28th Jun 2007 07:10
Micro Focus International plc ("Micro Focus", "the Company" or"the Group", LSE: MCRO.L) announces preliminary results for the yearto 30 April 2007. All figures are in US$ and cents. \* TKey financial highlights -- Revenue up 19% to $171.6m (2006: $143.7m) -- Operating profit before exceptional items* up 70% to $63.0m (2006: $36.9m) -- EBITDA** before exceptional items* up 68% to $65.3m (2006: $38.8m) -- Profit before tax up 166% to $60.0m (2006: $22.6m) -- Basic earnings per share 21.96 cents (2006: 8.25 cents)*** -- Cash balance as at 30 April 2007 of $85.0m (2006: $56.1m) - $40.7m cash utilised post year end to fund the acquisition of Acucorp, Inc. -- Final proposed dividend of 7 cents per share; total dividend for the year up 67% to 10 cents per share (2006: 6 cents per share) -- Operating profit $57.3m (2006: $22.7m) -- EBITDA** $59.6m (2006: $24.5m) * Exceptional items are detailed in note 7** EBITDA is reconciled to operating profit in note 6*** Earnings per share are detailed in note 8 Business Highlights -- Solid organic growth achieved for the year -- Direct sales into Global 2000 targets progressing well with larger value licence fee transactions ahead of expectations in the second half -- New customer wins in the year included Tesco, TNT, Australia National Tax Office and Nomura Securities -- Integration of HAL Knowledge Systems SpA ("HAL KS") now completed. -- Integration of Acucorp, Inc. ("Acucorp"), acquired post period end, progressing well\* T £ Stephen Kelly, Chief Executive Officer of Micro Focus, commented: £ "We are encouraged by Micro Focus' performance over the past year,reflecting the strong fundamentals of the business. Year-on-yearorganic revenue growth combined with a firm control of expenses hasresulted in a significant increase in profits as compared with theprior year. The acquisition of HAL KS during the year together withthe acquisition of Acucorp in May 2007 have further strengthened ourcapability to drive future growth. The full benefit of bothacquisitions will be seen in the financial year to 30 April 2008. £ Looking ahead, the impact of both the acquisitions we have made,combined with further expected organic growth, is expected to provideannual revenue growth similar to the rate achieved in the year to 30April 2007. Margins are expected to remain at a similar level. £ Management's emphasis will continue to be on licence fee sales todrive profitable growth. We are confident that a robust andsustainable market exists to support our growth strategy. Our keyfocus remains on organic growth." £ About Micro Focus £ Micro Focus, a member of the FTSE 250, provides innovativesoftware that allows companies to dramatically improve the businessvalue of their enterprise applications. Micro Focus EnterpriseApplication Modernization and Management software enables customers'business applications to respond rapidly to market changes and embracemodern architectures with reduced cost and risk. For additionalinformation please visit www.microfocus.com. £ Chairman's statement £ I am encouraged by our performance over the past year. We haveachieved good revenue growth and have increased our margin performanceand profitability. Micro Focus is now well positioned for the future. £ The new executive Board members of Stephen Kelly (CEO), Nick Bray(CFO) and Mike Shinya (COO) have the skills, experience, commitmentand drive necessary to lead our business strongly forward. Whilst wehave refreshed and reinvigorated our Company with a number of newhires, the contribution of the existing executive talent within ourCompany has been considerable. Stephen, Nick and Mike aside, theremaining five members of the senior executive team have more thaneighty years' combined experience with Micro Focus. Our Company has athirty year heritage and over 60% of our employees have been with usfor more than five years. The combination of both new and existingtalent within our Company provides us with a formidable leadershipteam and skills base. I am also delighted to announce today theappointment of Dr Paul Pester as a Non-Executive Director withimmediate effect. Dr Pester has extensive experience in the FinancialServices sector and is an important addition to our Board. £ The speed of the recovery achieved over the past twelve monthsreflects well on the team and highlights the strong fundamentals ofthe business. We have first rate technology solutions, a loyal andsatisfied customer base and a market leading position in asubstantial, sustainable and growing market place. We now have theteam to take full advantage of the market opportunity. £ Revenue growth combined with a firm control of expenses hasresulted in a significant increase in profitability. We continue tomake appropriate targeted investments in the areas of sales andmarketing to support future growth whilst not sacrificing margins. £ In line with our strategy, we have completed one acquisitionduring the year and a second in May 2007 designed to both consolidateour market position and provide further opportunities for profitablegrowth. We have firm financial foundations from which to grow and I ampleased to announce a 75% increase in the final dividend to 7 centsper share, giving a full year dividend of 10 cents a share. Wefinished the financial year with cash of $85.0m, and generated $58.2mof cash from operations in the period. Our business has a low capitalrequirement and our ability to generate cash is encouraging. We havesince put a significant proportion of this cash to good use with$40.7m being used to fund the acquisition of Acucorp, Inc postyear-end. £ The Board would like to thank all our employees for theircontinued hard work and commitment throughout the past year. We haveexperienced significant change, have emerged much stronger as aresult, and have an exciting opportunity ahead. £ Our foundations are well established. We remain focused onprofitable revenue growth and I am confident in the Company's abilityto continue to deliver value to all of its stakeholders. £ Kevin Loosemore, Chairman £ Chief Executive Officer's statement £ Strategy Review £ On joining the Company it was imperative to ensure that we had thecorrect strategy to drive profitable revenue growth. A detailed reviewundertaken over a period of six months confirmed and clarified theBoard's view of the business. The key findings were: £ -- We are a market leader £ -- A firm market exists for all of our solution areas; COBOL Development Tools, Modernization and Application Portfolio Management ("APM") £ -- All solution areas combined can support solid growth over the long-term £ -- Our key focus is organic growth; although acquisition opportunities exist £ -- Our primary opportunity is through sales to larger organisations £ Execution £ Over the past twelve months, we have strengthened the managementteam, delivered a strong set of financial results and made our firstacquisition to further our strategic aims. Whilst we still have manyareas on which to improve, we have successfully executed ahead of ourinitial expectations. £ The sales team has been strengthened and we will continue toinvest to drive the business forward. Our marketing and delivery havebeen refined, including a strong focus on developing senior levelcontacts within our target customers. All marketing spend isconsidered to be investment and is measured and monitored as such. Wehave a clear focus on only making appropriate investments and, withexcellence in sales execution as our priority, every other function isaligned to support this. £ Our strategy review identified the major growth opportunity aroundlarger value licence fee transactions into the Global 2000 ('G2000')companies. I am encouraged that we signed a number of such deals inthe second half year contributing to total revenue growth of 19%,ahead of our expectations. New customer wins included Tesco, TNT,Australia National Tax Office and Nomura Securities. In addition torevenues from new customers, we derived further new revenues from ourexisting customer base including