1st Dec 2005 13:04
Micro Focus International plc01 December 2005 The issuer has advised that the following amendment has been made to the interimresults announcement released today under RNS number 9548U at 07.01. Theparagraph entitled 'Dividends' should read that the Board has approved thepayment of a dividend to the holders of record as of 6 January 2006, and not 1January 2006, as previously stated Embargoed for 7.01am, Thursday 1 December 2005 Micro Focus International plc "Unlocking the Value of Legacy" Interim results for the six months to 31 October 2005 Micro Focus International plc ("Micro Focus" or "the Company"; LSE MCRO.L), thesoftware company, announces its interim results for the six months ended 31October 2005. Micro Focus software enables its customers to reuse their existing or "legacy"IT assets in modern contexts, rather than having to replace them, enabling themto reduce costs, increase agility and reduce risk by unlocking the businessvalue within their legacy systems. Key Highlights • Results for the six months in line with revised management expectations • Turnover increased 3.3% to US$72.9m (2004: US$70.5m) • Operating Profit decreased 24.0% to US$13.7m (2004: US$18.0m) • Operating profit excluding non-recurring IPO related costs* increased by 3.0% • EBITDA decreased 23.1% to US$14.6m (2004: US$18.9m) • Adjusted EBITDA decreased 6.2% to US$20.5m (2004: US$21.9m) • Basic earnings per share decreased 32.4% to 4.7 cents (2004: 6.9 cents) • Interim dividend of 2 cents per share • Nick Bray becomes Chief Financial Officer, effective 1 February 2006 * Refers to non-recurring costs of US$6.5m relating to the IPO and associated corporate restructuring Commenting on the results, Tony Hill, Chief Executive Officer of Micro Focus,said: "These results are consistent with our assessment of the performance of theCompany at the time of our trading statement on 7 September 2005. Since thattime, we have made good progress towards resolving the sales execution issues weidentified during the period. The Board continues to expect the Company todeliver mid-single digit revenue growth for the full year on a constant currencybasis. During the period, we have won strategic customer contracts and forged strongerrelationships with partners. The Board is confident that the Company's strategyand partner-centric model are appropriate for today's market. We are positiveabout the prospects of the Company and continue to build Micro Focus forprofitable, long term growth." Enquiries: Micro Focus Tel: +44 (0)1635 32646Tony Hill, Chief Executive OfficerRichard Lloyd, Chief Financial OfficerMichael Kearney, Director, Investor Relations Financial Dynamics Tel: +44 (0)20 7831 3113Giles Sanderson Harriet Keen Operating and Financial Review Overview A weaker than usual August led to revenues for the first four months of thecurrent financial year being below our expectations. A detailed review wasimmediately undertaken and a trading statement was made on 7 September 2005,updating the market on the implications for the full year. We acted quickly toidentify the issues behind the revenue shortfall and took action to rectifythem. We are pleased to report positive progress and that results for the firstsix months are in line with our revised expectations. Basis of Preparation Micro Focus listed on the main market of the London Stock Exchange on 17 May2005 ("the IPO"). The Company acquired the entire issued share capital of MicroFocus International Limited ("the Operating Company") on 17 May 2005,immediately prior to the IPO. The results published herein represent thecombined results for the Operating Company and its subsidiaries for the periodfrom 1 May 2005 to 16 May 2005 together with the results for the results for theCompany and its subsidiaries for the period from 17 May 2005 to 31 October 2005.The combined results for the two entities for the total six-month period from1 May 2005 to 31 October 2005 have therefore been presented as a single set offigures, prepared in accordance with IFRS. Results of Operations The Company's consolidated financial statements were prepared in accordance withUnited Kingdom Generally Accepted