.61)
|
(47.71)
|
Diluted
EPS1
|
(5.61)
|
(47.71)
|
Basic
Adjusted EPS*
|
43.15
|
49.28
|
Diluted
Adjusted EPS*
|
43.15
|
49.28
|
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 2022. 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.
Adjusted EPS was used for LTIP performance in the previous period
with LTIP vesting applying the previous definition, the reported
amount used in LTIP performance was 66.15 cents (48.49
pence).
Alternative performance measures continued
|
Six months
ended
30 April 2022
|
Six
monthsended30 April 2021
|
|
$m
|
$m
|
Loss for the period and earnings attributable to ordinary
shareholders
|
(24.4)
|
(218.9)
|
|
|
|
From
continuing operations
From
discontinued operation
|
(27.9)
3.5
|
(218.9)
-
|
Loss for the period and earnings attributable to ordinary
shareholders
|
(24.4)
|
(218.9)
|
|
|
|
Adjusting items:
|
|
|
Gain on
disposal of discontinued operation
|
(3.5)
|
-
|
Exceptional
items
|
(41.8)
|
143.0
|
Share-based
compensation charge
|
12.4
|
8.5
|
Amortisation
of intangibles acquired in a business combination
|
387.0
|
445.3
|
Foreign
exchange (gain)/loss1
|
(70.3)
|
5.1
|
|
283.8
|
601.9
|
Tax relating to above adjusting items
|
(71.9)
|
(156.9)
|
Adjusted
earnings attributable to ordinary shareholders
|
187.5
|
226.1
|
|
|
|
From
continuing operations
From
discontinued operation
|
187.5
-
|
226.1
-
|
|
|
|
Adjusted earnings attributable to ordinary
shareholders
|
187.5
|
226.1
|
|
|
|
|
|
|
Weighted average number of shares:
|
Number (m)
|
Number
(m)
|
Basic
|
327.0
|
336.3
|
Effect
of dilutive securities - Options
|
-
|
-
|
Diluted
|
327.0
|
336.3
|
1 Of
the $70.3m foreign exchange gain, $11.7m is included in operating
costs and $58.6m in finance income.
|
Six months ended 30 April 2022
|
|
Six
months ended 30 April 2021
|
||||
|
Continuing
operations
|
Discontinued
operation
|
Total
|
|
Continuing
operations
|
Discontinued
operation
|
Total
|
|
$m
|
$m
|
$m
|
|
$m
|
$m
|
$m
|
Adjusting items:
|
|
|
|
|
|
|
|
Exceptional
items, including profit on disposal of discontinued
operation
|
(41.8)
|
(3.5)
|
(45.3)
|
|
143.0
|
-
|
143.0
|
Share-based
compensation charge
|
12.4
|
-
|
12.4
|
|
8.5
|
-
|
8.5
|
Amortisation
of intangibles acquired in a business combination
|
387.0
|
-
|
387.0
|
|
445.3
|
-
|
445.3
|
Foreign
exchange (gains)/losses
|
(70.3)
|
-
|
(70.3)
|
|
5.1
|
-
|
5.1
|
|
287.3
|
(3.5)
|
283.8
|
|
601.9
|
-
|
601.9
|
Tax relating to above adjusting items
|
(71.9)
|
-
|
(71.9)
|
|
(156.9)
|
-
|
(156.9)
|
|
215.4
|
(3.5)
|
211.9
|
|
445.0
|
-
|
445.0
|
Alternative performance measures continued
5. Free
cash flow and Adjusted free cash flow
Free cash flow is presented as it is widely used by securities
analysts, investors and other interested parties to understand the
Group's cash flow as it provides an indication of the Group's cash
generation in the period which is available for investment in debt
repayments, dividend payments or other discretionary activity. Free
cash flow is defined as cash generated from operations less
interest payments, bank loan costs, tax payments, purchase of
intangible assets, purchase of property, plant and equipment and
interest and capital payments in relation to leases.
Adjusted free cash flow, which is Free cash flow as previously
defined excluding the cash impact of exceptional items. This
adjusted measure is intended to present the cash-generating
qualities of the Group from trading performance only. In our view,
this enables an understanding of the Group's underlying trajectory
as we deliver our plans.
|
Six months
ended
30 April 2022
|
Six
months
ended
30
April 2021
|
|
$m
|
$m
|
Cash generated from operations
|
484.6
|
468.1
|
Less:
|
|
|
Interest
payments
|
(105.8)
|
(110.7)
|
Bank
loan costs
|
(23.2)
|
(0.6)
|
Tax
payments
|
(77.6)
|
(128.9)
|
Purchase
of intangible assets
|
(47.6)
|
(35.8)
|
Purchase
of property, plant and equipment
|
(4.6)
|
(10.3)
|
Lease
related capital payments
|
(35.8)
|
(42.3)
|
Free cash flow
|
190.0
|
139.5
|
Exclude the cash impact of exceptional items
|
36.8
|
107.4
|
Adjusted free cash flow
|
226.8
|
246.9
|
Cash impact of exceptional items is exceptional credit for the
period $41.8m (2021: $143.0m charge) adjusted for the related
movements in payables $14.0m (2021: $3.5m), provisions $15.7m
(2021: $(63.0)m), non-operating items $63.0m (2021: nil), non-cash
items nil (2021: $(2.5)m), and tax on exceptional items $(14.1)m
(2021: $(17.8)m) calculated at the weighted average rate of tax
applied in the territories the exceptional charges are recognised
in. During six months ended 30 April 2021 an additional payment of
the EU State Aid tax item $44.2m was recorded as an exceptional
cash item by virtue of size and nature as it relates to historic
tax structures and was not indicative of current trading
performance.
6. Net
Debt and Leverage
Net debt and Leverage are presented as these are the primary
liquidity measures used by management. Net debt is defined as cash
and cash equivalents less borrowings and lease obligations and add
lease receivables related to lease obligations retained following
disposals which are being reimbursed by the acquirer. Leverage is
defined as the Net Debt to 12 month trailing Adjusted EBITDA
ratio.
|
30 April 2022
|
31
October 2021
|
30
April 2021
|
|
$m
|
$m
|
$m
|
Borrowings
|
(4,067.0)
|
(4,548.4)
|
(4,597.4)
|
Cash
and cash equivalents
|
578.7
|
558.4
|
698.1
|
Lease
obligations
|
(179.4)
|
(205.9)1
|
(219.1)
|
Lease receivable reimbursed by the Digital Safe
business
|
17.2
|
-
|
-
|
Net debt
|
(3,650.5)
|
(4,195.9)
|
(4,118.4)
|
1
Includes lease obligations included in current liabilities held for
sale, see note 16.
Trailing 12 months Adjusted EBITDA* (continuing
operations):
|
|
|
|
|
|
|
30 April 2022
$m
|
31
October 2021
$m
|
30
April 2021
$m
|
||
Six
months to 30 April
|
449.1
|
530.2
|
530.2
|
||
Six
months to 31 October
|
529.1
|
529.1
|
630.8
|
||
|
978.2
|
1,059.3
|
1,161.0
|
||
Net
Debt / Adjusted EBITDA* ratio
|
3.7 times
|
4.0
times
|
3.5
times
|
||
|
|
|
|
|
|
Alternative performance measures continued
The following table is a reconciliation of the movements in net
debt from previously reported periods.
|
|
Borrowings
|
Cash and cash equivalents
|
Lease
receivable
|
Lease
obligations
|
Net Debt
|
|
Note
|
$m
|
$m
|
$m
|
$m
|
$m
|
At 1
May 2021
|
|
(4,597.4)
|
698.1
|
-
|
(219.1)
|
(4,118.4)
|
Repayments
|
|
8.6
|
-
|
-
|
42.1
|
50.7
|
Net
cash movement
|
|
-
|
(139.7)
|
-
|
-
|
(139.7)
|
Facility
fee expense
|
|
(17.4)
|
-
|
-
|
-
|
(17.4)
|
New
leases
|
|
-
|
-
|
-
|
(23.9)
|
(23.9)
|
Interest
|
|
-
|
-
|
-
|
(5.1)
|
(5.1)
|
The
effect of change in foreign exchange rates
|
|
57.8
|
-
|
-
|
0.1
|
57.9
|
At 31 October 2021
|
|
(4,548.4)
|
558.4
|
-
|
(205.9)1
|
(4,195.9)
|
Repayments
|
|
1,963.4
|
-
|
-
|
40.2
|
2,003.6
|
Drawdowns
|
|
(1,599.3)
|
-
|
-
|
-
|
(1,599.3)
|
Net
cash movement
|
|
-
|
20.3
|
-
|
-
|
20.3
|
Facility
fees capitalised
|
|
22.3
|
-
|
-
|
-
|
22.3
|
Facility
fees expenses
|
|
(31.4)
|
-
|
-
|
-
|
(31.4)
|
Disposals
|
|
-
|
-
|
17.2
|
11.4
|
28.6
|
New
leases
|
|
-
|
-
|
-
|
(20.0)
|
(20.0)
|
Interest
|
|
-
|
-
|
-
|
(4.4)
|
(4.4)
|
The
effect of change in foreign exchange rates
|
|
126.4
|
-
|
-
|
(0.7)
|
125.7
|
At 30 April 2022
|
|
(4,067.0)
|
578.7
|
17.2
|
(179.4)
|
(3,650.5)
|
1 Included
lease obligations included in current liabilities held for
sale.
