false10-312021FY0001359711P3YP3YP2YP3YP3YP2YP1YP3Y0000000000000P3YP2YP1YP5YP3Y0P3Y0180000000000EPS for these awards is defined as Diluted Adjusted EPS. Where the cumulative EPS growth over a three or four year period is at least equal to RPI plus 3% per annum 25% of awards will vest, with full vesting achieved when the cumulative EPS growth is RPI plus 9% per annum. Straight-line vesting will apply between these points.Awards made with a free cash flow target and relative TSR target over a three-year period.Awards under a continuing employment criteria over a two or three-year period.P2YP3Y01 month1 month2026-12-312025-06-302024-06-302025-06-302024-06-302024-06-302024-06-302024-06-302024-06-302025-06-302024-06-302022-09-302025-06-302024-06-302022-09-300001359711ifrs-full:OtherAssetsMember2021-10-31
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549




FORM 20-F




☐
Registration statement pursuant to section 12(b) or (g) of the Securities Exchange Act of 1934


or
☒
Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
For the 12 months ended October 31, 20192021


or
☐
Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934


or
☐
Shell company report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934


Commission file number 001-38187




Micro Focus International plc


 The Lawn
 22-30 Old Bath RoadOLD BATH ROAD
 Newbury
 Berkshire RG14 1QN

United KingdomUnited Kingdom

 Ben DonnellySuzanne Chase
 Investor Relations and Corporate CommunicationsGroup Company Secretary & Head of Assurance
 c/o Micro Focus International plc
  The Lawn, 20-30 Old Bath Road
  Newbury, Berkshire RG14 1QN
  United KingdomGB
  
Tel: +44 (0) 1635 32646
565 200
  Email: company.secretary@microfocus.com
 
Email: investors@microfocus.com
Jurisdiction of incorporation or organization:
United Kingdom


Securities registered or to be registered pursuant to Section 12(b) of the Act.


Title of each class:Trading Symbol(s):
Name of each exchange on which
registered:
Ordinary Shares and* American Depository Shares, each representing one ordinary share of Micro Focus International plc
MFGP
New York Stock Exchange


*Not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission.


Securities registered or to be registered pursuant to Section 12(g) of the Act.
None


Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.


As of October 31, 2019, 84,223,580 2021 92,985,425 American Depository Shares were issued and outstanding.


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.


Yes ☒   No ☐


If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.


Yes ☐    No ☒


Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.


Yes ☒   No ☐


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).


Yes ☒    No ☐


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “accelerated filer”, “large accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act. :


Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Emerging growth
company  ☐


If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐


†The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.


Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C 7262(b) by the registered public accounting firm that prepared or issued its audit report☒

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:


US GAAP   ☐
International Financial Reporting Standards as issued by the International Accounting Standards Board  ☒
Other ☐


If “Other” has been checked in the previous question, indicate by check mark which financial statement item the registrant has elected to follow.   Item 17 ☐    Item 18 ☐


If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).  Yes ☐    No ☒


2
Table of Contents

Introduction
Table of Contents
5
Cautionary statement on forward looking statementsINTRODUCTION
5
CAUTIONARY STATEMENT ON FORWARD LOOKING STATEMENTS
5
PART I
7
Item 1. Identity of Directors, Senior Management and AdvisersITEM 1 IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
7
Item 2. Offer Statistics and Expected TimetableITEM 2 OFFER STATISTICS AND EXPECTED TIMETABLE
7
Item 3. Key InformationITEM 3 KEY INFORMATION
7
Item 3. A.       Selected financial data.ITEM 3.B CAPITALISATION AND INDEBTEDNESS
7
Item 3. B.       Capitalization and indebtedness.ITEM 3.C REASONS FOR THE OFFER AND USE OF PROCEEDS
9
7
Item 3. C.       Reasons for the offer and use of proceeds.ITEM 3.D RISK FACTORS.
98
Item 3. D.       Risk factors.ITEM 4 INFORMATION ON THE COMPANY
1015
ITEM 4.A HISTORY AND DEVELOPMENT OF THE COMPANY.
15
Item 4. Information on the CompanyITEM 4.B BUSINESS OVERVIEW
16
Item 4. A.       History and development of the company.ITEM 4.C ORGANIZATIONAL STRUCTURE
1619
Item 4. B.       Business overview.ITEM 4.D PROPERTY, PLANTS AND EQUIPMENT.
1820
ITEM 4A. UNRESOLVED STAFF COMMENTS
20
Item 4. C.       Organizational structureITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS
21
ITEM 5.A OPERATING RESULTS
21
ITEM 5.B LIQUIDITY AND CAPITAL RESOURCES
30
Item 4. D.       Property, plants and equipment.ITEM 5.C RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.
3035
Item 4A.         Unresolved Staff CommentsITEM 5.D TREND INFORMATION.
3035
Item 5. Operating and Financial Review and ProspectsITEM 5.E CRITICAL ACCOUNTING ESTIMATES.
3137
Item 5. A.       Operating results.ITEM 6 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
3138
Item 5. B.       Liquidity and capital resources.ITEM 6.A DIRECTORS AND SENIOR MANAGEMENT.
4638
Item 5. C.       Research and development, patents and licenses, etc.ITEM 6.B COMPENSATION
5044
Item 5. D.       Trend information.
51
Item 5. E.       Off-balance sheet arrangements.ITEM 6.C BOARD PRACTICES
52
ITEM 6.D EMPLOYEES.
57
ITEM 6.E SHARE OWNERSHIP.
58
ITEM 7 MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
59
ITEM 7.A.1 MAJOR SHAREHOLDERS
59
ITEM 7.A.2 SHAREHOLDERS INFORMATION
59
ITEM 7.B RELATED PARTY TRANSACTIONS.
59
ITEM 7.C INTERESTS OF EXPERTS AND COUNSEL.
59
ITEM 8 FINANCIAL INFORMATION
60
ITEM 8.A CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION.
60
ITEM 8.A.7 LITIGATION, PROCEEDINGS AND INVESTIGATIONS.
60
ITEM 8.A.8 POLICY ON DIVIDEND DISTRIBUTIONS
62
ITEM 8.B SIGNIfiCANT CHANGES.
62
ITEM 9 THE OFFER AND LISTING.
63
ITEM 9.A OFFER AND LISTING DETAILS.
63
ITEM 9.B PLAN OF DISTRIBUTION.
63
ITEM 9.C MARKETS.
63

3
ITEM 9.D SELLING SHAREHOLDERS.
63
ITEM 9.E DILUTION.
63
ITEM 9.F EXPENSES OF THE ISSUE.
63
ITEM 10 ADDITIONAL INFORMATION.
64
ITEM 10.A SHARE CAPITAL.
64
ITEM 10.B MEMORANDUM AND ARTICLES OF ASSOCIATION.
64
ITEM 10.C MATERIAL CONTRACTS.
64
ITEM 10.D EXCHANGE CONTROLS.
64
ITEM 10.E TAXATION.
65
ITEM 10.F DIVIDENDS AND PAYING AGENTS.
68
ITEM 10.G STATEMENT BY EXPERTS.
68
ITEM 10.H DOCUMENTS ON DISPLAY.
68
ITEM 10.I SUBSIDIARY INFORMATION.
69
ITEM 11 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
69
ITEM 12 DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.
74
ITEM 12.A DEBT SECURITIES.
74
ITEM 12.B WARRANTS AND RIGHTS.
74
ITEM 12.C OTHER SECURITIES
74
ITEM 12.D AMERICAN DEPOSITARY SHARES
74
PART II
75
ITEM 13 DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.
75
ITEM 14 MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS.
75
ITEM 15 CONTROLS AND PROCEDURES.
76
ITEM 15.A DISCLOSURE CONTROLS AND PROCEDURES.
76
ITEM 15.B MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
76
ITEM 15.C ATTESTATION REPORT OF THE REGISTERED PUBLIC ACCOUNTING fiRM
77
ITEM 15.D CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING.
79
ITEM 16
80
ITEM 16.A AUDIT COMMITTEE AUDIT REPORT EXPERT
80
ITEM 16.B CODE OF ETHICS
80
ITEM 16.C PRINCIPAL ACCOUNTANT FEES AND SERVICES
80
ITEM 16.D EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
81
ITEM 16.E PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASES
81
ITEM 16.F CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
81
ITEM 16.G CORPORATE GOVERNANCE
81
ITEM 16.H MINE SAFE DISCLOSURE
83
ITEM 16.I DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
83
PART III
84
ITEM 17 FINANCIAL STATEMENTS
84
ITEM 18 FINANCIAL STATEMENTS
84
Item 5. F.        Tabular disclosure of contractual obligations.19 Exhibits
52
Item 5. G.       Safe harbor.
52
Item 6. Directors, Senior Management and Employees
53
Item 6. A.       Directors and senior management.
53
Item 6. B.       Compensation
56
Item 6. C.       Board practices.
89
Item 6. D.       Employees.
97
Item 6. E.       Share ownership.
98
Item 7. Major Shareholders and Related Party Transactions
99
Item 7. A.       Major shareholders.
99
Item 7. B.       Related party transactions.
100
Item 7. C.       Interests of experts and counsel.
101
Item 8. Financial Information
102
Item 8. A.       Consolidated Statements and Other Financial Information.
102
Item 8.A.7      Litigation, Proceedings and Investigations
102
Item 8. B.       Significant Changes.
105
Item 9. The Offer and Listing.
106
Item 9. A.       Offer and listing details.
106
Item 9. B.       Plan of distribution.
106
Item 9. C.       Markets.
106
Item 9. D.       Selling shareholders
106
Item 9. E.       Dilution.
106
Item 9. F.        Expenses of the issue.
106
Item 10. Additional Information.
107
Item 10. A.     Share capital.
107
Item 10. B.     Memorandum and articles of association.
10784


34

Item 10. C.     Material contracts.

111

Item 10. D.     Exchange controls.

112

Item 10. E.     Taxation.

113

Item 10. F.      Dividends and paying agents.

117

Item 10. G.     Statement by experts

117

Item 10. H.     Documents on display

117

Item 10. I.      Subsidiary Information.

117

Item 11. Quantitative and Qualitative Disclosures About Market Risk.

118

Item 12. Description of Securities Other than Equity Securities.

123

PART II

124

Item 13. Defaults, Dividend Arrearages and Delinquencies.

124

Item 14.Material Modifications to the Rights of Security Holders and Use of Proceeds.

124

Item 15. Controls and Procedures.

125

Item 15. A.  Disclosure Controls and Procedures.

125

Item 15. B.  Management’s annual report on internal control over financial reporting

125

Item 15. C.  Attestation report of the registered public accounting firm

126

Item 15. D. Changes in internal control over financial reporting.

128

Item 16. A. Audit committee audit report expert

129

Item 16. B. Code of ethics

129

Item 16. D. Exemptions from the listing standards for audit committees

130

Item 16. E. Purchase of equity securities by the issuer and affiliated purchases

130

Item 16. F. Change in Registrant’s certifying accountant

132

Item 16. G. Corporate Governance

133

Item 16. H. Mine Safety Disclosure

135

PART III

136

Item 17. Financial Statements

136

Item 18. Financial Statements

136

Item 19. Exhibits

136


Introduction
In connection with the completion (“Closing”) of the merger between Micro Focus International plc (“the Company” or “the Group”, LSE: MCRO.L, NYSE: MFGP) and HPE Software’s business segment (“HPE Software business”), together the “Enlarged Group” or “Enlarged Company”, the Board of Directors authorized a change of fiscal year end from April 30, 2018 to October 31, 2018 to allow the Company to launch the Enlarged Company’s financial year with effect from November 1, 2018. As a result, the Company was required to file the prior Annual Report on Form 20-F for the period of May 1, 2017 to October 31, 2018.


Audited financial information presented in this Annual Report on Form 20-F is for the 12-month periodyear ended October 31, 20192021 and the comparative 18-month periodyears ended October 31, 20182020 and the 12-month period ended April 30, 2017.2019.

Exhibit 15.4 further presents the unaudited financial information presented for the 12-month period ended October 31, 2018 and the 6-month period ended October 31, 2017.


Cautionary statement on forward looking statements

The Securities and Exchange Commission, or the SEC, encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. Except for the historical information contained in this Annual Report on Form 20-F, the statements contained in this annual reportAnnual Report on Form 20-F are “forward-looking statements”, which reflect our current view with respect to future events and financial results.


WordsThese forward-looking statements can be identified by the use of forward-looking terminology, including the terms “believes”, “estimates”, “anticipates”, “expects”, “intends”, “may”, “will”, “could”, “plans” or “should” or, in each case, their negative or other variations or comparable terminology. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Company’s present and future business strategies and the environment in which the Company will operate in the future. These forward-looking statements are made by the directors in good faith based on the information available to them at the time of their approval of this Annual Report on Form 20-F. Except as “may,” “anticipate,” “estimate,” “expects,” “projects,” “intends,” “plans,” “believes” and words and termsrequired by law or regulation, the Company does not undertake any obligation to update or revise publicly any forward-looking statement, whether as a result of similar substance used in connection with any discussion of future operating or financial performance, identify forward looking statements. Forward-looking statements represent management’s present judgment regardingnew information, future events and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.or otherwise.


These risks include, but are not limited to, risks and uncertainties regarding:


our ability to develop products and services that satisfy the needs of our customers;
customers, including, but not limited to, customer needs for development and deployment applications, web-enabled services, application migration services from mainframe environments and/or the continued use and necessity of the mainframe for business critical applications;


the effectiveness of our sales force and distribution channels;


competition or changes in growth rates in the markets in which we operate;


our ability to attract and retain sufficiently qualified management and key employees;


the ongoing integration of HPE Software business into the Company, which may impede the ability of the Enlarged Group to obtain the same types and levels of benefits, services and resources that have historically been provided to HPE Software business by HPE, which could lead to a failure to realize the anticipated benefits of the merger;


our ability to identify, manage, complete and integrate acquisitions, divestitures and other significant transactions successfully;


the availability, integrity and security of our IT systems;


our ability to comply with national and regional laws and regulations, including those that relate to ESG matters (such as the Task Force on Climate-related Financial Disclosure (“TCFD”) requirements) across the various jurisdictions in which the Group operates;


our dependence on intellectual property, our ability to protect intellectual property and third-party claims of infringement on intellectual property;


our ability to comply with the covenants under our Credit Facilities (see note 18 “Borrowings” of the Consolidated financial statements in Item 18);

restrictions on our ability to secure additional financing or refinance our existing financing;

our exposure to fluctuations in currency exchange rates and interest rates, which could affect our variable rate indebtedness;

5

restrictions on our ability to secure additional financing or refinance our existing financing;

our ability to comply with the covenants under our Credit Facilities (see note 20 of the consolidated financial statements in Item 18);

the possibility of being required, in certain circumstances, to make tax indemnification payments to the former owner of the HPE Software business;


the impact of future changes to, or interpretations of, US and non-US tax laws;


Our exposure to prevailing macro-economic trends, including inflation;

ourOur exposure to political developments in the United Kingdom, includingUnited States or other jurisdictions in which the terms and manner of the UK’s withdrawal from the EU;
Group operates;


Our exposure to prevailing macro economic trends;
the practical and macro-economic impacts of COVID-19 and its variants;


our ability to protect the personal information of our customers;
customers and employees;


our ability to discover and address any material weaknesses or deficiencies in the Group’s internal controls over financial reporting;

a cybersecurity attack or breach, or cybersecurity vulnerabilities in our products, infrastructure, or services, or economic espionage could result in significant legal and
financial exposure; and


our ability to manage the risks involved in the foregoing.


In light of these assumptions, risks and uncertainties, the results and events discussed in the forward-looking statements contained in this annual reportAnnual Report on Form 20-F might not occur. Investors are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this annual report.Annual Report on Form 20-F. We are not under any obligation, and we expressly disclaim any obligation, to update or alter any forward- looking statements, whether as a result of new information, future events or otherwise. All subsequent forward-looking statements attributable to us or to any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this document.


6
PART I


Item 1.1Identity of Directors, Senior Management and Advisers



Not applicable.


Item 2.2Offer Statistics and Expected Timetable


Not applicable.


Not applicable.

Item 3.3Key Information


Item 3. A.
Selected financial data.

Selected consolidated financial data

The table below shows the Group’s selected consolidated financial data prepared under International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

The selected consolidated income statement data for the 12-months ended October 31, 2019, the 18-months ended October 31, 2018 and the 12-months ended April 30, 2017 and the selected consolidated balance sheet data as at October 31, 2019 and October 31, 2018 have been derived from our audited consolidated financial statements included in “Item 18. Financial Statements” in this Annual Report on Form 20-F. The selected consolidated income statement data for the 12-months ended April 30, 2016 and April 30, 2015 and the selected consolidated balance sheet data as at April 30, 2017, 2016 and 2015 have been derived from our consolidated financial statements not included in this Annual Report on Form 20-F.

The Group’s financial statements reflect the trading performance of the continuing and discontinued operations for the 12-months ended October 31, 2019 compared to the 18-months ended October 31, 2018 and the 12-months ended April 30, 2017.

Within the 12-months, the Group has undertaken one corporate development activity, which has had a material impact on the Group’s reported results:

On March 15, 2019 the Group completed the disposal of SUSE, the profits from which have been reported within the profit from discontinued operations in the year. Previously on August 21, 2018, shareholders had voted to approve the proposed transaction whereby the Group agreed to sell its SUSE Product Portfolio at which point the SUSE operating segment met the definition of a discontinued operation under IFRS 5 and was treated as such in these financial statements. This meant that during the 18- months ended October 31, 2018, the SUSE results were excluded from the individual line items of the income statement and balance sheet. SUSE was instead included as a single line entitled “profits from discontinued operations” within the income statement and as an “asset held for sale” or “liability held for sale” on the balance sheet through to the date of disposal. The transaction was completed on March 15, 2019.

The selected consolidated financial information should be read in conjunction with “Item 5. Operating and Financial Review and Prospects” and our consolidated financial statements and the related notes appearing elsewhere in this Annual Report on Form 20-F. The information provided below is not necessarily indicative of the results that may be expected from future operations.

Summarized Group consolidated statement of comprehensive income:

  
12 months
ended
October 31,
2019
  
18 months
ended
October 31,
20181
  
12 months
ended
April 30,
2017
  
12 months
ended
April 30,
2016
  
12 months
ended
April 30,
2015
 
  
$m
 

$m

 

$m

 
$m

 
$m

Revenue  3,348.4   
4,754.4
   
1,077.3
   
991.2
   
733.4
 
Cost of sales  (789.9)  
(1,302.7
)
  
(216.4
)
  
(202.5
)
  
(83.3
)
Gross Profit  2,558.5   
3,451.7
   
860.9
   
788.7
   
650.1
 
Selling and distribution costs  (1,224.8)  
(1,764.2
)
  
(363.1
)
  
(312.6
)
  
(252.4
)
Research and development expenses  (491.2)  
(680.8
)
  
(122.8
)
  
(117.4
)
  
(141.9
)
Administrative expenses  (620.8)  
(629.9
)
  
(147.6
)
  
(111.5
)
  
(119.2
)
Operating profit  221.7   
376.8
   
227.4
   
247.2
   
136.6
 
Finance costs  (282.4)  
(350.4
)
  
(96.8
)
  
(98.4
)
  
(56.2
)
Finance income  (26.6)  
7.7
   
1.0
   
1.0
   
1.2
 
(Loss)/profit before tax  (34.1)  
34.1
   
131.6
   
149.8
   
81.6
 
Taxation  16.0   
673.1
   
(7.5
)
  
(13.9
)
  
14.3
 
(Loss)/profit from continuing operations  (18.1)  
707.2
   
124.1
   
135.9
   
95.9
 
Profit from discontinued operation (attributable to equity shareholders of the Company)  1,487.2   
76.9
   
33.7
   
27.0
   
5.5
 
Profit after tax  1,469.1   
784.1
   
157.8
   
162.9
   
101.4
 
Other comprehensive (expense)/income  (306.0)  
29.3
   
(5.7
)
  
0.6
   
(11.3
)
Total comprehensive income for the period  1,163.1   
813.4
   
152.1
   
163.5
   
90.1
 
                     
Attributable to:                    
Equity shareholders of the Company  1,162.8   
813.3
   
152.2
   
163.4
   
90.4
 
Non-controlling interest  0.3   
0.1
   
(0.1
)
  
0.1
   
(0.3
)
Total comprehensive income for the period  1,163.1   
813.4
   
152.1
   
163.5
   
90.1
 
                     
Continuing and Discontinued Operations                    
Earnings per share                    
Basic (cents)  388.50   
201.70
   
68.88
   
74.50
   
58.54
 
Diluted (cents)  384.35   
196.17
   
66.51
   
71.61
   
56.71
 
                     
Continuing Operations                    
Earnings per share                    
Basic (cents)  (4.87)  
181.91
   
54.17
   
62.40
   
55.36
 
Diluted (cents)  (4.87)  
176.92
   
52.31
   
59.97
   
53.64
 

1 In the 18 months ended October 31, 2018 certain costs were incorrectly presented as administrative expenses and should have been classified in costs of sale, selling and distribution expenses and research and development expenses. Management has therefore elected to correct the presentation and record these immaterial adjustments to revise the Consolidated Statement of comprehensive income for the 18 months ended October 31, 2018. The revision has no impact on the operating profit, profit for the period, assets and liabilities or cashflows for the 18 months ended October 31, 2018. For further information see the basis of preparation of the Consolidated financial statements in Item 18.

Summarized Group consolidated statement of financial position:

  
October 31,
2019
  
October 31,
2018
  
April 30,
2017
  
April 30,
2016
  
April 30,
2015
 
  
$m

 

$m

 

$m

 

$m

 

$m

Non-current assets
  12,846.7   
13,720.5
   
3,995.5
   
3,482.6
   
3,629.7
 
Current assets
  1,448.1   
1,917.6
   
442.2
   
954.4
   
460.9
 
Current assets classified as held for sale
  -   
1,142.5
   
-
   
-
   
-
 
Total assets  14,294.8   
16,780.6
   
4,437.7
   
4,437.0
   
4,090.6
 
                     
Current liabilities
  1,802.0   
2,010.4
   
944.7
   1,061.8   
988.0
 
Current liabilities classified as held for sale
  -   
437.7
   
-
   
-
   
-
 
Non-current liabilities
  6,216.5   
6,540.5
   
1,879.5
   
1,781.4
   
1,824.6
 
Total liabilities  8,018.5   
8,988.6
   
2,824.2
   
2,843.2
   
2,812.6
 
                     
Net Assets/(Liabilities)  6,276.3   
7,792.0
   
1,613.5
   1,593.8   
1,278.0

                     
Share Capital
  47.2   
65.8
   
39.7
   
39.6
   
39.6
 
Number of shares
  363,583,328   
436,800,513
   
229,674,479
   
228,706,210
   
228,587,397
 

  
12 months
 ended
October 31,
2019
  
18 months
ended
October 31,
2019
  
12 months
ended
April 30,
2017
  
12 months
ended
April 30,
2016
  
12 months
ended
April 30,
2015
 
Interim dividend 1
  58.33   
34.60
   
29.73
   
16.94
   
15.40
 
Interim dividend 2
  -   
58.33
   
-
   
-
   
-
 
Final dividend
  58.33   
58.33
   
58.33
   
49.74
   
33.00
 
Dividend declared per share (cents)
  116.66   
151.26
   
88.06
   
66.68
   
48.40
 


Dividends
The Group’s dividend policy remains unchanged at two times covered by the Adjusted earnings of the Group (defined as profit after tax excluding the effects of share-based compensation, amortization of purchased intangible assets and exceptional items including gain on disposal of discontinued operation), of which one third will be paid as interim and two thirds as final.

The directors announced a final dividend of 58.33 cents per share on February 4, 2020. The total dividend per share in the 12-month period was 116.66 cents.

The dividend will be paid in Sterling equivalent to 44.53 pence per share, based on an exchange rate of £1 =1.31 being the rate applicable on February 3, 2020, the date on which the board resolved to propose the dividend. The dividend will be paid on May 7, 2020 to shareholders on the register at April 14, 2020.

This total dividend is 116.66 cents per share, which is growth of 15.7% on the full year annualized dividend for the 18-months ended October 31, 2018 of 100.84 cents per share.

Due to the change to an 18-month accounting period to October 31, 2018 in prior period, there were two interim dividends and a final dividend made in the prior period.

For further information on dividends please refer to note 8 of the Group financial statements within Item 18.

Item 3. B.3.BCapitalization and indebtedness.indebtedness


Not applicable.


Item 3. C.3.CReasons for the offer and use of proceeds.proceeds


Not applicable.


97
Item 3. D.3.DRisk factors.


There are risks associated with owning Micro Focus ADSs. In addition to the other information included elsewhere in this Annual Report on Form 20-F, including in the section entitled ‘‘Cautionary Statement on Forward-Looking Statements,’’ you should carefully consider the following discussion of what we believe to be the most important risk factors.factors applicable to the Group. The risks and uncertainties described below are not the only risks and uncertainties that the Enlarged Group and holders of Micro Focus ADSs may face. AdditionalIn addition, it is not possible to predict or identify all such factors and additional risks and uncertainties not presently known to the Company, or that the Company currently considers immaterial, which could also negativelymaterially adversely affect the business, results of operation, financial condition and prospects of the Enlarged Group, as well as the value of Micro Focus ADSs.


The order in which the following risk factors are presented does not necessarily reflect the likelihood of their occurrence or the relative magnitude of their potential material adverse effect on the business, financial condition, results of operation or prospects of the Enlarged Group or the market price of the Micro Focus Shares or Micro Focus ADSs.


The information given is as of the date of this information statement/prospectus,Annual Report on Form 20-F, and any forward-looking statements are made subject to the reservations specified under the section entitled ‘‘Cautionary Statement on Forward-Looking Statements”.


Principal risks and uncertainties
In common with all businesses, the Group could be affected by risks and uncertainties that may have a material adverse effect on its business operations and achieving its strategic objectives including its business model, future performance, solvency, liquidity and/or reputation. This includes any new, emerging or continuing direct or indirect risks posed by COVID-19. These risks could cause actual results to differ materially from forecasts or historic results. Accepting that risk is an inherent part of doing business, the Boardboard is mindful of the interdependencies of some risks. Where possible, the Group seeks to mitigate risks through its RMF, (“Risk Management Framework”), internal controls and insurance, but this can only provide reasonable assurance and not absolute assurance against material losses. In particular, insurance policies may not fully cover all of the consequences of any event, including damage to persons or property, business interruptions, failure of counterparties to conform to the terms of an agreement or other liabilities. The following are the principal risks and uncertainties, and potential impacts and mitigations that are relevant to the Group as a provider of software products and associated services at this time. They do not comprise all of the risks associated with the Group and are not set out in priority order. Additional risks not presently known to management, or currently deemed to be less material, may also have an adverse effect on the Group.


 
Products
 
 

Principal Risk Descriptionrisk description
To remain successful, the Group must ensure that its products continue to meet the requirements of customers and investment must be effectively balanced between growth and mature products. Investment in research and innovation in product development is essential to meet customer and partner requirements in order to maximize customer value, revenues and corporate performance. The Group has a large number of products, at differing stages of their life-cycle.life cycle. The extent of investment in each product set needs to be managed and prioritized considering the expected future prospects and market demand.

 

Potential Impactimpact
If products do not meet the requirements of customers, they will seek alternative solutions, resulting in the loss of existing maintenance and new revenue opportunities and the cancellation of existing contracts. Insufficient focus on key research and development projects may damage the long- termlong-term growth prospects of the Group. The Group’s business and reputation may be harmed by innovation that falls behind competitors, or by errors or defects in its products.



108
 
Sales / Go-To-Market (“GTM”) Modelsmodels
 
 

Principal Risk Description
risk description
For the Group to succeed in meeting sales revenue and growth targets, it requires successful GTM models across the full product portfolio,Product Portfolio, with effective strategies and plans to exploit all routes to market, including direct and channel/partner led sales. In addition, the Group must focus the sales force on targeted customer segments and ensure appropriate responses to the market dynamics related to changes in customer buying behaviors. Effective GTM models may be more successful if accompanied by compelling Micro Focus brand awareness programs. The Group is dependent upon the effectiveness of its sales force and distribution channels to drive licence and maintenance sales and a reference-based selling model.

 

Potential Impact
impact
Poor design and/or execution of GTM plans may limit the success of the Group by targeting the wrong customers through the wrong channels and positioning the wrong product or solution offerings, reducing the value that customers receive from Micro Focus.



 
Competition

 

Principal Risk Description
risk description
Comprehensive information about the markets in which Micro Focus operates is required for the Group to assess competitive risks effectively and to perform successfully. The Group operates in a number of competitive markets and success in those markets depends on a variety of factors.

 

Potential Impact
impact
Failure to understand the competitive landscape adequately and thereby identify where competitive threats exist may damage the successful sales of the Group’s products. If the Group is not able to compete effectively against its competitors, it is likely to lose customers and suffer a decrease in sales, which may result in lost market share and weaker financial performance.



 
Employees and culture
 
 

Principal Risk Description
risk description
The retentionrecruitment and recruitmentretention of highly skilled and motivated employees at all levels of the Group is critical to the success and future growth of the Group in all countries in which it operates. Employees require clear business objectives and well-communicateda well communicated vision and set of values for the Group to achieve alignmenthigh levels of employee engagement and a common sense of corporate purpose among the workforce. There is significant attrition in the marketplace, with the rise of flexible working arrangements, changing employee/candidate work-life priorities combined with industry-wide changes in the nature of the hiring market which has increased the risk across all competencies of attracting and retaining talent.

 

Potential Impact
impact
Failure to retainattract, develop and developretain skill sets, particularly in sales IT and research and& development, may hinder the Group’s sales and development plans. Talent market conditions could lead to further attrition and result in difficulties in meeting talent demands. Weak employee engagement, organizational alignment and inadequate incentivization may lead to poor performance and instability. It could also have an adverse impact on the realization of transformation aims and strategic plans.



119
Business Strategy and Change Management
Principal Risk Description
The Group is engaged in a number of major change projects, including acquisitions and divestments, to shape and grow the business by strengthening the portfolio of products and capabilities and IT projects to standardize systems and processes. The continued integration of the HPE Software business is complex, with a range of integration and transformation risks. The integration of the HPE Software business with the existing businesses carried on by the Group may be more time consuming and costly than anticipated.
The Group is also executing a series of operational transformation initiatives. These projects expose the Group to significant transformation risks. The Group’s strategy may involve the making of further acquisitions or divestments to protect or enhance its competitive position and failure to identify, manage, complete and integrate acquisitions, divestitures and other significant transactions successfully could have a material adverse effect on the Group’s business.
Further, the Group has substantially completed a Strategic & Operational Review, which includes other initiatives that may increase disruption to business as usual activities across the Group.
Potential Impact
Failure to successfully analyze, execute and co-ordinate the implementation and delivery of the core systems and associated business processes with the various integration, divestment and transformation programs may result in the disruption of the on-going business without delivering the anticipated strategic and operational benefits of such transactions and/or initiatives. In addition, this may affect the ability to execute strategic plans for growth.

 
IT Systemssystems and information

 

Principal Risk Description
risk description
The Group’s operations, as with most businesses, are dependent on maintaining and protecting the integrity and security of the IT systems and management of information. FollowingThe Group now operates on a single enterprise platform for its core business processes. The achievement of this milestone has decreased the integration ofnet risk exposure and set the HPE Software business the Group continues to operate on two IT architectures with the attendant complexity to business operationsplatform for further operational simplification and the control environment. As set out in Item 4.B. Business Overview, work is underway to transition to a simplified systems architecture. The transition may be more time consuming and costly than anticipated, given the amount of change management that is involved.decommissioning.

 

Potential Impact
impact
Disruption to the IT systems could adversely affect business and Group operations in a variety of ways, which may result in an adverse impact on business operations, revenues, customer relations, supplier relations, and reputational damage. Dependency on IT providers could have an adverse impact on revenue and compliance in the event that they cannot resume business operations.



Business strategy and change management


Principal risk description
The Group is engaged in a number of major change projects, including acquisitions and divestments, to shape and grow the business by strengthening the portfolio of products and capabilities and IT projects to standardize systems and processes.
The Group is also executing a series of operational transformation initiatives. These projects expose the Group to significant transformation risks. The Group’s strategy may involve the making of further acquisitions or divestments to protect or enhance its competitive position and failure to identify, manage, complete and integrate acquisitions, divestments and other significant transactions successfully could have a material adverse effect on the Group’s business.


Potential impact
Failure to successfully analyze, execute and coordinate the implementation and delivery of the core systems and associated business processes with the various integration, divestment and transformation programs may result in the disruption of the on-going business without delivering the anticipated strategic and operational benefits of such transactions and/or initiatives. In addition, this may affect the ability to execute strategic plans for growth.


1210
 
Legal and Regulatory Complianceregulatory compliance
 
 

Principal Risk Description
risk description
The Group operates across a number of jurisdictions and two regulated exchanges. Compliance with national and regional laws and regulations, including those that relate to ESG matters, such as Task Force on Climate-related Disclosure (“TCFD”) requirements, is essential to successful business operations. The Group may be involved in legal and other proceedings from time to time, and as a result may face damage to its reputation or legal liability. The Group has entered into various acquisitions and a disposaldisposals over recent years and may be subject to, or have the benefit of, certain residual representations, warranties, indemnities, covenants or other liabilities, obligations or rights. The Group has a variety of customer contracts in a variety of sectors, including Government clients. This risk was increased in the prior period due to the variety COVID-19 restrictions in place across regions in which the Group operates and the heightened complexity this posed to securing personal and/or sensitive information, particularly in work-from-home settings. This level of risk has continued to apply during the period.

 

Potential Impact
impact
Failure to comply could result in civil or criminal sanctions (i.e.(including personal liability for directors), as well as possible claims, legal proceedings, fines, loss of revenue and reputational damage.




 
Intellectual Propertyproperty (“IP”)

 

Principal Risk Description
risk description
The Group is dependent upon its intellectual property,IP and its rights to such intellectual propertyIP may be challenged or infringed by others or otherwise prove insufficient to protect its business. The Group’s products and services depend in part on intellectual propertyIP and technology licensed from third parties, and third-partyparties. Third party claims of intellectual propertyIP infringement against the Group may disrupt its ability to sell its products and services. Defending and/or resolving such claims may cause the Group to incur substantial expense (please refer to note 4 “exceptional items” of the Consolidated financial statements in Item 18 for details of patent infringement case). The Group has increased its assessment of the risk in view of indications of increasing litigation activity from non-practicing patent entities.

 

Potential Impactimpact
FailureThis IP risk could adversely affect the ability of the Group to compete in the market placemarketplace and affect the Group’s revenue and reputation.



1311
 
Treasury
 
 

Principal Risk Description
risk description
The Group operates across a number of jurisdictionsGroup’s operational and so is exposed to currency fluctuations. The risk of foreign exchange fluctuationsfinancial flexibility may be increased as a resultrestricted by its level of Brexit.liquidity, indebtedness and covenants. Financing costs could increase or financing could cease to be available in the long-term. The Group may incur materially significant costs if it breaches its covenants under its banking arrangements. Please refer to note 24 “Financial risk management and financial instruments” of the Consolidated financial statements in Item 18 for details on the IBOR transition.
 
The Group targets a Net Debt debt1 to Adjusted EBITDA2ratio of 2.7three times in the medium term and may require additional debt funding in order to execute its acquisition strategy. The Group is exposed to interest rate risk related to its variable rate indebtedness, which could cause its indebtedness service obligations to increase significantly.
 
The Group’s operationalGroup operates across a number of jurisdictions and financial flexibility may be restricted by its level of indebtedness and covenants and financing costs could increase or financing could ceaseso is exposed to be available in the long-term. The Group may incur materially significant costs if it breaches its covenants under its banking arrangements.currency fluctuations.
 
1 Net Debt is defined as cash and cash equivalents less borrowings and finance lease obligations.obligations (including lease obligations classified as current liabilities held for sale).
2 Adjusted EBITDA is defined as net earnings before finance costs, finance income, taxation, share of results of associates, depreciation of property, plant and equipment, depreciation of right-of-use assets, amortization of intangible assets, exceptional items including the gain on disposal of discontinued operation, share-based compensation, product development intangible costs capitalized and foreign exchange (gains)/losses.

 

Potential Impactimpact
The relative values of currencies can fluctuate and may have a significant impact on business results. Insufficient access to funding could limit the Group’s ability to achieve its desired capital structure or to complete acquisitions. An increase in interest rates could have a significant impact on business results.
 
The relative values of currencies can fluctuate and may have a significant impact on business results.


 
Tax
 
 

Principal Risk Description
risk description
The tax treatment of the Group’s operations is subject to the risk of challenge by tax authorities in all territories in which it operates. Cross-border transactions may be challenged under tax rules and initiatives targeting multinationals’ tax arrangements, includingarrangements.
International tax rules continue to develop at each of the OECD’s Base ErosionOECD, EU and Profit Shifting projectnational levels and EU state aid rules. the pace of change may increase in the short-term in particular as a result of recent announcements in the US and at the OECD level. The impact of COVID-19 is also expected to drive further changes in approaches taken by individual country tax authorities. Future changes to tax laws could adversely affect the Group across the territories in which it operates.
As a result of the HPE Software business acquisition,merger, the Group may be required under the Tax Matters Agreement entered into with HPE (the “TMA”) to indemnify HPE, if actions undertaken by the Group affect the tax treatment of the separation of the HPE Software business from HPE.

Future changes to US and non-US tax laws could adversely affect the Group. The Group will be subject to tax laws of numerous jurisdictions, and the interpretation of those laws is subject to challenge by the relevant governmental authorities.
 

Potential Impact
impact
Tax liabilities in variousthe territories in which the Group operates particularlycould increase as a result of either challenges of existing positions by tax authorities or future changes in tax law. Specifically, given the HPE Software business acquisition,substantial operations in the US any changes in tax policy in the US could be significantly higher than expected. Thehave a significant impact on the Group. Furthermore, if the Group may be obligedis required to make indemnification payments to HPE under the TMA, which, if payable, would likelythese could be substantial.



1412
 
Macro-Economic EnvironmentMacro-economic environment, political unrest and Brexitpandemics
 
 

Principal Risk Description
risk description
The Group’s businesses may be subject to inherent risks arising from the general and sector specific economic, public health, pandemics and political conditions, including as a result of any pandemics or natural disasters, in one or more of the markets in which the Group operates, or by the interruptions posed by external forces such as natural disasters or pandemics.operates. This is heightened by the fact the Group sells and distributes its software products globally. Exposure to political developments in the United Kingdom, includingUnited States or other jurisdictions in which the terms and manner of the UK’s withdrawal from the EU,Group operates, could have an adverse effect on the Group. Further deterioration of the macro environment, including inflation, could result in more conservatism and longer decision makingdecision-making cycles within the Group’s customer base.

 

Potential Impact
Adverse economic conditions could affect sales, and other external economic or political matters, such as price controls, could affect the business and revenues.



COVID-19

Principal risk description
The Group, like all businesses continues to navigate through a period of disruption, as it has responded to the practical and macro-economic impacts of COVID-19. COVID-19 still presents fast moving, and in some areas unpredictable, direct and indirect risks to the Group’s businesses. The Group may be subject to inherent risks arising from the continuation of the on-going COVID-19 pandemic, including the emergence of virus variants.


Potential impact
Adverse economic conditions arising as a result of the continuation of the COVID-19 pandemic could affect sales performance and business operations.


 Cyber Securitysecurity
 

Principal Risk Description
risk description
There could be a data security breach (Micro Focus data or customer data) involving personal, commercial or product data, either directly from Micro Focus or a third party. This could occur as a result of a malicious or criminal act, or an inadvertent system error.

 

Potential Impact
impact
Data loss, which could harm client and customer relationships, compliance and/or perception of the effectiveness of the Group’s products.




13
 
Internal Controlscontrols over financial reporting
 
 

Principal Risk Description
risk description
Internal controls over financial reporting may not prevent or detect an error, fraud, financial misstatement or other financial loss, leading to a material misstatement in the Group’s financial statements.



Potential Impact
impact
Failure to discover and address any material weaknesses or deficiencies in the Group’s internal controls over financial reporting could result in material misstatement in the Group’s financial statements and impair the Group’s ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis. Based on the assessment as at October 31, 2019,2021, management identified a material weakness in the Group’s internal controls over financial reporting relatingwhere there was insufficient time to inadequateallow ITGCs and related business controls surrounding existing IT applications. As a result of those deficiencies, automatedto operate effectively by October 31, 2021 following the migration to the new enterprise-wide application platform in July, which included business controls and controls over information produced by the entity could not be relied upon.ITGCs.  Please refer Item 15.A to Item 5.B “Management’s annual report on internal control over financial reporting” and Item 15.C “Attestation report of the register public accounting firm”.D. Although the Group has already beguncontinues to implement measures to address and remediate this material weakness, failure to do so, and the risk that other deficiencies may be identified, could also result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of the Group’s financial statements and could have a material adverse effect on the Group’s business, financial condition, results of operation and prospects.



1514
Item 4.4Information on the Company


Item 4. A.4.AHistory and development of the company.


Overview


Micro Focus International plc (“Micro Focus”) is a global enterprise software business delivering value to approximately 40,000tens of thousands of customers. Micro Focus helps organizations run and transform their business. Driven by customer-centric innovation, Micro Focus software provides the critical tools customers need to build, operate, secure and analyze the enterprise. Micro Focus delivered revenues of $3,348.4m and profit for the period of $1,469.1m for the 12 months ended October 31, 2019.


The Company is subject to the information requirements of the US Securities Exchange Act of 1934 applicable to foreign private issuers. In accordance with these requirements, the company files its Annual Report on Form 20-F and other documents with the SEC. The Company’s SEC filings are available to the public at the SEC’s website, www.sec.gov.

Our website – www.microfocus.com


Access comprehensive information about the Company and download shareholder publications at the corporate website; visit the Investor Relations section for the latest company news, dividend and share price data.


Our website – www.microfocus.com

The Micro Focus Group, headquartered in Newbury, U.K., is a global enterprise software company supporting the technology needs and challenges of the Global 2000.company. The registered office of the Company is The Lawn, 22-30 Old Bath Road, Newbury, Berkshire, RG14 1QN, United Kingdom (Tel: +44 (0) 1635 565200). Its solutions help organizations leverage existing IT investments, enterprise applications and emerging technologies to address complex, rapidly evolving business requirements while protecting corporate information at all times.


Micro Focus was founded in 1976 and in 1981 it became the first company to win the Queen’s Award for Industry purely for developing a software product. The product was CIS COBOL, a standard-compliant COBOL implementation for microcomputers. Micro Focus’ COBOL products remain important components of theThe Micro Focus Product Portfolio which now extends to more thanalmost 300 products.

Micro Focus is one of the world’s largest enterprise software providers. It helps customers digitally transform their organization and achieve growth, while also maintaining the ability to optimize their underlying business processes and overall business spend. Micro Focus offerings are by design, built to bridge the gap between existing and emerging technologies – enabling faster innovation, with less risk, in the race to digital transformation. The Company is at the heart of billions of transactions around the globe, and serves a central role in thousands of business-critical functions, such as testing, process automation, storage, hybrid cloud, security, analytics, compliance and more. Backed by a deep analytics ecosystem, Micro Focus combines a wide range of trusted and proven products and solutions with customer-centric innovation to deliver the speed, agility, security and insights necessary to succeed in today’s rapidly evolving marketplace.


Micro Focus International plc is listed on the London Stock Exchange and is a member of the FTSE 250 index. The Company’s American Depositary Shares (the “ADSs”) are listed on the New York Stock Exchange.


As of February 19, 202024, 2022 (the latest practicable date prior to the date of this Annual Report on Form 20-F), Micro Focus had a market capitalization of £2.67£1.3 billion ($3.451.7 billion).


Micro Focus has more than 40 years of experience in delivering proven, scalable and robust solutions.


The Group’s powering customers’ digital transformation with solutions spanning four key areas:

Enterprise DevOps (SPEED)
— Deliver at high speed with low risk

Hybrid IT Management (AGILITY)
— Simplify your IT transformation

Security, Risk, and Governance (SECURITY)
 — Secure what matters most

Predictive Analytics (INSIGHTS)
— Analyze in time to act

The systematic application of the Micro Focus business model is driving better clarity of purpose, the alignment of goals and the creation of a more dynamic environment where execution is faster, operations simpler and people more accountable. Approximately 12,000 employees are working to common goals around our core ability to make, sell and support enterprise-class software across a broad and deep portfolio of more than 300 products. Our team is becoming more accustomed to this performance-based culture focused on delivering value to customers for the long-term.

Acquisitions and Investments

This annual reportAnnual Report covers the 12-monthsyear ended October 31, 20192021 with the comparative periods being the 18-monthsyears ended October 31, 2018,2020 and 12-months ended April 30, 2017.2019.


Within the 12-months endedSubsequent to October 31, 2019,2021 on 3 November 2021, the Group has undertaken one corporate development activity,announced the agreement of definitive terms to sell its Archiving and Risk Management portfolio (the “Digital Safe business”) to Smarsh Inc., for a total cash consideration of $375m (subject to customary completion accounts adjustments based on net debt and working capital) which has had a material impactwas paid in full on completion of the Group’s reported results:transaction on January 31, 2022.


On March 15, 2019 the Group completedDetails of the disposal of SUSE, the profits from which have been reported within the profit from discontinuedDigital Safe business are included in note 30 “Discontinued operations in the year. Previously on August 21, 2018, shareholders had voted to approve the proposed transaction whereby the Group agreed to sell its SUSE Product Portfolio at which point the SUSE operating segment met the definition of a discontinued operation under IFRS 5 and was treated as such in these financial statements. This meant that during the 18- months ended October 31, 2018, the SUSE results were excluded from the individual line items of the income statement and balance sheet. SUSE was instead included as a single line entitled “profits from discontinued operations” within the income statement and as an “assetAssets held for sale” or “liability held for sale” on the balance sheet through to the date of disposal. The transaction was completed on March 15, 2019.

This transaction had a material impact on the trading performance and presentationdetails of the financial statements.

Details of business combinations including the transaction to acquire Interset Software Inc., for the 12-months ended October 31, 2019Full 360 and Streamworx and additional transactions in the 18-monthsyear ended October 31, 20182020 and the 12-monthsyear ended April 30, 2017 can be foundOctober 31, 2019 are included in note 3831 “Acquisitions” respectively of the Consolidated financial statements in Item 18.


1715
Item 4. B.4.BBusiness overview.overview


Item 4.B.1
The Group is a global enterprise software provider supporting
Who we are

We supply sector-agnostic products across multiple markets that are focused on digital transformation. We have tens of thousands of customers, including many of the largest companies in the world.

Our broad set of technology needsfor security, IT operations, application delivery, governance, modernization, and analytics provides the innovative solutions that the world’s largest organizations need to run and transform concurrently.

Helping customers run and transform
To deliver on the promise of digital transformation customers need to balance the often conflicting challenges of 40,000running and transforming their businesses simultaneously.

This requires finding the right balance between cost, risk, and agility. We help them do that by focusing on four key outcomes which customers are striving to achieve: accelerate application delivery, simplify IT transformation, strengthen Cyber reslilence and analyze data in time to act.

Combining decades of technical expertise with a unique approach to innovation we create new and better solutions to help our customers thrive with ever-evolving technologies.

Our portfolio and product groups
Micro Focus has a broad and diverse portfolio of products which are organized into five product groups with each group containing multiple products that operate at the varying stages of the continuum from small and medium size enterprisesstable/declining (0% or less growth) to many in the Forbes Global 2000. The Group’shigh growth (11 to 20% growth).

Application Modernization & Connectivity (“AMC”)
AMC solutions help organizations leverage existingcustomers unlock the value from core business applications through the provision of innovative solution for modernization which enable a transformational journey to deliver ongoing value and greater flexibility from longstanding IT investments, enterpriseon or off the mainframe.

Application Delivery Management (“ADM”)
ADM solutions help customers increase velocity, remove bottlenecks and deliver high-performing applications to better support their digital business. Combined, these solutions increase stakeholder alignment and the delivery of value, while liberating resources to release faster without compromising quality.

IT Operations Management (“ITOM”)
ITOM Solutions simplify the complexity of IT operations. Powered by built-in analytics, they help business users easily engage with IT through Enterprise Service Management, deliver Full-Stack AIOps for service assurance, automate the service fulfilment life cycle, and strengthen IT service governance.

CyberRes (previously Security)
Comprehensive security solutions help enterprises create cyber resilience through detecting threats, securing data and applications, and emerging technologiesprotecting identities – enabling customers to address complex, rapidly evolving business requirements, includingadapt and evolve for the protection of corporate information at all times.future. Artificial Intelligence, machine learning and behavioral analytics capabilities enable this to be done and enterprise scale.


The period reported isInformation Management & Governance (“IM&G”)
IM&G solutions help customers analyze, understand, and control data – to derive value and manage enterprise risk. Efficient compliance, governance, customer behavior, and IOT analytics are representative use cases.

During the 12-monthsyear ended October 31, 2019. The prior period was 18-month ended October 31, 2018 as a result of moving our year-end from the end of April to the end of October.

This has been a disappointing year. Whilst a significant number of things have been achieved in the year the end result is not in line with the Group’s expectations. The integration of the HPE Software Business has proved more challenging than the Group anticipated resulting in delayed financial performance.

Whilst the Group continues to make progress, this has not been at the pace hoped for, with major IT system reimplementation compounding poor sales execution and productivity.

As a result, on August 29, 2019 the Board of Directors announced a wide-ranging Strategic & Operational review utilizing the expertise of independent third parties to work with the Micro Focus management team in the most extensive review of the business since 2011. This strategic review has re-affirmed the Group’s belief that there is a large section of the Enterprise Software market that is consolidating and that there are value creation opportunities for scale players with operational efficiency and disciplined capital allocation. Notwithstanding the current challenges in execution, the Group believes that Micro Focus remains well positioned to participate in this opportunity.

The review also highlighted some areas where the Group now needs to transform the way things are done in order to better align to the evolving needs of customers and partners. The work on the strategic review is well progressed and a full update on the review and the changes the Group intends to make are set out below.

During the year the Group completed the separation and sale of the SUSE business demonstratingbusiness. SUSE provided and supported enterprise-grade Open Source software defined infrastructure solutions and Linux. SUSE is presented as a discontinued operation in all periods reported elsewhere in this Annual Report on Form 20-F. Commentary in this Annual Report on Form 20-F is in relation to the value of the Group’s approach to portfolio management. Through effective investment and management of the SUSE asset, from being 20% of total revenues of The Attachmate Group when acquired by Micro Focus in November 2014 for $2.3billion, the Group achieved a total cash consideration of $2.5billion for the SUSE asset alone just four years later, at an accounting profit on disposal before tax of $1.8 billion.

Over a number of years, the Group has played a lead role in consolidating a fragmented enterprise software market.

The Group continues to believe consolidation will play a key part in the shareholder value creation and announcements of other significant M&A in the Group’s market confirm that this consolidation is active and relevant.

Segments

The Group operates one segment under IFRS 8:

Micro Focus Product Portfolio, – The Micro Focus and does not include SUSE.

Product Portfolio segment contains both mature softwaredevelopments
In the year ended October 31, 2021 we have delivered significant new innovation through Licence, SaaS and subscription offerings to enable customers to consume it more effectively and quickly.

16
Key examples of progress include: the removal of dependencies on third-party products embedded in the core of some of our key solutions, the delivery of comprehensive artificial intelligence, machine learning and high growthanalytics capabilities in every portfolio, and the work to rearchitect many of our products to support new cloud and hybrid deployment options. Within each portfolio we have introduced new SaaS offerings, that are managed on aimproved the existing SaaS offerings and invested significantly in our SaaS delivery infrastructure.

Overall, we exited the year with improved competitive positioning, with highlights by portfolio basis akin to a “fund of funds” investment portfolio. This portfolio is managed within a single Group – with five sub-portfolios based on industrial logic and management of the Micro Focus sub-portfolios: Application Modernization & Connectivity, Application Delivery Management, IT Operations Management, Security and Information Management & Governance. The software is sold and supported through a geographic Go-to-Market organization.including:


-
IMG: new unified SaaS offering, Vertica Accelerator, delivers high performance and scalable analytics as well as end-to-end, in-database machine learning.

-
ITOM: released OPTIC (Operations Platform for Transformation, Intelligence and Cloud), empowering IT operations with built-in, unlimited-use intelligence at the core and the ability to optimize the cloud. Additionally, revitalized roadmaps to focus on the delivery of artificial intelligence and SaaS capabilities.

-
ADM: delivered material improvements to our SaaS offerings, launching a number of native cloud solutions;

-
AMC: made continued progress with our AWS relationship and are a strategic partner enabling their new AWS Mainframe Modernization service.

-
CyberRes: in data security integration with Amazon Macie provides a new and unique solution to allow AWS customers to automate data-centric protection onto data discovery, classification, and remediation processes. New SaaS capabilities in Identity Management enable customers to exploit new use cases and advanced analytics enable threat detection and remediation at scale with ArcSight.

Item 4.B.2 Principal markets

Details of the principal markets in which the Group operates including a breakdown of revenue by activity and geographic market is disclosed in note 2 “Supplementary Information” of the Consolidated financial statements in Item 18.


Our markets
Today’s technology landscape
Digital transformation has been at the top of virtually every organization’s list of objectives for several years. Often, it represents a foundational program of technology change to underpin a significant business change.

Leveraging enterprise technology to embrace organizational change is not a new phenomenon. However, few will argue that the recent past has been a uniquely difficult period. Significant changes to customer behavior, staff locations, supply chains, technology strategies, and market trends have introduced tremendously diverse, time-critical requirements on the IT organization. Many consider the last two years to be the most dramatic chapter yet in the digital transformation era.

Change often necessitates investment. Rather than tapering off after enterprises reacted to the challenges presented by the pandemic, spending on solutions in the digital transformation space is expected to continue to increase at a solid pace. “From 2021 through 2024, IDC forecasts $7.8 trillion of direct digital transformation (DX) investments across services, hardware, and software; growing at a 16.4% compound annual growth rate (“CAGR”) vs (0.1%) CAGR reduction for non-DX investments over the same timeframe,” according to Shawn Fitzgerald, Research Director, Worldwide Digital Transformation Strategies.

Major investment in change also carries significant business risk. It is difficult to switch from what’s tried-and-true to new technology when it could significantly disrupt the flow of everyday business. Still, organizations need a way to enhance the customer experience, accelerate new business models, and foster rapid growth. They just want certainty before they press the “go” button.

In the end, IT leaders must find a strategy that allows them to continue to invest in digital transformation, while still protect existing operations that are already under significant strain. Enterprises need to be in it for now and for the future. A successful transformation strategy is more imperative than ever before.

This is our customers’ digital dilemma – how to run and transform their business at the same time so they can achieve the critical elements of a successful digital transformation program. Micro Focus helps organizations simultaneously manage both the existing operational landscape, and emerging technology and innovation requirements of the future.

17
Digital transformation
Digital transformation touches virtually every corner of the organization, and technology priorities often vary among numerous stakeholders. We find there are four key outcomes that our customers demand.

Accelerate Application Delivery
Customers can employ Agile and DevOps practices supported by value stream management capabilities to sustain delivery velocity requirements as operations run.

At the same time, they can create digital value – from strategy through release – as they transform using AI and machine learning to deliver high-quality applications at scale.

Simplify IT Transformation
Customers can simplify the complexity of running a mix of traditional and cloud services by taking a Digital Factory approach to running today.

With a unified platform for IT operations, they can integrate or replace incompatible tools collected over decades – freeing up resources and accelerating transformation.

Strengthen Cyber Resilience
Customers can protect what matters most by detecting threat actors, responding to advanced threats, and recovering from an attack, as their operations run today.

Then they can evolve at the speed of change using security analytics for hybrid environments to help their organization transform.

Analyze Data in Time to Act
Customers can unify their analytics today, without moving their data to one place so they can run their analytics practice more efficiently.

As they transform their organization to grow, they can ensure they’re able to support more users and greater data volumes with the highest performance at scale for accurate and actionable predictive insights.

Item 4.B.3Seasonality

Micro Focus’ quarterly revenues have historically been affected by a variety of seasonal factors typical of the seasonality of an enterprise software business with a licenselicence fee model and the industry in which it operates.


The operating margins of its businessesthe Group are generally affected by seasonal factors in a similar manner because its base ofthe Group has largely fixed costs remainswhich remain consistent throughout the year. Micro Focus believes that this trend will continue in the future and that its total revenue will continue to peak in the fourth fiscal quarter of each year. In aligning the financial year end of the Enlarged Group to October 31 following Closing in the prior year, Micro Focus the fourth quarter license fee peak moved from April 30, 2018 to October 31, 2018. Maintenance and subscription fee renewals are spread throughout the financial year, however, there is a seasonal peak in the quarter ending January 31 as a result of the calendar year end, which coincides with the financial year-end of a large number of other companies.

The Micro Focus Strategy and Business Model

The Group has undertaken the most comprehensive review of the business since 2011. A leading Global Investment Bank and other specialist advisors supported the work undertaken.
The review covered:


-
Evaluation of the full range of the strategic alternatives for value creation; and



Item 4.B.4		-
An assessment of where the Group stands now in of its efforts to fully integrate the HPE Software business and the overall execution capability within the Company and the improvements required to accelerate progress
Raw Material

In order
Not applicable

Item 4.B.5

Go-To-Market
We have restructured our Go-to-Market teams, moving from three distinct geographic organizations to enable better clarity and provide the necessary context, a summary of the key issues, the progress made within this reporting period and the outcome of the review is set out below.

Assessment of Key issues and Progress to Date

The key issues that have emerged related to overall execution, market changes and the integration of the HPE Software business acquisition. All of these issues are understood in detail, progress has been made and there is clear visibility of what remains to be done in the near term.one consistent global approach. This is set out below.

1.Operational Systems and Business Processes

The HPE Software business acquisition presented the typical challenges associated with makingenabling us to build deeper, more specialist skills that are better aligned by product portfolio. This is underpinned by a largemanagement system aimed at ensuring improved consistency of execution and complex acquisition and significant additional complexities relating specifically to this being a carve-out of a division from a much larger parent.

To enable this “carve out”, HPE designed and initiated the build of new IT systems, new business processes and identified the key functions and people required to support a standalone organization. The adoption of these purpose built systems and business processes across the enlarged group was one of the key benefits expected from the acquisition.

In reality, the systems were proven to be not fit for purpose, the business processes were overly complex, and the organizational design was highly fragmented. This has continued to have a material impact to core business operations, execution levels and overall productivity.

The Group has deployed significant resources to stabilize these systems and in parallel execute a comprehensive programme of work to address the more structural changes required.

The objective of these changes is to deliveraccountability, supported by a single set of business applicationssales tools and infrastructure built on simplified or completely re-designed business processes whichimproved data accuracy.

Whilst further improvements are anticipatedrequired to drive operational improvementsachieve the levels of productivity and efficiencies.effectiveness we believe possible, the foundations are now in place to support delivery of this goal.


Notable progress includes:


-
The design, build and deployment of a fully standalone IT hardware infrastructure was completed on time and budget. This significant and critical undertaking allowed us to migrate from the shared environment with HPE.

-
Organizational consolidation in each of the Finance and HR functions has advanced and will consolidate operations from more than 60 locations into 5 global and regional Centers of Excellence to enable effective scale, lower costs and efficiency.

-
Rationalization of our legal entity structure and standardization of company policies and processes. When complete the Group expects to simplify the Group structure from over 300 companies to approximately 100 which will bring significant improvements in efficiency and cost.

The remaining major work item isAdditionally, we have invested in building a dedicated customer success team and increased the completionnumber of specialist resources within our Maintenance Renewals and Professional Services teams. These actions are intended to help accelerate customer adoption of the projectproduct innovation and improvements delivered in the past year and planned for this year. Compared to build the single business application architecture. When complete this work12 months ago each of our product portfolios is expected to deliver the platform for materially improved execution through more streamlined business operationsbetter positioned competitively and effective scale to drive operational and cost efficiencies creating a platform for future growth.

2. Go-to-Market Organization

Through multiple acquisitions, the business has inherited a mix of regional and product orientated go-to-market models. These differences have led to inconsistent approaches to customer engagement and the associated deployment of resources and when combined with the systems issues outlined above impacted overall levels of execution and predictability of performance. This led to reduced productivity and elevated levels of staff attrition.

Progress has been made in stabilising staff attrition and hiring levels have increased to drive towards stable sales headcount. The process of on-boarding new people has been improved and investments made in better enablement and training to reduce the time it takes to get new sales teams fully productive. Investments have also been made in delivering tactical improvements to systems and reporting tools whilst replacement business systems are developed.

The approach to date has been to drive improvement through iterative and incremental change. This has now been replaced by a more accelerated approach in order to drive fundamental changes on a global basis to deliver the necessary improvementsaligned to the organisation. The new model and approach is summarised later in this section.

3.Product Portfolio

The operating model for product development drove “siloed” execution leading to disconnected strategies and limited cross- portfolio leverage of skill or capability. Customer engagementgrowth opportunities that exist in the development of product strategies was insufficient and resulted in product roadmaps that did not fully exploit the advantages of significant customer installed bases and strong market positions. This combination led to reduced adoption of our latest technology which in turn limits our ability to cross and upsell.marketplace.

The operating model has been re-structured to drive collaboration and the leverage of innovation across portfolios to both strengthen existing offerings and reduce time to market. Core product roadmaps have been re-shaped in every portfolio with the major remedial, corrective actions in product design now complete.

The improved collaboration enabled our product teams to deliver over 500 product releases during the period with examples of this more customer centered innovation being delivered. Notably:



-
New Robotic Process Automation, Artificial Intelligence and

-
Natural Language Processing capabilities,

-
Delivering container technology to enable flexible deployment,

-
User, Entity & Behavioural Analytics capabilities to enhance security capabilities

-
Enabling customers to process huge volumes of data in the cloud or within their own environment but with cloud scale economics.

The immediate execution focusPartners
Our global network of more than 7,500 authorized partners is to ensure customers fully understand our product strategy and are able to deploy our latest technology releases successfully.

4.Revenue Composition & Alignment to Strategy

Professional services revenue has needed to be realigned to supportat the heart of what makes Micro Focus successful. Ensuring the highest level of customer satisfaction depends on exceptional product strategy rather than to generate standalone services revenue and somesolution implementation together with the exclusive skills and knowledge that our partners deliver. In 2021 we were recognized for the third consecutive year with a 5-star rating in the CRN Partner Program Guide.

When you consider all of the key SaaS offerings were not engineered correctly to create a profitablepeople, processes, and sustainable source of incremental revenue.
The amount of revenue impacted and the actions and time required to correct this were greater than the Group initially anticipated but there is now a clear path to completion.

Professional services revenue has been broadly stable for the last 3 quarters and is on track to be stable on a year-over- year basis by the end of the 12 months ended October 31, 2020 (“FY20”). The remedial product roadmap work for the impacted SaaS offerings is complete and the remaining activities will be completed within the next six months. Impacted customers now have a clear path forward and delivery of the transition is driven by customer demand.

STRATEGIC & OPERATIONAL REVIEW: CONCLUSIONS AND NEXT STEPS

The Strategic & Operational review is substantially complete, and in the opinion of the Board, has confirmed that:


-
The fundamentals underpinning the Group’s model and approach remain valid


-
The Group underestimated the challenges that have emerged in the integration of the HPE Software business.


-
The key issues in relation to execution and integration are understood in detail, progress has been made and there is clear visibility of what remains to be done and this now needs to be driven to conclusion


-
Whilst the Group has been addressing these challenges, the pace of change within the Enterprise software market has accelerated and the Group now needs to evolve our business model to capture the opportunities for significantly improved performance that exist within a number of our portfolios

Given the above and having completed a full evaluation of the alternative strategic options available, the Board has concluded that, at this time, the greatest opportunity for value creation is through the successful execution of the following key initiatives:

Evolve – our operating model

Objective: improve product portfolio positioning and external visibility

Given the pace of change in our industry the Group needs to both accelerate and improve the visibility of our product strategies and drive a more differentiated approach to operational management and investment levels in certain portfolios.

When the Group acquired SUSE as part of The Attachmate Group, the Group recognised the need to run this portfolio differently and essentially as a separate business. The market opportunity for Security and Big Data is such that a similar, differentiated approach to investment and operational management will be adopted for these product lines.

Over the medium term the Group’s goal is to develop broadly autonomous businesses operating within the Group. This will happen in two phases and take 12-24 months to complete. During the first phase the Group will re-align organizational structures, build new capability within these portfolios and re-focus product and market positioning where required. In phase two the Group plans is to run these portfolios broadly autonomously and report performance discretely within the overall Group performance updates.

Accelerate – transition of certain portfolios to SaaS or subscription based revenue model

Objective: Improve portfolio positioning and revenue composition

The Strategic & Operational review has highlighted the need for a more definitive approach and accelerated transition to Subscription and SaaS based offerings as part of the Group’s future portfolio strategy. The transition will be managed over multiple financial periods with an initial focus on products where this model is the emerging or de-facto market standard.

The Group’s goal is to deliver incremental improvements in revenue trajectory alongside a structured and disciplined transition to SaaS and Subscription for some of our products. During FY20 the Group will begin the transition of Vertica, seek to grow existing and introduce new offerings in Security and build upon existing initiatives in ADM and ITOM with accelerated progress in these portfolios during 2021.

Driving this transition more systematically and faster will lead to improved competitiveness, higher contract value and customer retention rates combined with greater revenue predictability.

Transform – our Go-to-Market function

Objective: Improve overall productivity and predictability of performance

In order to drive consistent and sustained improvements in sales effectiveness a more fundamental restructuring of our go-to-market organisation is now underway. The Group has now accelerated the implementation of a new global operating plan and management system, supplemented by improved infrastructure and a single, consistent sales methodology and investment in the enablement of our teams. The goal of which is to drive significantly improved and increased levels of customer engagement.

Effective execution should over time ensure our resource alignment is better optimised to the opportunities in the marketplace for the Group’s portfolio and drive productivity improvements, improve renewal rates and exploit cross-selling opportunities within our broad portfolio.

Complete – core systems and operational simplification priorities

Objective: deliver the operational systems and business processes that form the platform for operational effectiveness and efficiencies

The review confirmed the critical priority of driving the Group’s systems work to successful conclusion to capture the significant operational improvements and associated efficiencies evident and achievable within the business.

The major piece of structural work outstanding is the project to deliver the single set of business application systems architecture required to fully integrate our business operations.

The Group is encouraged with progress made to date but as previously communicated this is a complex multi-period IT project, further complicated by our SOX requirements which limits the opportunity to make substantial system changes in the second half of FY20. As such a decision on whether the Group executes in line with the Group’s timetable or have to re-phase will be made in the second quarter and communicated as part of the Group’s interim results.

Business Model

The typical stages of a product life cycle are from new product introduction through to high growth to broad adoption and maturity, to decline and ultimately obsolescence.

The Group delivers trusted and proven enterprise software that helps customers address the four core pillars of digital transformation: Enterprise DevOps, Hybrid IT Management, Security, Risk & Governance and Predictive Analytics. This is accomplished not by chasing unproven opportunities, but instead by taking a customer-centric approach to investment and innovation and delivering software that addresses specific use cases that allow our customerstechnology needed to run and transform an enterprise, very few organizations have all of the in-house resources and knowledge required to achieve their goals. Our extensive and strong partner network allows our customers to access the very specific skills and specialisms needed to fill any internal gaps they might encounter, no matter the industry or vertical, wherever they may be around the world. It also allows them to access flexible delivery and consumption models. Whether customers are looking for on-premise, hybrid, or SaaS implementations, our partners can deliver the scenario that works best.

Most of all, our partners inspire confidence and trust in Micro Focus products and services. Our partners have the expertise our customers need to solve their digital dilemmas – running their businesses while also protecting the investments they have already madetoday and transforming them for tomorrow’s opportunities.

Product groups
Our product groups operate in our offerings. In addition, the Group delivers solutions that are openhighly competitive markets with often specific challenges and integrated,opportunities. By moving to this product group operating model (see Item 5.D) we aim to enable more agility and help bridge existingeffective execution within each product group in responding to these challenges and emerging technologies. This combination allows customers to build an eco-system that serves their long-term needs and ultimately achieve lasting success in an ever-evolving marketplace.opportunities.


Current portfolio – underpinning the business model and clear execution and investment discipline

When considering investment priorities, both organic and inorganic, the Group first assess how added resourcesAs a result, this will influence the Group’simprove our ability to deliver value withininnovation into the four core pillarshands of digital transformation. Thencustomers.

During the year ended October 31, 2021 we made good progress in repositioning our product portfolio and changing our Go-to-Market approach (see above); the next phase is to evolve our business model to be much more product portfolio-centric end-to-end.

The aim over the next two years is to align the Group evaluates its options within eachby product portfolio, against a set of characteristics mapped to each stage of the adoption cycle, as represented in the table below.

New Models
Products (Robotic Process Automation) or consumption models (cloud) that open new opportunities could become growth drivers or represent emerging use cases that the Group needs to be able to embrace.
Growth Drivers
Products or enabling technology (Artificial Intelligence/ Machine Learning) with consistent growth performance and market opportunity to build the future revenue foundations of the Group.
Optimize
Products with declining revenue performance driven by the market or execution. Investments directed to correct trajectory to move back to the core category or focused to optimize long-term returns.
Core
Products that have maintained broadly flat revenue performance but represent the current foundations of the Group and must be protected and extended.

How the Group runs the business

Core to the Micro Focus strategycreating specialist and operating model is the consistent delivery of “customer- centric innovation”. By delivering enterprise software that meets customers’ needs,focused execution capability by Product Group. Better alignment, specialist skills and by allowing them to leverage their current investment while also taking advantage of the latest innovations, and applying emerging technologies (e.g. Artificial Intelligence/Machine Learning), Micro Focus helps customers derive added and sustained value and respond to changes in the marketplace much quicker without the need to re-skill the workforce and/or invest in cumbersome upgrades.

The Group’s success starts with a deep portfolio of intellectual property, and requires investment discipline, methodicalmore focused execution and a keen attention to delivery in all stages of the software lifecycle. The end result for customers is sustained long-term value, for the Group’s employees it offers a challenging and dynamic workplace and for our investors this leads to robust margins, value creation, and meaningful return on investment.