wins with Oracle, Barclays and JPMorgan. £ Our channels to market are through Independent Software Vendors("ISV"), System Integrators ("SI") distributors and through our owndirect sales force. Whilst keeping a firm focus on all channels, weare placing an increasing emphasis on sales to G2000 customers througha combination of both direct and SI sales. It is pleasing to note thatin the second half year we signed a number of larger valuetransactions in G2000 accounts in conjunction with IBM, Microsoft,EDS, Oracle and Accenture. £ The strategy review also highlighted the higher growth ratepotential of the APM and Modernization solution areas. Whilst weachieved growth across all solutions, it was encouraging to see theincrease in our Modernization solution sales. We have investedsignificantly in the development of this solution over the past threeyears and we firmly believe that we have a market leading proposition,the full benefits of which are now gaining recognition and tractionwith our existing and prospective customers. £ The vast majority of our growth in both revenues and profitsduring the year to 30 April 2007 was derived from the core businesswith limited benefit from the acquisition of HAL Knowledge SolutionsSpA ("HAL KS"). The full benefit of the acquisition will be seen inthe year ahead. £ The Company benefits from having a business model with a highproportion of predictable and recurring revenues. Micro Focus has anenviable customer base with 48% of turnover derived from low riskmaintenance revenues. Maintenance growth is driven by the retention ofexisting customers as well as the addition of new maintenance revenueassociated with the sale of new licences. An encouraging performancein both of these areas over the past twelve months positions us wellfor further maintenance growth in the year ahead. £ The revenue growth achieved, when combined with a firm control ofexpenses, has resulted in a significant improvement in operatingprofit before exceptional items. £ Geographically, the picture was strong overall, although someareas call for closer attention in the year ahead. We were pleasedwith the performance in Japan, the UK rebounded under new leadershipand Continental Europe produced positive improvements. Licence feesales fell short of expectations in North America. Management changeswere made recently and early signs are encouraging. £ While organic revenue growth is our key focus, the strategy reviewhighlighted the potential for further profitable revenue growththrough acquisitions. With the strategy review completed in September2006, I am pleased with the speed of execution resulting in theacquisition of HAL KS with effect from 1 November 2006 for $3.5mbefore related costs. HAL KS provides us with a strong offering in agrowing solution area identified from the strategy review, ApplicationPortfolio Management. £ The acquisition of HAL KS provides market leading technology forAPM. Since the acquisition we have integrated the company successfullyinto Micro Focus and improved its existing product offering with thelaunch of Micro Focus Enterprise View on 1 May 2007. Our objective forthe year ahead is to leverage our extensive distribution footprint todrive further product sales. £ The acquisition of Acucorp, Inc ("Acucorp"), effective from 4 May2007, for $40.7m, provides technology that is highly complementary toMicro Focus' core business in the COBOL Development Tool space as wellas providing the opportunity for Micro Focus to expand its reach intothe small and medium-sized enterprise ("SME") markets. The integrationis progressing positively and we expect a meaningful contribution toboth revenues and profits in the year ahead as a result of thisacquisition. £ We have firm financial foundations to support a platform forgrowth. The cash balance at 30 April 2007 was $85.0m, up from $56.1mat 30 April 2006 as a result of improvements in the underlying tradingperformance. £ Outlook £ Future revenue growth will be largely dependent on driving licencesales. Whilst encouraged by the performance in the year to 30 April2007, it would be premature to conclude that we can repeat the numberand value of larger transactions achieved in the second half year. Anumber of such prospective new licence opportunities remain in ourpipeline although by their very nature and size they are lesspredictable. We do expect to continue organic growth in the yearahead. £ Following a successful year of licence fee sales we would expectto achieve growth in our maintenance revenues for the year ahead. Thesmallest proportion of our revenues is derived from our consultancyservices and it is intended that these revenues will remain a similarproportion of total revenues for the year ahead. £ During the year to 30 April 2007 we had the benefit of six monthsof trading from the HAL KS acquisition. On 8 December 2006 we hadprovided guidance that revenues would be in the range of $4.0m to$5.0m and can report that revenues were within this range, although atthe lower end. We were disappointed to fall marginally short of oursix month goal for the APM business of EBITDA break-even. £ Whilst early days, the acquisition of Acucorp is progressing well.This acquisition is anticipated to provide revenues of approximately$17.0m in the year to 30 April 2008 with margins being consistent withthe existing Micro Focus business. The restructuring is progressing asplanned. The related restructuring charge is expected to beapproximately $8.0m. £ We have been encouraged by the margins achieved in the year to 30April 2007. Our stated aim is to achieve profitable revenue growth andas such we will look to maintain margins at a consistent level for theyear ahead. £ In February 2007, we restructured the product group andestablished development Centres of Excellence for our solutions aroundModernization (United States - Washington), Development Tools (UnitedKingdom - Newbury), and Application Portfolio Management (Italy -Milan). In addition, the purchase of HAL KS provided a team of twentyseven developers in Sofia, Bulgaria. This team has since been expandedto provide a high value development facility in support of the threeCentres of Excellence. This development facility is expected to play apivotal role in improving both our efficiency and productivity. £ As a business, we have made encouraging progress over the pasttwelve months. It was pleasing to return to respectable organicrevenue growth although we are fully conscious of the poor performancein the prior year. Looking ahead, the impact of both the acquisitionswe have made, combined with further expected organic growth, isexpected to provide annual revenue growth similar to the rate achievedin the year to 30 April 2007. Margins are expected to remain at asimilar level. We have developed a clearly scoped out strategy andhave a firm focus on execution and tight cost control. £ Sustainable and profitable revenue growth is the key factor thatwill determine the long-term success of the Company. Management'semphasis will continue to be on licence fee sales to drive profitablegrowth. £ Stephen Kelly, Chief Executive £ Chief Financial Officer's review £ Revenue for the year ended 30 April 2007 increased to $171.6m(2006: $143.7m). £ Revenue by geographic region was as follows: \* T 2007 2006 $m % $m %---------------------------------------------------------------------- North America 70.6 41.1 68.9 47.9Europe and the Middle East 71.8 41.8 54.0 37.6Rest of the World 29.2 17.1 20.8 14.5----------------------------------------------------------------------Total revenue 171.6 100.0 143.7 100.0----------------------------------------------------------------------\* T £ Whilst revenue growth was achieved across all areas, the primarydriver of growth was from our European operations. These operations,including France, Italy, Benelux and our European distributor network,are managed by an experienced Micro Focus "Go to market" leadershipteam. With clear focus and direction, they have stepped up to thechallenge and exceeded our expectations. We strengthened