7. Adjusted
cash conversion ratio
Adjusted cash conversion ratio is presented as management believe
it is important to understanding the Group's conversion of
underlying results to cash. The Group's adjusted cash conversion
ratio is defined as cash generated from operations divided by
Adjusted EBITDA less exceptional items (reported in Operating loss
and excluding any goodwill impairment charge, as these are deemed
non-cash related). Adjusted cash conversion ratio is used to track
and measure timing differences between profitability and cash
generation through working capital management, including
seasonality or one-offs.
|
Six months
ended
30 April 2022
|
Six
months
ended
30
April 2021
|
|
$m
|
$m
|
Cash generated from operations
|
484.6
|
468.1
|
|
|
|
Adjusted
EBITDA*
|
449.1
|
530.2
|
Less:
exceptional items reported in Operating loss excluding gain on
disposal (investing activity)
|
(21.2)
|
(143.0)
|
|
|
|
Adjusted
EBITDA* less exceptional items
|
427.9
|
387.2
|
|
|
|
Adjusted cash conversion ratio*
|
113.3%
|
120.9 %
|
Alternative performance measures continued
8. Constant
Currency
The Group's reporting currency is the US Dollar however, the
Group's significant international operations give rise to
fluctuations in foreign exchange rates. To neutralise foreign
exchange impact and to illustrate the underlying change in results
from one year to the next, the Group has adopted the practice of
discussing results on an as reported basis and in constant
currency.
The Group uses US Dollar based constant currency models to measure
performance. These are calculated by restating the results of the
Group for the comparable 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, Japanese Yen, Indian Rupee,
and the Australian Dollar. The exchange rates used are as
follows:
|
Six monthsended30 April 2022
|
|
12
months
ended
31
October 2021
|
|
Six
monthsended30 April 2021
|
|||
|
Average
|
Closing
|
|
Average
|
Closing
|
|
Average
|
Closing
|
£1
= $
|
1.33
|
1.26
|
|
1.37
|
1.37
|
|
1.36
|
1.39
|
€1
= $
|
1.12
|
1.05
|
|
1.19
|
1.16
|
|
1.20
|
1.21
|
C$ =
$
|
0.79
|
0.78
|
|
0.80
|
0.81
|
|
0.79
|
0.81
|
AUD =
$
|
0.72
|
0.71
|
|
0.75
|
0.75
|
|
0.76
|
0.78
|
100 INR
= $
|
1.33
|
1.31
|
|
1.36
|
1.33
|
|
1.36
|
1.35
|
100 JPY
= $
|
0.85
|
0.77
|
|
0.92
|
0.88
|
|
0.94
|
0.92
|
Micro Focus International plc
Condensed Consolidated Statement of Comprehensive
Income
For the six months ended 30 April 2022
Continuing operations
|
Note
|
Six months ended
30 April 2022$m
|
Six
months ended
30
April 2021$m
|
Revenue
|
6
|
1,269.6
|
1,425.7
|
Cost of
sales
|
|
(364.6)
|
(384.9)
|
Gross profit
|
|
905.0
|
1,040.8
|
Selling
and distribution expenses
|
|
(561.3)
|
(654.1)
|
Research
and development expenses
|
|
(231.1)
|
(259.4)
|
Administrative
expenses
|
|
(86.3)
|
(282.1)
|
Other
Operating Income
|
|
9.0
|
-
|
Operating profit/(loss)
|
|
35.3
|
(154.8)
|
|
|
|
|
Operating
profit prior to depreciation, amortisation and exceptional
items
|
|
448.4
|
516.6
|
Depreciation
and amortisation
|
|
(454.9)
|
(528.4)
|
Exceptional
items
|
7
|
41.8
|
(143.0)
|
Operating profit/(loss)
|
|
35.3
|
(154.8)
|
|
|
|
|
Finance
costs
|
|
(139.8)
|
(125.9)
|
Finance
income
|
|
61.6
|
0.7
|
Net
finance costs
|
|
(78.2)
|
(125.2)
|
|
|
|
|
Loss before tax
|
|
(42.9)
|
(280.0)
|
Taxation1
|
10
|
15.0
|
61.1
|
Loss after tax
|
|
(27.9)
|
(218.9)
|
Profit
from Discontinued Operations
|
16
|
3.5
|
-
|
Loss for the period
|
|
(24.4)
|
(218.9)
|
Attributable to:
|
|
|
|
Equity
shareholders of the Company
|
|
(24.4)
|
(218.9)
|
Loss for the period
|
|
(24.4)
|
(218.9)
|
1 Taxation
includes a charge of $13.5m (2021: credit $32.6m) relating to
exceptional items, see note 7
The accompanying notes are an integral part of these unaudited
Condensed Consolidated Interim Financial Statements.
Micro Focus International plc
Condensed Consolidated Statement of Comprehensive
Income
For the six months ended 30 April 2022
|
Note
|
Six months ended 30 April 2022$m
|
Six
months ended 30
April
2021$m
|
Loss for the period
|
|
(24.4)
|
(218.9)
|
Other comprehensive (expense)/income for the period:
|
|
|
|
Items that will not be reclassified to profit or loss
|
|
|
|
Actuarial
gain on pension schemes liabilities
|
13
|
49.3
|
34.0
|
Actuarial
gain on non-plan pension assets
|
|
0.3
|
0.2
|
Items that may be subsequently reclassified to profit or
loss
|
|
|
|
Cash
flow hedge movements
|
12
|
67.7
|
20.7
|
Current
tax movement on cash flow hedge movements
|
|
(6.1)
|
(3.9)
|
Deferred
tax movement on cash flow hedge movements
|
|
(8.7)
|
-
|
Current
tax movement on Euro loan foreign exchange hedging
|
|
(6.2)
|
7.6
|
Deferred
tax movement on Euro loan foreign exchange hedging
|
|
21.4
|
(17.3)
|
Currency
translation (loss)/gain
|
|
(144.7)
|
96.5
|
Other comprehensive (expense)/income for the period
|
|
(27.0)
|
137.8
|
Total comprehensive expense for the period
|
|
(51.4)
|
(81.1)
|
Attributable to:
|
|
|
|
Equity
shareholders of the Company
|
|
(51.4)
|
(81.1)
|
Total comprehensive expense for the period
|
|
(51.4)
|
(81.1)
|
Earnings per share (cents)
|
|
|
|
|
|
|
From continuing and discontinued operations
|
|
|
|
cents
|
cents
|
|
-
basic
|
9
|
|
|
(7.46)
|
(65.09)
|
|
-
diluted
|
9
|
|
|
(7.46)
|
(65.09)
|
|
From continuing operations
|
|
|
|
|
|
|
-
basic
|
9
|
|
|
(8.53)
|
(65.09)
|
|
-
diluted
|
9
|
|
|
(8.53)
|
(65.09)
|
|
|
|
|
|
|
|
|
Earnings per share (pence)
|
|
|
|
|
|
|
From continuing and discontinued operations
|
|
|
|
pence
|
pence
|
|
-
basic
|
9
|
|
|
(5.61)
|
(47.71)
|
|
-
diluted
|
9
|
|
|
(5.61)
|
(47.71)
|
|
From continuing operations
|
|
|
|
|
|
|
-
basic
|
9
|
|
|
(6.42)
|
(47.71)
|
|
-
diluted
|
9
|
|
|
(6.42)
|
(47.71)
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited
Condensed Consolidated Interim Financial Statements.