Accounting Principles ("UK GAAP") until 30April 2005. UK GAAP differs in some areas from IFRS. In preparing theseinterim financial statements, management has amended certain accounting,valuation and consolidation methods applied in the UK GAAP financial statementsto comply with IFRS. The comparative figures in respect of the six months ended31 October 2004 and the year ended 30 April 2005 were restated to reflect theseadjustments. Turnover Turnover for the six months to 31 October 2005 increased by 3.3% (constantcurrency: 3.2%) to $72.9m (2004: $70.5m). The directors consider there to beonly one class of business being the provision of legacy application developmentand deployment software for contemporary platforms. Therefore, onlygeographical segmental analysis is provided below. Six months ended Six months ended Year ended 31 October 2005 31 October 2004 30 April 2005Geographical analysis $'000 $'000 $'000 North America 35,023 35,943 73,173Europe and the Middle East 25,740 25,029 57,365Rest of the World 12,096 9,570 20,107Total 72,859 70,542 150,645 North America Total turnover decreased by $0.9m or 2.6% due to a decrease in license feerevenue during the period. Recurring revenue provided by partners and thestrong support customer base continued to show growth. Europe and the Middle East Total turnover increased by $0.7m or 2.8%, driven by strong growth inmaintenance fee revenue, more than offsetting the fall in license fee income. Rest of the World Total turnover increased by $2.5m. Both Japan and Australia have exhibiteddouble-digit growth. Cost of sales Cost of sales for the six months to 31 October 2005 increased by 8.7% to $6.5m(2004: $6.0m). The increase in cost of sales was principally driven by higherconsultancy costs resulting from stronger consultancy revenues. Operating profit and EBITDA Operating profit decreased 24.0% to $13.7m (2004: $18.0m). However, operatingprofit excluding non-recurring costs highlighted below increased by 3.0% to$20.1m for the same period (2004: $19.5m). EBITDA for the six months to 31 October 2005 decreased by 23.1% to $14.6m (2004:$18.9m). Adjusted EBITDA decreased by 6.2% to $20.5m (2004: $21.9m). Thereductions were principally due to an increase in selling and distribution costsresulting from restructuring to maximize sales and profitability. The difference between the increase in adjusted operating profit and thedecrease in adjusted EBITDA is due mainly to the swing in share-basedcompensation, the effect of which ($1.9m) has been excluded from the calculationof adjusted EBITDA. Below shows a table reconciling operating profit to EBITDA and adjusted EBITDA Six months ended Six months ended Year ended 31 October 2005 31 October 2004 30 April 2005 $'000 $'000 $'000 Operating profit 13,657 17,967 40,914Depreciation 475 508 1,005Amortisation 426 465 1,099Earnings before interest taxdepreciation and amortisation(EBITDA) 14,558 18,940 43,018Share based compensation (500) 1,373 3,581Non recurring costs:Early termination of Managementfees on IPO 4,683 - -Management fees - 600 1,200IPO and reorganisation costs 1,775 965 2,194Adjusted EBITDA 20,516 21,878 49,994 Tax on profit on ordinary activities Tax on profit on ordinary activities for the six months to 31 October 2005decreased to $3.9m (2004: $5.7m). The decrease is principally attributable to alower effective tax rate in the current year, as well as lower taxable incomedue to the non-recurring items incurred this year. Profit after tax Profit on ordinary activities after tax for the six months to 31 October 2005decreased by 10.5% to $9.0m (2004: $10.1m). Dividends The Board has approved the payment of a dividend to the holders of record as of6 January 2006 in the amount of $0.02 per share in anticipation of meeting adividend policy of 2.5 times dividend cover on a normalised earnings basis. UKand other non-US shareholders will receive an equivalent sterling amount at thepayment date of 31 January 2006. Cash flow For the six months to 31 October 2005, the Company generated a net cash inflowfrom operating activities of $10.3m (2004: $23.0m). The decrease in net cashinflow was primarily driven by non-recurring costs incurred