11th Dec 2006 21:09
Micro Focus International plc ("Micro Focus", "the Company" or"the Group", LSE: MCRO) announces interim results for the half year to31 October 2006. £ Key financial highlights £ -- Turnover up 8% to US$79.0m (2005: US$72.9m) £ -- Operating profit before exceptional items* up 55% to US$30.4m (2005: US$19.6m) £ -- EBITDA** before exceptional items* up 53% to US$31.3m (2005: US$20.5m) £ -- Profit before tax up 143% to US$31.4m (2005: US$12.9m) £ -- Basic earnings per share 12.03 cents (2005: 4.66 cents) £ -- Net cash balance as at 31 October 2006, US$68.1m (31 October 2005: US$38.6m) £ -- Interim dividend increased 50% to 3 cents per share (2005: 2 cents per share) £ -- Operating profit US$30.0m (2005: US$13.7m) £ -- EBITDA** US$30.9m (2005: US$14.6m) \* T * Exceptional items are detailed in note 5 ** EBITDA is reconciled to operating profit in note 5*** Earnings per share are detailed in note 4\* T \* TStephen Kelly, Chief Executive Officer of Micro Focus, commented: "We are encouraged by the progress made at Micro Focus over the past six months. Satisfactory year-on-year revenue growth, combined with a firm control of expenses, has resulted in a significant increase in profits versus the prior period. We have completed the Strategy Review which confirms the long-term market for our products and solutions. For 30 years, Micro Focus has influenced and innovated in the Enterprise Applications market and is now leading modernisation in this market. The primary focus of the new management team is to achieve sustainable, profitable growth and to enhance shareholder value. We continue to focus firmly on sales execution as well as ensuring improvement from all supporting functions." \* T £ Online video interviews with Chief Executive Stephen Kelly andChief Financial Officer Nick Bray can be viewed free atwww.microfocus.com and www.cantos.com. £ About Micro Focus £ Micro Focus provides innovative software that helps companies todramatically improve the business value of their enterpriseapplications. Micro Focus Enterprise Application Modernisationsoftware enables customers' business applications to respond rapidlyto market changes and embrace modern architectures with reduced costand risk. \* TChairman's statement I am encouraged by the performance achieved over the past six months. We have returned to revenue growth and have significantly increased our profitability. Most importantly, we have been establishing a new management team which has the depth and skills necessary to drive this business forward. It is pleasing to see that Stephen Kelly (CEO, appointed 1 May 2006), Nick Bray (CFO, appointed 3 January 2006) and Mike Shinya (COO, appointed 1 August 2006) have established themselves so quickly. On 6 April 2006 the Company announced a cost reduction programme to improve overall returns while maintaining the fabric of the business and the Company's sales capability. Since then, revenue growth combined with a firm control of expenses has resulted in a significant increase in profitability and we continue to invest to support future growth. I am pleased to announce a 50% increase in the interim dividend to 3 cents per share. The Board would like to thank all of Micro Focus' employees for their continued hard work and commitment throughout the past six months. We have experienced significant change but we emerge much stronger as a result. The first half-year results are encouraging and Micro Focus remains focused on growth. I remain confident in the Company's ability to deliver value to all of its stakeholders. Kevin Loosemore, Chairman \* T \* TChief Executive Officer's statement Execution Over the past six months we have strengthened the management team, completed a Strategy Review and delivered a solid set of financial results. Whilst we still have many areas on which to improve, we have successfully executed on stabilising the business and have executed ahead of our initial expectations. Poor sales execution was, as has already been identified and highlighted, the root cause of the fall in revenues in the year to 30 April 2006. The sales team has been strengthened and significant emphasis has been placed on refining our go-to-market strategy and our direct sales execution capability. Appropriate focus is also being applied to all other functions within the business to ensure objectives are aligned to drive future revenue growth. The Company continues to have an enviable customer base with approximately fifty percent of turnover derived from secure and predictable maintenance revenues. The growth achieved in maintenance over the past six months has been encouraging. The combination of revenue growth and cost reductions has produced a material improvement in net profits during the period. We acquired HAL Knowledge