Micro Focus International plc
Condensed Consolidated Statement of Financial Position
|
Note
|
30 April 2022
$m
|
31
October 2021
$m
|
Non-current assets
|
|
|
|
Goodwill
|
11
|
3,628.0
|
3,725.5
|
Other intangible assets
|
|
3,887.5
|
4,331.2
|
Property, plant and equipment
|
|
194.6
|
228.6
|
Non-current tax receivables
|
|
43.9
|
48.0
|
Deferred tax asset
|
|
15.0
|
15.0
|
Financial assets
|
12
|
35.8
|
-
|
Trade and other receivables
|
|
17.0
|
19.6
|
Other non-current assets
|
|
68.2
|
71.6
|
|
|
7,890.0
|
8,439.5
|
Current assets
|
|
|
|
Trade and other receivables
|
|
647.6
|
886.3
|
Other current assets
|
|
31.6
|
33.0
|
Current tax receivables
|
10
|
32.8
|
59.1
|
Cash and cash equivalents
|
|
578.7
|
558.4
|
|
|
1,290.7
|
1,536.8
|
Current
assets classified as held for sale
|
|
-
|
370.3
|
|
|
1,290.7
|
1,907.1
|
Total assets
|
|
9,180.7
|
10,346.6
|
|
|
|
|
Current liabilities
|
|
|
|
Trade and other payables
|
|
398.4
|
513.2
|
Financial liabilities
|
12
|
91.1
|
134.9
|
Provisions
|
14
|
50.1
|
65.7
|
Current tax liabilities
|
10
|
74.0
|
94.1
|
Contract liabilities
|
|
903.4
|
984.6
|
|
|
1,517.0
|
1,792.5
|
Current
liabilities classified as held for sale
|
|
-
|
68.4
|
|
|
1,517.0
|
1,860.9
|
Non-current liabilities
|
|
|
|
Contract liabilities
|
|
126.6
|
131.8
|
Financial liabilities
|
12
|
4,159.2
|
4,643.7
|
Retirement benefit obligations
|
13
|
85.1
|
147.1
|
Provisions
|
14
|
14.9
|
19.8
|
Other non-current liabilities
|
|
22.5
|
31.3
|
Non-current tax liabilities
|
10
|
81.1
|
91.9
|
Deferred tax liabilities
|
10
|
522.0
|
599.1
|
|
|
5,011.4
|
5,664.7
|
Total liabilities
|
|
6,528.4
|
7,525.6
|
Net assets
|
|
2,652.3
|
2,821.0
|
|
|
|
|
Capital and reserves
|
|
|
|
Share capital
|
|
47.4
|
47.4
|
Share premium account
|
|
47.1
|
46.8
|
Other reserves
|
|
3,770.6
|
3,847.2
|
Retained earnings
|
|
(1,212.8)
|
(1,120.4)
|
Total equity
|
|
2,652.3
|
2,821.0
|
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
|
|
|
|
Other reserves
|
|
|
||||||||||||||||||||||
|
|
Share capital
|
Share premium account
|
Retained
earnings
|
Foreign currency translation reserve
|
Capital redemption reserves
|
Hedging reserve
|
Merger reserve
|
Total equity
|
|||||||||||||||||||
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
|||||||||||||||||||
Balance at 1 November 2021
|
|
47.4
|
46.8
|
(1,120.4)
|
(268.0)
|
2,485.0
|
(28.9)
|
1,659.1
|
2,821.0
|
|||||||||||||||||||
Loss
for the financial period
|
|
-
|
-
|
(24.4)
|
-
|
-
|
-
|
-
|
(24.4)
|
|||||||||||||||||||
Other
comprehensive income/(expense) for the period
|
|
-
|
-
|
49.6
|
(129.5)
|
-
|
52.9
|
-
|
(27.0)
|
|||||||||||||||||||
Total
comprehensive income/(expense) for the period
|
|
-
|
-
|
25.2
|
(129.5)
|
-
|
52.9
|
-
|
(51.4)
|
|||||||||||||||||||
Share options:
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Issue
of share capital - share options
|
|
-
|
0.3
|
-
|
-
|
-
|
-
|
-
|
0.3
|
|||||||||||||||||||
Movement
in relation to share options
|
|
-
|
-
|
14.5
|
-
|
-
|
-
|
-
|
14.5
|
|||||||||||||||||||
Deferred
tax on share options
|
|
-
|
-
|
0.3
|
-
|
-
|
-
|
-
|
0.3
|
|||||||||||||||||||
Purchase of treasury shares1
|
|
-
|
-
|
(67.2)
|
-
|
-
|
-
|
-
|
(67.2)
|
|||||||||||||||||||
Transactions with owners:
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Dividends
paid
|
|
-
|
-
|
(65.2)
|
-
|
-
|
-
|
-
|
(65.2)
|
|||||||||||||||||||
Balance as at 30 April 2022
|
|
47.4
|
47.1
|
(1,212.8)
|
(397.5)
|
2,485.0
|
24.0
|
1,659.1
|
2,652.3
|
|||||||||||||||||||
|
|
|
|
|
Other
reserves
|
|
|
|||||||||||||||||||||
|
|
Share
capital
|
Share
premium account
|
Retained
earnings
|
Foreign
currency translation reserve
|
Capital
redemption reserves
|
Hedging
reserve
|
Merger
reserve
|
Total
equity
|
|
||||||||||||||||||
|
|
$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
|
|
||||||||||||||||||
Loss
for the financial period
|
|
-
|
-
|
(218.9)
|
-
|
-
|
-
|
-
|
(218.9)
|
|
||||||||||||||||||
Other
comprehensive income for the period
|
|
-
|
-
|
34.2
|
86.8
|
-
|
16.8
|
-
|
137.8
|
|
||||||||||||||||||
Total
comprehensive (expense)/income for the period
|
|
-
|
-
|
(184.7)
|
86.8
|
-
|
16.8
|
-
|
(81.1)
|
|
||||||||||||||||||
Share
options:
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
Movement
in relation to share options
|
|
-
|
-
|
6.2
|
-
|
-
|
-
|
-
|
6.2
|
|
||||||||||||||||||
Deferred
tax on share options
|
|
-
|
-
|
(1.2)
|
-
|
-
|
-
|
-
|
(1.2)
|
|
||||||||||||||||||
Purchase
of treasury shares1
|
|
-
|
-
|
(27.2)
|
-
|
-
|
-
|
-
|
(27.2)
|
|
||||||||||||||||||
Transactions
with owners:
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
Dividends
paid
|
|
-
|
-
|
(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
|
|
||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 During
the 6 months ended 30 April 2022 the Micro Focus Employee Benefit
Trust ("EBT") purchased 12 million of the Group's shares from the
market (six months ended 30 April 2021: 4 million). The EBT will
hold these shares to satisfy future exercises of share options. In
accordance with the requirement of IFRS 10 the EBT is treated as if
it is a subsidiary of the Group. As a result, the purchase of
shares held by the EBT is reported as a purchase of treasury shares
by the Group.
The
accompanying notes are an integral part of these unaudited
Condensed Consolidated Interim Financial Statements.
Micro Focus International plc
Condensed Consolidated Statement of Cash Flows
|
Note
|
Six months ended
30 April 2022
$m
|
Six
months ended
30
April 2021
$m
|
Cash flows from operating activities
|
|
|
|
Cash generated from operations
|
15
|
484.6
|
468.1
|
Interest
paid
|
|
(105.8)
|
(110.7)
|
Bank
loan costs
|
|
(23.2)
|
(0.6)
|
Tax
paid
|
|
(77.6)
|
(128.9)
|
Net cash generated from operating activities
|
|
278.0
|
227.9
|
Cash flows from investing activities
|
|
|
|
Payments
for intangible assets
|
|
(47.6)
|
(35.8)
|
Purchase of
property, plant and equipment
|
|
(4.6)
|
(10.3)
|
Payment
for acquisition of business
|
|
(28.4)
|
-
|
Interest
received
|
|
3.0
|
0.7
|
Proceeds
from sale of business
|
16
|
363.5
|
-
|
Tax
paid on disposal
|
16
|
(2.3)
|
-
|
Net cash generated from/(used in) investing activities
|
|
283.6
|
(45.4)
|
Cash
flows from financing activities
|
|
|
|
Proceeds
from issue of ordinary share capital
|
|
0.3
|
-
|
Purchase
of treasury shares and related expenses
|
|
(67.2)
|
(27.2)
|
Payment
for lease liabilities
|
|
(35.8)
|
(42.3)
|
Proceeds
from bank borrowings
|
|
1,599.3
|
-
|
Repayment
of bank borrowings
|
|
(1,963.4)
|
(105.5)
|
Dividends
paid to owners
|
8
|
(65.2)
|
(51.8)
|
Net
cash used in financing activities
|
|
(532.0)
|
(226.8)
|
Effects
of exchange rate changes
|
|
(9.3)
|
5.2
|
Net
increase/(decrease) in cash and cash equivalents
|
|
20.3
|
(39.1)
|
Cash
and cash equivalents at beginning of period
|
|
558.4
|
737.2
|
Cash and cash equivalents at end of period
|
|
578.7
|
698.1
|
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 2022, the Group
had a presence in 47 countries (31 October 2021: 48) worldwide and
employed approximately 11,019 people (31 October 2021:
11,355).
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 21 June
2022.
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 2021 were approved by the board of directors on 7 February
2022 and delivered to the Registrar of
Companies. The
auditor has reported on the 31 October 2021 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 2022 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 2021. 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.
The annual financial statements of the group for the year ended 31
October 2022 will be prepared in accordance with UK-adopted
international accounting standards. As required by the Disclosure
Guidance and Transparency Rules of the Financial Conduct Authority,
the condensed set of financial statements has been prepared
applying the accounting policies and presentation that were applied
in the preparation of the company's published consolidated
financial statements for the year ended 31 October 2021 which were
prepared in accordance with International Financial Reporting
Standards (IFRSs) 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.