in relation to theIPO. Funds generated as a result of the IPO ($110.5m), have enabled us to pay-off infull our outstanding loans. As at 31 October 2005, the Group had cash and cashequivalents of $38.9m. Customers Organisations continue to face the challenge of reducing costs and increasingagility while limiting organisational risk. As much as 80% of an organisation'ssoftware budget may be used to maintain and operate legacy applications whichhave traditionally been too inflexible to integrate with one another or withnewer technologies. The lower cost of contemporary platforms combined withtechnical advances, in areas such as security, flexibility and scalability, andthe emergence of enabling technologies, such as web services andservice-oriented architectures, has driven many organisations to look for waysto re-use their legacy investments. Given this backdrop, our complementary solution set of "Lift and Shift" and "Leverage and Extend" is very relevant. Our products enable organisations toimprove their development infrastructure and to extend legacy applications tonew users and to move them to contemporary platforms. The market has also begun to view our products as being complementary, giving usthe opportunity to sell a variety of products to customers to meet a broad rangeof needs. For example, BlueCross BlueShield, the health insurance provider,signed a large contract with us, specifically enabling them to deploy our entireproduct portfolio. In addition to BlueCross BlueShield other significant reengagement contractssigned in the first six months included AMB Generali, and AXA. A number ofexisting customers also announced successful migrations of key applicationsusing our software including the US Army, Lombard Insurance, Express Newspapersand Solcorp (a subsidiary of EDS). Partners Micro Focus believes that its partnerships are fundamental to its ability todevelop, market and distribute its products. Micro Focus' partner-centricstrategy focuses on leveraging its relationships to expand its distributionnetwork cost effectively and accelerate the market penetration of its products.Specifically, within our partner network, System Integrators (SIs) are key todelivering our products to customers. We are pleased with the continued good progress we have made with smaller, localSIs, and have achieved a steady revenue stream from this partner sectorthroughout the first half of the year. In the case of larger, global SIs, whilewe have made good progress in building our network of partners, as mentioned inthe trading statement on 7 September 2005 the revenue contribution from thispart of our sales channel has been slower than anticipated. Given the size andnature of these organisations, we do not anticipate significant incrementalrevenue to be achieved from our larger SI partners during the current financialyear. We continue to work hard on strengthening and expanding theserelationships and are making good progress. Sales Execution In our September trading statement, we discussed significant disruptions withinthe sales-force, which had delayed a planned expansion of the sales team. Thesedisruptions included the major restructuring, now completed, of two Europeancountry teams and several replacement hires in the United States. While a verysmall number of non-critical sales positions have yet to be filled, we are nownear budgeted head-count. In addition, we now have a full senior salesmanagement team in operation focused on pipeline development, plus new regionalmanagers in the restructured European teams. Our new salespeople will becomeincreasingly productive in the coming six months. Our Board and People Having played a key role in the Micro Focus success story from the sale of thebusiness by MERANT Plc in August 2001 through to the Company's subsequent IPOearlier this year, Richard Lloyd, our current Chief Financial Officer, hasdecided to step down. We are pleased to announce today the appointment of NickBray as our new Chief Financial Officer with effect from 1 February 2006. Nick(aged 40) is the Group Finance Director of Fibernet Group Plc. Richard hasagreed to remain working for Micro Focus during a