The customer proposition
What sets us apartWhat drives our business
What this means for our
customers
Strong products and intellectual property with a track record of customer success
The Group’s technology is trusted and proven in the market, and deeply embedded in customers’ core business systems and processes.
Bridging now and next
The Group bridges the now and the next, future-proofing existing customer investments and enabling them to address new problems and take advantage of emerging technologies.
>
Improved return on investment and reduced risk
so customers can extend productive use and maximize return on investment (“ROI”) and derive ongoing value without causing large scale disruption to the ongoing business needs.
Broad portfolio
While the Group’s portfolio is broad, the Group has focused its efforts to ensure that it is aligned around the key problem areas for customers. This allows the Group to deliver solutions across the four core pillars of digital transformation, which is a topic that is top-of-mind in virtually every boardroom
Intelligent innovation
The Group makes smart and informed decisions about where and when to invest to ensure that the right trade-offs are made and the right innovations are delivered to customers in a consumable way across a variety of consumption models.
>
Greater agility
so customers can ensure they are responding rapidly  to market demands across a broad spectrum of domains in a way that works for their budget and planning.
Customer-centric innovation
The Group takes the time to listen to customers and fully understand their needs and use cases so that the Group can deliver solutions which meet their needs in the context of their operating environment.
The four-box model
The Group’s investment priorities consider opportunities in all stages of the product lifecycle to ensure that the Group maximizes the value delivered to the customers over the entire life of a product and in the context in which it will be used.
>
Reliability and scalability
so customers can scale to the needs of the enterprise while trusting that the solutions they are investing in will continue to evolve as the market and their needs change – thus allowing them to deliver on their current needs and adapt and change tomorrow.


What this means for our investors
What sets us apartWhat drives our businessWhat this means for our investors
1
The Group operates at size and scale
As one of the world’s largest enterprise software providers, the Group has economies of scale – leveraging shared functions and resources across our portfolio.
A disciplined financial operating model
The Group has a broad, highly experienced management team, skilled in applying the Micro Focus financial and operating model to help enable effective and timely decision making.
>
Return on investment
Industry-leading operating margins and meaningful shareholder returns over the long-term.
2
Highly cash generative portfolio
The Group has a broad portfolio of products with significant market positions and high switching costs. This generates significant recurring revenue streams and cash generation.
Efficiency in capital allocation
Efficient investment in capital whether organic or inorganic.
>
Cash returns
Exceptional levels of cash generation and returns to shareholders.

Marketplace

Digital transformation is a necessity for market success

The software marketplace is rapidly evolving. A combination of technology advances, evolving customer expectations, process evolutions (e.g. digitization) and new business models are forcing executives to rethink prior IT strategies.

Until recently, these executives had to make top-line/bottom- line tradeoffs in determining how to evolve – deciding between investments that would help the organization derive value and those that will help optimize costs and manage risk.

Powering digital transformation

With the stakes so high and so many variables to consider, IT executives have to prioritize what will have the greatest impact to their businesses. Typically, four core elements are identified that they wish to achieve with their digital transformation initiatives: they want to move faster, have greater agility as an organization, secure what matters most, and leverage insights to streamline processes, speed decision making and drive value. These four core pillars align directly to established – yet historically disconnected – software markets: Enterprise DevOps, Hybrid IT Management, Security, Risk & Governance and Predictive Analytics.

Because digital transformation initiatives often overlap, organizations today are not just looking for software providers that can deliver these solutions in isolation, but instead can deliver a holistic and integrated set of offerings across these pillars.

With a broad portfolio that addresses all four core pillars of digital transformation, Micro Focus is in a strong position to deliver on customers’ primary digital transformation objectives.

HOW THE GROUP SUPPORTS EACH OBJECTIVE

Speed
Deliver at high speed with low risk
Enterprise DevOps
DevOps is essential to the Digital Transformation of a business and is a foundational change in how an organization delivers value to its customers. With Micro Focus, organizations can reliably scale DevOps across all environments, from mainframe to cloud – quickly bringing innovative ideas to life at the pace your business demands. Now speed and quality can go hand in hand.
Agility
Simplify your IT transformation
Hybrid IT Management
Diverse, unpredictable, and constantly changing, hybrid IT brings with it a new level of complexity that cannot be controlled by conventional management methods. With our solutions, customers can simplify that complexity and transform IT into an agile, services-driven organization. Business success in our digital-first world depends on it.
Security
Secure what matters most
Security, Risk & Governance
Cyber threats are escalating. Aging apps and processes (along with new ones) are full of unforeseen risks. Privacy and compliance requirements are mounting. And point solutions don’t offer the scope, vision, or cross-silo analytics needed for these Company-wide challenges. With our solutions, you can take a holistic, analytics-driven approach to securing what matters most – identities, applications, and data.
Insights
Analyze in time to act
Predictive Analytics
Lakes of data are valuable only if you can surface the insights hidden within their depths. With our solutions, you can leverage machine learning to transform unlimited volumes of data into accurate, actionable, automated insights – at the speed of your business. Now you’re ready to make predictions and influence business outcomes.

Building on the existing strength of this broad portfolio, Micro Focus has taken the next critical step in adapting to customer needs and delivering integrated solutions. Significant investments have been made to leverage intellectual property across product groups and to solve more complex challenges, including embedding our Vertica big data analytics  platform into a number of solutions and combining portfolios to address broad-reaching privacy/GDPR requirements. The Group also provided customers with more choice in terms of consumption models (e.g. Software as a Service) and new offerings (e.g. Robotic Process Automation) to address the changing market demands

Product groups
The Micro Focus Product Portfolio consists of five product groups as set out below. Our product groups are uniquely positioned to deliver a holistic set of digital transformation solutions, while helping customers optimize their existing software investments.

Application Modernization & Connectivity (AMC)

Micro Focus’ Application Modernization and Connectivity solutions help customers unlock business value across a hybrid IT infrastructure. With software that is optimized to bridge the old and the new, these solutions help modernize core business systems – e.g., moving mainframe to the Cloud – to ultimately lower cost and improve speed and agility.agility in the market and better position our portfolios to succeed. The aim is to support these specialist units through centres of excellence as we aim to balance focus with delivery of economies of scale.

Case Study: Advanced

The Challenge:
This software and technology vendor wanted to bring a new SaaS accounting offering to market that had both scalability and high-availability built in. With millions of lines of code, rewriting was never an option – instead the company needed to evolve its offering to the Cloud.

Products and Services:


Item 4.B.6		-
Micro Focus Visual COBOL
Patents, licenses, industrial, commercial or financial contracts

With nearly 40% of our employee base dedicated to R&D, we were able to integrate the latest technology into more than 1,000 product releases in the year ended October 31, 2021. Details of the Groups key financial contracts are included in Items 5.B and 10.C.

Item 4.B.7

Not applicable

Item 4.B.8

Not applicable


Item 4.C		-
Micro Focus COBOL Server with Docker Container support
Organizational structure


Results:

-
Accelerated on-boarding of new customers – from days to minutes

-
Streamlines DevOps processes with continuous testing and deployment

-
Expedited time-to-market with Docker-based deployment to AWS

-
Integrated with a choice of RDBMS, including open-source

Application Delivery Management (ADM)

Micro Focus’ Application Delivery Management solutions help organizations build an integrated, end-to-end software delivery process to achieve speed without compromising quality. By employing Artificial Intelligence (AI) and advanced analytics, and fostering automation and collaboration, Micro Focus enables IT and product teams to quickly bring ideas to life – regardless of their methodology, technology or delivery model.

Case Study: McGraw Hill

The Challenge:
This multi-national educational publisher found that managing test assets and load generators was a time-consuming operation, where issues and errors caused unacceptable delays and impacted market reputation.

Products and Services:

-
Micro Focus LoadRunner Cloud

Results:

-
Automated testing to speed up processes and reduce time-to-market

-
Reduced project duration by eliminating the need to re-do work

-
Increased test levels to improve application quality

-
Freed up staff to conduct more creative engineering work

IT Operations Management (ITOM)

Micro Focus ITOM solutions simplify the complexity of managing hybrid IT environments. They are built to accelerate the service fulfilment lifecycle, strengthen IT service assurance and governance, and help business users easily engage with IT. Powered by analytics and automation, they seamlessly connect Micro Focus and third-party solutions to enable IT transformation in support of digital transformation.

Case Study: Vodafone

The Challenge:
One of the world’s leading mobile communications providers needed to align IT closer to the business, as well as deliver new services fast by automating hybrid IT monitoring and achieving end-to-end visibility.

Products and Services:

-
Micro Focus Operations Bridge

Results:

-
Reduced alarms by 70%

-
Minimized noise levels through event correlation and consolidation

-
Improved team collaboration with DevOps approach

-
Increased focus on development and service enhancement

Security

Micro Focus Security software helps organizations take a holistic, relationship-based, analytics-driven approach to securing what matters most – identities, applications, and data. Common use cases include using these solutions to govern privileges, to enforce access controls, to unity identity stores, to embed strong security and best practices into DevOps processes, and to discover data, determine access, and guard it wherever it resides.

Case Study: Dubai Electricity and Water Authority

The Challenge:
The energy and utility organization, based in the United Arab Emirates, needed to merge its Information Technology and Operation Technology initiatives so that data could be shares between systems and improve threat intelligence and device monitoring.

Products and Services:

-
Micro Focus ArcSight Data Platform

-
Micro Focus ArcSight Enterprise Security Manager

-
Micro Focus ArcSight Investigate

Results:

-
Reduced security alarms by 30%

-
Increased risk mitigation rate to 98%

-
Condensed meter fraud with AI-driven detection

-
Achieved 99% device availability through increase visibility

Information Management & Governance (IM&G)

Micro Focus’ Information Management & Governance solutions help customers analyze, understand and control data – to derive value and manage risk associated with enterprise information. Solutions are typically used to address privacy, compliance, and governance requirements, as well as to attain actionable insights that enable customer behavior analytics, cognitive search, and Internet of Things operations, and security analytics.

Case Study: University of Bern

The Challenge:
One of the largest universities in Switzerland found that, without its own file-sharing system, its academics were instead using third-party offerings. This practice compromised security and placed the university and the individuals at risk.

Products and Services:

-
Micro Focus Filr Advanced Edition

Results

-
Enhanced collaboration, facilitating teaching and research

-
Reduced reliance on third-party file-sharing services, minimizing information security risks

-
Improved data protection with complete control over storage and access


Item 4. C.Organizational structure.

The Group is organized to make software, sell software and support software. The Group’s parent company is Micro Focus International Plc, whose shares are listed on the London Stock Exchange. The Company’s American Depositary Shares (the “ADSs”) are listed on the New York Stock ExchangePlc.

As at October 31, 2019, the Group had a presence in 48 countries worldwide and employed approximately 12,100 people.


A full list of the Group’s subsidiaries can be found in Exhibit 8.1note 34 “Related undertakings” of the Consolidated financial statements in Item 19.18.


19
Item 4. D.4.DProperty, plantsplant and equipment.


The Group owns or leases various offices under non-cancellable operating lease agreements. Thea large number of properties, owned or leased and operated by the Group’s subsidiaries are maintained in good condition and are believed to be suitable and adequate for the Group’s present needs.over 40 countries worldwide. The Group’s headquarters are located at premises in Newbury, England.England and are owned by the Group. The Group owns or leases properties amounting to over 2.4 million square feet of space, in over 40 countries worldwide. Twohas two individual leased properties which are material to the Group. One is located in Provo, Utah, where the Group currently leases approximately 405,700 square feet of office space.  The lease onGroup has recently concluded negotiations with the landlord for this facility for which the lease was set to end in 2024 to extend the lease term with a reduction in floor space in stages. In February 2022 an initial reduction to approximately 239,100 square feet, then from June 2024 to approximately 219,900 square feet with a further reduction in floor space from December 2024 to approximately 142,300 square feet. This new lease agreement expires in 2024,2034, with an option to extend for a further three, 5-yearfive-year periods. The Group’s current annual rent under this lease is $8.2 million.$8.7 million (2020: $8.4 million) and this will reduce as the floor space reduces to $5.3 million per annum in February 2022 and $3.6 million per annum from December 2024. Since March 1, 2019, part of the property has been sublet. Current annual sub-lease income is $1.0 million.$1.1 million (2020: $1.1 million).  The othersecond property is located in Santa Clara, California, where the Group currently leases approximately 635,000 square feet of office space. The lease on this facility expires in 2029, with an option to extend for one further 5-yearfive-year period. The Group’s current annual rent under this lease is $4.6 million.$4.9 million (2020: $4.7 million). The Group is currently not utilizing one and a half floors of this facility and the related right-of-use assets has been tested for impairment with a partial impairment recorded.


TheFurther information set forthon property, plant and equipment and leases is included under the headings:


“Property, plant and equipment” in note 12 of the “Notes to the consolidatedConsolidated financial statements”statements in Item 18;


“Operating lease commitments – minimum lease payments”Leases” in note 3419 of the “Notes to the consolidatedConsolidated financial statements”statements in Item 18.


As a result of the disposal of the Digital Safe business which completed on January 31, 2022 leases with right-of-use assets of $27 million will be sub leased to Smarsh Inc. from January 31, 2022.


Item 4A.Unresolved Staff Comments


There are no unresolved written comments from the SEC staff regarding its periodic reports under the Exchange Act received more than 180 days before October 31, 2019.2021.


3020
Item 5.5Operating and Financial Review and Prospects


The following discussion and analysis is intended to provide investors with an understanding of the historical performance of the Company and its financial condition. This discussion and analysis presents the factors that had a material effect on the results of operations of Micro Focusthe Group for:


the 12 month periodyear ended October 31, 2019,2021, as compared to the 18 month periodyear ended October 31, 2018;2020, and
the 18 month periodyear ended October 31, 2018,2020, as compared to the 12 month periodyear ended April 30, 2017.
October 31, 2019.


The following discussion and analysis contains forward-looking statements. See “Risk Factors” in Item 3D on page 7 and “Cautionary Statement on Forward-Looking Statements”Statements’’ on page 5 in this Annual Report on Form 20-F for a discussion of the uncertainties, risks and assumptions associated with these statements. The following should be read in conjunction with the Group’s consolidatedConsolidated financial statements and the notes thereto included in Item 18.

Item 5.AOperating results

Business Overview

This Annual Report covers the year ended October 31, 2021 with the comparative periods being the years ended October 31, 2020 and 2019.

The following discussion and analysis contains forward-looking statements. See “Cautionary Statement on Forward-Looking Statements’’ on page 5 and “Risk Factors”discussions for the year ended October 31, 2020 as compared to the year ended October 31, 2019 can be found in Item 3D on pages 10 to 15 in thisItems 5.A of the Group’s Annual Report on Form 20-F for a discussion of the uncertainties, risks and assumptions associated with these statements.

Item 5. A.
Operating results.

Business Overview
This annual report covers the 12 monthsyear ended October 31, 20192020 which is available at https://www.microfocus.com/media/investors-report/form-20-f-for-12-months-ending-the-31-october-2020-report.pdf and has been filed with the comparative periods beingSEC.

As disclosed in item 4 subsequent to October 31, 2021 on November 3, 2021 the 18 monthsGroup announced the agreement of definitive terms to sell its Archiving and Risk Management portfolio (the “Digital Safe business”) to Smarsh Inc., for a total cash consideration of $375m. During the year ended October 31, 20182021 the Digital Safe business generated revenue of $108m which are reported in the IM&G product group and 12 months ended April 30, 2017.

The Group has undertaken one material corporate development activity within SaaS and other recurring revenue. This disposal completed on January 31, 2022. Therefore, in the 12 monthsyear ended October 31, 2019:2022 results from the Digital Safe business will only be included, in continuing operations, from October 31, 2021 to the January 31, 2022 when the disposal completed.


•          On August 21, 2018, shareholders voted to approve the proposed transaction wherebyMarch 2, 2021, the Group agreedsigned a commercial agreement with Amazon Web Services (“AWS”) to sell its SUSE Product Portfolio. On approvalaccelerate the modernization of this vote,mainframe applications and workloads of large public and private enterprises to the SUSE operating segment meets the definition of a discontinued operation under IFRS 5, which resultsAWS Cloud. This contract is expected to generate consulting revenue in the SUSE performance being excluded fromyear ended October 31, 2022 and software revenue in the individual line items ofyear ended October 31, 2023 and beyond. This revenue will be reported in the income statement and balance sheet. SUSE is instead included as a single line entitled “profits from discontinued operations” within the income statement and as an “asset held for sale” or “liability held for sale” on the balance sheet. The transaction was completed on March 15, 2019 and the SUSE business segment has been treated as discontinued in these financial statements.AMC product group.


Results of Operations

The results of operations should be read in conjunction with the consolidatedConsolidated financial statements included under Item 18 in this Annual Report on Form 20-F. The consolidatedConsolidated financial statements have been prepared in accordance with IFRS as issued by the IASB.


All narrative within this report focuses on the continuing operations unless otherwise stated. All narrative is presented based on results using actual exchange rates unless stated. The impact of foreign currency fluctuations is shown on page 29 where revenue is presented at actual and constant currency.


The results of the discontinued operationsoperation relate to the disposal of SUSE, which was disposed in the year ended October 31, 2019, are shown as a single amount on the face of the Consolidated statement of comprehensive income in Item 18 comprising the post-tax profit or loss of the discontinued operations and the post-tax gain or loss recognized either on measurement to fair value less costs to sell or on the disposal of the discontinued operation. The Consolidated statement of cash flows has been presented in Item 18 including the discontinued operations.operation. Results and cash flows of the discontinued operation for the threetwo reported periods are shown in note 3730 “Discontinued operation and assets held for sale” of the Consolidated financial statements in Item 18.


3121
12 monthThe amounts for the year ended October 31, 2021 and the comparative amounts for the year ended October 31, 2020 and 2019 exclude the discontinued SUSE business, disposed of in the 12-month period ended October 31, 2019, as compared to the 18 month period ended October 31, 2018

The Group changed accounting year end in the prior year from April 30, 2018 to October 31, 2018 as a result the comparative period is for the 18-month period ended on October 31, 2018. Therefore, substantial period-on-period decreases due to the shorter period of account in the current reporting period are shown. The presentation excludes the discontinued SUSE business from individual line items for eachpresented;

  
Year
ended
October 31,
2021
  
Year
ended
October 31,
2020
  
Period-
on-
period change
  
Year
ended
October 31,
2019
  
Period-on-
period
change
 
Continuing operations 
$m

 
$m

 %  
$m

 % 
Revenue  2,899.9   3,001.0   (3.4)%  3,348.4   (10.4)%
Costs of sales  (776.3)  (702.7)  10.5%  (789.9)  (11.0)%
Gross profit  2,123.6   2,298.3   (7.6)%  2,558.5   (10.2)%
Selling and distribution expenses  (1,344.6)  (1,112.1)  20.9%  (1,224.8)  (9.2)%
Research and development expenses  (521.8)  (513.6)  1.6%  (491.2)  (4.6)%
Administrative expenses  (522.8)  (3,334.0)  (84.3)%  (620.8)  437.0%
Operating (loss)/profit*  (265.6)  (2,661.4)  90.0%  221.7   (1,300.5)%
Net finance costs  (252.2)  (279.0)  9.6%  (255.8)  (9.1)%
(Loss) before tax  (517.8)  (2,940.4)  82.4%  (34.1)  (8,522.9)%
Taxation  82.7   (34.2)  341.8%  16.0   (313.8)%
(Loss) from continuing operations  (435.1)  (2,974.6)  85.4%  (18.1)  (16,334.3)%
Profit from discontinued operation  10.7   5.1   109.8%  1,487.2   (99.7)%
(Loss)/profit for the period  (424.4)  (2,969.5)  85.7%  1,469.1   (302.1)%

* Exceptional items of $247.1 million have been recorded with operating (loss)/profit in the reporting periods presented below.

The 18-month period toyear ended October 31, 2018 also only included 14 months of results for the acquired HPE Software business.2021 (2020: $3,011.6 million; 2019: $294.2 million)


  
12 months
ended
October 31, 2019
  
18 months
ended
October 31, 2018
 
Continuing operations 
$m
 

$m

Revenue  3,348.4   
4,754.4
 
Operating profit (before exceptional items)
  515.9   
915.0
 
Exceptional items
  (294.2)  
(538.2
)
Operating profit  221.7   
376.8
 
Net finance costs (excluding exceptional items)
  (255.8)  
(336.9
)
Exceptional finance costs
  -   
(5.8
)
(Loss)/profit before tax  (34.1)  
34.1
 
Taxation
  16.0   
673.1
 
(Loss)/profit from continuing operations  (18.1)  
707.2
 
Profit from discontinued operation
  1,487.2   
76.9
 
Profit for the period  1,469.1   
784.1
 


Revenue
In the 12 monthsyear ended October 31, 2019,2021, the Group generated revenue of $3,348.4$2,899.9 million, which represents a decrease of $1,406.0$101.1 million (29.6%(3.4%) on the $4,754.4$3,001.0 million in 18 monthsyear ended October 31, 2018.2020.


 
12 months
ended
October 31,
2019
  
18 months
ended
October 31,
2018
  
Period-on –
period
change
  
Year
ended
October 31,
2021
  
Year
ended
October 31,
2020
  
Period-on-
period
change
  
Year
ended
October 31,
2019
  
Period-
on –
period
change
 
Continuing operations 
$m
 

$m

 %  
$m

 
$m

 %  
$m

 % 
Licence
 800.0  
1,213.7
  
(34.1
)%
 688.6  646.5  6.5% 800.0  (19.2)%
Maintenance
 2,057.6  
2,861.6
  
(28.1
)%
 1,791.7  1,921.2  (6.7)% 2,057.6  (6.6)%
SaaS & other recurring
 279.7  
373.9
  
(25.2
)%
 239.8  245.5  (2.3)% 279.7  (12.2)%
Consulting
 217.9  
366.3
  
(40.5
)%
 179.8  188.4  (4.6)% 217.9  (13.5)%
Revenue before haircut 3,355.2  
4,814.5
  
(30.3
)%
 2,899.9  3,001.6  (3.4)% 3,355.2  (10.5)%
Deferred revenue haircut
 (6.8) 
(61.1
)
 
(88.9
)%
 -  (0.6) 100.0% (6.8) 91.2%
Total Revenue 3,348.4  
4,754.4
  
(29.6
)%
 2,899.9  3,001.0  (3.4)% 3,348.4  (10.4)%


Revenue in the table above and the subsequent trends in this section are presented before the impact of the deferred revenue haircut, which represents the unwinding of a fair value adjustment to acquired deferred revenue.

Period-on-period movements in revenue are not indicative of underlying trading performance as the current period is for the 12 months ended October 31, 2019 and the comparative period is for the 18 month period October 31, 2018 therefore, revenue shows a significant decline as a result of this shorter accounting period. In addition, partially offsetting the impact of the shorter accounting period on the percentage revenue declines, the results of Hewlett Packard Enterprise (‘‘HPE’’) are included for the full period in the 12 months ended October 31, 2019 where as they are only included for 14 months of the 18 month period ended October 31, 2018. The impact of the results of the HPE Software business acquisition has not been separately disclosed in this report as it is not practical to do so as it was been integrated into the Micro Focus Product Portfolio segment in the prior year and is not operated or reported separately.

As a result, the level of decline period on period, is not indicative of the underlying performance trend. However, the underlying trading performance of the four revenue streams if considered on a like-for-like basis would still show a declining trend in revenue in the period of review albeit to a lesser level. The underlying declining revenue trend in the period of review resulted from inconsistent execution and greater than expected complexities arising from the integration of HPE as well as volatile macro-economic conditions and changing buying behavior leading to the delay of customer investment decisions.

The narrative below focusses on the period-on-period decreases which are primarily driven by the short period of account.


Revenue by stream performance


Licence revenue decreased grew by $413.7$42.1 million (34.1%(6.5%) to $800.0$688.6 million in the 12 monthsyear ended October 31, 20192021 compared with $1,213.7$646.5 million in the 18 monthsyear ended October 31, 2018.2020.


Licence revenue, with growth of 6.5%, is underpinned by improvements in sales execution and the benefit of investments made in our portfolios as outlined in Item 4.B.

In particular (page 24):
Licence revenue in AMC increased by 12.0% in the year ended October 31, 2021. Growth in Licence revenue was underpinned by strong performance in mainframe modernization. No revenue has been recognized from the AWS contract in the year ended October 31, 2021.

Licence revenue in ADM increased by 4.0% in the year ended October 31, 2021. The licence revenue decrease primarily relatedGroup has made good progress in the repositioning of our ADM portfolio, after performance in the year ended October 31, 2021 was below expectations. This has led to the shorter period of account. In addition, underlying performance if considered on a like for like basis, would show a declinesmall increase in licence revenue in the year, continued to be impactedperiod.
22
Licence revenue in ITOM declined by operational issues impacting sales execution and, as such, performance volatility. In particular1.4% in the third quarteryear ended October 31, 2021. This performance reflects a moderation in the rate of revenue decline compared to  the year ended October 31, 2020 but remains below our medium-term expectations for the product group.

Licence revenue in CyberRes increased by 7.3% in the year ended October 31, 2021. Investments made in this product portfolio have resulted in new offerings and significant enhancements to existing offerings yielding growth in Licence for the portfolio and growth in total revenue for two of the financialfour sub-portfolios.

Licence revenue in IM&G increased by 17.3% in the year ended 31 October 31, 2021.This increase is primarily driven by growth in Vertica, the challenging macro environment resulted in a slowdown in customer purchases. This environment improved marginally inGroup’s Big Data offering. In the fourth quarter, but short-term volatility remainsthe Group launched Vertica Accelerator which is delivered in a continued risksubscription form as a managed service. The Group has made encouraging progress with this transition to subscriptions, with both bookings and new business in future trading periods.customers up substantially year-on-year.


The stabilization of licence revenue is a key objective of the Strategic & Operational Review and the steps outlined within Item 4. B of this annual report are the focus areas required to improve the performance in future periods.

Maintenance revenue decreased by $804.0$129.5 million (28.1%(6.7%) to $2,057.6$1,791.7 million in the 12 monthsyear ended October 31, 20192021 compared with $2,861.6$1,921.2 million in the 18 monthsyear ended October 31, 2018.2020.


The maintenance revenue decrease primarily relateddecline in the current year is impacted by a reduction in Licence volume over multiple previous financial periods combined with elevated attrition rates in four sub-portfolios. This is a major area of management focus for, and over the past 18 months the Group has implemented material changes across these product portfolios driven by direct customer feedback and focused on improving the overall user experience. There have also been significant new capabilities introduced to the shorter period of account.expand cloud, artificial intelligence and analytics capabilities. In addition, underlying performance if considered on a like for like basis, would show a declinemultiple leadership changes have been made within underperforming portfolios and the compensation of sales leadership is now linked to customer retention. These actions were embedded in revenue infirst half of the year was impacted by one-off events such as the disposal of Atalla and moving to selling to the US Government through a strategic partner rather than direct.

In addition, the HPE Software business transaction brought a greater than anticipated level of complexity, which has required us to address a range of specific legacy, issues which are taking time to work through. These have a distortive effect on the underlying trends within the business. For example, Winback initiatives, which the Group implemented to recover previous customer terminations, were paused for systems reasons and then restarted.

As such, the Group does not see the underlying decline if considered on a like for like basis to be indicative of our underlying maintenance revenue trendended October 31, 2021 and the Group anticipates anoperational metrics highlight early indications of improvement in the underlying renewal rates in the second half of the year ended October 31, 2021, however actions will take time to yield more material benefits.

The main movements at a portfolio level were (page 24):

Maintenance revenue in AMC declined by 1.8% in the year October 31, 2021. The year-on-year decline was impacted by licence performance in the year ended October 31, 2020;

Maintenance revenue in ADM declined by 7.0% in the year ended October 31, 2021. The maintenance performance in the period was driven by a weak licence performance in the year ended October 31, 2020 combined with an element of transitioning some customers to SaaS based solutions within our performance testing portfolio;

Maintenance revenue in ITOM declined by 9.2% in the year ended October 31, 2021. This performance reflects a moderation in the rate of revenue decline compared to the year ended October 31, 2020 but remains below our medium-term expectations for the product group. The improvements made to the product roadmaps and in refocusing resources are key to improving attrition in sub-portfolios which will impact overall performance if successful.

Maintenance revenue in CyberRes declined by 7.9% in the year ended 31 October 2021. This performance is driven by one single product portfolio where we witnessed elevated attrition rates. This product has had significant investment over the last 24 months resulting in material improvements to the underlying architecture and overall capabilities. It is now much better positioned competitively and we expect to drive a significant moderation in the overall rate of maintenance decline in future periods.the medium-term.


Renewal rates vary at a product level but acrossMaintenance revenue in IM&G declined by 4.7%. The decrease was partly driven by mix within the portfolio and weaker Licence performance in the Group continueprior year

The change in product mix combined with corrective actions explained in item 4.B.5 are intended to see renewal rates consistent with historical rates.drive a moderation in the rate of maintenance decline as part of the overall revenue stabilization plans.


SaaS and other recurring revenue decreased by $94.2$5.7 million (25.2%(2.3%) to $279.7$239.8 million in the 12 monthsyear ended October 31, 20192021 compared with $373.9$245.5 million in the 18 monthsyear ended October 31, 2018.2020.


TheAs discussed above on November 3, 2021, the Group announced the sale of the Digital Safe business. Included within SaaS and other recurring revenue decrease primarily relatedis $108.3 million of revenue for the Digital Safe business. The SaaS Digital Safe revenue declined approximately 8%. Excluding the Digital Safe business, SaaS revenue increased 3.1% year-on-year.

23
Consulting revenue decreased by $8.6 million (4.6 %) to the shorter period of account. In addition, underlying performance during the year if considered on a like for like basis, would show a decline in revenue$179.8 million in the year reflected deliberate actions taken by the Group to rationalize unprofitable operations and practices and refocus resources and investments to deliver the product enhancements required for long-term success. The resulting underlying recurring revenue decline if considered on a like for like basis was in lineended October 31, 2021 compared with the Group’s expectations during the current financial year, which will allow the Group to deliver a more sustainable expected growth in SaaS revenue at a higher profit margin in the medium-term.

As a result of the Strategic & Operational Review, outlined within Item 4. B, the Group will be accelerating the transition of certain aspects of the portfolio to subscription and SaaS revenue models. In the next financial year, the Group will begin the transition of Vertica to subscription and accelerate the transition of certain products within the Security portfolio to SaaS, before undertaking similar transitions in ADM and ITOM in future periods. This transition will be delivered over multiple financial periods in a controlled and disciplined manor prioritizing key products and will be undertaken alongside the intention to deliver incremental improvements in revenue performance year-on-year.

Consulting revenue decreased by $148.4 million (40.5%) to $217.9$188.4 million in the 12 monthsyear ended October 31, 2019 compared with $366.3 million in the 18 months ended October 31, 2018.2020. The repositioning of this revenue stream is now complete and is now focused on improving return on investment to new and existing customers supporting new Licence and SaaS installations.


The consulting revenue decrease primarily related to the shorter period of account. In addition, underlying performance during the year if considered on a like for like basis, would show a decline in revenue in the year, reflected a managed decline as the Group continued to focus only on consulting engagements that are directly related to the Group’s software portfolio.

In the 12 months ending October 31, 2020, the decline in Consulting will moderate as the actions undertaken in the current financial year conclude and the current and prior reporting periods will both be for 12 months.

Revenue by product group performance


The Group has more thanapproximately 300 products reported under five product groups. These productsInvestment decisions are managedmade at a granular level using applicationby product depending on their growth trajectories and the profile of markets they participate in and are intended to deliver the Micro Focus four-box model.greatest return on investment. The cyclical nature of the software order cycle means that when considering underlying revenue trends, year-on-year growth rates by portfolioproduct group are not always indicative of an underlying trend and will be impacted by the timing of customer projects. As such, revenue trends at the sub-portfolio level should be viewed over the longer term and revenue trends overall viewed in a similar fashion to that of a portfolio of funds.

The table below presents the revenue performance by product group and revenue stream. The main movements in licence and maintenance revenue by product group are discussed in the Licence and Maintenance commentary above.


12 monthsYear ended October 31, 2019:2021:
  Licence  Maintenance  
SaaS &
other
recurring
  Consulting  Total 
Continuing operations 
$m

 
$m

 
$m

 
$m

 
$m

AMC  155.3   315.9   -   10.3   481.5 
ADM  106.1   408.5   78.9   18.6   612.1 
ITOM  172.7   507.8   4.3   106.3   791.1 
CyberRes  174.5   383.9   36.3   29.1   623.8 
IM&G  80.0   175.6   120.3   15.5   391.4 
Subtotal  688.6   1,791.7   239.8   179.8   2,899.9 
Deferred revenue haircut  -   -   -   -   - 
Total Revenue  688.6   1,791.7   239.8   179.8   2,899.9 


  
Licence
  
Maintenance
  
SaaS &
other
recurring
  
Consulting
  
Total
 
Continuing operations 
$m
 
$m
 
$m
 
$m
 
$m
Application Modernization & Connectivity (AMC)
  170.9   326.1   -   11.7   508.7 
Application Delivery Management (ADM)
  130.3   485.4   87.8   18.2   721.7 
IT Operations Management (ITOM)
  237.5   645.8   11.0   127.5   1,021.8 
Security
  185.7   416.7   35.0   43.9   681.3 
Information Management & Governance (IM&G)
  75.6   183.6   145.9   16.6   421.7 
Subtotal  800.0   2,057.6   279.7   217.9   3,355.2 
Deferred revenue haircut
  -   (6.0)  (0.8)  -   (6.8)
Total Revenue  800.0   2,051.6   278.9   217.9   3,348.4 

The 18 monthsYear ended October 31, 2018 is shown in note 2 of the financial statements in Item 18.2020:
  Licence  Maintenance  
SaaS &
other
recurring
  Consulting  Total 
Continuing operations 
$m

 
$m

 
$m

 
$m

 
$m

AMC  138.6   321.6   -   10.1   470.3 
ADM  102.0   439.2   73.9   15.9   631.0 
ITOM  175.1   559.4   4.6   113.9   853.0 
CyberRes  162.6   416.8   33.6   33.1   646.1 
IM&G  68.2   184.2   133.4   15.4   401.2 
Subtotal  646.5   1,921.2   245.5   188.4   3,001.6 
Deferred revenue haircut  -   (0.4)  (0.2)  -   (0.6)
Total Revenue  646.5   1,920.8   245.3   188.4   3,001.0 


Percentage change from October 31, 2020 to October 31, 2021:
  Licence  Maintenance  
SaaS &
other
recurring
  Consulting  Total 
Continuing operations %  %  %  %  % 
AMC  12.0%  (1.8)%  -   2.0%  2.4%
ADM  4.0%  (7.0)%  6.8%  17.0%  (3.0)%
ITOM  (1.4)%  (9.2)%  (6.5)%  (6.7)%  (7.3)%
CyberRes  7.3%  (7.9)%  8.0%  (12.1)%  (3.5)%
IM&G  17.3%  (4.7)%  (9.8)%  0.6%  (2.4)%
Subtotal  6.5%  (6.7)%  (2.3)%  (4.6)%  (3.4)%
Deferred revenue haircut  -   100%  100%  -   100%
Total Revenue  6.5%  (6.7)%  (2.2)%  (4.6)%  (3.4)%

3424
Revenue by geography
The Group is domiciled in the UK. The Group’s total segmental revenue from external customers by geographical location is detailed below:

  
Year
ended
October 31,
2021
  
Year
ended
October 31,
2020
  
Period-on-
period
change
  
Year
ended
October 31,
2019
  
Period-
on –
period
change
 
  
$m

 
$m

 %  
$m

 % 
UK  160.0   173.0   (7.5)%  206.9   (16.4)%
USA  1,263.0   1,289.8   (2.1)%  1,523.0   (15.3)%
Germany  223.0   218.7   2.0%  220.7   (0.9)%
Canada  110.3   108.0   2.1%  115.9   (6.8)%
France  100.7   101.4   (0.7)%  123.3   (17.8)%
Japan  95.6   96.9   (1.3)%  108.6   (10.8)%
Other  947.3   1,013.2   (6.5)%  1,050.0   (3.5)%
Total Revenue  2,899.9   3,001.0   (3.4)%  3,348.4   (10.4)%

Operating costs


 
12 months
ended
October 31,
2019
  
18 months
ended
October 31, 2018
  
Period-on-
period change %
  
Year
ended
October 31,
2021
  
Year
ended
October 31,
2020
  
Period-
on-
period
change
  
Year
ended
October 31,
2019
  
Period-
on-
period change
 
Continuing operations 
$m
 

$m

    
$m

 
$m

 %  
$m

 % 
Cost of sales
 789.9  
1,302.7
  
(39.4
)%
 776.3  702.7  10.5% 789.9  (11.0)%
Selling and distribution costs
 1,224.8  
1,764.2
  
(30.6
)%
 1,344.6  1,112.1  20.9% 1,224.8  (9.2)%
Research and development expenses
 491.2  
680.8
  
(27.8
)%
 521.8  513.6  1.6% 491.2  4.6%
Administrative expenses
 620.8  
629.9
  
(1.4
)%
 522.8  3,334.0  (84.3)% 620.8  437.0%
Total operating costs 3,126.7  
4,377.6
  
(28.6
)%
 3,165.5  5,662.4  (44.1)% 3,126.7  81.1%


Total operating costs.
Total operating costs for the period decreased by $1,250.9$2,496.9 million, or 28.6%44.1% to $3,126.7$3,165.5 million in the 12 monthsyear ended October 31, 20192021 as compared to $4,377.6$5,662.4 million in the 18 monthsyear ended October 31, 2018.2020.


The single largest component of the operating costs relates to employee costs therefore the shorter period of accountdecrease in the current year only 12 months versus 18 monthsended October 31, 2021 compared to the results of the year ended October 31, 2020 is that the year ended October 31, 2020 included a goodwill impairment charge of $2,799.2 million compared to a charge of $nil in the prior period, means that most cost categories are significantly reduced. The narrative below explains the other key movements excluding employee costs. The exception toyear ended October 31, 2021. Excluding this is administrativecharge operating expenses increased by $302.3 million period-on-period which is discussedprimarily driven by an increase in the amortization expense in relation to the Group’s intangibles assets acquired in business combination of $282.3m resulting from a change in the assessed remaining useful economic lives in the year ended October 31, 2021. For further below.details see note 11 “Intangible assets” of the Consolidated financial statements in Item 18.


CostGoodwill impairment
Impairment of sales. Costgoodwill is tested annually, or more frequently where there is an indication of sales decreased by $512.8 million, or 39.4%impairment. The Group has not recognized an impairment charge in the period compared to $789.9an impairment charge of $2,799.2 million in the 12 monthsyear ended October 31, 2021.

IFRS 16 “Leases”
The Group adopted IFRS 16 “Leases” on November 1, 2019 on a modified retrospective basis. As a result, the year ended October 31, 2019 continue to be reported under the previous accounting standard IAS 17 “Leases”. Under IAS 17 the cost of leasing assets depended on whether a lease was classified as an operating lease or a finance lease. For operating leases, the cost was recorded as a rental expense in operating costs and for finance leases the cost was recognized as depreciation and interest in operating costs. Under IFRS 16 all leases are treated in the manner of IAS 17 finance leases. As a result, the depreciation and interest expense for leases is significantly higher in the year ended October 31, 2021 and 2020 than in the comparative period ended October 31, 2019, with a similar reduction in rental expenses.

Cost of sales
Cost of sales increased by $73.6 million, or 10.5% to $776.3 million in the year ended October 31, 2021 as compared to $1,302.7$702.7 million in the 18 monthsyear ended October 31, 2018.2020.


The costs in this category predominantly relate to our consulting and helpline support operations amortization of product development costs and the amortization of acquired technology intangibles allintangibles.

25

The amortization of intangible product development costs decreased by $15.3 million from $42.0 million in the 18 months ended October 31, 2018 to $26.7 million in the 12 months ended October 31, 2019, primarily due to the change in period of account.

The amortization of intangible purchased technology costs decreasedincreased by $80.4$67.0 million from $280.5$190.2 million in the 18 monthsyear ended October 31, 20182020 to $200.1$257.2 million in the 12 monthsyear ended October 31, 2019,2021 primarily due to the change in periodreassessment of account and the halting of amortization on SUSE related intangibles after the disposal was announced last year.useful economic lives described above.


Exceptional items decreased by $52.8 million from $65.4 million in the 18 months ended October 31, 2018 to $12.6 million in the 12 months ended October 31, 2019. Exceptional items are discussed later in this section.

After excluding the above, the remaining reduction in costs of sales of $364.3 million relates primarily to the reduction in period of account.

Selling and distribution costs.
Selling and distribution costs decreased $539.4increased $232.5 million, or 30.6%20.9% to $1,224.8$1,344.6 million in the 12 monthsyear ended October 31, 20192021 as compared to $1,764.2$1,112.1 million in the 18 monthsyear ended October 31, 2018.2020.


The costs in this category predominantly relate to our salesGo-To-Market organization and the amortization of acquired trade names and amortization of acquired customer relationships all of which are directly reduced by the shorter period of account in the current period.relationships.


The amortization of intangible trade names and customer relationships costs decreasedincreased by $127.0$228.3 million from $572.7$413.9 million in the 18 monthsyear ended October 31, 20182020 to $445.7$642.2 million in the 12 monthsyear ended October 31, 2019,2021 primarily due to the change in periodreassessment of account.useful economic lives described above.


Exceptional items decreased by $30.4 million from $39.2 million in the 18 months ended October 31, 2018 to $8.4 million in the 12 months ended October 31, 2019. Exceptional items are discussed later in this section.

After excluding the above, the remaining reduction in selling and distribution of $382.0 million relates primarily to the reduction in period of account.

Research and development expenses.
Research and development expenses decreasedincreased by $189.6$8.2 million, or 27.8%1.6% to $491.2$521.8 million in the 12 monthsyear ended October 31, 20192021 as compared to $680.8$513.6 million in the 18 monthsyear ended October 31, 2018.2020.


The capitalization of intangible product development costs decreased by $27.9 million from $44.4 million in the 18 months ended October 31, 2018 to $16.5 million in the 12 months ended October 31, 2019.

Exceptional items decreased by $17.4 million from $17.4 million in the 18 months ended October 31, 2018 to nil in the 12 months ended October 31, 2019. Exceptional items are discussed later in this section.

After excluding the above, the remaining decrease in research and development expenses of $189.9 million relates primarily to the 12 versus 18 months reporting period.

Administrative expenses.
Administrative expenses decreased by $9.1$2,811.2 million, or 1.4%84.3% to $620.8$522.8 million in the 12 monthsyear ended October 31, 20192021 as compared to $629.9$3,334.0 million in the 18 monthsyear ended October 31, 2018.2020.


The amortizationprimary driver of purchased software intangibles increased by $3.4this increase is the goodwill impairment of $2,799.2 million from $30.7 millionrecorded in the 18 monthsyear ended October 31, 2018 to $34.12020 and discussed above. Excluding this, administrative expenses decreased by $12.0 million inyear on year.

Operating (loss)/profit
In the 12 monthsyear ended October 31, 2019 as the useful life of certain purchase software was revised resulting in an increased amortization charge. Share-based compensation costs increased by $4.5 million from $64.3 million in the 18 months ended October 31, 2018 to $68.8 million in the 12 months ended October 31, 2019 as a result of timing of the issue of share options under the Long-term Incentive Plan in the prior year which meant only 1 month charge was included in the prior period versus a full years charge in the current period.

Foreign exchange movements have moved from a gain of $37.3 million in the 18 months ended October 31, 2018 to a loss of $11.2 million in the 12 months ended October 31, 2019 resulting in an increase in admin expenses period on period of $48.5 million.

Offsetting these movements, exceptional items decreased by $142.5 million from $416.2 million in the 18 months ended October 31, 2018 to $273.7 million in the 12 months ended October 31, 2019. Exceptional items are discussed later in this section.

Operating profit

In the 12 months ended October 31, 2019,2021, the Group generated an operating profitloss of $221.7$265.6 million, which represents a decrease of 41.2%90.0%, $155.1$2,395.8 million on the $376.8$2,661.4 million for the 18 monthsyear ended October 31, 2018.2020. The Group had adopted an 18-month accounting period, which ended on October 31, 2018. As a result,single largest component of the comparison tooperating loss decrease in the previously reported 18 monthsyear ended October 31, 2018 presents substantial period-on-period decreases due2021 related to the shorter periodyear ended October 21, 2020 including a goodwill impairment charge of account in the current reporting period.$2,799.2 million. This was included within exceptional costs, which is discussed further below. Explanations of the remaining major underlying movements in the reported operating profit decline have been included in the revenue and cost discussions above.

In addition, exceptional costs (included within operating profit) have decreased from $538.2 million in the 18 months ended October 31, 2018, to $294.2 million in the 12 months ended October 31, 2019. Exceptional costs are considered below.


In addition, the amortization of intangible assets decreasedincreased from $903.1$674.1 million in the 18 monthsyear ended October 31, 2018,2020, to $716.5$956.4 million in the 12 monthsyear ended October 31, 2019, related2021. As discussed above this relates primarily to the additional amortization in the period of technology, trade names, customer relationships established on the acquisition of Interset Software Inc and the impacta reassessment of the 18-month period of account. The reductionremaining useful economic lives for intangibles assets acquired in amortization is not just a result of the reduction in the accounting period as the majority of the amortization is on the intangibles resulting from the HPE acquisition which were only included for 14 months of the 18 month period of account compared to 12 months in the period ended October 31, 2019. The main components of this reduction are included in the discussion on cost by category above.business combinations.

Exceptional items (included within operating (loss)/profit)
  
Year
ended
October 31,
2021
  
Year
ended
October 31,
2020
  
Year
ended
October 31,
2019
 
Exceptional items 
$m

 
$m

 
$m

MF/ HPE Software business integration related:            
System and IT infrastructure costs  98.0   100.6   126.3 
Integration, severance and property costs  38.4   83.9   168.0 
MF/ HPE Software business integration-related costs  136.4   184.5   294.3 
Other restructuring property costs, severance and legal, acquisition and divestiture costs  35.3   27.9   (0.1)
Legal settlement and associated costs  75.4   -   - 
   247.1   212.4   294.2 
Goodwill impairment  -   2,799.2   - 
Total exceptional costs (reported in Operating (loss)/profit)  247.1   3,011.6   294.2 

  
12 months
ended
October 31, 2019
  
18 months
ended
October 31, 2018
 
Exceptional items 
$m
 

$m

MF/ HPE Software business integration related:
        
System and IT infrastructure costs
  126.3   
114.4
 
Integration costs
  119.6   
147.6
 
Severance
  32.1   
129.1
 
Property costs
  16.3   
29.9
 
MF/ HPE Software business integration related costs  294.3   
421.0
 
HPE Software business acquisition / pre-acquisition costs
  (3.9)  
70.1
 
Integration in respect of previous acquisitions
  -   
17.0
 
Other acquisition costs
  5.4   
-
 
Property costs relating to previous acquisitions
  -   
8.2
 
Divestiture gain on Atalla
  (3.7)  
-
 
Severance costs relating to previous acquisitions
  -   
0.6
 
Pre-disposal costs in relation to SUSE
  -   
21.3
 
Other costs
  2.1   
-
 
Total exceptional costs (reported in Operating profit)  294.2   
538.2
 


In the 12 monthsyear ended October 31, 2019,2021, exceptional costs totaled $247.1 million and can be split into two categories. Firstly, the Group incurred $136.4m (2020: $184.5m) on integration-related costs in respect of the HPE Software business.  This figure primarily relates to $294.2 million. Exceptionalthe migration of Micro Focus to one enterprise-wide platform. In total exceptional costs predominantly relateincurred in relation to the integration of the HPE Software business andsince the costsacquisition are $1,036.2m at October 31, 2021 (total cumulative cost at October 31, 2020: $899.8m). In the period, the Group incurred incremental HPE-related exceptional spend in order to accelerate the 12-month period include:

System and IT infrastructure costs of $126.3m principally reflect the IT migrationcompletion of the Micro Focus business ontointegration program and systems migration and as a single IT platform;

Integration costs of $119.6m across a wide range of projects undertaken to conform, simplify and increase efficiency across the two businesses;

Severance costs of $32.1m in relation to ongoing headcount reductions as the Group continues to remove duplication and streamline the continuing operations; and

Property costs of $16.3m as the Group continues the process of simplifying the real estate footprint.

As communicated previously, the Group anticipates totalresult no further exceptional chargesspend in relation to the HPE Software business integration is expected.

26
Secondly, other exceptional spend totaled $110.7m of which $715.2m has been incurred to date. The Group initially expected to incur exceptional costs in relation$75.4m relates to the HPE Software business integrationcost of $420.0m insettling the 12 months ended October 31, 2019, which compares to an actual charge of $294.3m in the financial year. This variance is driven by the phasing of integration programs.

This is a complex multi-period IT project, complicated by our SOX requirements, which limits the opportunity to make substantial system changes in the second half of FY20.  As such a decision on whether the Group executes the IT project in line withWapp patent infringement case. The Group’s timetable, the end of calendar year 2020, or have to re-phase will be made in the second quarterremaining exceptional spend mainly reflects severance and communicatedother costs incurred as part of the continued simplification of the Group’s interim results.continuing operations resulting from the further review of the Group’s required operating model.


On November 30, 2021, the Group announced the objective to remove a further c.$400 million to c.$500 million of gross annualized operating costs which is anticipated to be undertaken during the years ended October 31, 2022 and 2023. As a result of this program, exceptional spend in relation to delivering these plans are expected to total approximately $200 million over the next two financial years.

Net finance costs
Net finance costs (excluding exceptional items) were $255.8$252.2 million in the 12 monthsyear period ended October 31, 2019.  The finance costs predominantly relate2021, compared to $279.0 million in the associated interest on the term loans put in place as part of the transaction to acquire the HPE Software business.year period ended October 31, 2020. Included within the $255.8 millionnet finance costs is $46.7$34.0 million in relation to the amortization of facility costs and original issue discounts, which were paid on initiation of the term loans.loan.


The declinedecrease on the prior year related to an acceleration of fees and discounts of $24.0 million resulting from refinancing completed in net finance costs (excluding exceptional items) between the periods of $81.1m, 24.1% from $336.9 million for the 18 months ended October 31, 2018 to $225.7 million for the 12 months ended October 31, 2019 reflects a $61.6 reduction in finance costs and a $19.5m increase in finance income. The reduction in finance costs primarily reflects a decrease in interest on bank borrowings of $51.1 million from $276.5 in the 18 months ended October 31, 2018 to $225.4 million in the 12 months ended October 31, 2019 as a result of the shorter accounting period. The increase in finance income primarily reflects an increase in bank interest earned of $12.7 million as a result of interest income earned on cash deposits held following the completion of the SUSE divestment until the Group returned $1.8 billion of proceeds to shareholders.that period

The Group holdholds interest rate swaps to hedge against the cash flow risk in the LIBOR rate charged on $2,250.0 million of the debt issued by Seattle Spinco, Inc. (the investment company used to acquire the software business of HPE)HPE Software business) from October 19, 2017 to September 30, 2022. Under the terms of the interest rate swaps, the Group pays a fixed rate of 1.94%1.95% and receives 1-month USDone-month US dollar LIBOR.


Taxation
The Group’sGroup reported a tax credit for the 12 monthsyear ended October 31, 2019 was a credit2021 of $16.0$82.7 million (18 months(year ended October 31, 2018:2020: charge of $34.2 million). There is no significant difference between the tax credit of $673.1 million, primarily due toin the one-off impact of USyear and the expected tax reforms).credit at the statutory rate.


(Loss)/profit after tax from continuing operations
The loss after tax from continuing operations was $18.1$435.1 million in the 12 monthsyear ended October 31, 2019,2021, compared to a profitloss after tax from continuing operations of $707.2$2,974.6 million in the 18 monthsyear ended October 31, 2018.2020.


Profit from discontinued operation
Profit from discontinued operation of $1,487.2 million in the 12 months ended October 31, 2019, reflects the profits generated from the SUSE portfolio of $28.7 million in the period to March 15, 2019 together with the profit on the sale of SUSE of $1,458.5 million when sold on March 15, 2019. In the 18 months ended October 31, 2018, the SUSE portfolio generated aThe profit from discontinued operation of $76.9 million.$10.7 million (2020: $5.1 million) related to adjustments in indemnification amounts owed to SUSE as part of the disposal agreement.


Earnings per share
The table below sets out the Earnings per Share (“EPS”). The Group is also required to present EPS for both the continuing and discontinued operations.


 
12 months
ended
October 31, 2019
  
18 months
ended
October 31, 2018
  
Year
ended
October 31, 2021
  
Year
ended
October 31, 2020
  
Year
ended
October 31, 2019
 
 
Basic
Cents
  
Diluted 1
Cents
  
Basic
Cents
  
Diluted
Cents
  
Basic
Cents
  
Diluted1
Cents
  
Basic
Cents
  
Diluted 1
Cents
  
Basic
Cents
  
Diluted1
Cents
 
Continuing operations
 (4.87) (4.87) 
181.91
  
176.92
  (129.30) (129.30) (886.15) (886.15) (4.87) (4.87)
Discontinued operation
 393.37  389.16  
19.79
  
19.25
  3.18  3.18  1.52  1.52  393.37  389.16 
Total EPS 388.50  384.35  
201.70
  
196.17
  (126.12) (126.12) (884.63) (884.63) 388.50  384.35 


1 As there is a loss from continuing operations attributable to the ordinary equity shareholders of the Company for the 12 monthsyear ended October 31, 20192021 ($18.4435.1 million) and 2020 ($2,974.6 million), the Diluted EPS is reported as equal to Basic EPS, as no account can be taken of the effect of dilutive securities under IAS 33. There was total earnings attributable to ordinary equity shareholders of

In the Company for the 12 monthsyear ended October 31, 2019 of $1,468.8 million and therefore the effect of dilutive securities can be reflected in the total Diluted EPS above.

In the 12 months ended October 31, 2019,2021, the Group generated a Basic EPS from continuing operations of (4.87)(129.30) cents. This compares to 181.91(886.15) cents in the 18 monthsyear ended October 31, 2018.2020. The decreaseimprovement was primarily driven by the lowerhigher overall of continuing earnings as previously explained.

Following the completion of the SUSE transaction, the Group returned $1.8 billion of proceeds to shareholders, in addition to the $540 million of share buy backs. As a result, the total share count has reduced from 426.9 million to 333.4 million during the period, which somewhat offset the decline in EPS due to reduced earnings.


3827
18 months ended October 31, 2018 compared to the 12 months ended April 30, 2017

The Group changed accounting year end from April 30, 2018 to October 31, 2018 as a result the period is for the 18-month period ended on October 31, 2018 and the comparative period is for 12 months ended April 30, 2017. As a result the movements, period on period presents substantial increases due to the longer period of account in the 18 months to October 31, 2018 reporting period. The presentation excludes the discontinued SUSE business from individual line items for each of the reporting periods presented below. In addition, the 18-month period to October 31, 2018 includes 14 months of results for the acquired HPE Software business which significantly increased the size of the Group and also results in substantially increases period on period.

  
18 months
ended
October 31, 2018
  
12 months
ended
April 30, 2017
 
Continuing operations 
$m
 
$m

Revenue  4,754.4   
1,077.3
 
Operating profit (before exceptional items)
  915.0   
324.7
 
Exceptional items
  (538.2)  
(97.3
)
Operating profit  376.8   
227.4
 
Net finance costs (excluding exceptional items)
  (336.9)  
(95.8
)
Exceptional finance costs
  (5.8)  
-
 
(Loss)/profit before tax  34.1   
131.6
 
Taxation
  673.1   
(7.5
)
(Loss)/profit from continuing operations  707.2   
124.1
 
Profit from discontinued operation
  76.9   
33.7
 
Profit for the period  784.1   
157.8
 

Revenue

In the 18 months ended October 31, 2018, the Group generated revenue of $4,754.4 million, which represents an increase of $3,677.1 million (341.3%) on the $1,077.3 million in 12 months ended April 30, 2017. The increase in trading was driven by the acquisition of the HPE Software business, which materially increased the scale of the operations, combined with the longer period of account. The impact of the results of the HPE Software business acquisition has not been separately disclosed in this report as it is not practical to do so as it has been integrated into the Micro Focus Product Portfolio segment.

  
18 months
ended
October 31, 2018
  
12 months
ended
April 30, 2017
  
Period-on –
period
change
 
Continuing operations 
$m
 
$m
 % 
Licence
  1,213.7   
308.4
   
293.5
%
Maintenance
  2,861.6   
727.6
   
293.3
%
SaaS & other recurring
  373.9   
-
   
n/a
 
Consulting
  366.3   
48.2
   
660.0
%
Revenue before haircut  4,815.5   
1,082.2
   
344.2
%
Deferred revenue haircut
  (61.1)  
(6.9
)
  
785.5
%
Total Revenue  4,754.4   
1,077.3
   
341.3
%

Revenue in the table above and the subsequent trends in this section are presented before the impact of the deferred revenue haircut, which represents the unwinding of a fair value adjustment to acquired deferred revenue.

The HPE Software acquisition and the long period of account has resulted in revenue increasing 341.3% between the two reporting periods. However, this period-on-period increase is not indicative of the underlying trading performance of the four revenue streams which if considered on a like-for-like basis would show a declining trend over the period of review. From November 1, 2017, the HPE Sof/tware operations were integrated with the Micro Focus Product Portfolio and the business was operated and reported on as one consolidated operating segment. The declining trend was further impacted by a number of factors, which management consider to be largely one-off transitional effects of the combination with the HPE Software business, rather than underlying issues with the end market of the product portfolio. Since identifying these issues, substantial investment was made in stabilizing the IT platform and the business re-structured the go-to-market organization to better align customer coverage and improve customer engagement levels. This re-structuring was supplemented with additional investment in better training and enablement and increased hiring of customer facing sales resources to ensure the function was fully staffed at October 31, 2018. Additional actions focused on driving improved execution discipline across the Company.

The narrative below focusses on the period-on-period increases which were all driven by the long period of account and the increase in scale following the acquisition of the HPE Software business.

Revenue by stream performance

Licence revenue increased by $905.3 million (293.5%) to $1,213.7 million in the 18 months ended October 31, 2018 compared with $308.4 million in the 12 months ended April 30, 2017.

Maintenance revenue increased by $2,134.0 million (293.3%) to $2,861.6 million in the 18 months ended October 31, 2018 compared with $727.6 million in the 12 months ended April 30, 2017. Maintenance is a recurring revenue stream and is driven by the volume and value of maintenance revenue attached (or sold) with new license sales, the number of customers you are able to win back (following cancellation) and finally the level of renewals. The trend associated with all of these has remained broadly consistent between the two periods with exception of License volume which if considered on a like-for-like basis would indicate a declining trend in the period for the reasons set out above.

The increase in revenue is primarily related to the acquisition of the HPE Software business and the long period of account.

SaaS and other recurring revenue was $373.9 million in the 18 months ended October 31, 2018. The Group had no SaaS and other recurring revenue in the 12 months ended April 30, 2017. This revenue stream was new to the Group with the acquisition of the HPE Software business.  Performance in the last six months of the 18 month reporting period was impacted by actions to rationalize unprofitable operations and practices and the refocus of resources and investments to delivering the product enhancements required for long-term success.

Consulting revenue increased by $318.1 million (660.0%) to $366.3 million in the 18 months ended October 31, 2018 compared with $48.2 million in the 12 months ended April 30, 2017. The increase in revenue increase was primarily related to the acquisition of the HPE Software business. However, Group continues the previously communicated strategy to focus on consulting engagements which are directly related to the software portfolio rather than pursuing growth on a standalone basis.

Revenue by product group performance

The Group has more than 300 products reported under five product groups. These products are managed at a granular level using application of the Micro Focus four-box model. The cyclical nature of the software order cycle means that when considering underlying revenue trends, year-on-year growth rates by portfolio are not always indicative of an underlying trend and will be impacted by the timing of customer projects. As such, revenue trends at the sub-portfolio level should be viewed over the longer term and revenue trends overall viewed in a similar fashion to that of a portfolio of funds. The table below presents the revenue performance by product group and revenue stream. Following the acquisition of the HPE Software business. The product groups were realigned in the 18 months ended October 31, 2018 and therefore cannot be compared to those in the 12 months ended April 30, 2017.

18 months ended October 31, 2018:

  
Licence
  
Maintenance
  
Consulting
  
SaaS &
other
recurring
  
Total
 
Continuing operations 
$m
 
$m
 
$m
 
$m
 
$m
Application Modernization & Connectivity (AMC)
  256.3   497.6   17.9   -   771.8 
Application Delivery Management (ADM)
  185.4   646.7   41.6   114.1   987.8 
IT Operations Management (ITOM)
  363.2   869.9   192.8   15.1   1,441.0 
Security
  291.6   580.2   81.4   41.6   994.8 
Information Management & Governance (IM&G)
  117.2   267.2   32.6   203.1   620.1 
Subtotal  1,213.7   2,861.6   366.3   373.9   4,815.5 
Deferred revenue haircut
  (7.6)  (42.7)  (2.0)  (8.8)  (61.1)
Total Revenue  1,206.1   2,818.9   364.3   365.1   4,754.4 

Revenue by product group for the 12 month period ended April 30, 2017 is included in note 2 to the Consolidated financial statements in Item 18.

Operating costs

  
18 months
ended
October 31, 2018
  
12 months
ended
April 30, 2017
 
Continuing operations 
$m
 

$m

Cost of sales
  1,302.7   
216.5
 
Selling and distribution costs
  1,764.2   
363.1
 
Research and development expenses
  680.8   
122.8
 
Administrative expenses
  629.9   
147.5
 
Total operating costs  4,377.6   
849.9
 

Total operating costs. Total operating costs increased by $3,527.7 million, or 415.1% to $4,377.6 million in the 18 months ended October 31, 2018 as compared to $849.9 million in the 12 months ended April 30, 2017.

As described below in the individual cost categories, the increase is primarily in relation to the acquisition of the HPE Software business. From November 1, 2017, the Micro Focus Product portfolio has been run as one operating segment and as such the cost base of the two legacy business has not been tracked separately. Given the nature of the Group’s operations, the single largest component of cost base relates to employee costs and in addition the number of employees is a key driver for the remaining aspect of the cost base. Following the acquisition of HPE Software business, our average headcount increased from 4,663 in the twelve months ended April 30, 2017 to 12,713 in the 18 months ended October 31, 2018.

Cost of sales. Cost of sales increased by $1,086.2 million, or 501.7% to $1,302.7 million in the 18 months ended October 31, 2018 as compared to $216.5 million in the 12 months ended April 30, 2017.

The costs in this category predominantly relate to our consulting and helpline support operations, amortization of product development costs and amortization of acquired technology intangibles. The amortization of intangible product development costs increased by $19.6 million from $22.4 million in the 12 months ended April 30, 2017 to $42.0 million in the 18 months ended October 31, 2018. The amortization of intangible purchased technology costs increased by $221.4 million from $59.0 million in the 12 months ended April 30, 2017 to $280.5 million in the 18 months ended October 31, 2018, primarily due to the acquisition of the HPE Software business. Exceptional items increased by $62.5 million from $2.9 million in the 12 months ended April 30, 2017 to $65.4 million in the 18 months ended October 31, 2018. Exceptional items are discussed later in this section. After excluding the above, the remaining increase in cost of sales of $782.8 million relates primarily to the 18 versus 12 months reporting period and the transformational acquisition of the HPE Software business.

Selling and distribution costs. Selling and distribution costs increased $1,401.1 million, or 385.9% to $1,764.2 million in the 18 months ended October 31, 2018 as compared to $363.1 million in the 12 months ended April 30, 2017.

The amortization of intangible trade names and customer relationships costs increased by $425.6 million from $124.3 million in the 12 months ended April 30, 2017 to $549.8 million in the 18 months ended October 31, 2018, primarily due to the acquisition of the HPE Software business. Exceptional items increased by $33.7 million from $5.5 million in the 12 months ended April 30, 2017 to $39.2 million in the 18 months ended October 31, 2018. Exceptional items are discussed later in this section. After excluding the above, the remaining increase in selling and distribution costs of $941.7 million relates primarily to the 18 versus 12 months reporting period and the transformational acquisition of the HPE Software business.

The average monthly number of people in sales and distribution increased by 4,234 (197.6%) from 2,141 to 6,375 in the 18 months ended October 31, 2018 when compared with the 12 months ended April 30, 2017. This is reflected in the increases in both cost of sales and selling and distribution costs.

Research and development expenses. Research and development expenses increased by $558.0 million, or 454.4% to $680.8 million in the 18 months ended October 31, 2018 as compared to $122.8 million in the 12 months ended April 30, 2017.

The capitalization of intangible product development costs increased by $16.7 million from $27.7 million in the 12 months ended April 30, 2017 to $44.4 million in the 18 months ended October 31, 2018. Exceptional items increased by $10.6 million from $6.8 million in the 12 months ended April 30, 2017 to $17.4 million in the 18 months ended October 31, 2018. Exceptional items are discussed later in this section. After excluding the above, the remaining increase in research and development expenses of $564.1 million relates primarily to the 18 versus 12 months reporting period and the transformational acquisition of the HPE Software business.

The average monthly number of people in research and development increased by 3,076 (164.0%) from 1,876 to 4,952 in the 18 months ended October 31, 2018 when compared with the 12 months ended April 30, 2017. This is reflected in the increase in research and development costs above.

Administrative expenses. Administrative expenses increased by $482.4 million, or 327.1% to $629.9 million in the 18 months ended October 31, 2018 as compared to $147.5 million in the 12 months ended April 30, 2017.

The amortization of purchased software intangibles increased by $29.6 million from $1.1 million in the 12 months ended April 30, 2017 to $30.7 million in the 18 months ended October 31, 2018.Share-based compensation costs increased by $32.8 million from $31.5 million in the 12 months ended April 30, 2017 to $64.3 million in the 18 months ended October 31, 2018. Foreign exchange gains increased by $34.4 million from $2.9 million in the 12 months ended April 30, 2017 to $37.3 million in the 18 months ended October 31, 2018. Depreciation of property, plant and equipment increased by $78.9 million from $9.7 million in the 12 months ended April 30, 2017 to $88.6 million in the 18 months ended October 31, 2018. Exceptional items increased by $334.1 million from $82.0 million in the 12 months ended April 30, 2017 to $416.2 million in the 18 months ended October 31, 2018. Exceptional items are discussed later in this section. After excluding the above, the remaining increase in administrative expenses of $41.3 million relates primarily to the 18 versus 12 months reporting period and the transformational acquisition of the HPE Software business.

The average monthly number of people in administration increased by 740 (114.6%) from 646 to 1,386 in the 18 months ended October 31, 2018 when compared with the 12 months ended April 30, 2017. This is reflected in the increase in administrative expenses above.

Operating profit

In the 18 months ended October 31, 2018, the Group generated operating profit of $376.8 million, which represents an increase of 65.7% on the 12 months ended April 30, 2017. The operating profit increased due to the 18-month accounting period combined with the impact of the HPE Software business transaction in the period ended October 31, 2018. The acquisition has been transformational for the business and has substantially increased the scale of the Group’s operations. In addition, exceptional costs (included within operating profit) have increased from $97.3 million in the 12 months ended April 30, 2017, to $538.2 million in the 18 months ended October 31, 2018. Exceptional costs are considered below.

In addition, the amortization of intangible assets increased from $206.8 million in the 12 months ended April 30, 2017, to $903.0 million in the 18 months ended October 31, 2018, relating to the amortization of technology, trade names, customer relationships and lease contracts intangibles established on the acquisition of the HPE Software business combined with the impact of the 18-month period of account.

Exceptional items (included within operating profit)

  
18 months
ended
October 31, 2018
  
12 months
ended
April 30, 2017
 
Exceptional items 
$m
 
$m
MF/ HPE Software business integration related:
        
System and IT infrastructure costs
  114.4   
-
 
Integration costs
  147.6   
-
 
Severance
  129.1   
-
 
Property costs
  29.9   
-
 
MF/ HPE Software business integration related costs  421.0   
-
 
SUSE and other divestiture costs
  21.3   
-
 
HPE Software business acquisition / pre-acquisition costs
  70.1   
58.0
 
Integration in respect of previous acquisitions
  17.0   
27.7
 
Other acquisition costs
  -   
2.6
 
Property costs relating to previous acquisitions
  8.2   
5.6
 
Severance costs relating to previous acquisitions
  0.6   
3.4
 
Total exceptional costs (reported in Operating profit)  538.2   
97.3
 

In the 18 months ended October 31, 2018, exceptional costs totaled to $538.2 million. Exceptional costs predominantly related to the integration of the HPE Software business and the costs incurred in the 18-month period included:

System and IT infrastructure costs of $114.4 million principally reflect the cost of implementing and then stabilizing the IT platform acquired with the HPE Software business (“FAST”);

Integration costs of $147.6 million across a wide range of projects undertaken to conform, simplify and increase efficiency across the two businesses;

Severance costs of $129.1 million in relation to ongoing headcount reductions as we integrate the HPE Software business; and

Property costs of $29.9 million as the Group began the process of simplifying the real estate footprint by exiting 27 offices since the completion of the transaction.

The Group anticipates exceptional charges in relation to the HPE Software business integration of $960 million of which $421.0 million has been incurred at October 31, 2018.

Amortization and depreciation
The Group’s amortization and depreciation charges in the period increased due to the assets acquired as part of the HPE software acquisition and the 18-month period of account. Most notably:

Amortization of intangible assets increased from $206.8 million in the 12 months ended April 30, 2017, to $903.0 million in the 18 months ended October 31, 2018, predominately relating to the amortization of customer relationships and technology acquired from HPE; and

Depreciation of plant property and equipment increased from $9.7 million to $88.6 million, reflecting the assets associated with the larger headcount within the HPE business.

Net finance costs
Net finance costs were $342.7 million in the 18 months ended October 31, 2018. Finance costs predominantly relate to the associated interest on the new term loans put in place as part of the transaction to acquire the HPE Software business. Included within the $342.7 million is $60.4 million in relation to the amortization of facility costs and original issue discounts which were paid on initiation of the term loans.

The Group hold interest rate swaps to hedge against the cash flow risk in the LIBOR rate charged on $2,250.0 million of the debt issued by Seattle Spinco, Inc. (the company used to acquire the software business of HPE) from October 19, 2017 to September 30, 2022. Under the terms of the interest rate swaps, the Group pays a fixed rate of 1.94% and receives 1-month USD LIBOR.

Taxation
The Group’s reported tax charge for the 18 months ended October 31, 2018 was a credit of $673.1 million (12 months ended April 30, 2017: charge of $7.5 million) primarily due to the one-off impact of US tax reforms.

Profit before tax from continuing operations
Profit before tax decreased by $97.4 million, or 74.1% to $34.1 million in the 18 months ended October 31, 2018 as compared to $131.6 million in the 12 months ended April 30, 2017.

Profit from discontinued operations
Profit from discontinued operations reflects the profits generated from the SUSE portfolio. Profit before taxation for discontinued operations increased to $111.1 million from $64.8 million.

Earnings per share
The table below sets out the Earnings per Share (“EPS”). The Group is also required to present EPS for both the continuing and discontinued operations but note that SUSE is still under the ownership of Group until the end of the first calendar quarter 2019 and as such, we focus on total EPS.