our UKoperation towards the end of 2006. It has been encouraging to see theturnaround in this operation since this time with the UK significantlyincreasing licence fees in the six month period to 30 April 2007 ascompared to the six month period to 31 October 2006. £ Our Rest of the World operations had a positive year with ourJapanese business producing growth of over 17%. Our Japanese operationhas an experienced team in place, who have delivered consistentyear-on-year revenue growth over a considerable period of time. £ Our North America operations produced results below expectedperformance levels. A new senior leadership team was establishedduring quarter four and a number of new sales hires have since takenplace. With appropriate leadership, resource and focus, we anticipatethat this key territory will return to an acceptable level ofperformance in the year ahead. £ Revenue for the year by category was as follows: \* T 2007 2006 $m % $m %---------------------------------------------------------------------- Licence fees 82.6 48.2 68.0 47.3Maintenance fees 82.1 47.8 71.9 50.0Consultancy fees 6.9 4.0 3.8 2.7----------------------------------------------------------------------Total revenue 171.6 100.0 143.7 100.0----------------------------------------------------------------------\* T £ It can be seen that turnover improved across all revenue streamsfor the year to 30 April 2007. Licence fees increased by $14.6m or21.5% to $82.6m (2006: $68.0m). The growth in licence fee revenues wasachieved by a combination of an increased volume of lower value ordersas well as a number of larger value transactions. A number of largecontracts remain in our pipeline although, by their very nature, theyare unpredictable. The contribution from HAL KS was minimal, growth inthe main being driven by core Micro Focus solution sales. Whilstgrowth was achieved across all solution areas, it was encouraging tosee an increase in licence fee sales from our Modernization solutionarea. £ Maintenance revenues increased by $10.2m or 14.2% to $82.1m (2006:$71.9m). Maintenance revenues are recognised evenly over the life ofeach contract, which is typically twelve months. As such, the profitand loss recognition of maintenance revenue lags the initial licencefee sale. Thus, it was encouraging to see the increase in maintenancerevenues following the disappointing licence fee performance in theprior year to 30 April 2006. The major factors driving maintenancegrowth in the year to 30 April 2007 are as follows: £ -- A solid year of licence fee growth £ -- An improvement in the renewal rate of existing customers £ -- Modest annual price increases to existing customers; and £ -- A focus on closing "contracts in negotiation" and the introduction of an automatic renewal process for our customers £ Consulting revenues showed a positive improvement as against theprior year driven by growth in both core Micro Focus revenues and theadditional consulting revenues as a result of the acquisition of HALKS, this company and solution having a higher mix of consultingrevenues as compared to the Micro Focus COBOL Development Tools andModernization solutions. £ The impact of exchange rate movements in the year was to improverevenues by approximately 2%. Improvements in Sterling and the Euro ascompared to the US dollar were in part offset by a weakness in theJapanese Yen. £ Costs £ Whilst total costs, excluding exceptional items, were effectivelyflat year-on-year, it should be noted that this includes six months'costs for HAL KS in the year ended 30 April 2007. The restructuring ofthe core Micro Focus business, announced on 6 April 2006, deliveredthe expected level of savings. A firm control of expenses has beenestablished and will be maintained. £ Cost of sales for the year ended 30 April 2007 increasedmarginally by 3.4% to $18.1m (2006: $17.6m). The costs in thiscategory predominantly relate to our consulting and helpline supportoperations. Costs within the consulting organisation increased in linewith increased revenues although it should be noted that we intend,where possible, to increase the use of external consulting resources. £ Selling and distribution costs reduced to $45.6m for the yearended 30 April 2007 (2006: $48.5m). We continue to make targetedinvestments in the areas of sales and marketing to drive futureprofitable revenue growth. £ Research and development expenses for the year increased to $23.1m(2006: $21.7m). In February 2007, we restructured the product groupand established development Centres of Excellence for our solutions. £ Administrative expenses, excluding exceptional items of $5.7m(2006: $14.2m), increased to $21.8m (2006: $19.0m). This cost categorycontains $1.2m in relation to exchange losses in the year to 30 April2007. In the prior year costs were reduced by exchange gains of $0.3m.As such, excluding the impact of this exchange movement,administrative expenses have increased by $1.3m or 6.7% drivenprimarily by higher bonus payments to staff as a result ofsignificantly improved performance as compared to the prior year. £ Operating profit £ Operating profit for the year was $57.3m (2006: $22.7m). Operatingprofit before exceptional items was $63.0m (2006: $36.9m), theimprovement being driven by the combination of improved revenues andreduced costs. £ EBITDA £ EBITDA before exceptional items increased by 68.4% to $65.3m(2006: $38.8m) as a result of the factors described above. £ Net finance income £ Finance income of $2.8m was achieved in the year to 30 April 2007(2006: $1.0m). Finance expense in the prior year of $1.1m related toloans which were repaid following the IPO. £ Taxation £ Tax for the year ended 30 April 2007 was $16.1m (2006: $6.3m)based on increased profits. The Group's effective tax rate is 26.9%(2006: 28.1%). As a result of the significant increase in the shareprice in the year to 30 April 2007, a tax deduction has arisen on thestock options in issue. Excluding the effects of this beneficial taxdeduction, the effective tax rate was 28.9%. £ Profit after tax £ Profit after tax for the year ended 30 April 2007 increased by170.3% to $43.9m (2006: $16.2m) driven by a significant improvement inoperating performance combined with lower exceptional charges. £ Cash flow £ For the year ended 30 April 2007, the Company generated a net cashinflow from operating activities of $53.6m (2006: $35.0m). At 30 April2007, the Company's cash balance was $85.0m (2006: $56.1m). Since thattime, the Company has acquired Acucorp for a cash consideration of$40.7m. Dividends of $14.0m were paid in the year. £ 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 a final dividend in respect of the yearto 30 April 2007 of 7 cents per share, which taken together with theinterim dividend of 3 cents per share paid in January 2007, gives atotal dividend in respect of 2007 of 10 cents per share, an increaseof 67% as compared to the prior year. Subject to shareholder approval,the final dividend will be paid on 1 October 2007 to shareholders onregister on 7 September 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 thefinal dividend. £ Dividends will be paid in sterling based on an exchange rate ofGBP = $2.00, equivalent to 3.5 pence per share, being the rateapplicable on 27 June 2007, the date of recommendation of the dividendby the Board. £ Acquisition of HAL KS £ On 2 November 2006, Micro Focus announced that it had agreed toacquire HAL KS, a leading provider of Application Portfolio Managementsoftware in order to enhance the Company's enterprise applicationmodernization capabilities. The transaction successfully closed on 10November 2006. HAL KS has been acquired by Micro Focus for a totalconsideration of $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 $4.5m and its gross assets as at 31 December 2005 were $9.5m.Following the acquisition, we have restructured the business to reducecosts, with a restructuring charge of $2.8m, falling in the currentfinancial year. HAL KS was acquired with net balance sheet liabilitiesof approximately $4.5m. £ For the six