handover period. Outlook These results are consistent with our assessment of the performance of theCompany at the time of our trading statement on 7 September 2005. Since thattime we have made good progress towards resolving the sales execution issues weidentified during the period. The Board continues to expect the Company todeliver mid-single digit revenue growth for the full year on a constant currencybasis. During the period we have won strategic customer contracts and forged strongerrelationships with partners. The Board is confident that the Company's strategyand partner-centric model are appropriate for today's market. We are positiveabout the prospects of the Company and continue to build Micro Focus forprofitable, long term growth. Micro Focus International plcConsolidated income statement (unaudited) Six months ended Six months ended Year ended 31 October 2005 31 October 2004 30 April 2005 $'000 $'000 $'000Turnover 72,859 70,542 150,645Amortisation of development costs (2,508) (2,419) (4,587)-Other cost of sales (4,000) (3,569) (6,327)Total cost of sales (6,508) (5,988) (10,914)Gross profit 66,351 64,554 139,731Selling and distribution costs (24,374) (22,584) (48,105)Research and development (8,717) (8,847) (17,598)Early termination of management fees on IPO (4,683) - -Management fees - (600) (1,200)Reorganisation costs (1,775) (965) (2,194)Share-based compensation credit (charge) 500 (1,373) (3,581)Other administrative expenses (13,645) (12,218) (26,139)Total administrative expenses (19,603) (15,156) (33,114)Operating profit 13,657 17,967 40,914Interest payable and similar charges (1,158) (2,400) (8,656)Interest receivable and similar income 362 177 382Profit before tax 12,861 15,744 32,640Taxation (3,858) (5,689) (11,597)Profit for the period 9,003 10,055 21,043 Earnings per share expressed in cents per share- basic 4.66 6.90 14.28- diluted 4.61 6.73 13.98 Earnings per share expressed in pence per share- basic 2.61 3.80 7.67- diluted 2.58 3.70 7.51 Micro Focus International plcConsolidated balance sheet (unaudited) 31 October 2005 31 October 2004 30 April 2005 $'000 $'000 $'000ASSETSNon current assets Goodwill 42,404 42,404 42,404 Intangible assets 7,753 7,164 8,084 Property, plant and equipment 2,236 1,916 2,277 Deferred tax assets 7,748 9,090 8,331 60,141 60,574 61,096Current assets Inventories 259 463 350 Trade and other receivables 36,321 31,509 50,244 Cash and cash equivalents 38,846 30,370 32,870 75,426 62,342 83,464Total assets 135,567 122,916 144,560 LIABILITIESCurrent liabilities Trade and other payables 53,440 53,742 71,192 Current tax liabilities 14,299 8,550 11,972 Financial liabilities - borrowings - 7,500 8,010 67,739 69,792 91,174Non-current liabilities Other non-current liabilities 5,915 5,551 7,059 Deferred tax liabilities 7,748 7,183 7,748 Financial liabilities - borrowings - 107,500 103,240 13,663 120,234 118,047Net assets (liabilities) 54,165 (67,110) (64,661) SHAREHOLDERS' EQUITYCapital and reserves Called up share capital 9,510 1 1 Share premium 104,475 3,363 3,376 Accumulated losses (58,838) (70,613) (67,869) Other reserves (982) 139 (169)Total shareholders' equity (deficit) 54,165 (67,110) (64,661) Micro Focus International plcConsolidated cash flow statements (unaudited) Six months ended Six months ended Year ended 31 October 2005 31 October 2004 30 April 2005 $'000 $'000 $'000Cash flows from operating activitiesProfit for the period 9,003 10,055 21,043 Adjustments for Interest and similar charges 796 2,223 8,274 Taxation 3,858 5,689 11,597 Depreciation 480 518 1,024 Amortisation of intangibles 2,934 2,883 5,687 Compensation share-option charge (500) 1,373 3,581Changes in working capital Inventories 91 (151) (38) Trade and other receivables 13,923 6,416 (12,317) Trade and other payables (17,752) (2,306) 15,610Cash generated from continuing operations 12,833 26,700 54,461 Interest received 365 138 379 Interest paid (1,829) (2,361) (7,926) Tax paid (1,074) (1,512) (2,368)Net cash inflow from operating activities 10,295 22,965 44,546 Cash flows from investing activities Purchase of intangible assets (2,604) (2,453) (6,176) Purchase of tangible fixed assets (440) (440) (1,329) Proceeds