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 to June 2023, which is consistent with the FRC
guidance.
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, it considered the financial impact for severe but
plausible scenarios impacting both revenue and Adjusted EBITDA
which take into account the Group's principal risks, including
severe but plausible scenarios. This stress testing confirmed that
existing projected cash flows and cash management activities
provide us with adequate headroom over the going concern assessment
period.
Finally, the board also considered the reported net current
liability position of $226.3m at 30 April 2022. 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.
Consolidated statement of comprehensive income and financial
position
The Group revised the presentation of the Consolidated Statement of
Comprehensive Income for the year ended 31 October 2021 to remove
the additional two columns showing exceptional items and the
pre-exceptional item results which were included in prior periods.
Instead additional disclosure has been included on the face of the
Consolidated Statement of Comprehensive Income to show operating
profit before depreciation, amortisation and exceptional items. The
revised presentation is considered to be simpler to the users of
the accounts and reflects the significant impact of amortisation,
depreciation and exceptional items on the results of the Group. The
comparatives have been represented to be consistent with the
revised presentation format.
Notes to the consolidated interim financial statements
The Group has revised the presentation of the Consolidated
Statement of Financial Position to combine line items presented
separately in previous periods, primarily financial instruments,
other reserves and property, plant and equipment. The revised
presentation is considered to be simpler to the users of the
accounts. The comparatives have been represented to be consistent
with the revised presentation format.
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 a
revision to the critical accounting estimates has been identified
in relation to retirement benefit obligations. Aside from this, 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 2021 remain relevant to these Condensed
Consolidated Interim Financial Statements.
Retirement benefit obligations
Having assessed the impact of the assumptions used in estimating
the retirement benefit obligation the Group has concluded that only
the discount rate and inflation are critical. Mortality rates and
salary growth rates are no longer considered critical estimates.
Sensitivity of the carrying value of retirement benefit obligation
to the discount rate and inflation is provided in note
13.
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 2021, 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.
Foreign currency
translation - transactions and balances
Foreign exchange gains and losses resulting from the
translation to
period end exchange rates on borrowings denominated in
foreign currencies which are not hedged by net investment
hedges are recognised in the Consolidated statement of
comprehensive income within net finance costs. Previously the
Group had no borrowings denominated in foreign currencies which
were not hedged by net investment hedges.
Interpretations and amendments
Currently effective for periods commencing after 1 January
2021(applicable to the Group from 1 November 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, UK endorsed 5 January
2021.
The following interpretations and amendments to existing standards
are not yet effective and have not been adopted early by the Group.
These interpretations and amendments have not yet been endorsed by
the UK Endorsement Board ("UK EB" except where stated
below:
Effective for periods commencing after 1 January 2022 (applicable
to the Group from 1 November 2022):
- Annual
Improvements cycle 2018-2020 includes relevant amendments
clarifying capitalisation of transaction fees/ inclusion of
specific fees in modification/extinguishment test within IFRS 9
Financial Instruments, 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".
Effective for periods commencing after 1 January 2023 (applicable
to the Group from 1 November 2023), all subject to UK
endorsement:
- Amendments
to IAS 1 "Presentation of financial statements". Amendment is
presentational relates to the classification of liabilities current
and non-current (now deferred until after January
2024).
- 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".
The impact of the amendments and interpretations listed above are
not expected to have a material impact on the consolidated
financial statements.
Notes to the consolidated interim 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 2022, 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 the Micro Focus Product
Portfolio. The Micro Focus Product Portfolio segment contains
mature infrastructure software products that are managed on a
portfolio basis. This portfolio is managed with a single product
group that makes and maintains the software, whilst the software is
sold and supported through one single Go-to-Market organisation
with specialist skills targeted by sub-portfolio. The products
within the existing Micro Focus Product Portfolio are grouped
together into five sub-portfolios based on industrial logic and
management of the Micro Focus sub-portfolios: Application
Modernisation & Connectivity ("AMC"), Application Delivery
Management ("ADM"), IT Operations Management ("ITOM"), CyberRes and
Information Management & Governance ("IM&G").
The segmental reporting is consistent with that used in internal
management reporting and the profit measure used by the
Operating Committee is Adjusted EBITDA.
As announced on 30 November 2021 the Group has changed the
definition of Adjusted EBITDA to exclude capitalised development
costs. This change aligns the definition to the definition included
in our loan agreements. The table below has been updated to reflect
this updated definition. Under the previous definition Adjusted
EBITDA would be $409.8m (six months ended 30 April 2021:
$519.0m).
|
|
Six months
ended
30 April 2022
|
Six
months
ended
30
April 2021
|
Reconciliation to Adjusted EBITDA*:
|
Note
|
$m
|
$m
|
Loss before tax
|
|
(42.9)
|
(280.0)
|
Finance
costs
|
|
139.8
|
125.9
|
Finance
income
|
|
(61.6)
|
(0.7)
|
Depreciation of property, plant and equipment
|
|
42.0
|
56.2
|
Amortisation of intangible assets
|
|
412.9
|
472.2
|
Exceptional items (reported in Operating loss)
|
7
|
(41.8)
|
143.0
|
Share-based compensation charge
|
|
12.4
|
8.5
|
Foreign
exchange (gain)/loss
|
|
(11.7)
|
5.1
|
Adjusted EBITDA*
|
|
449.1
|
530.2
|
For the reportable segment, the total assets were $9,180.7m (31
October 2021: $10,346.6m) and the total liabilities were $6,528.4m
(31 October 2021: $7,525.6m) as at 30 April 2022.
Notes to the consolidated interim financial statements
6. Analysis of
revenue
Revenue from contracts with customers
|
Six months ended
30 April 2022
|
Six months
ended
30 April 2021
|
|
$m
|
$m
|
Revenue from contracts with customers
|
1,269.6
|
1,425.7
|
|
|
|
Being:
|
|
|
Recognised over time:
|
|
|
Maintenance revenue
|
825.9
|
912.5
|
SaaS & other recurring revenue
|
93.7
|
119.8
|
Consulting revenue
|
22.5
|
-
|
|
942.1
|
1,032.3
|
Recognised at point in time:
|
|
|
Licence revenue
|
269.2
|
301.7
|
Consulting revenue
|
58.3
|
91.7
|
|
327.5
|
393.4
|
|
|
|
Total Revenue
|
1,269.6
|
1,425.7
|
By Product
Set out below is an analysis of revenue recognised between the
principal product portfolios for the six months ended 30 April 2022
with comparatives:
|
Licence
$m
|
Maintenance
$m
|
SaaS &
other
recurring
$m
|
Consulting
$m
|
Total
$m
|
Six months ended 30 April 2022:
|
|
|
|
|
|
Micro Focus Product Portfolio
|
|
|
|
|
|
AMC
|
53.1
|
152.9
|
-
|
5.7
|
211.7
|
ADM
|
42.0
|
188.5
|
40.5
|
7.7
|
278.7
|
ITOM
|
63.6
|
195.9
|
2.3
|
48.4
|
310.2
|
CyberRes
|
67.1
|
168.7
|
20.5
|
13.8
|
270.1
|
IM&G
|
43.4
|
119.9
|
30.4
|
5.2
|
198.9
|
Total Revenue
|
269.2
|
825.9
|
93.7
|
80.8
|
1,269.6
|
|
Licence
$m
|
Maintenance
$m
|
SaaS
&
other
recurring
$m
|
Consulting
$m
|
Total
$m
|
Six
months ended 30 April 2021:
|
|
|
|
|
|
Micro
Focus Product Portfolio
|
|
|
|
|
|
AMC
|
62.1
|
158.5
|
-
|
5.1
|
225.7
|
ADM
|
49.6
|
208.9
|
36.6
|
9.2
|
304.3
|
ITOM
|
92.8
|
262.2
|
2.0
|
54.6
|
411.6
|
CyberRes
|
70.1
|
193.6
|
18.6
|
14.5
|
296.8
|
IM&G
|
27.1
|
89.3
|
62.6
|
8.3
|
187.3
|
Total
Revenue
|
301.7
|
912.5
|
119.8
|
91.7
|
1,425.7
|
Notes to the consolidated interim financial statements
7. Exceptional
items
|
Note
|
Six months
ended
30 April 2022
|
Six
months
ended
30
April 2021
|
Reported within Operating profit/ (loss):
|
|
$m
|
$m
|
Integration
costs
|
|
-
|
45.6
|
Property-related
costs
|
|
-
|
4.0
|
Legal
settlement and associated costs
|
|
-
|
74.6
|
Severance
and legal costs
|
|
20.9
|
13.0
|
Other
restructuring costs
|
|
-
|
5.8
|
Gain on
divestiture
|
16
|
(63.0)
|
-
|
Acquisition
costs
|
|
0.3
|
-
|
Exceptional costs before tax
|
|
(41.8)
|
143.0
|
|
|
|
|
Tax effect of exceptional items
|
|
13.5
|
(32.6)
|
Reported within profit from discontinued operation (attributable to
equity shareholders of the Company):
|
|
|
|
Gain on
disposal of discontinued operation
|
16
|
(3.5)
|
-
|
Exceptional costs after tax
|
|
(31.8)
|
110.4
|
Exceptional items are allocated to the financial statement lines
(for example: cost of sales) in the Consolidated statement of
comprehensive income based on the nature and function of the costs;
for example restructuring costs related to employees are classified
where their original employment costs are recorded. Exceptional
items included in operating profit are reported in the following
financial statement lines Cost of sales $1.5m (six months ended 30
April 2021: $1.8m), Selling and distribution expenses $1.0m (six
months ended 30 April 2021: $4.3m), Research and development
expense $0.5m (six months ended 30 April 2021: $0.4m credit) and
Administrative expenses $44.8m credit (six months ended 30 April
2021: $137.3m).