Solutions SPA following the period end. This acquisition expands our existing APM solution and we believe it now provides us with a market leading position from which to take advantage of the rapidly evolving APM space. Our Company now has firm financial foundations to support a platform for growth. The net cash balance at 31 October 2006 was US$68.1m, up from US$38.6m as at 31 October 2005 as a result of improvements in the underlying trading performance. Strategy Review The strategy review was undertaken by a combined external and internal team with extensive external data, analysis and input. I am pleased to report that the review confirmed and further clarified the Board's view of our business. -- A firm market exists for all four of our solution areas; COBOL tools, modernisation (leverage and extend), migrations (lift and shift) and Application Portfolio Management ('APM'). -- Whilst growth rates may vary, in aggregate all four solution areas combined can support growth over the long-term. -- Our core business remains predominantly based around the sale of COBOL tools. We are the leading worldwide player in this market and we will continue to invest to maintain this position. -- Our opportunity, and at the same time our key challenge, is to expand our enterprise solution sales capability. Over the past two years in both our modernisation and migration solutions, we believe we have established both market awareness and a leading position. We will focus firmly on the go-to-market strategy in these areas to capitalise on this. -- Micro Focus will continue to focus on direct sales with support from aligned System Integrator partners -- Whilst still in its infancy, the APM market provides both significant growth potential and the ability to leverage our other solutions into senior executives at key corporate clients. APM allows management to better understand the Enterprise Applications developed by their organisations over many decades and thereby allows them to determine the appropriate option to deploy on an ongoing basis - be that modernising into Service Oriented Architecture ("SOA"), enhancing and extending valuable applications to address new business requirements, migrating applications to lower cost platforms, or making better use of COBOL and other tools. The acquisition of HAL Knowledge Solutions SPA significantly enhances our execution capability in this space. Micro Focus intends to host an event for analysts in early 2007 to provide more detail around the Strategy Review. To ensure sustainable growth, we are focused on linking our strategy to specific actions for executives and establishing the right cultures and values to help drive effective execution. Outlook The outlook for the core business excluding the impact of the acquisition of HAL Knowledge Solutions (HAL KS) is detailed below. Our expectations with regard to HAL KS are discussed in the Chief Financial Officer's Review. Future revenue growth will be largely dependent on driving licence sales. It was therefore particularly pleasing to see the level of first half-year licence fees, achieved with minimal contribution from large transactions. Our largest licence contract during the first half year was US$0.7m. In prior periods, the Company had benefited from contracts significantly in excess of this value. A number of large contracts remain in our pipeline although by their very nature, they are unpredictable. As reported in the preliminary results, we had expected maintenance revenues to be broadly flat year on year. However, the solid first half of licence fees combined with an encouraging renewal rate, price increases and a focus on closing contracts in negotiation has resulted in positive growth. The smallest proportion of our revenues is derived from our consultancy services and it is intended that these revenues will remain a similar proportion of total revenues for the year ahead. As a result of the above, we expect full year total revenue growth in the range of 7% to 10% as compared to the prior year. Sustainable and profitable revenue growth is the key factor that will determine the long-term success of the Company. Management's emphasis will continue to be on licence fee sales to drive growth. As a business, we have made positive progress over the past six months. We have developed a clearly scoped out strategy to work to and a firm focus on execution and tight cost control. The revenue outcome for the year will be determined primarily by the license fee performance in the second half. Sales and marketing costs are expected to be slightly higher in the second half year as we look to further strengthen our go to market execution capability. We are encouraged by the progress to date but are conscious that there is further work to do. Stephen