month period to 30 April 2007, revenues were in theexpected range of $4.0m to $5.0m. The business made an EBITDA loss inthe six month period to 30 April 2007. £ Acquisition of Acucorp £ On 4 May 2007, Micro Focus announced that it had acquired Acucorpfor a total cash consideration of $40.7m, paid in full on completion,plus a working capital adjustment capped at a maximum value of $0.25m. £ In the year to December 2006, Acucorp generated an operatingprofit of $3.0m and its gross assets as at 31 December 2006 were$13.1m. £ Revenues for the year to 30 April 2008 are anticipated to beapproximately $17.0m. We are in the process of restructuring thebusiness with the aim of increasing margins over time to a levelconsistent or better than our existing business. The consequentrestructuring charge is expected to be approximately $8.0m in the yearto 30 April 2008. £ Nick Bray, Chief Financial Officer \* TCONSOLIDATED INCOME STATEMENT (unaudited)For the year ended 30 April 2007 Notes 2007 2006 $'000 $'000 Revenue 4,5 171,590 143,688Cost of sales (18,148) (17,552)*----------------------------------------------------------------------Gross profit 153,442 126,136Selling and distribution costs (45,592) (48,500)Research and development expense (23,051) (21,714)*Administrative expenses (27,532) (33,189)*----------------------------------------------------------------------Operating profit 57,267 22,733 Analysed as:Operating profit before exceptional items 62,977 36,946Exceptional items 7 (5,710) (14,213)----------------------------------------------------------------------Operating profit 6 57,267 22,733 Finance costs (70) (1,137)Finance income 2,810 962----------------------------------------------------------------------Profit before tax 60,007 22,558Taxation (16,143) (6,332)----------------------------------------------------------------------Profit after tax 43,864 16,226---------------------------------------------------------------------- Earnings per share expressed in cents per share 8-- basic 21.96 8.25-- diluted 21.37 8.17 Earnings per share expressed in pence per share 8-- basic 11.49 4.68-- diluted 11.18 4.63\* T £ * Certain costs have been reclassified between cost of sales,research and development and administration expenses as disclosed innote 1R. \* TCONSOLIDATED BALANCE SHEET (unaudited)As at 30 April 2007 Notes 2007 2006 $'000 $'000ASSETSNon-current assetsGoodwill 42,533 42,404Other intangible assets 18,245 7,637Property, plant and equipment 2,543 2,386Deferred tax assets 10,813 7,718---------------------------------------------------------------------- 74,134 60,145Current assetsInventories 255 331Trade and other receivables 10 44,031 37,629Cash and cash equivalents 84,971 56,066---------------------------------------------------------------------- 129,257 94,026----------------------------------------------------------------------Total assets 203,391 154,171---------------------------------------------------------------------- LIABILITIESCurrent liabilitiesTrade and other payables 11 76,612 70,516Current tax liabilities 17,023 10,777Financial liabilities - borrowings 72 117---------------------------------------------------------------------- 93,707 81,410Non-current liabilitiesNon-current deferred income 7,265 6,720Deferred tax liabilities 10,873 8,446Financial liabilities - borrowings 41 94---------------------------------------------------------------------- 18,179 15,260----------------------------------------------------------------------Net assets 91,505 57,501---------------------------------------------------------------------- SHAREHOLDERS' EQUITYCapital and reserves attributable to the Company's equity holdersShare capital 36,767 36,644Share premium 104,054 103,641Profit and loss deficit (23,394) (55,267)Foreign currency translation reserve (deficit) 1,163 (432)Other reserves (27,085) (27,085)----------------------------------------------------------------------Total shareholders' equity 91,505 57,501----------------------------------------------------------------------\* T \* TCONSOLIDATED CASH FLOW STATEMENT (unaudited)For the year ended 30 April 2007 2007 2006 $'000 $'000Cash flow from operating activitiesNet profit 43,864 16,226Adjustments for Net interest (2,740) 175 Taxation 16,143 6,332 Depreciation 1,169 1,006 Loss on disposal of property, plant and equipment 26 17 Amortisation of intangibles 5,973 5,433 Share-based compensation 849 (224)Changes in working capital: Inventories 76 19 Trade and other receivables (5,532) 12,615 Payables and other non-current liabilities (1,658) 371----------------------------------------------------------------------Cash generated from continuing operations 58,170 41,970Interest received 2,780 666Interest paid (70) (1,551)Tax paid (7,316) (6,103)----------------------------------------------------------------------Net cash from operating activities 53,564 34,982 Cash flows from investing activitiesPayments for intangible assets (5,456) (4,986)Purchase of tangible fixed assets (830) (1,123)Acquisition of subsidiary (4,832) -Net cash acquired with subsidiary (1,218) -----------------------------------------------------------------------Net cash used in investing activities (12,336) (6,109) Cash flows from financing activitiesProceeds from issue of ordinary share capital 125 109,823Repayment of borrowings (46) (111,250)Dividends paid to shareholders (13,981) (3,987)----------------------------------------------------------------------Net cash used in financing activities (13,902) (5,414)Effects of exchange rate changes 1,579 (263)----------------------------------------------------------------------Net increase in cash and cash equivalents 28,905 23,196Cash and cash equivalents at 1 May 2006 56,066 32,870----------------------------------------------------------------------Cash and cash equivalents at 30 April 2007 84,971 56,066----------------------------------------------------------------------\* T \* TCONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY(unaudited)For the year ended 30 April 2007 Foreign currency Profit translation and loss Share Share reserve Other reserve capital premium (deficit) reserves (deficit) Total $'000 $'000 $'000 $'000 $'000 $'000 Balance as at 1 May 2005 1 3,376 (169) - (67,869) (64,661)Currency translation differences - - (263) - - (263)Profit for the year - - - - 16,226 16,226Dividends - - - - (3,987) (3,987)Share for share exchange 27,085 - - (27,085) - -Issue of share capital 9,558 100,265 - - - 109,823Movement in relation to share options - - - - 363 363----------------------------------------------------------------------Balance as at 30 April 2006 36,644 103,641 (432) (27,085) (55,267) 57,501---------------------------------------------------------------------- Currency translation differences - - 1,595 - - 1,595Profit for the year - - - - 43,864 43,864Dividends - - - - (13,981) (13,981)Issue of share capital 123 3 - - - 126Movement in relation to share options - 410 - - 355 765Deferred tax on share options - - - - 1,635 1,635----------------------------------------------------------------------Balance as at 30 April 2007 36,767 104,054 1,163 (27,085) (23,394) 91,505----------------------------------------------------------------------\* T £ NOTES TO THE FINANCIAL STATEMENTS (unaudited) £ For the year ended 30 April 2007 £ 1 Group Accounting Policies £ A Basis of preparation £ The consolidated financial statements of Micro Focus Internationalplc have been prepared in accordance with EU Endorsed InternationalFinancial Reporting Standards (IFRS), IFRIC interpretations and theCompanies Act 1985 applicable to companies reporting under IFRS. Theconsolidated financial statements have been prepared under thehistorical cost convention. £ The preparation of financial statements in conformity with IFRSrequires the use of certain critical accounting estimates. It alsorequires management to exercise its judgement in the process ofapplying the Group's accounting policies. The areas involving a higherdegree of judgement or complexity, or areas where