  
18 months
ended
October 31, 2018
  
12 months
ended
April 30,2017
 
  
Basic
Cents
  
Diluted
Cents
  
Basic
Cents
  
Diluted
Cents
 
Continuing operations
  181.91   176.92   
54.17
   
52.31
 
Discontinued operation
  19.79   19.25   
14.71
   
14.20
 
Total EPS
  201.70   196.17   
68.88
   
66.51
 

Consolidated statement of financial position as at October 31, 20192021 and October 31, 20182020


Summarized Consolidated statement of financial position


The Group’s Consolidated statements of financial position are presented in the Consolidated financial statements in item 18. Summarized versions are presented below.


 October 31, 2019  October 31, 2018  October 31, 2021  October 31, 2020 
 
  

$m
 
$m

 
$m

Non-current assets
 12,846.7  
13,720.5
  8,439.5  9,605.0 
Current assets
 1,448.1  
1,917.6
  1,907.1  1,541.8 
Current assets classified as held for sale
 -  
1,142.5
 
Total assets 14,294.8  
16,780.6
  10,346.6  11,146.8 
            
Current liabilities
 1,802.0  
2,010.4
  1,860.9  1,788.3 
Current liabilities classified as held for sale
 -  
437.7
 
Non-current liabilities
 6,216.5  
6,540.5
  5,664.7  6,143.4 
Total liabilities 8,018.5  
8.988.6
  7,525.6  7,931.7 
Net assets 6,276.3  
7,792.0
  2,821.0  3,215.1 
            
Capital and reserves      
Total equity attributable to owners of the parent
 6,275.0  
7,791.0
  2,821.0  3,215.1 
Non-controlling interests
 1.3  
1.0
 
Total equity 6,276.3  
7,792.0
  2,821.0  3,215.1 


The discussions for the Consolidated statement of financial position as at October 31, 2020 as compared to the October 31, 2019 can be found in Items 5.A of the Group’s Annual Report on Form 20-F for the year ended October 31, 2020 which is available at https://www.microfocus.com/media/investors-report/form-20-f-for-12-months-ending-the-31-october-2020-report.pdf and has been filed with the SEC.

The net assets of the Group have decreased by $1,515.7 million from $7,792.0$3,215.1 million to $6,276.3$2,821.0 million between October 31, 20182020 and October 31, 2019.2021.


In the period,year, the key movements were as follows:


Non-current assets decreased by $873.8 million$1,165.5m to $12,846.7 million$8,439.5m primarily due to amortization ofthe annual amortisation charge on intangible assets of $716.5 million and a decrease in goodwill$956.4m. In addition, $340.9m of $160.5 million following a reviewnon-current assets were reclassified as current assets driven by the recognition of the allocation of goodwill to foreign operations (note 10 of the “Notes to the consolidated financial statements” in Item 18)

CurrentDigital Safe business as held for sale and right-of-use assets decreased by $469.5 million from $1,917.6 million to $1,448.1 million$54.0m primarily due to depreciation of $73.3m.

Current assets increased by $365.3 million to $1,907.1 million driven by the recognition of the Digital Safe business as held for sale $370.3 million and an increase in trade and other receivables of $154.9 million, which were offset by a reduction in cash and cash equivalents of $178.8 million. Trade and other receivables increased due to the increase in both trade receivables and contract assets resulting from the high level of Licence revenue recognised in October compared to the prior year. The decrease in cash and cash equivalents reflects the debt repayments and dividends paid in the period of $265.2 million, a decrease in trade and other receivables of $239.1 million, offset by an increase in current tax receivables of $15.6$114.1 million and an increase contract-related costs of $19.3$81.1 million.

Current liabilities increased by $72.6 million as a result of transition to IFRS 15. Trade and other receivables decreased$1,860.9 million, primarily due to a reduction of aged receivables of $100.8 million and a reduced current balance of $111.4 million. The reduction in the financial year has been a key focusrecognition of the finance team and an important part of the ongoing stabilization of theDigital Safe business and mitigation of potential risk on the balance sheet.

Current assets and current liabilities classified as held for sale as at October 31, 2018 reflected primarily$68.4 million and to the assets andrecognition of derivative financial liabilities of SUSE business segment, which were disposed$35.7 million as a current liability due to the September 2022 maturity date. This was partially offset by a reduction in current tax liabilities of on March 15, 2019.
$56.0 million.


CurrentNon-current liabilities decreased by $208.4$478.7 million to $5,664.7 million, primarily due to a $65.9$242.0 million reduction in trade and other payables driven by the bonus provision reducing to nil during the year and a $88.8 million decrease in contract liabilities (deferred revenue) balance due to the decline in sales.

Non-current liabilities decreased by $324.0 million from $6,540.5 million to $6,216.5 million, primarily due to a reduction of $171.6 million of borrowings (repayments of $212.6 million in the period), a reduction of $183.4 million in deferred tax liabilities, offset by a decrease in borrowings of $94.8 million, a decrease in lease obligations of $48.6 million and a $77.9 million decrease in the derivative liability of $36.5 million, which was previously recorded as a non-current asset but is nowresult of the reclassification to current liabilities in combination with a liability as floating interest rates have declined period on period such thatreduction in the rate received by the Group is below the fixed rates paid by the Group.
derivative valuation year-on-year.


Total equity attributable to the owners of the parent decreased by $1,516.0$394.1 million from $7,791.0$3,215.1 million to $6,275.0 million, driven primarily by a Return$2,821.0 million.

Foreign currency fluctuations
The Group’s reporting currency is the US dollar however, the Group’s significant international operations give exposure to fluctuations in foreign exchange rates. To neutralize foreign exchange impact and to better illustrate the underlying change in results from one period to the next, the Group has adopted the practice of Value to shareholders of $1,800.0 million, dividends paid to shareholders of $439.2 million , share buy-backs from shareholders of $538.8 million, offset by $1,469.1 million of profit for the period.
analyzing results on an as reported basis and in constant currency.


4528
The Group uses US dollar based constant currency models to measure performance. These are calculated by restating the results of the Group for the comparable period at the same average exchange rates as those used in reported results for the current period. This gives a US dollar denominated income statement, which excludes any variances attributable to foreign exchange rate movements.

The table below has been presented on a constant currency basis and is for continuing operations only to show the impact of currency fluctuations on the revenue of the Group:

  
Year
ended
October 31,
2021
  
Year
ended
October 31,
2020
  
Period-on-
period change
constant
currency
  
Period-on-
period change
actual
currency
 
  
$m

 
$m

 %  % 
Constant currency revenue:              
Licence  688.6   656.7   4.9%  6.5%
Maintenance  1,791.7   1,961.4   (8.7)%  (6.7)%
SaaS & other recurring  239.8   249.6   (3.9)%  (2.3)%
Consulting  179.8   196.3   (8.4)%  (4.6)%
Constant currency revenue before haircut  2,899.9   3,064.0   (5.4)%  (3.4)%
Deferred revenue haircut  -   (0.6)  100.0%  100.0%
Constant currency revenue  2,899.9   3,063.4   (5.3)%  (3.4)%
Currency impact  -   (62.4)  n/a   n/a 
Total Revenue  2,899.9   3,001.0   (3.4)%  (3.4)%

As shown in the table the impact of currency fluctuations in the year ended October 31, 2021 was limited with trends and movements being consistent on a constant currency and actual reported basis.

The most important foreign currencies, other than the US dollar for the Group are: Pounds Sterling, the Euro, Canadian Dollar and Japanese Yen and in the year period ended October 31, 2021 also the Indian Rupee and Australian Dollar. The exchange rates used and movements in these rates period-on-period are as follows:

  
Year
ended
October 31,
2021
  
Year
ended
October 31,
2020
  
Period-
on-
period
change
  
31 October
2021
  
31 October
2020
  
Period-
on-
period
change
 
  Average  Average  %  Closing  Closing  % 
£1 = $  1.37   1.28   7.0%  1.37   1.30   5.4%
€1 = $  1.19   1.13   5.3%  1.16   1.17   (0.9)%
C$ = $  0.80   0.74   8.1%  0.81   0.75   8.0%
AUD = $  0.75   0.68   10.3%  0.75   0.70   7.1%
100 INR = $  1.36   1.36   -   1.33   1.34   (0.7)%
100 JYP = $  0.92   0.93   (1.1)%  0.88   0.96   (8.3)%

Sensitivity analysis relating to foreign exchange can be found in note 24 “Financial Instruments” of the Consolidated financial statements in Item 18.

The Group is subject to exposure on the translation of the net assets of foreign currency subsidiaries into its reporting currency, US Dollar. The Group’s primary balance sheet translation exposures are noted in the Exposure analysis below. These exposures are kept under regular review with the Group treasury function providing reporting to the Treasury Risk committee and the Audit committee.

Group borrowings are denominated in US dollars and Euros. The Group seeks to match the currency profile of borrowings to the cash flows arising from the Groups operations used to service those borrowings. The refinancing in the year ended October 31, 2020 included an additional proportion of Euro debt and a reduction in US dollar debt which is intended to better match the currency profile of the Group’s debt with the cash flows used to service that debt.

29
The Group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk. The Group faces currency exposures arising from the translation of profits earned in foreign currency subsidiaries into the Group’s reporting currency of US dollars. As at October 31, 2021 two net investment hedges totaling €1.03 billion have been designated using non-derivative Euro debt instruments to minimize the volatility in shareholder’s equity arising from foreign currency translation (October 31, 2020 two net investment hedges totaling €1.05 billion). As a result of the Group’s net investment hedging foreign exchange gains of $11.3 million have been recognized in equity in the year ended October 31, 2021 (year ended October 31, 2020: loss $58.7 million). Further details on the Group’s net investment hedging is included in note 24 “Financial risk management and financial instruments” of the Consolidated financial statements in Item 18.

Item 5. B.5.BLiquidity and capital resources.resources


Item 5.B.1Information regarding the Group’s liquidity

Our principal ongoing uses of cash are to meet working capital requirements, to fund debt obligations, to finance our capital expenditures and acquisitions and to pay dividends to shareholders. The board continues toGroup’ medium-term leverage1 target a modest level ofis 3.0x Adjusted EBITDA2. The current leverage for a company with the cash generating qualities of Micro Focus. We are confident that1 remains above this level, ofdue to on-going investments we are making in the business. The Group intends to reduce leverage1 back to this level in the medium-term and will balance debt will not reduce our abilityrepayments and equity returns in the short term to deliver our strategy, invest in products and/or make appropriate acquisitions. As the integration of the businesses continues the board will keep the appropriate level of debt under review.on this.


The Group’s operations are diversified across a number of currencies. Changes in foreign exchange rates are monitored and exposures regularly reviewed and actions taken to review exposures where necessary. The Group has significant committed facilities in place, the earliest of which matures in November 2021June 2024 and sufficient headroom to meet its operational requirements. The Group seeks to maintain strong relationships with its key banking partners and lenders and to proactively monitor the loan markets. The Group also has strong engagement with the providers of equity capital, which represents an alternative source of capital.

As at October 31, 2019, cash and cash equivalents was $355.7 million.  The company also has a $500.0 million Revolving Credit Facility (which is undrawn as at October 31, 2019). In addition, as a public listed company Micro Focus has access to equity capital markets for fund raising if required. There are no current plans to issue additional equity.


On January 17, 2022, the Group announced the refinancing of $1.6 billion of existing term loans. This refinancing comprised a €750 million and a $750 million Senior Secured Term Loan B. The new 5-year Facilities have been used by the Group to fully refinance its existing Senior Secured Term Loan B Euro facility due June 2024 as well as partially refinance the existing Senior Secured Term Loan B USD facilities due June 2024.

The new 5-year Facilities incurs interest at 4.00% above EURIBOR (subject to 0% floor) at an original issue discount of 0.5% on the Euro denominated tranche, and 4.00% above SOFR and CSA (subject to 0.5% floor) at an original issue discount of 1.0% on the US Dollar denominated tranche. This represents an increase in annualized interest costs of approximately $23.0 million.

On January 19, 2022, the Group executed a new 1m USD SOFR swap with a notional value of $750 million and a maturity date of February 28, 2027. The forward swap is effective on September 21, 2022 with a fixed interest rate of 1.656% swapped against the variable 1m SOFR USD rates.

As at October 31, 2021, cash and cash equivalents were $558.4 million. The company also had a $350.0 million Revolving Credit Facility (which was undrawn as at October 31, 2021). This facility has been amended post year end with the facility reduced to $250 million and with maturity extended until December 2026, subject to tests for the term loan maturities in June 2024 and June 2025. The amended facility is subject to a covenant test when more than 40% of the revolving credit facility is outstanding at a fiscal quarter end with a 5.00x net leverage1 covenant being applied.

The directors believe that the Company’s current available working capital is adequate to sustain its operations at current levels through at least the next twelve months.year.


12 monthsThe discussions for the Group’s liquidity and capital resources for the year ended October 31, 2020 compared to the year ended October 31, 2019 can be found in Items 5.B of the Group’s Annual Report on Form 20-F for the year ended October 31, 2020 which is available at https://www.microfocus.com/media/investors-report/form-20-f-for-12-months-ending-the-31-october-2020-report.pdf and has been filed with the SEC.

1Leverage is defined as the ratio of Net debt to Adjusted EBITDA. Net debt is defined in Item 3.D.
2Adjusted EBITDA is defined in note 1 “Segmental reporting” of the Consolidated financial statements in Item 18.

30
Year ended October 31, 2021 compared to the 18 monthsyear ended October 31, 20182020

The Group changed its year end in 2018 from April 30, 2018 to October 31, 2018 and as a result reported an 18-month accounting period for the period ended October 31, 2018. As a result, the comparison of the 12 months ended October 31, 2019 to the previously reported 18 months ended October 31, 2018 presents substantial period-on-period decreases due to the shorter period of account in the current reporting period.


Cash flows from operating activities
Net cash generated from operating activities decreased by $260.0$477.6 million, or 28.2%70.4%, to $661.8$200.6 million in the 12 monthsyear ended October 31, 20192021 as compared to $921.8$678.2 million in the 18 monthsyear ended October 31, 2018.2020.


This decrease period-on-period is primarily due to a decrease of $368.0$392.3 million in cash generated from operations arisingand an increase of $120.7 million in tax payments. Tax payments included a payment made in respect of EU State Aid (excluding interest) of $44.2 million and another c.$42.0 million of payments relating to payments of prior year tax liabilities following the filing of statutory accounts in certain jurisdictions. These payments are not expected to recur in future accounting periods.

The decrease period-on-period of $392.3 million in cash generated from operations arises primarily from a $230.3$403.4 million decrease in operating profit (attributable to continuing(excluding the non cash impact of the $2,799.2 million goodwill impairment charge from the year ended October 31, 2020, and discontinued operations and discussedthe $282.3 million increase in operating results presentedamortization in Item 5.A)the current year). In addition expenditure to settle amounts included in provisions reduced in the year partly as a result of the shorter accounting period and also as the level of restructuring spend reduced in the period. These were offset by a decreaseperiod-on-period movement in working capital outflowsoutflow of $165.9$222.4 million.

The period-on-period movement in cash flows from working capital of $222.4 million and a $67.9 million increase in tax paid as tax attributes used in the prior year to reduce the cash tax was fully utilized in the prior year, offset by a $74.7 million decrease in interest paid resultingresult from the shorter accounting period and $101.2 million decrease in bank loan costs which related to the new term loans in the 18 month period ended October 31, 2018.

The working capital outflow in the 12 monthsyear ended October 31, 2019 was $121.22021 being $127.4 million, compared with a $287.0$95.0 million outflowinflow in the 18 monthsyear ended October 31, 2018.2020. This was primarily caused by significant improvements in the collection of  trade receivables during the period, overdue trade receivables reduced by $100.8 million and current receivables by $111.4 million, this was offset by a reductionyear on year outflow in trade and other receivables of $446.8 million offset by an inflow on payables and other liabilities of $99.3 million and an inflow from contract liabilities of $119.9 million. The movement in trade and other receivables has been caused primarily due to an increase in year-on-year billings towards the timingend of paymentthe fourth quarter of exceptional costs.the year ended October 31, 2021. The inflow in the year ended October 31, 2020 resulted from the reduction in revenue during the period and improvements in collection of trade receivables.


Cash flows fromused in investing activities
Net cash fromused in investing activities increaseddecreased by $1,903.3$13.3 million or 1,064.5%, to $2,082.1an outflow of $75.9 million in the 12 monthsyear ended October 31, 20192021 as compared to net cash used inoutflow from investing activities of $178.8$89.2 million in the 18 monthsyear ended October 31, 2018.2020.

Excluding the net cash received from the disposal of the SUSE business of $2,473.5 million, offset by the tax paid on the divestiture gain of $264.6 million, in the 12 months ended October 31, 2019 and the net cash of $321.7 million acquired with acquisitions in the 18 months ended October 31, 2018, the remaining movement in cash flows from investing activities remains broadly the same between the two periods.

Cash flows used in financing activities
Net cash used in financing activities increased by $2,364.2$103.3 million or 367.6%, to $3,007.3$301.5 million in the 12 monthsyear ended October 31, 20192021 as compared to $643.1$198.2 million in the 18 monthsyear ended October 31, 2018.2020.


This increase in net cash used in financing activities of $2,364.2$103.3 million is primarily due to:


an increasePayments of $373.0 million relatedshares into the Group’s Employee Benefit Trust to settle share buy-backs and related expenses being $544.7options of $27.2 million in the 12 monthsyear ended October 31, 2019 and $171.7 million2021 with no payments being made in the 18 monthsyear ended October 31, 2018;
2020.


an increase of  $1,300.0 million in relation toIn the Returns of Value to shareholders being $1,800.0 million in the 12 monthsyear ended October 31, 2019 and $500.02021, dividends of $81.1 million in the 18 months ended October 31, 2018;

a net decrease in bank borrowing proceeds or repayments of $1,003.5 million, being net repayments of $212.6 million in the 12 months ended October 31, 2019 and net proceeds of $790.9 million in the 18 months ended October 31, 2018;

a decrease of $103.0 million in dividendswere paid to shareholdersShareholders with no dividends being $439.2 million in the 12 months ended October 31, 2019 and  $542.2 million in the 18 months ended October 31, 2018 as only one interim dividend was paid in the year ended October 31, 2019 compared to two in the longer prior period; and
2020.


the prior period included a $225.8 million repayment of working capital in respect of HPE Software acquisition, with no similar payments in the current period.

18 months ended October 31, 2018 compared to the 12 months ended April 30, 2017

Cash flows from operating activities
Net cash generated from operating activities increased by $469.4 million, or 103.8%, to $921.9 million in the 18 months ended October 31, 2018 as compared to $452.4 million in the twelve months ended April 30, 2017.

This was primarily due to an increase of $859.4 million in cash generated from operations, arising from a $196.4 million increase in operating profit from the enlarged group, together with an increased intangibles amortization charge add-back of $706.8 million offset by a $220.7 million increase in interest paid, $94.5 million increase in bank loan costs and $74.8 million increase in tax paid. This was primarily as a result of the transformational acquisition of the HPE Software business.

Cash flows from investing activities
Net cash from investing activities increased by $768.4 million, or 130.3%, to $178.7 million in the18 months ended October 31, 2018 as compared to net cash used in investing activities of $589.7 million in the twelve months ended April 30, 2017.

This increase in net cash generated from investing activities was primarily due to the net effect of an increase in net cash acquired with acquisitions of $253.5 million, an increase in payments for intangible assets of $60.7 million, an increase of $28.4 million in payments for property, plant and equipment, a decrease of repayment of bank borrowings on acquisitions of $316.7 million, and a decrease in payments for acquisitions of subsidiaries of $279.8 million, partially offset by an increase of $18.1 million in payments for intangible assets. This was primarily as a result of the transformational acquisition of the HPE Software business.

Cash flows from financing activities
Net cash used in financing activities increased by $267.7 million, or 71.3%, to $643.0m in the 18 months ended October 31, 2018 as compared to $375.3 million in the 12 months ended April 30, 2017.

This increase in net cash used in financing activities of $267.7 million was primarily due to an increase of $863.8 million in proceeds from bank borrowings and a reduction of $119.1 million of repayment of bank borrowings, offset by cash outflows of $171.7m from the purchase of treasury shares, $500.0 million in relation to the Return of Value, $225.8 million repayment of working capital in respect of HPE Software acquisition, and an increase in dividends paid to shareholders of $364.6 million.

Contractual Commitments

  October 31, 2019  October 31, 2018 
  
$m
 
$m
Bank loan secured
  4,775.0   
4,996.9
 
Unamortized prepaid facility arrangement fees and original issue discounts
  (104.3)  
(151.0
)
   4,670.7   
4,845.9
 

  
Term Loan
B-2
  
Term Loan
B-3
  
Seattle Spinco
Term Loan B
  
Euro Term
Loan B
  
Revolving
Facility
  
Total
 
  
$m
 
$m
 
$m
 
$m
 
$m
 
$m
At May 1, 2017  
1,515.2
   
-
   
-
   
-
   
80.0
   
1,595.2
 
Acquisitions
  
-
   
-
   
2,600.0
   
-
   
-
   
2,600.0
 
Draw downs
  
-
   
385.0
   
-
   
523.8
   
135.0
   
1,043.8
 
Repayments
  
(11.4
)
  
(2.9
)
  
(19.5
)
  
(4.1
)
  
(215.0
)
  
(252.9
)
Foreign exchange
  
-
   
-
   
-
   
10.8
   
-
   
10.8
 
At October 31, 2018  
1,503.8
   
382.1
   
2,580.5
   
530.5
   
-
   
4,996.9
 
                         
At November 1, 2018  
1,503.8
   
382.1
   
2,580.5
   
530.5
   
-
   
4,996.9
 
Draw downs
  
-
   
-
   
-
   
-
   
-
   
-
 
Repayments
  
(89.1
)
  
(13.9
)
  
(94.2
)
  
(15.4
)
  
-
   
(212.6
)
Foreign exchange
  
-
   
-
   
-
   
(9.3
)
  
-
   
(9.3
)
At October 31, 2019  
1,414.7
   
368.2
   
2,486.3
   
505.8
   
-
   
4,775.0
 


In April 2019, early repayments totaling $200.0m in total were made against the existing term loans, utilizing someBank Borrowings

  
October 31,
2021
  
October 31,
2020
  
October 31,
2019
 
  $m

 $m

 $m

Bank loan secured 4,608.0  4,733.2  4,775.0 
Unamortized prepaid facility arrangement fees and original issue discounts (59.6)
 (92.9)
 (104.3)
  4,548.4  4,640.3  4,670.7 

The carrying value for borrowings are stated after deducting unamortized prepaid facility fees and original issue discounts. Facility arrangement costs and original issue discounts are originally amortized between three and six years. The remaining unamortized fees of $59.6m have a remaining period of amortization of up to two years.  Long-term borrowings have a drawn value of $4,608.0m before unamortized prepaid facility fees. The fair value of the proceeds from the saleLong-term borrowings before unamortized prepaid facility fees can be found in note 24 “Financial risk management and financial instruments” of the SUSE business. As a resultConsolidated financial statements included in item 18.

Short-term borrowing of this no further$24.3m represents capital repayments of $42.0m falling due on the Group borrowings within one year less unamortized prepaid facility arrangement fees and original issue discounts of $17.7m.
The Group’s earliest debt maturity is in June 2024, however as described below, annual instalment payments are expected within the next 12 months. The termrequired and additional payments are required dependent on leverage.

31

The following facilities were drawn as at October 31, 2019:2021:


The $1,414.7m€585.0 million (equivalent to $676.0 million) senior secured five-year term loan B-2B-1 issued by MA FinanceCoFinanceCo., LLC, maturing in June 2025, is priced at LIBOREURIBOR plus 2.25%4.5% (subject to a LIBOREURIBOR floor of 0.00%) with an original issue discount of 3.0%;


The $368.2m$359.5 million senior secured seven yearseven-year term loan B-3 issued by MA FinanceCoFinanceCo., LLC, maturing in June 2024, is priced at LIBOR plus 2.50%2.75% (subject to a LIBOR floor of 0.00%) with an original issue discount of 0.25%;


The $2,486.3m$633.7 million senior secured five-year term loan B-4 issued by MA FinanceCo., LLC, maturing in June 2025, is priced at LIBOR plus 4.25% (subject to a LIBOR floor of 1.00%) with an original issue discount of 2.5%;

The $2,427.9 million senior secured seven year term loan B issued by Seattle SpinCo.SpinCo, Inc., maturing in June 2024,is priced at LIBOR plus 2.50%2.75% (subject to a LIBOR floor of 0.00%) with an original issue discount of 0.25%; and


The €452.8m m€442.2 million (equivalent to $505.8m)$510.9m) senior secured seven year term loan B issued by MA FinanceCoFinanceCo., LLC, maturing in June 2024, is priced at EURIBOR plus 2.75%3.00% (subject to a EURIBOR floor of 0.00%) with an original issue discount of 0.25%.


The following facilities were undrawn as at October 31, 2019:2021:


A senior secured revolving credit facility of $500.0m,$350.0 million ($nil drawn), (“Revolving Facility”RCF”), with an interest rate of 3.25% above LIBOR on amounts drawn (and 0.375%0.5% on amounts undrawn) thereunder (subject to a LIBOR floor of 0.00%0.0%).


The only financial covenant attaching to these facilities relates to the Revolving Facility, which is subject to an aggregate net leverage covenant only in circumstances where more than 35% of the Revolving Facility is outstanding at a fiscal quarter end. At October 31, 2019, $nil of2021, the Revolving FacilityRCF was drawnundrawn (October 31, 2020: undrawn), together with $4,775.0m$4,608.0 million of Term Loansterm loans giving gross debt of $4,775.0m$4,608.0 million drawn. As a covenant test is only applicable when the Revolving Facility is drawn down by 35% or more, and $nil of Revolving Facility was drawn at October 31, 2019, no covenant test is applicable.


The Group has additional contractual commitmentsfollowing covenants related to net leverage1 apply to the Group’s term-loan borrowing facilities:


•
The RCF is subject to a single financial covenant, only in circumstances when more than 35% of the Revolving Facility is outstanding at a fiscal quarter end. Throughout the year the applicable covenant threshold was 3.85x, however no test was applicable at October 31, 2021 or any previous test date, as the facility was not drawn in excess of the 35% threshold. This facility has been amended post year end with the facility reduced to $250 million and with maturity extended until December 2026, subject to tests for the term loan maturities in June 2024 and June 2025. The amended facility is subject to a covenant test when more than 40% of the revolving credit facility is outstanding at a fiscal quarter end with a 5.00x net leverage1 covenant being applied.


•
Additional debt repayments when the Group’s net leverage1 at October 31 exceeds 3.00x, when 25% of excess cash flow for the year is required to be paid, and 3.30x, when 50% of excess cash flow for the year is required to be paid;


•
Net proceeds from divestitures in excess of $45 million are required to be used to make debt repayments. When the Group’s net leverage1 exceeds 3.00x, 100% of net proceeds must be used for debt repayments. When net leverage1 is below 3.00x, 50% of net proceeds must be used to make a debt repayment, however no further debt repayment is required once repayment reduces net leverage1 below 2.50x on a pro forma basis therefore use of excess disposal proceeds at this point is at the Group’s discretion; and


•
An additional 25 basis points of margin is required to be paid on the term loans maturing in June 2024 when net leverage1 exceeds 3.00x. The Group is currently paying this margin.

These covenants are not expected to inhibit the Group’s future operations or funding plans.

1See Item 5.B.1 for capital expendituredefinition of leverage. The credit facility agreements apply frozen GAAP for IFRS 16 and allows certain expected cost savings to be included in the form of leases which are disclosedmeasurement therefore the calculated value differs from that using net debt2  / Adjusted EBITDA3 as presented in Item 5.F of this Annual Report on Form 20-F, no additional financing20-F.
2 See note 24 “Financial risk management and financial instruments” of the Consolidated financial statements included in item 18.
3 See note 1 “Segmental reporting” of the Consolidated financial statements included in item 18.

32
The movements on the Group loans in the year were as follows:

  
term
loan
B-1 EUR
  
term
loan
B-2 USD
  
term
loan
B-3 USD
  
term
loan
B-4 USD
  
Seattle
Spinco
term loan B
  
Euro
term
loan B
  
Revolving
Facility
  Total 
  
$m

 
$m

 
$m

 
$m



$m

 
$m

 
$m

 
$m

 
At November 1, 2019
  -   1,414.7   368.2   -   2,486.3   505.8   -   4,775.0 
Draw down  665.8   -   -   650.0   -   -   175.0   1,490.8 
Repayments  -   (1,414.7)  -   -   -   -   (175.0)  (1,589.7)
Foreign exchange  34.5   -   -   -   -   22.6   -   57.1 
At October 31, 2020  700.3   -   368.2   650.0   2,486.3   528.4   -   4,733.2 
                                 
At November 1, 2020  700.3   -   368.2   650.0   2,486.3   528.4   -   4,733.2 
Draw downs  -   -   -   -   -   -   -   - 
Repayments  (17.9)  -   (8.7)  (16.3)  (58.4)  (12.8)  -   (114.1)
Foreign exchange  (6.4)  -   -   -   -   (4.7)  -   (11.1)
At October 31, 2021  676.0   -   359.5   633.7   2,427.9   510.9   -   4,608.0 

Maturity of debt
The maturity profile of the anticipated future cash flows including interest in relation to the Group’s borrowings and debt in the form of lease obligations, which therefore, differs from both the carrying value and fair value, is anticipatedas follows:

As at October 31, 2021:

  Borrowings  Lease Obligations  
Derivatives –
interest rate
swaps
  Total 
  
$m

 
$m

 
$m

 
$m

Within one year  202.6   74.9   35.7   313.2 
In one to two years  191.1   39.9   -   231.0 
In two to three years  3,453.6   29.7   -   3,483.3 
In three to four years  1,235.5   28.5   -   1,264.0 
In four to five years  -   49.1   -   49.1 
Total  5,082.8   222.1   35.7   5,340.6 
Impact of discounting  -   (27.6)  -   (27.6)
At October 31, 2021  5,082.8   194.5   35.7   5,313.0 
As at October 31, 2020:
  Borrowings  Lease Obligations  
Derivatives –
interest rate
swaps
  Total 
  
$m

 
$m

 
$m

 
$m

Within one year  203.6   82.2   -   285.8 
In one to two years  224.2   69.5   77.9   371.6 
In two to three years  230.3   43.3   -   273.6 
In three to four years  3,487.7   49.3   -   3,537.0 
In four to five years  1,242.0   36.3   -   1,278.3 
Total  5,387.8   280.6   77.9   5,746.3 
Impact of discounting  -   (30.2)  -   (30.2)
At October 31, 2020  5,387.8   250.4   77.9   5,716.1 

33
Item 5.B.2Derivative financial instruments.
Information on the type of financial instruments used and the Group’s treasury policies and objectives in terms of the manner in which treasury activities are controlled are included in Note 24 “Financial risk management and financial instruments” and Note 33 “Post balance sheet events” of the Consolidated financial statements included in Item 18.

Information on the currency and interest rate structure and maturity profile of debt are included in Item 5.B.1 above.

The Group’s cash and cash equivalents was held in the following currencies as at October 31, 2021:


$m

US dollar417.6
Indian Rupee25.0
Euro24.3
Russian Rouble23.9
Australian Dollar17.5
Japanese Yen13.6
South African Rand7.8
Canadian Dollar5.7
British Pound2.7
Other20.3
Total558.4

Item 5.B.3Material cash requirements
The following table summarizes the Group’s contractual obligations and other commercial commitments at October 31, 2021 as well as the effect these obligations and commitments, specifically long-term debt and lease obligations, are expected to have on the Group’s liquidity and cash flow in future periods:

  Payment due by period 
  
Less than
1 year
  
1-3
years
  
3-5
years
  
After
5 years
  Total 
  
$m

 
$m

 
$m

 
$m

 
$m

Debt principal repayment  42.0   3,365.5   1,200.5   -   4,608.0 
Interest payments on debt  160.6   279.2   35.0   -   474.8 
   202.6   3,644.7   1,235.5   -   5,082.8 
Lease obligations  74.9   69.6   28.5   49.1   222.1 
Purchase obligations  45.4   42.7   26.4   6.9   121.4 
   322.9   3,757.0   1,290.4   56.0   5,426.3 

The interest payments within the above table are presented based on the prevailing one-month LIBOR and foreign exchange rates as of October 31, 2021.

Purchase obligations primarily include commitments for software licences. Purchase orders for the purchase of other goods and services are not included in the table, as the Group’s operating subsidiaries are not able to determine the aggregate amount of such purchase orders that represent contractual obligations, as purchase orders typically represent authorizations to purchase rather than binding agreements. On 20 December 2021, the Group’s Employee Benefit Trust commenced the purchase of 12 million shares equivalent to $57.4 million at the share price and exchange rate on December 20, 2021. These shares will be purchased on the open market and will be used for the settlement of existing and future employee share schemes awarded to senior leaders and employees who are critical to achieving the strategic initiatives set out in Item 5.D.

The table above does not include any amounts that the Group may pay to fund its retirement benefit plans as the timing and amount of any such future funding are unknown and dependent on, among other things, the future performance of defined benefit pension plan assets, interest rate assumptions and other factors. The net retirement benefit scheme liabilities totaled $147.1 million as of October 31, 2021, which is net of pension assets of $173.5 million. The Group expects to be required to meet these commitments.

contribute approximately $ 7.7 million to its defined benefits plans during 2022. See note 22 “Pensions and other long-term benefit commitments” of the Consolidated financial statements in Item 18.

4834
Derivative Financial Instruments

Derivatives are only used for economic hedging purposes and not as speculative investments. Four interest rate swaps are in place with a total notional value of $2.25bn to hedge against the impact of potential rises in interest rates until September 30, 2022. The swaps are designated against the $2,486.3m (note 20 of the “Notes to the consolidated financial statements” in Item 18) loan issued by Seattle SpinCo. Inc. and the notional value covers 52.7% of the overall dollar loan principal outstanding for the Group.

The swap contracts require settlement of net interest receivable or payable on a monthly basis. The fixed interest rate for each swap is 1.949 % and the Group receives a variable rate in line with LIBOR. The Seattle loan is priced at LIBOR (with a floor) plus a current margin of 2.50% with the swaps aimed at addressing the risk of a rising LIBOR element. As such, the total interest cost of the hedged element of the Seattle loan is 4.44%. For the period to October 30, 2019, net interest received for the swaps amounted to $9.9m. For the life of the swap, net interest received amounted to $6.5m.

Hedge effectiveness is determined at the inception of the hedge relationship, and through periodic effectiveness assessments (adjusted for credit risk) to ensure that an economic relationship exists between the hedged item and the hedging instrument. The testing determined that the hedge was highly effective throughout the financial reporting period for which the hedge was designated.

The impact of changes in the fair value of interest rate swaps in the year ended October 31, 2019 is shown in the Consolidated statement of comprehensive income. Note 31 of the “Notes to the consolidated financial statements” in Item 18 shows the derivative financial instruments relating to hedging transactions entered into in the period ended October 31, 2019 (other reserves).

  October 31, 2019  October 31, 2018 
  
$m
 

$m

Carrying amount
  (36.5)  
86.4
 
Notional amount (4 x $562.5m)
  2,250.0   
2,250.0
 
Maturity date
 30 September 2022  30 September 2022 
Change in fair value of outstanding hedging instruments (note 31)
  (122.9)  
86.4
 
Change in value of hedging instruments adjusted for credit risk
  (121.9)  
84.7
 

Item 5. C.5.CResearch and development, patents and licenses, etc.


The Micro Focus Group invests heavilysignificantly in research and development. Through its market knowledge and close contact with customers, Micro Focus has sought to refine products to respond to the changing needs of the Micro Focus Group’s customers.


Research expenditure is recognized as an expense as incurred in the consolidatedConsolidated statement of comprehensive income in research and development expenses. Costs incurred on product development projects relating to the developing of new computer software programs and significant enhancement of existing computer software programs are recognized as intangible assets when it is probable that the project will generate future economic benefits, considering its commercial and technological feasibility, and costs can be measured reliably. Only direct costs are capitalized which are the software development employee costs and third-party contractor costs. Product development costs previously recognized as an expense are not recognized as an asset in a subsequent period.


The assessment as to whether product development expenditure will achieve a complete product for which the technical feasibility is assured is a matter of judgment, as is the forecasting of how the product will generate future economic benefit. Finally, the period of time over which the economic benefit associated with the expenditure occurred will arise is also a matter of judgment. These judgments are made by evaluating the development plan prepared by the research and development department and approved by management, regularly monitoring progress by using an established set of criteria for assessing technical feasibility and benchmarking to other products.

Item 5. D.5.DTrend information.

Factors and Trends that affect our Results of Operations


When considering investment priorities,A discussion on the technology trends which are impacting the Group’s operations is included in Item 4.B.2 under the heading Today’s technology landscape.

The main trends in the Group revenues and costs in the year ended October 31, 2021 and actions taken in relation to these trends are discussed in the revenue commentary in Item 5.A. Item 5.A also includes details of the disposal of the Digital Safe business and the commercial agreement with AWS both organic and inorganic, we evaluate our options against a set of characteristics enablingwhich will impact reported revenue in future periods. In addition, as explained in Item 5.B.1 the categorizationrefinancing of certain of the Group’s products into oneborrowings in January 2022 will increase the interest cost by approximately $23.0 million on an annualized basis.

Update on our three-year plan

On November 30, 2021, we set out our objectives for the business in a Strategy Update to investors and analysts. In summary, our priorities are to continue and where possible accelerate the:

-Transition our business model to be product group-centric end-to-end.
-Delivering the innovation our customers need in the way they want to consume it.
-Capturing cost efficiencies enabled by the enterprise-wide platform.

We believe successful execution of this as we exit the year ended October 31, 2023 can deliver:
-A flat or better year-on-year revenue trajectory.
-The removal of $400 million to $500 million of annual gross costs from the year ended October 31, 2021 cost base to leave between $1.5 billion and $1.6 billion (allowing for cost inflation).
-
Adjusted free cash flow1 run rate of $500 million.

1 Adjusted free cash flow, which is Free cash flow as defined (below), excluding the cash impact of exceptional items. Free cash flow is defined as cash generated from operations less interest payments, bank loan costs, tax payments, purchase of intangible assets, purchase of property, plant and equipment and interest and capital payments in relation to leases. Free cash flow is presented as it is widely used by securities analysts, investors and other interested parties to understand the Group’s Cash flow as it provides an indication of the following:

New Models – ProductsGroup’s cash generation in the period which is available for investment in debt repayments, dividend payments or consumption models (cloud and subscription) that open new opportunities that could become growth drivers or represent emerging use cases thatother discretionary activity. Adjusted free cash flow is intended to present the Group needs to be able to embrace;

Growth Drivers – Products with consistent growth performance and market opportunity to build the future revenue foundations of the Group;

Optimize – Products with declining revenue performance driven by the market or execution where the trajectory must be corrected to move back to the core category or investments focused to optimize long-term returns; and

Core – Products that have maintained broadly flat revenue performance but represent the current foundationscash-generating qualities of the Group and must be protected and extended.from trading performance only. In our view, this enables an understanding of the Group’s underlying trajectory as we deliver our plans.

35

Transition to a product group operating model

Why we are focused on this
Our product groups operate in highly competitive markets with often specific challenges and opportunities. By moving to this product group operating model we aim to enable more agility and effective execution within each product group in responding to these challenges and opportunities.

As a result, this will improve our ability to deliver innovation into the hands of customers.

How this will impact the way we operate
During the year ended October 31, 2021 we made good progress in repositioning our product portfolio and changing our Go-to-Market approach; the next phase is to evolve our business model to be much more product portfolio-centric end-to-end. We began this transition in CyberRes and Vertica a year ago and we are starting to see signs of progress from improved alignment and engagement.

The Group’s modelaim over the next two years is to align the Company by product portfolio, creating specialist and focused execution capability by Product Group. Better alignment, specialist skills and more focused execution will improve speed and agility in the market and better position our portfolios to succeed. The aim is to support these specialist units through centres of excellence such that we balance focus with delivery of economies of scale.

Continued focus on installed base

Why we are focused on this
The improvement of customer retention rates is critical to the future success of the business.

Whilst executing the integration, the Group has been heavily internally focused and as a result we have lost direct engagement with our customer base. In some portfolios, this combined with poorly aligned product roadmaps led to elevated levels of maintenance attrition. There has been great progress made in revitalizing roadmaps delivering innovative new capabilities which we now need to make sure our customers exploit.

How we are focusing on improving retention

1.
Proactive customer engagement – A detailed understanding of customer concerns to enable highly focused response through more skilled and specialized resources earlier in, and at every stage, of the cycle.


2.
Product innovation & adoption – Ensuring customers are using the latest versions of our software to enable adoption of new innovation and increase value from existing investments.


3.
SaaS & subscription – Help customers blend new offerings with existing investments to realize value quickly and further future proof their solutions.


4.
Leadership & alignment – Strengthened and increased leadership, re-aligned compensation and reduced handoffs across the customer journey.


5.
Sweat the details – Active management of renewals pipeline at detailed level by sub-portfolio, tailored to customer size and renewal risk profile across multiple periods.

Utilize the enterprise-wide platform to create an agile and lean organization

Why we are focused on this
The Company has been operating on multiple systems with significant levels of manual support which was highly inefficient. In July 2021 we went live on our new, single enterprise-wide platform. This gives us the foundation to drive simplification of our business. The priority now is to leverage the platform to deliver efficiencies through the removal of duplication, effectiveness through the provision of better tools for our teams and the insight required to improve customer service.

How simplifying our business will help transform our business
Since go-live in July 2021, we have visibility of our end-to-end processes. This is the first major step for us in being able to identify the root causes of inefficiencies. The next stage is to focus on delivering improvements by:

– Removing duplicative costs and processes from every function within the organization.

36
– Streamlining processes by reducing the number of systems, people and process interactions.

– Optimizing the balance of work done locally and centrally in low cost locations.

These actions are designed to deliver sustainablesimplify everything we do and consistent returns for our shareholders, customers and employees. The Group’s overarching principles are:

•
Long-term and Sustainable Adjusted EBITDA1 growth;

Strong free cash flow generation;

Efficient allocation of capital; and

Value accretive corporate actions through either acquisition or divestment.

The key initiatives and associated investments set out in Item 4.A, combined with existing but adjusted operational improvement actions resulting from the Strategic & Operational Review set out in Item 4.A are intended to drive an accelerated recoveryimprove our ability to respond to customers and ensure they can exploit the innovation we are delivering.

The principal risks in revenue trajectory such thatrelation to these strategic initiatives are discussed in Item 3.D.

Climate change

Why are we focused on this
Micro Focus recognizes the revenue decline, excludingrisks posed by climate change and fully supports the impactaim of the shorter accounting period, moderates and delivers flatTask Force on Climate-related Financial Disclosures (“TCFD”) recommendations. Micro Focus is committed to low single digit growth overworking towards incorporating the medium term. Successful deliveryTCFD recommendations, which we are required to comply with for our Domestic listing, for the first time in our annual report for the year ended October 31, 2022.  In the subsequent paragraphs our progress to date is summarized. This has been supported by a readiness assessment report we commissioned during the year related to the four pillars of the TCFD.

How this when combined withwill impact the completion of work to build an effective operational platform, see Item 4.A, should also enable Adjusted EBITDA margins2 to be improved over time.way we operate

Governance
The StrategicBoard assumes overall responsibility and accountability for the management of Climate-related risks and opportunities. In June 2021, a new Environmental, Social & Operational review set outGovernance (ESG) framework was introduced along with a new board level committee to ensure the Board has oversight of climate-related issues. The ESG committee is supported by an ESG working group which is made up of senior leaders across the business to ensure accountability and an environmental sub group with specific responsibilities for our environmental strategy.

Strategy: identifying risks and opportunities
We are continuing to assess how climate-related risks and opportunities impact our business. This includes looking at our  products and how these support our customers in Item 4.A highlightedresponsibly achieving their business objectives and our strategy for engaging with suppliers to address environmental related risk. We are conducting cross-functional workshops, initially with our Finance, Risk and Real Estate teams, to better understand the need for a more definitive approachphysical risks (both acute and accelerated transition to Subscriptionchronic) and SaaS based offeringstransitional risks (such as policy, regulatory and market changes) that affect our business.

As part of assessing ESG related risks and opportunities and to support our future portfolio strategy. The transitionESG strategy, we anticipate implementing climate-related scenario analysis. These scenario analyses will be managedused to financially quantify the material impacts of climate change to our business over multiple financial periods with an initial focus on products where this model is emerging or de facto market standards. The Group’s goal isdifferent time horizons and will inform us in planning and prioritizing future business strategies, investments and establishing policies to deliver incremental improvements in revenue trajectory alongside a structured and disciplined transition to SaaS and Subscription for someimprove the resilience of our products. During FY20business and continuity long term.

Risk Management
We have an established risk management framework we use to identify, assess, mitigate and monitor enterprise risk across the Group will begin the transition of Vertica, seek to grow existingorganization and introduce new offerings in Securitywe have broadened our risk management policy and build upon existing initiatives in ADM and ITOM.

Whilst the Group manages the portfolio as a “fund of funds” the Group recognizes the need to run certain portfolios differently and essentially as a separate business; as the Group did with the SUSE portfolio acquired as part of The Attachmate Group. The market opportunity for Security and Big Data is such that a similar, differentiated approach to investment and operational management will be adopted for these product lines. Over the medium term the Group’s goal is to develop broadly autonomous businesses operating within the Group. This will happen in two phases and take 12-24 months to complete. During the first phase we will re-align organizational structures, build new capability within these portfolios and re-focus product and market positioning where required. In phase two our plan is to run these portfolios broadly autonomously and report performance discretely within the overall group performance updates.

Also refer to Item 5.A of this Annual Report on Form 20-F for further discussion of trend information. The period-on-period movements presented in this section are distorted by the difference in accounting periods in the current and prior periods (12 months v 18 months) but the discussion of operating results identifies the main underlying trends.

1 See definition of Adjusted EBITDA in Item 3.D
2 Adjusted EBITDA margin, is Adjusted EBITDA as a percentage of actual revenue recorded in accordance with IFRS for the period.

Item 5. E.Off-balance sheet arrangements.

There are no off-balance sheet arrangements, aside from operating leases, where accounting standards applicableprocedure in the period do not allow recognition of theseto incorporate ESG matters into this process. The ESG committee receives reporting on balance sheet. TheESG risks identified through the Group’s commitments under operation leases are described inrisk management process. A focus for the contractual cash obligations table in Item 5.Fcoming year will be the continued refinement of this Annual Report on Form 20-F. There are no other off-balance sheet arrangements which are reasonably likelyrisk management process to have,better identify the physical and transitional climate-related risks and opportunities we face as a current or future material effectbusiness. Further details on the Group’s financial condition, revenues or expenses, resultsrisk management process are noted in Risk factors in Item 3.D.

Metrics & Targets
As part of operations, liquidity, capital expenditures or capital resources.implementing our environmental strategy over the coming year we will assess which specific targets and metrics we consider to be most relevant for our business in direct response to climate-related risks and opportunities. As part of the readiness assessment a detailed review was conducted of our carbon emissions including assessing the current GHG emissions profile.


Item 5. F.5.ETabular disclosure of contractual obligations.Critical accounting estimates.


Not applicable.
The following table summarizes the Group’s contractual obligations and other commercial commitments at October 31, 2019, as well as the effect these obligations and commitments, specifically long-term debt and lease obligations, are expected to have on the Group’s liquidity and cash flow in future periods:

  Payment due by period 
  
Less than
1 year
  
1-3
years
  
3-5
years
  
After
5 years
  Total 
  
$m
 
$m
 
$m
 
$m
 
$m
Debt principal repayment
  
-
   
1,431.7
   
3,343.3
   
-
   
4,775.0
 
Interest payments on debt
  
209.2
   
360.6
   
235.7
   
-
   
805.5
 
   
209.2
   
1,792.3
   
3,579.0
   
-
   
5,580.5
 
Finance Leases
  
11.8
   
10.8
   
0.9
   
-
   
23.5
 
Operating Leases
  
78.6
   
123.6
   
61.4
   
37.6
   
301.2
 
   
299.6
   
1,926.7
   
3,641.3
   
37.6
   
5,905.2
 

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The interest payments within the above table are presented based on the prevailing one-month LIBOR and foreign exchange rates as

Item 5. G.Safe harbor.

Refer to the information set forth under the heading “Forward Looking Statements” on page 5.

Item 6.6Directors, Senior Management and Employees


Item 6. A.6.ADirectors and senior management.


During the year ended October 31, 20192021 our directors and senior management comprised the board of directors, detailsand the following members of key management bodies who are not on the board of directors. Details of the membership of the board and the related board committees they were involved in are disclosed below, and the following members of key management bodies who are not on the board of directors:below.


Paul Rodgers (Chief Operating Officer)Directors
Ian Fraser (Chief Human Resources Officer)
Jane Smithard (Group General Counsel and Company Secretary)
Chris Livesey (Senior Vice President and General Manager AMC Product Group)
Susan Ferguson (Vice President Strategy and Planning)
John Delk (Chief Marketing Officer and Security Product Group Leader)
Tom Goguen (Chief Product Officer and General Manager ITOM Product Group)
Colin Mahony (Senior Vice President and General Manager Vertica Product Group)
John Hunter (Chief Revenue Officer)
Raffi Margaliot (Senior Vice President and General Manager ADM Product Group)

Board and board committee membershipsDirectors as at October 31, 2019:2021 and committee membership:


NameRoleCommittee Membership
Greg LockNon-Executive ChairmanNomination committee and Remuneration committee
Stephen MurdochChief Executive OfficerExecutive committee
Kevin Loosemore Matt Ashley1
Executive Chairman
Stephen Murdoch
Chief Executive Officer
Executive Committee
Brian McArthur-Muscroft 3
Chief Financial Officer
Executive Committee
committee
Karen Slatford
Senior independent non-executive director
Audit Committee and Nomination Committee
Richard Atkins
Independent non-executive director
Audit Committee, Nomination Committee and Remuneration Committee
Amanda Brown
Independent non-executive director
Audit Committee, Nomination Committee and Remuneration Committee
Silke Scheiber 2
Senior Independent Director
Audit committee and Nomination committee
Richard AtkinsIndependent non-executive director
Audit Committee,committee, Nomination Committeecommittee and Remuneration Committee
committee
Amanda BrownIndependent non-executive directorAudit committee, Nomination committee and Remuneration committee
Pauline CampbellIndependent non-executive directorAudit committee, Nomination committee and Remuneration committee
Lawton FittIndependent non-executive directorAudit committee, Nomination committee and Remuneration committee
Lawton FittSander van ’t Noordende3
Independent non-executive director
Audit Committee, Nomination Committeecommittee and Remuneration Committee
committee
Robert YoungjohnsIndependent non-executive directorAudit committee, Nomination committee and Remuneration committee

1 Kevin Loosemore had the role of Executive Chairman during the 12 months end October 31, 2019 but stepped down from the board on February 14, 2020. Greg Lock joined the board as Non-executive Chairman on February 14, 2020.

2 Silke Scheiber had a role as an independent non-executive director during the 12 months ended October 31, 2019 but stepped down from the board on February 4, 2020 having held roles as a member of the Audit Committee, Nomination Committee and Remuneration Committee.

3 Chris KennedyBrian McArthur-Muscroft served as Executive director and Chief Financial Officer until February 21, 2019June 30, 2021 and held a role as a member of the Executive Committee,committee, when he was replaced by Brian McArthur-Muscroft.Matt Ashley.

2 As announced on February 8, 2022 Karen Slatford has informed the Board of her intention to retire as a director of Micro Focus International Plc, following the conclusion of the 2022 Annual General Meeting and consequently will not be seeking re-election.
533 As announced on October 21, 2021, Sander van ‘t Noordende has informed the Board of his intention to retire as a director of Micro Focus International Plc, following the conclusion of the 2022 Annual General Meeting and consequently will not be seeking re-election.
Greg Lock


Greg Lock took up- Chairman

Chairman since February 2020.

Before embarking on his adventures as a PLC Chairman Greg enjoyed 30 years at the role of non-executiveIBM Corporation. There he served, inter alia, as assistant to the Chairman, on February 14, 2020. Greg has more than 45 years’ experience in the software and computer services industry, including 11 years as Chairman of Computacenter plc, seven years as Chairman of Kofax plc and four years as Chairman of SurfControl plc. In the last five years he has also been a director of Informa plc and UBM plc. From 1998 to 2000, he was General Manager of IBM’s Global Industrial sector. Greg also served as a member of IBM’sthe IBM Worldwide Management Council, and as a governorGovernor of the IBM Academy of Technology.Technology and Global General Manager for Industrial Sector. In that role he had P&L responsibility for a $12 billion unit representing about 15% of the Corporation’s revenues.


Kevin LoosemoreIn his second career he has been Chairman of FTSE listed Companies Orchestream, SurfControl, Kofax, UBM, Computacenter, and Deputy Chairman of Informa.


Kevin wasGreg holds an MA in Natural Sciences from Churchill College, Cambridge, where he is a Fellow and member of the Development Board. Greg, together with his wife, Rosie, have established a charitable foundation aimed, inter alia, at supporting education for the less privileged. Through the foundation they have endowed Lock Bursaries at Churchill aimed at supporting less financially advantaged state school pupils to pursue STEM subjects.

Stephen Murdoch – Chief Executive ChairmanOfficer

Stephen is our Chief Executive Officer and a member of the Micro Focus board, untilpositions he stepped downhas held since March 19, 2018. Stephen joined Micro Focus in 2012, first serving as General Manager of the Product Group and Chief Marketing Officer, responsible for all software product and services offerings development, customer services, corporate marketing and strategy. In 2014, he was appointed as Chief Operating Officer and Executive Director, having responsibility for sales and marketing, product strategy, development and management, services and business operations.

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Prior to Micro Focus, Stephen spent seven years at Dell, first building Dell’s Global Infrastructure Consulting Services organization, and then leading its business in Europe, Middle East and Africa. Before Dell, Stephen had 17 years’ experience at IBM, latterly serving as Vice President, Communications Sector with responsibility for the entire telco, media, and utilities industry portfolio. During his IBM career, Stephen held a number of Global, EMEA and UK senior management roles with experience spanning software and services, storage, and enterprise systems.

Matt Ashley – Chief Financial Officer

Matt is our Chief Financial Officer and a member of the Micro Focus board, since July 1, 2021.

Matt joined from William Hill plc, a sports betting and gaming business, where he was Chief Financial Officer and member of the board. In December 2021,  Matt was appointed as a Non-executive director of Robert Walters plc. Matt previously held several positions at National Express Group plc including Group CFO and President and CEO of its North America business based in Chicago.

He was a director of transport, infrastructure and public company reporting at Deloitte LLP and began his career as an auditor in London. Matt brings considerable public company experience to Micro Focus including business transformation, acquisitions and divestitures, debt and rights issues and public reporting.

He is a graduate of Leeds University and a member of the Institute of Chartered Accountants in England and Wales.

Karen Slatford* - Senior Independent Director

Karen is a non-executive director of Softcat plc, Chair of FTSE 250-listed Molten Ventures plc (formerly AIM listed Draper Esprit plc) and a non- executive director at Accesso Technology Group plc. Prior to her current responsibilities, she held various roles at the board level since 2001 at a range of technology companies. Karen began her career at ICL before spending 20 years in Hewlett-Packard, where she headed up worldwide sales and marketing. Karen holds a BA Joint Honors degree in European Studies, French and Spanish from Bath University.

* As announced on February 14, 2020. He was appointed non-executive Chairman8, 2022, Karen has informed the Board of her intention to retire as a director of Micro Focus, following the conclusion of the 2022 Annual General Meeting.

Richard Atkins - Independent non-executive director

Richard is Chairman of Acora, an IT Services outsourcing company, YSC, an international Leadership Development company and Bedrock Holdco Ltd. He has spent the majority of his career within the IT industry.

Previously, he was a director at Data Sciences where he led its MBO from Thorn EMI in 1991 and then managed its successful sale to IBM in 1996. His final role at IBM was as General Manager for IBM Global Services Northern Europe where he was also a member of the IBM worldwide senior leadership team. Since leaving IBM in 2005 he has acted as a non-executive director for several companies including Aon, Compel, Message Labs, Global Crossing, Morse and Executive ChairmanEasynet. Richard qualified as a Chartered Accountant with EY.

Amanda Brown - Independent non-executive director

Amanda is the Chief Human Resources Officer at Hiscox Ltd, a FTSE 250 business and specialist insurer with offices in April 2011. Kevin14 countries.

Amanda has more than 20 years of international HR experience in a variety of industries, including consumer goods, leisure, hospitality, and financial services. Prior to Hiscox, Amanda held a number of leadership roles with Mars, PepsiCo, and Whitbread plc. She has expertise in human resources, remuneration strategy, and managing organizations through periods of significant change.

Pauline Campbell - Independent non-executive director

Pauline joined the boardMicro Focus Board on October 1, 2021. She is a recently retired PricewaterhouseCoopers Audit Partner who worked with company boards across a number of De La Rueindustries, both private and publicly owned. Pauline has experience of companies going through business cycles of trading, acquisition, disposal and raising finance. She has worked internationally across a broad range of sectors including IT services and support services amongst many others. As an Audit Partner, Pauline has wide experience of risk and quality assessment.

Pauline also served on the Governance Board of the UK firm including the Public Interest Body and the equivalent body at PwC’s Global Network, so brings a wealth of governance experience and has recently been appointed to the Board of Computacenter plc as a non-executive director on September 2, 2019director.

39
Pauline was a trustee for social business that supports young adults in achieving their potential and became non-executive Chairman, of that company on October 1, 2019. Kevin is alsocurrently a Trustee for Catch 22 Multi Academy Trust and the Latymer Foundation.

Lawton Fitt - Independent non-executive director

Lawton is an investment banker and former Chairmana highly experienced corporate director. She currently serves on the boards of IRIS SoftwareCiena Corporation, The Progressive Corporation and The Carlyle Group, Ltd, a role he relinquished on September 2, 2019.

Kevinand was previously a non-executive Chairmandirector at ARM plc and Thomson Reuters. Lawton worked at Goldman Sachs for over 23 years in investment banking, equities and asset management, and for more than a decade she led the equity capital markets team, focused on technology companies. She was elected a Partner in 1994 and worked in the London and New York offices.

From 2002 to 2005 Lawton was the Secretary (Chief Executive Officer) of Morse plc,the Royal Academy of Arts in London and has served as a trustee for a number of not-for-profit organizations and foundations, including the Goldman Sachs Foundation and the Thomson Reuters Foundation. She received her undergraduate degree in European History from Brown University and her MBA from the Darden School of the University of Virginia.

Sander van ’t Noordende* - Independent non-executive director

Sander is a non-executive director of Nationwide Building SocietyAECOM and a member of the Executive board of Randstad N.V.

Sander has had a 32-year career in Technology and Professional Services at Accenture, where he was a member of the Global Management Committee from 2006 to 2019. His last role in Accenture was Group Chief Executive of the Products Operating Group which serves clients in the consumer goods, retail, travel, life sciences and industrial & automotive industries. Before that he looked after Management Consulting, the Resources Operating Group and The Netherlands. He also served on the board of Avanade (an Accenture JV with Microsoft).

Sander is passionate about equality and belonging in the workplace, especially the LGBTI agenda. He has been recognized several times by the FT as one of the top 100 global LGBT+ Executives. He currently serves on the Board of Out & Equal (the world’s premier LGBT workplace equality organization).

He holds a Master’s degree in Industrial Engineering and Management Science from the Eindhoven University of Technology.

* As announced on October 21, 2021, Sander has informed the Board of his intention to retire as a director of Micro Focus, following the conclusion of the 2022 Annual General Meeting.

Robert Youngjohns - Independent non-executive director

Robert is a board member at a small number of growth companies in the technology sector and an operating executive at Marlin Equity Partners. Robert previously served as Executive Vice President and General Manager of HP Software at Hewlett Packard Enterprises (“HPE”). During his tenure at Hewlett Packard, Robert was a member of HP’s Executive Council, as well as a Senior Vice President.

Prior to his work at HPE, Robert was a Senior Vice-President of Microsoft and President of Microsoft North America. He has held senior leadership positions at Sun Microsystems and IBM. Robert holds a Master’s degree with honors in physics and philosophy from Oxford University.

Board members’ external commitments
Each of the non-executive directors confirms on appointment that they will devote sufficient time to meet what is expected of them in their role. They have each disclosed their other significant commitments and the time involved in these and advise the board of any changes.

One executive director has an external role
Matt Ashley is a non-executive director of Robert Walters plc.

40
Senior Management

Senior Management as at October 31, 2021:

NameRole
Paul RodgersChief Operating Officer
Chris LiveseySenior Vice President, Revenue Growth and Strategy
John DelkSenior Vice President and General Manager of the CyberRes (Security) Product Group
Eric VarnessChief Marketing Officer
Jane SmithardChief Legal Officer and Group General Counsel
Susan FergusonChief Human Resources Officer & Senior Vice President Business Operations
Rohit de SouzaSenior Vice President, General Manager of the ITOM Product Group and the ADM Product Group, Leader of the CTO office and Product Security
Colin Mahony*Senior Vice President and General Manager, Vertica
Neil FowlerVice President and General Manager, AMC Product Group
Scott RichardsVice President and General Manager of the IM&G Product Group
Suzanne ChaseGroup Company Secretary and Head of Assurance
Nick WilsonWorldwide President of Sales
* Colin Mahony left Micro Focus on December 15, 2021

Paul Rodgers - Chief Operating Officer

Paul Rodgers is the Big Food Group plc. His most recent executive roles were as Chief Operating Officer for Micro Focus and has a proven track record of Cable & Wireless plc,success with pioneering board-level strategies that facilitate transformations across complex business landscapes. Paul supports the businesses by identifying areas for innovation and guiding strategic changes that improve efficiencies, reduce cost and deliver large-scale growth.

Prior to this role, Paul served as the Business Operations and Integration lead for Micro Focus, where he was responsible for overseeing the successful integrations resulting from the company’s merger and acquisition activity. Paul joined Micro Focus in April 2008 as the Group HR Director, and prior to joining Micro Focus, Paul spent 17 years with IBM and four years as Managing Director of a successful Executive HR consultancy business with clients such as Dell, Unilever, Yahoo and Sainsbury’s.

Chris Livesey - Senior Vice President, Revenue Growth and Strategy

Chris Livesey is the Senior Vice President of Motorola Europe, Middle EastRevenue Growth & Strategy, responsible for how we strengthen and Africainnovate our engagement with customers, to enable their success and maximum return on investment.

Chris has over 25 years of experience in the technology industry, holding a number of executive leadership positions including sales, marketing, product development, and consulting. He holds a BSc (Hons) in Mathematics and Statistics and a Master’s degree in Software Engineering, both from the University of Glasgow.

John Delk - Senior Vice President and General Manager of the CyberRes (Security) Product Group

John Delk is the Senior Vice President and General Manager of the CyberRes (Security) Product Group at Micro Focus. Prior to this role, he served as Chief Marketing Officer and Chief Product Officer. John joined Micro Focus in 2014 as part of the acquisition of the Attachmate Group where he had served as Vice President of Product Management and Marketing for NetIQ. Prior to that, he spent seven years in various leadership positions at Novell in product management, sales, and services.

John has over 35 years of experience in the IT industry working for numerous other companies holding roles including Managing Partner at BearingPoint/KPMG Consulting and a Vice President at EDS. He holds a master’s degree in Computer Science from Georgia Institute of Technology and a bachelor’s degree from Furman University with a double major in Mathematics and Computer Science.

Nick Wilson – Worldwide President of Sales

Nick Wilson is the Worldwide President of Sales for Micro Focus. Nick leads our Sales, Services, Support and Customer Success teams worldwide and is responsible for delivering on our commitment to our customers’ success. Through his leadership the teams at Micro Focus are jointly focused on offering effective solutions that drive value, and delivering a positive, seamless, end-to-end customer experience.

41
Nick has spent more than 30 years in the IT industry, having held several senior leadership roles, including Managing Director for UK and South Pacific for HP/HPE, President & CEO of EMEA Outsourcing (the UK & Nordics business for CSC), Managing Director at UNISYS UK, and General Manager of IBM’s Global Services business in the UK, Ireland and South Africa. Through this broad experience across sales, services, support, education and software development, Nick understands the complexities and challenges companies face in the ever-changing and evolving business where technology is critical.

In addition to his corporate contributions, Nick is a passionate STEM ambassador and vocational education advocate, and has worked with various institutions to develop programs to support science, engineering and technology careers.

Eric Varness - Chief Marketing Officer

Eric Varness is the Chief Marketing Officer for Micro Focus. Eric joined Micro Focus in 2014 as part of the acquisition of the Attachmate Group where he had served as Vice President of Product Management and Marketing for Novell and Attachmate. Eric joined the Attachmate Group in 2003 and has held a variety of leadership positions across Marketing, Product Management, and Sales.

Eric has over 30 years of experience in the IT industry working for both startups and large companies across a variety of market sectors including Call Center automation, Process Automation, and Collaboration Solutions. Eric holds a bachelor’s degree from the University of Washington.

Jane Smithard - Chief Legal Officer and Group General Counsel

Jane has more than 25 years’ experience as a lawyer in the IT industry and software sector. She has worked with Micro Focus for over 20 years providing a wide range of commercial and corporate legal services, from leading the efforts through the 2005 IPO to driving the legal aspects of the group’s mergers, acquisitions and divestitures strategy including the acquisition of HPE Software business and divestiture of SUSE. Jane leads a team of approximately 60 lawyers and other professionals worldwide, the majority of whom are focused directly on supporting the Company’s commercial teams and business.

Jane qualified as a Barrister and was called to the Bar of England and Wales in 1982. She has a BA (Hons) in Law, a postgraduate diploma in European Law from King’s College, London, and is a Fellow of the Chartered Institute of Arbitrators.

Susan Ferguson - Chief Human Resources Officer and SVP Business Operations

Susan is our Chief Human Resources Officer & SVP Business Operations. She is responsible for leading the HR organization in addition to managing business operations across the organization including driving strategic initiatives.

Susan joined Micro Focus from Hewlett Packard Enterprise (HPE) Software in 2017 where she held the position of Vice President, Worldwide Indirect Sales. Previously Susan held the role of Vice President, Strategy & Planning, Chief of Staff to the EVP of HPE Software business and prior to that was Vice President Worldwide Alliances & Channels, Big Data. Susan was recognized among CRN’s Power 100 Women of the Channel during her tenure.

Before joining HPE, Susan was Vice President at Oracle Corporation and earlier at Sun Microsystems, where she led regional and global services, indirect sales and functional organizations. At Sun, Susan previously led global legal teams with responsibility for sales, marketing, channel, supply chain and anti-trust matters. Susan graduated with a LL.B Honors degree and is a qualified attorney and mediator.

Rohit de Souza - Senior Vice President,  General Manager of the ITOM Product Group and the ADM Product Group, Leader of the CTO office and Product Security

Rohit de Souza is the Senior Vice President, General Manager of the ITOM Product Group and the ADM Product Group. Rohit also leads the CTO office and Product Security at Micro Focus. Rohit and his team are responsible for developing and delivering enterprise-scale IT management solutions that integrate with, and work alongside, legacy and cloud tools to simplify the complexity of managing hybrid IT environments, reliably scaling Agile and DevOps across all your environments from mainframe to cloud, and accelerating application delivery at high speed with low risk.

Prior to this role, Rohit served as the President and Chief Executive Officer at Actian Corporation. While there, Rohit oversaw the transformation of this global organization, serving over 3,000 customers, bringing a unified approach to the next generation of hybrid data management. Prior to this, Rohit was President and acting CEO at Beyondcore where he refocused the product and GTM strategy of this analytics and smart data discovery firm and was also VP & GM of HPE Software’s Information Analytics (IDOL) business.

Rohit holds dual master’s degrees in engineering from the University of California at Berkeley and an undergraduate degree in engineering from Madras University in India.

42
Colin Mahony* - Senior Vice President and General Manager Vertica*

Colin Mahony led the Vertica Product Group for Micro Focus, spanning global GTM, Product Strategy, R&D, Professional Services and Support. Colin had led his team to deliver industry leading in-database machine learning capabilities and advanced analytics with the performance and scale needed to power the world’s most data driven enterprises. Colin is known for his industry thought leadership, technical expertise and business acumen.

In 2011, Colin joined HP through the Vertica acquisition and has since led the business. Prior to Vertica, Colin was a Vice President at Bessemer Venture Partners and before that he worked at Lazard Technology Partners. Earlier in his career, Colin was Chief Executivea Senior Analyst at the Yankee Group, serving as an industry analyst and consultant covering databases, BI, middleware, application servers, and ERP systems. Colin earned an MBA from Harvard Business School and a bachelor’s degree in Economics with a minor in Computer Science from Georgetown University.

* Colin left the business in December 2021.

Neil Fowler - Vice President and General Manager, AMC Product Group

Neil Fowler leads the AMC Product Group for Micro Focus. Neil joined Micro Focus in 1991 and played a key role in R&D as a technical architect in Enterprise Solutions. With significant experience of IBM U.K. Limited.helping hundreds of customers deliver modernization projects he has been at the forefront of product architecture and strategy across COBOL, Mainframe Solutions, CORBA and Host Connectivity.


Over the past 30 years Neil has held a number of different leadership roles responsible for strategy, acquisition integration and product design and delivery. Prior to his current role, Neil was Vice President for Engineering in AMC. He has a degree in politicsPhysics and economicsComputer Science from OxfordBrunel University.


Scott Richards - Vice President and General Manager of the IM&G Product Group

Scott Richards is the Vice President and General Manager of the IM&G product group at Micro Focus. Prior to this role, he served as the Vice President of Worldwide Engineering for the IM&G product group.

Scott joined Micro Focus in 2014 as part of the acquisition of the Attachmate Group where he served as Senior Director of Engineering as well as in several other leadership roles.

Scott has over 25 years of experience in the high-tech industry working for both startups and large corporations including leadership roles at 3Com and VP of Product Development and Marketing at Senforce Technologies. Scott holds a master’s degree in International Management from Thunderbird School of International Management at Arizona State University and a bachelor’s degree from Utah State University with a major in Marketing and a minor in Japanese.

Suzanne Chase – Group Company Secretary and Head of Assurance

Suzanne is Group Company Secretary and Head of Assurance. She is a solicitor with over 30 years expertise in M&A, governance, compliance, risk and assurance. Previous positions held have been Group General Counsel at Wickes plc, Group General Counsel and Company Secretary at The Big Food Group plc, General Counsel and Company Secretary at Morse plc, General Counsel and Company Secretary at Parity Group plc and Compliance Partner at King Sturge LLP (now part of JLL). She is a member of The Law Society of England and Wales. Suzanne is also a Fellow of the Royal Society of Arts, Manufactures and Commerce.