on disposal of tangible fixed assets 23Net cash outflow from investing activities (3,044) (2,893) (7,482) Cash flows from financing activities Net proceeds from issue of ordinary share capital 110,500 492 506 Net proceeds from issue of new bank loan - 54,250 50,500 Repayment of borrowings (111,250) - - Dividends paid to shareholders - (68,800) (78,800)Net cash outflow from financing (750) (14,058) (27,794) Effects of changes in exchange rates (525) (64) (820)Net increase in cash and cash equivalents 5,976 5,950 8,450Cash and cash equivalents at beginning of period 32,870 24,420 24,420Cash and cash equivalents at end of period 38,846 30,370 32,870 Micro Focus International plcStatement of Changes in Shareholders' Equity (unaudited) Share Share Accumulated Other Capital Premium Losses Reserves Total Equity $'000 $'000 $'000 $'000 $'000Balance as at 1 May 2004 1 2,871 (13,156) 118 (10,166) Currency translation differences - - - 21 21Profit for the period - - 10,055 - 10,055Dividends - - (68,800) - (68,800)Value of share options issuedunder Employee Option Plan - - 1,288 - 1,288Issue of share capital - 357 - - 357Receivable from shareholder - 135 - - 135Balance as of 31 October 2004 1 3,363 (70,613) 139 (67,110) Currency translation differences - - - (308) (308)Profit for the period - - 10,988 - 10,988Dividends - - (10,000) - (10,000)Value of share options issuedunder Employee Option Plan - - 1,756 - 1,756Issue of share capital - 13 - - 13Balance as of 30 April 2005 1 3,376 (67,869) (169) (64,661) Currency translation differences - - - (813) (813)Profit for the period - - 9,003 - 9,003Value of share options issuedunder Employee Option Plan 108 - 28 - 136Issue of share capital 9,401 101,099 - - 110,500Balance as of 31 October 2005 9,510 104,475 (58,838) (982) 54,165 Notes 1) Basis of preparation These interim financial statements have been prepared in accordance with theaccounting policies the company expects to be applicable at 30 April 2006 andthe interpretation of those accounting standards underlying the accountingpolicies. As listed companies in a large number of countries are adopting IFRSfor the first time, there is limited established practice upon which to draw inmatters of interpretation and application. Furthermore it is possible that newstandards and new interpretations may be issued which could affect the group.These figures may therefore require amendment, to change the basis of accountingor presentation of certain financial information, before the inclusion of theIFRS financial statements for the year ended 30 April 2006, when the groupprepares its first complete set of IFRS financial statements. The interimfinancial statements have been issued in accordance with the Listing Rules ofthe United Kingdom Listing Authority. Micro Focus International plc's consolidated financial statements were preparedin accordance with the United Kingdom Generally Accepted Accounting Principles("UK GAAP") until 30 April 2005. UK GAAP differs in some areas from IFRS. Inpreparing these interim financial statements, management has amended certainaccounting, valuation and consolidation methods applied in the UK GAAP financialstatements to comply with IFRS. The comparative figures in respect of 2005 wererestated to reflect these adjustments. Reconciliations and descriptions of the effect of the transition from UK GAAP toIFRS on the Group's equity and its net income and cash flows are provided inNote 7. These interim financial statements have been prepared under the historical costconvention. The preparation of financial statements requires the estimates and assumptionsthat affect the reported amounts of assets and liabilities at the date of thefinancial statements and the reported amounts of revenues and expenses duringthe reporting period. Although the estimates are based on management's bestknowledge of the amounts, events or actions, actual results may differ fromthose estimates. A full disclosure of accounting policies of the company as were applicable underUK GAAP are available in the Annual Report for the year ended 30 April 2005.The major differences in accounting policies under IFRS are described in note 7. Copies of the interim results for the six months ended 31 October 2005 are beingsent to all shareholders. Details can also be found on the company's website atwww.microfocus.com. Further copies of the interim results and copies of theaccounts for the year ended 30 April 2005 can be obtained by writing to theCompany Secretary, Micro Focus International plc, Old Bath Road, Newbury,Berkshire, RG14 1QN. This announcement was approved by the Board of Micro Focus International plc on29 November 2005. 