Integration costs
Integration costs were $nil for the six months ended 30 April 2022
(six months ended 30 April 2021: $45.6m). The prior period costs
reflect the costs incurred in the IT design, build and migration
onto a single new IT
platform and a wide range of projects undertaken to conform,
simplify and increase efficiency across the
business.
Property related costs
Property related costs were $nil for the six months ended 30 April
2022 (six months ended 30 April 2021: $4.0m). Prior period
costs related
to the impairment or amendment to the impairments of right-of-use
assets held by the Group, any related onerous non-rental costs and
the cost of site consolidations. These costs were incurred as the
Group simplified and rationalised its real estate
footprint.
Legal settlement and associated costs
Legal settlements and associated costs were $nil for the six months
ended 30 April 2022 (six months ended 30 April 2021: $74.6m). Legal
settlements and associated costs of $74.6m for the six months ended
30 April 2021 related to the Wapp patent infringement case and were
exceptional by virtue of size and incidence.
Severance and legal costs
Severance and legal costs of $20.9m for the six months ended 30
April 2022 (six months ended 30 April 2021: $13.0m) relate mostly
to termination costs for employees as the Group executes the
FY22/FY23 Cost programmes required to remove $400m-$500m of gross
costs as we exit FY23.
Other restructuring costs
Other restructuring costs were $nil for the six months ended 30
April 2022 (six months ended 30 April 2021: $5.8m). The prior
period costs related to the costs of restructuring of the Group to
deliver the target operating model design and cost base and certain
IT expenditure required to support the related simplification of
the Group.
Acquisition costs
Acquisitions costs of $0.3m for the six months ended 30 April 2022
(six months ended 30 April 2021: $nil) relate to the acquisition of
the Debricked AB entity. M&A costs are considered to be
exceptional by virtue of their nature.
Tax effect of exceptional items
The tax effect of exceptional items on the income statement is a
charge of $13.5m for the six months ended 30 April 2022 (six months
ended 30 April 2021: $32.6m credit). Exceptional items include a
tax charge of $19.4m in relation to the gain on divestiture of the
Digital Safe business.
Notes to the consolidated interim financial statements
8.
Dividends
|
Six months
ended
30 April 2022
|
Six months
ended
30 April 2021
|
Equity - ordinary
|
$m
|
$m
|
Final paid 31 October 2021 20.3 cents per ordinary share (31
October 2020: 15.5 cents per ordinary share)
|
65.2
|
51.8
|
|
65.2
|
51.8
|
The directors announce an interim dividend of 8 cents
per share payable on 5 August 2022 to shareholders who are
registered at 22 July 2022. This interim dividend, amounting to
$26m has not been recognised as a liability as at 30 April
2022.
9. Earnings per
share
The calculation of the basic earnings per share has been based on
the earnings attributable to owners of the parent and the weighted
average number of shares for each period.
Reconciliation of the earnings and weighted average number of
shares:
|
Six monthsended30 April 2022
|
Six months ended30 April 2021
|
|
Earnings ($m)
|
|
|
|
Loss for the period from continuing operations
|
(27.9)
|
(218.9)
|
|
Profit for the period from discontinued operations
|
3.5
|
-
|
|
Loss for the period
|
(24.4)
|
(218.9)
|
|
|
|
|
|
Number of shares ('m)
|
|
|
|
Weighted average number of shares
|
327.0
|
336.3
|
|
Dilutive effects of shares
|
-
|
-
|
|
|
327.0
|
336.3
|
|
CENTS
|
|
|
|
Basic earnings per share
|
|
|
|
Continuing operations
|
(8.53)
|
(65.09)
|
|
Discontinued operation
|
1.07
|
-
|
|
Total Basic earnings per share
|
(7.46)
|
(65.09)
|
|
|
|
|
|
Diluted earnings per share
|
|
|
|
Continuing operations1
|
(8.53)
|
(65.09)
|
|
Discontinued operation1
|
1.07
|
-
|
|
Total Diluted earnings per
share1
|
(7.46)
|
(65.09)
|
|
|
|
|
|
PENCE
|
|
|
|
Basic earnings per share
|
|
|
|
Continuing operations
|
(6.42)
|
(47.71)
|
|
Discontinued operation
|
0.81
|
-
|
|
Total Basic earnings per share
|
(5.61)
|
(47.71)
|
|
|
|
|
|
Diluted earnings per share
|
|
|
|
Continuing operations1
|
(6.42)
|
(47.71)
|
|
Discontinued operations1
|
0.81
|
-
|
|
Total Diluted earnings per
share1
|
(5.61)
|
(47.71)
|
|
|
|
|
|
Loss attributable to ordinary shareholders ($m)
|
|
|
|
Loss for the period from continuing operations
|
(27.9)
|
(218.9)
|
|
Profit for the period from discontinued operations
|
3.5
|
-
|
|
|
(24.4)
|
(218.9)
|
|
Average exchange rate
|
$1.33 / £1
|
$1.36 /
£1
|
|
|
|
|
|
1 The
Group reported a loss from continuing and discontinued operations
attributable to the ordinary equity shareholders of the Company for
the six months ended 30 April 2022 and 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.
The weighted average number of shares excludes treasury shares that
do not have dividend rights and shares held in the Employee Benefit
Trust.
Notes to the consolidated interim financial statements
10. Taxation
Tax for the six month period ended 30 April 2022 was a credit of
$15.0m (30 April 2021: credit of $61.1m) with the Group's Effective
Tax Rate ("ETR") being 35.0% (30 April 2021: 21.8%). The Group's
cash taxes paid in the six months ended 30 April 2022 were $79.9m
(30 April 2021: $128.9m). Cash taxes are lower than in the prior
year comparative period, primarily due to the impact of the payment
in relation to State Aid charging notices of $44.2m made in
2021.
There is tax charge of $19.4m within exceptional items in relation
to the disposal of the Digital Safe business (announced November
2021). Payment of $2.3m tax in relation to the Digital Safe
disposal was made in the six months ended 30 April 2022. It
is anticipated that $11.3m will be paid in the six months ended 31
October 2022, with the remainder in subsequent
periods.
|
30 April 2022
|
31 October 2021
|
Current Tax
|
$m
|
$m
|
Assets
|
|
|
Current
tax receivables
|
32.8
|
59.1
|
Non-current
tax receivables
|
43.9
|
48.0
|
Liabilities
|
|
|
Current
tax liabilities
|
74.0
|
94.1
|
Non-current
tax liabilities
|
81.1
|
91.9
|
|
|
|
Deferred Tax
|
|
|
Deferred
tax liabilities after jurisdictional offsetting
|
522.0
|
599.1
|
|
|
|
The long-term current tax asset relates to the State Aid payments
made in 2021, adjusted for foreign exchange movements. The
long-term current tax liability relates to US Transition Tax and is
payable over eight years to 2026. The short-term current tax
liability includes $73.6m (31 October 2021 $75.2m) in respect of
provisions for uncertain tax positions; the most significant
element relates to the risk of Tax Authority challenge of 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.
On 8 June 2022, the General Court of the Court of Justice of the
European Union (CJEU) found in favour of the European Commission's
decision that the UK's 'Financing Company Partial Exemption'
legislation is in breach of EU State Aid rules. However, whilst no
appeal has been confirmed yet, it is considered likely that either
the UK Government or a taxpayer will appeal this decision to the
Court of Justice.
The Group has previously received and settled State Aid charging
notices from HM Revenue and Customs (including historic interest)
totalling $46.8m. In addition, there has been a challenge
from the UK Tax Authorities into the historic financing
arrangements of the Group. The two challenges arise as a
consequence of the same Group financing arrangements. As a
matter of tax law, the two challenges are separate and the combined
exposure is $104m. However, based on its current assessment
of the value of the underlying tax benefit under dispute, and
supported by external professional advice, the Group considers the
maximum liability of these items to total $60m.