Any arrangement or understanding with major shareholders, customers, suppliers or others, pursuant to which any person referred to above was selected as a director or member of senior management can be found in note 29 “Related party transactions” of the Consolidated financial statements in Item 18.

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Item 6.BCompensation

Aggregate compensation paid to the Group’s directors and members of key management bodies are disclosed below. In addition, further information on the compensation of the Group’s directors is disclosed. This is based upon information extracted from the Remuneration report in the UK Annual Report and Accounts prepared in line with the recommendations of the UK Corporate Governance Code.

Year ended
October 31, 2021
Aggregate compensation including fees paid to non-executive directors and key management
$m

Short-term benefits13.5
Share based payments1.9
Total compensation15.4

The figures above include the executive management team, executive directors and non-executive directors. There are no post-employment benefits.

Single figure for total remuneration of executive directors
The table below shows the single figure for total remuneration for executive directors for the financial year ended October 31, 2021, together with their respective figures for the year ended October 31, 2020 as shown in last year’s report.

  
(a) Base
Salary1
  
(b)
Benefits
in kind2
  
(c)
Annual
bonus3
  
(d)
LTIP4
  
(e)
Pension5
  
(f)
Other6
  Total  
Total Fixed
Remuneration
Total of (a),
(b) and (e)
  
Total Variable
Remuneration
Total of (c) and
(d) and (f)
 
Executive Directors 
£’000  
£’000  
£’000  
£’000  
£’000  
£’000  
£’000  
£’000  
£’000 
Stephen Murdoch2021  850   22   733   -   127   -   1,732   1,000   733 
2020  850   24   283   -   127   -   1,284   1,002��  283 
Matt Ashley7
2021  175   15   151   -   9   450   800   200   601 
2020  -   -   -   -   -   -   -   -   - 
Brian McArthur-Muscroft 8
2021  433   15   -   -   60   -   509   509   - 
2020  600   25   199   -   90   -   914   715   199 

1Base salary is the amount earned during the period in respect of service as a director. For Brian McArthur-Muscroft, an amount for unused but accrued holiday is also included for year ended October 31, 2021.
2Benefits include car allowance, private medical/dental insurance, group income protection and life assurance. There has been no change in the benefits offered to directors in year ended October 31, 2021 versus year ended October 31, 2020. The reduction in the benefits for Stephen Murdoch from the year ended October 31, 2020 to 2021 reflects reductions in employer costs in providing private medical/ dental insurance and group income protection. For Matt Ashley, an amount is included which reflects the grossed up value of travel and accommodation related to time spent in the Newbury office.
3Annual bonus reflects payment for performance during the year in respect of service as a director. One-third of the annual bonus amount included in the table above is deferred into an award over shares which vests after three years. Dividend equivalents accrue on the deferred share awards.
4The zero amount for LTIP for year ended October 31, 2021 for Stephen Murdoch reflects that the performance conditions for the 2018 and 2019 were not met. The 2018 LTIP award (with performance period ending April 30, 2021) was granted to Stephen Murdoch in September 2018 as a top-up to his September 2017 award to reflect his appointment as CEO. The performance period ending April 30 reflected the company’s previous year-end before this was change to October 31. The 2018 award lapsed on July 1, 2021. The 2019 award was a regular annual LTIP award granted in February 2019 (with performance period ending October 31, 2021). The 2019 award will lapse on February 8, 2022. The zero amount for LTIP for year ended October 31, 2020 reflects the lapse of the 2017 LTIP award on July 7,2020 due to the performance conditions not being met. No discretion was applied by the remuneration committee in determining the LTIP vesting outcomes in year ended October 31, 2021 or in year ended October 31, 2020.
5All pension amounts paid by the Company in the year ended October 31, 2021 are cash in lieu of pension allowances. In accordance with the current Remuneration Policy, the incoming CFO’s pension contribution rate of 5% of base salary is in line with the rate applicable to employees generally in the UK. The CEO will transition from his current contribution rate (15% of base salary) to the rate applicable to employees generally in the UK (currently 5%) at the end of 2022.
6As part of his recruitment arrangements, Matt Ashley received a cash buy-out payment of £450,000 which reflected a cash bonus which he was due to receive from his prior employer in October 2021 but which was forfeited on leaving to join Micro Focus. This payment was disclosed on June 1, 2021 in the announcement about Matt Ashley’s appointment as Micro Focus CFO and is in accordance with the company’s approved policy on recruitment remuneration (see page 69 - 70 of the 20-F for the year ended October 31, 2019 which is available at form-20f-for-12-months-ending-the-31-october-2019-report.pdf (microfocus.com) and has been filed with the SEC).
7Matt Ashley started employment on June 28, 2021 and was appointed to the board as CFO with effect from July 1, 2021. All amounts in the table above reflect the period of service as a director.
8Brian McArthur-Muscroft stepped down from the board on June 30, 2021.
9
Some figures and sub-totals add up to slightly different amounts than the totals due to roundings.


44
Annual bonus for the financial year ended October 31, 2021

The target bonus opportunity for executive directors is 75% of base salary (maximum 150% of base salary). Set out below is a summary of performance against each financial measure and the personal achievement component and the resulting payout for the year ended October 31, 2021.


     
Financial target ($m)1
           Weighted payout% 
Performance
measure
 Weighting  
Threshold2
(0%)
  
Target
(50%)
  Maximum (100%)  Achievement  
Achievement
vs target
  Payout%  
Stephen
Murdoch
  
Matt
Ashley3
 
Adjusted EBITDA  60% $994  $1,046  $1,098  $1,033   98.8%  37.8%  22.7%  22.7%
Revenue  20% $2,801  $2,858  $2,887  $2,878   100.7%  84.1%  16.8%  16.8%
Key Personal Objectives (KPOs)  20% A description of the KPOs for the CEO and CFO is set out below. There were no KPOs for the prior Executive Chairman.   18.0%  18.0%
Total  100% Payout % (of maximum bonus)   57.5%  57.5%
 Payout % (of FY21 salary)   86.2%  86.2%
         £732,794
  £150,869
 

1Financial targets for bonus are based on FX rates which are set at the start of the financial year and the achievement is measured against the targets on a like-for-like basis. Therefore, the Adjusted EBITDA and revenue achievements shown above do not match the disclosed Adjusted EBITDA and revenue figures for the year ended October 31, 2021 in note 1 “Segmental reporting” of the Consolidated financial statements in Item 18 as these are based on actual FX rates. $1,033.3m Adjusted EBITDA achievement disclosed in the table above for bonus purposes equates to $1,040.2 million Adjusted EBITDA at actual FX rates and $2,877.5 million revenue achievement equates to $2,899.9 million at actual rates.
2Payouts under the financial measures are 0% for threshold performance, 50% for target performance and 100% for achieving the maximum level of performance. Payouts are on a straight-line basis between threshold and target and between target and maximum.
3Amounts disclosed for Matt Ashley reflect time served as a director in FY21, i.e. from July 1, 2021 to October 31, 2021.

This results in overall bonus payouts of £732,794 for the CEO and £150,869 for the CFO. Two-thirds of the overall amount (£488,529 for the CEO and £100,580 for the CFO) will be paid in cash in March 2022 and the remaining one-third is subject to deferral into an award over shares. Deferred share awards (with a current face value of £244,265 for the CEO and £50,290 for the CFO) will vest after three years, i.e. in second quarter year ended October 31, 2025. The deferred share awards are not subject to any further performance conditions, but they are subject to malus and clawback and they include a right to dividend equivalents over the three-year vesting period.

45
Set out below are details of achievement against the year ended October 31, 2021 KPOs for the CEO and CFO.
KPO
Relative
weighting
 Achievement vs KPO
Weighted
payout %
CEO    
Key business objectives
Complete the transition to one-single enterprise-wide platform as effectively as possible with minimum disruption to day-to-day operations and agree specific actions for further business simplification.
 
 
 
 
 
 
Improve our product positions across the portfolio making us more competitive and delivering the innovation our customers want.
 
 
 
 
 
 
 
 
 
Create one single go-to-market organization that can deliver consistent, sustained improvement to our revenue performance through improved sales productivity and the more effective alignment of our resources to opportunity.
 
 
 
 
 
 
Continue to improve governance and structures to monitor and respond quickly to ongoing impact of Covid-19.
 
 
 
 
 
 
Continue to strengthen the leadership team through rigorous succession planning and talent management.
10.0% 
Business Systems and Infrastructure
– Successfully completed the transfer to a single Enterprise Platform by transferring Stack B to Stack C in H1 FY21 and Stack A to Stack C in H2 FY21, enabling the company to unlock further efficiencies. Closed two financial quarters (including peak Q4 trading period) on new systems with no business impacting issues.
– Through an Activity Insight Survey, identified and initiated key change initiatives (functional and cross-functional) to improve opportunities, simplify processes and make decisions faster. Examples include moving from six quoting systems to one, reducing SaaS applications from 70 to 20, moving 2,000 business applications to 500 and a 75% reduction in the number of different types of sales compensation plans in operation.
Product portfolios
– Re-architected key solutions within each portfolio (Vertica, Digital Safe, ArcSight, OpsBridge) to better position the portfolio to focus on growth opportunities, improved product innovation and related market recognition.
– Dependencies on third party products embedded in the core of some of our key solutions have been removed, comprehensive artificial intelligence, machine learning and analytics capabilities delivered in every portfolio and rearchitected many products to support new cloud and hybrid deployment options.
– In every portfolio, we have introduced new SaaS offerings, improved the existing SaaS offerings and invested significantly in SaaS delivery infrastructure.
Go-to-market organization
– Successfully created one single go-to-market organization with a consistent global approach.
– Aligned resources with greater specialist skillsets and consistency of execution, built deeper levels of specialism and alignment by portfolio.
– Implemented a management system aimed at ensuring execution to a common set of standards and levels of accountability, supported by a single set of sales tools and improved data accuracy.
– Established a dedicated customer success team supported by increased levels of specialist resources within Maintenance Renewals and Professional Services.
Covid-19
– Further enhanced the governance and structures in place to be able to monitor and respond quickly to ensure wellbeing of employees and minimize business disruption through Covid-19, including implementing a package of measures in the Summer of 2021 to address the extreme challenges faced by colleagues in India.
– Maintained operational effectiveness, product development cadence, customer support and delivery and transitioned core systems during constraints of global pandemic and local lockdowns.
Succession planning and talent management
– Completed a global calibration of talent and succession for key talent to include executives and emerging talent across the business and implemented individual development plans for executive potential successors and emerging talent.
– Recruited new executive leadership in critical product and support functions.
9.5%
     

46
KPO
Relative
weighting
 Achievement vs KPO
Weighted
payout %
CEO
ESG Milestones
Ensure that we have an appropriate ESG program reflecting focus on our employees, customers, shareholders and partners. This must be part of our corporate governance responsibilities, including continuous improvements in our control/SOX processes.
 
10.0%
 
 
General
– Adopted, aligned and communicated support for five of the United Nations Sustainable Development Goals (no poverty, quality education, gender equality, decent work and economic growth and climate action).
 
Environment
– Target of achieving a normalized Greenhouse Gas (“GHG”) reduction of 2-5% by the end of FY21, based on our 2018 baseline data, was achieved. Comparing like-for-like FY20 to FY21 global footprint, we achieved a GHG emissions reduction of -7.8%. Due to the increase in the amount of properties in scope from 64% in FY20 to 67.7% in FY21, there has been an overall increase of +1.5% in GHG emissions.
– Met target of increasing the percentage of our energy which comes from renewable sources globally from 40% to over 50% by the end of FY21 (52% achieved).
– Established a cross-functional Environmental Working Group, which includes a focus on the Taskforce for Climate-related Financial Disclosures (TCFD).
 
Employees and community
– Published and implemented a global inclusion and diversity (I&D) policy, created new I&D strategy through FY25 with oversight by recently formed ESG Committee and agreed a set of internal I&D goals for FY22.
– Improved employee engagement scores from the FY19 baseline, maintained “My Voice” employee survey participation levels at over 85% and grew membership of Employee Resource Groups by 34% in FY21 from FY20.
– Target of having 25% of our employees taking part in community volunteering by the end of FY21 was not fully achieved. This goal for FY21 was largely based on in person volunteering, which was significantly impacted by COVID-19. Nonetheless, we achieved 11% of employees volunteering in FY21, which is an increase from FY20 and we introduced an option (supported by technology) to enable virtual volunteering with 976 employees taking part in virtual volunteering in FY21.
 
Customers and suppliers
– Increased our Customer double-blind Net Promotor Score to 47 for FY21 (from 45% for FY20) and our double-blind Relative Net Promotor Score to +5 compared to the competition for FY21 (from 0 for FY20).
– Established and implemented a global diverse supplier program which ensures that we proactively identify and encourage diverse suppliers to compete for our business and build long-term relationships with them.
 
Governance
– Implemented an ESG framework and program reflecting focus on our employees, customers, shareholders and partners, including appointment of an ESG Board Committee to provide Board ESG focus and oversight and establishment of an ESG cross functional Working Group to ensure that ESG considerations are part of “business as usual” decision making processes at all
levels and to develop the strategy going forward.
– The Enterprise Risk Management framework was enhanced to include existing and new ESG risks and was approved by the Audit Committee.
 
8.5%
Total20.0% Looking at the complete scorecard of achievement against all objectives for the year, the committee considered that the CEO had performed extremely well, highlighting in particular the completion of the transfer to a single enterprise platform and the significant progress which has been made on the turnaround plan, resulting in a KPO achievement of 90% (i.e. 18% out of a possible 20%).18.0%

47
KPO
Relative
weighting
 Achievement vs KPO
Weighted
payout %
CFO    
3-year Plan
Build a revised 3-year plan with specific goals for the exit of FY23 that will be the foundations for our execution plan going forward and for communication externally to shareholders and the market more broadly.
10% 
– The 3-year plan has been revised and the core financial objectives for the next two financial years and our longer-term ambitions were laid out in our November 30, 2021 Strategy Update.
– The new plan, developed by the CFO in conjunction with the CEO, reflects a reset of expectations with realistic and achievable goals which lays the foundations for the business transformation. A granular operational plan to execute the strategy has been put in place, which includes the appointment of a Chief Transformation Officer to co-ordinate multiple workstreams and the successful sale of the Digital Safe business.
– The external financial KPIs were refined to provide greater clarity on the Group’s financial performance and more closely align the metrics to those used by the Group’s debt holder. The CFO has concluded that there will be no more integration costs associated with the HPE Software acquisition classified as exceptional spend going forward.
– The CFO has laid foundations for future financial effectiveness, having assessed and made recommendations on how we leverage advisors and formal relationships and our overall use of consultancies to improve effectiveness and value for money in the mid-term.
9.5%
CFO
Business Systems and Infrastructure
Support the effective transition to a single Enterprise Platform overall and specifically from a core financial perspective.
 
10%
 
 
– Successfully completed the transfer to a single Enterprise Platform by transferring Stack A to Stack C in H2 FY21, enabling the company to unlock further efficiencies.
– FY21 Q3 and Q4 were successfully delivered on the new platform. Business as usual has not been impacted by the transition with minimal disruption to revenue and the payment of employees and suppliers.
 
8.5%
Total20.0% The Committee recognized that in 4 months, the CFO has had a significant impact, in particular in revising the 3-year plan, resulting in a KPO achievement of 90% (i.e. 18% out of a possible 20%).18.0%

Share Awards

The Group’s executive directors and members of key management bodies participate in the Group’s Long-term Incentive Plan and the executive directors participate in the Deferred Share Bonus Plan. Descriptions of these plans including the vesting criteria and specific awards under each plan for the Group’s executive directors are included below.

Aggregate information for awards granted in the year ended October 31, 2021 in relation to each plan for the directors and members of key management bodies:

Number
of awards
Range of exercise
prices (pence)
Expiry Dates
Long-term Incentive Plan1,345,515nilMarch 26, 2031
Deferred Share Bonus Plan33,123nilMarch 26, 2024

In addition, the directors and senior management are eligible to participate in the Sharesave or Employee Stock Purchase Plan (“ESPP”) depending on their location. Descriptions of these plans are included in note 28 “Employees and directors” of the Consolidated financial statements in Item 18. Aggregate information in relation to these schemes for the directors and members of key management bodies for the year ended October 31, 2021:

Number
of options
Exercise prices (pence)Expiry Dates
Aggregate Sharesave and ESPP options10,000344.8 penceNovember 1, 2023

Executive Directors

Lapse of LTIP awards
The 2018 LTIP award (with performance period ending April 30, 2021) was granted to Stephen Murdoch in September 2018 as a top-up to his September 2017 award to reflect his appointment as CEO in March 2018. This award lapsed on July 1, 2021 due to the performance condition not being met. The performance condition for the 2019 annual LTIP award (with performance period ending October 31, 2021) granted to Stephen Murdoch in February 2019 has not been met and this award will lapse on February 8, 2022. Both the 2018 and 2019 LTIP awards were granted under the Directors’ Remuneration Policy in effect before the approval of the current Remuneration Policy at the Annual General Meeting in March 2020.

48
The performance condition for these awards was based on average aggregate EPS growth in excess of RPI over the three years ended April 30, 2021 (2018 award) and October 31, 2021 (2019 award), as set out in the table below:

Average aggregate EPS
growth of the Company
in excess of RPI over
the performance period
Vesting percentage of
the shares subject to
an award
Achievement against
the percentage range
Resulting vesting
percentage
Number of awards
lapsing
Less than 3% p.a.0%
 
 
 
Less than 3% p.a.
 
 
 
0%
2018 award1: 67,537 (lapsed July 1, 2021)
 
2019 award2: 101,190 (will lapse February 8, 2022)
Equal to 3% p.a.25%
Between 3% and 9% p.a.Between 25% and 100% on a straight-line basis
Equal to or above 9% p.a.100%

1
The aggregate Diluted Adjusted EPS3 over the performance period of 542.21 cents was below the minimum threshold aggregate EPS required of 627.55 cents.

2
The aggregate Diluted Adjusted EPS3 over the performance period of 505.52 cents was below the minimum threshold aggregate EPS required of 687.30 cents.

3Adjusted EPS is defined as Basic EPS where the earnings attributable to ordinary shareholders are adjusted by adding back all exceptional items including the profit on the disposal of discontinued operation, share-based compensation charge and the amortisation of intangibles acquired in a business combination

Scheme interests awarded during the financial year ended October 31, 2021
LTIP – nil cost options

Executive director
Date of grant
Basis on which
award is made
Face value of
award at grant1
Percentage of
maximum which
would be received if
threshold
performance
achieved
End of
performance
period
Stephen MurdochMarch 26, 2021
Grant of award over
350,515 shares
(200% of salary)

£1,699,9980%October 31, 2023


1.The grant face value of the LTIP award granted on March 26, 2021 to the CEO was calculated based on the closing mid-market share price on the business day before grant of £4.850.

The year ended October 31, 2021 Recruitment LTIP to the new CFO Matt Ashley could not be granted in year ended October 31, 2021 due to dealing restrictions and was therefore granted at the same time and with the same performance measures, targets and period as the year ended October 31, 2022 LTIP awards on December 17, 2021. This award was part of Mr. Ashley’s recruitment terms and was mentioned in the announcement about his appointment on June 1, 2021. Mr. Ashley’s year ended October 31, 2021 LTIP Recruitment award was granted over 312,593 shares with a total face value at grant of £1,050,000 (200% of salary) based on the closing mid-market share price on the business day before grant of £3.359. The performance period for Mr. Ashley’s FY21 LTIP Recruitment award ends on October 31, 2024 and vesting starts at 0% if threshold performance is achieved.

The LTIP award granted to the CEO in the year ended October 31, 2021 has the following performance conditions based on Cumulative Adjusted Free Cash Flow (80% weighting) and Relative Total Shareholder Return (20% weighting) measured over a three-year period (years ended October 31, 2021, 2022 and 2023). The performance measures, targets and payout percentages are set out below:

Cumulative Adjusted Free Cash
Flow (80% weighting)
Company TSR relative to FTSE
250 (excluding Investment
Trusts) Index (20% weighting)
Payout %
for this
element
Threshold$100m below TargetIn line with Index0%
TargetCommercially sensitiveExceed Index by 20%50%
Maximum$200m above TargetExceed Index by 40%100%

Vesting is on a straight-line basis between threshold and target, and between target and maximum.

Adjusted Free Cash Flow means cash generated from operations adjusted for interest payments, bank loan costs, tax payments, capital expenditure and lease payments and excludes the cash impact of exceptional items. This is in line with the definition of Adjusted Free Cash Flow in Item 5.D. For the year ended October 31, 2021 LTIP award granted to the CEO, Adjusted Free Cash Flow will be measured on a cumulative basis over the three financial years ending October 31, 2021, October 31, 2022 and October 31, 2023.

The Adjusted Free Cash Flow Target is considered commercially sensitive and will be disclosed at the end of the performance period. Due rigor was applied by the Remuneration Committee in setting the targets and the approved targets were deemed to be appropriate in the context of the long-term financial plan.

49
Relative total shareholder return (“TSR”) is measured over the same three financial years. The awards will vest three years from grant, subject to achievement of the performance measures. A two-year holding period will apply post-vesting, during which time executive directors are required to retain any net (after tax) vested shares. Executive Directors are entitled to dividend equivalents in accordance with the rules of the LTIP and the approved Directors’ Remuneration Policy.

Outstanding share-based awards

The tables below set out vested but unexercised nil-cost options, unvested nil-cost options and unvested deferred bonus shares held by executive directors who served on the board during the year ended October 31, 2021, including details of awards granted, nil-cost options exercised and awards vested and lapsed during the year of reporting.

All outstanding unvested nil-cost options are subject to performance conditions. Deferred bonus shares are not subject to performance conditions.

Between October 31, 2021 and the date of this report, there have been the following changes to the LTIP awards held by the executive directors which are not shown in the table below:

– On December 17, 2021, a year ended October 31, 2022 LTIP award was granted to Stephen Murdoch over 506,103 shares.
– On December 17, 2021, a year ended October 31, 2021 Recruitment LTIP and a year ended October 31, 2022 LTIP award were granted to Matt Ashley over 312,593 shares each (625,186 in total).

The year ended October 31, 2021 Recruitment LTIP award was part of Mr. Ashley’s recruitment terms and could not be granted sooner due to dealing restrictions.

All the LTIP awards granted on December 17, 2021 have an exercise period of the date of vesting (which is the later of the date the remuneration committee determines the outcome of the performance measures and the day after the full year ended October 31, 2024  results announcement) to December 16, 2031

Micro Focus International plc Incentive Plan 2005 (“LTIP”) – nil-cost options

 Grant date
Number at
November
1, 2020
Number
granted
 in the
financial
year
Number
exercised
 in the
financial
year
Number
lapsed
 in the
financial
year
Number
at
October
31, 2021
 
 
 
Dates for exercise
Stephen MurdochSeptember 13, 201639,640---39,640July 26, 2019 to July 25, 2026
Stephen Murdoch1
September 20, 201867,537--67,537-
September 20, 2021 to
n/a
Stephen Murdoch2
February 18, 2019101,190---101,190n/a will lapse
Stephen Murdoch3
April 23, 2020250,000---250,000April 23, 2023 to April 22, 2030
Stephen Murdoch4
April 23, 2020-350,515--350,515March 26, 2024 to March 25, 2031
Brian McArthur-Muscroft5
November 22, 201880,482--80,482-n/a
Brian McArthur-Muscroft5
November 22, 201880,482--80,482-n/a
Brian McArthur-Muscroft5
April 23, 2020300,000--300,000-n/a
Kevin Loosemore2
February 18, 201952,083---52,083n/a – will lapse


1The performance condition for the 2018 LTIP awards required that cumulative EPS growth over a three-year performance period starting on May 1 preceding the date of grant is at least equal to RPI plus 3% per annum (at which point 25% of awards will vest) and for full vesting the aggregate EPS growth will be required to be RPI plus 9% per annum. Straight-line vesting applied between these points. This award lapsed in full on July 1, 2021 as the minimum performance condition was not met (see page 50 for further details).

2The performance condition for the 2019 LTIP awards requires that cumulative EPS growth over a three-year performance period starting on November 1,preceding the date of grant is at least equal to RPI plus 3% per annum (at which point 25% of awards will vest) and for full vesting the aggregate EPS growth will be required to be RPI plus 9% per annum. Straight-line vesting will apply between these points. Kevin Loosemore’s award of 89,285 nil-cost options was pro-rated to 52,083 on leaving the Company to reflect time served to August 13, 2020. The performance measure has been tested and these awards will lapse in full on February 8, 2022 as the minimum performance condition was not met.

3The performance condition for the awards granted during the year ended October 31, 2020 LTIP is disclosed on page 50.

4The performance condition for the awards granted during the year ended October 31, 2021 LTIP is based on 80% Adjusted free cash flow and 20% TSR.

5All of Brian McArthur-Muscroft’s outstanding LTIP awards lapsed on January 8, 2021 following the announcement that he was leaving the Company.

50
The aggregate amount of gains made by directors on the exercise of options during the financial year was zero.

Deferred Share Bonus Plan (“DSBP”) – conditional awards

 
 
Executive
director
 
 
 
Date of grant
Number at
November 1, 2020
Number
granted in
the financial
year
Number
vested in the
financial
year
Number
lapsed in the
financial
year
Number at
October 31, 2021
 
 
 
Date of release
Stephen MurdochFebruary 28, 201910,013---10,013February 28, 2022
Stephen MurdochMarch 26, 2021-19,416--19,416March 26, 2024
Brian McArthur-MuscroftMarch 26, 2021-13,705--13,705March 26, 2024

Non-executive directors

Aggregate compensation including fees paid to non-executive directors
Year
ended
October 31, 2021

$m

Short-term benefits1.3
Share based payments-
Total compensation1.3

Single figure for total remuneration of non-executive directors
No changes were made to the fee structure for non-executive directors. The following table sets out the single figure for total remuneration of non-executive directors for the year ended October 31, 2021, together with their respective figures for the year ended October 31, 2020 as shown in last year’s report.

  Fees and benefits 
 
Non-executive directors
 
2021
(Year)
  
2020
(Year)
 
  
£’000
  
£’000 
Greg Lock1
  401   285 
Karen Slatford  120   120 
Richard Atkins  90   90 
Amanda Brown  90   90 
Lawton Fitt2
  80   80 
Pauline Campbell3
  6   - 
Robert Youngjohns  70   38 
Sander van ’t Noordende4
  70   29 


1Greg Lock’s benefits value reflects private medical and dental cover (single person coverage).

2Lawton Fitt receives an additional fee of £10,000 per annum due to her SEC and SOX experience.

3Pauline Campbell joined the board on October 1, 2021.

4Sander van ‘t Noordende’s GBP fee is paid to him in US dollar (converted based on the average monthly FX rate in the month prior to payment).

51
Item 6.CBoard Practices

Role of the board

The board leads and controls the Company and has collective responsibility for promoting the long-term success of the Group. While the board delegates some responsibilities to its committees or, through the Chief Executive Officer, to management, it has agreed a formal schedule of matters that are specifically reserved for its consideration and are publicly available on the investor relations section of the Company’s website. These include key areas such as:


-Strategy and Management – including the Group’s purpose, values and strategy, annual operating and capex budget approval, oversight of operations ensuring maintenance of sound management and internal control systems, reviewing performance in light of the Group’s strategy and objectives, extension of activities into new business or geographical areas and any decisions to cease any material part of the Group’s business;


-Structure and Capital – including changes to the Group’s capital structure such as share issues and buybacks or reduction in capital, major changes to the Group’s corporate structure including material acquisitions and disposals and changes to the Group’s management and control structure;


-Financial reporting and Controls – including results announcements, dividend policy and declarations, significant changes in accounting policies or practices, treasury policies and the Annual Report;


-Internal Controls – including monitoring the effectiveness of the Group’s risk management and internal controls processes; and


-Material Contracts Approvals; Communications with Shareholders; Board membership (following recommendations from the Nomination committee); Approval of Remuneration Policy and Delegations of Authority.

At each meeting, the board reviews progress of the Group towards its objectives and receives papers on key subjects in advance of each board meeting. These typically cover:

–Strategy and budgets;

–Business and financial performance;

–Product plans and development;

–Corporate activities;

–Human resources;

–ESG activities;

–Investor relations; and

–Corporate governance.

While the board retains overall accountability for and control of the Company, the executive directors are responsible for conducting the day-to-day management of the business. The review of the Group’s principal business activities is the responsibility of the Operating committee. The Operating committee comprises the Chief Executive Officer, the Chief Financial Officer, the Chief Operating Officer, Chief Human Resources Officer and Vice President of Business Operations and the Chief Legal Officer, and is chaired by the Chief Executive Officer, Stephen Murdoch.

Roles of board members
The non-executive Chairman has responsibility for leading the board, including setting the agenda (in conjunction with the Senior Independent Director and the Company Secretary), style and tone of board discussions to promote effective decision making and constructive debate and for shaping the culture of the boardroom. He is also responsible for shareholder and stakeholder engagement, including listening to the views of the workforce, customers and other stakeholders and ensuring that their views are conveyed to the board as a whole. He chairs board meetings, facilitating the effective contribution of non-executive directors by drawing on their skills, experience and knowledge and ensuring that the board is effective in all aspects of its role, and for upholding the highest standards of integrity and probity. He also chairs shareholder meetings and is responsible for ensuring effective communication with shareholders.

The Senior Independent Director meets or speaks with the Chairman regularly, and will work with the Chairman and other directors to resolve any significant issues which may arise, acting as an intermediary for other non-executive directors if necessary; and is also available to shareholders if they have concerns in circumstances where contact through the normal channels of Chairman, CEO or CFO has either failed to resolve or is inappropriate. Each of the non-executive directors has been appointed for a specific term, subject to annual re-election by shareholders. The independent non-executive directors comprise a majority of the board.

52
In line with the 2018 UK Corporate Governance Code, Karen Slatford (our Senior Independent Director) is appointed to the role of non-executive director responsible for workforce engagement, in light of her in-depth and longstanding knowledge of the Group and its businesses. The board receives regular reports on workforce engagement activities (including feedback on all areas resulting from panel sessions) for its review, consideration and action.

The executive directors are responsible for developing the Group’s strategy and proposing the budget for board approval and are accountable to the board through the Chief Executive Officer. They are also responsible for the financial and operational performance of the Group and, in conjunction with the operating committee, they are collectively responsible for the day-to-day running of the business. There is a clear and documented division of responsibilities between the non-executive Chairman, who is responsible for running the board, shareholder and stakeholder engagement, and the Chief Executive Officer, who is responsible for strategy, investment and financing, risk management and the day-to-day operation of the business. The role of the Senior Independent Director is also documented.

The role of the non-executive directors is to ensure that independent judgement is brought to board deliberations and decisions and to provide constructive challenge as appropriate. They promote the highest standards of integrity, probity and corporate governance throughout the Company. The non-executive directors possess a wide range of skills and experience, relevant to the development of the Company, which complement those of the executive directors.

The non-executive directors, led by the Senior Independent Director, met regularly throughout the year in private session without executive directors in attendance.

The Company Secretary is accountable to the board through the Chief Financial Officer, to whom she reports. It is the responsibility of the Company Secretary to ensure that agreed board procedures are followed and all rules and regulations are complied with. The Company Secretary’s responsibilities include facilitating the induction and professional development of directors and ensuring the smooth flow of information between board members, between the board and its committees and between non-executive directors and senior management. In addition, all directors have direct access to the advice and services of the Company Secretary. Appointment of the Company Secretary is a matter for the whole board.

The responsibilities of the Chairman, Chief Executive Officer, Senior Independent Director, board and committees have been clearly defined and set out in writing and are available to download from the investor relations section of our website.

Executive directors’ service agreements

Executive directors’ service agreements at October 31, 2021:

Executive directorDate of service contractNotice period
Stephen MurdochApril 16, 2014The agreement is terminable by either party on six months’ notice
Matt Ashley 1
May 31, 2021The agreement is terminable by either party on six months’ notice


1Joined board on July 1, 2021.

Non-executive directors’ terms of appointment
The non-executive directors’ terms of appointment are recorded in letters of appointment. The required notice from the Company and the non-executive director is three months in all cases except for the non-executive chairman who is required to give six months’ notice. The non-executive directors are not entitled to any compensation for loss of office and stand for election or re-election as appropriate at each AGM.

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Details of the letters of appointment of each non- executive director who has served as a director of the Company at any time during the financial year ended October 31, 2021 are set out below:

Non-executive directorAppointment dateExpiration date
Greg LockFebruary 14, 2020February 14, 2023
Karen SlatfordJuly 5, 2010July 5, 2023
Richard AtkinsApril 16, 2014April 16, 2023
Amanda BrownJuly 1, 2016July 1, 2025
Lawton FittOctober 17, 2017October 17, 2023
Sander van ’t NoordendeJune 2, 2020June 2, 2023
Robert YoungjohnsApril 16, 2020April 16, 2023
Pauline CampbellOctober 1, 2021October 1, 2024

All appointments of non-executive directors are subject to election by shareholders at the first AGM of the Company after appointment and to re-election on an annual basis thereafter.

Remuneration committee

Remuneration committee membership during the year ended October 31, 2021
During the financial year ended October 31, 2021, the committee comprised only of independent non-executive directors. The committee met six times during the period under review. The number of committee meetings attended by each director in the period was as follows:

Committee memberHeldNumber of meetings attended
Amanda Brown (Chair)66
Richard Atkins65
Lawton Fitt66
Greg Lock66
Robert Youngjohns66
Sander van ’t Noordende66
Pauline Campbell1
11


1.Pauline Campbell served as a director and member of the Remuneration committee from October 1, 2021.

The committee invited members of management to provide views and give advice on specific topics. Management did not participate in discussions relating to their own remuneration. The Group Company Secretary attended each meeting as secretary to the committee.

Terms of reference

The committee is responsible for the remuneration arrangements for executive directors and members of the executive management team, and for providing general guidance on aspects of remuneration policy throughout the Group. The terms of reference reflect the 2018 UK Corporate Governance Code issued in June 2018. The key aspects of the terms of reference are as follows:


-Determine the remuneration policy for the Company’s Non-Executive Chairman and the executive directors and review its on-going appropriateness and relevance;


-Determine the total individual remuneration packages of the executive directors and the executive management team, including salary, bonuses, incentive payments, share awards, pensions and other benefits;


-Review the terms of executive service contracts for executive directors and the executive management team;


-Review any material changes to pension and benefit arrangements for executive directors and the executive management team;


-Agree the expenses policy for the Company’s Non-Executive Chairman and executive directors;


-Develop the formal shareholding requirement policy, including post cessation, encompassing both vested and unvested shares;


-Oversee the operation of the Company’s annual bonus plans, deferred bonus plans and long-term incentives as applied to executive directors and the executive management team, including award levels, performance conditions, payouts, and application of malus and claw-back where appropriate;

54

-Review the design of all share incentive plans for approval by the board and shareholders;


-Review the remuneration policies and practices across the Group and the alignment of workforce remuneration with culture; and


-Produce the annual Directors’ Remuneration report.

The committee’s terms of reference are published on the Company’s website, https://www.microfocus.com/en-us/governance-policies/committees-of-the-board

Audit committee

Attendance at committee meetings
During the year ended October 31, 2021, the committee comprised only of independent non-executive directors. The committee met six times during the period under review. The number of committee meetings attended by each non-executive director was relative to their time in office in the period and was as follows:

 
Director
HeldAttended
Richard Atkins66
Amanda Brown66
Pauline Campbell1
11
Lawton Fitt66
Karen Slatford66
Robert Youngjohns66


1Pauline Campbell served as a director and member of the audit committee from October 1, 2021.

Composition of the committee

The Audit committee comprises Richard Atkins (who serves as its chair), Amanda Brown, Pauline Campbell, Lawton Fitt, Karen Slatford and Robert Youngjohns. All members of the committee are independent non- executive directors. The board considers that:


-for UK purposes, the committee chair, as a chartered accountant, has recent and relevant financial experience by virtue of  previous executive and current non-executive responsibilities (details of which can be found in his biography) and that the audit committee as a whole has competence relative to the sector in which the Company operates; and


-for US purposes, each of the Audit committee members is independent under the SEC and NYSE definitions of that term; that the committee chair is an Audit committee financial expert, is independent of management, and has accounting or related financial management expertise; and that all of the Audit committee members are financially literate.

Executive directors and senior executives (most often the Director of Finance, Director Group Finance, the Head of Tax, Head of Treasury, Head of Investor Relations and the Group Company Secretary and Head of Assurance) attend meetings by invitation as required, but do not do so as of right. Representatives of KPMG LLP (external auditor), PricewaterhouseCoopers LLP (internal auditor) and external tax advisors (when considered appropriate) also attend the committee meetings and meet privately with committee members, in the absence of executive management, prior to each committee meeting.

The committee normally meets at least four times during each financial year and more frequently as required.

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Role and responsibilities of the committee

The committee’s principal responsibilities are to:


-monitor the integrity of the financial statements of the Company and any formal announcements relating to the Company’s financial performance, reviewing significant financial reporting judgements contained in them. The committee also reviews the Group’s Annual Report and Accounts and Interim Report prior to submission to the full board for approval;


-monitor the Group’s accounting policies and review the Company’s internal financial controls and financial reporting procedures and, on behalf of the board, the Company’s internal control and risk management systems;


-monitor the adequacy and effectiveness of the Company’s internal financial controls and internal controls, risk management systems and insurance arrangements;


-ensure that a robust assessment of the principal and emerging risks facing the Company, including those that would threaten the business model, future performance, solvency or liquidity and reputation is undertaken at least once a year;


-monitor and review the effectiveness of the Company’s internal audit function, including agreeing and approving the annual internal audit plan;


-make recommendations to the board, for it to put to the shareholders for their approval in general meeting, in relation to the appointment, reappointment and removal of the external auditor and to approve the remuneration and terms of engagement of the external auditor;


-oversee the relationship with the external auditors and review and monitor their independence and objectivity and the effectiveness of the audit process, taking into consideration relevant UK and US professional and regulatory requirements;


-develop and implement policy on the engagement of the external auditor to supply non-audit services, taking into account relevant ethical guidance regarding the provision of non-audit services by the external audit firm; and to report to the board, identifying any matters in respect of which it considers that action or improvement is needed and making recommendations as to the steps to be taken;


-provide a forum through which the Group’s external and internal auditors and external tax advisors report to the board; and


-report to the board on how it has discharged its responsibilities.

The committee’s terms of reference are published on the Company’s website, https://www.microfocus.com/en-us/governance-policies/committees-of-the-board

56
Item 6.DEmployees.
The average monthly number of people employed by the Group (including executive directors for the year ended October 31, 2021, the year ended October 31, 2020 and 2019 was as follows:

  
Year
ended
October 31, 2021
  
Year
ended
October 31, 2020
  
Year
ended
October 31, 2019
 
  Number  Number  Number 
Average monthly number of people         
(including executive directors) employed by the Group:         
          
Continuing Operations         
Sales and distribution  4,300   5,066   5,413 
Research and development  5,272   5,091   5,056 
General and administration  2,210   1,937   1,991 
   11,782   12,094   12,460 
Discontinued Operation            
Sales and distribution  -   -   164 
Research and development  -   -   170 
General and administration  -   -   3 
   -   -   337 
Total            
Sales and distribution  4,300   5,066   5,577 
Research and development  5,272   5,091   5,226 
General and administration  2,210   1,937   1,994 
   11,782   12,094   12,797 

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Item 6.EShare ownership.
Directors’ shareholdings and share interests as at October 31, 2021

Director
Shares held (owned outright)1
Stephen Murdoch280,669
Matt Ashley-
Greg Lock535,000
Karen Slatford14,687
Richard Atkins13,862
Amanda Brown3,841
Lawton Fitt-
Robert Youngjohns-
Sander van ’t Noordende45,000
Pauline Campbell (from October 1, 2021)-


1Shares held (owned outright), includes any Micro Focus securities of which the director, their spouse, civil partner or dependent child has beneficial ownership. Each represents less than one per cent of the outstanding shares.

All other persons listed in Item 6.B. each beneficially owns less than one per cent of the securities issued and, as their share ownerships have not previously been made public, these are not disclosed. Details of options held are disclosed in Item 6.B. Ordinary shares held by the Group’s directors have the same voting rights as all other ordinary shares.

Please note the following changes to the above interests between October 31, 2021 and February 11, 2022:


-The number of shares held (owned outright) by Matt Ashley increased from 0 to 43,280 as a result of purchases of Micro Focus shares by Matt Ashley and his spouse on 17 December 2021.

-The number of shares held (owned outright) by Greg Lock increased from 535,000 to 835,000 as a result of a purchase of 300,000 Micro Focus shares by Mr. Lock on December 17, 2021.

As mentioned in Item 6.B the Group’s directors and members of key management bodies participate in the Group’s Long-term Incentive Plan, Additional Share Grants and Deferred Share Bonus Plan.  Aggregate total and information in relation to each plan for the directors and members of key management bodies as at October 31, 2021 is included below:

Number
of awards
Range of exercise
prices (pence)
Range of expiry dates
Long-term Incentive Plan3,653,755nil to 10 penceFebruary 18, 2022 to March 26, 31
Additional Share Grant405,917nilNovember 20, 2024
Deferred Share Bonus Plan43,134nilFebruary 28, 2022 to March 26, 2024
Sharesave and ESPP36,021
nil
October 1, 2022 and April 1, 2024

The directors remain committed to the principle of employee share ownership throughout the company. Employees globally are able to participate in one of the Group’s all-employee share plans (a Sharesave plan and an Employee Stock Purchase Plan), which are intended to encourage employee share ownership and involvement in the Company’s performance. For more senior employees who are better placed to contribute to the development and performance of the Group, the Group operates a discretionary long-term incentive plan (LTIP). Details of all the Group’s share-based plans, whether operating on an all- employee or discretionary basis, are given in note 28 “Employee and directors” of the Consolidated financial statements in Item 18.

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Item 7Major Shareholders and Related Party Transactions

Item 7.A.1Major shareholders

At February 14, 2022, being the most recent practicable date, the following percentage interests in the ordinary share capital of the Company:

  
As at
February 14,
20221
  
As at
February 12,
2021
  
As at
January 27,
2020
 
  
Ordinary shares of
10 pence
each
  
Percentage
of issued
share
capital
%
  
Ordinary shares of
10 pence
each
  
Percentage
of issued share
capital
%
  
Ordinary shares of
10 pence
each
  
Percentage of issued share
capital
%
 
Dodge & Cox  58,258,495   17.40%  57,130,923   17.01%  59,948,603   17.98%
BlackRock Inc.  20,112,160   6.00%  26,546,176   7.93%  25,467,989   7.64%
M&G Plc  16,912,423   5.05%  16,912,423   5.05%  n/a   n/a 
Causeway Capital Management LLC  n/a   n/a 
  16,322,007   4.88%  28,237,993   8.47%


1Information reflects shareholdings and percentage of issued share capital at date of last filed SC 13G/A.

Ordinary shares held by the major shareholders have the same voting rights as all other ordinary shares.

Item 7.A.2Shareholders information

As at February 11, 2022, the proportion of Ordinary Shares represented by ADSs with a registered address in the United States was 27.34% of the total issued share capital of the Company. The proportion of Ordinary shares with a registered address in the United States was 0.03% of the total issued share capital of the Company. As at February 11, 2022, there were 1,036 registered holders of Ordinary Shares, of which 23 were based in the USA and there were 39,215 record holders of the ADSs, of which 33,503 were based in the USA.

Item 7.BRelated party transactions.

This is set out in note 29 “Related party transactions” of the Consolidated financial statements in Item 18.

Item 7.CInterests of experts and counsel.

Not applicable.

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Item 8Financial Information

Item 8.AConsolidated Statements and Other Financial Information.

The Consolidated financial statements filed as part of this Annual Report on Form 20-F are included in Item 18.

Item 8.A.7Litigation, Proceedings and Investigations.

The Group is involved in various lawsuits, claims, investigations, and proceedings including those consisting of IP, commercial, employment, employee benefits, and environmental matters, which arise in the ordinary course of business. The Separation and Distribution Agreement, dated as of September 7, 2016, between Seattle SpinCo, Inc. and HPE (the “SDA”) includes provisions that allocate potential financial responsibility for litigation involving the parties, as well as provide for cross-indemnification of the parties against potential liabilities to one party arising out of potential liabilities allocated to the other party.  In addition, as part of the SDA, HPE and Seattle have agreed to cooperate with each other in managing litigation that relates to both parties’ businesses. The Group records a liability when it believes that it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated. Significant judgment is required to determine both the probability of having incurred a liability and the estimated amount of the liability. Litigation is inherently unpredictable. However, the Group believes it has valid defenses with respect to legal matters pending against it. Nevertheless, cash flows or results of operations could be significantly affected in any particular period by the resolution of one or more of these contingencies. The Group believes it has recorded adequate provisions for any such matters and, as of October 31, 2021, it was not reasonably possible that a material loss had been incurred in connection with such matters in excess of the amounts recognized in its financial statements.

Litigation, Proceedings and Investigations

Forsyth, et al. vs. HP Inc. and HPE:
This purported class and collective action was filed on August 18, 2016 and a Fourth Amended (and operative) Complaint was filed on July 9, 2020, in the United States District Court for the Northern District of California, against HP Inc. and Hewlett Packard Enterprise Company (“HPE”) alleging defendants violated the Federal Age Discrimination in Employment Act (“ADEA”), the California Fair Employment and Housing Act, California public policy and the California Business and Professions Code by terminating older workers and replacing them with younger workers. Plaintiffs seek to certify a nationwide collective action under the ADEA comprised of all individuals aged 40 and older who had their employment terminated by Hewlett-Packard Company (“HP Co.”) or HP Inc.  pursuant to a work force reduction (“WFR”) plan on or after December 9, 2014 for individuals terminated in deferral states and on or after April 8, 2015 in non-deferral states. Plaintiffs also seek to certify a Rule 23 class under California law comprised of all persons 40 years of age or older employed by defendants in the state of California and terminated by HP Co. or HP Inc. pursuant to a WFR plan on or after August 18, 2012. Plaintiffs seek to certify a similar purported ADEA collective and Rule 23 California state law class against HPE, but the time period for that collective and class begin on November 1, 2015.  Excluded from the putative collectives and classes are those who (a) signed a Waiver and General Release Agreement at termination, or (b) signed an Agreement to Arbitration Claims.  The court granted conditional certification of the ADEA collectives and notice has been distributed to the potential opt-in plaintiffs.

Ross and Rogus vs HPE:
On November 8, 2018, a putative class action complaint was filed in the Superior Court of California, County of Santa Clara alleging that HPE pays its California-based female employees “systemically lower compensation” than HPE pays male employees performing substantially similar work.  The complaint alleges various California state law claims, including California’s Equal Pay Act, Fair Employment and Housing Act, and Unfair Competition Law, and seeks certification of a California-only class of female employees employed in certain “Covered Positions.”  The complaint seeks damages, statutory and civil penalties, attorneys’ fees, and costs.

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Wapp Tech Limited Partnership et al. v. Micro Focus International plc:
On July 2, 2018, Wapp Tech Limited Partnership and Wapp Tech Corp (collectively “Wapp”) brought a claim against Micro Focus in the Eastern District of Texas, accusing the Company of infringing three patents in connection with Micro Focus’ sale of certain products in the ADM product line, including LoadRunner and Performance Centre.

The case was tried during the second quarter of fiscal year 2021 and, on March 5, 2021, the jury delivered a verdict in favor of Wapp and awarded damages totaling approximately $172.5 million. On April 22, 2021, the Court denied Wapp’s request for enhanced damages and entered final judgment based on the jury award of approximately $172.5 million. On May 5, 2021, Wapp filed a motion for prejudgment and post judgment interest, seeking approximately $18.4 million in prejudgment interest.

On May 20, 2021, Micro Focus filed a motion for judgment of non -infringement as a matter of law and/or a new trial, including on the question of damages. Additionally, on June 3, 2021, Micro Focus filed an opposition to Wapp’s request for approximately $18.4 million in prejudgment interest.

While Micro Focus continues to maintain that it has not and does not infringe Wapp’s patents, that those patents are invalid, and that Micro Focus has strong grounds for appeal, the Company reached a settlement with Wapp for payment of $67.5 million to completely resolve the dispute for itself and its customers without admission of liability. Pursuant to the settlement, the Company has been granted a fully paid-up, worldwide, irrevocable licence for the patents asserted by Wapp for current and future Micro Focus products and services, covering the Company as well as its customers. The Wapp litigation has been dismissed with prejudice, as have two related customer suits.  In line with our accounting policy, the cost of recording this provision has been treated as an exceptional cost in the Consolidated Statement of Comprehensive Income for the year ended October 31, 2021.

Securities Litigation:
Micro Focus is involved in two lawsuits in which plaintiffs are seeking damages for alleged violations of the Securities Act of 1933 and the Exchange Act of 1934 based upon purportedly false and misleading statements or omissions in offering documents issued in connection with the HPE software business merger and issuance of Micro Focus American Depository Shares (“ADS”) as merger consideration and based upon other purportedly false and misleading statements. Those matters are as follows:


•
In re Micro Focus International plc Securities Litigation is a putative class action on behalf of holders of Micro Focus ADS filed on May 23, 2018 in the United States District Court for the Northern District of California against Micro Focus and certain current and former directors and officers, among others.  On July 26, 2018, the court transferred the case to the United States District Court for the Southern District of New York.  The lawsuit alleges violations of the Securities Act and of the Exchange Act.  The parties participated in a mediation during the second quarter of year ended October 31, 2021during which the parties reached an agreement to settle the case for payment of $15 million to the settlement class. The proposed settlement is subject to the court’s approval.  The settlement amount will be paid from insurance coverage. The Company and all defendants have denied, and continue to deny, the claims alleged in the case and the settlement does not reflect any admission of fault, wrongdoing, or liability as to any defendant.


•
re Micro Focus International plc Securities Litigation is another putative class action on behalf of holders of Micro Focus filed on March 28, 2018, in the Superior Court of California, County of San Mateo against Micro Focus International plc and certain current and former directors and officers, among others. Six additional purported holders of Micro Focus ADS filed putative class actions in the same court, and the court consolidated all cases.  The lawsuit alleges violations of the Securities Act. On November 19, 2021, the court certified a class of all persons and entities who purchased Micro Focus ADSs pursuant to SEC filings issued in connection with the merger of Micro Focus and Hewlett Packard Enterprises.  The California matter remains pending.

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Item 8.A.8Policy on dividend distributions

Dividends

In terms of dividend policy, the Group initially aims to pay a dividend which is approximately 5x covered by the Adjusted profit after tax of the Group in each financial period (defined as profit after tax excluding the effects of share-based compensation, amortization of purchased intangible assets and exceptional items including gain on disposal of discontinued operation). The Group’s aim is then to increase the percentage of profits distributed to shareholders as the Group executes its strategy of stabilizing the business.

An interim dividend of 8.8 cents per share was paid in the year ended October 31, 2021. The directors announced a final dividend of 20.3 cents per share payable on February 8, 2022. The total dividend per share in the year was 29.1 cents.

The dividend will be paid in Sterling and the sterling amount per share will be fixed and announced approximately two weeks prior to the payment date, based on the average spot exchange rate over the five business days preceding the announcement date. The dividend will be paid on April 21, 2022 to shareholders on the register at March 11, 2022.

This total dividend is 29.1cents per share, which is an increase of 87.7% on the year ended October 31, 2020 of 15.50 cents per share.

For further information on dividends please refer to note 8 “Dividends” of the Consolidated financial statements in Item 18.

Item 8.BSignificant Changes.

There has been no significant change to our financial conditions or results of operations since October 31, 2021 other than those items disclosed in note 33 “Post balance sheet events” of the Consolidated financial statements in Item 18.

See “Item 8.A.7. Information on the Company — Legal Proceedings” for information with respect to legal proceedings to which we may be subject from time to time.

62
Item 9The Offer and Listing.

Item 9.AOffer and listing details.

The principal trading market for our ordinary shares is the London Stock Exchange. Our ordinary shares also trade in the United States in the form of ADSs evidenced by American Depositary Receipts (“ADR”) under a sponsored ADR facility with Deutsche Bank, as depositary. We established this facility in August 2017. Each ADS represents one ordinary share.

Ordinary shares are traded on the London Stock Exchange under the symbol “MCRO.L”. The ADSs trade on the New York Stock Exchange under the symbol “MFGP”.

Item 9.BPlan of distribution.

Not applicable

Item 9.CMarkets.

Micro Focus International plc is listed on the London Stock Exchange. The Company’s American Depositary Shares (the “ADSs”) are listed on the New York Stock Exchange.

Item 9.DSelling shareholders.

Not applicable.

Item 9.EDilution.

Not applicable.

Item 9.FExpenses of the issue.

Not applicable.

63
Item 10Additional Information.

Item 10.AShare capital.

Not applicable.

Item 10.BMemorandum and articles of association.

The Articles of association were included in Item 10 B. in the Annual Report on Form 20-F for the year ended October 31, 2019 on pages 107 to 110. There were no changes in the year to October 31, 2021 and 2020.

Item 10.CMaterial contracts.

Bank borrowings

Changes in the year ended October 31, 2020

Refer to Item 10 C. in the Annual Report on Form 20-F for the year ended October 31, 2020 on page 69.

Changes in the year ended October 31, 2021

On January 17, 2022, the Group announced the refinancing of $1.6 billion of existing term loans. This refinancing comprised a €750 million and a $750 million Senior Secured Term Loan B. The new 5-year Facilities have been used by the Group to fully refinance its existing Senior Secured Term Loan B Euro facility issued by MA FinanceCo., LLC due June 2024 as well as partially refinance the existing Senior Secured Term Loan B USD facilities issued by Seattle SpinCo, Inc., ($750 million refinance, $1,678 million remaining) and MA FinanceCo., LLC, ($359.5 million B-3 fully replaced by additional Euro borrowing) due June 2024.

The new 5-year Facilities incurs interest at 4.00% above EURIBOR (subject to 0% floor) at an original issue discount of 0.5% on the Euro denominated tranche, and 4.00% above SOFR and CSA (subject to 0.5% floor) at an original issue discount of 1.0% on the US Dollar denominated tranche. This represents an increase in annualized interest costs of approximately $23.0 million.

Post year end the Group successfully extended its revolving credit facility and reduced it to $250 million and with maturity extended until December 2026, subject to tests for the term loan maturities in June 2024 and June 2025.

Following these refinancing activities, the Group’s earliest debt maturity continues to be in June 2024.

Please refer to Exhibit 4.1 “Credit Agreement, among Micro Focus International plc, Micro Focus Group Limited, MA FinanceCo., LLC, the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral Agent.” and Exhibit 4.2 “Credit Agreement, among Micro Focus International plc, Micro Focus Group Limited, Seattle SpinCo, Inc., the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral Agent.”.

Item 10.DExchange controls.

There are currently no UK foreign exchange controls or restrictions on remittance of dividends on the ordinary shares or on the conduct of the Company’s operations, other than restrictions applicable to ‘certain countries and persons subject to sanctions pursuant to the UK Sanctions and Anti-Money Laundering Act 2018or those sanctions adopted by the UK Government which implement resolutions of the Security Council of the United Nations.

64
Item 10.ETaxation.

The following discussion summarizes certain material US federal income tax consequences and UK taxation consequences to US holders (as defined below) of owning and disposing of Micro Focus ordinary shares or ADSs. This discussion does not address any tax consequences arising under the laws of any state, local or non-US or non-UK jurisdiction, or under any US federal or UK laws other than those pertaining to income taxation.

Material US Federal Income Tax Consequences of Owning and Disposing of Micro Focus Ordinary Shares or ADSs
The following discussion summarizes certain material US federal income tax consequences to US holders (as defined below) of owning and disposing of Micro Focus ordinary shares or ADSs. This discussion is based upon the US Internal Revenue Code of 1986, as amended (the “US Tax Code”), the Treasury regulations promulgated under the US Tax Code and judicial and administrative rulings and decisions, all as in effect on the date hereof. These laws are subject to differing interpretations and may change, possibly retroactively, and any change could affect the accuracy of the statements and conclusions set forth in this discussion. No ruling has been sought from the US Internal Revenue Service (“IRS”) with respect to any US federal income tax consequences described below, and there can be no assurance that the IRS or a court will not take a contrary position.

This discussion does not constitute tax advice or an opinion, is for general information only and does not purport to consider all aspects of US federal income taxation that might be relevant to US holders in light of their personal investment or tax circumstances. This discussion does not apply to US holders who acquired ordinary shares or ADSs pursuant to the exercise of options or warrants or otherwise as compensation, or to US holders subject to special tax rules, including, without limitation, banks, insurance companies, tax-exempt entities, financial institutions, regulated investment companies, partnerships, S-corporations or other pass-through entities, broker-dealers, persons holding ordinary shares or ADSs as part of a hedging, conversion, or constructive sale transaction or as part of a “straddle,” US expatriates, persons subject to the alternative minimum tax, persons holding 10 per cent. or more of the voting power or value of Micro Focus’s stock, persons subject to “mark to market” accounting, persons holding ordinary shares or ADSs through a non-US account or financial institution and entities subject to the anti-inversion rules of Section 7874 of the US Tax Code. This discussion does not discuss US tax consequences to any person that is not a US holder or to any US holder having a functional currency other than the US dollar. Furthermore, this discussion does not discuss the so-called Medicare tax on net investment income, any US federal estate or gift tax laws or tax consequences under the laws of any state, local or non-US jurisdiction. Each holder of Micro Focus ordinary shares or ADSs is urged to consult its own tax advisor regarding the US federal, state, local and non-US income and other tax considerations of an investment in Micro Focus ordinary shares or ADSs.

As used in this discussion, a “US holder” means a beneficial owner  of ordinary shares or ADSs that holds such ordinary shares or ADSs as capital assets within the meaning of  the US Tax Code (generally, property held for investment) and is for US federal income tax purposes (i) an individual who is a citizen or resident of the United States, (ii) a corporation or other entity taxable as a corporation organized under the laws of the United States, any State thereof or the District of Columbia, (iii) a trust, if (a) a court within the United States is able to exercise primary jurisdiction over administration of the trust and one or more US persons have authority to control all substantial decisions of the trust or (b) a valid election is in place to treat such trust as a domestic trust, or (iv) an estate the income of which is subject to US federal income taxation regardless of its source.

In the case of a beneficial owner of ordinary shares or ADSs that is classified as a partnership for US federal income tax purposes, the tax treatment to a partner in the partnership generally will depend upon the tax status of the partner and the activities of the partner and the partnership. Partnerships and partners of partnerships holding Micro Focus ordinary shares and ADSs are urged to consult their independent professional tax advisors regarding an investment in such ordinary shares and ADSs.

The Company believes, and this discussion assumes, that it is not a passive foreign investment company (a “PFIC”) for US federal income tax purposes, although the inquiry is fact specific and no assurance is being given in that regard. A non-US corporation generally will be considered a PFIC for any taxable year in which (i) 75 per cent. or more of its gross income is passive income (e.g., certain dividends, interest, rents and royalties, and gain from the sale of property producing such income), or (ii) 50 per cent. or more of the average value of its assets are considered “passive assets” (generally, assets that generate passive income). For this purpose, the Company will be treated as owning its proportionate share of the assets and earning its proportionate share of the income of any other non-U.S. corporation in which it owns, directly or indirectly, stock representing more than 25% (by value) of all of the stock of such corporation. The Company’s possible status as a PFIC is based on an annual determinations that cannot be made until the close of a taxable year, involves extensive factual investigation, including ascertaining the fair market value of all of the Company’s assets on a periodic basis and the character of each item of income that the Company earns, and is subject to uncertainty in several respects. Therefore, the Company cannot assure US holders that it will not be treated as a PFIC for its current taxable year or for any future taxable year or that the IRS will not take a contrary position. If the Company were to be classified as a PFIC for any year during which a US holder held its ordinary shares or ADSs, the Company generally would continue to be treated as a PFIC for all succeeding years during which such US holder held ordinary shares or ADSs. In addition, special, possibly materially adverse, consequences would result for US holders and certain reporting requirements might apply to US holders. US holders should consult their own independent professional tax advisers regarding the potential application of the PFIC rules to their ownership and disposition of ordinary shares or ADSs.

65
Ownership of ADSs in General
For US federal income tax purposes, a US holder of Micro Focus ADSs generally will be treated as the owner of the Micro Focus ordinary shares represented by the ADSs.

The US Treasury Department has expressed concern that depositaries for American Depositary Shares, or other intermediaries between the holders of shares of an issuer and the issuer, may be taking actions that are inconsistent with the claiming of US foreign tax credits by US holders of those receipts or shares. Accordingly, the analysis regarding the availability of a US foreign tax credit for UK taxes and sourcing rules described below could be affected by future actions that may be taken by the US Treasury Department.

Dividends Paid on Ordinary Shares or ADSs
The gross amount of any cash distribution (including the amount of any tax withheld, as discussed below) paid to a US holder by Micro Focus out of its current or accumulated earnings and profits (as determined for US federal income tax  purposes) is subject to US federal income taxation as a dividend. For certain non-corporate US holders, including individuals, dividends that constitute “qualified dividend income” will be taxable to such US holder at the preferential rates applicable to long-term capital gains, provided that the US holder holds the ordinary shares or ADSs on which the dividends are paid for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date and meets other holding period requirements. Dividends Micro Focus pays with respect to its ordinary shares or ADSs generally will be qualified dividend income if Micro Focus is eligible for benefits of the United States income tax treaty with the United Kingdom.  Although Micro Focus believes that it is currently eligible for such treaty benefits, there can be no assurance that this will be the case for any taxable year or that such position would not be challenged by the IRS or sustained by a court.  Dividends received by a corporate US holder generally will not be eligible for the dividends-received deduction that is allowed to US corporations in respect of dividends received from other US corporations. However, a corporate US holder that owns 10 per cent or more of Micro Focus’s stock may, in certain circumstances, be entitled to a deduction in respect of a dividend received from Micro Focus pursuant to Section 245A of the US Tax Code.

A dividend is taxable to a US holder when the US holder receives the dividend, actually or constructively. The amount of the dividend that a US holder must include in its income will be the US dollar value of the payments made (including any withholding tax imposed thereon), determined at the spot Sterling/US dollar rate on the date the dividend is includible in the US holder’s income, regardless of whether the payment is in fact converted into US dollars at such time.  Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date a US holder includes the dividend payment in income to the date a US holder converts the payment into US dollars will be treated as ordinary income or loss and will not be eligible for the special tax rate applicable to qualified dividend income. Such foreign exchange gain or loss generally will be income or loss from sources within the United States for foreign tax credit limitation purposes.

The portion of any cash distribution received by a US holder that is in excess of Micro Focus’s current and accumulated earnings and profits, as determined for US federal income tax purposes, will be treated as a non-taxable return of capital to the extent of the US holder’s basis in the ordinary shares or ADSs on which such payment is received, and thereafter as capital gain. However, Micro Focus does not expect to calculate its earnings and profits in accordance with US federal income tax principles.  Accordingly, a US holder should expect to generally treat cash distributions paid by Micro Focus as taxable dividends for US federal income tax purposes.

A US holder must include any foreign tax withheld from a cash distribution on its ordinary shares or ADSs in the gross amount included in income, even though the US holder does not in fact receive such withheld amount. Subject to certain limitations, UK tax withheld, if any, in accordance with the United Kingdom-United States Income Tax Convention (1975), as amended (the “Treaty”), and paid over to the United Kingdom will be deductible or creditable against a US holder’s US federal income tax liability. Special rules apply in determining the foreign tax credit limitation with respect to dividends that are subject to the preferential tax rates. To the extent a refund of the tax withheld is available to a US holder under UK law or under the Treaty, the amount of tax withheld that is refundable will not be eligible for credit against a US holder’s US federal income tax liability.

Dividends paid by Micro Focus on its ordinary shares or ADSs generally will be income from sources outside the United States and will, depending on a US holder’s circumstances, be either “passive” or “general” income for purposes of computing the foreign tax credit allowable to the US holder. The rules governing the foreign tax credit are complex and involve the application of rules that depend upon a US holder’s particular circumstances. Accordingly, US holders are urged to consult their own tax advisors regarding the availability of the foreign tax credit under their particular circumstances.

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Sale or Disposition of Ordinary Shares or ADSs
If a US holder sells or otherwise disposes of its ordinary shares or ADSs in a taxable sale or other disposition, such US holder will generally recognize capital gain or loss for US federal income tax purposes equal to the difference between the US dollar value of the amount that the US holder realizes in such disposition and the US holder’s tax basis, determined in US dollars, in the US holder’s Micro Focus ordinary shares or ADSs. Capital gain of certain non-corporate US holders, including individuals, is generally taxed at preferential rates where the property disposed of is held for more than one year. Gain or loss recognized by a US holder on the sale or other disposition of ordinary shares or ADSs will generally be income or loss from sources within the United States for foreign tax credit limitation purposes. The deductibility of a capital loss may be subject to limitations under the US Tax Code.

Information with Respect to Foreign Financial Assets
US holders that are owners of “specified foreign financial assets” with an aggregate value in excess of $50,000 (and in some circumstances, a higher threshold) may be required to file an information report with respect to such assets with their tax returns and may be subject to penalties if they fail to file such information report. “Specified foreign financial assets” include financial accounts maintained by foreign financial institutions, as well as the following, but only if they are held for investment and not held in accounts maintained by financial institutions: (i) stocks and securities issued by non-U.S. persons, (ii) financial instruments and contracts that have non-U.S. issuers or counterparties, and (iii) interests in foreign entities.  US holders are urged to consult their own tax advisors regarding the application of this reporting requirement to their ownership of ordinary shares or ADSs.

Backup Withholding and Information Reporting
In general, dividend payments with respect to ordinary shares and ADSs and proceeds from the sale or other disposition of ordinary shares or ADSs made (or deemed made) within the United States may be subject to information reporting to the IRS and US backup withholding currently at a rate of 24 per cent. Backup withholding will generally not apply to a US holder who:

•          Furnishes a correct taxpayer identification number and certifies, under penalties of perjury, that such US holder is not subject to backup withholding on an IRS Form W-9, and otherwise complies with applicable requirements of the backup withholding rules; or

•          Is a corporation or otherwise exempt from backup withholding and, when required, demonstrates this fact in accordance with applicable Treasury regulations.

Backup withholding is not an additional tax. Amounts withheld under the backup withholding rules may be allowed as a credit against a holder’s US federal income tax liability and may entitle the holder to a refund, provided the holder timely furnishes the required information to the IRS.

US holders should consult their own independent professional tax adviser regarding the application of the information reporting and backup withholding rules.

Credits or deductions for UK taxes
As indicated under ‘Material UK Tax Consequences’ below, distributions in respect of, and gains on the disposition of, ordinary shares or ADSs, may be subject to UK taxation in certain circumstances. A US holder may be eligible to claim a credit or deduction in respect of UK taxes attributable to such income or gain for purposes of computing the US holder’s US federal income tax liability, subject to certain limitations. The US foreign tax credit rules are complex, and US holders should consult their own tax advisors regarding the availability of US foreign tax credits and the application of the US foreign tax credit rules to their particular situation.

The summary set forth above is included for general information only. US holders are urged to consult their own tax advisors to determine the particular tax consequences to them of the ownership and disposition of ordinary shares and ADSs, including the applicability and effect of U.S. state, local and non-U.S. tax laws.

Material UK Tax Consequences of Owning and Disposing of Micro Focus Ordinary Shares or ADSs
The following paragraphs set out below summarize material aspects of the UK tax treatment of US holders of ordinary shares or ADSs and do not purport to be either a complete analysis of all tax considerations relating to holding ordinary shares or ADSs or an analysis of the tax position of Micro Focus. They are based on current UK legislation and what is understood to be current HM Revenue & Customs practice, both of which are subject to change, possibly with retrospective effect.

The comments are intended as a general guide and (otherwise than where expressly stated to the contrary) apply only to US holders of ordinary shares or ADSs (other than under a personal equity plan or individual savings account) and who are the absolute beneficial owners of such shares.

67
These comments do not deal with certain types of shareholders such as charities, dealers in securities, persons holding or acquiring shares in the course of a trade, persons who have or could be treated for tax purposes as having acquired their ordinary shares or ADSs by reason of their employment, collective investment schemes, persons subject to UK tax on the remittance basis and insurance companies. You are encouraged to consult an appropriate independent professional tax advisor with respect to your tax position.

Tax on chargeable gains as a result of disposals of ordinary shares or ADSs
Subject to the below, US holders will not generally be subject to UK tax on chargeable gains on a disposal of ordinary shares or ADSs provided that they do not carry on a trade, profession or vocation in the United Kingdom through a branch, agency or permanent establishment in connection with which the ordinary shares or ADSs are held.

A US holder who is an individual, who has ceased to be resident for tax purposes in the United Kingdom for a period of less than five years and who disposes of ordinary shares or ADSs during that period may be liable for UK tax on capital gains (in the absence of any available exemptions or reliefs). If applicable, the tax charge will arise in the tax year that the individual returns to the United Kingdom.

Tax on dividends
Micro Focus is not required to withhold UK tax at source from dividends paid on ordinary shares or ADSs.

US holders will not generally be subject to UK tax on dividends received from Micro Focus provided that they do not carry on a trade, profession or vocation in the United Kingdom through a branch, agency or permanent establishment in connection with which the ordinary shares or ADSs are held.

Stamp duty and stamp duty reserve tax, referred to as SDRT
Based on current published HM Revenue & Customs practice and recent case law, transfers of ADSs should not be subject to SDRT or stamp duty provided that any instrument of transfer is executed and remains outside the UK and the transfer of an underlying ordinary share to the ADS holder in exchange for the cancellation of an ADS should also not give rise to a stamp duty or SDRT charge.

Transfers of ordinary shares outside of the depositary bank, including the repurchase of ordinary shares by Micro Focus, will generally be subject to stamp duty or SDRT at the rate of 0.5% of the amount or value of the consideration given, except as described above in connection with the cancellation of an ADS. If ordinary shares are redeposited into a clearance service or depositary system, the redeposit will attract stamp duty or SDRT at the higher rate of 1.5%.

The purchaser or the transferee of the ordinary shares or ADSs will generally be responsible for paying any stamp duty or SDRT payable. Where stamp duty or SDRT is payable, it is payable regardless of the residence position of the purchaser.

Inheritance tax
A gift or settlement of ordinary shares or ADSs by, or on the death of, an individual shareholder may give rise to a liability to UK inheritance tax even if the shareholder is not a resident of or domiciled in the United Kingdom.

A charge to inheritance tax may arise in certain circumstances where ordinary shares or ADSs are held by close companies and trustees of settlements.