2) Functional currency Items included in the financial statements of each of the group's entities aremeasured using the currency of the primary economic environment in which theentity operates ("the functional currency"). The consolidated financialstatements are presented in US Dollars, which is the Company's functionalcurrency. 3) Bank and other borrowings On 20 May 2005 the outstanding debt of $112.0m owed by the Company to WellsFargo Foothill, Inc. and DB Zwirn Special Opportunities Fund was repaid in full. 4) Earnings per share (unaudited) The calculation of basic earnings per share has been based on the earningsattributable to ordinary shareholders of the Operating Company and the weightedaverage number of shares for each period. This is after taking account of therestructuring of the share capital of the Operating Company, which resulted inthe previous shareholders of the Operating Company receiving three ordinaryshares in the Company for every one ordinary share they previously held in theOperating Company. The weighted average number of shares used in the calculationwas 192,990,520 (31 October 2004: 145,645,796; 30 April 2005:147,374,733). The diluted earnings per share have been calculated after taking account of theshare options. The weighted average number of shares used in the calculation was195,394,825 (31 October 2004: 149,421,036; 30 April 2005: 150,537,213). 5) Segmental information (unaudited) Six months ended Six months ended Year endedGeographical analysis 31 October 2005 31 October 2004 30 April 2005 $'000 $'000 $'000North America 35,023 35,943 73,173Europe and the Middle East 25,740 25,029 57,365Rest of the World 12,096 9,570 20,107Total 72,859 70,542 150,645 There is no material difference between turnover by origin above and turnover bydestination. All turnover is derived from external customers. 6) Supplemental information (unaudited) Set out below is an analysis of turnover recognised between the principalproduct categories, which the directors use to assess the future revenue flowsfrom the current portfolio of customers. Turnover Six months ended Six months ended Year ended 31 October 2005 31 October 2004 30 April 2005 $'000 $'000 $'000License fees 35,160 36,884 79,860Maintenance fees 35,388 31,842 66,705Consultancy fees 2,311 1,816 4,080Total 72,859 70,542 150,645 7) Reconciliation of net assets and profit under UK GAAP to IFRS (unaudited) Micro Focus International plc previously reported under UK GAAP in itspreviously published financial statements for the year ended 30 April 2005. Theanalyses below show reconciliations of net assets and profit under UK GAAP toIFRS. Six months ended Six months ended Year ended 31 October 2005 31 October 2004 30 April 2005 $'000 $'000 $'000Operating profit under UK GAAP 11,528 16,114 35,924Change in amortization period of 1,884 1,884 3,768goodwillCapitalisation of software development 2,753 2,388 5,809Amortisation of software development (2,508) (2,419) (4,587)Operating profit under IFRS 13,567 17,967 40,914 Net profit under UK GAAP 7,396 8,851 17,549Change in amortization period of 1,884 1,884 3,768goodwillCapitalisation of software development 2,753 2,388 5,810Amortisation of software development (2,508) (2,419) (4,587)Deferred tax assets (522) (649) (1,497)Net profit under IFRS 9,003 10,055 21,043 1 May 2004 Effect of transition toASSETS UK GAAP IFRS IFRS ($'000) ($'000) ($'000)Non current assetsGoodwill 42,404 - 42,404Intangible assets - 7,628 7,628Property, plant and equipment 4,115 (2,155) 1,960Deferred tax assets - 8,837 8,837 Current assetsInventories 312 - 312Trade and other receivables 37,925 - 37,925Deferred tax asset 5,998 (5,998) -Cash