Despite the decision of the General Court, based on its current
assessment and also supported by external professional advice, the
Group believes an appeal to the Court of Justice is likely and that
such an appeal would find in favour of the UK Government/taxpayer.
The Group therefore continues to believe that that it has no
liability in respect of these issues. Therefore, no tax charge is
required in the current or previous periods and the amounts paid to
HMRC under the State Aid charging notices are expected to be
repaid. Given that an appeal would be expected to take more than a
year, a long-term current tax receivable has continued to be
recognized in respect of the amounts paid (including movements due
to FX) at the balance sheet date.
No additional liability should accrue in future periods in respect
of these matters, following (i) an amendment of the UK legislation
affected by the EU Commission to be compliant with EU law, and (ii)
the unwind of the financing company arrangements in question. Any
appeal of the General Court decision to the Court of Justice, and
the progress of the UK Tax Authority challenge into the historic
financing arrangements of the Group, will both continue to be
monitored by Management.
The Group is subject to income taxes in numerous jurisdictions.
Significant judgement is required in determining the worldwide
provision for income taxes including structuring activities
undertaken by the Group and the application of complex transfer
pricing rules.
The ultimate tax liability may differ from the amount provided
depending on interpretations of tax law, settlement negotiations or
changes in legislation. Where the final tax outcome of these
matters is different from the amounts that were initially recorded,
such differences will impact the income tax and deferred tax
provisions in the year in which such determination is
made.
Notes to the consolidated interim financial statements
11. Goodwill
|
Note
|
30 April 2022$m
|
31
October 2021$m
|
Net book value
|
|
|
|
At 1
November
|
|
3,725.5
|
3,835.4
|
Acquisitions
|
|
14.4
|
7.2
|
Effects
of movements in exchange rates
|
|
(111.9)
|
30.1
|
Transferred
to assets held for sale
|
|
-
|
(147.2)
|
At 30 April 2022/31 October 2021
|
|
3,628.0
|
3,725.5
|
A
CGU-level summary of the goodwill allocation is presented
below:
|
|
|
|
Micro
Focus
|
|
3,628.0
|
3,725.5
|
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 2022 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 2021 impairment test and the sensitivity of this impairment
test to changes in the key assumptions are disclosed in note 10
"Goodwill" of the Annual Report and Accounts for the year ended 31
October 2021.
12. Financial
instruments
Financial assets and liabilities:
|
30 April 2022
$m
|
31
October 2021
$m
|
||
Financial assets
|
|
|
||
Non-current
|
|
|
||
Derivative
asset
|
35.8
|
-
|
||
|
35.8
|
-
|
||
Financial liabilities
|
|
|
||
Non-current
Borrowings
|
4,040.2
|
4,524.1
|
||
Borrowings
|
4,040.2
|
4,524.1
|
||
Lease
obligations
|
119.0
|
119.6
|
||
|
4,159.2
|
4,643.7
|
||
Current
|
|
|
||
Borrowings
|
26.8
|
24.3
|
||
Lease
obligations
|
60.4
|
74.9
|
||
Derivative
liability
|
3.9
|
35.7
|
||
|
91.1
|
134.9
|
||
|
|
|
||
|
|
|
|
|
Notes to the consolidated interim financial statements
A
Fair Value Categories and Carrying values
The tables below set out the measurement categories and carrying
values of financial assets and liabilities with fair value inputs
where relevant.
|
|
Measurement category
|
Carrying value
30 April
2022
|
Fair value
2022
|
Fair value
Hierarchy
2022/2021
|
Carrying
value
31
October 2021
|
|
|
|
$m
|
|
|
$m
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
|
|
|
|
|
|
|
Long-term
pension asset
|
|
FV
OCI
|
15.9
|
Fair value insurance
based input
|
Level 3
|
17.1
|
Derivative
financial instruments - forward interest rate swaps
|
|
FV
OCI
|
35.8
|
|
Level 2
|
-
|
Current
|
|
|
|
|
|
|
Cash
and cash equivalent
|
|
Amortised
cost
|
578.7
|
-
|
-
|
558.4
|
Trade
and other receivables
|
|
Amortised
cost
|
528.8
|
-
|
-
|
784.2
|
Contract
assets
|
|
Amortised
cost
|
58.5
|
-
|
-
|
62.0
|
|
|
|
1,217.7
|
|
|
1,421.7
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
|
|
|
|
|
|
|
Borrowings
(gross)2
|
|
Amortised
cost
|
4,077.9
|
4,055.4
|
-
|
4,566.0
|
Lease
obligations
|
|
Amortised
cost
|
119.0
|
-
|
-
|
119.6
|
Current
|
|
|
|
|
|
|
Derivative
financial instruments - interest rate swaps1
|
|
FV
OCI
|
3.9
|
-
|
Level 2
|
35.7
|
Borrowings
(gross)2
|
|
Amortised
cost
|
39.6
|
26.9
|
-
|
42.0
|
Lease
obligations
|
|
Amortised
cost
|
60.4
|
-
|
-
|
74.9
|
Trade
and other payables - accruals
|
|
Amortised
cost
|
347.4
|
-
|
-
|
440.1
|
|
|
|
4,648.2
|
|
|
5,278.3
|
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 $4,067.0m (31
October 2021: $4,548.4m). Total borrowings (gross) are shown in
this table as $4,117.5m (31 October 2021: $4,608.0m) for the fair
value comparison.
Fair value measurement
For trade and other receivables, cash and cash equivalents, trade
and other payables, the 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. The loss
allowance held for credit risk held against trade and other
receivables is $13.8m (31 October 2021: $14.0m).
Long-term borrowings with an outstanding principal of $4,117.5m (31
October 2021: $4,608.0m) (note 12.C "Borrowings") excluding
unamortised prepaid facility fees and discounts, have a fair value
estimate of $4,082.3m (31 October 2021: $4,598.4m) based on trading
prices obtained from external banking providers as at 30 April
2022.
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 2022 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 Euro functional
net investments in foreign operations including goodwill and
intangibles affecting the cumulative translation reserve on
consolidation. No amounts have been reclassified from the hedging
reserve to the profit and loss account 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
12. Financial
instruments continued
The long-term pension assets are considered to be a Level 3 asset
under the fair value hierarchy as of 30 April 2022. 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 in the six
months ended 30 April 2022 is ($1.3m) of which $0.4m is due to
changes in the fair value assessment.
For derivatives and long-term pension assets there were no
transfers of assets or liabilities between levels of the fair value
hierarchy during the period.
B
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 2021. 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 except where described below.
The Group's four interest rate swaps have a fair value of ($3.9m)
disclosed as a derivative liability (31 October 2021: ($35.7m)
liability) with the movement in fair value of $31.8m recognised in
the hedging reserve. The hedge ratio is 1:0.95 due to the debt
repayments made for the Seattle Spinco term loan and the impact of
credit risk remains low at <$0.1m (31 October 2021:
$1.4m). For
the six months ended 30 April 2022, net interest (finance cost)
paid for the swaps amounted to $20.1m. For the life of the swap,
net interest paid to date has amounted to $78.6m. These interest
rate swaps will mature in September 2022.
The Group's two new forward interest rate swaps have a fair value
of $35.8m and are disclosed as a financial asset (traded in January
2022) with the movement in fair value of $35.8m recognised in the
hedging reserve. The hedge objective is to minimise the risk of
cash flow fluctuations due to interest payments on $750m of the
Group's external borrowings with the hedge cash flows effective
from September 2022. The hedge ratio is 1:0.99 and the impact of
credit risk is estimated at $1.4 m which does not dominate the
valuation.
Exchange gains of $67.7m have been recognised in other
comprehensive income in the period (year ended 31 October 2021:
$11.3m gain) as a result of the net investment hedges ($57.4m for
the hedge on the Euro B-1 2020 tranche; $10.4m for the hedge on the
repaid Euro 2017 tranche in the period to December 2021). The hedge
relationship for the repaid Euro 2017 tranche ended in January 2022
due to the repayment of the Euro term loan used as the hedge
instrument. Therefore, the hedge failed prospectively from January
2022; no amounts in the cumulative translation account have been
unwound to profit and loss. The
Euro 2017 tranche has been replaced by new €750m 2022
tranche, this new tranche is not in a net investment hedge
relationship and as a result $58.5m of foreign exchange gains have
been recorded within net finance cost in the profit and loss for
the period.