However, pursuant to the Estate and Gift Tax Treaty 1980, referred to as the Treaty, entered into between the United Kingdom and the United States, a gift or settlement of ordinary shares or ADSs by shareholders who are domiciled in the United States for the purposes of the Treaty may be exempt from any liability to UK inheritance tax.

Item 10.FDividends and paying agents.

Not applicable.

Item 10.GStatement by experts.

Not applicable.

Item 10.HDocuments on display.

Copies of our Memorandum and Articles of Association can be found as exhibits of the Group’s Annual Report on Form 20-F for the year ended October 31, 2019 which is available at https://microfocus.com/media/investor-reports/form-20-f-for-12-months-ending-the-31-october-2019-report.pdf and has been filed with the SEC. The Memorandum and Articles of Association along with certain other documents referred to in this Annual Report on Form 20-F are available for inspection at our registered office at The Lawn, 22-30 Old Bath Road, Newbury, Berkshire, RG14 1QN, United Kingdom (c/o the Company Secretary) during usual business hours upon reasonable prior request.

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Item 10.ISubsidiary Information.

Not applicable.

Item 11Quantitative and Qualitative Disclosures About Market Risk.

The following discussion and analysis contains forward-looking statements. See “Risk Factors” in Item 3D and “Cautionary Statement on Forward-Looking Statements’’ in this Annual Report on Form 20-F for a discussion of the uncertainties, risks and assumptions associated with these statements.

Financial risk factors

The Group’s treasury function aims to reduce exposures to interest rate, foreign exchange and other financial risks, to ensure liquidity is available as and when required, and to invest cash assets safely and profitably. The Group does not engage in speculative trading in financial instruments so the analysis in this section can be categorized as non-trading. The treasury function’s policies and procedures are reviewed and monitored by the Audit Committee and are subject to internal audit review.

The Group’s multi-national operations expose it to a variety of financial risks that include the effects of changes in credit risk, foreign currency risk, interest rate risk and liquidity/capital risk. Treasury risk management is carried out by a central treasury department under policies approved by the board of directors.

Group treasury identifies and evaluates financial risks alongside business management. The board provides written principles for risk management together with specific policies covering areas such as foreign currency risk, interest rate risk, credit risk and liquidity risk, the use of derivative and non-derivative financial instruments as appropriate, and investment of excess funds.

Financial Instruments sensitive to market risk

The carrying values and fair values for the borrowings and derivative financial instruments are included within the overall financial instruments table. Further information on borrowings showing the maturity profile of the anticipated cash flows in relation to the Group’s borrowing including principal repayments and interest payments can be found in section 5.B.1 along with the contracted interest rates and drawn/undrawn facilities.

Derivative and non-derivative financial instruments used for hedging purposes are further discussed below.

69
Financial Instruments

The tables below sets out the measurement categories and carrying values of financial assets and liabilities with fair value inputs where relevant.

Measurement
category
 
Carrying value
October 31,
2021
  
Fair value
2021
  
Fair value
Hierarchy
2021/2020
  
Carrying
value
October 31, 2020
 
    
$m

       
$m

Financial assets:               
Non-current               
 
Long-term pension asset
 
FV OCI
  17.1  
Fair value insurance
based input
  Level 3   18.2 
Current               
Cash and cash equivalentAmortised cost  558.4   -   -   737.2 
Trade and other receivablesAmortised cost  784.2   -   -   648.6 
Contract assetsAmortised cost  62.0   -   -   33.7 
    1,421.7           1,437.7 
                  
Financial liabilities:                 
Non-current                 
Derivative financial instruments – interest rate swaps1
 
FV OCI
  -  
Fair value Bank
Institutions
  Level 2   77.9 
Borrowings (gross)2
Amortised cost  4,566.0   4,556.5   -   4,699.0 
Lease obligationsAmortised cost  119.6   -   -   168.2 
Current                 
Derivative financial instruments – interest rate swaps1
 
FV OCI
  35.7  
Fair value Bank
Institutions
  Level 2   - 
Borrowings (gross)2
Amortised cost  42.0   41.9   -   34.2 
Lease obligationsAmortised cost  74.9   -   -   82.2 
Trade and other payables – accrualsAmortised cost  440.1   -   -   419.2 
    5,278.3           5,480.7 

1Derivative interest rate swaps are measured at fair value in other comprehensive income (“FVOCI”) as a result of hedge accounting. All interest rate swaps are in designated hedge relationships and there are no other derivative financial instruments held as fair value through profit and loss (“FVTPL”).

2Borrowings have a carrying value (net of unamortised prepaid facility arrangement fees and original issue discount) of $4,548.4 million (2020: $4,640.3 million). Total borrowings (gross) are shown in this table as $4,608.0 million (2020: $4,733.2 million) for the fair value comparison.

For trade and other receivables, cash and cash equivalents, provisions, trade and other payables, fair values approximate to book values due to the short maturity periods of these financial instruments. For trade receivables, allowances are made for credit risk.

Borrowings with a carrying value of $4,548.4 million (2020: $4,640.3million) (note 18 “Borrowings” of the Consolidated financial statements in Item 18) including unamortised prepaid facility fees and discounts, have a fair value estimate of $4,598.4 million (2020: $4,535.1 million) based on trading prices obtained from external banking providers as at October 31, 2021.

Derivative financial instruments measured at fair value are classified as Level 2 in the fair value measurement hierarchy as they have been determined using significant inputs based on observable market data. The fair values of interest rate derivatives are derived from forward interest rates based on yield curves observable at the balance sheet date together with the contractual interest rates. Valuations are updated by the counter-party banks on a monthly basis.

This section will cover the primary market risk exposures regarding interest rates and foreign currencies. The Group’s principal exposures in relation to market risks are the changes in the exchange rates between the US Dollar and transactions made in other currencies as well as changes in interest rates from US and Euro capital markets.

Interest rate risk

The Group’s income and cash generated from operations are substantially independent of changes in market interest rates. The Group’s interest rate risk arises from short-term and long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. The Group currently uses four interest rate swaps to manage its cash flow interest rate risk arising from potential increases in the LIBOR interest rate.

The objective of the Group’s interest rate risk management policy is to manage the uncertainty and adverse impact on the Group’s net interest charge due to changes in interest rates to an acceptable level. In doing so, the Group seeks to minimize the cost of hedging and the level of associated counterparty risk.

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The Group has set a target of approximately half its borrowings being subject to fixed interest rates in order to minimize its exposure to changes in interest rates. This is achieved through four USD interest swaps for a total notional value of $2.25 billion, with a maturity date of September 2022. The hedge accounting is discussed further later in the note.

On January 19, 2022, the Group executed a new 1m USD SOFR swap with a notional value of $750 million and a maturity date of February 28, 2027. The forward swap is effective on September 21, 2022 with a fixed interest rate of 1.656% swapped against the variable 1m SOFR USD rates.

The Group’s borrowing facilities do not contain any covenants with respect to interest cover ratios.

  October 31, 2021  October 31, 2020 
Interest rate risk 
$m

 
$m

Interest rate swaps (receive variable, pay fixed)        
         
Fair value of Derivative liability (total of 4 swaps)  (35.7)  (77.9)
Notional amount (4 x $562.5 million)  2,250.0   2,250.0 
Maturity date September 30, 2022  September 30, 2022 
Change in fair value of outstanding hedging instruments (OCI hedging reserve excluding deferred tax)  42.2
  (41.3)
Change in value of hedging instruments (as above adjusted for impact of credit risk)  41.9
  (39.9)
Hedging ratio  1.1   1.1 

The Group has four interest rate swaps, which are designated in a hedge relationship.

The Group’s approved strategy in accordance with our risk management policies is to minimize the risk of cash flow fluctuations due to interest rate changes in relation to the 1M-USD LIBOR rate for up to half of the Group’s external borrowings for the period October 19, 2017 to September 30, 2022.

The specific risk management objective is to hedge the interest rate risk (cash flow risk) due to changes in the 1M-USD LIBOR rate charged on $2,250.0 million of the debt issued by Seattle Spin Co Inc. between October 19, 2017 and September 30, 2022.

Derivatives are only used for economic hedging purposes and not as speculative investments.

The swap contracts require settlement of net interest receivable or payable on a monthly basis. The fixed interest rate for each swap is 1.949% and the Group receives a variable rate in line with LIBOR. The Seattle loan is priced at LIBOR (with a 0% floor) plus a current margin of 2.75% with the swaps aimed at addressing the risk of a rising LIBOR element. As such, the total interest cost of the hedged element of the Seattle loan is 4.699%. For the year to October 31, 2021, net interest (finance cost) paid for the swaps amounted to $41.3 million. For the life of the swap, net interest paid to date amounted to $58.5 million.

Non-Derivative financial instruments – Designated Euro borrowings

  October 31, 2021  October 31, 2020 
Foreign exchange risk 
$m

 
$m

Notional amounts for Designated Euro borrowing        
Euro B-1 2020 tranche €600 million (Borrowings maturity date: June 2025)  676.0   700.3 
Foreign exchange (loss) on revaluation transferred to OCI-CTA -
no sources of ineffectiveness observed in review
  6.5   (34.5)
Euro 2017 tranche €453 million (Borrowings maturity date: June 2024)  510.9   528.5 
Foreign exchange (loss) on revaluation transferred to OCI-CTA -
no sources of ineffectiveness observed in review
  4.8   (24.2)
Hedge ratio for each of the two Net investment hedges 1:1  1:1 

The Group has designated two tranches of non-derivative Euro borrowings in two hedge relationships The borrowings in place have a designated initial carrying value of approx. €1.03 billion (note 18 “Borrowings” of the Consolidated financial statements in Item 18.) hedged against Euro designated net investments in foreign operations.

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The specific risk management objective is to carry out a net investment hedge in the consolidated financial statements of the Group, to reduce the foreign currency translation exposure arising from the Group’s investments in foreign entities with Euro functional currency through the use of Euro currency borrowings as hedging instruments as permitted by the Group’s Treasury policy.

Foreign exchange risk

The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the Euro, UK Pound Sterling, Indian Rupee, Israeli Shekel, Japanese Yen, Canadian Dollar, Australian Dollar and the Chinese Yuan. Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities and net investments in foreign operations where the transactions are denominated in a currency that is not the entity’s functional currency.

The Group is subject to exposure on the translation of the net assets of foreign currency subsidiaries into its reporting currency, US Dollar. The Group’s primary balance sheet translation exposures are noted in the Exposure analysis below. These exposures are kept under regular review with the Group treasury function providing reporting to the Treasury Risk committee and the Audit committee.

Group borrowings are denominated in US Dollars and Euros. The Group seeks to match the currency profile of borrowings to the cash flows arising from the Groups operations used to service those borrowings. The May 2020 debt refinancing included an additional proportion of Euro debt and a reduction in US Dollar debt which is intended to better match the currency profile of the Group’s debt with the cash flows used to service that debt (note 18 “Borrowings” of the Consolidated financial statements in Item 18.).

The Group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk. The Group faces currency exposures arising from the translation of profits earned in foreign currency subsidiaries into the Group’s reporting currency of US Dollars. As at October 31, 2021 two net investment hedges totaling €1.03 billion have been designated using non-derivative Euro debt instruments to minimize the volatility in shareholder’s equity arising from foreign currency translation (October 31, 2020 two net investment hedges totaling €1.05 billion).

Exposures also arise from foreign currency denominated trading transactions undertaken by subsidiaries and exposures here are not hedged.

The Group’s currency exposures comprise those that give rise to net currency gains and losses to be recognized in the Consolidated statement of comprehensive income as well as gains and losses on consolidation, which go to reserves. Such exposures reflect the monetary assets and liabilities of the Group that are not denominated in the operating or functional currency of the operating unit involved and the Group’s investment in net assets in currencies other than US dollar.

The impact on the Consolidated statement of comprehensive income of foreign exchange losses in the year ended October 31, 2021 of $0.1 million (2020: $29.7 million loss).

Exposure report analysis

The Group’s principal exposures in relation to market risks are the changes in the exchange rates between the US dollar and transactions made in other currencies as well as changes in interest rates from US and Euro capital markets. Foreign exchange exposures for all re-measuring balances are tracked and reported to management

The key drivers for foreign exchange exposure are cash, borrowings and inter-company positions with trade receivables and trade payables having less relative aggregate exposure. The table below represents a key currency extract from the Group exposures to movements in currency presenting exposures in excess of $10 million equivalent. The key exposure relates to the increased Euro debt profile since the May refinancing. The Indian Rupee and Israeli Shekel had key inter-company positions during the year.

Foreign exchange analysis is shown as for reporting to the Treasury Risk committee. Please note that aggregate Foreign exchange exposures for the Euro below do not consider the impact of the net investment hedges. However, the impact can be seen in the hedging table above.

72
  
Group
exposure
   +/- 5%  +/- 10%
Key aggregate currency exposures* 
$m

 
$m

 
$m

Euro (EUR)  1,504.6   75.2   150.4 
GB Pounds (GBP)  156.7   7.8   15.6 
Indian Rupee (INR)  64.4   3.2   6.4 
Japanese Yen (JPY)  53.0   2.7   5.3 
Australian Dollar (AUD)  32.5   1.6   3.3 
Canadian Dollar (CAD)  31.9   1.6   3.2 
Israeli Shekel (ILS)  29.5   1.5   3.0 
Chinese Yuan (CNY)  27.3   1.4   2.7 
Swedish Krona (SEK)  24.3   1.2   2.4 
United Arab Emirates Dirham (AED)  24.2   1.2   2.4 
Czech Koruna (CZK)  12.0   0.6   1.2 
Mexican Peso (MXN)  10.4   0.5   1.0 
Turkish Lira (TRY)  10.2   0.5   1.0 
Danish Krone (DKK)  10.1   0.5   1.0 

* Presenting aggregate foreign exchange exposures in excess of $10 million equivalent.

Interest rate exposure

Borrowings exposures to variable interest rate changes
(based on gross debt excluding the effects of hedging)
 Group exposure  
LIBOR,
EURIBOR +1%
 
 

$m
 
$m

Euro  1,186.9   11.9 
US dollar  3,421.1   34.2 
Total Gross Debt  4,608.0   46.1 

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Item 12Description of Securities Other than Equity Securities.

Item 12.ADebt Securities.

Not applicable

Item 12.BWarrants and rights.

Not applicable.

Item 12.COther Securities

Not applicable.

Item 12.DAmerican Depositary Shares

Fees and charges payable by ADS holders

Deutsche Bank Trust Company Americas (Deutsche Bank) was appointed as the depositary bank (the Depositary) for Micro Focus’s ADS program pursuant to the Deposit Agreement dated August 11, 2017 between Micro Focus, the Depositary and the owners and holders of ADSs (the Deposit Agreement).

The Deposit Agreement provides that ADS holders may be required to pay various fees to the Depositary, and the Depositary may refuse to provide any service for which a fee is assessed until the applicable fee has been paid.

The Depositary charges a fee for the operation and maintenance of administering the ADSs. The total fees charged by the Depositary are unchanged at $0.02 per ADS charged twice per year.

ServiceFees
Issuance of ADSs including issuance from a distribution of shares and distribution of ADSs pursuant to bonus distributions, stock splits or other distributions.$5.00 (or less) per 100 ADSs (or portion of 100 ADSs).
Distribution of cash dividends. This fee is not currently charged.$5.00 (or less) per 100 ADSs (or portion of 100 ADSs).
An annual fee for operation and maintenance of administering the ADSs.$5.00 (or less) per 100 ADSs (or portion of 100 ADSs). The current per ADS fee to be charged for the operation and maintenance of administering pf the ADS is $0.02 per ADS twice per year.
Transfer and registration of shares on share register to or from the name of the depositary or its agent when you deposit or withdraw sharesRegistration or transfer fees

In addition, ADS holders may be required under the Deposit Agreement to pay the Depositary: (a) taxes (including applicable interest and penalties) and other governmental charges; (b) registration fees; (c) certain cable, telex and facsimile transmission and delivery expenses; (d) the expenses and charges incurred by the Depositary in the conversion of foreign currency; (e) such fees and expenses as are incurred by the Depositary in connection with compliance with applicable exchange control regulations and other regulatory requirements; and (f) the fees and expenses incurred by the Depositary, the custodian or any nominee in connection with the servicing or delivery of deposited securities. The Depositary may: (a) withhold dividends or other distributions or sell for the account of any ADS holder any or all of the shares underlying the ADSs in order to satisfy any tax or governmental charge; and (b) deduct from any cash distribution the applicable fees and charges of, and expenses incurred by, the Depositary and any taxes, duties or other governmental charges on account.

Fees and payments made by the Depositary to Micro Focus

Under the terms of the contractual arrangements set out in the separate agreement between Micro Focus and the Depositary referred to above, Micro Focus received a total of approximately US$3.0 million from the Depositary, comprising fees charged in respect of the semi-annual service fee collection for November 2020 and April 2021. In addition to this, following the 2021 AGM the Depository paid $0.3 million to 3rd parties on behalf of Micro Focus.

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PART II

Item 13Defaults, Dividend Arrearages and Delinquencies.

Not applicable.

Item 14Material Modifications to the Rights of Security Holders and Use of Proceeds.

Not applicable.

75
Item 15Controls and Procedures.

Item 15.ADisclosure Controls and Procedures.

Disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”)) are designed to provide reasonable assurance that the information required to be (i) recorded, processed, summarized and reported within the time periods specified in  the SEC’s rules and forms and (ii) accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgement in evaluating the cost benefit relationship of possible controls and procedures.

Based on their most recent evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of October 31, 2021, the Company’s disclosure controls and procedures were not effective as a result of the material weakness in our internal control over financial reporting described below. Notwithstanding the material weakness described below, our management, including our Chief Executive Officer and Chief Financial Officer, believes that the audited consolidated financial statements contained in this Annual Report on Form, 20-F fairly present, in all material respects, our financial condition, results of operations and cash flows for the fiscal years presented in conformity with IFRS. In addition, the material weaknesses described below did not result in a material misstatement to the financial statements.

Please see Exhibits 12.1 and 12.2 for the certifications required by this Item.

Item 15.BManagement’s annual report on internal control over financial reporting

As a foreign issuer with American Depositary Shares listed on the New York Stock Exchange (“NYSE”) the Group, as part of its disclosure and reporting obligations in the United States, is required to furnish this Annual Report by its management on its internal controls over financial reporting, including an attestation report issued by its independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (“SOX”) as at October 31, 2021.

Management is responsible for establishing and maintaining adequate internal controls over financial reporting for the Group. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act. The Group’s internal controls over financial reporting include policies and procedures which:


-are designed to give reasonable assurance that the transactions are recorded as necessary to permit the preparation of financial statements in accordance with IFRS as adopted by the EU and IFRS as issued by the IASB, and that receipts and expenditures are being made only in accordance with authorization of management and the directors;


-relate to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and disposal of assets; and


-give reasonable assurance regarding the prevention or timely detection of unauthorized use, acquisition or disposal of the Group’s assets that could have a material impact on the financial statements.

Any internal control network will have inherent limitations, such that the possibility of human error and circumvention or overriding of controls and procedures may not prevent or detect misstatements. In addition, the projection of any controls to future periods are subject to the risk that controls may become inadequate due to changes in conditions or because the degree of compliance with policies and procedures may deteriorate.

Management assessed the effectiveness of internal controls over financial reporting as at October 31, 2021 based on the Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission 2013. Based on the assessment, management concluded that its internal control over financial reporting was not effective due to the following material weakness: In July, the Company completed the migration to its new enterprise-wide application platform (“Enterprise Platform”) which included new business controls and IT general controls (“ITGC’s). There was not sufficient time to allow ITGC’s and related business controls to operate effectively by October 31, 2021. In aggregate, these control deficiencies impact all financial reporting processes and constitute a material weakness. This material weakness did not result in material misstatement to the financial statements.

Our Consolidated financial statements have been audited by KPMG LLP, an independent registered public accounting firm, which has issued an attestation report expressing an adverse opinion on the effectiveness of internal control over financial reporting, with respect to this material weakness in this Annual Report on Form 20-F.

76
Item 15.CAttestation report of the registered public accounting firm

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors
Micro Focus International plc.:

Opinion on Internal Control Over Financial Reporting

We have audited Micro Focus International plc and subsidiaries’ (the Company) internal control over financial reporting as of October 31, 2021, based on Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission”. In our opinion, because of the effect of the material weakness, described below, on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of October 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial position of the Company as of October 31, 2021 and 2020, the related consolidated statements of comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended October 31, 2021, the summary of significant accounting policies and the related notes (collectively, the Consolidated financial statements), and our report dated February 24, 2022 expressed an unqualified opinion on those Consolidated financial statements.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. A material weakness has been identified and included in management’s assessment related to ineffective IT general controls and related business controls following the migration to a new enterprise platform in July 2021. In aggregate, these deficiencies impact all financial reporting processes and constitute a material weakness. The material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the October 31, 2021 Consolidated financial statements, and this report does not affect our report on those Consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

77
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG LLP
London, United Kingdom
February 24, 2022

78
Item 15.DChanges in internal control over financial reporting.

In the period, the Group completed the migration from legacy IT applications and infrastructure to the Enterprise Platform. The Enterprise Platform enables further improvement to process and controls. Improvements for the business include refining functional process and organisational simplification as referred to in Item 3.D, Item 5.A and Item 5.D. The migration was successfully completed in two planned phases, the first completed in January 2021 and the second completed in July 2021. The majority of the work was carried out within the requirements of remote working under COVID-19 restrictions. The timing of the phases meant that there was insufficient time prior to the financial year end to allow ITGC’s and related business controls to operate effectively.

During the period the Group continued to monitor and maintain the framework of SOX compliant internal controls under its central SOX Compliance Program (“SCP”) on the legacy systems as well as preparing and implementing controls for the Enterprise Platform. The SCP worked together with a specialist team from its outsourced internal audit partner, PwC. Governance for the SCP included a cross-functional SOX steering group (“SSG”). In addition, the cross functional disclosure committee continued to meet to assist the Chief Executive Officer and Chief Financial Officer in fulfilling their responsibilities in connection with the accuracy of financial reporting. The Group strengthened internal compliance by the appointment of an additional team from PwC to work alongside the business and the Enterprise Platform implementation project team to carry out end-to-end process mapping and support Risk and Control Matrix (“RACM”) development for the new Enterprise Platform controls. A key work stream of the SCP also relates to the adequacy of ITGCs. The work undertaken as part of the SCP identified a number of areas for improvement in the Group’s ITGCs. A remediation plan was agreed, which forms part of the SCP. Work in this area was carried out under an IT SOX Compliance Group chaired by the Chief Information Security Officer (CISO) reporting to the main SSG.

In the year, the Group has also reviewed its entity-level controls including continued supplementary SOX training plan across relevant parts of the Group. As part of the overall governance, the SSG continues to monitor potential adverse impacts of organisational change to the SCP.

In the 2020 Form 20-F the Group reported certain weaknesses in its internal control over financial reporting, which under Public Company Accounting Oversight Board auditing standards were considered to be a material weakness. The material weakness related to the fact that Company did not have adequate controls at that time surrounding existing IT applications, in particular regarding change management and access control. These controls and control deficiencies were then superseded in the year by the controls on the Enterprise Platform.

Remediation

The Group continues its work under the SCP to remediate the material weakness and other control deficiencies, and any other matters, which arise during its progress towards SOX compliance. As the business commenced the new financial year operating on the Enterprise Platform it has also been able to implement an enhanced testing program for year ended October 31, 2022.

To maintain the required control environment the Group relies upon automated, semi-automated and manual controls together with a combination of preventative and detective controls. The material weakness, control deficiencies and other matters may not be able to be remediated by October 31, 2022, and there is a risk that other deficiencies for the purposes of SOX may be identified. Failure to correct the material weakness, or our failure to discover and address any other material weakness or control deficiencies, could result in inaccuracies in our financial statements, and impair our ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis. It could also result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of the Group’s financial statements and could have a material adverse effect on the Group’s business, financial condition, results of operation and prospects.

79
Item 16

Item 16.AAudit committee audit report expert

The Audit Committee includes Richard Atkins who, in the opinion of the Board, is an ‘audit committee financial expert’ and is independent (as defined for this purpose in 17 CFR 240.10A-3).  The board considered that the Committee’s members have broad commercial knowledge and extensive business leadership experience, having held between them various roles in major business, financial management, and finance function supervision and that this constitutes a broad suitable mix of business and financial experience on the committee.

Item 16.BCode of ethics

Micro Focus has adopted an updated code of ethics in the year ended October 31, 2021 (the Micro Focus Code of Conduct) which applies to all employees including the Chief Executive Officer and Chief Financial Officer and other senior financial management. This code of ethics is available on our website (https://www.microfocus.com/media/guide/micro_focus_code_of_conduct_guide.pdf). The information on our website is not incorporated by reference into this report.

The Code of Ethics is included as Exhibit 11.1 MF Code of Conduct Guide.

Item 16.CPrincipal accountant fees and services

During the years ended October 31, 2021, 2020 and 2019, the Group obtained the following services from the Group’s auditors as detailed below:

  
Year
ended
October 31, 2021
  
Year
ended
October 31, 2020
  
Year
ended
October 31, 2019
 
  
$m

 
$m

 
$m

Audit of Company  8.0   7.2   12.8 
ICOFR  4.7   2.7   3.0 
Audit of subsidiaries  2.8   2.9   3.9 
Total audit fees  15.5   12.8   19.7 
             
Audit-related assurance fees  0.5   0.6   0.6 
Other assurance services  -   -   - 
Total audit related fees  0.5   0.6   0.6 
             
Tax compliance services  -   -   - 
Tax advisory services  -   -   0.1 
Tax fees  -   -   0.1 
             
All other fees  -   -   - 
             
Total  16.0   13.4   20.4 

The fees represent fees paid to KPMG LLP, as the current auditor.

There were no other fees in the years ended October 31, 2021, 2020 and 2019.

Independence and objectivity of the external auditors
The Audit Committee approves all non-audit work commissioned from the external auditors. The committee is responsible for safeguarding the independence and objectivity of the external auditors and has developed a robust policy designed to ensure that this is not compromised. As explained above, the committee manages the risks that the external auditors undertake inappropriate non- audit work, or earn material levels of fees for non-audit services. It also considers the standing and experience of the external audit partner and takes comfort from the fact that KPMG took office relatively recently and from the external auditors’ confirmation that they have complied with relevant UK and US independence standards.

The committee is satisfied that the independence and objectivity of the external auditors has been maintained throughout the year ended October 31, 2021 and to the date of this report.

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Item 16.DExemptions from the listing standards for audit committees

Not applicable.

Item 16.EPurchase of equity securities by the issuer and affiliated purchases

The purchase of shares shown in the table below were made on behalf of the Group’s all-employee share plans (a Sharesave plan and an Employee Stock Purchase Plan see Item 6E for further details on these plans) by the Micro Focus Employee benefit trust (“EBT”). The EBT is included in the consolidated financial statements in Item 18 therefore these purchases are treated as Treasury shares; however, they are owned by the EBT and can only be used to settle employee benefits for eligible employees.

Period 
Total Number of
Shares purchased
  
Average price paid
per share
  
Total Number of Shares
purchased as part of
publicly announced
plans or
programs
  
Maximum number of
Shares that may yet be
purchased under the
plans or
programs
 
November 1, 2020 to November 30, 2020  -   -   -   - 
December 1, 2020 to December 31, 2020  -   -   -   - 
January 1, 2021 to January 31, 2021  -   -   -   - 
February 1, 2021 to February 28, 2021  -   -   -   - 
March 1, 2021 to March 31, 2021  4,000,000
1 
 $6.81   -   - 
April 1, 2021 to April 30, 2021  -   -   -   - 
May 1, 2021 to May 31, 2021  -   -   -   - 
June 1, 2021 to June 30, 2021  -   -   -   - 
July 1, 2021 to July 31, 2021  -   -   -   - 
August 1, 2021 to August 31, 2021  -   -   -   - 
September 1, 2021 to September 30, 2021  -   -   -   - 
October 1, 2021 to October 31, 2021  -   -   -   - 
Total  4,000,000  $6.81   -   - 
1 During the year ended October 31, 2021 the Micro Focus Employee Benefit Trust (“EBT”) purchased four million of the Group’s shares in open-market transactions. The EBT will hold these shares to satisfy future exercises of share options.

Item 16.FChange in Registrant’s certifying accountant

Not applicable.

Item 16.GCorporate Governance

Principles

Micro Focus International plc (the “Company”) has a primary listing on the London Stock Exchange. As such, it is required to comply with the UK Corporate Governance Code (the “Code”). For the year ended October 31, 2021 this was the edition of the Code published by the UK’s Financial Reporting Council in July 2018.

The Company’s ADSs are listed on the NYSE. As a Foreign Private Issuer, we are required to comply with some, but not all, of the NYSE’s corporate governance rules, and are required to disclose any significant ways in which the UK corporate governance practices employed by the Company differ from those followed by US companies under the NYSE Listed Company Manual.

The directors are committed to ensuring that the Company operates in compliance with the main principles of the Code, as this provides a robust governance framework in support of the delivery of value to shareholders.

81
Compliance with the Code

UK listed companies are required to include in their Annual Report a narrative statement of (i) how they have applied the principles of the Code and (ii) whether or not they have complied with each of the provisions of the Code.

Throughout the year ended October 31, 2021 and to the date of this report, the Board considers that the Company has been in compliance with the principles of the Code, and with each of its provisions, save for one element of Provision 38 in relation to the alignment of pension contribution rates.  Under Provision 38 the Company is partially compliant with this provision and will be fully compliant in the alignment of pension contribution rates for the executive directors with the wider workforce at the end of 2022. The pension contribution rate for Stephen Murdoch will be aligned at the end of 2022 as set out in the Directors’ Remuneration Policy which was approved by shareholders at the 2020 Annual General. The rate for Matt Ashley is already aligned, and the rates for any new director on joining would be aligned with the wider workforce.

Non-executive directors’ Independence

Each of the non-executive directors who served during the period November 1, 2020 to October 31, 2021, was considered by the Board to be independent. Karen Slatford1 was appointed to the Board in July 2010 and has now served for more than ten years. The Board has specifically considered whether this was likely to affect, or could appear to affect, her independence and concluded that she continued to demonstrate independence in thought and judgement, noting that there were no other relationships or circumstances that could affect her independence. The independent non-executive directors comprise a majority of the Board. In accordance with the Companies Act 2006, the Company has put in place procedures to deal with conflicts of interest, which have operated effectively. The board is aware of the other commitments of its directors and is satisfied that these do not conflict with their duties as directors of the Company. Any changes to these commitments are reported to the board.

The non-executive directors meet together regularly without the presence of executive directors.  In addition, the Senior Independent Director meets with the non-executive and executive directors at least once a year to review the performance of the Non-Executive Chairman and to consider whether to recommend his re-election, providing feedback directly to the Chairman.

1 As announced on February 8, 2022, Karen Slatford has informed the Board of her intention to retire as a director of Micro Focus International Plc, following the conclusion of the 2022 Annual General Meeting and consequently will not be seeking re-election.

Committees of the board of directors

The Company has three principal Board committees that are broadly comparable in purpose and composition to those required by NYSE rules for domestic US companies. For instance, the Company has a Nomination (rather than nominating/corporate governance) Committee and a Remuneration (rather than compensation) Committee. The Company also has an Audit Committee, which NYSE rules require for both US companies and foreign private issuers. All the committees are comprised of non-executive directors only and none of the functions of these committees has been delegated to another committee.

Each Board Committee has clearly defined terms of reference approved by the Board setting out their respective authority and duties.  The terms of reference for each committee can be found on the Company’s website at https://www.microfocus.com/en-us/governance-policies/committees-of-the-board

Under the US Securities Exchange Act of 1934 and the NYSE Listed Company Manual, the Company is required to have an audit committee that is comprised of at least three members from the independent non-executive directors of the Company’s Board. Our Audit Committee complies, and during the year ended October 31, 2021 has complied, with these requirements. As stated in Item 16.A. above, the Board has determined that Richard Atkins possesses ‘accounting or related financial management expertise’, as required by section 303A.07 (a) of the NYSE Listed Company Manual. Richard Atkins also possesses the financial and audit committee experience set forth in the Code.

The Company’s Audit Committee does not have direct responsibility for the appointment, reappointment or removal of the independent auditors. Instead, it follows the UK Companies Act 2006 by making recommendations to the Board on these matters for it to put forward for shareholder approval at the AGM.

82
Shareholder approval of equity compensation plans

Under NYSE listing rules, shareholders must be given the opportunity to vote on all equity-compensation plans and material revisions thereto, except for employment inducement awards, certain grants, plans and amendments in the context of mergers and acquisitions, and certain specific types of plans. The Company complies with corresponding UK requirements in the Listing Rules, requiring the Company to seek shareholder approval for employee share schemes and significant changes to existing schemes, save in circumstances permitted by the Listing Rules (Listing Rule 9.4.1). The Board, however, does not explicitly take into consideration the NYSE’s detailed definition of what are considered ‘material revisions’.

Corporate Governance Guidelines

Section 303A.09 of the NYSE Listed Company Manual requires listed companies to adopt and disclose corporate governance guidelines. As noted above, in line with its obligations under the UK’s Listing Rules the Company applies the UK Corporate Governance Code and, as required by the Listing Rules, the UK Annual Report contains an explanation of (i) how it has applied the principles of the Code, and (ii) whether it complies in full with the Code’s provisions, or, where it does not, providing an explanation of any non-compliance and the reasons for this (LR 9.8.6).

In addition, the Company is required to make certain mandatory corporate governance statements in accordance with the UK Listing Authority’s Disclosure Guidance and Transparency Rules, DTR 7, which are also included in the Group’s UK Annual Report and Accounts available on the Group’s website https://www.microfocus.com/en-us/investors/investor-download-centre.

Code of Business Conduct and Ethics
The Micro Focus Code of Conduct is available on the Company’s website at www.microfocus.com.

Item 16.HMine Safe Disclosure

Not applicable.

Item 16.IDisclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

83
PART III

Item 17Financial Statements

Not applicable.

Item 18Financial Statements

The financial statements filed as part of this Annual Report on Form 20-F are included in Item 18 on pages F-1 through F-92 hereof.

Item 19Exhibits

The following exhibits are filed as part of this report:

2.1
Description of the rights of each class of securities registered under Section 12 of the Exchange Act
4.1
Credit Agreement amendments, among Micro Focus International plc, Micro Focus Group Limited, MA FinanceCo., LLC, the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral Agent.
4.2
Credit Agreement amendments, among Micro Focus International plc, Micro Focus Group Limited, Seattle Spinco, Inc., the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral Agent.
11.1
Code of conduct
12.1
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
12.2
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
13.1
Certification of Stephen Murdoch under Section 906 of the Sarbanes-Oxley Act of 2002
13.2
Certification of Matt Ashley under Section 906 of the Sarbanes-Oxley Act of 2002
15.1
Consent of KPMG LLP.

101.INS
Inline XBRL Instance Document (the instance document does not appear in the Interactive Date File because its XBRL tags are embedded with the Inline XBRL document)

101.SCHInline XBRL Taxonomy Extension Schema Document

101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document

101.LABInline XBRL Taxonomy Extension Label Linkbase Document

101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document

104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
84
Signature

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

Micro Focus International plc

/s/ Stephen Murdoch

Stephen MurdochOwnership of ADSs in General

For US federal income tax purposes, a US holder of Micro Focus ADSs generally will be treated as the owner of the Micro Focus ordinary shares represented by the ADSs.
Stephen
The US Treasury Department has expressed concern that depositaries for American Depositary Shares, or other intermediaries between the holders of shares of an issuer and the issuer, may be taking actions that are inconsistent with the claiming of US foreign tax credits by US holders of those receipts or shares. Accordingly, the analysis regarding the availability of a US foreign tax credit for UK taxes and sourcing rules described below could be affected by future actions that may be taken by the US Treasury Department.

Dividends Paid on Ordinary Shares or ADSs
The gross amount of any cash distribution (including the amount of any tax withheld, as discussed below) paid to a US holder by Micro Focus out of its current or accumulated earnings and profits (as determined for US federal income tax  purposes) is subject to US federal income taxation as a dividend. For certain non-corporate US holders, including individuals, dividends that constitute “qualified dividend income” will be taxable to such US holder at the preferential rates applicable to long-term capital gains, provided that the US holder holds the ordinary shares or ADSs on which the dividends are paid for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date and meets other holding period requirements. Dividends Micro Focus pays with respect to its ordinary shares or ADSs generally will be qualified dividend income if Micro Focus is eligible for benefits of the United States income tax treaty with the United Kingdom.  Although Micro Focus believes that it is currently eligible for such treaty benefits, there can be no assurance that this will be the case for any taxable year or that such position would not be challenged by the IRS or sustained by a court.  Dividends received by a corporate US holder generally will not be eligible for the dividends-received deduction that is allowed to US corporations in respect of dividends received from other US corporations. However, a corporate US holder that owns 10 per cent or more of Micro Focus’s stock may, in certain circumstances, be entitled to a deduction in respect of a dividend received from Micro Focus pursuant to Section 245A of the US Tax Code.

A dividend is taxable to a US holder when the US holder receives the dividend, actually or constructively. The amount of the dividend that a US holder must include in its income will be the US dollar value of the payments made (including any withholding tax imposed thereon), determined at the spot Sterling/US dollar rate on the date the dividend is includible in the US holder’s income, regardless of whether the payment is in fact converted into US dollars at such time.  Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date a US holder includes the dividend payment in income to the date a US holder converts the payment into US dollars will be treated as ordinary income or loss and will not be eligible for the special tax rate applicable to qualified dividend income. Such foreign exchange gain or loss generally will be income or loss from sources within the United States for foreign tax credit limitation purposes.

The portion of any cash distribution received by a US holder that is in excess of Micro Focus’s current and accumulated earnings and profits, as determined for US federal income tax purposes, will be treated as a non-taxable return of capital to the extent of the US holder’s basis in the ordinary shares or ADSs on which such payment is received, and thereafter as capital gain. However, Micro Focus does not expect to calculate its earnings and profits in accordance with US federal income tax principles.  Accordingly, a US holder should expect to generally treat cash distributions paid by Micro Focus as taxable dividends for US federal income tax purposes.

A US holder must include any foreign tax withheld from a cash distribution on its ordinary shares or ADSs in the gross amount included in income, even though the US holder does not in fact receive such withheld amount. Subject to certain limitations, UK tax withheld, if any, in accordance with the United Kingdom-United States Income Tax Convention (1975), as amended (the “Treaty”), and paid over to the United Kingdom will be deductible or creditable against a US holder’s US federal income tax liability. Special rules apply in determining the foreign tax credit limitation with respect to dividends that are subject to the preferential tax rates. To the extent a refund of the tax withheld is available to a US holder under UK law or under the Treaty, the amount of tax withheld that is refundable will not be eligible for credit against a US holder’s US federal income tax liability.

Dividends paid by Micro Focus on its ordinary shares or ADSs generally will be income from sources outside the United States and will, depending on a US holder’s circumstances, be either “passive” or “general” income for purposes of computing the foreign tax credit allowable to the US holder. The rules governing the foreign tax credit are complex and involve the application of rules that depend upon a US holder’s particular circumstances. Accordingly, US holders are urged to consult their own tax advisors regarding the availability of the foreign tax credit under their particular circumstances.

66
Sale or Disposition of Ordinary Shares or ADSs
If a US holder sells or otherwise disposes of its ordinary shares or ADSs in a taxable sale or other disposition, such US holder will generally recognize capital gain or loss for US federal income tax purposes equal to the difference between the US dollar value of the amount that the US holder realizes in such disposition and the US holder’s tax basis, determined in US dollars, in the US holder’s Micro Focus ordinary shares or ADSs. Capital gain of certain non-corporate US holders, including individuals, is generally taxed at preferential rates where the property disposed of is held for more than one year. Gain or loss recognized by a US holder on the sale or other disposition of ordinary shares or ADSs will generally be income or loss from sources within the United States for foreign tax credit limitation purposes. The deductibility of a capital loss may be subject to limitations under the US Tax Code.

Information with Respect to Foreign Financial Assets
US holders that are owners of “specified foreign financial assets” with an aggregate value in excess of $50,000 (and in some circumstances, a higher threshold) may be required to file an information report with respect to such assets with their tax returns and may be subject to penalties if they fail to file such information report. “Specified foreign financial assets” include financial accounts maintained by foreign financial institutions, as well as the following, but only if they are held for investment and not held in accounts maintained by financial institutions: (i) stocks and securities issued by non-U.S. persons, (ii) financial instruments and contracts that have non-U.S. issuers or counterparties, and (iii) interests in foreign entities.  US holders are urged to consult their own tax advisors regarding the application of this reporting requirement to their ownership of ordinary shares or ADSs.

Backup Withholding and Information Reporting
In general, dividend payments with respect to ordinary shares and ADSs and proceeds from the sale or other disposition of ordinary shares or ADSs made (or deemed made) within the United States may be subject to information reporting to the IRS and US backup withholding currently at a rate of 24 per cent. Backup withholding will generally not apply to a US holder who:

•          Furnishes a correct taxpayer identification number and certifies, under penalties of perjury, that such US holder is not subject to backup withholding on an IRS Form W-9, and otherwise complies with applicable requirements of the backup withholding rules; or

•          Is a corporation or otherwise exempt from backup withholding and, when required, demonstrates this fact in accordance with applicable Treasury regulations.

Backup withholding is not an additional tax. Amounts withheld under the backup withholding rules may be allowed as a credit against a holder’s US federal income tax liability and may entitle the holder to a refund, provided the holder timely furnishes the required information to the IRS.

US holders should consult their own independent professional tax adviser regarding the application of the information reporting and backup withholding rules.

Credits or deductions for UK taxes
As indicated under ‘Material UK Tax Consequences’ below, distributions in respect of, and gains on the disposition of, ordinary shares or ADSs, may be subject to UK taxation in certain circumstances. A US holder may be eligible to claim a credit or deduction in respect of UK taxes attributable to such income or gain for purposes of computing the US holder’s US federal income tax liability, subject to certain limitations. The US foreign tax credit rules are complex, and US holders should consult their own tax advisors regarding the availability of US foreign tax credits and the application of the US foreign tax credit rules to their particular situation.

The summary set forth above is included for general information only. US holders are urged to consult their own tax advisors to determine the particular tax consequences to them of the ownership and disposition of ordinary shares and ADSs, including the applicability and effect of U.S. state, local and non-U.S. tax laws.

Material UK Tax Consequences of Owning and Disposing of Micro Focus Ordinary Shares or ADSs
The following paragraphs set out below summarize material aspects of the UK tax treatment of US holders of ordinary shares or ADSs and do not purport to be either a complete analysis of all tax considerations relating to holding ordinary shares or ADSs or an analysis of the tax position of Micro Focus. They are based on current UK legislation and what is understood to be current HM Revenue & Customs practice, both of which are subject to change, possibly with retrospective effect.

The comments are intended as a general guide and (otherwise than where expressly stated to the contrary) apply only to US holders of ordinary shares or ADSs (other than under a personal equity plan or individual savings account) and who are the absolute beneficial owners of such shares.

67
These comments do not deal with certain types of shareholders such as charities, dealers in securities, persons holding or acquiring shares in the course of a trade, persons who have or could be treated for tax purposes as having acquired their ordinary shares or ADSs by reason of their employment, collective investment schemes, persons subject to UK tax on the remittance basis and insurance companies. You are encouraged to consult an appropriate independent professional tax advisor with respect to your tax position.

Tax on chargeable gains as a result of disposals of ordinary shares or ADSs
Subject to the below, US holders will not generally be subject to UK tax on chargeable gains on a disposal of ordinary shares or ADSs provided that they do not carry on a trade, profession or vocation in the United Kingdom through a branch, agency or permanent establishment in connection with which the ordinary shares or ADSs are held.

A US holder who is an individual, who has ceased to be resident for tax purposes in the United Kingdom for a period of less than five years and who disposes of ordinary shares or ADSs during that period may be liable for UK tax on capital gains (in the absence of any available exemptions or reliefs). If applicable, the tax charge will arise in the tax year that the individual returns to the United Kingdom.

Tax on dividends
Micro Focus is not required to withhold UK tax at source from dividends paid on ordinary shares or ADSs.

US holders will not generally be subject to UK tax on dividends received from Micro Focus provided that they do not carry on a trade, profession or vocation in the United Kingdom through a branch, agency or permanent establishment in connection with which the ordinary shares or ADSs are held.

Stamp duty and stamp duty reserve tax, referred to as SDRT
Based on current published HM Revenue & Customs practice and recent case law, transfers of ADSs should not be subject to SDRT or stamp duty provided that any instrument of transfer is executed and remains outside the UK and the transfer of an underlying ordinary share to the ADS holder in exchange for the cancellation of an ADS should also not give rise to a stamp duty or SDRT charge.

Transfers of ordinary shares outside of the depositary bank, including the repurchase of ordinary shares by Micro Focus, will generally be subject to stamp duty or SDRT at the rate of 0.5% of the amount or value of the consideration given, except as described above in connection with the cancellation of an ADS. If ordinary shares are redeposited into a clearance service or depositary system, the redeposit will attract stamp duty or SDRT at the higher rate of 1.5%.

The purchaser or the transferee of the ordinary shares or ADSs will generally be responsible for paying any stamp duty or SDRT payable. Where stamp duty or SDRT is payable, it is payable regardless of the residence position of the purchaser.

Inheritance tax
A gift or settlement of ordinary shares or ADSs by, or on the death of, an individual shareholder may give rise to a liability to UK inheritance tax even if the shareholder is not a resident of or domiciled in the United Kingdom.

A charge to inheritance tax may arise in certain circumstances where ordinary shares or ADSs are held by close companies and trustees of settlements.

However, pursuant to the Estate and Gift Tax Treaty 1980, referred to as the Treaty, entered into between the United Kingdom and the United States, a gift or settlement of ordinary shares or ADSs by shareholders who are domiciled in the United States for the purposes of the Treaty may be exempt from any liability to UK inheritance tax.

Item 10.FDividends and paying agents.

Not applicable.

Item 10.GStatement by experts.

Not applicable.

Item 10.HDocuments on display.

Copies of our Memorandum and Articles of Association can be found as exhibits of the Group’s Annual Report on Form 20-F for the year ended October 31, 2019 which is available at https://microfocus.com/media/investor-reports/form-20-f-for-12-months-ending-the-31-october-2019-report.pdf and has been filed with the SEC. The Memorandum and Articles of Association along with certain other documents referred to in this Annual Report on Form 20-F are available for inspection at our registered office at The Lawn, 22-30 Old Bath Road, Newbury, Berkshire, RG14 1QN, United Kingdom (c/o the Company Secretary) during usual business hours upon reasonable prior request.

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Item 10.ISubsidiary Information.

Not applicable.

Item 11Quantitative and Qualitative Disclosures About Market Risk.

The following discussion and analysis contains forward-looking statements. See “Risk Factors” in Item 3D and “Cautionary Statement on Forward-Looking Statements’’ in this Annual Report on Form 20-F for a discussion of the uncertainties, risks and assumptions associated with these statements.

Financial risk factors

The Group’s treasury function aims to reduce exposures to interest rate, foreign exchange and other financial risks, to ensure liquidity is available as and when required, and to invest cash assets safely and profitably. The Group does not engage in speculative trading in financial instruments so the analysis in this section can be categorized as non-trading. The treasury function’s policies and procedures are reviewed and monitored by the Audit Committee and are subject to internal audit review.

The Group’s multi-national operations expose it to a variety of financial risks that include the effects of changes in credit risk, foreign currency risk, interest rate risk and liquidity/capital risk. Treasury risk management is carried out by a central treasury department under policies approved by the board of directors.

Group treasury identifies and evaluates financial risks alongside business management. The board provides written principles for risk management together with specific policies covering areas such as foreign currency risk, interest rate risk, credit risk and liquidity risk, the use of derivative and non-derivative financial instruments as appropriate, and investment of excess funds.

Financial Instruments sensitive to market risk

The carrying values and fair values for the borrowings and derivative financial instruments are included within the overall financial instruments table. Further information on borrowings showing the maturity profile of the anticipated cash flows in relation to the Group’s borrowing including principal repayments and interest payments can be found in section 5.B.1 along with the contracted interest rates and drawn/undrawn facilities.

Derivative and non-derivative financial instruments used for hedging purposes are further discussed below.

69
Financial Instruments

The tables below sets out the measurement categories and carrying values of financial assets and liabilities with fair value inputs where relevant.

Measurement
category
 
Carrying value
October 31,
2021
  
Fair value
2021
  
Fair value
Hierarchy
2021/2020
  
Carrying
value
October 31, 2020
 
    
$m

       
$m

Financial assets:               
Non-current               
 
Long-term pension asset
 
FV OCI
  17.1  
Fair value insurance
based input
  Level 3   18.2 
Current               
Cash and cash equivalentAmortised cost  558.4   -   -   737.2 
Trade and other receivablesAmortised cost  784.2   -   -   648.6 
Contract assetsAmortised cost  62.0   -   -   33.7 
    1,421.7           1,437.7 
                  
Financial liabilities:                 
Non-current                 
Derivative financial instruments – interest rate swaps1
 
FV OCI
  -  
Fair value Bank
Institutions
  Level 2   77.9 
Borrowings (gross)2
Amortised cost  4,566.0   4,556.5   -   4,699.0 
Lease obligationsAmortised cost  119.6   -   -   168.2 
Current                 
Derivative financial instruments – interest rate swaps1
 
FV OCI
  35.7  
Fair value Bank
Institutions
  Level 2   - 
Borrowings (gross)2
Amortised cost  42.0   41.9   -   34.2 
Lease obligationsAmortised cost  74.9   -   -   82.2 
Trade and other payables – accrualsAmortised cost  440.1   -   -   419.2 
    5,278.3           5,480.7 

1Derivative interest rate swaps are measured at fair value in other comprehensive income (“FVOCI”) as a result of hedge accounting. All interest rate swaps are in designated hedge relationships and there are no other derivative financial instruments held as fair value through profit and loss (“FVTPL”).

2Borrowings have a carrying value (net of unamortised prepaid facility arrangement fees and original issue discount) of $4,548.4 million (2020: $4,640.3 million). Total borrowings (gross) are shown in this table as $4,608.0 million (2020: $4,733.2 million) for the fair value comparison.

For trade and other receivables, cash and cash equivalents, provisions, trade and other payables, fair values approximate to book values due to the short maturity periods of these financial instruments. For trade receivables, allowances are made for credit risk.

Borrowings with a carrying value of $4,548.4 million (2020: $4,640.3million) (note 18 “Borrowings” of the Consolidated financial statements in Item 18) including unamortised prepaid facility fees and discounts, have a fair value estimate of $4,598.4 million (2020: $4,535.1 million) based on trading prices obtained from external banking providers as at October 31, 2021.

Derivative financial instruments measured at fair value are classified as Level 2 in the fair value measurement hierarchy as they have been determined using significant inputs based on observable market data. The fair values of interest rate derivatives are derived from forward interest rates based on yield curves observable at the balance sheet date together with the contractual interest rates. Valuations are updated by the counter-party banks on a monthly basis.

This section will cover the primary market risk exposures regarding interest rates and foreign currencies. The Group’s principal exposures in relation to market risks are the changes in the exchange rates between the US Dollar and transactions made in other currencies as well as changes in interest rates from US and Euro capital markets.

Interest rate risk

The Group’s income and cash generated from operations are substantially independent of changes in market interest rates. The Group’s interest rate risk arises from short-term and long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. The Group currently uses four interest rate swaps to manage its cash flow interest rate risk arising from potential increases in the LIBOR interest rate.

The objective of the Group’s interest rate risk management policy is to manage the uncertainty and adverse impact on the Group’s net interest charge due to changes in interest rates to an acceptable level. In doing so, the Group seeks to minimize the cost of hedging and the level of associated counterparty risk.

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The Group has set a target of approximately half its borrowings being subject to fixed interest rates in order to minimize its exposure to changes in interest rates. This is achieved through four USD interest swaps for a total notional value of $2.25 billion, with a maturity date of September 2022. The hedge accounting is discussed further later in the note.

On January 19, 2022, the Group executed a new 1m USD SOFR swap with a notional value of $750 million and a maturity date of February 28, 2027. The forward swap is effective on September 21, 2022 with a fixed interest rate of 1.656% swapped against the variable 1m SOFR USD rates.

The Group’s borrowing facilities do not contain any covenants with respect to interest cover ratios.

  October 31, 2021  October 31, 2020 
Interest rate risk 
$m

 
$m

Interest rate swaps (receive variable, pay fixed)        
         
Fair value of Derivative liability (total of 4 swaps)  (35.7)  (77.9)
Notional amount (4 x $562.5 million)  2,250.0   2,250.0 
Maturity date September 30, 2022  September 30, 2022 
Change in fair value of outstanding hedging instruments (OCI hedging reserve excluding deferred tax)  42.2
  (41.3)
Change in value of hedging instruments (as above adjusted for impact of credit risk)  41.9
  (39.9)
Hedging ratio  1.1   1.1 

The Group has four interest rate swaps, which are designated in a hedge relationship.

The Group’s approved strategy in accordance with our risk management policies is to minimize the risk of cash flow fluctuations due to interest rate changes in relation to the 1M-USD LIBOR rate for up to half of the Group’s external borrowings for the period October 19, 2017 to September 30, 2022.

The specific risk management objective is to hedge the interest rate risk (cash flow risk) due to changes in the 1M-USD LIBOR rate charged on $2,250.0 million of the debt issued by Seattle Spin Co Inc. between October 19, 2017 and September 30, 2022.

Derivatives are only used for economic hedging purposes and not as speculative investments.

The swap contracts require settlement of net interest receivable or payable on a monthly basis. The fixed interest rate for each swap is 1.949% and the Group receives a variable rate in line with LIBOR. The Seattle loan is priced at LIBOR (with a 0% floor) plus a current margin of 2.75% with the swaps aimed at addressing the risk of a rising LIBOR element. As such, the total interest cost of the hedged element of the Seattle loan is 4.699%. For the year to October 31, 2021, net interest (finance cost) paid for the swaps amounted to $41.3 million. For the life of the swap, net interest paid to date amounted to $58.5 million.

Non-Derivative financial instruments – Designated Euro borrowings

  October 31, 2021  October 31, 2020 
Foreign exchange risk 
$m

 
$m

Notional amounts for Designated Euro borrowing        
Euro B-1 2020 tranche €600 million (Borrowings maturity date: June 2025)  676.0   700.3 
Foreign exchange (loss) on revaluation transferred to OCI-CTA -
no sources of ineffectiveness observed in review
  6.5   (34.5)
Euro 2017 tranche €453 million (Borrowings maturity date: June 2024)  510.9   528.5 
Foreign exchange (loss) on revaluation transferred to OCI-CTA -
no sources of ineffectiveness observed in review
  4.8   (24.2)
Hedge ratio for each of the two Net investment hedges 1:1  1:1 

The Group has designated two tranches of non-derivative Euro borrowings in two hedge relationships The borrowings in place have a designated initial carrying value of approx. €1.03 billion (note 18 “Borrowings” of the Consolidated financial statements in Item 18.) hedged against Euro designated net investments in foreign operations.

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The specific risk management objective is to carry out a net investment hedge in the consolidated financial statements of the Group, to reduce the foreign currency translation exposure arising from the Group’s investments in foreign entities with Euro functional currency through the use of Euro currency borrowings as hedging instruments as permitted by the Group’s Treasury policy.

Foreign exchange risk

The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the Euro, UK Pound Sterling, Indian Rupee, Israeli Shekel, Japanese Yen, Canadian Dollar, Australian Dollar and the Chinese Yuan. Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities and net investments in foreign operations where the transactions are denominated in a currency that is not the entity’s functional currency.

The Group is subject to exposure on the translation of the net assets of foreign currency subsidiaries into its reporting currency, US Dollar. The Group’s primary balance sheet translation exposures are noted in the Exposure analysis below. These exposures are kept under regular review with the Group treasury function providing reporting to the Treasury Risk committee and the Audit committee.

Group borrowings are denominated in US Dollars and Euros. The Group seeks to match the currency profile of borrowings to the cash flows arising from the Groups operations used to service those borrowings. The May 2020 debt refinancing included an additional proportion of Euro debt and a reduction in US Dollar debt which is intended to better match the currency profile of the Group’s debt with the cash flows used to service that debt (note 18 “Borrowings” of the Consolidated financial statements in Item 18.).

The Group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk. The Group faces currency exposures arising from the translation of profits earned in foreign currency subsidiaries into the Group’s reporting currency of US Dollars. As at October 31, 2021 two net investment hedges totaling €1.03 billion have been designated using non-derivative Euro debt instruments to minimize the volatility in shareholder’s equity arising from foreign currency translation (October 31, 2020 two net investment hedges totaling €1.05 billion).

Exposures also arise from foreign currency denominated trading transactions undertaken by subsidiaries and exposures here are not hedged.

The Group’s currency exposures comprise those that give rise to net currency gains and losses to be recognized in the Consolidated statement of comprehensive income as well as gains and losses on consolidation, which go to reserves. Such exposures reflect the monetary assets and liabilities of the Group that are not denominated in the operating or functional currency of the operating unit involved and the Group’s investment in net assets in currencies other than US dollar.

The impact on the Consolidated statement of comprehensive income of foreign exchange losses in the year ended October 31, 2021 of $0.1 million (2020: $29.7 million loss).

Exposure report analysis

The Group’s principal exposures in relation to market risks are the changes in the exchange rates between the US dollar and transactions made in other currencies as well as changes in interest rates from US and Euro capital markets. Foreign exchange exposures for all re-measuring balances are tracked and reported to management

The key drivers for foreign exchange exposure are cash, borrowings and inter-company positions with trade receivables and trade payables having less relative aggregate exposure. The table below represents a key currency extract from the Group exposures to movements in currency presenting exposures in excess of $10 million equivalent. The key exposure relates to the increased Euro debt profile since the May refinancing. The Indian Rupee and Israeli Shekel had key inter-company positions during the year.

Foreign exchange analysis is shown as for reporting to the Treasury Risk committee. Please note that aggregate Foreign exchange exposures for the Euro below do not consider the impact of the net investment hedges. However, the impact can be seen in the hedging table above.

72
  
Group
exposure
   +/- 5%  +/- 10%
Key aggregate currency exposures* 
$m

 
$m

 
$m

Euro (EUR)  1,504.6   75.2   150.4 
GB Pounds (GBP)  156.7   7.8   15.6 
Indian Rupee (INR)  64.4   3.2   6.4 
Japanese Yen (JPY)  53.0   2.7   5.3 
Australian Dollar (AUD)  32.5   1.6   3.3 
Canadian Dollar (CAD)  31.9   1.6   3.2 
Israeli Shekel (ILS)  29.5   1.5   3.0 
Chinese Yuan (CNY)  27.3   1.4   2.7 
Swedish Krona (SEK)  24.3   1.2   2.4 
United Arab Emirates Dirham (AED)  24.2   1.2   2.4 
Czech Koruna (CZK)  12.0   0.6   1.2 
Mexican Peso (MXN)  10.4   0.5   1.0 
Turkish Lira (TRY)  10.2   0.5   1.0 
Danish Krone (DKK)  10.1   0.5   1.0 

* Presenting aggregate foreign exchange exposures in excess of $10 million equivalent.

Interest rate exposure

Borrowings exposures to variable interest rate changes
(based on gross debt excluding the effects of hedging)
 Group exposure  
LIBOR,
EURIBOR +1%
 
 

$m
 
$m

Euro  1,186.9   11.9 
US dollar  3,421.1   34.2 
Total Gross Debt  4,608.0   46.1 

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Item 12Description of Securities Other than Equity Securities.

Item 12.ADebt Securities.

Not applicable

Item 12.BWarrants and rights.

Not applicable.

Item 12.COther Securities

Not applicable.

Item 12.DAmerican Depositary Shares

Fees and charges payable by ADS holders

Deutsche Bank Trust Company Americas (Deutsche Bank) was appointed as the depositary bank (the Depositary) for Micro Focus’s ADS program pursuant to the Deposit Agreement dated August 11, 2017 between Micro Focus, the Depositary and the owners and holders of ADSs (the Deposit Agreement).

The Deposit Agreement provides that ADS holders may be required to pay various fees to the Depositary, and the Depositary may refuse to provide any service for which a fee is assessed until the applicable fee has been paid.

The Depositary charges a fee for the operation and maintenance of administering the ADSs. The total fees charged by the Depositary are unchanged at $0.02 per ADS charged twice per year.

ServiceFees
Issuance of ADSs including issuance from a distribution of shares and distribution of ADSs pursuant to bonus distributions, stock splits or other distributions.$5.00 (or less) per 100 ADSs (or portion of 100 ADSs).
Distribution of cash dividends. This fee is not currently charged.$5.00 (or less) per 100 ADSs (or portion of 100 ADSs).
An annual fee for operation and maintenance of administering the ADSs.$5.00 (or less) per 100 ADSs (or portion of 100 ADSs). The current per ADS fee to be charged for the operation and maintenance of administering pf the ADS is $0.02 per ADS twice per year.
Transfer and registration of shares on share register to or from the name of the depositary or its agent when you deposit or withdraw sharesRegistration or transfer fees

In addition, ADS holders may be required under the Deposit Agreement to pay the Depositary: (a) taxes (including applicable interest and penalties) and other governmental charges; (b) registration fees; (c) certain cable, telex and facsimile transmission and delivery expenses; (d) the expenses and charges incurred by the Depositary in the conversion of foreign currency; (e) such fees and expenses as are incurred by the Depositary in connection with compliance with applicable exchange control regulations and other regulatory requirements; and (f) the fees and expenses incurred by the Depositary, the custodian or any nominee in connection with the servicing or delivery of deposited securities. The Depositary may: (a) withhold dividends or other distributions or sell for the account of any ADS holder any or all of the shares underlying the ADSs in order to satisfy any tax or governmental charge; and (b) deduct from any cash distribution the applicable fees and charges of, and expenses incurred by, the Depositary and any taxes, duties or other governmental charges on account.

Fees and payments made by the Depositary to Micro Focus

Under the terms of the contractual arrangements set out in the separate agreement between Micro Focus and the Depositary referred to above, Micro Focus received a total of approximately US$3.0 million from the Depositary, comprising fees charged in respect of the semi-annual service fee collection for November 2020 and April 2021. In addition to this, following the 2021 AGM the Depository paid $0.3 million to 3rd parties on behalf of Micro Focus.

74
PART II

Item 13Defaults, Dividend Arrearages and Delinquencies.

Not applicable.

Item 14Material Modifications to the Rights of Security Holders and Use of Proceeds.

Not applicable.

75
Item 15Controls and Procedures.

Item 15.ADisclosure Controls and Procedures.

Disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”)) are designed to provide reasonable assurance that the information required to be (i) recorded, processed, summarized and reported within the time periods specified in  the SEC’s rules and forms and (ii) accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgement in evaluating the cost benefit relationship of possible controls and procedures.

Based on their most recent evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of October 31, 2021, the Company’s disclosure controls and procedures were not effective as a memberresult of the material weakness in our internal control over financial reporting described below. Notwithstanding the material weakness described below, our management, including our Chief Executive Officer and Chief Financial Officer, believes that the audited consolidated financial statements contained in this Annual Report on Form, 20-F fairly present, in all material respects, our financial condition, results of operations and cash flows for the fiscal years presented in conformity with IFRS. In addition, the material weaknesses described below did not result in a material misstatement to the financial statements.

Please see Exhibits 12.1 and 12.2 for the certifications required by this Item.

Item 15.BManagement’s annual report on internal control over financial reporting

As a foreign issuer with American Depositary Shares listed on the New York Stock Exchange (“NYSE”) the Group, as part of its disclosure and reporting obligations in the United States, is required to furnish this Annual Report by its management on its internal controls over financial reporting, including an attestation report issued by its independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (“SOX”) as at October 31, 2021.

Management is responsible for establishing and maintaining adequate internal controls over financial reporting for the Group. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act. The Group’s internal controls over financial reporting include policies and procedures which:


-are designed to give reasonable assurance that the transactions are recorded as necessary to permit the preparation of financial statements in accordance with IFRS as adopted by the EU and IFRS as issued by the IASB, and that receipts and expenditures are being made only in accordance with authorization of management and the directors;


-relate to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and disposal of assets; and


-give reasonable assurance regarding the prevention or timely detection of unauthorized use, acquisition or disposal of the Group’s assets that could have a material impact on the financial statements.

Any internal control network will have inherent limitations, such that the possibility of human error and circumvention or overriding of controls and procedures may not prevent or detect misstatements. In addition, the projection of any controls to future periods are subject to the risk that controls may become inadequate due to changes in conditions or because the degree of compliance with policies and procedures may deteriorate.

Management assessed the effectiveness of internal controls over financial reporting as at October 31, 2021 based on the Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission 2013. Based on the assessment, management concluded that its internal control over financial reporting was not effective due to the following material weakness: In July, the Company completed the migration to its new enterprise-wide application platform (“Enterprise Platform”) which included new business controls and IT general controls (“ITGC’s). There was not sufficient time to allow ITGC’s and related business controls to operate effectively by October 31, 2021. In aggregate, these control deficiencies impact all financial reporting processes and constitute a material weakness. This material weakness did not result in material misstatement to the financial statements.

Our Consolidated financial statements have been audited by KPMG LLP, an independent registered public accounting firm, which has issued an attestation report expressing an adverse opinion on the effectiveness of internal control over financial reporting, with respect to this material weakness in this Annual Report on Form 20-F.

76
Item 15.CAttestation report of the registered public accounting firm

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors
Micro Focus board, positions he has held since 19 March 2018. Stephen joinedInternational plc.:

Opinion on Internal Control Over Financial Reporting

We have audited Micro Focus in 2012, first servingInternational plc and subsidiaries’ (the Company) internal control over financial reporting as General Managerof October 31, 2021, based on Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the ProductTreadway Commission”. In our opinion, because of the effect of the material weakness, described below, on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of October 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial position of the Company as of October 31, 2021 and 2020, the related consolidated statements of comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended October 31, 2021, the summary of significant accounting policies and the related notes (collectively, the Consolidated financial statements), and our report dated February 24, 2022 expressed an unqualified opinion on those Consolidated financial statements.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. A material weakness has been identified and included in management’s assessment related to ineffective IT general controls and related business controls following the migration to a new enterprise platform in July 2021. In aggregate, these deficiencies impact all financial reporting processes and constitute a material weakness. The material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the October 31, 2021 Consolidated financial statements, and this report does not affect our report on those Consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG LLP
London, United Kingdom
February 24, 2022

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Item 15.DChanges in internal control over financial reporting.

In the period, the Group completed the migration from legacy IT applications and infrastructure to the Enterprise Platform. The Enterprise Platform enables further improvement to process and controls. Improvements for the business include refining functional process and organisational simplification as referred to in Item 3.D, Item 5.A and Item 5.D. The migration was successfully completed in two planned phases, the first completed in January 2021 and the second completed in July 2021. The majority of the work was carried out within the requirements of remote working under COVID-19 restrictions. The timing of the phases meant that there was insufficient time prior to the financial year end to allow ITGC’s and related business controls to operate effectively.

During the period the Group continued to monitor and maintain the framework of SOX compliant internal controls under its central SOX Compliance Program (“SCP”) on the legacy systems as well as preparing and implementing controls for the Enterprise Platform. The SCP worked together with a specialist team from its outsourced internal audit partner, PwC. Governance for the SCP included a cross-functional SOX steering group (“SSG”). In addition, the cross functional disclosure committee continued to meet to assist the Chief Executive Officer and Chief MarketingFinancial Officer responsible for all software productin fulfilling their responsibilities in connection with the accuracy of financial reporting. The Group strengthened internal compliance by the appointment of an additional team from PwC to work alongside the business and services offeringsthe Enterprise Platform implementation project team to carry out end-to-end process mapping and support Risk and Control Matrix (“RACM”) development customer services, corporate marketing and strategy. In 2014, he was appointed as Chief Operating Officer and Executive Director, having responsibility for sales and marketing, product strategy, development and management, services and business operations.

Prior to Micro Focus Stephen spent 7 years at Dell, first building Dell’s Global Infrastructure Consulting Services organization, and then leading its business in Europe, Middle East and Africa. Before Dell Stephen had 17 years’ experience at IBM, latterly serving as Vice President, Communications Sector with responsibility for the entire telco, media, and utilities industry portfolio. During his IBM career, Stephen heldnew Enterprise Platform controls. A key work stream of the SCP also relates to the adequacy of ITGCs. The work undertaken as part of the SCP identified a number of Global, EMEA and UK senior management roles with experience spanning software and services, storage, and enterprise systems.

Brian McArthur-Muscroft

Brian is our Chief Financial Officer and a memberareas for improvement in the Group’s ITGCs. A remediation plan was agreed, which forms part of the Micro Focus board, positions heSCP. Work in this area was carried out under an IT SOX Compliance Group chaired by the Chief Information Security Officer (CISO) reporting to the main SSG.

In the year, the Group has held since 21 February 2019. Prioralso reviewed its entity-level controls including continued supplementary SOX training plan across relevant parts of the Group. As part of the overall governance, the SSG continues to joining Micro Focus Brian heldmonitor potential adverse impacts of organisational change to the SCP.

In the 2020 Form 20-F the Group reported certain weaknesses in its internal control over financial reporting, which under Public Company Accounting Oversight Board auditing standards were considered to be a variety of seniormaterial weakness. The material weakness related to the fact that Company did not have adequate controls at that time surrounding existing IT applications, in particular regarding change management positions, includingand access control. These controls and control deficiencies were then superseded in the role of Chief Financial Officer at TeleCity Group plc and most recently as Chief Financial Officer of Paysafe Group plc. Also a restructuring specialist, Brian wasyear by the Interim CFOcontrols on the successful turnaroundEnterprise Platform.

Remediation

The Group continues its work under the SCP to remediate the material weakness and other control deficiencies, and any other matters, which arise during its progress towards SOX compliance. As the business commenced the new financial year operating on the Enterprise Platform it has also been able to implement an enhanced testing program for year ended October 31, 2022.

To maintain the required control environment the Group relies upon automated, semi-automated and manual controls together with a combination of MCI Worldcom EMEA. Hepreventative and detective controls. The material weakness, control deficiencies and other matters may not be able to be remediated by October 31, 2022, and there is a non-executive directorrisk that other deficiencies for the purposes of SOX may be identified. Failure to correct the material weakness, or our failure to discover and address any other material weakness or control deficiencies, could result in inaccuracies in our financial statements, and impair our ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis. It could also result in an adverse reaction in the senior independent director at Robert Walters plc, where he has been chairfinancial markets due to a loss of confidence in the reliability of the audit committee since 2013. In addition, Brian serves asGroup’s financial statements and could have a material adverse effect on the Responsible Officer for Hockerill Anglo-European College, a leading international secondary school in Hertfordshire.Group’s business, financial condition, results of operation and prospects.