Kelly, Chief Executive \* T £ Chief Financial Officer's review £ Turnover for the half year ended 31 October 2006 increased toUS$79.0m (2005: US$72.9m). £ Turnover for the half year by geographic region was as follows: \* T 31 October 30 April 31 October 2006 2006 2005 US$m % US$m % US$m %---------------------------------------------------------------------- North America 35.7 45.2 33.8 47.7 35.1 48.1Europe and the Middle East 30.2 38.2 28.3 40.0 25.7 35.3Rest of the World 13.1 16.6 8.7 12.3 12.1 16.6----------------------------------------------------------------------Total turnover 79.0 100.0 70.8 100.0 72.9 100.0\* T £ Whilst revenue growth was achieved across all areas, as comparedto the prior half year period to 31 October 2005, growth was primarilydriven from our European operations, notably our smaller territoriesin Benelux, France and Italy along with our distributor channel. OurUK and North America operations produced results below the performancelevels expected from geographic territories with such a highconcentration of resource, existing customers and market potential.However, it should be noted that during the six month period to 31October 2005, the North American operation closed a license fee dealfor US$3.0m. £ Similarly, it is encouraging to see the improvement in our Rest ofthe World operations, highlighted by a weak third quarter in the prioryear to 30 April 2006. £ Turnover for the half year by category was as follows: \* T 31 October 30 April 31 October 2006 2006 2005 US$m % US$m % US$m %---------------------------------------------------------------------- License fees 37.7 47.7 32.8 46.3 35.2 48.3Maintenance fees 39.1 49.5 36.5 51.6 35.4 48.6Consultancy fees 2.2 2.8 1.5 2.1 2.3 3.1----------------------------------------------------------------------Total turnover 79.0 100.0 70.8 100.0 72.9 100.0\* T £ It can be seen that the increase in total revenues for the halfyear related to the improvement in both licence and maintenancerevenues. Licence fees increased by US$2.5m or 7.1% to US$37.7m forthe half year ended 31 October 2006 (2005: US$35.2m). Encouragingly,the growth in licence fee revenues was achieved by an increased volumeof lower value orders. A number of large contracts remain in ourpipeline although by their very nature, they are unpredictable £ Maintenance revenues increased by US$3.7m or 10.5% to US$39.1m forthe half year ended 31 October 2006 (2005: US$35.4m). £ Maintenance revenues are recognised evenly over the life of eachcontract, which is typically twelve months. As such, the profit andloss recognition of maintenance revenue lags the initial licence feesale. Thus, it was encouraging to see the increase in maintenancerevenues following the disappointing licence fee performance in thesecond half of the year to 30 April 2006. Whilst the solid first halfyear of licence fees is encouraging, the major factors driving growthin the six months to 31 October 2006 are as follows: £ -- An improvement in the renewal rate of existing customers. £ -- Modest annual price increases to existing customers. £ -- A focus on closing "contracts in negotiation" and the introduction of an automatic renewal process for our customers. £ Consulting revenues showed a modest decline against thecomparative first half year but represent only a minor proportion oftotal revenues. £ Costs £ It has been pleasing to see the reduction in costs following therestructuring of the business announced on 6 April 2006. A firmcontrol of expenses has been established and will be maintained on anongoing basis. The cost reduction programme was designed to improveoverall returns while maintaining the fabric of the business. £ Cost of sales for the half year ended 31 October 2006 reduced by12.9% to US$8.1m (2005: US$9.3m). The costs in this categorypredominantly relate to our consulting and helpline supportoperations. Costs within the consulting organisation have been reducedand its performance has improved substantially. £ Selling and distribution costs reduced to $19.9m for the half yearended 31 October 2006 (2005: US$24.4m). Headcount levels are broadlyconsistent year on year and the reduction reflects lower travel andentertainment, marketing expense and commission payments. £ Research and development expenses for the half year were broadlyconsistent at US$10.8m (2005: US$11.2m). £ Underlying administrative expenses, excluding exceptional items ofUS$0.4m (2005: US$6.0m), increased to US$9.7m (2005: US$8.3m). Thiscost category contains US$0.8m in relation to exchange losses in theperiod to 31 October 2006. In the prior period, costs were reduced byexchange gains of US$0.3m. As such, underlying administrative expenseshave increased by US$0.3m or 3%. £ Operating profit £ Operating profit for the period was US$30.0m (2005: US$13.7m).Operating