assumptions andestimates are significant to the consolidated financial statements aredisclosed in Note 2. £ Whilst the financial information included in this preliminaryannouncement has been computed in accordance with InternationalFinancial Reporting Standards, this announcement does not itselfcontain sufficient information to comply with IFRSs. The Group expectto be issuing full financial statements that comply with IFRSs in July2007. £ The financial information set out in this preliminary announcementdoes not constitute the Company's statutory accounts for the yearsended 30 April 2007 or 2006, but is derived from those accounts. £ Statutory accounts for the year ended 30 April 2006 have beendelivered to the Registrar of Companies; the auditors have reported onthose accounts, their report was unqualified and did not contain astatement under Section 237 (2) or (3) of the Companies Act 1985. £ Copies of the annual results for the year ended 30 April 2007 willbe sent to all shareholders and will also be available on thecompany's website at www.microfocus.com. Copies of the annual resultsfor the year ended 30 April 2006 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 FocusInternational plc on 27 June 2007. £ A summary of the more important Group accounting policies is setout below. £ B Consolidation £ The financial statements of the Group comprise the financialstatements of the Company and entities controlled by the Company, itssubsidiaries, prepared at the balance sheet date. Control exists wherethe Group has the power to govern the financial and operating policiesof the entity so as to obtain benefits from its activities. £ The purchase method of accounting is used to account for theacquisition of subsidiaries by the Group. The cost of acquisition ismeasured as the fair value of the assets given, equity instrumentsissued and liabilities incurred or assumed at the date of exchange,plus costs directly attributable to the acquisition. Identifiableassets acquired and liabilities and contingent liabilities assumed ina business combination are measured initially at their fair values atthe acquisition date, irrespective of the extent of any minorityinterest. The excess of the cost of acquisition over the fair value ofthe Group's share of the identifiable net assets acquired is recordedas goodwill. £ Inter-company transactions, balances and unrealised gains ontransactions between Group companies are eliminated. £ C Revenue recognition £ The Group recognises revenue from sales of software licences toend-users or resellers upon persuasive evidence of an arrangement,delivery of the software and determination that collection of a fixedor determinable fee is reasonably assured. When the fees for softwareupgrades and enhancements, maintenance, consulting and training arebundled with the licence fee, they are unbundled using the Group'sobjective evidence of the fair value of the elements represented bythe Group's customary pricing for each element in separatetransactions. If evidence of fair value exists for all undeliveredelements and there is no such evidence of fair value established fordelivered elements, revenue is first allocated to the elements wherefair value has been established and the residual amount is allocatedto the delivered elements. If evidence of fair value for anyundelivered element of the arrangement does not exist all revenue fromthe arrangement is deferred until such time that evidence of fairvalue exists or undelivered elements of the arrangement are delivered.If the arrangement includes acceptance criteria, revenue is notrecognised until the Group can objectively demonstrate that thesoftware or service can meet the acceptance criteria, or theacceptance period lapses, whichever is earlier. £ The Group recognises licence revenue derived from sales toresellers, upon delivery to resellers, provided that all other revenuerecognition criteria are met, otherwise revenue is deferred andrecognised upon delivery of the product to the end-user. £ Maintenance revenue is derived from providing technical supportand software updates to customers. Maintenance revenue is recognisedon a straight-line basis over the term of the contract, which in mostcases is one year. Revenue from consulting and training services isrecognised as the services are performed. £ Amounts collected prior to satisfying the above revenuerecognition criteria are included in deferred income. £ D Segmental reporting £ A geographical segment is engaged in providing products orservices within a particular economic environment that are subject torisks and returns that are different from those of componentsoperating in other economic environments. £ A business segment is a group of assets and operations engaged inproviding products or services that are subject to risks and returnsthat are different from those of other business segments. The Groupconsiders there to be only one business segment being the provision ofenterprise application management and modernization solutions. £ E Leases £ Leases of property, plant and equipment where the Group hassubstantially all the risks and rewards of ownership are classified asfinance leases. Finance leases are capitalised at the lease'scommencement at the lower of the fair value of the leased property andthe present value of the minimum lease payments. Each lease payment isallocated between the liability and finance charges so as to achieve aconstant rate of interest on the liability outstanding. Thecorresponding rental obligations, net of finance charges, are includedin financial liabilities - borrowings. £ The property, plant and equipment acquired under finance leases isdepreciated over the shorter of the asset's useful life and the leaseterm. £ Leases where the lessor retains a significant portion of the risksand rewards of ownership are classified as operating leases. Paymentsmade under operating leases (net of any incentives received from thelessor) are charged to the income statement on a straight-line basisover the period of the lease. £ F Foreign currency translation £ a) Functional and presentation 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 Group's functional currency. £ b) Transactions and balances £ Foreign currency transactions are translated into the functionalcurrency using the exchange rates prevailing at the dates of thetransactions. Foreign exchange gains and losses resulting from thesettlement of such transactions and from the translation at year-endexchange rates of monetary assets and liabilities denominated inforeign currencies are recognised in the income statement. £ c) Group companies £ The results and financial position of all the Group entities thathave a functional currency different from the presentation currencyare translated into the presentation currency as follows: £ i) assets and liabilities for each balance sheet presented aretranslated at the closing rate at the date of that balance sheet; £ ii) income and expenses for each income statement are translatedat average exchange rates (unless this average is not a reasonableapproximation of the cumulative effect of the rates prevailing on thetransaction dates, in which case income and expenses are translated atthe dates of the transactions); and £ iii) all resulting exchange differences are recognised as aseparate component of equity. On consolidation, exchange differencesarising from the translation of the net investment in foreign entitiesare taken to shareholders' equity. When a foreign operation is sold,such exchange differences are recognised in the income statement aspart of the gain or loss on sale. £ Goodwill and fair value adjustments arising on the acquisition ofa foreign entity are treated as assets and liabilities of the foreignentity and translated at the closing rate, with exception for goodwillarising before 1 May 2004 which is treated as an asset of the Companyand expressed in the Company's functional currency. £ G Borrowings £ Borrowings are recognised initially at fair value, net oftransaction costs incurred. Transaction