Brian was named as Business Week’s Finance Director of the Year in both 2013 and 2017, and the CBI’s FTSE250 Finance Director of the Year in 2012. Brian holds a Law degree and qualified as a chartered accountant with PricewaterhouseCoopers in London.


5479
Karen SlatfordItem 16


Karen is Chair of Draper Esprit plc, an AIM-quoted venture capital firm and she is also a non-executive director of AIM-quoted Accesso Technology Group plc and Softcat plc, a FTSE250 IT infrastructure provider. Karen began her career at ICL before spending 20 years at Hewlett-Packard Company, where in 2000 she became Vice President and General Manager Worldwide Sales & Marketing for the Business Customer Organization, responsible for sales of all Hewlett-Packard products, services and software to business customers globally. Karen holds a BA Honors degree in European Studies from Bath University and a Diploma in Marketing.
Item 16.AAudit committee audit report expert


The Audit Committee includes Richard Atkins

Richard is Chairman of Acora, an IT Services outsourcing company and YSC, a leadership development consultancy company. He has spent who, in the majority of his career within the IT industry. Previously, he was a Director at Data Sciences where he led its leveraged buyout from Thorn EMI in 1991 and then managed its successful sale to IBM in 1996. His final role at IBM was as General Manager for IBM Global Services Northern Europe where he was also a memberopinion of the IBM worldwide seniorBoard, is an ‘audit committee financial expert’ and is independent (as defined for this purpose in 17 CFR 240.10A-3).  The board considered that the Committee’s members have broad commercial knowledge and extensive business leadership team. Since leaving IBMexperience, having held between them various roles in 2005 he has acted asmajor business, financial management, and finance function supervision and that this constitutes a non-executive director for several companies including Compel, Message Labs, Global Crossing, Morse and Easynet. Richard qualified as a Chartered Accountant with Ernst & Young.

Amanda Brown

Amanda is currently Group Human Resources Director at Hiscox Ltd, a FTSE 250business and specialist insurer with offices in 14 countries.

Amanda has more than 20 yearsbroad suitable mix of international HR experience in a variety of industries, including consumer goods, leisure, hospitality,business and financial services. Prior to Hiscox, Amanda held a number of leadership roles with Mars, PepsiCo, and Whitbread plc. She has expertise in human resources, remuneration strategy, and managing organizations through periods of significant change.

Lawton Fitt

Lawton is an investment banker and a highly experienced corporate director. She currently servesexperience on the boards of Ciena Corporation, The Progressive Corporation and The Carlyle Group, and was previously a non-executive director at ARM plc and Thomson Reuters. Lawton worked at Goldman Sachs for over 23 years in investment banking, equities and asset management and for more than a decade she led the equity capital markets team, focused on technology companies. She was elected a Partner in 1994 and worked in the London and New York offices.committee.

From 2002-2005 Lawton was the Secretary (Chief Executive Officer) of the Royal Academy of the Arts in London and has served as a trustee for a number of not-for-profit organizations and foundations, including the Goldman Sachs Foundation and the Thomson Reuters Foundation. She received her undergraduate degree in European History from Brown University and her MBA from the Darden School of the University of Virginia.

Silke Scheiber

Silke was an investment professional at Kohlberg Kravis Roberts & Co. Partners LLP, London, UK from July 1999 and became a member in 2012. She retired from KKR in 2015. Prior to KKR, Silke worked at Goldman, Sachs & Company oHG, Frankfurt, Germany from 1996 to 1999. Silke, who is Austrian, graduated from the University of St.Gallen, Switzerland. Silke is a director of CNH Industrial N.V., the Netherlands. Silke stepped down from the board on February 4, 2020.

Item 6. B.16.BCompensation.Code of ethics


Aggregate compensation paid to the Group’s directors and membersMicro Focus has adopted an updated code of key management bodies are disclosed below. In addition, further information on the compensation of the Group’s directors is disclosed. This is based upon information extracted from the Remuneration reportethics in the UK Annual Report and Accounts prepared in line with the recommendations of the UK Corporate Governance Code.

12 months ended
October 31, 2019
Aggregate compensation including fees paid to non-executive directors
$m
Short-term benefits
10.0
Share based payments
25.3
Total compensation35.3

The Group’s directors and members of key management bodies participate in the Group’s Long-term Incentive Plan, Additional Share Grants and Deferred Share Bonus Plan. Descriptions of these plans including the vesting criteria and specific awards under each plan for the Group’s executive directors are included in the Directors’ Remuneration report below. Aggregate information in relation to each plan for the directors and members of key management bodies:

Number
of awards
Range of exercise prices
(pence)
Range of expiry dates
Long-term Incentive Plan
2,991,930
nil to 401.60 penceJune 30, 2020 to December 3, 2099
Additional Share Grants
3,190,917
nilNovember 20, 2024 to September 1, 2027
Deferred Share Bonus Plan
15,064
nilNovember 20, 2024 to February 28, 2099

In addition, the directors and senior management participate in the Sharesave and Employee Stock Purchase Plan. Descriptions of these plans are included in note 33 of the financial statements in Item 18. Aggregate information in relation to these schemes for the directors and members of key management bodies:


Number
 of options		Exercise prices (pence)Range of expiry dates

Aggregate share save options
1,759
1,023.00 penceApril 1, 2022

Directors’ Remuneration report

Remuneration Statement
This Directors’ Remuneration Report covers the 12 months ended October 31, 2019. The Directors’ Remuneration report, is set out in two sections:

The first section relates to the proposed new Remuneration Policy for directors which will be subject to a binding shareholder vote at the 2020 Annual General Meeting (“AGM”) and, if approved, will apply for three years from the conclusion of the AGM.

The second section is the Annual Report on Remuneration, which provides details of the amounts earned in respect of the year ended October 31, 2021 (the Micro Focus Code of Conduct) which applies to all employees including the Chief Executive Officer and Chief Financial Officer and other senior financial management. This code of ethics is available on our website (https://www.microfocus.com/media/guide/micro_focus_code_of_conduct_guide.pdf). The information on our website is not incorporated by reference into this report.

The Code of Ethics is included as Exhibit 11.1 MF Code of Conduct Guide.

Item 16.CPrincipal accountant fees and services

During the years ended October 31, 2021, 2020 and 2019, the Group obtained the following services from the Group’s auditors as detailed below:

  
Year
ended
October 31, 2021
  
Year
ended
October 31, 2020
  
Year
ended
October 31, 2019
 
  
$m

 
$m

 
$m

Audit of Company  8.0   7.2   12.8 
ICOFR  4.7   2.7   3.0 
Audit of subsidiaries  2.8   2.9   3.9 
Total audit fees  15.5   12.8   19.7 
             
Audit-related assurance fees  0.5   0.6   0.6 
Other assurance services  -   -   - 
Total audit related fees  0.5   0.6   0.6 
             
Tax compliance services  -   -   - 
Tax advisory services  -   -   0.1 
Tax fees  -   -   0.1 
             
All other fees  -   -   - 
             
Total  16.0   13.4   20.4 

The fees represent fees paid to KPMG LLP, as the current auditor.

There were no other fees in the years ended October 31, 2021, 2020 and 2019. These payments are governed

Independence and objectivity of the external auditors
The Audit Committee approves all non-audit work commissioned from the external auditors. The committee is responsible for safeguarding the independence and objectivity of the external auditors and has developed a robust policy designed to ensure that this is not compromised. As explained above, the committee manages the risks that the external auditors undertake inappropriate non- audit work, or earn material levels of fees for non-audit services. It also considers the standing and experience of the external audit partner and takes comfort from the fact that KPMG took office relatively recently and from the external auditors’ confirmation that they have complied with relevant UK and US independence standards.

The committee is satisfied that the independence and objectivity of the external auditors has been maintained throughout the year ended October 31, 2021 and to the date of this report.

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Item 16.DExemptions from the listing standards for audit committees

Not applicable.

Item 16.EPurchase of equity securities by the issuer and affiliated purchases

The purchase of shares shown in the table below were made on behalf of the Group’s all-employee share plans (a Sharesave plan and an Employee Stock Purchase Plan see Item 6E for further details on these plans) by the current remuneration policyMicro Focus Employee benefit trust (“EBT”). The EBT is included in the consolidated financial statements in Item 18 therefore these purchases are treated as Treasury shares; however, they are owned by the EBT and can only be used to settle employee benefits for eligible employees.

Period 
Total Number of
Shares purchased
  
Average price paid
per share
  
Total Number of Shares
purchased as part of
publicly announced
plans or
programs
  
Maximum number of
Shares that may yet be
purchased under the
plans or
programs
 
November 1, 2020 to November 30, 2020  -   -   -   - 
December 1, 2020 to December 31, 2020  -   -   -   - 
January 1, 2021 to January 31, 2021  -   -   -   - 
February 1, 2021 to February 28, 2021  -   -   -   - 
March 1, 2021 to March 31, 2021  4,000,000
1 
 $6.81   -   - 
April 1, 2021 to April 30, 2021  -   -   -   - 
May 1, 2021 to May 31, 2021  -   -   -   - 
June 1, 2021 to June 30, 2021  -   -   -   - 
July 1, 2021 to July 31, 2021  -   -   -   - 
August 1, 2021 to August 31, 2021  -   -   -   - 
September 1, 2021 to September 30, 2021  -   -   -   - 
October 1, 2021 to October 31, 2021  -   -   -   - 
Total  4,000,000  $6.81   -   - 
1 During the year ended October 31, 2021 the Micro Focus Employee Benefit Trust (“EBT”) purchased four million of the Group’s shares in open-market transactions. The EBT will hold these shares to satisfy future exercises of share options.

Item 16.FChange in Registrant’s certifying accountant

Not applicable.

Item 16.GCorporate Governance

Principles

Micro Focus International plc (the “Company”) has a primary listing on the London Stock Exchange. As such, it is required to comply with the UK Corporate Governance Code (the “Code”). For the year ended October 31, 2021 this was the edition of the Code published by the UK’s Financial Reporting Council in July 2018.

The Company’s ADSs are listed on the NYSE. As a Foreign Private Issuer, we are required to comply with some, but not all, of the NYSE’s corporate governance rules, and are required to disclose any significant ways in which the UK corporate governance practices employed by the Company differ from those followed by US companies under the NYSE Listed Company Manual.

The directors are committed to ensuring that the Company operates in compliance with the main principles of the Code, as this provides a robust governance framework in support of the delivery of value to shareholders.

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Compliance with the Code

UK listed companies are required to include in their Annual Report a narrative statement of (i) how they have applied the principles of the Code and (ii) whether or not they have complied with each of the provisions of the Code.

Throughout the year ended October 31, 2021 and to the date of this report, the Board considers that the Company has been in compliance with the principles of the Code, and with each of its provisions, save for one element of Provision 38 in relation to the alignment of pension contribution rates.  Under Provision 38 the Company is partially compliant with this provision and will be fully compliant in the alignment of pension contribution rates for the executive directors with the wider workforce at the end of 2022. The pension contribution rate for Stephen Murdoch will be aligned at the end of 2022 as set out in the Directors’ Remuneration Policy which was approved by shareholders at the 20172020 Annual General Meeting and can be found at www.investors.microfocus.com.

General. The Annual Report on Remuneration also describes how the new remuneration policy will be implementedrate for the year ending October 31, 2020 (subject to shareholders approving the new remuneration policy) and will be subject to a non-binding advisory vote at the 2020 AGM.

Responding to shareholder feedback
At the AGM on March 2019, the Company received a 50.4% vote against the 2018 Annual Report on Remuneration. This was very disappointingMatt Ashley is already aligned, and the committee and the board have taken this voting outcome extremely seriously. Since the AGM, the Company has spent considerable time understanding the views of shareholders, engaging with them and reviewing our current remuneration arrangements in order to design a new remuneration policy that addresses shareholder concerns and incorporates current corporate governance best practice for a UK-listed business. The key changes are listed below:

Removal of Additional Share Grant scheme
The ASG scheme was raised as an issue by a number of shareholders. The scheme had been introduced to reward exceptional shareholder value creation following major acquisitions. Following feedback from investors, the board has decided to remove this scheme, therefore there will be no future ASG grants. As the maximum bonus opportunity for directors will remain at the current level of 150% of base salary and the maximum LTIP grant level will stay at 200% of base salary, this represents a significant reduction in the maximum incentive opportunity for our executive directors under the new policy compared with the current one.

In addition, the current executive directors have agreed to surrender their outstanding HPE Software ASG awards and therefore these lapse with effect from 3 February 2020.

Introduction of a post-vesting holding period for LTIP
The Company has added a two-year post-vesting holding period which will apply to LTIP awards granted under the new policy.

Introduction of post-cessation shareholding
Executive directors will be required to hold their full shareholding requirement (200% of salary) for two years after leaving the Company. This new post-cessation shareholding requirement will apply to shares released from awards granted after the approval of the new policy and executive directors will be required to agree to the Company’s agreed holding mechanism.

Alignment of pension contribution rates for directors with those of the workforce
The Company proposes to reduce the current maximum defined contribution pension level (or cash in lieu) forany new executive directors from 15% of base salary to the same level which is provided to employees generally in the same location as the executive director (the current level of employer contribution for UK employees is 5%). The existing CEO and CFO currently receive 15% of base salary as a cash allowance in lieu of pension contributions and the Executive Chairman receives 20%. Subject to approval of the new policy, the company contributions for all current executive directors will reduce to the general employee level for the UK by the end of 2022 in one step.

Enhancement of malus and claw-back
The Company has added corporate failure as an additional trigger event for malus and claw-back and have extended the claw-back period for annual bonus and deferred bonus shares from one to two years.

Introduction of additional performance measures for incentive schemes
Best practice is now to have more than one financial measure and this has been raised by a number of shareholders. Under the proposed remuneration policy, The Company intends to apply at least two financial performance measures for both the bonus and the LTIP which are appropriately linked to the Company’s strategy. The Company has commented later in this section on the decisions which have been made in respect of the performance measures for the 2020 financial year, given the timing of the outcome of the strategic review.

A complete list of all of the proposed policy changes, together with the rationale for the changes, is set out below.

In addition to the proposed policy changes, the Company has taken account of shareholder experience and sentiment when reviewing the implementation of the proposed policy for the year ending October 31, 2020:

Surrender of outstanding HPE Software ASGs
One of the most significant concerns raised when the Company consulted with shareholders was the decision to re-grant the HPE Software ASGs to reflect a three-year performance period from completion of the HPE Software acquisition, thereby changing the vesting date to September 2020. Many shareholders appreciated the need to retain the management team’s focus on delivering value from the HPE Software acquisition, despite the integration plan being about one year behind schedule.

A number of shareholders also noted that the challenging 50% to 100% shareholder return performance measure and the initial reference price of £18.17¾ were retained. The current executive directors have decided that they will surrender their outstanding ASGs, therefore these outstanding awards for the Executive Chairman, CEO and CFO lapse with effect from February 3, 2020.

Executive directors’ salaries unchanged for 2020
The committee determined that the salaries for executive directors will not be increased in 2020.

Corporate Governance
As well as incorporating shareholder feedback, the Group has aimed to reflect current corporate governance and best practice principles for a UK-listed business in the design of our new policy, for example reducing pension rates for executive directors and introducing post-cessation shareholding requirements.

The Group has also included new disclosures to reflect the 2018 Corporate Governance Code and new reporting requirements in this report, ahead of when the Group is technically required to do so, such as the table below which sets out how the committee took into account various factors in designing the proposed new policy for executive directors, undertaking a review of broader workforce remuneration and disclosing CEO pay ratios. The Group will continue to incorporate elements of the 2018 Corporate Governance Code throughout 2020, such as engagement with the workforce and explaining to employees about how the new executive directors’ remuneration policy aligns with wider pay policy.

Business performance in FY19 and incentive outcomes
FY19 was a challenging year, with Adjusted EBITDA1 declining over the year relative to the 12 month period ending October 31, 2018, which resulted in no FY19 bonus for executive directors. Over the three years to the end of April 2019, there was a 42.9% increase in Diluted Adjusted EPS2, resulting in the three- year aggregate EPS performance for the 2016 LTIP exceeding the stretch target of RPI plus 9% per annum and accordingly the performance target was met in full. There were no material Environmental, Social or Governance (ESG) events which the committee had to consider when determining the final vesting outcome. Accordingly the committee determined that the 2016 LTIP should vest in full. As the Executive Chairman and the CEO have not exercised these options and sold the resulting shares, their value has been impacted by the share price fall after the August 2019 trading update.

Overall, the committee believes that the remuneration policy has delivered an appropriate outcome in respect of FY19 for the company performance achieved and therefore that the company’s remuneration policy has operated as intended.

Further details on the bonus and LTIP outcomes are set out below.

1 See definition in Item 3.D
2 Diluted Adjusted Earnings per Share is defined as profit after tax attributable to ordinary shareholders are adjusted by adding back exceptional items including the gain on disposal of discontinued operation, share-based compensation charge and the amortization of purchased intangibles and the tax attributable to these charges, divided by the weighted average number of diluted shares in issue during the period.

Performance measures for the 2020 incentives
The Micro Focus strategy is to stabilize revenue whilst achieving mid-40s EBITDA margins. To achieve this, the management team has identified a number of critical strategic priorities which will need to be executed successfully over the next few years. In order to support this and in line with the proposed new remuneration policy, the committee has introduced an additional financial measure for the 2020 annual bonus, as well as an element of personal performance. The 2020 bonus will therefore have 60% subject to Adjusted EBITDA performance, 20% based on revenue performance and 20% will be based on non-financial or strategic individual key performance objectives (KPOs), in order to incorporate other business critical objectives aligned to the business plan. There will be no payout under the KPO element if there is no payout under any of the financial measures.

Under the proposed new remuneration policy, LTIP grants will be subject to a minimum of two financial performance measures. It is intended that the performance measures for the 2020 grants will comprise free cash flow and TSR. In light of the recently concluded strategic review and the announcement that the current Executive Chairman will be stepping down from the board on February 14, 2020 and will be replaced by a newly appointed non-executive Chairman, the committee has decided that a thorough shareholder consultation is required before confirming the financial measures and targets for the 2020 LTIP grants. The 2020 LTIP grants will therefore be delayed until after the AGM and, between now and making the grants, the Group will be consulting with shareholders and listening to your views on the proposed measures. When the Group has completed the consultation, we will finalize and publish the measures, weightings, targets and grant levels for the 2020 LTIP on our website in advance of granting the awards.

When setting the 2020 LTIP grant levels for the executive directors, the committee will take account of shareholder experience following the August 2019 trading update and subsequent share price decline.

The Group realizes that this is not a standard approach to disclosure and timing of consultation however, the LTIP is a forward looking, three year performance incentive, therefore ensuring that the Group applies the right measures, reflecting the appropriate value creation priorities is vital. The timing of the strategic review outcome simply did not allow enough time for meaningful consultation on LTIP measures in advance of the AGM. Therefore the committee has concluded that this is the most effective course of action given the circumstances.

In summary
The Group is absolutely committed to maintaining an open and transparent engagement with our investors and to rebuilding trust regarding directors’ remuneration. The Group believes and it has made significant changes in the proposed new policy to address shareholders’ concerns and reflect UK corporate governance best practice. The Group has also aimed to provide as full disclosure as possible in relation to the last financial year and in explaining the committee decisions which have been made. The Company therefore hopes to receive your support for the proposed new Directors’ Remuneration Policy report and the 2019 Annual Remuneration report at our upcoming AGM.

Directors’ Remuneration Policy

This section of the report sets out the proposed new Remuneration Policy for directors. A binding shareholder resolution to approve the Remuneration Policy will be proposed at the 2020 AGM on March 25, 2020 and, subject to shareholder approval, will be effective from the conclusion of the AGM for a period of three years. Subject to approval of the proposed new policy, the 2020 annual bonus plan and the 2020 LTIP grants will be operated under the new policy. The key changes from the previous Remuneration Policy (which was first published on pages 72 to 82 of the 2017 Annual Report and Accounts and which was approved by shareholders at the September 2017 Annual General Meeting) and the rationale for the changes are explained above. The policy will be available to view at www.microfocus.com.

The committee determines the Remuneration Policy and the individual remuneration packages for executive directors and the executive management team. No individual participates in discussions relating to the setting of their own remuneration.

The committee considers that the remuneration arrangements proposed under the new policy are appropriate based on internal and external measures. From an internal perspective, it has reviewed CEO to UK employee pay ratios and the percentage change from 2018 to 2019 in CEO salary, benefits and bonus relative to the wider global employee population and is comfortable that the overall remuneration opportunity for executive directors is appropriate, especially given the higher proportion of performance related pay which they have relative to employees generally, which reflects their increased ability to impact the business performance.

In terms of external benchmarking for the executive directors, the committee reviews relevant market data, for example for the FTSE 100, the FTSE 250, as well as for some US based technology companies of comparable size to Micro Focus. Benchmarking is only one factor which the committee takes into account when making decisions about pay. This benchmarking approach is broadly consistent with the approach applied more broadly to employees throughout the Group.

The remuneration policy for the wider employee group is based on broadly consistent principles to those for executive directors. All employees who are not eligible for commission based reward participate in an annual bonus plan, which is based on similar financial measures and targets as the executive directors. Performance measures are consistent for all participants in the LTIP. All employees globally have the ability to buy company shares under one of the Company’s all-employee share purchase plans. At its January 2020 meeting, the Committee considered various aspects of workforce remuneration and took these into account when determining the proposed new directors’ Remuneration Policy.

The table below shows how the committee addressed simplicity, clarity, risk, predictability, proportionality and alignment to culture when determining the directors’ Remuneration Policy.

FactorHow this has been addressed
Clarity
Remuneration arrangements should be transparent and promote effective engagement with shareholders and the workforce.
We have aimed to be completely transparent about the detail of our proposed new remuneration policy  (for example when and how certain newly introduced features, such as holding periods and post-cessation shareholding requirements, take effect). We have complied with certain disclosure requirements ahead of when we are required to do so, for example CEO pay ratios, in the spirit of openness and transparency.
We have engaged with shareholders to understand more about the reasons for the negative vote against the 2018 Annual Remuneration Report and to inform them of the key aspects of the proposed new Remuneration Policy. We will be undertaking a full consultation in advance of granting the 2020 LTIP awards.
The Company currently engages with the broader employee population in connection with their remuneration through a variety of methods including explanatory guides and face-to-face briefings and seeks their views on reward via employee opinion surveys.
Simplicity
Remuneration structures should avoid complexity and their rationale and operation should be easy to understand.
By removing ASGs from our new remuneration policy, we have simplified our incentive structure so that we only have one long-term incentive plan and an annual bonus plan (which incorporates share deferral).
Risk
Remuneration arrangements should ensure that reputational and other risks from excessive rewards, and behavioral risks that can arise from target-based incentive plans, are identified and mitigated.
A number of design features exist under our new policy in order to take into account and minimize risk as follows:
-         The committee can apply discretion to override formulaic incentive outcomes if it believes this would result in a fairer outcome.
-         We operate bonus deferral and have added post-vesting holding periods to the LTIP and extended our shareholding requirement so that it applies for two years post-cessation.
-         Malus and claw-back provisions are in place in the bonus and LTIP. Under the proposed new policy, we are adding corporate failure as an additional malus and claw-back trigger event and the claw-back period is being extended to two years for all future bonuses and deferred bonus shares awarded under the new policy.
Predictability
The range of possible values of rewards to individual directors and any other limits or discretions should be identified and explained at the time of approving the policy.
The proposed new Remuneration Policy sets out:
-         The maximum award levels and the range of vesting outcomes applicable to annual and long-term incentive arrangements.
-         The discretions which are available to the committee (for example to override formulaic incentive outcomes and to apply malus and claw-back).
In the past, the ASGs have delivered significant value to executives in line with the value which has been created for shareholders. As no future ASGs will be granted, the executive directors’ packages are less leveraged and more predictable under the proposed new policy.
Proportionality
The link between individual awards, the delivery of strategy and the long-term performance of the company should be clear. Outcomes should not reward poor performance.
Performance measures are designed to align to strategy and incentive plans provide for a range of payout levels which are dependent on and linked to company performance. Deferral periods and holding periods help to further align incentive outcomes for executives to the shareholder experience.
No payment is made for poor performance and any individual leaving the company due to performance issues would not be entitled to any incentive payments.
Alignment to culture
Incentive schemes should drive behaviors consistent with company purpose, values and strategy.
Under the new policy the Company will use at least two financial performance measures for the bonus plan and the LTIP. The performance measures will be chosen to reflect the annual business plan and the company’s strategy.

The table below sets out the Remuneration Policy that shareholders will be asked to approve at the AGM on March 25, 2020

Remuneration Policy table – executive directors

All footnotes to the policy table can be found below.

BASE SALARY


Alignment with strategy

Supports the recruitment and retention of executive directors of the caliber required to deliver the Group’s strategy.

Operation

Salaries are normally reviewed annually and increases generally apply from the first quarter of the financial year.

When determining base salary levels, the committee considers the following:


-
Pay increases for other employees of the Group;

-
The individual’s skills, experience and responsibilities;

-
Pay at companies of a similar size, complexity and international scope, in particular those within the technology sector, the appropriate FTSE index, US listed technology companies and privately owned software companies; and

-
Corporate and individual performance.


Maximum opportunity

Ordinarily, salary increases will be in line with increases awarded to other employees of the Group. However, increases may be made above this level at the committee’s discretion to take account of individual circumstances such as:


-
Increase in scope and responsibility;

-
Increase to reflect the individual’s development and performance in role (e.g. for a new appointment where base salary may be increased over time rather than set directly at the level of the previous incumbent or market level); and

-
Alignment with market level.


Performance measures

None, although overall performance of the Company and the individual is considered by the committee when setting and reviewing salaries annually.



BENEFITS

Alignment with strategy

Provides a competitive and cost-effective benefits package to assist executive directors in carrying out their duties effectively.

Operation

The Group provides a range of benefits to executive directors which, subject to periodic review, may include car benefits (or cash equivalent), private medical and dental insurance, permanent health insurance, directors’ and officers’ liability insurance, life assurance, tax return preparation costs for non-home country filings arising as a result of employment with the Company and other benefits available to employees generally, including, where appropriate, the tax on such benefits. Additional benefits may also be provided in certain circumstances which may include (but are not limited to) relocation expenses, expatriate allowances, housing allowances, school fees and payment of incremental overseas tax liabilities.


Maximum opportunity

The maximum value for ongoing benefits for executive directors will not normally exceed 15% of base salary (excluding any one-off items such as relocation benefits and any tax-related charges met by the Company). However, the committee may provide reasonable benefits beyond this amount in exceptional situations, such as a change in the individual’s circumstances caused by the Company, or if there is a significant increase in the cost of providing an agreed benefit.


Performance measures

None


PENSION

Alignment with strategy

Provides a competitive post-retirement benefit, in a way that manages the overall cost to the Company.

Operation

The Company operates a defined contribution plan with contributions set as a percentage of base salary, such contribution rate being subject to review and change from time to time. An individual may elect to receive some or all of their pension contribution as a cash allowance.


Maximum opportunity

Maximum for new hires: For executive directors hired or promoted to the board after the effective date of this policy, the maximum value of the Company contribution is equivalent to the level of pension benefit provided to employees generally in the same location under the Company’s regular defined contribution plans in effect, or as amended, from time to time.

Maximum for existing executive directors: The existing executive directors will transition from their current pension contribution rates to the new hire pension maximum applicable to employees generally by the end of 2022. Currently, the existing CEO and CFO receive 15% of base salary as a cash allowance in lieu of pension contribution and the Executive Chairman receives 20%. Subject to approval of the new policy, the Company contributions for all current executive directors will reduce to the general employee level for the UK by the end of 2022 in one step. Therefore, by the end of 2022, the current executive directors will be subject to the same maximum as described above for new hire executive directors.


Performance measures

None

ANNUAL BONUS

Alignment with strategy

Rewards and incentivizes the achievement of annual financial targets which are chosen to align with the Company’s strategy. The compulsory deferral of one-third of any bonus earned into Company shares for three years promotes longer-term alignment of executive director interests with shareholders’ interests.


Operation

Financial measures and targets are set by the committee for each financial period and pay out levels are determined by the committee after the year end based on an assessment of performance against those targets and the application of any applicable committee discretion, if relevant. The targets, outcomes and the exercise of any committee discretion are fully disclosed in the Annual Remuneration Report published following the year end.

All executive directors are required to defer one-third of their bonus into an award over Company shares. The deferral period is three years.

Dividend equivalents are payable over the deferral period in respect of the deferred bonus shares which vest.


Maximum opportunity

The maximum potential bonus opportunity is 150% of annual base salary in any financial year for each executive director. This includes the deferred bonus shares, but excludes the dividend equivalents which are payable in respect of the deferred bonus shares.

Performance measures

Performance measures are set each year and normally include at least two financial measures chosen by the committee to support the current strategy and incentivize the executive directors to achieve the desired outcomes. The financial measures will have an overall weighting of at least 80% and the performance measures may also include non-financial or strategic individual key performance objectives (KPOs) with a weighting of up to 20%. The performance measures will be assessed independently and there will be no payout under the non-financial/individual measures if there is no payout under any of the financial measures.

The financial targets are set each year and are designed to be stretching. They are set by the committee by reference to various factors including the previous year’s performance outcomes, the strategic plan and internal and external forecasts for the upcoming year. The proposed financial measures for each operation of the annual bonus will be included in the Annual Report on Remuneration which is published in the early part of the bonus year.

Payout levels for different levels of performance against the performance measures and targets are as follows:

-
The minimum and threshold payout is zero.

-
Payout for target performance is 50% of the maximum opportunity.

Committee discretion applies. See footnotes 1, 2 and 3.


Recovery of sums paid

Malus provisions will apply prior to vesting and claw-back may be applied up to two years after vesting. See footnote 4.


LONG-TERM INCENTIVE PLAN

Alignment with strategy
Motivates and rewards the achievement of long-term business goals which support the strategy, the creation of shareholder value and aligns executive directors’ interests with those of long-term shareholders.


Operation
Conditional share awards or nil cost options are typically made annually with vesting subject to the achievement of financial performance conditions measured over three years and continued employment (subject to the provisions set out under policy on payments for loss of office).

If nil cost options are granted, the maximum length of the exercise period is typically 10 years from the date of grant.

Executive directors are required to retain any net (after tax) vested shares for a holding period of two years after vesting (including following cessation of employment).

The plan rules allow for dividend equivalents to be payable in respect of shares subject to awards which vest.


Maximum opportunity
The maximum face value of awards to be granted in respect of any financial year for each executive director is 200% of annual base salary.


Performance measures
There are normally at least two financial performance measures for each operation of the LTIP. The measures and/or the weightings can be changed for each annual grant during the policy period to reflect strategic priorities, although any significant changes from the previous year’s measures would only be made following engagement with shareholders.

The targets are designed to be challenging by providing high levels of reward for exceptional performance, but also a reasonable expectation of some reward at the lower end of the scale, subject to robust performance. The targets are set by the committee by reference to various factors including the previous year’s performance outcomes, the strategic plan and internal and external forecasts for the performance period.

Details of the measures and targets used for specific LTIP grants are typically included in the Annual Report on Remuneration for the year prior to grant.

Payout levels for different levels of performance against the annual measures and targets are as follows:
–– The minimum payout is zero;
–– The threshold payout is normally zero, but could be up to 25%, depending on the measures chosen; and
–– Payout in line with company expectations will normally be 50% of the maximum award.

Committee discretion applies. See footnotes 1, 2 and 3.


Recovery of sums paid
Malus provisions will apply prior to vesting and claw back may be applied up to two years after vesting. See footnote 4.


ALL-EMPLOYEE SHARE PLANS


Alignment with strategy

Provides an opportunity for executive directors to voluntarily invest in the Company on the same terms as other employees.


Operation

Executive directors are entitled to participate in any local all-employee share-based plans to the extent that these are offered by the Company and under the same terms as other employees.


Maximum opportunity

Participation limits are those set by the Company, which may be subject to local tax authority limits from time to time in force.


Performance measures

Not applicable

Footnotes to the policy table

1.Committee discretion in respect of bonus and LTIP payout levels.
In determining the level of payout under the bonus and the LTIP, the committee takes into account the overall business performance during the performance period and any other relevant factors. Should the formulaic outcome of the agreed performance measures not, in the view of the committee, reflect overall business performance, the committee has discretion to adjust the payout or vesting levels (subject always to the stated policy maximums) if it believes this would result in a fairer and more appropriate outcome. This discretion will only be used in exceptional circumstances and any such adjustmentsjoining would be disclosed in the next year’s Annual Report on Remuneration.

2.Committee discretion to vary bonus and LTIP performance measures
If an exceptional event occurs which causes the committee to consider that the measures set for a current bonus or LTIP award are no longer a fair measure of performance, the committee has discretion to adjust them, provided that the new measures are no easier or tougher to meet than the original measures. Any such adjustments would be disclosed in the next year’s Annual Report on Remuneration.

3.Other discretions under the bonus plan, Deferred Share Bonus Plan (DSBP) and LTIP
In relation to the bonus plan, the committee retains discretion over other matters such as the timing of the bonus payout, treatment on a change of control, treatment on termination of employment (see “Policy on payments for loss of office” section and the operation of malus and claw-back (see below under footnote 4):

In relation to the DSBP and the LTIP, the committee retains discretion over other matters such as treatment on a change of control, treatment on termination of employment (see “Policy on payments for loss of office” section), adjustments required in certain circumstances (e.g. rights issues, corporate restructuring events and special dividends) and the operation of malus and claw-back (see below under footnote 4).

4.Malus and claw-back under the annual bonus plan, DSBP and LTIP
The Committee has discretion under the annual bonus plan, the DSBP and the LTIP to apply malus and claw-back in the case of (i) material miss-statement of results, (ii) an error in calculation, (iii) fraud and gross misconduct, (iv) conduct causing serious harm to the Group’s reputation and/or significant financial loss, (v) a material failure of risk management causing serious harm to the reputation of the Group and (vi) corporate failure. If any of these events apply, the committee has discretion to take a number of actions in accordance with the applicable plan rules, including: reducing a payout (to nil if appropriate), lapsing unvested awards, requiring repayment of gains made or the transfer of shares acquired, delaying vesting. Claw-back can apply for up to two years after (i) an annual bonus cash payout, (ii) a release of deferred bonus shares and (iii) a vesting of LTIP awards.

5.Explanation of the differences between the Company’s policy on executive directors’ remuneration and the policy for other employees
The remuneration policy for the wider employee group is based on broadly consistent principles to those for executive directors, although a larger proportion of executive directors’ remuneration is performance related than that of other employees. All employees who are not eligible for commission-based reward participate in an annual bonus plan, which is based on similar measures and financial targets as the executive directors. Bonus opportunity levels vary according to role and seniority. Typically, around 450 of our senior managers and other key employees also receive LTIP awards annually. LTIP performance conditions are consistent for all participants, while award sizes vary according to role and seniority. In addition, selected employees below the board may receive non-performance related share awards. All UK employees are eligible to participate in a tax-favored share save plan and employees in other countries worldwide are able to participate in the Employee Share Purchase Plan (ESPP). The range and level of retirement and other benefits provided to employees varies according to local market practice, role and seniority. As noted in the pensions section of the policy table, the pension policy for executive directors results in full alignment of executive directors’ pension benefitsaligned with the wider workforce.

Executive directors’ shareholding requirement
Executive directors are subject to a shareholding requirement of 200% of annual base salary. On joining or promotion to the board, executive directors are given a period of time to build up to their requirement, typically five years.

On cessation of employment, executive directors are to maintain their full shareholding requirement (or, if lower, their actual level of shareholding at the time of leaving) for two years after leaving employment. This applies to shares delivered from awards granted after the approval of the new policy at the 2020 AGM. Post-cessation, executive directors will be required to hold shares subject to their shareholding requirement in accordance with the Company’s designated mechanism from time to time in place.

Remuneration Policy table – non-executive directors
The table below details the Company’s policy on how the non-executive directors, including a non-executive Chairman, will be remunerated.

FEES


Alignment with strategy
To enable the Company to attract and retain high-caliber non-executive directors who can make a major contribution to the board and committees of a global technology business.


Operation
Fees for non-executive directors (except a non-executive Chair) are determined by the Chair of the board and the executive directors. Individuals undertaking the roles of non-executive Chair of the board and senior independent director (SID) are typically paid an aggregate annual fee, which includes chairing committees. Other non-executive directors are paid a basic annual fee, with additional fees payable as appropriate for specific roles and duties. Currently, additional fees are paid for the chairmanship of board committees and for additional responsibilities related to the SEC and SOX compliance. In the future, additional fees could be payable for other specific roles and duties, for example, for membership of board committees, a workforce engagement fee and attendance fees.

Fees are currently paid in cash but the Company may choose to provide some of the fees in shares.

Fees are reviewed periodically. When reviewing fees, consideration is given to the commitment and contribution that is expected, the complexity of the role, the experience of the individual and market positioning against comparable roles in companies of a similar size and complexity to the Company, in particular those within the technology sector, the relevant FTSE index, US listed technology companies and privately owned software companies.


Maximum opportunity
The total base fees paid to non-executive directors will remain within the limit stated in the Company’s articles of association, currently £1m. Actual fee levels are disclosed in the Annual Report on Remuneration for the relevant financial year.

Additional fees for chairing, or membership of, board committees and all fees paid to a non-executive Chair of the board are not subject to this maximum limit.


OTHER BENEFITS


Alignment with strategy
To provide benefits at appropriate cost where necessary.

Operation
Other benefits for non-executive directors are kept to a minimum. They are reviewed periodically and may include additional tax return filing costs which arise as a result of the appointment with the Company, secretarial benefits, travel and related subsistence costs, including, where appropriate, the tax on such benefits. In addition, private medical cover may be considered for a non-executive Chairman. Non-executive directors may also be reimbursed for all necessary and reasonable expenses incurred in performance of their duties and tax (if any) thereon.


Maximum opportunity
There is no prescribed maximum.


Changes from previous policy
The following table summarizes the changes between the proposed new Remuneration Policy set out in the preceding pages and the current Remuneration Policy which was approved at the 2017 AGM, together with the rationale for the changes.

Policy changeRationale for change
Incentive structure
No Additional Share Grants (ASGs). Incentives comprise bonus, bonus deferral and LTIP.
Simplification of incentive structure, reduce reputational risk and increase predictability of reward outcomes.
Pension maximum
New executive directors: maximum Company contribution reduced from 15% of base salary to the same level as employees in general in same location.
Existing executive directors: reduce to employee level by end of 2022.
To align with the workforce and to meet corporate governance best practice.
Bonus Measures
Under the current policy, the bonus measure is Adjusted EBITDA, with the ability to change this if needed to support a change in strategy. Under the new policy, we will select performance measures each year and will normally have at least two financial measures with a minimum weighting of 80% and the ability to include individual KPOs up to a 20% weighting.
To ensure a balanced set of measures and the flexibility to change these each year to align with business priorities.
Bonus targets
Under the current policy, this is set at 0–10% year-on-year Adjusted EBITDA growth, with the ability to change this if needed to support a change in strategy.
Under the new policy, targets will be set annually in the context of the Company’s annual business plan and other factors.
To introduce a more standard way of setting targets which are based on an assessment of various factors each year, in order to better align to and support the business plan.
Bonus deferral into shares
There will be no time-pro-rating for good leavers or on a change of control for new deferred bonus share awards granted after approval of the new policy.
To reflect that bonus has effectively already been earned by the executive directors.
LTIP measures
Under the current policy, measures and weightings may vary year-on-year to reflect strategic priorities, subject to retaining at least 50% on Diluted Adjusted EPS growth in excess of UK inflation (EPS).
Under the new policy, there will normally be at least two financial measures and measures and/or weightings can be changed for each new grant to reflect strategic priorities (although any significant changes from the previous year would usually only be made following shareholder engagement).
To ensure a balanced set of suitably stretching measures appropriate to a global business, with the flexibility to change these for each grant to reflect the current strategy and business environment.
LTIP post-vesting holding period
Introduction of a two-year post-vesting holding period for LTIP awards granted after approval of the new policy (continues to apply post-cessation of employment).
Results in total five-year vest and hold period in line with corporate governance best practice.
Post-cessation shareholding requirement
Introduction of a post-cessation shareholding requirement at the lower of the full in-service requirement and the actual shareholding at cessation for two years post-cessation (applies to shares that vest from awards granted under the new policy).
Increase alignment with shareholders, improve risk management and meet corporate governance best practice.
Malus and claw-back
Corporate failure is added to the list of existing trigger events (which are material miss-statement, (ii) error in calculation, (iii) fraud and gross misconduct, (iv) conduct causing serious harm to the Group’s reputation and/or significant financial loss and (v) material failure of risk management causing serious harm to the reputation of the Group).
The claw-back period for bonus and deferred bonus shares is extended from one to two years in line with the claw-back period applicable to LTIP awards.
Improve risk management and meet corporate governance best practice.
Benefits for executive directors
The list of benefits which may be provided has been changed (e.g. to include dental insurance in addition to medical insurance and to remove fees for a temporary increase in responsibilities).
A maximum value on the provision of on-going benefits has been introduced.
To ensure that the Company has flexibility to offer a range of appropriate benefits to executive directors during the policy period.
There are no current plans to add to the benefits currently received by executive directors.
LTIP – dividend equivalents
The possibility of including dividend equivalents has been included.
To provide flexibility during the policy period for further alignment of executive directors’ interests with those of shareholders.
Fees and benefits for non-executive directors
Under the current policy, additional fees are payable (above the non-executive director base fee) for chairing a committee and for the role of Senior Independent Director.
Under the new policy, flexibility to introduce other additional fees where appropriate has been included, as has the possibility of paying certain specific benefits to non-executive directors.
To provide flexibility during the policy period to enable the Company to attract and retain high-caliber non-executive directors

Previous Remuneration Policy and prior commitments

The committee reserves the right to make any remuneration payments and payments for loss of office (including exercising any discretions available to it in connection with such payments), notwithstanding that they are not in line with the policy set out in this report, where the terms of the payment were agreed:

(i)
before 25 September 2014 (the date the Company’s first shareholder approved policy came into effect);
(ii)
before the policy set out in this report came into effect, provided that the terms of the payment were consistent with the shareholder-approved Directors’ Remuneration Policy in force at the time they were agreed; or
(iii)
at a time when the relevant individual was not a director of the Company and, in the opinion of the committee, the payment was not in consideration for the individual becoming a director of the Company.

Consideration of employment conditions elsewhere in the Group

When the committee reviews salaries for the executive directors, one factor which it typically takes into account is the most recent annual salary increase budgets for employees generally in the Company’s major locations. These salary increase budgets for employees take into account Group performance, local pay and market conditions and salary levels for similar roles in comparable companies. When determining executive director salaries, the committee also considers pay at companies of a similar size, complexity and international scope, in particular those within the technology sector, the appropriate FTSE index, US listed technology companies and privately owned software companies. The benchmarking approach for the executive directors is broadly the same as the benchmarking approach applied throughout the organization. The committee also reviews and approves the overall annual LTIP grants for the wider executive population (around 450 employees globally) and the twice yearly launches of the Company’s all-employee share plans (the UK share save plan and the Employee Share Purchase Plan) and hence has visibility of wider employee share plan participation.

More recently, we have introduced an annual agenda item for the committee to review various aspects of workforce remuneration and related policies in order to deepen its understanding of pay across the Company. At its January 2020 meeting, the committee considered various aspects of workforce remuneration and took this into account when determining the proposed new Directors’ Remuneration Policy.

Although the committee did not consult directly with employees on the proposed Directors’ Remuneration Policy set out in this Report, going forward, in accordance with the 2018 Corporate Governance Code obligations around workforce engagement (which apply to the Company with effect from the financial year ending 31 October 2020) the Group will introduce a process for dialogue with employees about how the new executive Directors’ Remuneration Policy aligns with wider pay policy.

Approach to recruitment remuneration – executive directors

The remuneration package for a new executive director would be set in accordance with the terms of the approved Remuneration Policy in force at the time of appointment and taking account of the experience and skills of the individual and prevailing market conditions. In determining the appropriate remuneration structure and level, the committee would take into consideration all relevant factors to ensure that the arrangements are in the best interests of the Company and its shareholders. The committee would seek to not pay more than is necessary to secure the right candidate.

The various components and the Company’s approach are as follows:

Standard package on recruitment
The maximum aggregate value of incentives (excluding buyouts) on appointment will be 500% of salary for the first year after appointment. It is intended that any additional incentives offered in the first year after appointment which are above the regular on-going incentives policy limit would be delivered as LTIP awards rather than as additional bonus opportunity. All other elements of pay on recruitment will be in accordance with the policy table.

Compensation for forfeited entitlements
The committee may make an award in respect of a new appointment to “buy-out” incentive arrangements forfeited on leaving a previous employer and may rely on the one-person exemption from shareholder approval available under the UK Listing Rules to facilitate the grant of awards. Any such buy-out arrangements would:


-
be based solely on the remuneration lost when leaving the former employer;

-
be no higher than the commercial value forfeited; and

-
reflect as closely as possible the delivery mechanism (i.e. cash, shares and options), time horizons and performance requirements attaching to that remuneration.

Relocation allowances and expenses
The committee may agree that the Company will provide certain relocation allowances and expenses, as appropriate as determined by the specific circumstances of the new recruit.

In the case of an internal appointment to executive director, any variable pay element awarded in respect of the prior role may be allowed to pay out according to its terms on grant. In addition, any other on-going remuneration obligations existing prior to appointment may continue, provided that they are disclosed in the following year’s Annual Report on Remuneration.

Executive directors’ service agreements
The executive directors’ service agreements do not have a fixed expiry date and are terminable by either party on six months’ notice.

Executive directors’ policy on payments for loss of office Salary, benefits and pension:
The Company’s policy is that executive directors’ service agreements normally continue until the director’s agreed retirement date or such other date as the parties agree are terminable on no more than six months’ notice from the Company or the director and provide no entitlement to the payment of a pre-determined amount on termination of employment in any circumstances.

Compensation is based on what would be earned by way of salary, pension entitlement and other contractual benefits over the notice period. In the event that a contract is to be terminated and a payment in lieu of notice made, payments to the executive director would be a maximum of six months’ base pay, pension entitlement and cash supplement in lieu of other benefits. Payments may be staged over the notice period, at the same interval as salary would have been paid.

Executive directors must take all reasonable steps to obtain alternative employment during the notice period and payments made by the Company will be reduced to reflect any payments received in respect of alternative employment.

Annual bonus:
There is no automatic entitlement to an annual bonus and this is at the discretion of the committee. Where an executive director ceases to be employed by reason of death, ill-heath, injury or disability, redundancy or retirement or any other “good leaver” reason at the committee’s discretion, he or she may receive a pro-rata bonus for the year of cessation, paid on the normal payment date (with committee discretion to accelerate), subject to performance against predetermined targets and pro-rated to reflect time served during the year.

Deferred Share Bonus Plan (DSBP) and LTIP:
The treatment of leavers under our DSBP and LTIP is determined by the rules of the relevant plan. The committee has discretion to determine when and if awards vest and the period during which awards which are granted as nil-cost options may be exercised.

Awards granted under the DSBP after the approval of the new policy lapse if the participant leaves employment as a result of termination for cause or resignation on the date of dismissal/ notice of resignation, as applicable. In other cases, normally including death, ill health, injury or disability, redundancy and retirement, or any other “good leaver” reason at the committee’s discretion, deferred bonus shares would typically be released in full at the end of the three-year deferral period. The committee has discretion to release them earlier if it considers this appropriate in the circumstances.

For awards granted under the LTIP after the approval of the new policy, in cases of death, ill health, injury or disability, redundancy and retirement, or any other “good leaver” reason at the committee’s discretion, awards would typically be pro-rated to reflect time employed and vest subject to performance measured at the end of the relevant performance period. The committee has discretion to determine that awards vest earlier and to adjust the application of time pro- rating and performance measures, subject to the plan rules. The requirement to retain net (after tax) vested LTIP shares for a holding period of two years after vesting continues to apply post-cessation. On death, awards typically vest immediately.   In all other leaver situations, including termination for cause or resignation, awards lapse on the date of dismissal/notice of resignation, as applicable.

Prior awards:
The treatment of awards granted before the approval of the current policy will be treated in accordance with the “Policy on payments for loss of office” and the plan rules applicable to those awards.

Change of control
Any unvested deferred bonus shares will be released in full to the executive director on a change of control. Alternatively, the committee may determine that deferred bonus shares will instead be exchanged for equivalent share awards in the acquiring company.

On a change of control, the default position under the LTIP is that outstanding awards vest on a time pro-rated basis and subject to an assessment of performance against targets at that time. However, the committee has discretion under the plan rules to vary the level of vesting if it believes that exceptional circumstances warrant this and taking into account any other factors it believes to be relevant in deciding to what extent an award will vest. Alternatively, the committee may determine that awards will not vest and will instead be exchanged for equivalent awards in the acquiring company.

Prior awards:
The treatment of awards granted before the approval of the current policy will be treated in accordance with the change of control policy and the plan rules applicable to those awards.

Policy in respect of external board appointments
The Group recognizes that external non-executive directorships are beneficial for both the executive director concerned and the Company. With prior approval from the board, each serving executive director can undertake external non-executive directorships. At the discretion of the board, executive directors are permitted to retain fees received in respect of any such non- executive directorship.


Non-executive directors’ terms of appointment, approach to recruitment remuneration and notice periodsIndependence
The non-executive directors’ terms of appointment are recorded in letters of appointment. The non-executive directors are typically appointed for periods of three years, but they stand for election or re-election as appropriate at each AGM.

On recruitment, a new non-executive director will be entitled to fees and any other benefits if applicable from time to time in accordance with the Company’s remuneration policy. No additional remuneration is paid on recruitment.

The required notice from the Company and the non-executive director is 90 days in all cases, except in the case of a non- executive Chairman, in which case the notice period is six months. The non-executive directors are not entitled to any compensation for loss of office.

Service contracts and letters of appointment – directors
There are no further obligations in the directors’ service contracts and letters of appointment which are not otherwise disclosed in this Report which could give rise to a remuneration payment or loss of office payment. All directors’ service contracts and letters of appointment are available for inspection at the Company’s registered office.

Consideration of shareholder views
The committee considers developments in institutional investors’ best practice guidelines and the views expressed by shareholders when setting directors’ remuneration. The Group remains committed to on-going shareholder dialogue and the Group consults with shareholders and consider their views when formulating, or changing, our Remuneration Policy.

The Group engaged widely with shareholders following the announcement of the SUSE disposal in July 2018 and in the months following publication of the 2018 Annual Report. The Group has communicated with shareholders about the proposed new policy and will be undertaking a full consultation in advance of the 2020 LTIP grants.

Annual Report on Remuneration

The following section provides the details of how the Remuneration Policy was implemented during the financial year ended October 31, 2019.

Single figure for total remuneration of executive directors
The table below shows the single figure for total remuneration for executive directors for the financial year ended October 31, 2019, together with their respective figures for the 18 months ended October 31, 2018 as shown in last year’s report. The 18-month period arises due to the change in financial year end from 30 April to 31 October following the acquisition of the HPE Software business which completed on September 1, 2017.

            LTIPs and ASGs       
    
Base
Salary1
  
Benefits in
kind 2
  
Annual
bonus 3
  
LTIPs 4
  
ASGs 5
  
Total
  
Pension 6
  
Total
 
Executive Directors 
£’000  
£’000  
£’000  
£’000  
£’000  
£’000  
£’000  
£’000 
Kevin Loosemore
2019 (12 months)  750   35   -   1,205   -   1,205   150   2,140 
2018 (18 months)
  
1,125
   
47
   
855
   
1,407
   
25,232
   
26,639
   
225
   
28,891
 
Stephen Murdoch 7
2019 (12 months)  850   20   -   565   -   565   128   1,563 
2018 (18 months)
  
668
   
17
   
569
   
607
8 
  
5,809
   
6,416
   
100
   
7,770
 
Brian McArthur-Muscroft 9
2019 (12 months)  600   20   -   -   -   -   90   710 
2018 (18 months)
  
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
 
Chris Kennedy 10
2019 (12 months)  233   7   -   -   -   -   47   287 
2018 (18 months)
  
487
   
12
   
-
   
-
   
-
   
-
   
97
   
596
 


1.
Base salary: the amount earned during the period in respect of service as a director.

2.
Benefits in kind: including car, private medical insurance, permanent health insurance and life assurance.

3.
Annual bonus: payment for performance during the year in respect of service as a director. One-third of the annual bonus is deferred into shares for three years with the exception of the Executive Chairman.

4.
LTIPs: the value of LTIP awards (excluding those awarded under the ASG program) which vest based on performance conditions ending during the relevant period, pro-rated to reflect the period as a director during the relevant three-year performance period. The 2018 figures are based on the share price at vesting of £12.64 (17 July 2018) and £19.39 (23 March 2019). The 2019 figures are based on the share price at vesting of £17.418 (26 July 2019), which resulted in none of the vesting value being attributable to share price appreciation.

5.
ASG: the value of the ASG award made in November 2014 following the Attachmate Group transaction which vested on 1 November 2017 at a share price of £26.64 (pro-rated to reflect the period as a director during the three-year performance period to 31 October 2017).

6.
Pension: the Company’s pension contribution or cash allowance paid during the period in respect of service as a director. All pension amounts paid in the 2019 financial year are cash in lieu of pension allowances.

7.
Stephen Murdoch left the board on 1 September 2017 to take on the role of Chief Operating Officer and rejoined the board on 19 March 2018 following his appointment as Chief Executive Officer. His salary, benefits, bonus and pension for the 18 month period ended 31 October 2018 reflect his service whilst a director and his LTIPs and ASG reflect the proportion of the performance period whilst a director.

8.
The LTIP figure for 2018 has been restated to reflect the share price at vesting of £19.39 (23 March 2019).

9.
Brian McArthur-Muscroft joined the Company on 5 November 2018 as Chief Financial Officer (elect) and joined the board on 21 February 2019. All figures represent pay for the period since joining the Company.

10.
Chris Kennedy joined the board on 8 January 2018 on his appointment as Chief Financial Officer and resigned from the board on 21 February 2019.

Annual bonus for the financial year ended October 31, 2019

The maximum bonus opportunity for executive directors for the 12 months ended October 31, 2019 was 150% of salary, with the exception of Brian McArthur-Muscroft whose maximum bonus opportunity for FY19 was 100% of salary.

The executive directors are on the same bonus plan as all non-commissioned employees. There is no bonus pay-out if Adjusted EBITDA on a constant currency basis, excluding the impact of in-year acquisitions, is the year and maximum bonuses are earned if the increase in this measure is 10% or more with pay-outs calculated on a straight-line basis between these two points.

The Adjusted EBITDA for continuing businesses for the financial year ended October 31, 2019 was $1,362.5 million, representing a 2.6% decline over the Adjusted EBITDA (on a constant currency basis) for the 12 months ended October 31, 2018 of $1,399.5 million. Accordingly no bonus was paid to executive directors for FY19.

Vesting of long-term incentives with performance periods ending in the financial year ended October 31, 2019

The LTIP awards granted on September 13, 2016 as nil cost options to Kevin Loosemore and Stephen Murdoch vested on July 26, 2019. Vesting of these awards was based on average aggregate EPS growth in excess of RPI over the three years ended April 30, 2019, as set out in the table below.

Average aggregate EPS growth of the Company in excess of RPI over the performance period

Vesting percentage of the shares subject to an award
Less than 5% p.a.
0%
Equal to 3% p.a.
25%
Between 3% and 9% p.a.
Between 25% and 100% on a straight-line basis
Equal to or above 9% p.a.
100%

The aggregate Diluted Adjusted EPS over the performance period of 572.98 cents exceeded the stretch target aggregate EPS of 558.34 cents for maximum vesting (allowing for EPS growth of 9% pa above RPI from the base year EPS figure of 261.40 cents for the year ending 30 April 2016), resulting in 100% vesting of these awards. The committee reviewed the level of vesting and concluded that it was a fair reflection of solid operational performance over the three-year performance period as a whole (see the committee Chair’s letter for further context). Furthermore, the committee reviewed the impact of the share buyback program and Return of Value exercise following completion of the sale of SUSE and concluded that neither has a material impact on the EPS performance. LTIP awards do not benefit from dividends until exercised or released.

 
Executive director
 
Interest
held
  
%
vesting
  
Interest
vesting
 
Vesting
date
Kevin Loosemore
  
69,156
   
100
%
  
69,156
 July 26,  2019
Stephen Murdoch
  
39,640
   
100
%
  
39,640
 July 26,  2019

Single figure for total remuneration of non-executive directors
No changes were made to the fee structure for non-executive directors. The following table sets out the single figure for total remuneration of non-executive directors for the financial year ended October 31, 2019, together with their respective figures for the 18-month period ended October 31, 2018 as shown in last year’s report. The 18-month period arises due to the change in financial year end from April 30, to October 31, following the acquisition of the HPE Software business which completed on September 1, 2017.

   Fees 
Non-executive directors

 
2019
(12 months)
  
2018
(18 months)
 
   £’000  
£
’000
 
Karen Slatford   120   
180
 
Richard Atkins   90   
135
 
Amanda Brown 1
   90   
135
 
Silke Scheiber 2
   70   
103
 
Darren Roos 3
   59   
103
 
Lawton Fitt 4
   80   
83
 


1.
Prior to January 1, 2019, Amanda Brown’s fees were paid direct to her employer.

2.
Silke Scheiber joined the board on May 15, 2017 and left on February 4, 2020.

3.
Darren Roos joined the board on May 15, 2017 and left on September 2, 2019.

4.
Lawton Fitt joined the board on October 17, 2017 and receives an additional fee of £10,000 per annum due to her SEC and SOX experience.

Non-executive directors’ terms of appointment
The non-executive directors’ terms of appointment are recorded in letters of appointment. The required notice from the Company and the non-executive director is 90 days in all cases. The non- executive directors are not entitled to any compensation for loss of office and stand for election or re-election as appropriate at each AGM. Details of the letters of appointment of each non- executive director who has served as a director of the Company at any time during the financial year ended October 31, 2019 are set out below:

Non-executive directorAppointment dateExpiration date
Karen Slatford
July 5, 2010July 5, 2022
Richard Atkins
April 16, 2014April 16, 2020
Amanda Brown
July 1, 2016July 1, 2022
Silke Scheiber1
May 15, 2017May 15, 2020
Darren Roos 2
May 15, 2017May 15, 2020
Lawton Fitt
October 17, 2017October 17, 2020


1.
Silke Scheiber left the board on February 4, 2020.

2.
Darren Roos left the board on September 2, 2019

All appointments of non-executive directors are subject to election by shareholders at the first AGM of the Company after appointment and to re-election on an annual basis thereafter

Implementation of non-executive director remuneration for the year ending October 31, 2020
The non-executive directors’ fees for FY20 are unchanged from FY19 and are set out in the table below:

Independent non-executive director base fee
£70,000 p.a.
Additional fee for chairing a committee
£20,000 p.a.
Additional fee for significant SEC/SOX experience
£10,000 p.a.
Fee for the SID (including chairing committees)
£120,000 p.a.

Remuneration committee membership during the financial year ended October 31, 2019
During the financial year ended October 31, 2019, the committee comprised only of independent non-executive directors. The committee met seven times during the period under review. The number of committee meetings attended by each director in the period was as follows:

Committee memberHeldNumber of meetings attended
Amanda Brown (Chair)
77
Karen Slatford 1
77
Silke Scheiber2
77
Darren Roos 3
54
Richard Atkins 4
--
Lawton Fitt 5
--


1.
Karen Slatford stepped down from the committee with effect from October 16, 2019.

2.
Silke Scheiber left the board on February 4, 2020.

3.
Darren Roos left the board on September 2, 2019.

4.
Richard Atkins joined the committee on October 17, 2019.

5.
Lawton Fitt joined the committee on October 17, 2019.

The committee invited the Executive Chairman, Chief Executive Officer, Chief Financial Officer, Chief Human Resources Officer and Reward Director during the period to provide views and advice on specific questions raised by the committee and on matters relating to the performance and remuneration of senior managers. They did not participate in discussions relating to their own remuneration. The Company Secretary attended each meeting as secretary to the committee.

Terms of reference

The committee is responsible for the remuneration arrangements for executive directors and members of the executive management team, and for providing general guidance on aspects of remuneration policy throughout the Group. The terms of reference were reviewed and updated to reflect the 2018 Corporate Governance Code. The key aspects of the updated terms of reference are as follows:


-
Determine the remuneration policy for the Company’s Chairman and the executive directors and review its on-going appropriateness and relevance;


-
Determine the total individual remuneration packages of the executive directors and the executive management team, including salary, bonuses, incentive payments, share awards, pensions and other benefits;


-
Review the terms of executive service contracts for executive directors and the executive management team;


-
Review any material changes to pension and benefit arrangements for executive directors and the executive management team;


-
Agree the expenses policy for the Company Chairman and executive directors


-
Develop the formal shareholding requirement policy, including post cessation, encompassing both vested and unvested shares;


-
Oversee the operation of the Company’s annual bonus plans, deferred bonus plans and long-term incentives as applied to executive directors and the executive management team, including award levels, performance conditions, payouts, and application of malus and claw-back where appropriate.


-
Review the design of all share incentive plans for approval by the board and shareholders;


-
Review the remuneration policies and practices across the Group and the alignment of workforce remuneration with culture; and


-
Produce the annual Directors’ Remuneration report.

The full terms of reference of the committee are available from the Company Secretary and are on the Company’s website http://investors.microfocus.com /corporate-governance.

Agenda during the financial year ended October 31, 2019

The key activities of the committee were as follows:


-
Approved the Directors’ Remuneration report for the 18-month period ended October 31, 2018;


-
Approved the remuneration packages of executive director joining and leaving the board;


-
Reviewed the salaries and remuneration packages of the executive directors and the executive management team;


-
Reviewed bonus payments and performance against targets under the LTIP;


-
Considered current guidelines on executive compensation from advisory bodies and institutional investors;


-
Engaged with major shareholders and advisory bodies to seek their views following publication of the 2018 Directors’ Remuneration report;


-
Undertook a review of the Remuneration Policy for executive directors, and developed a new Directors’ Remuneration Policy to be put to shareholders for approval at the 2020 AGM;


-
Undertook a review of the measures and targets for the annual bonus plan and LTIP for the financial year ending October 31, 2020;


-
Updated shareholders on key aspects of the proposed new Directors’ Remuneration Policy;


-
Reviewed the performance and terms of reference of the committee.

External advisors
The committee and management seek advice on remuneration and legal matters from a number of firms as appropriate, including PwC, Deloitte and Travers Smith. The committee has direct access to these advisors who attend committee meetings as required. All provide other services to management including legal, tax, accounting and consulting services. The committee has satisfied itself that the advice it receives is objective and independent and is not conflicted by the advisors also working with management on remuneration and other matters.

In August 2019 the committee appointed PwC as their formal on-going remuneration committee advisors reporting directly to the Chair of the committee, with arrangements in place to provide the committee with oversight of the remuneration services provided by PwC to management. The committee reviewed the potential for conflicts of interest in connection with this appointment and is comfortable that there are no conflicts which might impair the independence of the PwC team that provide remuneration advice to the committee. In addition, as a founder member of the Remuneration Consultants Group, PwC operates under the Voluntary Code of Conduct in relation to executive remuneration consulting in the UK

PwC’s fees for the financial year ended October 31, 2019 relating to remuneration advice to the committee were determined on a time and materials basis and were £45,451 (excluding VAT).

Share interest awards made during the financial year ended 31 October 2019

Deferred Share Bonus Plan

On February 28, 2019, conditional awards were made under the Deferred Share Bonus Plan to Stephen Murdoch in respect of the one-third of his FY18 annual bonus earned whilst a director that was deferred into shares. The number of shares awarded was based on the closing mid-market share price of £18.945 on the day before the grant date.

 
Executive director
 
Date of grant
 
Awards made during
the period
  
Share price
at grant 1
  
Face value
at grant
 
Stephen Murdoch
February 28, 2019  
10,013
  
£
18.945
  
£
189,696
 

1
Share price at grant is the closing mid-market price on the day before grant.

Long-term Incentive Plan

During the financial year ended October 31, 2019, executive directors (with the exception of Chris Kennedy) were granted nil-cost options under the LTIP as set out in the table below.

Executive directorDate of grantPerformance period 
Awards
made
during the
period
  
Share
price at
grant 1
  
Face value
at grant
 Grant basis
Kevin Loosemore
February 18,20193 years from November 1, 2018  
89,285
  
£
16.80
  
£
1,499,988
 200% of salary
Stephen Murdoch
February 18, 20193 years from November 1, 2018  
101,190
  
£
16.80
  
£
1,699,992
 200% of salary
Brian McArthur- Muscroft 2
November 22, 20183 years from November 1, 2018  
80,482
  
£
14.91
  
£
1,199,987
 200% of salary
Brian McArthur-Muscroft 3
November 22, 20183 years from November 1, 2018  
80,482
  
£
14.91
  
£
1,199,987
 200% of salary


1.
Share price at grant is the closing mid-market price on the day before grant.

2.
Brian McArthur-Muscroft’s normal FY19 annual award was made shortly after joining.

3.
Brian McArthur-Muscroft’s additional one-off new hire award was made shortly after joining but has a four-year performance period rather than the normal three years.

The awards will be eligible to vest on the third (or fourth in the case of Brian McArthur-Muscroft’s new hire award) anniversary of the date of grant subject to achievement of a performance condition based on average growth, in excess of RPI, of the aggregate EPS over the relevant performance period.

Annualized EPS growth of the Company in excess of RPI
over the performance period
Vesting percentage of the shares to an award
Less than 3% p.a.
0
%
Equal to 3% p.a.
25
%
Between 3% and 9% p.a.
Between 25% and 100% on a straight-line basis
Equal to or above 9% p.a.
100
%

Additional Share Grants

During the financial year ended October 31, 2019, the remuneration committee exercised its discretion to make an award to Brian McArthur-Muscroft under the Additional Share Grant program implemented following the acquisition of the HPE Software business (“HPE Software ASG” award). This was set at half the level awarded to his predecessor to reflect the shorter period of employment during the three-year performance period and ensures his interests are aligned to those of the other executive directors in delivering value from the HPE Software business.

 
 
Executive director
 
Date of
 grant
Performance
period
 
Awards made
during the
period
  
Share
price at
grant 1
  
Face
value at
grant
 
 
Grant
 basis
Brian McArthur-Muscroft
November 22, 20183 years from September 1, 2017  
338,000
  
£
14.91
  
£
5,039,580
 ½ of the award granted to his predecessor


1.
Share price at grant is the closing mid-market price on the day before grant.

In line with the other current executive directors, Brian McArthur-Muscroft surrendered his HPE Software ASG and it lapsed on February 3, 2020.

Changes to the board in the financial year ended October 31, 2019
On November 5, 2018, the Company announced that Chris Kennedy would be leaving the Company in early 2019 after closing out the accounts for the 18 months ended October 31, 2018 and that Brian McArthur-Muscroft had joined and would take up the role of Chief Financial Officer and be appointed to the board in early 2019. Chris Kennedy resigned from the board and left the Company on February 21, 2019, whereupon Brian McArthur-Muscroft was appointed to the board as Chief Financial Officer. Chris Kennedy continued to receive his salary and contractual benefits until his date of leaving but no FY18 annual bonus was payable and all his LTIP awards and HPE Software ASG award lapsed on leaving. No further payments were made for loss of office.

Payments for loss of office
There were no payments for loss of office during the financial year ended October 31, 2019.

Payments to past directors

Nils Brauckmann

As disclosed last year, Nils Brauckmann stepped down from the board on July 11, 2018 following the announcement of the sale of SUSE and that, on completion of the sale, he would be treated as for other SUSE employees with regard to his various share plan awards in accordance with the rules of the plans, with pro-rating for time and performance testing applied as required. Awards which had already vested but had yet to be exercised continued unaffected, details of which were set out in last year’s Directors’ Remuneration report. The table below sets out the treatment for awards that had not yet vested at the date of completion of the sale of SUSE on March 15, 2019.

AwardDate of grant 
Shares
granted
  
Shares lost
through time
pro-ration 1
  
Performance
condition
outcome
  
Shares
vesting
 
Exercise/release
date
LTIPs                   
Nil cost option
March 23, 2016  
26,024
   
-
  
Already vested 100% 2
   
26,024
 March 15, 2019 to September 14, 2019
Nil cost option
September 13, 2016  
33,476
   
1,860
   
100
%3
  
31,616
 March 15, 2019 to September 14, 2019
Conditional award
September 16, 2017  
33,633
   
13,079
   
100
%4
  
20,554
 March 15, 2019
Deferred Share Bonus Plan                       
Conditional award
July 25, 2017  
4,519
   
2,134
   
n/a
   
2,385
5 
March 15, 2019
Conditional award
February 28, 2019  
6,565
   
6,565
   
n/a
   
-
 n/a


1.
Pro-ration for LTIP awards is assessed by reference to the proportion, in complete months, of the performance period completed. Pro-ration for Deferred Share Bonus Plan awards is by reference to the proportion, in complete months, of the three-year deferral period completed.


2.
The EPS performance condition on this award had already been tested and fully achieved but the award would not have vested until March 23, 2019, which resulted in a shortening of the exercise period to six months from completion of the sale.


3.
The Remuneration Committee exercised its discretion to early test the EPS performance condition based on the 2½ years to end October 2018, being the last financial year-end prior to completion of the sale of SUSE, which resulted in the performance condition being met in full.


4.
The Remuneration Committee exercised its discretion to early test the EPS performance condition based on the 1½ years to end October 2018, being the last financial year-end prior to completion of the sale of SUSE, which resulted in the performance condition being met in full.


5.
Accumulated dividends amounting to £2,735.83 were also payable on the pro-rated shares vesting. The total vesting value of the deferred bonus plan shares and dividends, which amounted to £48,290.34 was settled in cash, as these would otherwise have been settled by market purchase shares. The price used for valuing the shares was the average sale price used for all share sale transactions of SUSE employees with conditional awards on the date of completion of £19.100425

In addition, Nils voluntarily surrendered his HPE Software ASG award over 500,000 shares, which would otherwise have continued with a TSR performance condition over a performance period ending 1 September 2020, to ensure there were no outstanding unvested share based awards with a direct linkage to Micro Focus’ future performance.

Mike Phillips
As announced last year, Mike Phillips stepped down from the board on January 31, 2018 to take on a new role of Director of M&A after seven years as Chief Financial Officer, and retired from Micro Focus on May 31, 2019. On his retirement, he was treated as a “good leaver” under the rules of the various share plans. Awards which had already vested continue unaffected, details of which were set out in last years’ Directors’ Remuneration report; unvested awards were time pro-rated with vesting at their normal vesting dates subject to testing of any outstanding performance conditions. The table below sets out the treatment of unvested awards together with the LTIP award granted in 2016 which had a performance period that ended in the FY19 financial year.