and cash equivalents 24,420 - 24,420Total assets 115,174 8,312 123,486 LIABILITIESCurrent liabilitiesTrade and other payables 53,736 - 53,736Current tax liabilities 9,821 - 9,821Financial liabilities - borrowings 10,097 - 10,097 73,654 - 73,654Non-current liabilitiesDeferred tax liabilities - 4,481 4,481Other non-current liabilities 5,480 - 5,480Financial liabilities - borrowings 50,037 - 50,037 55,517 4,481 59,998Net assets (liabilities) (13,997) 3,831 (10,166)SHAREHOLDERS' EQUITYCapital and reservesCalled up share capital 1 - 1Share premium 2,871 - 2,871Accumulated losses (16,987) 3,831 (13,156)Other reserves 118 - 118Total shareholders' equity (deficit) (13,997) 3,831 (10,166) 31 October 2004 Effect of transition toASSETS UK GAAP IFRS IFRS ($'000) ($'000) ($'000)Non current assetsGoodwill 40,520 1,884 42,404Intangible assets - 7,164 7,164Property, plant and equipment 3,637 (1,721) 1,916Deferred tax assets - 9,090 9,090 Current assetsInventories 463 - 463Trade and other receivables 31,509 - 31,509Deferred tax asset 4,767 (4,767) -Cash and cash equivalents 30,370 - 30,370Total assets 111,266 11,650 122,916 LIABILITIESCurrent liabilitiesTrade and other payables 53,742 - 53,742Current tax liabilities 9,120 (570) 8,550Financial liabilities - borrowings 7,500 - 7,500 70,362 (570) 69,792Non-current liabilitiesDeferred tax liabilities - 7,183 7,183Other non-current liabilities 5,551 - 5,551Financial liabilities - borrowings 107,500 - 107,500 113,051 7,183 120,234Net assets (liabilities) (72,147) 5,037 (67,110)SHAREHOLDERS' EQUITYCapital and reservesCalled up share capital 1 - 1Share premium 3,363 - 3,363Accumulated losses (75,650) 5,037 (70,613)Other reserves 139 - 139Total shareholders' equity (deficit) (72,147) 5,037 (67,110) 30 April 2005 Effect of transition toASSETS UK GAAP IFRS IFRS ($'000) ($'000) ($'000)Non current assetsGoodwill 38,636 3,768 42,404Intangible assets - 8,084 8,084Property, plant and equipment 3,667 (1,390) 2,277Deferred tax assets - 8,331 8,331 Current assetsInventories 350 - 350Trade and other receivables 50,244 - 50,244Deferred tax asset 3,722 (3,722) -Cash and cash equivalents 32,870 - 32,870Total assets 129,489 15,071 144,560 LIABILITIESCurrent liabilitiesTrade and other payables 71,192 - 71,192Current tax liabilities 11,972 - 11,972Financial liabilities - borrowings 8,010 - 8,010 91,174 - 91,174Non-current liabilitiesDeferred tax liabilities - 7,748 7,748Other non-current liabilities 7,059 - 7,059Financial liabilities - borrowings 103,240 - 103,240 110,299 7,748 118,047Net assets (liabilities) (71,984) 7,323 (64,661)SHAREHOLDERS' EQUITYCapital and reservesCalled up share capital 1 - 1Share premium 3,376 - 3,376Accumulated losses (75,192) 7,323 (67,869)Other reserves (169) - (169)Total shareholders' equity (deficit) (71,984) 7,323 (64,661) Six months ended 31 October 2004 Effect of transition to UK GAAP IFRS IFRS ($'000) ($'000) ($'000)Turnover 70,542 - 70,542Amortisation of development costs - (2,419) (2,419)Other cost of sales (3,569) - (3,569)Cost of Sales (3,569) (2,419) (5,988)Gross Profit 66,973 (2,419) 64,554Selling and distribution costs (22,584) - (22,584)Research and development (11,235) 2,388 (8,847)Management fees (600) - (600)Reorganisation costs (965) - (965)Share-based compensation credit (charge) (1,373) - (1,373)Other administrative expenses (14,102) 1,884 (12,218)Total administrative expenses (17,040) 1,884 (15,156)Operating profit 16,114 1,853 17,967Net interest payable (2,223) (2,223)Profit before tax 13,891 1,853 15,744Taxation (5,040) (649) (5,689)Profit for the period 8,851 1,204 10,055 Year ended 30 April 2005 Effect of transition to UK GAAP IFRS IFRS ($'000) ($'000) ($'000)Turnover 150,645 - 150,645Amortisation of development costs - (4,587) (4,587)Other cost of sales (6,327) - (6,327)Cost of Sales (6,327) (4,587) (10,914)Gross Profit 144,318 (4,587) 139,731Selling and distribution costs (48,105) - (48,105)Research and development (23,407) 5,810 (17,598)Management fees (1,200) - (1,200)Reorganisation costs (2,194) - (2,194)Share-based compensation credit (charge) (3,581) - (3,581)Other administrative expenses (29,907) 3,768 (26,139)Total administrative