costs incurred in thearrangement of new borrowing facilities are capitalised and nettedagainst the capital element of the outstanding borrowing. These costsare then amortised over the life of the facility to which the costsrelate on the effective interest basis. £ H Property plant and equipment £ All property, plant and equipment are stated at historical costless accumulated depreciation and impairment. Historical cost includesexpenditure that is directly attributable to the acquisition of theitems. Subsequent costs are included in the asset's carrying amount orrecognised as a separate asset, as appropriate, only when it isprobable that future economic benefits associated with the item willflow to the Group and the cost of the item can be measured reliably.All other repairs and maintenance expenditures are charged to theincome statement during the financial period in which they areincurred. Depreciation is calculated using the straight-line method towrite-off the cost of each asset to its residual value over itsestimated useful life as follows: £ Leasehold improvements - over the lease term £ Furniture and fixtures - five to seven years £ Computer equipment - one to five years £ H Property plant and equipment (continued) £ The assets' residual values and useful lives are reviewed, andadjusted if appropriate, at each balance sheet date. An asset'scarrying amount is written down immediately to its recoverable amountif the asset's carrying amount is greater than its estimatedrecoverable amount. Gains and losses on disposals are determined bycomparing the disposal proceeds with the carrying amount and areincluded in the income statement. £ I Intangible assets £ i) Goodwill £ Goodwill represents the excess of the cost of an acquisition overthe fair value of the net identifiable assets of the acquiredsubsidiary at the date of acquisition. Goodwill is tested annually forimpairment and carried at cost less accumulated impairment losses.Gains and losses on the disposal of an entity include the carryingamount of goodwill relating to the entity sold. Goodwill is allocatedto cash-generating units for the purpose of impairment testing. Eachof those cash-generating units represents the Group's investment ineach area of operation by each primary reporting segment. £ As permitted under IFRS 1, the Group has elected to deem the UKGAAP net book value at 1 May 2004 as the IFRS cost of goodwill attransition date. £ ii) Computer software £ Acquired computer software licences are capitalised on the basisof the costs incurred to acquire and bring to use the specificsoftware. These costs are amortised using the straight-line methodover their estimated useful lives of three to five years. £ iii) Research and development £ Research expenditure is recognised as an expense as incurred.Costs incurred on development projects relating to the developing ofnew computer software programmes and significant enhancement ofexisting computer software programmes are recognised as intangibleassets when it is probable that the project will be a success,considering its commercial and technological feasibility, and costscan be measured reliably. Only direct costs are capitalised whichinclude the software development employee costs and an appropriateportion of relevant overheads. Development costs previously recognisedas an expense are not recognised as an asset in a subsequent period.Development costs are amortised from the commencement of thecommercial production of the product on a straight-line basis over theperiod of its expected benefit, typically being three years. £ iv) Intangible assets - arising on business combinations £ Other intangible assets that are acquired by the Group are statedat cost less accumulated amortisation. Amortisation is charged to theincome statement on a straight-line basis over the estimated usefullives of each intangible asset. Intangible assets are amortised fromthe date they are available for use. The estimated useful lives willvary for each category of asset acquired and to date are as follows: £ Technology - ten years £ J Impairment of tangible and intangible assets £ Assets that have an indefinite useful life are not subject toamortisation and are tested annually for impairment. Assets that aresubject to amortisation are reviewed for impairment whenever events orchanges in circumstances indicate that the carrying amount may not berecoverable. An impairment loss is recognised for the amount by whichthe asset's carrying amount exceeds its recoverable amount. Therecoverable amount is the higher of an asset's fair value less coststo sell and value in use. For the purposes of assessing impairment,assets are grouped at the lowest levels for which there are separatelyidentifiable cash flows (cash generating units). £ K Inventories £ Inventories are stated at the lower of cost and net realisablevalue. Cost is determined using the weighted average method. The costof finished goods comprises software for resale and packagingmaterials. Net realisable value is the estimated selling price in theordinary course of business, less applicable variable sellingexpenses. £ L Trade receivables £ Trade receivables are recognised at fair value less provision forimpairment. A provision for impairment of trade receivables isestablished when there is objective evidence that the Group will notbe able to collect all amounts due according to the original terms ofreceivables. The amount of the provision is the difference between theasset's carrying amount and the present value of estimated future cashflows, discounted at the effective interest rate. The amount of theprovision is recognised in the income statement. £ M Employee benefit costs £ a) Pension obligations £ Group companies operate various pension schemes. All of the majorschemes are defined contribution plans for which the Group payscontributions to publicly or privately administered pension insuranceplans on a mandatory, contractual or voluntary basis. The Group has nofurther payment obligations once the contributions have been paid. Thecontributions are recognised as an employee benefit expense when theyare due. Prepaid contributions are recognised as an asset to theextent that a cash refund or a reduction in the future payments isavailable. £ b) Share-based compensation £ The Group operated four equity-settled, share-based compensationplans during the year. £ For shares or share options granted after 7 November 2002 andvested after 1 January 2005 the fair value of the employee servicesreceived in exchange for the grant of the shares or options isrecognised as an expense. The total amount to be expensed over thevesting period is determined by reference to the fair value of theshares or options granted. Non-market vesting conditions are includedin assumptions about the number of options that are expected to becomeexercisable. At each balance sheet date, the Group revises itsestimates of the number of options that are expected to becomeexercisable. It recognises the impact of the revision of originalestimates, if any, in the income statement, and a correspondingadjustment to equity over the remaining vesting period. £ The shares are recognised when the options are exercised and theproceeds received allocated between share capital and share premium. £ N Share capital, share premium and dividend distribution £ Incremental costs directly attributable to the issue of new sharesor options are shown in equity as a deduction, net of tax, from theproceeds. £ Dividend distributions to the Company's shareholders arerecognised as a liability in the Group's financial statements in theperiod in which the dividends are approved by the Company'sshareholders. £ O Deferred income tax £ Deferred income tax is provided in full, using the liabilitymethod, on temporary differences arising between the tax bases ofassets and liabilities and their carrying amounts in the consolidatedfinancial statements. However, if the deferred income tax arises frominitial recognition of an asset or liability in a transaction otherthan a business