AwardDate of grant
Date of
vesting
 
Shares
granted
  
Shares lost
through
time pro-
ration 1
  
Shares
outstanding
  
Performance
condition
outcome
 Exercise/release date
LTIPs                     
Nil cost option
September 13, 2016July 26, 2019  
37,262
   
-
   
37,262
  
Already vested 100% 2
 July 26, 2019 to July 25, 2026
Nil cost option
September 6, 2017July 17, 2020  
34,464
   
8,616
   
25,848
  
To be tested at vesting 3
 July 17, 2020 to January 16, 2021
Deferred Share Bonus Plan                        
Conditional award
July 25,
2017
July 25, 2020  
4,758
   
1,583
   
3,165
   
n/a
 
July 25,
2020
Conditional award
February 28, 2019February 28, 2022  
2,415
   
2,080
   
335
   
n/a
 February 28, 2022
HPE Software Additional Share Grant                         
Nil cost option
September 20, 2018September 1, 2020  
676,000
   
245,482
   
430,518
  
To be tested at vesting 4
 September 1, 2020 to February 28, 2021

1.
Pro-ration for LTIP awards is assessed by reference to the proportion, in complete months, of the performance period completed. Pro-ration for Deferred Share Bonus Plan awards is by reference to the proportion, in complete months, of the three-year deferral period completed. Pro-ration for ASG Award is by reference to days completed during the three-year performance period.

2.
The EPS performance condition on this award had already been tested based on the performance period ending April 30, 2019 and fully achieved as set out in the section for the vesting of directors’ LTIP awards with performance periods ending in the financial year ended October 31, 2019.

3.
The EPS performance condition on this LTIP award will be tested at the normal vesting date.

4.
The TSR performance condition on this HPE Software ASG award will be tested at the normal vesting date.

Chris Hsu
Chris Hsu received a payment of $14,378 under the Company’s tax equalization policy on completion and filing of his 2018 US tax return. This related to medical and other benefits that were subject to UK tax but would not have been subject to US tax.

There were no other payments made to past directors during the financial year ended 31 October 2019 relating to their previous service as a director.

Other directorships
Kevin Loosemore was appointed non-executive Chairman of De La Rue plc on September 2, 2019 and relinquished his role of Chairman of IRIS Software Group Ltd on the same date. The fees paid by De La Rue will be set out in next year’s report once they are disclosed by De La Rue. Brian McArthur-Muscroft is a non-executive director of Robert Walters plc and is paid a fee of £76,000 per annum (increased from £74,000 per annum with effect from January 1, 2019). Chris Kennedy was a non-executive director of Whitbread plc and was paid a fee of £80,000 per annum.

Implementation of Remuneration Policy for the financial year ended October 31, 2020

The following sections detail the proposed implementation of the new remuneration policy for the financial year ending October 31, 2020 (FY20).

Base salary
The committee decided not to award a salary increase to the executive directors for FY20. Therefore, the FY20 salaries are as follows: Kevin Loosemore: £750,000, Stephen Murdoch: £850,000 and Brian McArthur-Muscroft: £600,000.

Benefits
The benefits provided to the executive directors are unchanged for FY20.

Pension
The company pension contributions will remain at the same rates as currently for FY20 (20% of salary for the Executive Chairman and 15% of salary for the other Executive Directors). However, subject to approval of the new Remuneration Policy, it has been agreed between the executive directors and the committee that the pension contribution levels for all executive directors will reduce to the level for UK employees in general by the end of 2022 in one step. The current level of employer contribution for UK employees is 5%.

Annual bonus
In light of the current business context and the outcome of the strategic review, the committee has decided to add additional measures to the bonus plan for the 2020 financial year to ensure a more balanced set of measures are in place to support the delivery of key aspects of the business plan. Whilst Adjusted EBITDA continues to be the predominant performance measure, with a weighting of 60%, we are adding a revenue measure (weighted 20%) and individual key performance objectives (KPOs) (weighted 20%). The KPOs are set to focus the CEO and CFO on specific key deliverables aligned to the business plan and there will only be a payout under the KPO element if there is a payout under at least one of the financial measures. Given the announcement that the Executive Chairman will be stepping down from the board on February 14, 2020, the committee has determined that the Executive Chairman will not have specific key deliverables under the KPO element for the 2020 bonus but rather, the outcome under this element will be determined by reference to the performance under the financial measures

The Adjusted EBITDA and revenue targets for the FY20 bonus have been set to reflect the 2020 business plan, which takes into account all current factors impacting the business. The targets and the outcomes achieved will be fully disclosed in the FY20 Annual Remuneration Report, as will comprehensive details of the KPOs set and performance against those.

The maximum annual bonus opportunity for executive directors for the 2020 annual bonus remains the same as last year at 150% of salary. The requirement to defer one-third of the bonus earned into shares for three years will continue to apply to the CEO and CFO in respect of the 2020 bonus.

LTIP
It is intended that the performance measures for the 2020 LTIP grants will comprise free cash flow and TSR. In light of the recently concluded strategic review and the announcement that the current Executive Chairman will be stepping down from the board on February14, 2020 and will be replaced by a newly appointed non-executive Chairman, the committee has decided that a thorough shareholder consultation is required before confirming the financial measures and targets for the 2020 LTIP grants. The 2020 LTIP grants will therefore be delayed until after the AGM and, over the coming weeks, the Company will be consulting with shareholders and listening to their views on the proposed measures. Following the consultation, the measures, weightings, targets and grant levels for the 2020 LTIP will be finalized and published on the company website in advance of granting the awards.

Subject to the policy maximum of 200% of salary, when setting the 2020 grant levels for executive directors, the committee will take account of shareholder experience following the August 2019 trading update and subsequent share price decline. The Excutive Chairman will not be receiving an LTIP grant in 2020.

The awards are subject to a three-year performance period and, subject to approval of the new policy, the net (after tax) vested shares are to be held for a further two-year holding period.

Review of past performance until end of reporting period
The remuneration package is structured to help ensure alignment with shareholders. The graph and table below show how the Chief Executive Officer’s or Executive Chairman’s pay compares to total shareholder returns (TSR) over the last 10½ years.

The graph below shows the value, by October 31, 2019, of £100 invested in Micro Focus International plc on April 30, 2009 compared with the value of £100 invested in the FTSE 250, FTSE 100 and the FTSE All-Share Software and Computer Services indices. The dates shown are the Company’s financial year ends. The FTSE 250, FTSE 100 and the FTSE All-Share Software and Computer Services indices have been chosen as they are considered the most relevant indices for comparison with the Company.

HISTORICAL TSR PERFORMANCE

Growth in the value of a hypothetical £100 holding over the period from April 30, 2009

The table below details the Chief Executive Officer and Executive Chairman’s (for the period from April 14, 2011 until April 30, 2017) single figure of total remuneration over the same period:

  Year ended April 30,  
18
months
ended
October
31,
  
12
months
ended
October
31,
 
  2010  2011  2012  2013  2014  2015  2016  2017  2018  2019 
  
£
’000
  
£
’000
  
£
’000
  
£
’000
  
£
’000
  
£
’000
  
£
’000
  
£
’000
  
£
’000
  
£
’000
 
Stephen Murdoch 1
                                        
Single total figure of remuneration                                  
2,739
   1,333 
Annual bonus outcome (% of maximum)                                  
57
%
 Nil 
LTIP vesting (% of maximum)                                  
100
%
  100%
Chris Hsu 2
                                        
Single total figure of remuneration                                  
4,963
     
Annual bonus outcome (% of maximum)                                  
12
%
    
LTIP vesting (% of maximum)                                  
n/a
     
Kevin Loosemore                                        
Single total figure of remuneration      
23
   
1,291
   
1,304
   
12,468
   
4,315
   
4,231
   
4,226
         
Annual bonus outcome (% of maximum)     Nil   
90
%
  
92
%
  
100
%
  
100
%
  
100
%
  
45
%
        
LTIP vesting (% of maximum)     Nil  Nil  Nil   
199
%
  
100
%
  
100
%
  
100
%
        
Nigel Clifford                                        
Single total figure of remuneration      
628
                                 
Annual bonus outcome (% of maximum)     Nil                                 
LTIP vesting (% of maximum)     Nil                                 
Stephen Kelly                                        
Single total figure of remuneration  
3,696
                                     
Annual bonus outcome (% of maximum) Nil                                     
LTIP vesting (% of maximum)  
100
%
                                    


1.
Stephen Murdoch assumed the CEO responsibilities from May 1, 2017 in the build up to the acquisition of the HPE Software business and stepped down on completion of the transaction on September 1, 2017 to take on the role of Chief Operating Officer. He was reappointed as CEO from March 16, 2018. The 2018 and 2019 figures are slightly different from those shown in the single figure for remuneration table as the value placed on the LTIPs and ASG reflect the period of the relevant performance period that he was undertaking the CEO role. The 2018 figure has also been adjusted to take account of the restatement in the LTIP value to reflect the share price at vesting on March 23, 2019 of £19.39.


2.
Chris Hsu’s period as CEO was from September 1, 2017 to March 19, 2018. The 2018 single figure of remuneration includes the benefits in kind payment of $5,918,705 to cover the grossed-up cost of the excise tax incurred as a result of US “inversion” tax treatment of the HPE Software business transaction, and has been adjusted to include a $14,378 contractual tax equalization payment relating to medical and other benefits deemed taxable in the UK which would not have been taxable in the US, which was finalized on filing his 2018/19 tax returns. The figure for his annual bonus outcome as a percentage of maximum has been calculated by reference to a maximum bonus of 150% of his salary earned over the period as a director.

Percentage change in Chief Executive Officer’s remuneration
The table below shows the percentage change in the Chief Executive Officer’s annualized remuneration from the 18 months ended October 31, 2018 to the 12 months ended October 31, 2019, as compared to the average annualized percentage change in remuneration over the same period for all staff that were on the corporate bonus scheme in both years and were employed throughout the period. For the 12 months ended October 31, 2019, this covers Stephen Murdoch but for the 18 months ended October 31, 2018 it covers a combination of Stephen Murdoch (covering the two periods before and after the HPE Software business acquisition) and Chris Hsu which has then been annualized to enable a year-on-year increase to be calculated. We have selected our staff on the corporate bonus scheme (unchanged from the 2018 report) for this comparison as it is considered the most relevant comparator group given the structure of that group’s remuneration.

  Chief Executive Officer  
Other
employees
 
Base package 
2019
12 month
period
  
2018
18 month
period
  
2018
Annualized
  
Annualized
%
change
  
Annualized
%
change
 
  
£
’000
  
£
’000
  
£
’000
       
Salary  
850
   
1,081
   
721
   
18
%
  
5
%
Taxable benefits  
20
   
4,493
   
2,995
   
(99
)%
  
4
%
Annual performance bonus  
-
   
642
   
428
   
(100
)%
  
(58
)%
Total  870   6,216   4,144   (79)% No change 

Chief Executive Officer pay ratios
The 2018 Reporting Regulations require disclosure of the ratio of total CEO remuneration to the median, 25th and 75th percentile UK employee total remuneration (calculated on a full-time equivalent basis). We are voluntarily disclosing pay ratios in this year’s report, earlier than we are required to do so. We have around 1,000 employees in the UK.

For the purposes of the pay ratios below, the CEO’s total remuneration is his 2019 single total figure of remuneration of £1,563,000. All pay figures are rounded to the nearest £1,000.

YearMethod 
25th percentile pay
ratio
  Median pay ratio  
75Th percentile pay
ratio
 
2019
Option B 35:1  24:1  14:1 
Total remuneration
  
£
45,000
  
£
66,000
  
£
111,000
 
Salary
  
£
40,000
  
£
59,000
  £83,000 

The ratios have been calculated using Option B, meaning that the best equivalents of the median, 25th and 75th percentile UK employees were identified based on the latest published hourly rate gender pay gap information. This was deemed the most appropriate methodology for the company at this time, recognizing the different human resources and payroll systems in place.

To ensure that the total remuneration for the financial year ended October 31, 2019 for the selected best equivalents of the median, 25th and 75th percentile UK employee were sufficiently representative of those positions, we calculated the total remuneration for a number of employees above and below each of the selected median, 25th and 75th percentile UK employees. We excluded or adjusted for anomalies (such as employees who left part way through the year) and took the median of the remaining figures in order to provide a robust representation of each quartile.

The total remuneration calculations for the relevant representative employees, and those in the range above and below, were performed as at October 31, 2019 based on their total remuneration paid or receivable for the 2019 financial year, calculated (for all components other than benefits and pension) on the same basis as required for the CEO’s total remuneration for single total figure purposes. Benefits and pension were calculated based on the annual value of those benefits as at October 31, 2019, rather than the actual annual value of those benefits during the 2019 financial year, which is subject to changes in individual’s benefit choices during the year. No other estimates or adjustments have been used in the calculation of total remuneration and no components of pay have been omitted. For any employees who worked less than full-time during the year, their pay was adjusted to reflect a full-time equivalent basis

The committee is satisfied that the overall picture presented by the 2019 pay ratios is consistent with the pay, reward and progression policies for the company’s UK employees. Pay ratios for total remuneration are likely to vary, potentially significantly,   over time since the CEO’s total remuneration comprises a significant proportion of variable pay and so remuneration each year is impacted by the performance-related pay outcomes and share price movements. There was no bonus payout for the CEO for the 2019 financial year. The CEO’s 2016 LTIP award vested during the year and is therefore included in his total remuneration. Whilst the representative employees in the calculation would not typically participate in the LTIP, they do have the opportunity to receive company shares by participating in the UK share save plan and they receive a higher proportion of their remuneration in the form of fixed pay.

Relative importance of spend on pay
The table below shows the percentage change in total employee pay expenditure and shareholder distributions (i.e. dividends and share buy-backs) from the 12 and 18-month periods ending October 31, 2018 to the 12 months ended October 31, 2019.

  2019  2018  % change from 2018 
  
12 months
ended
October 31
  
18 months
ended
October 31,
  
12 months
ended
October 31,
  18 months  12 months 
  $ m 
$
 
m
 
$
 
m
 %  % 
Distribution to shareholders
                  
- Dividends paid  439.2   
542.2
   
408.3
   
(19.0
)%
  
7.6
%
- Share buy-backs  538.8   
171.2
   
171.2
   
214.7
%
  
214.7
%
- Return of Value  1,800.0   
500.0
   
-
   
260.0
%
  
n/a
 
Total  2,778.0   
1,213.4
   
579.5
   
128.9
%
  
379.4
%
Employee remuneration
  1,340.2   
2,030.7
   
n/a
   
(34.0
)%
  
n/a
 

The directors have proposed a final dividend for the financial year ended October 31,  2019 of 58.33 cents 44.53 pence per share (2018: final dividend of 58.33 cents 45.22 pence).

Directors’ shareholdings and share interests as at October 31, 2019

     Nil-cost options and conditional awards held          
 
 
Director
 
Shares held
(owned
outright)
  
Vested but
not exercised
  
Unvested
and not
subject to
performance
  
Unvested
and subject
to
performance
  
Shareholding
requirement
(% of salary)
  
Current
shareholding
(% of
salary)1
  
Requirement
met?
 
Kevin Loosemore  
631,983
   
69,156
   
-
   
1,257,250
   
200
%
  
945
%
 Yes 
Stephen Murdoch 2
  
276,151
   
39,640
   
15,064
   
1,152,391
   
200
%
  
371
%
 Yes 
Brian McArthur Muscroft 3
  
-
   
-
   
-
   
498,964
   
200
%
  
-
  Not yet due 
Karen Slatford  
14,687
   
-
   
-
   
-
   
-
   
-
   
n/a
 
Richard Atkins  
13,862
   
-
   
-
   
-
   
-
   
-
   
n/a
 
Amanda Brown  
3,841
   
-
   
-
   
-
   
-
   
-
   
n/a
 
Silke Scheiber  
-
   
-
   
-
   
-
   
-
   
-
   
n/a
 
Lawton Fitt  
-
   
-
   
-
   
-
   
-
   
-
   
n/a
 


1.
Current shareholding includes the value of any shares held (owned outright) together with the net-after-tax value of any vested but unexercised nil-cost options using the closing mid-market quotation price on October 31, 2019 of £10.60.


2.
Stephen Murdoch is required to have a 200% shareholding within three years of re-joining the board on March 19, 2018.


3.
Brian McArthur-Muscroft is still within the time period (which is typically five years) to build up to his 200% shareholding requirement.

Between November 1, 2019 and February 3, 2020, the “Unvested and subject to performance” figures in the table above have reduced by 1,100,000 for Kevin Loosemore, 947,000 for Stephen Murdoch and 338,000 for Brian McArthur-Muscroft in accordance with the surrender and lapse of the outstanding ASG awards on February 3, 2020. There were no other changes to the above interests between November 1, 2019 and February 3, 2020.

Micro Focus International plc Incentive Plan 2005 (“LTIP”)
The table below sets out the executive directors’ LTIP awards (which were granted as nil cost options) as at October 31, 2019 together with the movements in these awards during the 12-month period.

  
Number at
November
1,
2018
  
Number
granted
in the
period
  
Number
 exercised
in the
period
  
Number
lapsed in
the
period
  
Number
at October
31,
2019
 
 
 
 
Date for exercise
Kevin Loosemore 1
  
192,157
   
-
   
192,157
   
-
   - June 27, 2015 to June 26, 2022
Kevin Loosemore 1
  
142,132
   
-
   
142,132
   
-
   - June 26, 2016 to June 25, 2023
Kevin Loosemore 1
  
115,192
   
-
   
115,192
   
-
   - June 27, 2017 to June 26, 2024
Kevin Loosemore 1
  
111,275
   
-
   
111,275
   
-
   - July 17, 2018 to July 16, 2025
Kevin Loosemore 1
  
69,156
   
-
   
-
   
-
   69,156 July 26, 2019 to July 25, 2026
Kevin Loosemore 2
  
67,965
   
-
   
-
   
-
   67,965 July 17, 2020 to July 16, 2027
Kevin Loosemore 3
  
-
   
89,285
   
-
   
-
   89,285 February 18, 2022 to February 17, 2029
Stephen Murdoch 1
  
46,237
   
-
   
46,237
   
-
   - December 27, 2015 to December 26, 2022
Stephen Murdoch 1
  
39,884
   
-
   
39,884
   
-
   - June 26, 2016 to June 25, 2023
Stephen Murdoch 1
  
56,421
   
-
   
56,421
   
-
   - June 27, 2017 to June 26, 2024
Stephen Murdoch 1
  
44,510
   
-
   
44,510
   
-
   - July 17, 2018 to July 16, 2025
Stephen Murdoch 1
  
26,024
   
-
   
26,024
   
-
   - March 23, 2019 to March 22, 2026
Stephen Murdoch 1
  
39,640
   
-
   
-
   
-
   39,640 July 26, 2019 to July 25, 2026
Stephen Murdoch 2
  
36,664
   
-
   
-
   
-
   36,664 July 17, 2020 to July 16, 2027
Stephen Murdoch 2
  
67,537
   
-
   
-
   
-
   67,537 September 20, 2021 to September 19, 2028
Stephen Murdoch 3
  
-
   
101,190
   
-
   
-
   101,190 February 18, 2022 to February 17, 2029
Brian McArthur-Muscroft 3
  
-
   
80,482
   
-
   
-
   80,482 November 22, 2021 to November 21, 2028
Brian McArthur-Muscroft 4
  
-
   
80,482
   
-
   
-
   80,482 November 22, 2022 to November 21, 2028


1.
This award vested in full as the performance condition was fully met.


2.
Performance condition requires that cumulative EPS growth over a three-year performance period starting on the May 1, preceding the date of grant is at least  equal to RPI plus 3% per annum (at which point 25% of awards will vest) and for full vesting the aggregate EPS growth will be required to be RPI plus 9% per annum. Straight-line vesting will apply between these points.


3.
Performance condition requires that cumulative EPS growth over a three-year performance period starting on the November 1, preceding the date of grant is at least equal to RPI plus 3% per annum (at which point 25% of awards will vest) and for full vesting the aggregate EPS growth will be required to be RPI plus 9% per annum. Straight-line vesting will apply between these points.


4.
Performance condition requires that cumulative EPS growth over a four-year performance period starting on the November 1, preceding the date of grant is at least equal to RPI plus 3% per annum (at which point 25% of awards will vest) and for full vesting the aggregate EPS growth will be required to be RPI plus 9% per annum. Straight-line vesting will apply between these points.

In considering the likely vesting level under the outstanding unvested LTIPs noted in the table above (i.e. awards to which  footnotes 2, 3 and 4 apply), due regard should be given to the performance conditions specified in footnotes 2, 3 and 4 as well as performance to date and broker forecasts.

LTIP awards exercised during the year ended October 31, 2019
The table below sets out the LTIP awards (which were granted as nil cost options) which executive directors exercised during the financial year ended October 31, 2019.

Executive directorDate of exercise 
Number of options
exercised
  
Share price at
exercise 1
  
Gain on
exercise
 
Kevin Loosemore
April 5, 2019  
560,756
  
£
19.545
  
£
10,959,976
 
Stephen Murdoch
April 1, 2019  
213,076
  
£
20.010
  
£
4,263,651
 

1
The share price at exercise is the closing mid-market quotation price on the day of exercise.

Deferred Share Bonus Plan (“DSBP”)
The table below sets out the executive directors’ awards of conditional shares under the DSBP as at October 31, 2019 together with the movements in these awards during the year.

  
Number at
November 1,
2018
  
Number
granted in the
period
  
Number
exercised in the
period
  
Number
lapsed in the
period
  
Number at
October 31,
2019
 
 
 
Date of release
Stephen Murdoch
  
5,051
   
-
   
-
   
-
   
5,051
 July 25, 2020
Stephen Murdoch
  
-
   
10,013
   
-
   
-
   
10,031
 February 28, 2022

Additional Share Grants (“ASG”)
The table below sets out the executive directors’ ASG awards (which were granted as nil cost options) as at October 31, 2019 together with the movements in these awards during year.

  
Number
at
November
1,
2018
  
Number
granted
in the
period
  
Number
Exercised
in the
period
  
Number
lapsed
in the
period
  
Number
at
October
31,
2019
 
 
 
 
 
Date of exercise
Kevin Loosemore 1
  
947,140
   
-
   
947,140
   
-
   
-
 November 1, 2017 to October 31, 2024
Kevin Loosemore 2
  
1,100,000
   
-
   
-
   
-
   
1,100,000
 September 1, 2020 to August 31, 2027
Stephen Murdoch 1
  
405,917
   
-
   
405,917
   
-
   
-
 November 1, 2017 to October 31, 2024
Stephen Murdoch 2
  
947,000
   
-
   
-
   
-
   
947,000
 September 1, 2020 to August 31, 2027
Brian McArthur-Muscroft 2
  
-
   
338,000
   
-
   
-
   
338,000
 September 1, 2020 to August 31, 2027


1
This award vested in full as the performance condition was fully met.

2
The performance condition is that the percentage of ordinary shares subject to the ASG which may be acquired on exercise on or after the vesting date is as follows:

a.
0% if the Shareholder Return Percentage (as defined below) is 50% or less;

b.
100% if the Shareholder Return Percentage is 100% or more; and

c.
a percentage determined on a straight-line basis between (i) and (ii) above.

The “‘Shareholder Return Percentage” will be calculated by deducting £18.17¾ per share (the “Reference Price”), being the average of the 20 days to August 2,  2016 (being the date of the heads of agreement relating to the acquisition of the HPE Software business), from the sum of the “Vesting Price” (calculated as the average closing share price over the period of 20 days ending on the day prior to the vesting date) plus the total of all dividends per share between completion and the vesting date. This will be divided by the Reference Price, multiplying the resulting figure by 100 to obtain the Shareholder Return Percentage.

The executive directors listed in the table above have surrendered the outstanding ASG awards noted in the table and they lapsed on February 3, 2020.

Additional Share Grant awards exercised during the year ended October 31, 2019
The table below sets out the Attachmate ASG awards (which were granted as nil cost options) which executive directors exercised during the financial year ended October 31, 2019.

 
 
Executive director
 
 
Date of exercise
 
Number of
Options
exercised
  
Share price at
exercise 1
  
Gain on
exercise
 
Kevin Loosemore
April 1, 2019  
947,140
  
£
20.010
  
£
18,952,271
 
Stephen Murdoch
April 1,2019  
405,917
  
£
20.010
  
£
8,122,399
 

1The share price at exercise is the closing mid-market quotation price on the day of exercise.

Sharesave
Chris Kennedy’s share save options from the summer 2018 offer lapsed on leaving the Company at the end of February 2019. No other executive director is currently participating in Sharesave.

Share option schemes
Details of the Company’s share option schemes are given in note 33 of the financial statements in Item 18.

The mid-market closing price of the shares at October 31, 2019 was 1,060 pence per share and during the 12 months ended October 31, 2019 the mid-market closing price varied between 1,004 pence and 2,160 pence per share.

Statement of shareholder voting
The following table shows the results of the advisory vote on the 2018 Directors’ Remuneration report at the AGM held on March 29, 2019, together with the latest approval vote on the Directors’ Remuneration Policy at the AGM on September 4, 2017:

  Votes for  Votes against       
  Number  Percentage  Number  Percentage  
Votes
cast
  
Votes
withheld
 
2018 Director’s Remuneration report
  
154,276,600
   
49.67
%
  
156,329,073
   
50.33
%
  
322,087,153
   
11,481,480
 
2017 Director’s Remuneration Policy
  
162,259,404
   
86.46
%
  
25,408,333
   
13.54
%
  
188,129,640
   
461,903
 

A statement was issued on March 29, 2019 acknowledging the advisory vote against the 2018 Directors’ Remuneration report and committing to a thorough review of the reward strategy and continuing engagement with shareholders to fully understand their concerns. An update statement was issued on September 26, 2019 noting the shareholder feedback received and the concerns raised which led to this vote outcome.

Since the AGM in March 2019, the Board has undertaken a detailed review of all of the feedback received from our shareholders and proxy agencies on the 2018 Remuneration report and engaged with our largest shareholders on the changes being proposed to the Remuneration Policy. This feedback has been incorporated into the design of the proposed new Remuneration Policy. The Company will be undertaking a full shareholder consultation in advance of the 2020 LTIP grants.

Item 6. C.Board practices.

Role of the board

The Board leads and controls the Company and has collective responsibility for promoting the long-term success of the Group. While the board delegates some responsibilities to its committees or, through the CEO, to management, it has agreed a formal schedule of matters that are specifically reserved for its consideration. These include constructively challenging and helping develop proposals on business strategy, financing arrangements, material acquisitions and divestments, approval of the annual budget, major capital expenditure projects, risk management, treasury policies and establishing and monitoring internal controls. At each meeting, the board reviews progress of the Group towards its objectives and receives papers on key subjects in advance of each board meeting.

These typically cover:
Strategy and budgets;
–  Business and financial performance;
–  Product plans and development;
–  Corporate activities;
–  Human resources; and
–  Investor relations.

While the board retains overall accountability for and control of the Company, the executive directors are responsible for conducting the day-to-day management of the business. Review of the Group’s principal business activities is the responsibility of the operating committee. The operating committee comprises the Chief Executive Officer, Chief Financial Officer, Chief Human Resources Officer, Chief Operating Officer, Vice President Strategy and Planning and the Group General Counsel and Company Secretary and is chaired by the CEO, Stephen Murdoch.

Roles of board members
The Executive Chairman has responsibility for leading the board, including setting the board agenda (in conjunction with the senior independent director and the Company Secretary) and for the delivery of strategy, M&A activities, investor relations and executive director development. He chairs board meetings, facilitating the effective contribution of non-executive directors and ensuring that the board is effective in all aspects of its role, and for upholding the highest standards of integrity and probity. He also chairs shareholder meetings and is responsible for ensuring effective communication with shareholders, supported by his accountability for investor relations.

The Senior Independent Director, Karen Slatford, chairs the nomination committee and is therefore responsible for succession planning. Also, in her role as senior independent non- executive director, Karen Slatford leads on governance issues, including the annual review of overall board effectiveness and of the Executive Chairman’s performance. The senior independent non-executive director also acts as an intermediary, if necessary, between non-executive directors and the Executive Chairman and between the Company and its shareholders, providing a point of contact for those shareholders who wish to raise issues with the board, other than through the Executive Chairman. Each of the non-executive directors has been appointed for a specific term, subject to annual re-election by shareholders. The independent non-executive directors comprise a majority of the board.

The executive directors are responsible for developing the Group’s strategy and proposing the budget for board approval and are accountable to the board through the Chief Executive Officer. They are also responsible for the financial and operational performance of the Group and, in conjunction with the operating committee, they are collectively responsible for the day-to-day running of the business. There is a clear and documented division of responsibilities between the Executive Chairman, who is responsible for running the board and retains executive responsibility for strategy, M&A activities, investor relations and executive director development, and the Chief Executive Officer, who is responsible for the evolution and delivery of the strategy and the day-to-day operation of the business. This division of responsibilities has been considered and approved by the board, who are satisfied that no one individual has unfettered powers of decision-making.

The role of the non-executive directors is to ensure that independent judgement is brought to board deliberations and decisions and to provide constructive challenge as appropriate. They promote the highest standards of integrity, probity and corporate governance throughout the Company.

The non-executive directors possess a wide range of skills and experience, relevant to the development of the Company, which complement those of the executive directors.

The non-executive directors, led by the Senior Independent Director, met regularly throughout the year in private session without executive directors in attendance.

The Company Secretary is accountable to the board through the Executive Chairman, to whom she reports. It is the responsibility of the Company Secretary to ensure that agreed board procedures are followed and all rules and regulations are complied with. The Company Secretary’s responsibilities include facilitating the induction and professional development of directors and ensuring the smooth flow of information between board members, between the board and its committees and between non-executive directors and senior management.

In addition, all directors have direct access to the advice and services of the Company Secretary.

Non-executive directors’ terms of appointment
The non-executive directors’ terms of appointment are recorded in letters of appointment. The required notice from the Company and the non-executive director is 90 days in all cases. The non-executive directors are not entitled to any compensation for loss of office and stand for election or re-election as appropriate at each AGM. Details of the letters of appointment of each non-executive director who has served as a director of the Company at any time during the financial year ended October 31, 2019 are set out below:

Non-executive directorAppointment dateExpiration date
Karen SlatfordJuly 5, 2010July 5, 2022
Richard AtkinsApril 16, 2014April 16, 2020
Amanda BrownJuly 1, 2016July 1, 2022
Silke Scheiber 1
May 15, 2017May 15, 2020
Darren Roos 2
May 15, 2017May 15, 2020
Lawton FittOctober 17, 2017October 17, 2020

1 Silke Scheiber left the board on February 4, 2020.
2 Darren Roos left the board on September 2, 2019.

Non-executive directors’ independence
Each of the non-executive directors who served during the period November 1, 2020 to October 31, 2021, was considered by the boardBoard to be independent. Karen Slatford1 was appointed to the boardBoard in July 2010 and has now served for more than nineten years. The boardBoard has specifically considered whether this was likely to affect, or could appear to affect, her independence and concluded that she continued to demonstrate independence in thought and judgement, noting that there were no other relationships or circumstances that could affect her independence.

The board also decided on October 17, 2019 that, in furtherance of good governance, all theindependent non-executive directors would join each committee of which they were not alreadycomprise a member, save that Karen Slatford would no longer serve on the remuneration committee as she had completed the maximum term permitted under the committee’s terms of reference.

Board members’ external commitments
Eachmajority of the non-executive directors confirms on appointment that they will devote sufficient time to meet what is expected of them in their role. They have each disclosed their other significant commitments and the time involved in these, and advise the board of any changes.

Two of the executive directors have external roles.
Brian McArthur-Muscroft is a non-executive director of Robert Walters plc. Kevin Loosemore has had external roles for a number of years and on September 2, 2019 was appointed as a non-executive director of De La Rue plc, subsequently becoming non-executive chairman of that company on October 1, 2019. At the time of joining that board, Mr Loosemore relinquished his role as non-executive chairman of IRIS Software Group Ltd (though he continues to serve as a non-executive director of that company). The board is satisfied that there will be no adverse impact on the Company from this new appointment

Board meetings
The board schedules meetings approximately every two months, with a scheduled update call in the months with no formal meeting. Additional meetings are arranged as necessary, especially when circumstances or the nature of the matter means that the business could not be dealt with on a regular update call. All directors receive an agenda and board papers in a timely manner in advance of meetings, to help them make an effective contribution at the meetings. The board makes full use of appropriate technology as a means of updating and informing all its members, including the use of board portal software.

In the year ended October 31, 2019 the board met formally at six scheduled meetings. As described overleaf, the board also met on a further two occasions to receive interim updates or consider more urgent matters.

Attendance at board and committee meetings
The number of board and committee meetings attended by each director in the year ended October 31, 2019, relative to the number of meetings held during their time in office, was as follows:

Director
Board
Audit
Committee
Nomination
committee
Remuneration
committee
Kevin Loosemore
8/8---
Stephen Murdoch
8/8---
Brian McArthur-Muscroft 1
6/6---
Karen Slatford
7/8-5/57/7
Richard Atkins
8/88/85/5-
Amanda Brown
8/88/8-7/7
Lawton Fitt
8/87/85/5-
Silke Scheiber
8/88/8-7/7
Chris Kennedy 2
2/2---
Darren Roos 3
5/6-3/34/5


1.
Brian McArthur-Muscroft served as a director from February 21, 2019.

2.
Chris Kennedy ceased to serve as a director on February 21, 2019.

3.
Darren Roos ceased to serve as a director on September 2, 2019.

If any director is unable to attend a meeting, they provide feedback to the Executive Chairman, the chair of the committee or the Company Secretary, who will ensure that their comments are then communicated to the meeting.

Key matters considered by the board during the financial year
The key matters that the board discussed at each meeting and the key activities that have taken place throughout this period.

Matters considered at all scheduled board meetingsKey activities for the board in the year to October 31, 2019
-      Key Project status and progress
-      Strategy
-      Financial reports and statements
-      Operational reports, issues and highlights
-      Investor relations and capital markets update
-      Key legal updates
-      Key transactions
-      Assurance and risk management
-      Compliance reports
-      Committee reports
-    Reviewed 2019 budget and approved 2020 preliminary budget approval
-      Completion of the disposal of the SUSE business
-      Approved the Return of Value to shareholders
-      Approved two further share buyback programs
-      Commenced a strategic review of the Group’s business
-      Approved revised Group policies
-      Conducted externally facilitated board review
-     Reviewed and approved changes to the membership of the board’s committees
-      Reviewed IT infrastructure changes
-      Reviewed compliance with debt covenants and liquidity
-   Reviewed risk and long-term viability and evolution of Risk Management Framework

Independent advice
The board has agreed procedures for directors, including the non-executive directors, to follow if they believe they require independent professional advice in the furtherance of their duties. These procedures allow the directors to take such advice at the Company’s expense.

Operational management structure
Our organizational structure allocates individual responsibilities, the performance of which are monitored on an ongoing basis. The management of the Group as a whole is delegated to the Chief Executive Officer and, through him, to the operating committee. This body is chaired by the Chief Executive Officer, Stephen Murdoch, and also comprises the Chief Financial Officer, Chief Operating Officer, Chief Human Resources Officer, Senior Vice President Strategy and Planning and the Group General Counsel and Company Secretary. It meets regularly to develop strategic plans, monitor operational performance and consider key business issues. As part of these reviews, it considers the risks associated with the delivery of strategy and any material governance issues within the Group’s operating companies.

A number of Group administrative functions such as Finance, Tax & Treasury, Human Resources, IT, Corporate Communications and Legal report to the board through the operating committee. The conduct of Micro Focus’ business is delegated to local and regional executive management teams subject to a chart of approvals policy, which is approved by the board and communicated to all employees in the Group. These teams are accountable for the conduct and performance of their businesses within the agreed business strategy and a number of Group-wide policies, intended to drive compliance with key governance standards. These policies cover areas including finance, contract approvals, data protection, share dealing, business conduct, ethics and anti-bribery and corruption and anti-slavery and human trafficking.

EFFECTIVENESS

Board skills, experience, independence and knowledge of the Company
The board is satisfied that its current composition provides an appropriate blend and balance of skills, experience, independence and knowledge of the Company, such that the board and its committees can discharge their respective duties and responsibilities effectively. However, it is important that there is a progressive refreshing of the board, particularly when the strategic challenges we face are evolving. An explanation of how we manage succession planning at board level is included in the nomination committee report. There is a formal, rigorous and transparent procedure for the appointment of new directors to the board, led by the Senior Independent Director, Karen Slatford. As part of that process, each director confirms that they should be able to allocate sufficient time to the Company to discharge their responsibilities effectively.

On joining, each new director receives a comprehensive, formal and tailored induction into the Company’s operations. This includes briefings on the Company’s business, strategy, constitution and decision-making process, the roles and responsibilities of a director and the legislative and regulatory framework. New directors also meet with the Group’s CEO, CFO, senior product and other managers and have the opportunity to meet shareholders at the AGM. All directors regularly update and refresh their skills and knowledge and can request that appropriate training is provided, at the Company’s expense, as required. The executive directors ensure regular informal contact is maintained with non-executive directors throughout the year, including providing opportunities to visit Group offi  es around the world. The non-executive directors have unrestricted access to anyone in the Company. The Executive Chairman also meets separately with the non-executive directors.

Conflicts of interest
Board. In accordance with the Companies Act 2006, the Company has put in place procedures to deal with conflicts of interest, which have operated effectively. The board is aware of the other commitments of its directors and is satisfied that these do not conflict with their duties as directors of the Company. Any changes to these commitments are reported to the board.

Board information
As explained above, the directors are provided with the agenda and supporting papers in a timely manner in advance of the relevant board or committee meeting. The board is satisfied that the information provided is in an appropriate form and of a quality that should enable the directors to discharge their duties satisfactorily.

Board and committee evaluation
A comprehensive evaluation of the performance of the board, its committees and each of its directors is carried out annually.

This year the review of the board and its committees was externally facilitated, being led by the Executive Chairman and the senior independent non-executive director, supported by the Company Secretary. The external facilitator was Emma Fallon of No 4 consultancy, who had no other connection with. Following discussion with the Executive Chairman and senior independent non-executive director, a discussion guideline was prepared to steer, but not prescribe nor limit, the topics to be discussed individually with each of the interviewees. No 4 met individually with each director and those members of the senior leadership team who interact most with the Board. These were open, confidential and non-attributable conversations.

Initial findings and individual feedback was shared with the review leaders and a written report provided to all directors, The main conclusions from the review were presented to and discussed by the board

The majority of recommendations fell broadly into three areas:


-
Mechanics of board meetings, including the volume and nature of information provided and holding formal discussions of Company culture

-
Board relationships, including the non-executive directors playing a more proactive role in supporting management  and creating opportunities for informal discussions of topics, without the constraint of a formal agenda

-
Board composition and succession management, covering the future evolution of the board and the need to preserve the qualities that experienced directors bring to its discussions.

The Board noted that progress had been seen with regard to actions from the previous review. Notable improvements were in relation to the presentation of information and to the positive impact from holding board and committee meetings on consecutive days, with the additional benefit of informal discussion at board dinners highlighted.

Director evaluation
In accordance with the recommendations of the Code, the Company’s articles of association require that all directors are subject to election by the shareholders at the first AGM of the Company after their appointment and to re-election by the shareholders on an annual basis thereafter. Prior to proposing any director for re-election, the board operates a formal process, led by the Chairman, to assess the effectiveness of each director and, in the case of the non-executive directors their continued independence and to assess whethermeet together regularly without the individual is willing to continue in office.

Informed by individual feedback from the board review, a discussion on the contributionpresence of each of the non-executive directors took place between the chairman and the senior independent non-executive director.

executive directors.  In addition, the senior independent non-executive directorSenior Independent Director meets with the non-executive and executive directors at least once a year to review the performance and continuing commitment of the ExecutiveNon-Executive Chairman and to consider whether to recommend his re-election, providing feedback directly to the Chairman.

1 As announced on February 8, 2022, Karen Slatford has informed the Board of her intention to retire as a director of Micro Focus International Plc, following the conclusion of the 2022 Annual General Meeting and consequently will not be seeking re-election.


Committees of the board of directors

The Company has three principal Board committees that are broadly comparable in purpose and composition to those required by NYSE rules for domestic US companies. For instance, the Company has a Nomination (rather than nominating/corporate governance) Committee and a Remuneration (rather than compensation) Committee. The Company also has an Audit Committee, which NYSE rules require for both US companies and foreign private issuers. All the individuals proposed for re-appointment at the 2020 AGM have been subject to an evaluation procedure in the last 12 months. The board also believes that the skillscommittees are comprised of non-executive directors only and experience of eachnone of the non-executive directors enables themfunctions of these committees has been delegated to continue to provide valuable contributions to the board, and is satisfied that eachanother committee.

Each Board Committee has clearly defined terms of them continues to exercise rigorous and objective judgment.

ACCOUNTABILITY AND AUDIT
The board is responsible for the preparation of the Annual Report and Accounts. In doing so, it has established formal and transparent arrangements for considering how best to apply corporate reporting, risk management and internal control principles and for maintaining an appropriate relationship with the Company’s auditors, KPMG.

The board considers the Annual Report and Accounts, taken as a whole, to be fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s position and prospects, including its performance, business model and strategy. While this is the board’s responsibility, it is overseenreference approved by the Audit committee.

Board committees

Micro Focus has established Audit, Nominationsetting out their respective authority and Remuneration committees, with writtenduties.  The terms of reference for each that deal with their respective authorities and duties. The full terms of reference of all the committees are available upon request from the Micro Focus Group Company Secretary orcommittee can be viewed on Micro Focus’ website at http://investors.microfocus.com/corporategovernance.

Audit committee

Composition of the committee
The audit committee comprises Richard Atkins (who serves as its chair), Amanda Brown, Silke Scheiber and Lawton Fitt and, from October 17, 2019, Karen Slatford. All members of the committee are independent non-executive directors. The board considers that:


-
for UK purposes, Richard Atkins, a chartered accountant, has recent and relevant financial experience by virtue of his previous executive and current non-executive responsibilities (details of which can be found in his biography) and that the audit committee as a whole has competence relative to the sector in which the Company operates; and


-
for US purposes, each of the audit committee members is independent under the SEC and NYSE definitions of that term; that Richard Atkins is an audit committee financial expert, is independent of management, and has accounting or related financial management expertise; and that all of the audit committee members are financially literate.

Executive directors and senior executives (most often the Director of Finance, the Head of Tax and Treasury and the Director of Internal Audit and Risk) attend meetings by invitation as required, but do not do so as of right. Representatives of KPMG LLP (external auditor), PricewaterhouseCoopers LLP (internal auditor) and Deloitte LLP (external tax advisors) also attend the committee meetings and meet privately with committee members, in the absence of executive management, prior to each committee meeting.

The committee normally meets at least four times during each financial year and more frequently as required.

Role and responsibilities of the committee
The committee’s principal responsibilities are to:


-
monitor the integrity of the financial statements of the Company and any formal announcements relating to the Company’s financial performance, reviewing significant financial reporting judgements contained in them. The committee also reviews the Group’s Annual Report and Accounts and Interim Report prior to submission to the full board for approval;


-
monitor the Group’s accounting policies and review the Company’s internal financial controls and financial reporting procedures and, on behalf of the board, the Company’s internal control and risk management systems;


-
monitor the adequacy and effectiveness of the Company’s internal controls and internal financial controls, risk management systems and insurance arrangements;


-
monitor and review the effectiveness of the Company’s internal audit function;


-
make recommendations to the board, for it to put to the shareholders for their approval in general meeting, in relation to the appointment, re-appointment and removal of the external auditor and to approve the remuneration and terms of engagement of the external auditor;


-
oversee the relationship with the external auditors and review and monitor their independence and objectivity and the effectiveness of the audit process, taking into consideration relevant UK and US professional and regulatory requirements;


-
develop and implement policy on the engagement of the external auditor to supply non-audit services, taking into account relevant ethical guidance regarding the provision of non-audit services by the external audit firm; and to report to the board, identifying any matters in respect of which it considers that action or improvement is needed and making recommendations as to the steps to be taken;


-
provide a forum through which the Group’s external and internal auditors and external tax advisors report to the board; and


-
report to the board on how it has discharged its responsibilities.

The committee’s terms of reference (audit committee charter) are published on the Company’s website www.microfocus.com.at https://www.microfocus.com/en-us/governance-policies/committees-of-the-board


NominationUnder the US Securities Exchange Act of 1934 and the NYSE Listed Company Manual, the Company is required to have an audit committee

Composition that is comprised of at least three members from the independent non-executive directors of the Company’s Board. Our Audit Committee complies, and during the year ended October 31, 2021 has complied, with these requirements. As stated in Item 16.A. above, the Board has determined that Richard Atkins possesses ‘accounting or related financial management expertise’, as required by section 303A.07 (a) of the NYSE Listed Company Manual. Richard Atkins also possesses the financial and audit committee experience set forth in the Code.

The Nomination committee comprises Karen Slatford (who serves as its Chair), Richard Atkins and Lawton Fitt and, from October 17, 2019, Amanda Brown and Silke Scheiber. Darren Roos also served as a member until September 2, 2019, on which date he ceased to serve as a director. All membersCompany’s Audit Committee does not have direct responsibility for the appointment, reappointment or removal of the committee are independent non-executive directors. Executive directors and senior executives are invited to attendauditors. Instead, it follows the meetingsUK Companies Act 2006 by invitation, as required, but do not do so as of right.

The committee normally meets at least twice during each financial year, and more frequently as required.

Role and responsibilities
The committee’s principal responsibility is proposing candidates for appointmentmaking recommendations to the board, having regardBoard on these matters for it to put forward for shareholder approval at the balanceAGM.

82
Shareholder approval of equity compensation plans

Under NYSE listing rules, shareholders must be given the opportunity to vote on all equity-compensation plans and structurematerial revisions thereto, except for employment inducement awards, certain grants, plans and amendments in the context of mergers and acquisitions, and certain specific types of plans. The Company complies with corresponding UK requirements in the boardListing Rules, requiring the Company to seek shareholder approval for employee share schemes and takingsignificant changes to existing schemes, save in circumstances permitted by the Listing Rules (Listing Rule 9.4.1). The Board, however, does not explicitly take into consideration the benefitsNYSE’s detailed definition of diversity in all its forms, including gender, ethnicity, religion, disability, age and sexual orientation. The terms of referencewhat are considered ‘material revisions’.

Corporate Governance Guidelines

Section 303A.09 of the committee include, among other matters,NYSE Listed Company Manual requires listed companies to adopt and disclose corporate governance guidelines. As noted above, in line with its obligations under the following responsibilities:UK’s Listing Rules the Company applies the UK Corporate Governance Code and, as required by the Listing Rules, the UK Annual Report contains an explanation of (i) how it has applied the principles of the Code, and (ii) whether it complies in full with the Code’s provisions, or, where it does not, providing an explanation of any non-compliance and the reasons for this (LR 9.8.6).


In addition, the Company is required to make certain mandatory corporate governance statements in accordance with the UK Listing Authority’s Disclosure Guidance and Transparency Rules, DTR 7, which are also included in the Group’s UK Annual Report and Accounts available on the Group’s website https://www.microfocus.com/en-us/investors/investor-download-centre.

-
To review the structure, size and composition (including the skills, knowledge, experience and diversity) required of the board and make recommendations to the board with regard to any changes;



-
To identify and nominate, for the approval of the board, candidates to fill board vacancies as and when they arise;


-
To give full consideration to succession planning for directors and other senior executives;


-
To keep under review the leadership needs of the Group,   both executive and non-executive, with a view to ensuring the continued ability of the Group to compete effectively in the marketplace; and


-
To review annually the time required from non-executives, evaluating whether they are spending enough time to fulfil their duties.

94
Business Conduct and Ethics
The committee’s termsMicro Focus Code of reference are publishedConduct is available on the Company’s website at www.microfocus.com.


Diversity
The board has considered diversity in broader terms than just gender and believes it is also important to reach the correct balance of skills, knowledge, experience and independence on the board. During the prior year, the committee reviewed the Company’s diversity policy to include a strategy to promote equal opportunity and attract a wider range of ethnicity, while continuing to attract and retain the most talented people who can deliver sustained outstanding performance. The Group has formal policies in place to promote equality of opportunity across the whole organization, regardless of gender, ethnicity, religion, disability, age or sexual orientation.

At October 31, 2019 the board comprised four men (50%) and four women (50%). The Company Secretary is also a woman.  As opportunities arise the board will seek to broaden the wider diversity of the directorate, in line with its policy goals. Our most senior management forum, the operating committee, has four male members and two female members, so 33% of its members are female. Of the 44 employees who report directly to the operating committee members, 14 are female, being 32%.

Executive directors’ service agreements at October 31, 2019

Executive directorItem 16.HDate of service contractNotice period
Kevin Loosemore 1
April 14, 2011The agreement is terminable by either party on six months’ notice
Stephen Murdoch 2
April 16, 2014The agreement is terminable by either party on six months’ notice
Brian McArthur-Muscroft 3
November 4, 2018The agreement is terminable by either party on six months’ notice


1.
Kevin Loosemore’s service contract was amended December 9, 2015 and April 12, 2017.
Mine Safe Disclosure


Not applicable.


Item 16.I		2.
Stephen Murdoch stepped down from the board on completion of the HPE Software business acquisition on September 1, 2017 to become Chief Operating Officer. He was reappointed to the board as Chief Executive Officer on March 19, 2018.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections


Not applicable.


3.
Brian McArthur-Muscroft joined the Company on November 5, 2018 and was appointed to the board as Chief Financial Officer on February 21, 2019.

Remuneration committee
The remuneration committee comprises Amanda Brown (who serves as its chair), Karen Slatford and Silke Scheiber and, from October 17, 2019, Richard Atkins and Lawton Fitt. Darren Roos also served as a member until September 2, 2019, on which date he ceased to serve as a director. All members of the committee are independent non-executive directors.  The committee met seven times during the period under review.

The committee invited the Executive Chairman, Chief Executive Officer, Chief Financial Officer, Chief Human Resources Officer and Reward Director during the period to provide views and advice on specific questions raised by the committee and on matters relating to the performance and remuneration of senior managers. They did not participate in discussions relating to their own remuneration. The Company Secretary attended each meeting as secretary to the committee.

Terms of reference

The committee is responsible for the remuneration arrangements for executive directors and members of the executive management team, and for providing general guidance on aspects of remuneration policy throughout the Group. The terms of reference were reviewed and updated to reflect the 2018 Corporate Governance Code. The key aspects of the updated terms of reference are as follows:


-
Determine the remuneration policy for the Company’s Chairman and the executive directors and review its on-going appropriateness and relevance;


-
Determine the total individual remuneration packages of the executive directors and the executive management team, including salary, bonuses, incentive payments, share awards, pensions and other benefits;

PART III


Item 17		-
Review the terms of executive service contracts for executive directors and the executive management team;
Financial Statements


-
Review any material changes to pension and benefit arrangements for executive directors and the executive management team;


-
Agree the expenses policy for the Company Chairman and executive directors


-
Develop the formal shareholding requirement policy, including post cessation, encompassing both vested and unvested shares;


-
Oversee the operation of the Company’s annual bonus plans, deferred bonus plans and long-term incentives as applied to executive directors and the executive management team, including award levels, performance conditions, payouts, and application of malus and claw-back where appropriate.


-
Review the design of all share incentive plans for approval by the board and shareholders;


-
Review the remuneration policies and practices across the Group and the alignment of workforce remuneration with culture; and


-
Produce the annual Directors’ Remuneration report.

The full terms of reference of the committee are available from the Company Secretary and are on the Company’s website http://investors.microfocus.com/corporate-governance.

Item 6. D.Employees.

The average monthly number of people employed by the Group (including executive directors for the 12 months ended October 31, 2019, the 18 months ended October 31, 2018 and 12 months ended April 30, 2017 was as follows:

  
12 months
ended
October 31, 2019
  
18 months
ended
October 31, 2018
  
12 months
ended
April 30, 2017
 
  Number  Number  Number 
Average monthly number of people         
(including executive directors) employed by the Group:         
          
Continuing Operations         
Sales and distribution  5,413   
5,860
   
1,818
 
Research and development  5,056   
4,323
   
1,400
 
General and administration  1,991   
1,378
   
642
 
   12,460   
11,561
   
3,860
 
Discontinued Operation            
Sales and distribution  164   
515
   
323
 
Research and development  170   
629
   
476
 
General and administration  3   
8
   
4
 
   337   
1,152
   
803
 
Total            
Sales and distribution  5,577   
6,375
   
2,141
 
Research and development  5,226   
4,952
   
1,876
 
General and administration  1,994   
1,386
   
646
 
   12,797   
12,713
   
4,663
 

Item 6. E.Share ownership.

Directors’ shareholdings and share interests as at October 31, 2019 are as follows. Further information in relation to share options is included in Item 6. B. including detailed information in relation to directors’ share options within the Directors Remuneration Report.

        Nil-cost options and conditional awards held    
 
 
Director
 
Shares
held
(owned
outright)
  
% of
Group
Ordinary
shares
  
Vested but
not
exercised
  
Unvested and
not subject to
performance
  
Unvested and
subject to
performance
  
Other
Share
Save
Options
 
Kevin Loosemore  
631,983
   
0.2
   
69,156
   
-
   
1,257,250
   
-
 
Stephen Murdoch 2
  
276,151
   
0.1
   
39,640
   
15,064
   
1,152,391
   
-
 
Brian McArthur-Muscroft 3
  
-
   
-
   
-
   
-
   
498,964
   
-
 
Karen Slatford  
14,687
   
0.0
   
-
   
-
   
-
   
-
 
Richard Atkins  
13,862
   
0.0
   
-
   
-
   
-
   
-
 
Amanda Brown  
3,841
   
0.0
   
-
   
-
   
-
   
-
 
Silke Scheiber  
-
   
-
   
-
   
-
   
-
   
-
 
Lawton Fitt  
-
   
-
   
-
   
-
   
-
   
-
 

All members of key management bodies own less than 1% of the Group’s Ordinary shares.

Details of the share plans open to all employees are included in note 33 of the Consolidated financial statements in Item 18.

Item 7.Major Shareholders and Related Party Transactions
Item 7. A.Major shareholders.

At the date of the most recent filed SC 13G/A, being the most recent practicable date, the following percentage interests in the ordinary share capital of the Company:

  
Ordinary shares of
10 pence
each
  
Percentage of
issued share
capital
%
 
Dodge & Cox  
58,978,116
   
17.70
%
Causeway Capital Management LLC  
29,945,679
   
8.98
%
BlackRock Inc.  
25,103,914
   
7.50
%

At January 27, 2020 the Group had 1,615 Ordinary shareholders and 41,784 registered holders of the ADSs.

Item 7. B.Related party transactions.

The Group’s related parties are its subsidiary undertakings, key management personnel and post-employment benefit plans.

Subsidiaries
Transactions between the Company and its subsidiaries have been eliminated on consolidation.

Remuneration of key management personnel
The remuneration of key management personnel of the Group (which is defined as members of the executive committee including executive directors) is set out in Note 33 of the consolidated financial statements in Item 18. There are no loans between the Group and the key management personnel.

Transactions with other related parties.
The following transactions occurred with other related parties:

Contributions made to pension plans by the Group on behalf of employees are set out in Note 25 of the consolidated financial statements in Item 18.

Sales and purchases of goods and services between related parties are not considered material.

Item 7. C.
Interests of experts and counsel.


Not applicable.

Item 8.18Financial InformationStatements
Item 8. A.Consolidated Statements and Other Financial Information.


The Consolidated financial statements filed as part of this Annual Report on Form 20-F are included in Item 18.18 on pages F-1 through F-92 hereof.


Item 8.A.719Litigation, Proceedings and InvestigationsExhibits


The Group is involved in various lawsuits, claims, investigations and proceedings including those consisting of IP, commercial, employment, employee benefits and environmental matters, which arise in the ordinary course of business. The Separation and Distribution Agreement, dated as of September 7, 2016, between Seattle SpinCo, Inc. and HPE (the “SDA”) includes provisions that allocate potential financial responsibility for litigation involving the parties, as well as provide for cross-indemnification of the parties against potential liabilities to one party arising out of potential liabilities allocated to the other party.  In addition,following exhibits are filed as part of the SDA, HPE and Seattle have agreed to cooperate with each other in managing litigation that relates to both parties’ businesses. The Group records a liability when it believes that it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated. Significant judgment is required to determine both the probability of having incurred a liability and the estimated amount of the liability. Litigation is inherently unpredictable. However, the Group believes it has valid defenses with respect to legal matters pending against it. Nevertheless, cash flows or results of operations could be significantly affected in any particular period by the resolution of one or more of these contingencies. The Group believes it has recorded adequate provisions for any such matters and, as of October 31, 2019, it was not reasonably possible that a material loss had been incurred in connection with such matters in excess of the amounts recognized in its financial statements.this report:


2.1
Description of the rights of each class of securities registered under Section 12 of the Exchange Act
4.1
Credit Agreement amendments, among Micro Focus International plc, Micro Focus Group Limited, MA FinanceCo., LLC, the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral Agent.
4.2
Credit Agreement amendments, among Micro Focus International plc, Micro Focus Group Limited, Seattle Spinco, Inc., the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral Agent.
11.1
Code of conduct
12.1
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
12.2
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
13.1
Certification of Stephen Murdoch under Section 906 of the Sarbanes-Oxley Act of 2002
13.2
Certification of Matt Ashley under Section 906 of the Sarbanes-Oxley Act of 2002
15.1
Consent of KPMG LLP.

101.INS
Inline XBRL Instance Document (the instance document does not appear in the Interactive Date File because its XBRL tags are embedded with the Inline XBRL document)

101.SCHInline XBRL Taxonomy Extension Schema Document

101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document

101.LABInline XBRL Taxonomy Extension Label Linkbase Document

101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document

Litigation, Proceedings and Investigations

Forsyth, et al. vs. HP Inc. and HPE:

This purported class and collective action was filed on August 18, 2016 and an amended (and operative) complaint was filed on December 19, 2016 in the United States District Court for the Northern District of California, against HP Inc. and HPE alleging defendants violated the Federal Age Discrimination in Employment Act (“ADEA”), the California Fair Employment and Housing Act, California public policy and the California Business and Professions Code by terminating older workers and replacing them with younger workers. Plaintiffs seek to certify a nationwide collective action under the ADEA comprised of all individuals aged 40 and older who had their employment terminated by an HP entity pursuant to a work force reduction (“WFR”) plan on or after December 9, 2014 for individuals terminated in deferral states and on or after April 8, 2015 in non-deferral states. Plaintiffs also seek to certify a Rule 23 class under California law comprised of all persons 40 years of age or older employed by defendants in the state of California and terminated pursuant to a WFR plan on or after August 18, 2012. On September 20, 2017, the Court granted the defendants’ motions to compel arbitration and administratively closed the case pending resolution of the arbitration proceedings.  During the period from November 30, 2017, through the present, the named and opt-in plaintiffs who signed separation agreements that include class action waiver and mandatory arbitration provisions filed arbitration demands.  On December 22, 2017, defendants filed a motion to stay the case pending arbitrationswhich was granted on February 6, 2018.  The claims of the arbitration opt-ins have been resolved or dismissed from the District Court case.  Plaintiffs filed a Third Amended complaint on January 27, 2020.  The stay of the litigation remains in place.

Wall vs. HPE and HP Inc.:

This certified California class action and Private Attorney General Act action was filed against Hewlett-Packard Company on January17, 2012 and the fifth (and operative) amended complaint was filed against HP Inc. and HPE on June 28, 2016. The complaint alleges that the defendants paid earned incentive compensation late and failed to timely pay incentive compensation upon termination of employment. On August 9, 2016, the court ordered the class certified without prejudice to a future motion to amend or modify the class certification order or to decertify. The scheduled January 22, 2018 trial date was vacated following the parties’ notification to the court that they had reached an agreement to resolve the dispute.  The parties subsequently finalized and executed a settlement agreement and received preliminary approval of that agreement on June 29, 2018.  After giving notice of the settlement to the class, to which there were no objections or opt-outs, the Court granted final approval of the settlement on December 21, 2018.  The Final Accounting Hearing was continued to March 6, 2020.  The parties anticipate that the case will be dismissed shortly after the Final Accounting Hearing.

104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
10284
Jackson, et al. v. HP Inc. and Hewlett Packard Enterprise:Signature


This putative nationwide class action was filed on July 24, 2017 in United States District Court in San Jose.  Plaintiffs purport to bring the lawsuit on behalf of themselves and other similarly situated African-Americans and individuals over the age of forty. Plaintiffs allegeThe registrant hereby certifies that defendants engaged in a pattern and practice of racial and age discrimination in lay-offs and promotions.  On September 29, 2017, Plaintiffs filed an amended complaint to add an additional plaintiff and a claim alleging that defendants engaged in a pattern and practice of racial discrimination in hiring.  On January 12, 2018, defendants moved to transfer the matter to the United States District Court in the Northern District of Georgia. Defendants also moved to dismiss the claims on various grounds and to strike certain aspectsit meets all of the proposed class definition. On July 11, 2018, the court granted defendants’ motion to dismiss this actionrequirements for improper venue, and also partially dismissed and struck certain claims without prejudice to re-filing in the appropriate venue. On July 23, 2018, plaintiffs re-filed their lawsuit in the United States District Court for the Northern District of Georgia. On August 9, 2018, Plaintiffs filed a notice of appeal of the dismissal of the Northern District of California action with the Ninth Circuit Court of Appeals. On August 15, 2018, Plaintiffs filed a motion to stay their lawsuit in the Northern District of Georgia, which was granted by the court.  On October 1, 2018, the Georgia court granted the plaintiffs’ unopposed motion to stay and administratively close the Georgia action until the Ninth Circuit appeal is decided.  The parties are continuing to discuss a potential settlement, no further appellate briefing schedule has been set, and the stay in the Northern District of Georgia remains in place.

Araiza vs. HP Inc. and HPE:

On December 29, 2015, former PPS (HP Inc.) employee Daniel Araiza filed a California class action against HP Inc. and HPE in Santa Clara County Superior Court.  Plaintiff alleges failure to (a) compensate Field Technical Support Representatives with minimum and overtime wages for all hours worked, (b) failure to pay exempt and non-exempt employees all accrued vacation and/or floating holidays upon separation of employment, (c) to provide meal breaks, and (d) derivate claims for inaccurate wage statements, waiting time penalties, unfair business practices, and Private Attorneys General Act (“PAGA”) penalties. Plaintiff sought to certify three groups of California employees from December 29, 2011 to the present.  The parties participated in settlement discussions and settled the lawsuitfiling on March 19, 2019, subject to court approval. Plaintiff filed its motion for preliminary approval and the preliminary approval hearing is set for May 8, 2020.

Wapp Tech Limited Partnership et al. v. Micro Focus International plc:

On July 2, 2018, Wapp Tech Limited Partnership and Wapp Tech Corp. (collectively, “Wapp”) sued Micro Focus International plc in the Eastern District of Texas, accusing it of infringing claims of three patents in connection with Micro Focus International plc’s purported manufacture and sale of certain products in the ADM product line, including LoadRunner and Performance Center. Wapp also sued Hewlett Packard Enterprise Company, Wells Fargo & Company, and Bank of America Corporation for their alleged use of the same accused products.  On October 15, 2018, Seattle SpinCo, Inc. and EntIT Software LLC, indirect subsidiaries of Micro Focus International plc, filed a Declaratory Judgment action in the District of Delaware, alleging that they are the Micro Focus entities responsible for the accused products, that the asserted patents are invalid or ineligible,Form 20-F and that it has duly caused and authorized the accused products do not infringe.  On November 27, 2018, Wapp movedundersigned to dismiss the Delaware action in favor of the Texas action. On March 15, 2019, the Delaware court stayed that case basedsign this annual report on the pending motion practice in Texas. On August 13, 2019, the Texas court dismissed Micro Focus International plc for lack of personal jurisdiction, but granted Wapp’s request to amend its complaint to name Micro Focus International plc subsidiaries Seattle SpinCo, Inc., EntIT Software LLC, EntCo Interactive (Israel) Ltd., EntCo Government Software LLC, and Micro Focus (US) Inc. (collectively, the “Subsidiary Defendants”) as defendants.  On August 20, 2019, Wapp filed an amended complaint in that case naming the Subsidiary Defendants as defendants.  On September 17, 2019, the Subsidiary Defendants moved to transfer the Texas suit against them to Delaware; the Court has not yet ruled on that motion.  On November 1, 2019, the Texas Court issued scheduling orders in each of the cases against the Subsidiary Defendants, Bank of America, and Wells Fargo.  The Final Pretrial Conference is scheduled for December 3, 2020, and trial dates have not yet been set.behalf.

Securities Litigation:

Micro Focus is involved in two lawsuits in which plaintiffs are seeking damages for alleged violations of the Securities Act of 1933 and the Exchange Act of 1934 based upon purportedly false and misleading statements or omissions in offering documents issued in connection with the HPE software business merger and issuance of Micro Focus American Depository Shares (“ADS”) as merger consideration and based upon other purportedly false and misleading statements. Those matters are as follows:

•          In re Micro Focus International plc Securities Litigation is a putative class action on behalf of holders of Micro Focus filed on March 28, 2018, in the Superior Court of California, County of San Mateo against Micro Focus International plc and certain current and former directors and officers, among others. Five additional purported holders of Micro Focus ADS filed putative class actions in the same court, and the court consolidated all cases.  The lawsuit alleges violations of the Securities Act.  The court has stayed this lawsuit pending disposition of the lawsuit in the Southern District of New York.

•          In re Micro Focus International plc Securities Litigation is another putative class action on behalf of holders of Micro Focus ADS filed on May 23, 2018 in the United States District Court for the Northern District of California against Micro Focus and certain current and former directors and officers, among others.  On July 26, 2018, the court transferred the case to the United States District Court for the Southern District of New York.  The lawsuit alleges violations of the Securities Act and of the Exchange Act.  On September 30, 2019 the lead plaintiff filed a second amended complaint.  On November 4, 2019, Micro Focus and other defendants filed a motion to dismiss the second amended complaint.  That motion is pending before the Court.

Item 8. A. 8Policy on dividend distributions.

Our policy with respect to dividend distributions is described in response to “Item 3.A Selected financial data” above.

Item 8. B.Significant Changes.

There has been no significant change to our financial condition or results of operations since October 31, 2019.

See “Item 8.A.7. Information on the Company — Legal Proceedings” for information with respect to legal proceedings to which we may be subject from time to time.

Item 9.The Offer and Listing.
Item 9. A.Offer and listing details.

The principal trading market for our ordinary shares is the London Stock Exchange. Our ordinary shares also trade in the United States in the form of ADSs evidenced by American Depositary Receipts (“ADR”) under a sponsored ADR facility with Deutsche Bank, as depositary. We established this facility in March 2017. Each ADS represents one ordinary share.

Ordinary shares are traded on the London Stock Exchange under the symbol “”MCRO.L”. The ADSs trade on the New York Stock Exchange under the symbol “MFGP”.

Item 9. B.Plan of distribution.

Not applicable

Item 9. C.Markets.


Micro Focus International plc is listed on the London Stock Exchange. The Company’s American Depositary Shares (the “ADSs”) are listed on the New York Stock Exchange.


/s/ Stephen Murdoch
Item 9. D.Selling shareholders


Not applicable.

Item 9. E.Dilution.

Not applicable.

Item 9. F.Expenses of the issue.

Not applicable.

Item 10.Additional Information.

Item 10. A.Share capital.
Not applicable.

Item 10. B.Memorandum and articles of association.
Articles of association

The Company is incorporated under the name of Micro Focus International plc and is registered in England and Wales under registered number 5134647. Under the Companies Act 2006 (the ‘Companies Act’), the Company’s objects are unrestricted. The following descriptions summarize certain provisions of the Company’s current Articles of Association (the ‘Articles’) (as adopted by special resolution passed on September 26, 2013, and amended by special resolution on October 27, 2014 and on May 26, 2017), applicable English law and the Companies Act. This summary is qualified in its entirety by reference to the Companies Act and the Articles, available in Exhibit 1.1. The Articles may be altered or added to or completely new articles may be adopted by a special resolution of the shareholders of the Company, subject to the provisions of the Companies Act.

Directors
Subject to change by Ordinary Resolution, the Company is required to have not less than three, and not more than eleven, directors in place at any time.

A Director shall not be required to hold any shares in the Company, nor are there any age limits for Directors.

Directors’ fees, expenses and other remuneration
The Articles provide that the ordinary remuneration of the Directors shall be determined by the Directors up to an amount of £1,000,000 per annum in aggregate, unless a higher amount is subject to an ordinary resolution. The remuneration may be divided amongst the Directors as they see fit. Any director that holds any executive office, or who serves on any committee of the Directors may be paid extra remuneration in a manner determined by the Directors. The Directors may pay any Director all such reasonable expenses incurred in attending and returning from meetings of the Directors or any committee of the Directors.

Under the Companies Act, the company must propose a policy for the remuneration of its executive and non-executive directors (the ‘Directors’ Remuneration Policy’) for approval by shareholders by way of an ordinary resolution at an Annual General Meeting.  Once approved, the Directors’ Remuneration Policy is binding on the company and no payments can be promised or made to a director that are inconsistent with its terms.  Any payments made that are outside those permitted by the Directors’ Remuneration Policy must be returned by the director who receives these, and any directors knowingly involved in approving such payments may also be personally liable to account to the company for the value of the payments made.

Powers of Executive Directors
The Directors may entrust to and confer upon any Director holding any executive office any of the powers exercisable by them as Directors under terms and conditions that they see fit and may revoke, withdraw or alter these powers at any time.

Interested directors
The Companies’ Act requires a director of a company who is in any way interested in a contract or proposed contract with the company to declare the nature of the director’s interest at a meeting of the directors of the company. The definition of ‘interest’ includes the interests of spouses, children, companies and trusts. The Companies’ Act also requires that a director must avoid a situation where a director has, or could have, a direct or indirect interest that conflicts, or possibly may conflict, with the company’s interests. The Companies’ Act allows directors of public companies to authorize such conflicts where appropriate, if a company’s Articles of Association so permit. Micro Focus’s Articles of Association permit the authorization of such conflicts.

Where a director has declared a transactional or situational conflict of interests to the board, and this has been authorized under the Articles of Association then the director concerned may count in a quorum at a board meeting to consider the matter in which he or she is interested, and may participate in discussions and vote on any proposal, arrangement or contract relating to that matter.