C
Borrowings
|
30 April 2022
|
31
October 2021
|
|
$m
|
$m
|
Bank
loan secured
|
4,117.5
|
4,608.0
|
Unamortised
prepaid facility arrangement fees and original issue
discounts
|
(50.5)
|
(59.6)
|
|
4,067.0
|
4,548.4
|
|
|
|
Short-term
borrowings
|
26.8
|
24.3
|
Long-term
borrowings
|
4,040.2
|
4,524.1
|
|
4,067.0
|
4,548.4
|
On 17 January 2022, the Group announced the refinancing of $1.6bn
of existing term loans and the Revolving Credit Facility ("RCF")
was refinanced in December 2021. This
refinancing of the term loans comprised a €750m and a $750m
Senior Secured Term Loan B. The new 5-year facilities have been
used by the Group to fully refinance its existing Senior Secured
Term Loan B Euro facility issued by MA FinanceCo., LLC due June
2024 as well as partially refinance the existing Senior Secured
Term Loan B USD facilities issued by Seattle SpinCo, Inc., ($750m
refinanced, $1,678m remaining) and MA FinanceCo., LLC, ($359.5m B-3
fully replaced by additional Euro borrowing) due June
2024. This
RCF was reduced to $250m and with maturity extended until December
2026, subject to tests for the term loan maturities in June 2024
and June 2025. The amended facility is subject to a covenant test
when more than 40% of the revolving credit facility is outstanding
at a fiscal quarter end with a 5.00x net leverage covenant being
applied.
Proceeds from the disposal of the Digital Safe business totalling
$335m have been used to repay an equivalent proportion of debt,
split $298m to the senior secured loan issued by Seattle SpinCo,
$18m to the term loan B-4 and $19m to the term loan
B-1.
Notes to the consolidated interim financial statements
12. Financial
instruments continued
The following facilities were drawn as at 30 April
2022:
● The €560.6m (equivalent to $591.1m) (31
October 2021: €585m, equivalent to $676.0m) senior secured
five-year term loan B-1 issued by MA FinanceCo., LLC, maturing in
June 2025, is priced at EURIBOR plus 4.5% (subject to a EURIBOR
floor of 0.00%) with an original issue discount of
3.0%;
● The $607.6m (31 October 2021: $633.7m) senior
secured five-year term loan B-4 issued by MA FinanceCo., LLC,
maturing in June 2025, is priced at LIBOR plus 4.25% (subject to a
LIBOR floor of 1.00%) with an original issue discount of
2.5%;
● The $1,379.9m (31 October 2021: $2,427.9m) senior
secured seven-year term loan B issued by Seattle SpinCo, Inc.,
maturing in June 2024, is priced at LIBOR plus 2.75% (subject to a
LIBOR floor of 0.00%) with an original issue discount of
0.25%;
● The €750.0m (equivalent to $790.8m) (31
October 2021: $nil) senior secured five-year term loan B issued by
MA FinanceCo., LLC, maturing in January 2027, is priced at EURIBOR
plus 4% (subject to a EURIBOR floor of 0.00%) with an original
issue discount of 0.5%;
● The $748.1m (31 October 2021: $nil) senior secured
five-year term loan issued by Seattle SpinCo, Inc., maturing in
January 2027, is priced at SOFR plus 4% (subject to a SOFR floor of
0.50%) with an original issue discount of 0.5%.
The following facilities were undrawn as at 30 April
2022:
● A senior secured RCF of $250m ($nil drawn) with an
interest rate of 3.25% above LIBOR on amounts drawn (and 0.7% on
amounts undrawn) thereunder, subject to a LIBOR floor of
0%.
At 30 April 2022, $nil of the RCF was drawn (31 October 2021:
$nil), together with $4,117.5m of term loans giving gross debt of
$4,117.5m drawn.
Facility fees expenses of $31.4m (six months ended 30 April 2021:
$16.7m) have been incurred in the period.
Financial covenants are described in note 18, "Borrowings" of the
annual report for the year ended 31 October 2021. The refinancing
in January 2021 transferred the existing covenants. No covenant
tests were required on the RCF in the period. These covenants are
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 Seattle Spinco loans and 2.5% of
the initial par value for the B-1 and B-4 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 $55.5m (six months ended 30 April 2021:
$25.6m) for the six months ended 30 April 2022.
D
Changes is Financial Liabilities
Changes in liabilities arising from financing activities for
interest bearing loans (before deferred financing fees) and lease
obligations were as follows:
|
Interest bearing
loans
|
Lease
obligations
|
Total
|
|
$m
|
$m
|
$m
|
At 1
May 2021
|
4,674.4
|
219.1
|
4,893.5
|
Movements
arising from cash flows
|
|
|
|
Repayments
|
(8.6)
|
(42.1)
|
(50.7)
|
New
leases
|
-
|
23.9
|
23.9
|
Interest
|
-
|
5.1
|
5.1
|
Transfer to held for sale
|
-
|
(11.4)
|
(11.4)
|
The
effect of changes in foreign exchange rates
|
(57.8)
|
(0.1)
|
(57.9)
|
At 31 October 2021
|
4,608.0
|
194.5
|
4,802.5
|
Movements
arising from financing cash flows
|
|
|
|
Repayments
|
(1,963.4)
|
(40.2)
|
(2,003.6)
|
Drawdowns
|
1,599.3
|
-
|
1,599.3
|
New
leases
|
-
|
20.0
|
20.0
|
Interest
|
-
|
4.4
|
4.4
|
The
effect of changes in foreign exchange rates
|
(126.4)
|
0.7
|
(125.7)
|
At 30 April 2022
|
4,117.5
|
179.4
|
4,296.9
|
Notes to the consolidated interim financial statements
13. Retirement benefit
obligations
|
30 April 2022
|
|
31 October 2021
|
|
||||
|
Germany
$m
|
Rest of World
$m
|
Total
$m
|
|
Germany
$m
|
Rest of
World
$m
|
Total
$m
|
|
Within non-current assets:
|
|
|
|
|
|
|
|
|
Long-term pension assets
|
15.9
|
-
|
15.9
|
|
17.1
|
-
|
17.1
|
|
|
|
|
|
|
|
|
|
|
Within non-current liabilities:
|
|
|
|
|
|
|
|
|
Present value of defined benefit obligations
|
175.6
|
60.9
|
236.5
|
|
246.1
|
74.5
|
320.6
|
|
Fair values of plan assets
|
(120.9)
|
(30.5)
|
(151.4)
|
|
(138.8)
|
(34.7)
|
(173.5)
|
|
Retirement benefit obligations
|
54.7
|
30.4
|
85.1
|
|
107.3
|
39.8
|
147.1
|
|
|
|
|
|
|
|
|
|
|
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 the discount rates of $50.5m and the effects of movements in
exchange rates of $9.4m.
The following amounts have been included in the Consolidated
Statement of Comprehensive Income for defined benefit pension
arrangements.
|
Six months
ended
30 April 2022
|
Six months
ended
30 April 2021
|
|
$m
|
$m
|
Charge to operating loss
|
0.5
|
4.6
|
Charge to finance costs
|
0.8
|
0.9
|
Total continuing charge to loss for the period
|
1.3
|
5.5
|
The following amounts have been recognised as movements in the
statement of other comprehensive income:
|
Six months
ended
30 April 2022
|
Six months
ended
30 April 2021
|
|
$m
|
$m
|
Actuarial (loss)/return on assets excluding amounts included in
interest income
|
(7.4)
|
15.2
|
Re-measurements - actuarial gains:
|
56.7
|
18.8
|
Movement in the period
|
49.3
|
34.0
|
|
|
|
The weighted average key assumptions used for the valuation of the
schemes were:
|
30 April 2022
|
|
31
October 2021
|
||||
|
Germany
|
Rest of World
|
Total
|
|
Germany
|
Rest of
World
|
Total
|
Discount
rate
|
2.35%
|
3.05%
|
2.49%
|
|
1.07%
|
1.87%
|
1.25%
|
Inflation
|
1.75%
|
1.35%
|
1.68%
|
|
1.75%
|
1.36%
|
1.69%
|
The mortality assumptions for the pension schemes are set based on
actuarial advice in accordance with published statistics and
experience in the territory.
Notes to the consolidated interim financial statements
13. Retirement benefit
obligations
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 and inflation, each in isolation, although, in
practice, changes to assumptions may occur at the same time and can
either offset or compound the overall impact on the defined benefit
obligation.