expenses (36,882) 3,768 (33,114)Operating profit 35,924 4,991 40,914Net interest payable (8,274) - (8,274)Profit before tax 27,650 4,991 32,640Taxation (10,101) (1,497) (11,597)Profit for the period 17,549 3,494 21,043 Explanation of reconciling differences between UK GAAP and IFRS (a) The goodwill arising from the acquisition of the Operating Group fromMerant Plc was previously amortised under UK GAAP on a straight line basis overits estimated useful economic life of 14 years. As at 1 May 2004 the net bookamount under UK GAAP was adopted as the opening cost under IFRS. This goodwillis no longer amortised, but is subject to reviews for impairment. As goodwillwas a permanent difference for tax purposes under UK GAAP a correspondingdeferred tax asset was created under UK GAAP. This will therefore also be adifference under IFRS. (b) Development costs were previously expensed through the profit and lossaccounts, as permitted by UK GAAP. In accordance with IAS 38, development coststhat meet certain criteria, must be capitalised and amortised over the usefuleconomic life to which they relate. The creation of this intangible will alsorepresent a timing difference under IFRS that leads to a corresponding deferredtax liability. This will therefore also be a difference under IFRS. (c) Purchased computer software costs were previously recorded as property,plant and equipment, as permitted by UK GAAP. In accordance with IAS 38, allpurchased computer software is recorded as an intangible asset. Explanation of material adjustments to the cash flow statement for the periodended 31 October 2005 Amounts paid for capitalized development costs during the period ended 31October 2005 are classified as part of cash flows from investing activitiesunder IFRS, but were included as part of operating cash flows under UK GAAP.Cash and cash equivalents includes short-term deposits of $5.21m under IFRS,under UK GAAP the same has been included in the management of liquid resourcescategory. There are no other material differences between the cash flowstatement presented under IFRS and the cash flow statement presented under UKGAAP. Review report on interim financial information. Independent review report to Micro Focus International Plc Introduction We have been instructed by the company to review the financial information whichcomprises the consolidated balance sheet, the consolidated income statement, thestatement of changes in shareholders' equity, the consolidated cash flowstatement and the related notes. We have read the other information contained inthe interim report and considered whether it contains any apparent misstatementsor material inconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The directors areresponsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority which require that the accountingpolicies and presentation applied to the interim figures should be consistentwith those applied in preparing the preceding annual accounts except where anychanges, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the accounting policies and presentationhave been consistently applied unless otherwise disclosed. A review excludesaudit procedures such as tests of controls and verification of assets,liabilities and transactions. It is substantially less in scope than an auditperformed in accordance with United Kingdom Auditing Standards and thereforeprovides a lower level of assurance than an audit. Accordingly we do not expressan audit opinion on the financial information. This report, including theconclusion, has been prepared for and only for the company for the purpose ofthe Listing Rules of the Financial Services Authority and for no other purpose.We do not, in producing this report, accept or assume responsibility for anyother purpose or to any other person to whom this report is shown or into whosehands it may come save where expressly agreed by our prior consent in writing. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 31 October 2005. PricewaterhouseCoopers LLP Chartered Accountants Reading 30 November 2005 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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