profit before exceptional items was US$30.4m (2005:US$19.6m),the improvement being driven by the combination of improvedrevenues and reduced costs. £ EBITDA £ EBITDA before exceptional items increased by 52.7% to US$31.3m(2005: US$20.5m) for the half year ended 31 October 2006. £ Net interest income £ The IPO proceeds in May 2005 allowed the Company to repay all itsoutstanding loan balances. Since this time, interest has beengenerated on the available net cash balance. Interest income ofUS$1.4m was achieved in the half year to 31 October 2006 as comparedto a net interest expense of US$0.8m in the first half of the priorperiod. During the prior first half year, US$0.7m of the expenserelated to penalties on the early repayment of debt which the Companydeemed appropriate to avoid higher interest charges. £ Taxation £ Tax for the half year ended 31 October 2006 was US$7.4m (2005:US$3.9m) based on increased profits. The Group's effective tax rate is23.5% (2005: 30%). As a result of the significant increase in theshare price in the six month period to 31 October 2006, a taxdeduction has arisen on the stock options in issue. Excluding theeffects of this beneficial tax deduction, the underlying effective taxrate was 26.8%. £ Profit for the period £ Profit after tax for the period ended 31 October 2006 increased by167% to US$24.0m (2005: US$9.0m) driven by a significant improvementin operating performance combined with lower exceptional charges. £ Cash flow £ For the half year ended 31 October 2006, the Company generated anet cash inflow from operating activities of US$22.2m (2005:US$10.3m). At 31 October 2006, the Company's net cash balance wasUS$68.1m (2005: US$38.6m). Dividends of US$8.0m were paid in theperiod. £ Dividend £ The Board continues to adopt a progressive dividend policyreflecting the long-term earnings and cash flow potential of MicroFocus whilst targeting a level of dividend cover for the financialyear ending 30 April 2007 of approximately 2.5 times on apre-exceptional earnings basis. In line with the above policy, thedirectors recommend payment of an interim dividend in respect of thehalf year to 31 October 2007 of 3 cents per share, an increase of 50%above the interim dividend of 2 cents per share for the half year to31 October 2005. The interim dividend will be paid on 31 January 2007to shareholders on the register on 5 January 2007. £ Whilst the Group as a whole has a deficit in its profit and lossreserve, the directors of Micro Focus International plc have concludedthat the Company has sufficient reserves to enable the payment of theinterim dividend. £ Dividends will be paid in sterling based on an exchange rate ofGBP = US$1.96, equivalent to approximately 1.53 pence per share, beingthe rate applicable on 7 December 2006, the date of recommendation ofthe dividend by the Board. £ Acquisition of HAL Knowledge Solutions SPA £ On 2 November 2006, Micro Focus announced that it had agreed toacquire HAL Knowledge Solutions SPA (HAL KS), a leading provider ofApplication Portfolio Management software in order to enhance theCompany's enterprise application modernisation capabilities. Thetransaction successfully closed on 10 November 2006. HAL KS has beenacquired by Micro Focus for a total consideration of US$3.5m in cash,subject to a net asset adjustment. £ In the year to 31 December 2005, HAL KS reported a net loss beforetax of US$4.5m and its gross assets as at 31 December 2005 wereUS$9.5m. Following the acquisition, we are now restructuring thebusiness to reduce costs, with an expected restructuring charge ofapproximately US$4.0m, falling in the current financial year. HAL KSwas acquired with net balance sheet liabilities of approximatelyUS$4.5m. £ For the six month period to 30 April 2007, revenues are expectedto be in the range of US$4.0m to US$5.0m. Excluding the associatedrestructuring charge, the business is expected to break even in thesix month period to April 2007. £ Nick Bray, Chief Financial Officer \* TMicro Focus International plcConsolidated income statement Six months ended Six months ended Year ended 31 October 2006 31 October 2005 30 April 2006 (unaudited) (unaudited) (audited) $'000 $'000 $'000----------------------------------------------------------------------Turnover 78,966 72,859 143,688----------------------------------------------------------------------Cost of sales (8,052) (9,302)* (17,552)*----------------------------------------------------------------------Gross profit 70,914 63,557 126,136 Selling and distribution costs (19,948) (24,374) (48,500) Research and development (10,811) (11,225)* (21,714)* Administrative expenses (10,133) (14,301)* (33,189)*----------------------------------------------------------------------Operating profit 30,022 13,657 22,733 ----------------------------------------------------------------------Analysed as:Operating profit before exceptional items 30,412 19,615 36,946Exceptional items (390) (5,958) (14,213)----------------------------------------------------------------------Operating profit 30,022 13,657 22,733---------------------------------------------------------------------- Interest payable and similar charges (5) (1,158) (1,137)Interest receivable and similar income 1,370 362 962----------------------------------------------------------------------Profit before tax 31,387 12,861 22,558 Taxation (7,377) (3,858) (6,332)----------------------------------------------------------------------Profit for the period 24,010 9,003 16,226---------------------------------------------------------------------- Earnings per share expressed in cents per share - basic 12.03 4.66 8.25 - diluted 11.89 4.61 8.17 Earnings per share expressed in pence per share - basic 6.43 2.61 4.68 - diluted 6.36 2.58 4.63---------------------------------------------------------------------- Note:Dividends recognised in the period amounted to US$7,983,000 (six months ended 31 October 2005: nil), or 4c per share. The interim dividend proposed but not recognised in these interim financial statements amounted to US$5,994,000 (six months ended 31 October 2005: US$3,987,000), or 3c per share (six months ended 31 October 2005: 2c per share). * Certain costs have been reclassified between Cost of Sales, Research and Development and Administrative expenses as disclosed in note 2.\* T \* TMicro Focus International plcConsolidated balance sheet 31 October 2006 31 October 2005 30 April 2006 (unaudited) (unaudited) (audited) $'000 $'000 $'000----------------------------------------------------------------------ASSETSNon current assetsGoodwill 42,404 42,404 42,404Intangible assets 7,289 7,753 7,637Property, plant and equipment 2,154 2,236 2,386Deferred tax assets 7,993 7,748 7,718---------------------------------------------------------------------- 59,840 60,141 60,145Current assetsInventories 305 259 331Trade and other receivables 42,342 36,321 37,629Cash and cash equivalents 68,223 38,846 56,066---------------------------------------------------------------------- 110,870 75,426 94,026----------------------------------------------------------------------Total assets 170,710 135,567 154,171---------------------------------------------------------------------- LIABILITIESCurrent liabilitiesTrade and other payables 62,864 53,168 70,516Current tax liabilities 18,156 14,299 10,777Financial liabilities - borrowings 118 118 117---------------------------------------------------------------------- 81,138 67,585 81,410Non-current liabilitiesNon-current deferred income 6,585 5,915 6,720Deferred tax liabilities 8,353 7,748 8,446Financial liabilities - borrowings 41 154 94---------------------------------------------------------------------- 14,979 13,817 15,260----------------------------------------------------------------------Net assets (liabilities) 74,593 54,165 57,501---------------------------------------------------------------------- SHAREHOLDERS' EQUITYCapital and reservesCalled up share capital 36,712 36,595 36,644Share premium 103,644 104,475 103,641Profit and loss reserve (deficit) (38,895) (58,838) (55,267)Foreign currency translation reserve 217 (982) (432)Other reserves (27,085) (27,085) (27,085)----------------------------------------------------------------------Total shareholders' equity (deficit) 74,593 54,165 57,501----------------------------------------------------------------------\* T \* TMicro Focus International plcConsolidated cash flow statements Six months ended Six months ended Year ended 31 October 2006 31 October 2005 30 April 2006 (unaudited) (unaudited) (audited) $'000 $'000 $'000----------------------------------------------------------------------Cash flows from operating activitiesProfit for the period 24,010 9,003 16,226 Adjustments for Net interest (1,365) 796 175 Taxation 7,377 3,858 6,332 Depreciation 514 480 1,006 Loss on disposal of property 2 - 17 Amortisation of intangibles 2,834 2,934 5,433 Share-based compensation 390 (500) (224)Changes in working capital: Inventories 26 91 19 Trade and other receivables (4,666) 13,923 12,615 Payables and other non-current liabilities (7,883) (17,752) 371----------------------------------------------------------------------Cash generated from continuing operations 21,239 12,833 41,970 Interest received 1,321 365 666 Interest paid (5) (1,829) (1,551) Tax paid (365) (1,074) (6,103)----------------------------------------------------------------------Net cash from operating activities 22,190 10,295 34,982 Cash flows from investing activities Purchase of intangible assets (2,486) (2,604) (4,986) Purchase of tangible fixed assets (286) (440) (1,123) Proceeds on disposal of tangible fixed assets - - -----------------------------------------------------------------------Net cash used in investing activities (2,772) (3,044) (6,109) Cash flows from financing activitiesNet proceeds from issue of ordinary share capital 71 110,500 109,823Net proceeds from issue of new bank loan - - -Repayment of borrowings - (111,250) (111,250)Dividends paid to shareholders (7,983) - (3,987)----------------------------------------------------------------------Net cash used in financing activities (7,912) (750) (5,414) Effects of changes in exchange rates 651 (525) (263)----------------------------------------------------------------------Net increase in cash and cash equivalents 12,157 5,976 23,196Cash and cash equivalents at beginning of period 56,066 32,870 32,870----------------------------------------------------------------------Cash and cash equivalents at end of period 68,223 38,846 56,066----------------------------------------------------------------------\* T \* TMicro Focus International plcStatement of Changes in Shareholders' Equity (unaudited) Profit Foreign and loss currency Share Share reserve translation Other Total Capital Premium (deficit) reserve Reserves Equity $'000 $'000 $'000 $'000 $'000 $'000 Balance as at 1 May 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 issued under Employee Option Plan - - 28 - - 28Share for share exchange 27,085 - - - (27,085) -Issue of share capital 9,509 101,099 - - - 110,608----------------------------------------------------------------------Balance as of 31 October 2005 36,595 104,475 (58,838) (982) (27,085) 54,165 Currency translation differences - - - 550 - 550Profit for the period - - 7,223 - - 7,223Dividends - - (3,987) - - (3,987)Value of share options issued under Employee Option Plan - - 335 - - 335Issue of share capital 49 (834) - - - (785)----------------------------------------------------------------------Balance as of 30 April 2006 36,644 103,641 (55,267) (432) (27,085) 57,501 Currency translation differences - - - 649 - 649Profit for the period - - 24,010 - - 24,010Dividends - - (7,983) - - (7,983)Value of share options issued under Employee Option Plan - - 345 - - 345Issue of share capital 68 3 - - - 71----------------------------------------------------------------------Balance as of 31 October 2006 36,712 103,644 (38,895) 217 (27,085) 74,593----------------------------------------------------------------------\* T £ Notes £ 1) Basis of preparation £ These financial statements comprise the consolidated interimbalance sheets as of 31 October 2006 and 31 October 2005 and relatedconsolidated interim statements of income and cash flows for the sixmonths then ended of Micro Focus International Plc (hereinafterreferred to as 'the interim financial statements'). These interimfinancial statements have been prepared on a basis consistent with theaccounting policies set out in Micro Focus International plc's annualreport for the year ended 30 April 2006. The interim financialstatements should therefore be read in conjunction with the 2006annual report. The interim financial statements have been issued inaccordance with the Listing Rules of the Financial Services Authority.The group has chosen not to adopt IAS 34 'Interim financialstatements' in preparing these interim financial statements. £ These interim financial statements have been prepared under thehistorical cost convention. £ The preparation of financial statements require estimates andassumptions that affect the reported amounts of assets and liabilitiesat the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting period. Although theestimates are based on management's best knowledge of the amounts,events or actions, actual results may differ from those estimates. £ Copies of the interim results for the six months ended 31 October2006 will be sent to all shareholders. Details can also be found onthe company's website at www.microfocus.com. Further copies of theinterim results and copies of the accounts for the year ended 30 April2006 can be obtained by writing to the Company Secretary, Micro FocusInternational plc, Old Bath Road, Newbury, Berkshire, RG14 1QN. £ This announcement was approved by the Board of Micro FocusInternational plc on 7 December 2006. £ 2) Reclassification of expenditure £ The directors have reviewed the classification of certainexpenditure within the Income Statement and believe, to be consistentwith software industry accounting practices, in order to aidcomparison, it is more appropriate to classify the following costsdifferently than was reported in prior periods. £ a) Cost of customer support - these costs were previously includedwithin Administrative Expenses and have been reclassified as Cost ofSales. The impact of the change is to