These sensitivities have been calculated using the same methodology
as used for the main calculations.
|
Germany
|
|
Rest of World
|
||||||
|
Increase in assumption
|
Change in defined benefit obligation
|
Decrease in assumption
|
Change in defined benefit obligation
|
|
Increase in assumption
|
Change in defined benefit obligation
|
Decrease in assumption
|
Change in defined benefit obligation
|
Discount
rate for scheme liabilities
|
1.25%
|
(23.1%)
|
1.25%
|
26.9%
|
|
1.25%
|
(15.5%)
|
1.25%
|
17.27%
|
Price
inflation/ rate of increase on pension payments
|
0.25%
|
3.5%
|
0.25%
|
(3.3%)
|
|
0.25%
|
1.3%
|
0.25%
|
(1.3%)
|
14. Provisions and Contingent liabilities
|
|
30 April 2022
|
31 October 2021
|
|
|
$m
|
$m
|
Onerous
contracts and dilapidations
|
|
14.9
|
25.4
|
Restructuring
|
|
13.1
|
23.0
|
Legal
|
|
25.8
|
25.0
|
Other
|
|
11.2
|
12.1
|
Total
|
|
65.0
|
85.5
|
|
|
|
|
Current
|
|
50.1
|
65.7
|
Non-current
|
|
14.9
|
19.8
|
Total
|
|
65.0
|
85.5
|
A description of the Group's provisions by category and contingent
liabilities is included in note 21 of the Annual Report and
Accounts for the year ended 31 October 2021. During the six months
ended 30 April 2022 no significant changes in the Group's
provisions has arisen other than for the expected utilisation. An
update on the Group's shareholder litigation case is included
below.
Shareholder litigation
The shareholder litigation complaint in the United States District
Court for the Southern District of New York was mediated during
2021, and an agreement to settle the case on terms including a
payment of $15.0m to a settlement class was reached. The proposed
settlement is subject to the court's approval. If the court
approves the settlement, the settlement amount will be paid from
insurance coverage. The Group has recognised a legal provision of
$15.0m and an insurance receivable, within other receivables, of
$15.0m. The Company and all defendants have denied, and continue to
deny, the claims alleged in the case and the settlement does not
reflect any admission of fault, wrongdoing or liability as to any
defendant.
The shareholder litigation complaint in the Superior Court of
California is on-going. A trial date by jury has now been set for
April 2023. The company and all defendants have denied and
continue to deny, the claims alleged in the case. The Board
continues to evaluate the full range of options available to the
company. The Company retains insurance coverage in respect of such
claims, although it remains possible that any settlement or trial
outcome could be higher. Considering the current progress of the
litigation and the range of potential outcomes, the company is
unable to make a reasonable estimate of its financial impact.
No provision has been recognised at this time.
Notes to the consolidated interim financial statements
15. Cash Flow Statement
|
Note
|
Six months
ended30 April 2022$m
|
Six months ended30 April 2021$m
|
Cash flows from operating activities
|
|
|
|
Loss from continuing operations
|
|
(27.9)
|
(218.9)
|
Profit from discontinued operation
|
|
3.5
|
-
|
Loss for the period
|
|
(24.4)
|
(218.9)
|
Adjustments for:
|
|
|
|
Profit on disposal of discontinued operation
|
|
(3.5)
|
-
|
Net finance costs
|
|
78.2
|
125.2
|
Taxation
|
10
|
(15.0)
|
(61.1)
|
Operating profit/(loss) (attributable to continuing and
discontinued operations)
|
|
35.3
|
(154.8)
|
Research and development tax credits
|
|
(1.0)
|
(0.4)
|
Property, plant and equipment depreciation
|
|
14.3
|
17.6
|
Right-of-use asset depreciation
|
|
27.7
|
38.6
|
Loss on disposal of property, plant and equipment
|
|
1.8
|
(0.1)
|
Gain on disposal
|
16
|
(63.0)
|
-
|
Amortisation of intangible assets
|
|
412.9
|
472.2
|
Leases impairment
|
|
-
|
2.6
|
Share-based compensation charge
|
|
12.4
|
8.5
|
Foreign exchange movements
|
|
(11.7)
|
5.1
|
Changes in working capital:
|
|
|
|
Trade and other receivables and contract related
costs1
|
|
235.4
|
117.1
|
Payables and other liabilities
|
|
(116.0)
|
(58.8)
|
Provisions2
|
14
|
(13.7)
|
74.9
|
Contract liabilities - deferred income
|
|
(49.8)
|
(54.4)
|
Cash generated from operations
|
|
484.6
|
468.1
|
1 In
the six months ended 30 April 2022 trade and other receivables,
other assets and contract-related costs are reduced for non-cash
movements of $15.0m (Six months ended 30 April 2021
$14.3m).
2 In
the six months ended 30 April 2022 provisions movements have been
presented net, in the six months ended 30 April 2021 they were
presented gross as provision movements $102.4m and provision
utilisation ($27.5m).
Notes to the consolidated interim financial statements
16. Discontinued operation and Disposal of Archiving and Risk
Management Portfolio
On 3 November 2021, the Group announced the agreement of definitive
terms to sell its Archiving and Risk Management portfolio (the
"Digital Safe business") to Smarsh Inc. The consolidated statement
of comprehensive income for the six months ended 30 April 2022
included the following amounts relating to the Digital Safe
business.
|
Six months
ended
30 April 2022
$m
|
Revenue
|
25.9
|
Operating
costs
|
(13.6)
|
Operating profit
|
12.3
|
Profit
on disposal
|
63.0
|
Profit before taxation
|
75.3
|
Taxation
|
(22.3)
|
Profit for the period related to the Digital Safe
business
|
53.0
|
Details of net assets disposed of and the profit on disposal are as
follows:
|
|
Carrying value
pre-disposal
|
|
|
$m
|
Non-current assets classified as current asset held for
sale
|
|
337.0
|
Current assets classified as current assets held for
sale
|
|
28.9
|
Current liabilities classified as current liabilities held for
sale
|
|
(5.4)
|
Non-current liabilities classified as current liabilities held for
sale
|
|
(55.5)
|
Net assets disposed
|
|
305.0
|
Of the $305.0m net assets disposed, $182.1m related to intangible
assets and $147.2m related to goodwill.
The profit on disposal and inflow of cash and equivalents was
calculated as follows:
|
|
$m
|
Disposal proceeds
|
|
|
Consideration
|
|
375.0
|
Working capital adjustment
|
|
7.2
|
Total disposal
proceeds1
|
|
382.2
|
Costs to sell recognised in the period1
|
|
(11.5)
|
Net assets disposed
|
|
(305.0)
|
Cumulative exchange gain in respect of the net assets of the
subsidiaries,
reclassified from equity on disposal
|
|
(2.7)
|
Profit on disposal
|
|
63.0
|
1 Disposal
proceeds received less costs to sell equals $363.5m recognised as
investing cash flow. The working capital adjustment will be
received during six months ended 31 October
2022.
Discontinued operation
The sale of the SUSE business was completed on 15 March 2019. The
profit on disposal of the SUSE business for the period ended 3
April 2022 of $3.5m relates to tax indemnities.
Notes to the consolidated interim financial statements
17. Acquisitions
Debricked
On 8 March 2022, the Group completed the acquisition of 100% of the
equity of Debricked AB. Debricked AB a developer-centric
open source intelligence company aimed at innovating how
organisations secure their software supply chain for today and the
future will integrate into
the CyberRes to expand the application security portfolio. Total
consideration was $32.7m and is made up of $27.6m paid in cash at
the point of acquisition and $5.1m of deferred consideration. The
business had a carrying value of $1.3m of assets and $0.6m of
liabilities. A fair value review was carried out on the assets and
liabilities of the acquired business, resulting in the
identification of purchased intangible assets of $22.6m with
related deferred tax liabilities of $4.7m.
|
|
|
|
Consideration
|
||
|
Carrying value at acquisition
|
Intangible assets
|
Goodwill
|
Shares
|
Cash
|
Total
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
|
|
|
|
|
|
|
Acquisitions in the period ended 30 April 2022:
|
|
|
|
|
|
|
Debricked
|
0.7
|
22.6
|
14.1
|
-
|
32.7
|
32.7
|
|
0.7
|
22.6
|
14.1
|
-
|
32.7
|
32.7
|
The value of the goodwill represents the value of the assembled
workforce at the time of the acquisition with specific knowledge
and technical skills. It also represents the prospective future
economic benefits that are expected to accrue from enhancing the
portfolio of products available to the Company's existing customer
base with those of the acquired business.
18. Post Balance Sheet Events
Tax
On 8 June 2022 the General Court of the Court of Justice of the
European Union published its decision on the UK's 'Financing
Company Partial Exemption' legislation. Further details are
provided in Note 10, above.
INDEPENDENT REVIEW REPORT TO MICRO FOCUS INTERNATIONAL
PLC
i. 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 2022 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 2022
is not prepared, in all material respects, in accordance with IAS
34 Interim Financial Reporting as adopted for use in the UK and the
Disclosure Guidance and Transparency Rules ("the DTR") of the UK's
Financial Conduct Authority ("the UK
FCA").
ii. 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.
iii. 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 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 and the next annual
financial statements will be prepared in accordance with UK-adopted
international accounting standards. The directors are
responsible for preparing the condensed set of financial statements
included in the half-yearly financial report in accordance with IAS
34 as adopted for use in the UK.
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
iv. 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
21 June 2022
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereto duly authorized.
Date:
22 June 2022
Micro
Focus International plc
By:
|
/s/
Matt Ashley
|
Name:
|
Matt
Ashley
|
Title:
|
Chief
Financial Officer
|