combination that at the time of the transactionaffects neither accounting nor taxable profit or loss, it is notaccounted for. Deferred income tax is determined using tax rates (andlaws) that have been enacted or substantially enacted by the balancesheet date and are expected to apply when the related deferred incometax asset is realised or the deferred income tax liability is settled.Deferred income tax assets are recognised to the extent that it isprobable that future taxable profit will be available against whichthe temporary differences can be utilised. £ Deferred income tax is provided on temporary differences arisingon investments in subsidiaries, except where the timing of thereversal of the temporary difference is controlled by the Group and itis probable that the temporary difference will not reverse in theforeseeable future. £ P Cash and cash equivalents £ Cash and cash equivalents includes cash in hand, deposits held atcall with banks, other short-term highly liquid investments withoriginal maturities of three months or less, and bank overdrafts. Bankoverdrafts are shown within borrowings in current liabilities on thebalance sheet. £ Q Exceptional items £ Exceptional items are those significant items which are separatelydisclosed by virtue of their size or incidence to enable a fullunderstanding of the Group's financial performance. £ R 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. £ i) 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 $9.2m(2006: $10.0m) and decrease Administrative Expenses by a correspondingamount. £ ii) Amortisation of development costs - these costs relating tocapitalised salaries were previously amortised though Cost of Sales.The amortisation has been reclassified as Research and DevelopmentExpenditure. The impact of the change is to decrease Cost of Sales by$4.8m (2006: $4.6m) and increase Research and Development Expenditureby a corresponding amount. £ 2 Critical accounting estimates and assumptions £ The Group makes estimates and assumptions concerning the future.The resulting accounting estimates will, by definition, seldom equalthe related actual results. The estimates and assumptions that have asignificant risk of causing a material adjustment to the carryingamounts of assets and liabilities within the next financial year aresummarised below. £ a) Impairment of goodwill £ The Group tests annually whether goodwill has suffered anyimpairment, in accordance with the accounting policy stated in note J.The recoverable amounts of cash-generating units have been determinedbased on value-in-use calculations. These calculations require the useof estimates. £ b) Income taxes £ The Group is subject to income taxes in numerous jurisdictions.Significant judgement is required in determining the worldwideprovision for income taxes. There are many transactions andcalculations for which the ultimate tax determination is uncertainduring the ordinary course of business. The Group recognisesliabilities for anticipated tax audit issues based on estimates ofwhether additional taxes will be due. Where the final tax outcome ofthese matters is different from the amounts that were initiallyrecorded, such differences will impact the income tax and deferred taxprovisions in the period in which such determination is made. £ c) Acquisitions £ When making acquisitions, the Group has to make judgements andbest estimates about the fair value allocation of the purchase price.Appropriate advice is sought from professional advisors before makingsuch allocations. The valuation of goodwill is tested annually orwhenever there are changes in circumstances indicating that thecarrying amounts may not be recoverable. These tests require the useof estimates. £ The Group makes judgements on specific items when applying itsaccounting policies. The judgement that has a significant risk ofcausing a material adjustment to the carrying amounts of assets andliabilities within the next financial year is discussed below. £ c) Acquisitions (continued) £ The Group invests in the development of future products inaccordance with the accounting policy stated in note I iii). Theassessment as to whether this expenditure will achieve a completeproduct for which the technical feasibility is assured is a matter ofjudgement, as is the forecasting of how the product will generatefuture economic benefit. Finally, the period of time over which theeconomic benefit associated with the expenditure occurred will ariseis also a matter of judgement. These judgements are made by evaluatingthe development plan prepared by the research and developmentdepartment and approved by management, regularly monitoring progressby using an established set of criteria for assessing technicalfeasibility and benchmarking to other products. £ 3 Risk factors £ The Group's multi-national operations expose it to a variety offinancial risks that include the effects of changes in credit risks,foreign currency exchange rates, liquidity and interest rates. £ a) Credit risk £ Financial instruments which potentially expose the Group to aconcentration of credit risk consist primarily of cash equivalents andaccounts receivable. Cash equivalents are deposited with high-creditquality financial institutions. The Group provides credit to customersin the normal course of business. Collateral is not required for thosereceivables, but ongoing credit evaluations of customers' financialconditions are performed. The Group maintains a provision forimpairment based upon the expected collectibility of accountsreceivable. The Group sells products and services to a wide range ofcustomers around the world and, therefore, believes there is nomaterial concentration of credit risk. £ b) Foreign currency risk £ The Group operates internationally and is exposed to foreignexchange risk arising from various currency exposures, primarily withrespect to the UK Sterling, the Euro and the Japanese Yen. Foreignexchange risk arises from future commercial transactions, recognisedassets and liabilities and net investments in foreign operations.Foreign exchange risk arises when future commercial transactions,recognised assets and liabilities are denominated in a currency thatis not the entity's functional currency. There were no hedgingtransactions in place at 30 April 2007. £ The Group has certain investments in foreign operations, whose netassets are exposed to foreign currency translation risk. £ c) Interest rate risk £ The Group's income and operating cash flows are substantiallyindependent of changes in market interest rates. The interest rates offinance leases to which the Group is lessee are fixed at inception ofthe lease. These leases expose the Group to fair value interest raterisk. £ The Group's cash flow interest rate risk arises from cashdeposits. Deposits placed at variable rates expose the Group to cashflow interest rate risk. £ 4 Segmental information \* TGeographical analysis of revenue 2007 2006 $'000 $'000---------------------------------------------------------------------- North America 70,634 68,847Europe and the Middle East 71,808 54,038Rest of the World 29,148 20,803---------------------------------------------------------------------- 171,590 143,688----------------------------------------------------------------------\* T £ There is no material difference between revenue by origin aboveand revenue by destination. £ 5 Supplemental information £ Set out below is an analysis of revenue recognised between theprincipal product categories, which the directors use to assess thefuture revenue flows from the current portfolio of customers. \* TRevenue 2007 2006 $'000 $'000---------------------------------------------------------------------- Licence fees 82,652 67,985 Maintenance fees 82,056 71,860 Consultancy fees 6,882 3,843---------------------------------------------------------------------- 171,590 143,688----------------------------------------------------------------------\* T £ 6 Reconciliation of operating profit to EBITDA \* T 2007 2006 $'000 $'000----------------------------------------------------------------------Operating profit 57,267 22,733Depreciation 1,169 1,006Amortisation of software 608 806Amortisation of purchased intangibles 532 -----------------------------------------------------------------------EBITDA 59,576 24,545Exceptional items IPO related costs - 6,909 Reorganisation costs 4,861 7,403 Share based compensation charge/(credit) 849 (224) Management charges - 125 ----------------------------------------------------------------------EBITDA before exceptional items 65,286 38,758----------------------------------------------------------------------\* T £ In calculating EBITDA the amortisation of Development expenditureis not added back to operating profit, as the directors believe bydoing so EBITDA provides a better measure of the cash generation ofthe business. Amortisation of Development expenditure in the year to30 April 2007 was $4.8m (2006: $4.6m). £ 7 Exceptional items \* T 2007 2006 $'000 $'000---------------------------------------------------------------------- IPO related costs - 6,909Reorganisation costs 4,861 7,403Share based compensation charge/(credit) 849 (224)Management charges - 125---------------------------------------------------------------------- 5,710 14,213----------------------------------------------------------------------\* T £ The prior year IPO-related costs include termination fees of $4.7min respect of management charges previously paid by the Group to itsshareholders prior to the IPO. They also include fees incurred duringthe process that did not directly relate to the raising of sharecapital. £ Current year reorganisation costs relate to restructuringprogrammes carried out in Europe and the USA and at HAL KnowledgeSystems SpA. The prior year reorganisation costs related to a costreduction programme including those associated with the redundancy ofemployees and the onerous lease cost of a building vacated as part ofthe programme. £ All exceptional items relate to administrative expenses. £ 8 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 year. £ The diluted earnings per share has been calculated after takingaccount of share options. \* T 2007 2006 ------------------------ ------------------------ Weighted Weighted average average number Per number Per of share of share Earnings shares amount Earnings shares amount $'000 '000 cents $'000 '000 centsBasic EPSEarnings attributable to ordinary shareholders 43,864 199,744 21.96 16,226 196,709 8.25 ------------------------------------------------- Effect of dilutive securitiesShare options 5,562 2,002Diluted EPS ------------------------ ------------------------Earnings attributable to ordinary shareholders 43,864 205,306 21.37 16,226 198,711 8.17 ------------------------------------------------- Supplementary EPS to exclude exceptional itemsBasic EPS 43,864 199,744 21.96 16,226 196,709 8.25Exceptional items 5,710 14,213Tax relating to exceptional items (1,223) (2,154) -------------------------------------------------Basic EPS excluding exceptional items 48,351 199,744 24.21 28,285 196,709 14.38 ------------------------------------------------- Diluted EPS 43,864 205,306 21.37 16,226 198,711 8.17Exceptional items 5,710 14,213Tax relating to exceptional items (1,223) (2,154) -------------------------------------------------Diluted EPS excluding exceptional items 48,351 205,306 23.55 28,285 198,711 14.23 -------------------------------------------------\* T £ 9 Dividends \* T 2007 2006 $'000 $'000----------------------------------------------------------------------Equity - ordinary2006 final paid $0.04 per ordinary share 7,983 -2007 interim paid $0.03 (2006: $0.02) per ordinaryshare 5,998 3,987---------------------------------------------------------------------- 13,981 3,987----------------------------------------------------------------------\* T £ 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 had sufficient reserves to enable the payment of thefinal dividend relating to the year ended 30 April 2006 and theinterim dividend relating to the year ended 30 April 2007. Thedirectors are proposing a final dividend in respect of the year ended30 April 2007 of 7 cents per share which will utilise $14.0m ofshareholders' funds and again the directors have concluded that theCompany has sufficient reserves to pay this dividend. It has not beenincluded as a liability in these financial statements. £ 10 Trade and other receivables \* T 2007 2006 $'000 $'000----------------------------------------------------------------------Trade debtors 35,634 29,377Prepayments 4,581 3,959Accrued income 3,816 4,293---------------------------------------------------------------------- 44,031 37,629----------------------------------------------------------------------\* T £ 11 Trade and other payables \* T 2007 2006 $'000 $'000----------------------------------------------------------------------Trade payables 4,374 1,944Other tax and social security payable 185 2,468Accruals 21,750 20,511Deferred income 50,303 45,593---------------------------------------------------------------------- 76,612 70,516----------------------------------------------------------------------\* T £ 12 Acquisition of subsidiary £ On 2 November 2006, the Group acquired 100% of the share capitalof HAL Knowledge Solutions SpA, for a consideration of $4.8m(inclusive of $1.3m related costs). The fair values of net assets arebased on provisional assessments pending final determination of someassets and liabilities. £ The acquired business contributed revenues of $4.0m to the Groupfrom the date of acquisition to 30 April 2007. The business made anEBITDA loss in the 6 months to 30 April 2007. £ All intangible assets were recognised at their respective fairvalues with the resulting excess over the net assets acquiredrecognised as goodwill. \* T Carrying value at Provisional acquisition fair value $'000 $'000----------------------------------------------------------------------Intangible assets 1,547 10,929Property, plant and equipment 356 356Trade and other receivables 4,355 4,355Cash and cash equivalents 377 377Trade and other payables (9,567) (9,718)Borrowings (1,596) (1,596)----------------------------------------------------------------------Net (liabilities)/assets (4,528) 4,703Goodwill 129----------------------------------------------------------------------Consideration 4,832----------------------------------------------------------------------Consideration satisfied by:Cash 4,832----------------------------------------------------------------------\* T £ The fair value adjustments contain some provisional amounts whichwill be finalised in the 2008 accounts. £ Goodwill includes non-identified intangible assets which do notmeet the separable and reliably measurable criteria including businessprocesses, know-how and work force related industry specific knowledgeand technical skills. £ The outflow of cash and cash equivalents on the acquisition iscalculated as follows: \* T $'000Cash consideration 3,472Acquisition costs 1,360Cash acquired (377)---------------------------------------------------------------------- 4,455----------------------------------------------------------------------\* T £ The intangible assets acquired as part of the acquisition can beanalysed as follows: \* T $'000Software 25Technology 10,904---------------------------------------------------------------------- 10,929----------------------------------------------------------------------\* T £ 13 Post balance sheet event £ On 4 May 2007, Micro Focus announced that it had agreed to acquireAcucorp, Inc. (Acucorp) for a total cash consideration of $40.7m paidin full on completion, plus a working capital adjustment capped at amaximum value of $0.25m. £ In the year to 31 December 2006, Acucorp generated an operatingprofit of $3.0m and its gross assets at 31 December 2006 were $13.1m.Following the acquisition, Micro Focus plans to restructure thebusiness and aims to increase margins over time to a level consistentwith Micro Focus' existing business. Copyright Business Wire 2007Related Shares:
MCRO.L