increase Cost of Sales by$4,651,000 (H1 2006: $5,302,000, FY06 $10,074,000) and decreaseAdministrative Expenses by a corresponding amount. £ b) Amortisation of research and development - these costs relatingto capitalized salaries were previously amortised through Cost ofSales. The amortization has been reclassified as Research andDevelopment Expenditure The impact of the change is to decrease Costof Sales by $2,470,000 (H1 2006: $2,508,000, FY06 $4,626,000) andincrease Research and Development Expenditure by a correspondingamount. £ 3) Functional currency £ Items included in the financial statements of each of the group'sentities are measured using the currency of the primary economicenvironment in which the entity operates ("the functional currency").The consolidated financial statements are presented in US Dollars,which is the Company's functional currency. £ 4) Earnings per share £ The calculation of basic earnings per share has been based on theearnings attributable to ordinary shareholders of the company and theweighted average number of shares for each period. The weightedaverage number of shares used in the calculation was 199,558,000 (31October 2005:192,990,000; 30 April 2006:196,709,000). £ The diluted earnings per share has been calculated after takingaccount of the share options. The weighted average number of sharesused in the calculation was 201,889,000 (31 October 2005: 195,394,825;30 April 2006: 198,711,000). £ Diluted earnings per share excluding exceptional items was 11.18cents (H1 2006: 7.20 cents, FY2006: 14.23 cents). Diluted earnings pershare is calculated after adjusting for the post-tax effect ofexceptional items of $277,000 (H1 2006: $5,064,000, FY2006:$12,059,000). \* T5) Reconciliation of operating profit to EBITDA Six months ended Six months ended Year ended 31 October 2006 31 October 2005 30 April 2006 (unaudited) (unaudited) (audited) $'000 $'000 $'000---------------------------------------------------------------------- Operating profit 30,022 13,657 22,733Depreciation 514 475 1,006Amortisation of Software 364 426 806----------------------------------------------------------------------EBITDA 30,900 14,558 24,545Exceptional items:IPO-related costs - 6,458 6,909Reorganisation costs - - 7,403Share-based compensation 390 (500) (224)Management charges - - 125----------------------------------------------------------------------EBITDA before exceptional items 31,290 20,516 38,758----------------------------------------------------------------------\* T £ In calculating EBITDA the amortization of Research and Developmentexpenditure is not added back to operating profit, as the directorsbelieve by doing so EBITDA provides a better measure of the cashgeneration of the business. Amortisation of Research and Developmentexpenditure in the current period was $2,470,000 (H1 2006: $2,508,000,FY 2006 $4,626,000). \* T6) Segmental information Six months ended Six months ended Year ended 31 October 2006 31 October 2005 30 April 2006Geographical analysis (unaudited) (unaudited) (audited) of turnover $'000 $'000 $'000---------------------------------------------------------------------- North America 35,704 35,023 68,847Europe and the Middle East 30,167 25,740 54,038Rest of the World 13,095 12,096 20,803----------------------------------------------------------------------Total 78,966 72,859 143,688----------------------------------------------------------------------\* T £ There is no material difference between turnover by origin aboveand turnover by destination. All turnover is derived from externalcustomers. £ 7) Supplemental information £ Set out below is an analysis of turnover recognised between theprincipal product categories, which the directors use to assess thefuture revenue flows from the current portfolio of customers. \* T Six months ended Six months ended Year ended 31 October 2006 31 October 2005 30 April 2006 (unaudited) (unaudited) (audited)Turnover $'000 $'000 $'000---------------------------------------------------------------------- License fees 37,675 35,160 67,985 Maintenance fees 39,115 35,388 71,860 Consultancy fees 2,176 2,311 3,843---------------------------------------------------------------------- Total 78,966 72,859 143,688----------------------------------------------------------------------\* T £ 8) Taxation £ Tax for the half year ended 31 October 2006 was US$7.4m (2005:US$3.9m) based on increased profits. The Group's effective tax rate is23.5% (2005: 30%). As a result of the significant increase in theshare price in the six month period to 31 October 2006, a taxdeduction has arisen on the stock options in issue. Excluding theeffects of this beneficial tax deduction, the underlying effective taxrate was 26.8%. £ 9) Trade and other receivables \* T 31 October 2006 31 October 2005 30 April 2006 (unaudited) (unaudited) (audited) $'000 $'000 $'000----------------------------------------------------------------------Trade debtors 34,500 27,596 29,377Prepayments 3,213 3,089 3,959Accrued income 4,629 5,636 4,293---------------------------------------------------------------------- Total 42,342 36,321 37,629----------------------------------------------------------------------\* T £ 10) Trade and other payables \* T 31 October 2006 31 October 2005 30 April 2006 (unaudited) (unaudited) (audited) $'000 $'000 $'000----------------------------------------------------------------------Trade payables 1,762 2,058 1,944Other tax and social security payable 2,720 2,593 2,468Accruals 15,456 10,010 20,511Deferred income 42,926 38,507 45,593---------------------------------------------------------------------- Total 62,864 53,168 70,516----------------------------------------------------------------------\* T £ 11) Post balance sheet events £ On 2 November 2006, Micro Focus announced that it had agreed toacquire HAL Knowledge Solutions SPA (HAL KS), a leading provider ofApplication Portfolio Management software in order to enhance theCompany's enterprise application modernisation capabilities. The dealsuccessfully closed on 10 November 2006. HAL KS has been acquired byMicro Focus for a total consideration of US$3.5m in cash, subject to anet asset adjustment.. £ In the year to 31 December 2005, HAL KS reported a net loss beforetax of US$4.5m and its gross assets as at 31 December 2005 wereUS$9.5m. Following the acquisition, we are now restructuring thebusiness to reduce costs, with an expected restructuring charge ofapproximately US$4.0m, falling in the current financial year. HAL KSwas acquired with net balance sheet liabilities of approximately$4.5m. £ Independent review report to Micro Focus International plc £ Introduction £ We have been instructed by the company to review the financialinformation for the six months ended 31 October 2006 which comprisesconsolidated interim balance sheet as at 31 October 2006 and therelated consolidated interim statements of income, cash flows andchanges in shareholders' equity for the six months then ended andrelated notes. We have read the other information contained in theinterim report and considered whether it contains any apparentmisstatements or material inconsistencies with the financialinformation. £ Directors' responsibilities £ The interim report, including the financial information containedtherein, is the responsibility of, and has been approved by thedirectors. The Listing Rules of the Financial Services Authorityrequire that the accounting policies and presentation applied to theinterim figures should be consistent with those applied in preparingthe preceding annual accounts except where any changes, and thereasons for them, are disclosed. £ This interim report has been prepared in accordance with the basisset out in Note 1. £ Review work performed £ We conducted our review in accordance with guidance contained inBulletin 1999/4 issued by the Auditing Practices Board for use in theUnited Kingdom. A review consists principally of making enquiries ofgroup management and applying analytical procedures to the financialinformation and underlying financial data and, based thereon,assessing whether the disclosed accounting policies have been applied.A review excludes audit procedures such as tests of controls andverification of assets, liabilities and transactions. It issubstantially less in scope than an audit and therefore provides alower level of assurance. Accordingly we do not express an auditopinion on the financial information. This report, including theconclusion, has been prepared for and only for the company for thepurpose of the Listing Rules of the Financial Services Authority andfor no other purpose. We do not, in producing this report, accept orassume responsibility for any other purpose or to any other person towhom this report is shown or into whose hands it may come save whereexpressly agreed by our prior consent in writing. £ Review conclusion £ On the basis of our review we are not aware of any materialmodifications that should be made to the financial information aspresented for the six months ended 31 October 2006. £ PricewaterhouseCoopers £ Chartered Accountants £ Reading £ 7 December 2006 £ Note: £ The maintenance and integrity of the Micro Focus International Plcweb site is the responsibility of the directors; the work carried outby the auditors does not involve consideration of these matters and,accordingly, the auditors accept no responsibility for any changesthat may have occurred to the interim report since it was initiallypresented on the web site. Copyright Business Wire 2006Related Shares:
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