Borrowing powers
The directors may exercise all the powers of the company to borrow money. The Directors shall restrict the borrowings of the Company and its subsidiaries so as to secure that the aggregate amount of the external borrowings of the Group, less the aggregate amount of current asset investments shall not at any time, without the previous sanction of an ordinary resolution of the Company exceed an amount equal to $10,000,000,000.

This limit can only be altered by means of an amendment of the Articles which, as noted above, requires the approval of the shareholders of the Company, by a special resolution at a General Meeting.

Other provisions relating to directors
In accordance with the Company’s articles of association, all directors are subject to election by the shareholders at the first AGM of the Company after their appointment and to re-election by the shareholders on an annual basis at each AGM.

Therefore, all directors will retire, and seek election or re-election, as applicable, at the forthcoming AGM. This practice complies with the recommendations of the Corporate Governance Code.  All the proposed appointees have been subject to a formal evaluation procedure in the last 12 months. Following that procedure, the Executive Chairman confirms the continuing commitment and effective contribution of the Directors and recommends their re-election. In addition, the Directors confirm the continuing commitment and effective contribution of the Executive Chairman and recommend his re-election. The board also believes in relation to the non-executive directors that their skills and experience enable them to continue to provide valuable contributions to the board. The board is satisfied that the non-executive directors exercise rigorous and objective judgment.

Annual general meetings
The Companies Act 2006 requires that a public limited company, such as Micro Focus, must convene an annual general meeting within six months from the end of its accounting reference date. In addition, the Micro Focus Articles permit the Micro Focus Board to convene a general meeting whenever it thinks fit. A general meeting may also be capable of being convened on requisition of members as described under “—Stockholder Proposals and Stockholder Nomination of Directors” above.

General meetings at which “special resolutions” are proposed and passed generally involve proposals to change the name of the company, change or amend the rights of shareholders, permit the company to issue new shares for cash without applying the shareholders’ pre-emptive rights, amend the company’s articles of association, or carry out other matters where either the company’s articles of association or the Companies Act 2006 prescribe that a “special resolution” is required. Other proposals relating to the ordinary course of the company’s business, such as the election of directors, would generally be the subject of an “ordinary resolution.”

Under the Companies Act, an ordinary resolution requires a simple majority of those attending and voting (in person or by proxy) and a special resolution requires not less than a 75% majority of those attending and voting (in person or by proxy). Under Section 303 of the Companies Act, members representing 5% or more of the paid-up share capital of Micro Focus can compel directors to convene a general meeting.

The Company’s AGM will be held on March 25, 2020 at 3pm (UK time) at the Company’s Headquarters at The Lawn, 22-30 Old Bath Road, Newbury, Berkshire RG14 1QN. The AGM will provide an opportunity for members of the board to meet with all shareholders and the participation of shareholders is encouraged. At the meeting, in addition to the statutory business, members of the board will be available for questions from shareholders.

In accordance with the Corporate Governance Code recommendations, a resolution will be proposed for each substantive issue and the chairs of the Audit, Remuneration and Nomination Committees will be available to answer questions.

All general meetings are open to all holders of the company’s shares or any duly appointed proxy or corporate representative.  There are no conditions of admission, but the chairman of the meeting has powers under common law and the Articles to refuse admission or direct the removal of any person whose conduct may interfere with the orderly conduct of the meeting.

Share capital
The Micro Focus Articles do not specify an amount of authorized capital, as the requirement to have an authorized capital is no longer applicable under the Companies Act 2006. As of October 31, 2019, the issued ordinary share capital of Micro Focus was 363,583,328 ordinary shares, with a par value of £0.10 each, of which 30,200,905 ordinary shares were held in treasury. The Micro Focus Articles provide that (without prejudice to any existing rights attached to shares) new shares may be issued by Micro Focus carrying such rights as Micro Focus may determine provided the prior sanction of an ordinary resolution in general meeting is obtained.

In addition to the ordinary shares with a par value of £0.10 each, during the period Micro Focus created two further classes of share capital; B Shares with a par value of £3.36 each (the ‘B Shares’) and Deferred Shares with a par value of £0.10 each (‘Deferred Shares’).

The B Shares were issued by way of capitalization of reserves to facilitate the Return of Value transaction following the completion of the disposal of the SUSE business. On April 29, 2019, 413,784,754 B Shares were created and issued to holders of the Company’s ordinary shares on a pro-rata basis, which were subsequently redeemed for cash on the same date at a cost to the Company of $1.8bn. The B Shares were cancelled immediately following their redemption.

The Deferred Shares were allotted on April 30, 2019 following a consolidation of all 437,332,504 existing ordinary shares in issue into one share and a subsequent sub-division into 362,811,045 ordinary shares of 10 pence each and 74,521,459 Deferred Shares. All Deferred Shares were bought back by the Company on 30 April 2019.

There are currently no B Shares or Deferred Shares in issuance. Micro Focus does not have any class of preferred stock.

Redemption rights
Ordinary shares are non-redeemable.

Participation rights
Ordinary shares carry rights to participate in the profits of the Company.

Alteration of Share Capital
Micro Focus may by ordinary resolution alter its share capital in accordance with the Companies Act. The resolution may determine that, as between the holders of shares resulting from a sub-division, any of the shares may have any preference or advantage or be subject to any restriction as compared with the others.

Liability to further capital calls by the Company
All ordinary shares currently in issue are fully paid.   The Company may, under its Articles and in accordance with the Companies Act, issue new ordinary shares either fully-paid (as to their par value) or partly-paid.  Where shares are issued with a partly-paid par value then the registered holder of those shares will be liable to further cash calls in line with the provisions of the Articles and the Companies Act.

The board of directors typically seeks authority from shareholders at each Annual General Meeting to issue further shares in the company, including by way of a rights issue (which may be fully or partially pre-emptive).  Shareholders who do not wish to take up their rights would generally be entitled to sell their rights, nil paid, in the market ahead of any such rights issue being closed.

Voting rights

Micro Focus Ordinary Shareholders shall be entitled, in respect of their holding of such shares and subject to relevant provisions of the Micro Focus Articles, to receive notice of any general meeting of Micro Focus and to attend and vote at any such general meeting. At any such meeting, on a show of hands, each Micro Focus Ordinary Shareholder present in person or by proxy shall have one vote and each such holder present in person or by proxy or by corporate representative shall upon a poll have one vote for every Micro Focus Share of which he or she is the holder.

At a General Meeting of the Company:

●
On a show of hands, every ordinary member present in person and every proxy or corporate representative duly appointed by a member shall have one vote; and

●
On a poll, every member who is present in person and every proxy or corporate representative shall have one vote for every ordinary share of which he or she is the holder.

No member shall be entitled to vote at any general meeting or class meeting in respect of shares held by him or her if any call or other sum then payable by him or her in respect of that share remains unpaid. Currently, all issued ordinary shares are fully paid.

Full details of the deadlines for exercising voting rights in respect of the resolutions to be considered at the Annual General Meeting (the ‘AGM’) to be held on March 25, 2020 are set out in the Notice of Meeting, which accompanies this report.

Dividends
Subject to the provisions of the Companies Act 2006, the Company may, by ordinary resolution, declare a dividend to be paid to ordinary members but no dividend shall exceed the amount recommended by the board. The board may pay interim dividends and any fixed rate dividend whenever the profits of the Company, in the opinion of the board, justifies its payment. All dividends shall be apportioned and paid pro-rata according to the amounts paid up on the shares. Any dividend unclaimed after a period of 6 years from the date of declaration or from the date on which such dividends became due for payment shall be forfeited and shall revert to Micro Focus. The Micro Focus Board may, if authorized by an ordinary resolution, offer the holders of shares the right to elect to receive additional shares, credited as fully paid, instead of cash in respect of any dividend or any part of any dividend.

Liquidation rights
In the event of our liquidation, after payment of all liabilities, our remaining assets would be used to repay the holders of ordinary shares the amount they paid for their ordinary shares. Any balance would be divided among the holders of ordinary shares in proportion to the nominal amount of the ordinary shares held by them.

Provisions discriminating against the holders of ordinary shares or other securities
There are no provisions in the Articles which discriminate against any existing or prospective holder as a result of such holder owning a substantial number of shares. Under the Listing Rules made by the U.K.’s competent authority, the Financial Conduct Authority, in certain circumstances that company would be obliged to enter into a relationship agreement with a substantial shareholder.

Under the Companies Act, the company is able to serve a notice on any member, or any other person appearing to be interested in its shares under Section 793 of the Companies Act 2006, requiring them to provide confirmation of that person’s interest in the company’s shares.   Where the recipient of such a notice is in default for a period of 14 days in supplying to the Company the information thereby required, then (unless the Directors otherwise determine) the company may suspend voting rights on (a) the shares comprising the shareholding account in the Register which comprises or includes the shares subject to the notice in relation to which the default occurred; and (b) any other shares held by the member.

Limitations affecting holders of ordinary shares or ADSs
Under English law and our Memorandum and Articles of Association, persons who are neither UK residents nor UK nationals may freely hold, vote and transfer ordinary shares in the same manner as UK residents or nationals.

With respect to the items discussed above, applicable UK law is not materially different from applicable US law.

Item 10. C.Material contracts.

SUSE Disposal

On July 2, 2018, the Group announced the proposed sale of the SUSE business segment to Blitz 18-679 GmbH (subsequently renamed to Marcel Bidco GmbH), a newly incorporated directly wholly-owned subsidiary of EQTVIII SCSp which is advised by EQT Partners. The total cash consideration of $2.5 billion was on a cash and debt free basis and subject to normalization of working capital.

On August 21, 2018, Shareholders voted to approve the proposed transaction whereby the Company agreed to sell its SUSE business segment to Marcel Bidco GmBH, for a total cash consideration of approximately $2.5bn, subject to customary closing adjustments. Following this vote all applicable antitrust, competition, merger control and governmental clearances were obtained. As set out in the circular to shareholders in advance of the vote, funds from the net sales proceeds after tax, transaction costs and customary closing adjustments would be used to make a required debt repayment in accordance with the new credit facilities.

On March 15, 2019 the Group completed the disposal of SUSE, the profits from which have been reported within the profit from discontinued operations in the year. Previously on August 21, 2018, shareholders had voted to approve the proposed transaction whereby the Group agreed to sell its SUSE business segment at which point the SUSE operating segment met the definition of a discontinued operation under IFRS 5 and was treated as such in these financial statements. This meant that during the 18- months ended October 31, 2018, the SUSE results were excluded from the individual line items of the income statement and balance sheet. SUSE was instead included as a single line entitled “profits from discontinued operations” within the income statement and as an “asset held for sale” or “liability held for sale” on the balance sheet through to the date of disposal.

Refer to note 37 of the Consolidated financial statements in Item 18.

Bank borrowings
The Company announced on April 21, 2017 the successful syndication of the new credit facilities (the ‘‘New Facilities’’) with JP Morgan Chase Bank N.A. as administrative agent and collateral agent on behalf of both MA FinanceCo, LLC, a wholly owned subsidiary within the Micro Focus Group, and Seattle SpinCo, Inc., a wholly owned subsidiary of HPE that would hold the HPE Software business and be merged with a wholly owned subsidiary of Micro Focus in the transaction.

The following Facilities were drawn as at October 31, 2019:

The $1,414.7 million senior secured term loan B-2 issued by MA FinanceCo LLC is priced at LIBOR plus 2.25% (subject to a LIBOR floor of 0.00%);

The $2,486.3 million senior secured seven-year term loan B issued by Seattle SpinCo. Inc. is priced at LIBOR plus 2.50% (subject to a LIBOR floor of 0.00%) with an original issue discount of 0.25%;

The $368.2 million senior secured seven-year term loan B-3 issued by MA FinanceCo LLC is priced at LIBOR plus 2.50% (subject to a LIBOR floor of 0.00%) with an original issue discount of 0.25%; and

The €452.8 million (equivalent to $505.8 million) senior secured seven-year term loan B issued by MA FinanceCo LLC is priced at EURIBOR plus 2.75% (subject to a EURIBOR floor of 0.00%) with an original issue discount of 0.25%.

The following Facilities were undrawn as at October 31, 2019:

A senior secured revolving credit facility of $500.0 million, (“Revolving Facility”), with an interest rate of 3.25% above LIBOR on amounts drawn (and 0.375% on amounts undrawn) thereunder (subject to a LIBOR floor of 0.00%).

The only financial covenant attaching to these facilities relates to the Revolving Facility, which is subject to an aggregate net leverage covenant only in circumstances where more than 35% of the Revolving Facility is outstanding at a fiscal quarter end. At October 31, 2019, $nil of the Revolving Facility was drawn together with $4,775.0 million of Term Loans giving gross debt of $4,775.0 million drawn. As a covenant test is only applicable when the Revolving Facility is drawn down by 35% or more, and $nil of Revolving Facility was drawn at October 31, 2019, no covenant test is applicable.

Item 10. D.Exchange controls.

Details of foreign exchange rates are set out in Item 18 of this Annual Report on Form 20-F. There are currently no UK foreign exchange controls or restrictions on remittance of dividends on the ordinary shares or on the conduct of the Company’s operations, other than restrictions applicable to certain countries and persons subject to EU economic sanctions or those sanctions adopted by the UK Government which implement resolutions of the Security Council of the United Nations.
Item 10. E.Taxation.

The following discussion summarizes certain material US federal income tax consequences and UK taxation consequences to US holders (as defined below) of owning and disposing of Micro Focus ordinary shares or ADSs. This discussion does not address any tax consequences arising under the laws of any state, local or non-US or non-UK jurisdiction, or under any US federal or UK laws other than those pertaining to income taxation.

Material US Federal Income Tax Consequences of Owning and Disposing of Micro Focus Ordinary Shares or ADSs

The following discussion summarizes certain material US federal income tax consequences to US holders (as defined below) of owning and disposing of Micro Focus ordinary shares or ADSs. This discussion is based upon the US Internal Revenue Code of 1986, as amended (the “US Tax Code”), the Treasury regulations promulgated under the US Tax Code and judicial and administrative rulings and decisions, all as in effect on the date hereof. These laws are subject to differing interpretations and may change, possibly retroactively, and any change could affect the accuracy of the statements and conclusions set forth in this discussion. No ruling has been sought from the US Internal Revenue Service (“IRS”) with respect to any US federal income tax consequences described below, and there can be no assurance that the IRS or a court will not take a contrary position.

This discussion does not constitute tax advice or an opinion, is for general information only and does not purport to consider all aspects of US federal income taxation that might be relevant to US holders in light of their personal investment or tax circumstances. This discussion does not apply to US holders who acquired ordinary shares or ADSs pursuant to the exercise of options or warrants or otherwise as compensation, or to US holders subject to special tax rules, including, without limitation, banks, insurance companies, tax-exempt entities, financial institutions, regulated investment companies, partnerships, S-corporations or other pass-through entities, broker-dealers, persons holding ordinary shares or ADSs as part of a hedging, conversion, or constructive sale transaction or as part of a “straddle,” US expatriates, persons subject to the alternative minimum tax, persons holding 10 per cent. or more of the voting power or value of Micro Focus’s stock, persons subject to “mark to market” accounting, persons holding ordinary shares or ADSs through a non-US account or financial institution and entities subject to the anti-inversion rules of Section 7874 of the US Tax Code. This discussion does not discuss US tax consequences to any person that is not a US holder or to any US holder having a functional currency other than the US dollar. Furthermore, this discussion does not discuss the so-called Medicare tax on net investment income, any US federal estate or gift tax laws or tax consequences under the laws of any state, local or non-US jurisdiction. Each holder of Micro Focus ordinary shares or ADSs is urged to consult its own tax advisor regarding the US federal, state, local and non-US income and other tax considerations of an investment in Micro Focus ordinary shares or ADSs.

As used in this discussion, a “US holder” means a beneficial owner  of ordinary shares or ADSs that holds such ordinary shares or ADSs as capital assets within the meaning of  the US Tax Code (generally, property held for investment) and is for US federal income tax purposes (i) an individual who is a citizen or resident of the United States, (ii) a corporation or other entity taxable as a corporation organized under the laws of the United States, any State thereof or the District of Columbia, (iii) a trust, if (a) a court within the United States is able to exercise primary jurisdiction over administration of the trust and one or more US persons have authority to control all substantial decisions of the trust or (b) a valid election is in place to treat such trust as a domestic trust, or (iv) an estate the income of which is subject to US federal income taxation regardless of its source.

In the case of a beneficial owner of ordinary shares or ADSs that is classified as a partnership for US federal income tax purposes, the tax treatment to a partner in the partnership generally will depend upon the tax status of the partner and the activities of the partner and the partnership. Partnerships and partners of partnerships holding Micro Focus ordinary shares and ADSs are urged to consult their independent professional tax advisors regarding an investment in such ordinary shares and ADSs.

The Company believes, and this discussion assumes, that it is not a passive foreign investment company (a “PFIC”) for US federal income tax purposes, although the inquiry is fact specific and no assurance is being given in that regard. A non-US corporation generally will be considered a PFIC for any taxable year in which (i) 75 per cent. or more of its gross income is passive income (e.g., certain dividends, interest, rents and royalties, and gain from the sale of property producing such income), or (ii) 50 per cent. or more of the average value of its assets are considered “passive assets” (generally, assets that generate passive income). For this purpose, the Company will be treated as owning its proportionate share of the assets and earning its proportionate share of the income of any other non-U.S. corporation in which it owns, directly or indirectly, stock representing more than 25% (by value) of all of the stock of such corporation. The Company’s possible status as a PFIC is based on an annual determinations that cannot be made until the close of a taxable year, involves extensive factual investigation, including ascertaining the fair market value of all of the Company’s assets on a periodic basis and the character of each item of income that the Company earns, and is subject to uncertainty in several respects. Therefore, the Company cannot assure US holders that it will not be treated as a PFIC for its current taxable year or for any future taxable year or that the IRS will not take a contrary position. If the Company were to be classified as a PFIC for any year during which a US holder held its ordinary shares or ADSs, the Company generally would continue to be treated as a PFIC for all succeeding years during which such US holder held ordinary shares or ADSs. In addition, special, possibly materially adverse, consequences would result for US holders and certain reporting requirements might apply to US holders. US holders should consult their own independent professional tax advisers regarding the potential application of the PFIC rules to their ownership and disposition of ordinary shares or ADSs.

The Company also believes, and this discussion also assumes, that the Company will be treated as a non-US corporation for US federal income tax purposes, taking into account the application of Section 7874 of the US Tax Code to the Company’s acquisition of HPE Software.  For a further discussion of Section 7874 of the US Tax Code and the possibility that the Company could be treated as a US corporation for US federal income tax purposes, see the discussion entitled ‘‘U.S. Federal Income Tax Consequences Relating to Section 7874 of the Code” in the 2017 Form F-4.

Ownership of ADSs in General

For US federal income tax purposes, a US holder of Micro Focus ADSs generally will be treated as the owner of the Micro Focus ordinary shares represented by the ADSs.


The US Treasury Department has expressed concern that depositaries for American Depositary Shares, or other intermediaries between the holders of shares of an issuer and the issuer, may be taking actions that are inconsistent with the claiming of US foreign tax credits by US holders of those receipts or shares. Accordingly, the analysis regarding the availability of a US foreign tax credit for UK taxes and sourcing rules described below could be affected by future actions that may be taken by the US Treasury Department.


Dividends Paid on Ordinary Shares or ADSs

The gross amount of any cash distribution (including the amount of any tax withheld, as discussed below) paid to a US holder by Micro Focus out of its current or accumulated earnings and profits (as determined for US federal income tax  purposes) is subject to US federal income taxation as a dividend. For certain non-corporate US holders, including individuals, dividends that constitute “qualified dividend income” will be taxable to such US holder at the preferential rates applicable to long-term capital gains, provided that the US holder holds the ordinary shares or ADSs on which the dividends are paid for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date and meets other holding period requirements. Dividends Micro Focus pays with respect to its ordinary shares or ADSs generally will be qualified dividend income if Micro Focus is eligible for benefits of the United States income tax treaty with the United Kingdom.  Although Micro Focus believes that it is currently eligible for such treaty benefits, there can be no assurance that this will be the case for any taxable year or that such position would not be challenged by the IRS or sustained by a court.  Dividends received by a corporate US holder generally will not be eligible for the dividends-received deduction that is allowed to US corporations in respect of dividends received from other US corporations. However, a corporate US holder that owns 10 per cent or more of Micro Focus’s stock may, in certain circumstances, be entitled to a deduction in respect of a dividend received from Micro Focus pursuant to Section 245A of the US Tax Code.


A dividend is taxable to a US holder when the US holder receives the dividend, actually or constructively. The amount of the dividend that a US holder must include in its income will be the US dollar value of the payments made (including any withholding tax imposed thereon), determined at the spot Sterling/US dollar rate on the date the dividend is includible in the US holder’s income, regardless of whether the payment is in fact converted into US dollars at such time.  Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date a US holder includes the dividend payment in income to the date a US holder converts the payment into US dollars will be treated as ordinary income or loss and will not be eligible for the special tax rate applicable to qualified dividend income. Such foreign exchange gain or loss generally will be income or loss from sources within the United States for foreign tax credit limitation purposes.


The portion of any cash distribution received by a US holder that is in excess of Micro Focus’s current and accumulated earnings and profits, as determined for US federal income tax purposes, will be treated as a non-taxable return of capital to the extent of the US holder’s basis in the ordinary shares or ADSs on which such payment is received, and thereafter as capital gain. However, Micro Focus does not expect to calculate its earnings and profits in accordance with US federal income tax principles.  Accordingly, a US holder should expect to generally treat cash distributions paid by Micro Focus as taxable dividends for US federal income tax purposes.


A US holder must include any foreign tax withheld from a cash distribution on its ordinary shares or ADSs in the gross amount included in income, even though the US holder does not in fact receive such withheld amount. Subject to certain limitations, UK tax withheld, if any, in accordance with the United Kingdom-United States Income Tax Convention (1975), as amended (the “Treaty”), and paid over to the United Kingdom will be deductible or creditable against a US holder’s US federal income tax liability. Special rules apply in determining the foreign tax credit limitation with respect to dividends that are subject to the preferential tax rates. To the extent a refund of the tax withheld is available to a US holder under UK law or under the Treaty, the amount of tax withheld that is refundable will not be eligible for credit against a US holder’s US federal income tax liability.


Dividends paid by Micro Focus on its ordinary shares or ADSs generally will be income from sources outside the United States and will, depending on a US holder’s circumstances, be either “passive” or “general” income for purposes of computing the foreign tax credit allowable to the US holder. The rules governing the foreign tax credit are complex and involve the application of rules that depend upon a US holder’s particular circumstances. Accordingly, US holders are urged to consult their own tax advisors regarding the availability of the foreign tax credit under their particular circumstances.


11466
Sale or Disposition of Ordinary Shares or ADSs

If a US holder sells or otherwise disposes of its ordinary shares or ADSs in a taxable sale or other disposition, such US holder will generally recognize capital gain or loss for US federal income tax purposes equal to the difference between the US dollar value of the amount that the US holder realizes in such disposition and the US holder’s tax basis, determined in US dollars, in the US holder’s Micro Focus ordinary shares or ADSs. Capital gain of certain non-corporate US holders, including individuals, is generally taxed at preferential rates where the property disposed of is held for more than one year. Gain or loss recognized by a US holder on the sale or other disposition of ordinary shares or ADSs will generally be income or loss from sources within the United States for foreign tax credit limitation purposes. The deductibility of a capital loss may be subject to limitations under the US Tax Code.


Information with Respect to Foreign Financial Assets

US holders that are owners of “specified foreign financial assets” with an aggregate value in excess of $50,000 (and in some circumstances, a higher threshold) may be required to file an information report with respect to such assets with their tax returns and may be subject to penalties if they fail to file such information report. “Specified foreign financial assets” include financial accounts maintained by foreign financial institutions, as well as the following, but only if they are held for investment and not held in accounts maintained by financial institutions: (i) stocks and securities issued by non-U.S. persons, (ii) financial instruments and contracts that have non-U.S. issuers or counterparties, and (iii) interests in foreign entities.  US holders are urged to consult their own tax advisors regarding the application of this reporting requirement to their ownership of ordinary shares or ADSs.


Backup Withholding and Information Reporting

In general, dividend payments with respect to ordinary shares and ADSs and proceeds from the sale or other disposition of ordinary shares or ADSs made (or deemed made) within the United States may be subject to information reporting to the IRS and US backup withholding currently at a rate of 24 per cent. Backup withholding will generally not apply to a US holder who:


•          Furnishes a correct taxpayer identification number and certifies, under penalties of perjury, that such US holder is not subject to backup withholding on an IRS Form W-9, and otherwise complies with applicable requirements of the backup withholding rules; or


•          Is a corporation or otherwise exempt from backup withholding and, when required, demonstrates this fact in accordance with applicable Treasury regulations.


Backup withholding is not an additional tax. Amounts withheld under the backup withholding rules may be allowed as a credit against a holder’s US federal income tax liability and may entitle the holder to a refund, provided the holder timely furnishes the required information to the IRS.


US holders should consult their own independent professional tax adviser regarding the application of the information reporting and backup withholding rules.


Credits or deductions for UK taxes

As indicated under ‘Material UK Tax Consequences’ below, distributions in respect of, and gains on the disposition of, ordinary shares or ADSs, may be subject to UK taxation in certain circumstances. A US holder may be eligible to claim a credit or deduction in respect of UK taxes attributable to such income or gain for purposes of computing the US holder’s US federal income tax liability, subject to certain limitations. The US foreign tax credit rules are complex, and US holders should consult their own tax advisors regarding the availability of US foreign tax credits and the application of the US foreign tax credit rules to their particular situation.


The summary set forth above is included for general information only. US holders are urged to consult their own tax advisors to determine the particular tax consequences to them of the ownership and disposition of ordinary shares and ADSs, including the applicability and effect of U.S. state, local and non-U.S. tax laws.


Material UK Tax Consequences of Owning and Disposing of Micro Focus Ordinary Shares or ADSs

The following paragraphs set out below summarize material aspects of the UK tax treatment of US holders of ordinary shares or ADSs and do not purport to be either a complete analysis of all tax considerations relating to holding ordinary shares or ADSs or an analysis of the tax position of Micro Focus. They are based on current UK legislation and what is understood to be current HM Revenue & Customs practice, both of which are subject to change, possibly with retrospective effect.


The comments are intended as a general guide and (otherwise than where expressly stated to the contrary) apply only to US holders of ordinary shares or ADSs (other than under a personal equity plan or individual savings account) and who are the absolute beneficial owners of such shares.


11567
These comments do not deal with certain types of shareholders such as charities, dealers in securities, persons holding or acquiring shares in the course of a trade, persons who have or could be treated for tax purposes as having acquired their ordinary shares or ADSs by reason of their employment, collective investment schemes, persons subject to UK tax on the remittance basis and insurance companies. You are encouraged to consult an appropriate independent professional tax advisor with respect to your tax position.


Tax on chargeable gains as a result of disposals of ordinary shares or ADSs

Subject to the below, US holders will not generally be subject to UK tax on chargeable gains on a disposal of ordinary shares or ADSs provided that they do not carry on a trade, profession or vocation in the United Kingdom through a branch, agency or permanent establishment in connection with which the ordinary shares or ADSs are held.


A US holder who is an individual, who has ceased to be resident for tax purposes in the United Kingdom for a period of less than five years and who disposes of ordinary shares or ADSs during that period may be liable for UK tax on capital gains (in the absence of any available exemptions or reliefs). If applicable, the tax charge will arise in the tax year that the individual returns to the United Kingdom.


Tax on dividends

Micro Focus is not required to withhold UK tax at source from dividends paid on ordinary shares or ADSs.


US holders will not generally be subject to UK tax on dividends received from Micro Focus provided that they do not carry on a trade, profession or vocation in the United Kingdom through a branch, agency or permanent establishment in connection with which the ordinary shares or ADSs are held.


Stamp duty and stamp duty reserve tax, referred to as SDRT

Based on current published HM Revenue & Customs practice and recent case law, transfers of ADSs should not be subject to SDRT or stamp duty provided that any instrument of transfer is executed and remains outside the UK and the transfer of an underlying ordinary share to the ADS holder in exchange for the cancellation of an ADS should also not give rise to a stamp duty or SDRT charge.


Transfers of ordinary shares outside of the depositary bank, including the repurchase of ordinary shares by Micro Focus, will generally be subject to stamp duty or SDRT at the rate of 0.5% of the amount or value of the consideration given, except as described above in connection with the cancellation of an ADS. If ordinary shares are redeposited into a clearance service or depositary system, the redeposit will attract stamp duty or SDRT at the higher rate of 1.5%.


The purchaser or the transferee of the ordinary shares or ADSs will generally be responsible for paying any stamp duty or SDRT payable. Where stamp duty or SDRT is payable, it is payable regardless of the residence position of the purchaser.


Inheritance tax

A gift or settlement of ordinary shares or ADSs by, or on the death of, an individual shareholder may give rise to a liability to UK inheritance tax even if the shareholder is not a resident of or domiciled in the United Kingdom.


A charge to inheritance tax may arise in certain circumstances where ordinary shares or ADSs are held by close companies and trustees of settlements.


However, pursuant to the Estate and Gift Tax Treaty 1980, referred to as the Treaty, entered into between the United Kingdom and the United States, a gift or settlement of ordinary shares or ADSs by shareholders who are domiciled in the United States for the purposes of the Treaty may be exempt from any liability to UK inheritance tax.

Item 10. F.10.FDividends and paying agents.


Not applicable.


Item 10. G.10.GStatement by expertsexperts.


Not applicable.


Item 10. H.10.HDocuments on displaydisplay.


Copies of our Memorandum and Articles of Association are filedcan be found as exhibits to thisof the Group’s Annual Report on Form 20-F for the year ended October 31, 2019 which is available at https://microfocus.com/media/investor-reports/form-20-f-for-12-months-ending-the-31-october-2019-report.pdfand has been filed with the SEC. The Memorandum and Articles of Association along with certain other documents referred to in this Annual Report on Form 20-F are available for inspection at our registered office at The Lawn, 22-30 Old Bath Road, Newbury, Berkshire, RG14 1QN, United Kingdom (c/o the Company Secretary) during usual business hours upon reasonable prior request.


68
Item 10. I.10.ISubsidiary Information.


Not applicable.

Item 11.11Quantitative and Qualitative Disclosures About Market Risk.


QuantitativeThe following discussion and Qualitative Disclosures about Market Risk analysis contains forward-looking statements. See “Risk Factors” in Item 3D and “Cautionary Statement on Forward-Looking Statements’’ in this Annual Report on Form 20-F for a discussion of the uncertainties, risks and assumptions associated with these statements.

Financial risk factors


Micro FocusThe Group’s treasury function aims to reduce exposures to interest rate, foreign exchange and other financial risks, to ensure liquidity is available as and when required, and to invest cash assets safely and profitably. The Group does not engage in speculative trading in financial instruments so the analysis in this section can be categorized as non-trading. The treasury function’s policies and procedures are reviewed and monitored by the Audit Committee and are subject to internal audit review.

The Group’s multi-national operations expose it to a variety of financial risks that include the effects of changes in credit risk, foreign currency risk, interest rate risk and liquidityliquidity/capital risk. RiskTreasury risk management is carried out by a central treasury department under policies approved by the board of directors.

Group treasury identifies and evaluates financial risks alongside the Group’s operating units.business management. The board provides written principles for risk management together with specific policies covering areas such as foreign currency risk, interest rate risk, credit risk and liquidity risk, the use of derivative financial instruments and non-derivative financial instruments as appropriate, and investment of excess funds.


Financial Instruments sensitive to market risk

The tablecarrying values and fair values for the borrowings and derivative financial instruments are included within the overall financial instruments table. Further information on borrowings showing the maturity profile of the anticipated cash flows in relation to the Group’s borrowing including principal repayments and interest payments can be found in section 5.B.1 along with the contracted interest rates and drawn/undrawn facilities.

Derivative and non-derivative financial instruments used for hedging purposes are further discussed below.

69
Financial Instruments

The tables below sets out the measurement categories and carrying values of financial assets and liabilities.liabilities with fair value inputs where relevant.


  
Financial
October
31,
2019
  
Non-
financial
October
31,
2019
  
Total
October
31,
2019
  
Financial
October
31,
2018
  
Non-
financial
October
31,
2018
  
Total
October 31,
2018
 
  
$m
 
$m
 
$m

 
$m

 
$m

 
$m

Financial and non-financial assets                        
                         
Non-current                        
Long-term pension assets  17.1   -   17.1   
16.7
   
-
   
16.7
 
Derivative financial instruments – Interest rate swaps  -   -   -   
-
   
86.4
   
86.4
 
Current                        
Cash and cash equivalents  355.7   -   355.7   
620.9
   
-
   
620.9
 
Trade and other receivables  922.7   110.2   1,032.9   
1,212.0
   
60.0
   
1,272.0
 
   1,295.5   110.2   1,405.7   
1,849.6
   
146.4
   
1,996.0
 
Measurement
category
 
Carrying value
October 31,
2021
  
Fair value
2021
  
Fair value
Hierarchy
2021/2020
  
Carrying
value
October 31, 2020
 
    
$m

       
$m

Financial assets:               
Non-current               
 
Long-term pension asset
 
FV OCI
  17.1  
Fair value insurance
based input
  Level 3   18.2 
Current               
Cash and cash equivalentAmortised cost  558.4   -   -   737.2 
Trade and other receivablesAmortised cost  784.2   -   -   648.6 
Contract assetsAmortised cost  62.0   -   -   33.7 
    1,421.7           1,437.7 
                  
Financial liabilities:                 
Non-current                 
Derivative financial instruments – interest rate swaps1
 
FV OCI
  -  
Fair value Bank
Institutions
  Level 2   77.9 
Borrowings (gross)2
Amortised cost  4,566.0   4,556.5   -   4,699.0 
Lease obligationsAmortised cost  119.6   -   -   168.2 
Current                 
Derivative financial instruments – interest rate swaps1
 
FV OCI
  35.7  
Fair value Bank
Institutions
  Level 2   - 
Borrowings (gross)2
Amortised cost  42.0   41.9   -   34.2 
Lease obligationsAmortised cost  74.9   -   -   82.2 
Trade and other payables – accrualsAmortised cost  440.1   -   -   419.2 
    5,278.3           5,480.7 

1Derivative interest rate swaps are measured at fair value in other comprehensive income (“FVOCI”) as a result of hedge accounting. All interest rate swaps are in designated hedge relationships and there are no other derivative financial instruments held as fair value through profit and loss (“FVTPL”).

2Borrowings have a carrying value (net of unamortised prepaid facility arrangement fees and original issue discount) of $4,548.4 million (2020: $4,640.3 million). Total borrowings (gross) are shown in this table as $4,608.0 million (2020: $4,733.2 million) for the fair value comparison.

  
Financial
October
31,
2019
  
Non-
financial
October
31,
2019
  
Total
October
31,
2019
  
Financial
October
31,
2018
  
Non-
financial
October
31,
2018
  
Total
October 31,
2018
 
  
$m


$m


$m


$m


$m


$m
Financial and non-financial liabilities – financial liabilities at amortised cost                        
                         
Non-current                        
Derivative financial instruments – interest rate swaps  36.5   -   36.5   
-
   
-
   
-
 
Borrowings (gross)  4,775.0   -   4,775.0   
4,946.6
   
-
   
4,946.6
 
Finance leases  11.7   -   11.7   
14.9
   
-
   
14.9
 
Provisions  49.1   -   49.1   
35.4
   
-
   
35.4
 
Current                        
Borrowings (gross)  -   -   -   
50.3
   
-
   
50.3
 
Finance leases  11.8   -   11.8   
13.6
   
-
   
13.6
 
Trade and other payables  530.3   80.7   611.0   
676.9
   
-
   
676.9
 
Provisions  29.3   -   29.3   
57.4
   
-
   
57.4
 
   5,443.7   80.7   5,524.4   
5,795.1
   
-
   
5,795.1
 

Fair value measurement


For trade and other receivables, cash and cash equivalents, provisions, trade and other payables, obligations under finance leases and provisions, fair values approximate to book values due to the short maturity periods of these financial instruments. For trade and other receivables, allowances are made for credit risk.


Long term borrowingsBorrowings with a carrying value of $4,775.0m before unamortized$4,548.4 million (2020: $4,640.3million) (note 18 “Borrowings” of the Consolidated financial statements in Item 18) including unamortised prepaid facility fees and discounts, have a fair value estimate of $4,686.0m$4,598.4 million (2020: $4,535.1 million) based on trading prices obtained from external banking providers as at October 31, 2019.2021.


Derivative financial instruments measured at fair value are classified as levelLevel 2 in the fair value measurement hierarchy as they have been determined using significant inputs based on observable market data. The fair values of interest rate derivatives are derived from forward interest rates based on yield curves observable at the balance sheet date together with the contractual interest rates. Valuations are updated by the counter-party banks on a monthly basis.


There were no transfersThis section will cover the primary market risk exposures regarding interest rates and foreign currencies. The Group’s principal exposures in relation to market risks are the changes in the exchange rates between the US Dollar and transactions made in other currencies as well as changes in interest rates from US and Euro capital markets.

Interest rate risk

The Group’s income and cash generated from operations are substantially independent of assets or liabilities between levelschanges in market interest rates. The Group’s interest rate risk arises from short-term and long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. The Group currently uses four interest rate swaps to manage its cash flow interest rate risk arising from potential increases in the LIBOR interest rate.

The objective of the fairGroup’s interest rate risk management policy is to manage the uncertainty and adverse impact on the Group’s net interest charge due to changes in interest rates to an acceptable level. In doing so, the Group seeks to minimize the cost of hedging and the level of associated counterparty risk.

70
The Group has set a target of approximately half its borrowings being subject to fixed interest rates in order to minimize its exposure to changes in interest rates. This is achieved through four USD interest swaps for a total notional value hierarchy duringof $2.25 billion, with a maturity date of September 2022. The hedge accounting is discussed further later in the period.note.


On January 19, 2022, the Group executed a new 1m USD SOFR swap with a notional value of $750 million and a maturity date of February 28, 2027. The forward swap is effective on September 21, 2022 with a fixed interest rate of 1.656% swapped against the variable 1m SOFR USD rates.

The Group’s borrowing facilities do not contain any covenants with respect to interest cover ratios.

  October 31, 2021  October 31, 2020 
Interest rate risk 
$m

 
$m

Interest rate swaps (receive variable, pay fixed)        
         
Fair value of Derivative liability (total of 4 swaps)  (35.7)  (77.9)
Notional amount (4 x $562.5 million)  2,250.0   2,250.0 
Maturity date September 30, 2022  September 30, 2022 
Change in fair value of outstanding hedging instruments (OCI hedging reserve excluding deferred tax)  42.2
  (41.3)
Change in value of hedging instruments (as above adjusted for impact of credit risk)  41.9
  (39.9)
Hedging ratio  1.1   1.1 

The Group has four interest rate swaps, which are designated in a hedge relationship and also utilized forward exchange contractsrelationship.

The Group’s approved strategy in accordance with our risk management policies is to fix Sterling equivalentminimize the risk of cash flow fluctuations due to interest rate changes in relation to the 1M-USD LIBOR rate for up to half of the Group’s external borrowings for the period October 19, 2017 to September 30, 2022.

The specific risk management objective is to hedge the interest rate risk (cash flow risk) due to changes in the 1M-USD LIBOR rate charged on $2,250.0 million of the April 2019 Return of Value to shareholders and the April 2019debt issued by Seattle Spin Co Inc. between October 19, 2017 and September 2019 dividend payments. The forward contracts were not designated for formal hedge accounting and matured for delivery within the reporting period.30, 2022.

  October 31, 2019  October 31, 2018 
  
$m


$m
Derivative financial instruments- non-current asset – interest rate swaps  -   86.4 
Derivative financial instruments- non-current liabilities – interest rate swaps  (36.5)  - 
   (36.5)  86.4 

Derivative financial instruments
Derivatives are only used for economic hedging purposes and not as speculative investments. Four interest rate swaps are in place with a total notional value of $2.25bn to hedge against the impact of potential rises in interest rates until September 30, 2022. The swaps are designated against the $2,486.3m loan issued by Seattle SpinCo. Inc. and the notional value covers 52.7% of the overall dollar loan principal outstanding for the Group. Details of the Group’s borrowings including maturities and interest rates are included in Item 10.C.


The swap contracts require settlement of net interest receivable or payable on a monthly basis. The fixed interest rate for each swap is 1.949 %1.949% and the Group receives a variable rate in line with LIBOR. The Seattle loan is priced at LIBOR (with a 0% floor) plus a current margin of 2.50%2.75% with the swaps aimed at addressing the risk of a rising LIBOR element. As such, the total interest cost of the hedged element of the Seattle loan is 4.44%4.699%. For the periodyear to October 31, 2019,2021, net interest received(finance cost) paid for the swaps amounted to $9.9m.$41.3 million. For the life of the swap, net interest receivedpaid to date amounted to $6.5m.$58.5 million.


Hedge effectiveness is determined at the inceptionNon-Derivative financial instruments – Designated Euro borrowings

  October 31, 2021  October 31, 2020 
Foreign exchange risk 
$m

 
$m

Notional amounts for Designated Euro borrowing        
Euro B-1 2020 tranche €600 million (Borrowings maturity date: June 2025)  676.0   700.3 
Foreign exchange (loss) on revaluation transferred to OCI-CTA -
no sources of ineffectiveness observed in review
  6.5   (34.5)
Euro 2017 tranche €453 million (Borrowings maturity date: June 2024)  510.9   528.5 
Foreign exchange (loss) on revaluation transferred to OCI-CTA -
no sources of ineffectiveness observed in review
  4.8   (24.2)
Hedge ratio for each of the two Net investment hedges 1:1  1:1 

The Group has designated two tranches of non-derivative Euro borrowings in two hedge relationships The borrowings in place have a designated initial carrying value of approx. €1.03 billion (note 18 “Borrowings” of the hedge relationship, and through periodic effectiveness assessments (adjusted for credit risk) to ensure that an economic relationship exists between theConsolidated financial statements in Item 18.) hedged item and the hedging instrument. The testing determined that the hedge was highly effective throughout the financial reporting period for which the hedge was designated.against Euro designated net investments in foreign operations.


71
The impact of changesspecific risk management objective is to carry out a net investment hedge in the fair value of interest rate swaps in the year ended October 31, 2019 is shown in the Consolidated statement of comprehensive income. Note 31 of the “notes to the consolidated financial statements” in Item 18 shows the derivative financial instruments relating to hedging transactions entered into in the period ended 31 October 2019 (other reserves).

  October 31, 2019  October 31, 2018 
  
$m


$m
Carrying amount  (36.5)  
86.4
 
Notional amount (4 x $562.5m)  2,250.0   
2,250.0
 
Maturity date September 30, 2022  September 30, 2022 
Change in fair value of outstanding hedging instruments (note 31)  (122.9)  
86.4
 
Change in value of hedging instruments adjusted for credit risk  (121.9)  
84.7
 

Credit risk
Financial instruments which potentially expose the Group, to a concentrationreduce the foreign currency translation exposure arising from the Group’s investments in foreign entities with Euro functional currency through the use of credit risk consist primarily of cash and cash equivalents and accounts receivable. Cash equivalents are deposited with high-credit quality financial institutions. The Group provides credit to customers in the normal course of business. Collateral is not required for those receivables, but on-going credit evaluations of customers’ financial conditions are performed. The Group maintains a provision for impairment based upon the expected credit losses. The Group sells products and services to a wide range of customers around the world and therefore believes there is no material concentration of credit risk.

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at October 31, 2019 was:

  October 31, 2019  October 31, 2018 
  
$m


$m
Trade receivables (gross)  877.9   
1,089.6
 
Cash and cash equivalents  355.7   
620.9
 
Total  1,233.6   
1,710.5
 

The Group applies the IFRS 9 expedited approach to measuring expected credit losses, which uses a lifetime expected credit loss allowance for all trade receivables.

A provision of the lifetime expected credit loss is established upon initial recognition of the underlying asset by predicting the future cash flows based upon the days past due status of an invoice and other relevant information. The model uses historical collection data along with historical credit losses experienced. The loss allowance is adjusted for forward-looking factors specific to the receivable and the economic environment.

Trade receivables are written off when there is no reasonable expectation of recovery.  Impairment losses on trade receivables are presentedEuro currency borrowings as net impairment losses within operating profit. Subsequent recoveries of amounts previously written off are credited against the same line item.

On that basis, the loss allowancehedging instruments as at October 31, 2019 and November 31, 2018 (on adoption of IFRS 9) was determined as follows for trade receivables (note 16) of the “notes to the consolidated financial statements” in Item 18:

  
October 31,
2019
  
October 31,
2018
 
  
$’m


$’m
At November, 1 / May, 1 – calculated under IAS 39  41.9   
2.6
 
Accounting policy change – IFRS 9 (recognised against retained earnings on November 1, 2018)  20.0   
-
 
   61.9   
2.6
 
Loss allowance provided in the period  16.0   
40.0
 
Receivables written off as uncollectable  (35.5)  
(0.7
)
At October ,31  42.4   
41.9
 

In the prior period, the impairment of trade receivables was assessed based on the incurred loss model. Individual receivables, which were known to be uncollectable were written off by reducing the carrying amount directly. The other receivables were assessed collectively to determine whether there was objective evidence that an impairment had been incurred but not yet been identified. Receivables for which an impairment provision was recognised were written off against the provision when there was no expectation of recovering additional cash.

Market risk
The Group’s treasury function aims to reduce exposures to interest rate, foreign exchange and other financial risks, to ensure liquidity is available as and when required, and to invest cash assets safely and profitably. The Group does not engage in speculative trading in financial instruments. The treasury function’s policies and procedures are reviewed and monitoredpermitted by the audit committee and are subject to internal audit review.Group’s Treasury policy.


Foreign exchange risk

The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the Euro, UK Pound Sterling, Indian Rupee, Israeli Shekel, Japanese Yen, Canadian Dollar, Australian Dollar and the Canadian Dollar.Chinese Yuan. Foreign exchange risk arises from future commercial transactions, recognisedrecognized assets and liabilities and net investments in foreign operations. Foreign exchange risk arises when future commercialoperations where the transactions recognised assets and liabilities are denominated in a currency that is not the entity’s functional currency.


120
There were nothe net assets of foreign currency hedging transactionssubsidiaries into its reporting currency, US Dollar. The Group’s primary balance sheet translation exposures are noted in place at October 31, 2019. the Exposure analysis below. These exposures are kept under regular review with the Group treasury function providing reporting to the Treasury Risk committee and the Audit committee.

Group borrowings are denominated in US Dollars and Euros. The Group seeks to match the currency profile of borrowings to the cash flows arising from the Groups operations used to service those borrowings. The May 2020 debt refinancing included an additional proportion of Euro debt and a reduction in US Dollar debt which is intended to better match the currency profile of the Group’s debt with the cash flows used to service that debt (note 18 “Borrowings” of the Consolidated financial statements in Item 18.).

The Group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk. The Group faces currency exposures arising from the translation of profits earned in foreign currency subsidiaries into the Group’s reporting currency of US Dollars. As at October 31, 2021 two net investment hedges totaling €1.03 billion have been designated using non-derivative Euro debt instruments to minimize the volatility in shareholder’s equity arising from foreign currency translation (October 31, 2020 two net investment hedges totaling €1.05 billion).


Exposures also arise from foreign currency denominated trading transactions undertaken by subsidiaries and exposures here are not hedged.

The Group’s currency exposures comprise those that give rise to net currency gains and losses to be recognisedrecognized in the Consolidated statement of comprehensive income as well as gains and losses on consolidation, which go to reserves. Such exposures reflect the monetary assets and liabilities of the Group that are not denominated in the operating or functional currency of the operating unit involved and the Group’s investment in net assets in currencies other than US dollar.


Note 3 of the “notes to the consolidated financial statements “ in Item 18 shows theThe impact on the Consolidated statement of comprehensive income of foreign exchange losses in the 12 monthsyear ended October 31, October 20192021 of $11.3m (18 months ended 31 October 2018: $37.4m gain)$0.1 million (2020: $29.7 million loss).


SensitivityExposure report analysis

The Group’s principal exposures in relation to market risks are the changes in the exchange rates between the US Dollardollar and transactions made in other currencies as well as changes in interest rates from US Dollar LIBOR interest rates.and Euro capital markets. Foreign exchange exposures for all re-measuring balances are tracked and reported to management.management


The key drivers for foreign exchange exposure are cash, borrowings and inter-company positions with trade receivables and trade payables having less relative aggregate exposure. As at October 31, 2019, the key aggregate exposures involved the Euro, British Sterling, Japanese Yen, Israeli Shekel and Canadian Dollar. The table below illustrates the equity sensitivity analysis ofrepresents a key currency extract from the Group exposures to movements in currency and interest rates.

  
Group
exposure
   +/- 5%  +/- 10% 
+/- 1%
interest
 
Key aggregate currency exposures 
$m


$m


$m


$m
Euro  
512.6
   
25.6
   
51.2
     
GBP  
137.2
   
6.8
   
13.7
     
JPY  
69.6
   
3.5
   
6.9
     
ILS  
36.7
   
1.8
   
3.7
     
CAN$  
26.1
   
1.3
   
2.6
     
Borrowings -Interest rate LIBOR +1%
(based on gross debt excluding the effects of hedging)
  
n/a
   
n/a
   
n/a
   
47.75
 

Capital risk management
presenting exposures in excess of $10 million equivalent. The Group’s objective when managing its capital structures is to minimize the cost of capital while maintaining adequate capital to protect against volatility in earnings and net asset values. The strategy is designed to maximize shareholder return over the long-term.

The only financial covenant attaching to these facilitieskey exposure relates to the Revolving Facility, whichincreased Euro debt profile since the May refinancing. The Indian Rupee and Israeli Shekel had key inter-company positions during the year.

Foreign exchange analysis is subjectshown as for reporting to anthe Treasury Risk committee. Please note that aggregate net leverage covenant only in circumstances where more than 35%Foreign exchange exposures for the Euro below do not consider the impact of the Revolving Facility is outstanding at a fiscal quarter end. The facility was not utilized as at October 31, 2019 and therefore no covenant test is applicable.net investment hedges. However, the impact can be seen in the hedging table above.

The capital structure of the Group at the consolidated statement of financial position date is as follows:

  
October 31,
2019
  
October 31,
2018
 
  
$m


$m
Bank and other borrowings (net of arrangement fees)  4,670.7   
4,845.9
 
Finance lease obligations  23.5   
28.5
 
Less cash and cash equivalents  (355.7)  
(620.9
)
Total net debt  4,338.5   
4,253.5
 
Total equity  6,276.3   
7,792.0
 
Debt/equity %  69.1%  
54.6
%

Borrowings are shown here net of unamortized prepaid facility arrangement fees of $104.3m (October 31, 2018: $151.0m). Gross borrowings are $4,775.0m (October 31, 2018: $4,996.9m).


12172
  
Group
exposure
   +/- 5%  +/- 10%
Key aggregate currency exposures* 
$m

 
$m

 
$m

Euro (EUR)  1,504.6   75.2   150.4 
GB Pounds (GBP)  156.7   7.8   15.6 
Indian Rupee (INR)  64.4   3.2   6.4 
Japanese Yen (JPY)  53.0   2.7   5.3 
Australian Dollar (AUD)  32.5   1.6   3.3 
Canadian Dollar (CAD)  31.9   1.6   3.2 
Israeli Shekel (ILS)  29.5   1.5   3.0 
Chinese Yuan (CNY)  27.3   1.4   2.7 
Swedish Krona (SEK)  24.3   1.2   2.4 
United Arab Emirates Dirham (AED)  24.2   1.2   2.4 
Czech Koruna (CZK)  12.0   0.6   1.2 
Mexican Peso (MXN)  10.4   0.5   1.0 
Turkish Lira (TRY)  10.2   0.5   1.0 
Danish Krone (DKK)  10.1   0.5   1.0 
Change
* Presenting aggregate foreign exchange exposures in liabilities arising from financing activities for interest bearing loans and finance leases were as follows:excess of $10 million equivalent.


  
Interest
bearing
loans
  
Finance
Leases
  
Total
 
  
$m


$m


$m
At November 1, 2018
  
4,996.9
   
28.5
   
5,025.4
 
Draw down/New leases
  
-
   
9.0
   
9.0
 
Repayments
  
(212.6
)
  
(14.9
)
  
(227.5
)
Foreign exchange
  
(9.3
)
  
0.6
   
(8.7
)
At October 31, 2019
  
4,775.0
   
23.5
   
4,798.2
 

Interest rate exposure

Borrowings exposures to variable interest rate changes
(based on gross debt excluding the effects of hedging)
 Group exposure  
LIBOR,
EURIBOR +1%
 
 

$m
 
$m

Euro  1,186.9   11.9 
US dollar  3,421.1   34.2 
Total Gross Debt  4,608.0   46.1 

12273
Item 12.12Description of Securities Other than Equity Securities.


Item 12. A.12.ADebt Securities.


Not applicable


Item 12. B.12.BWarrants and rights.


Not applicableapplicable.


Item 12. C.12.COther Securities


Not applicable.


Item 12. D.12.DAmerican Depositary Shares.Shares


Fees and charges payable by ADS holders


Deutsche Bank Trust Company Americas (Deutsche Bank) was appointed as the depositary bank (the Depositary) for Micro Focus’s ADS program pursuant to the Deposit Agreement dated August 11, 2017 between Micro Focus, the Depositary and the owners and holders of ADSs (the Deposit Agreement).


The Deposit Agreement provides that ADS holders may be required to pay various fees to the Depositary, and the Depositary may refuse to provide any service for which a fee is assessed until the applicable fee has been paid.

The Depositary charges a fee for the operation and maintenance of administering the ADSs. The total fees charged by the Depositary are unchanged at $0.02 per ADS charged twice per year.

Service Fees
Issuance of ADSs including issuance from a distribution of shares and distribution of ADSs pursuant to bonus distributions, stock splits or other distributions. $5.00 (or less) per 100 ADSs (or portion of 100 ADSs).
Distribution of cash dividends. This fee is not currently charged.$5.00 (or less) per 100 ADSs (or portion of 100 ADSs).
An annual fee for operation and maintenance of administering the ADSs. $5.00 (or less) per 100 ADSs (or portion of 100 ADSs). The current per ADS fee to be charged for an interim or final dividend is $0.02 per ADS.
An annual fee forthe operation and maintenance of administering pf the ADSs. This feeADS is not currently charged.$5.00 (or less)$0.02 per 100 ADSs (or portion of 100 ADSs).ADS twice per year.
Transfer and registration of shares on share register to or from the name of the depositary or its agent when you deposit or withdraw shares Registration or transfer fees


In addition, ADS holders may be required under the Deposit Agreement to pay the Depositary: (a) taxes (including applicable interest and penalties) and other governmental charges; (b) registration fees; (c) certain cable, telex and facsimile transmission and delivery expenses; (d) the expenses and charges incurred by the Depositary in the conversion of foreign currency; (e) such fees and expenses as are incurred by the Depositary in connection with compliance with applicable exchange control regulations and other regulatory requirements; and (f) the fees and expenses incurred by the Depositary, the custodian or any nominee in connection with the servicing or delivery of deposited securities. The Depositary may: (a) withhold dividends or other distributions or sell for the account of any ADS holder any or all of the shares underlying the ADSs in order to satisfy any tax or governmental charge; and (b) deduct from any cash distribution the applicable fees and charges of, and expenses incurred by, the Depositary and any taxes, duties or other governmental charges on account.


Fees and payments made by the Depositary to Micro Focus

Under the terms of the contractual arrangements set out in the separate agreement between Micro Focus and the Depositary referred to above, Micro Focus received a total of approximately US$6.63.0 million from the Depositary, comprising fees charged in respect of dividendsthe semi-annual service fee collection for November 2020 and issuance and cancellationApril 2021. In addition to this, following the 2021 AGM the Depository paid $0.3 million to 3rd parties on behalf of ADSs during the year ended October 31, 2019.Micro Focus.


12374
PART II

PART II

Item 13.13Defaults, Dividend Arrearages and Delinquencies.


Not applicable.


Item 14.14Material Modifications to the Rights of Security Holders and Use of Proceeds.


Not applicable.


12475
Item 15.15Controls and Procedures.


Item 15. A.15.ADisclosure Controls and Procedures.


Disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”)) are designed to provide reasonable assurance that the information required to be (i) recorded, processed, summarized and reported within the time periods specified in  the SEC’s rules and forms and (ii) accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgmentjudgement in evaluating the cost benefit relationship of possible controls and procedures.


Based on their most recent evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of October 31, 2019,2021, the Company’s disclosure controls and procedures were not effective as a result of the material weakness in our internal control over financial reporting described below. Notwithstanding the material weakness described below, our management, including our Chief Executive Officer and Chief Financial Officer, believes that the audited consolidated financial statements contained in this Annual Report on Form, 20-F fairly present, in all material respects, our financial condition, results of operations and cash flows for the fiscal years presented in conformity with IFRS. In addition, the material weaknessweaknesses described below did not result in a material misstatement to the financial statements.


Please see Exhibits 12.1 and 12.2 for the certifications required by this Item.


Item 15. B.15.BManagement’s annual report on internal control over financial reporting


As a foreign issuer with American Depositary Shares listed on the New York Stock Exchange (“NYSE”) the Group, as part of its disclosure and reporting obligations in the United States, is required to furnish this annual reportAnnual Report by its management on its internal controls over financial reporting, including an attestation report issued by its independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (“SOX”) as at October 31, 2019.2021.


Management is responsible for establishing and maintaining adequate internal controls over financial reporting for the Group. Internal control over financial reporting is defined in Rules13a-15(f)Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act. The Group’s internal controls over financial reporting include policies and procedures which:




-
are designed to give reasonable assurance that the transactions are recorded as necessary to permit the preparation of financial statements in accordance with IFRS as adopted by the EU and IFRS as issued by the IASB, and that receipts and expenditures are being made only in accordance with authorization of management and the Directors;
directors;




-
relate to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and disposal of assets; and




-
give reasonable assurance regarding the prevention or timely detection of unauthorized use, acquisition or disposal of the Group’s assets that could have a material impact on the financial statements.


Any internal control network will have inherent limitations, such that the possibility of human error and circumvention or overriding of controls and procedures may not prevent or detect misstatements. In addition, the projection of any controls to future periods are subject to the risk that controls may become inadequate due to changes in conditions or because the degree of compliance with policies and procedures may deteriorate.


Management assessed the effectiveness of internal controls over financial reporting as at October 31, 20192021 based on the Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission 2013. Based on the assessment, management concluded that its internal control over financial reporting was not effective due to the following material weakness. Theweakness: In July, the Company did not have adequate controls surrounding existing IT applications, in particular regarding change management and access controls. As a result of those deficiencies, automatedcompleted the migration to its new enterprise-wide application platform (“Enterprise Platform”) which included new business controls and IT general controls over information produced(“ITGC’s). There was not sufficient time to allow ITGC’s and related business controls to operate effectively by the entity could not be relied upon. TheseOctober 31, 2021. In aggregate, these control deficiencies in aggregateimpact all financial reporting processes and constitute a material weakness. This material weakness did not result in material misstatement to the financial statements.


Our consolidatedConsolidated financial statements have been audited by KPMG LLP, an independent registered public accounting firm, which has issued an attestation report expressing an adverse opinion on the Company’seffectiveness of internal control over financial reporting, as at October 31, 2019with respect to this material weakness in this Annual Report on Form 20-F.


12576
Item 15. C.15.C
Attestation report of the registered public accounting firm


Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors
Micro Focus International plc:plc.:


Opinion on Internal Control Over Financial Reporting


We have audited Micro Focus International plc and subsidiaries (thesubsidiaries’ (the Company) internal control over financial reporting as of October 31, 2019,2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.Commission”. In our opinion, because of the effect of the material weakness, described below, on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of October 31, 2019,2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.


We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheetsstatements of financial position of the Company as of October 31, 20192021 and 2018,2020, the related consolidated statements of income, comprehensive income, stockholders’changes in equity, and cash flows for each of the twelve monthyears in the three-year period ended October 31, 2019 and eighteen month period ended October 31, 2018,2021, the summary of significant accounting policies and the related notes (collectively, the consolidatedConsolidated financial statements), and our report dated February 20, 202024, 2022 expressed an unqualified opinion on those consolidatedConsolidated financial statements.


A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’sCompany’s annual or interim financial statements will not be prevented or detected on a timely basis. A material weakness related to deficient controls surrounding IT Applications in the areas of change management and access controls has been identified and included in management’s assessment. As a result of those deficiencies, automatedassessment related to ineffective IT general controls and related business controls over information produced byfollowing the entity could not be relied upon.migration to a new enterprise platform in July 2021. In aggregate, these deficiencies impact all financial reporting processes and constitute a material weakness. The material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2019 consolidatedOctober 31, 2021 Consolidated financial statements, and this report does not affect our report on those consolidatedConsolidated financial statements.


Basis for Opinion


The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal ControlsControl over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.


We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.


Definition and Limitations of Internal Control Over Financial Reporting


A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.


12677
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


/s/ KPMG LLP

London, United Kingdom
February 20, 202024, 2022


12778
Item 15. D.15.DChanges in internal control over financial reporting.


In the period, the Group completed the migration from legacy IT applications and infrastructure to the Enterprise Platform. The Enterprise Platform enables further improvement to process and controls. Improvements for the business include refining functional process and organisational simplification as referred to in Item 3.D, Item 5.A and Item 5.D. The migration was successfully completed in two planned phases, the first completed in January 2021 and the second completed in July 2021. The majority of the work was carried out within the requirements of remote working under COVID-19 restrictions. The timing of the phases meant that there was insufficient time prior to the financial year end to allow ITGC’s and related business controls to operate effectively.

During the period the Group continued to implement amonitor and maintain the framework of SOX compliant internal controls under its central SOX Implementation Programme (SIP),Compliance Program (“SCP”) on the legacy systems as well as preparing and implementing controls for the Enterprise Platform. The SCP worked together with a specialist team from its outsourced Internal Audit Partner.internal audit partner, PwC. Governance for the SIPSCP included a cross functionalcross-functional SOX Steering Groupsteering group (“SSG”) chaired by the Group’s Chief Financial Officer reporting to the Audit Committee.. In addition, the Disclosure Committee, also chaired by the Chief Financial Officer,cross functional disclosure committee continued to meet to assist the Chief Executive Officer and Chief Financial Officer in fulfilling their responsibilities in connection with the accuracy of financial reporting. The Group strengthened internal compliance by putting in place new Finance Compliancethe appointment of an additional team from PwC to work alongside the business and Revenue Assurance teams. In addition, the Finance function established a Finance Processes and Compliance Committee. The SIP was implemented during a period of significant change across the organization. Change activities include a phased Finance Transformation Programme and work on the new simplified system architecture as setEnterprise Platform implementation project team to carry out in Item 4.B. Business Overview. As part of the governance, the SSG monitors potential adverse impacts of organizational change to the SIP.

The SIP included end-to-end process mapping walkthroughs, Test of Design and Test of Effectiveness acrosssupport Risk and Control Matrix (“RACM”) development for the Group’s main processes, Hire to Retire, Quote to Cash, Procurement to Pay and Record to Report, as well as IT General Controls (ITGC), leading to the development of documented controls for each process. A Global Process Owner owns each process and its associatednew Enterprise Platform controls. In the period, the Group has also reviewed its Entity Level Controls and continued with the implementation of a SOX training plan across relevant parts of the Group. A key work stream of the SIP relatedSCP also relates to the adequacy of ITGCs. The challenges with the IT systems, including controls acquired with the HPE Software business, were disclosed in our Annual Report and Accounts 2018 and the 2018 Form 20-F. Consequently, the business remained on its legacy IT systems, necessitating business process controls and ITGCs across both systems with the attendant complexity to the control environment. The work undertaken as part of the SIPSCP identified a number of areas for improvement in the Group’s ITGCs. A remediation plan was agreed, which formedforms part of the SIP.SCP. Work in this area was carried out under an IT SOX Compliance Group chaired by the Chief Information Security Officer (CISO) reporting to the main SSG.


In the Annual Report and Accounts 2018 andyear, the 2018Group has also reviewed its entity-level controls including continued supplementary SOX training plan across relevant parts of the Group. As part of the overall governance, the SSG continues to monitor potential adverse impacts of organisational change to the SCP.

In the 2020 Form 20-F the Group reported certain weaknesses in its internal control over financial reporting, which under Public Company Accounting Oversight Board auditing standards were considered to be a material weaknesses.weakness. The material weaknessesweakness related to the fact that the GroupCompany did not have sufficient formally documentedadequate controls at that time surrounding existing IT applications, in particular regarding change management and implemented processesaccess control. These controls and review procedures, nor did it have sufficient formality and evidence of controls over key reports and spreadsheets. Duringcontrol deficiencies were then superseded in the year underby the SIP, management, where possible, put in place a number of actions to remediate these weaknesses and strengthen internal controls. The actions included, but were not limited to, implementing new controls both preventative and detective in nature, increasing the precision with which controls operate, ensuring clear ownership of every control, and implementing checks on the completeness and accuracy of reports that are relied upon as part of key control operation. Within the IT environment, and where technical limitations allowed, improvements included updated change management controls as well as increased access control and monitoring to IT applications.Enterprise Platform.


Remediation


The Group continues its work under the SIPSCP to remediate the material weakness and other control deficiencies, and any other matters, which arise during its progress towards SOX compliance. As set out in Item 4.B. Business Overview, the Groupbusiness commenced the new financial year operating on the Enterprise Platform it has a project underwayalso been able to move to a simplified systems architecture enabling further automation of improved processes and controls. implement an enhanced testing program for year ended October 31, 2022.

To maintain the required control environment the Group relies upon automated, semi- automatedsemi-automated and manual controls together with a combination of preventative and detective controls. The material weakness, control deficiencies and other matters may not be able to be remediated by October 31, 2020,2022, and there is a risk that other deficiencies for the purposes of SOX may be identified. Failure to correct the material weakness, or our failure to discover and address any other material weakness or control deficiencies, could result in inaccuracies in our financial statements, and impair our ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis. It could also result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of the Group’s financial statements and could have a material adverse effect on the Group’s business, financial condition, results of operation and prospects.


12879
Item 16

Item 16. A.16.AAudit committee audit report expert


The Audit Committee includes Richard Atkins who, in the opinion of the Board, is an ‘audit committee financial expert’ and is independent (as defined for this purpose in 17 CFR 240.10A-3).  The board considered that the Committee’s members have broad commercial knowledge and extensive business leadership experience, having held between them various roles in major business, financial management, and finance function supervision and that this constitutes a broad suitable mix of business and financial experience on the committee.


Item 16. B.16.BCode of ethics


Micro Focus has adopted aan updated code of ethics in the year ended October 31, 2021 (the Micro Focus Code of Conduct) which applies to all employees including the chief executive officerChief Executive Officer and chief financial officerChief Financial Officer and other senior financial management. This code of ethics is available on our website (https://www.microfocus.com/media/guide/micro_focus_code_of_conduct_guide.pdf). The information on our website is not incorporated by reference into this report.


The Code of Ethics is included as Exhibit 11.1 MF Code of Conduct Guide.

Item 16. C.16.CPrincipal accountant fees and services

The Audit Committee approves all non-audit work commissioned from the external auditors.


During the 12 monthsyears ended October 31, 2021, 2020 and 2019, the 18 months ended October 31, 2018, the 12 months ended April 30, 2017, the Group obtained the following services from the Group’s auditors as detailed below:


 
12 months
ended
October 31, 2019
  
18 months
ended
October 31, 2018
  
12 months
ended
April 30, 2017
  
Year
ended
October 31, 2021
  
Year
ended
October 31, 2020
  
Year
ended
October 31, 2019
 
 
$m
 
$m

$m
 
$m

 
$m

 
$m

Audit fees
 19.7  
15.1
  
6.1
 
Audit-related fees
 0.6  
0.1
  
0.1
 
Audit of Company 8.0  7.2  12.8 
ICOFR 4.7  2.7  3.0 
Audit of subsidiaries 2.8  2.9  3.9 
Total audit fees 15.5  12.8  19.7 
         
Audit-related assurance fees 0.5  0.6  0.6 
Other assurance services -  -  - 
Total audit related fees 0.5  0.6  0.6 
         
Tax compliance services -  -  - 
Tax advisory services -  -  0.1 
Tax fees
 0.1  
0.4
  
0.1
  -  -  0.1 
         
All other fees
 -  
0.6
  
7.5
  -  -  - 
         
Total 20.4  
16.2
  
13.8
  16.0  13.4  20.4 


The 12 months ended October 31, 2019 and the 18 months ended October 31, 2018 fees represent fees paid to KPMG LLP, as the current auditor. Fees for the year ended April 30, 2017 represent amounts paid to the previous auditor, PricewaterhouseCoopers LLP.


There were no other fees in the 12 monthsyears ended October 31, 2019. Other fees in the 18 months ended October 31, 2018 relate primarily to the auditor’s assurance work in relation to the SUSE divestiture2021, 2020 and license verification compliance work. Other fees in the 12 months ended April 30, 2017 relate primarily to the auditor’s work as reporting accountants and due diligence in respect of the acquisition of the HPE Software business.2019.


Independence and objectivity of the external auditors
The Audit Committee approves all non-audit work commissioned from the external auditors. The committee is responsible for safeguarding the independence and objectivity of the external auditors and has developed a robust policy designed to ensure that this is not compromised. As explained above, the committee manages the risks that the external auditors undertake inappropriate non- audit work, or earn material levels of fees for non-audit services. It also considers the standing and experience of the external audit partner and takes comfort from the fact that KPMG took office relatively recently and from the external auditors’ confirmation that they have complied with relevant UK and US independence standards.


The committee is satisfied that the independence and objectivity of the external auditors has been maintained throughout the year ended October 31, October 20192021 and to the date of this report.


12980
Item 16. D.16.DExemptions from the listing standards for audit committees


Not applicable.


Item 16. E.16.EPurchase of equity securities by the issuer and affiliated purchases


On August 29, 2018,The purchase of shares shown in the Company announced the start of a share buy-back program for an initial tranche of up to $200m, which was extendedtable below were made on November 5, 2018 to a total value of $400 million (including the initial tranche). On February 14, 2019, the buy-back program was extended into a third tranche of up to $110 million up until the day before the AGM which took place on March 29, 2019 when the current buy-back authority approved by shareholders at the 2017 AGM to make market purchases of up to 65,211,171 ordinary shares expired.

On July 17, 2019, the Company announced a new share buy-back program with an initial tranche of up to $200 million. The Programme was effected in accordance with the termsbehalf of the authority grantedGroup’s all-employee share plans (a Sharesave plan and an Employee Stock Purchase Plan see Item 6E for further details on these plans) by shareholders at the 2019 AGM and the Listing Rules. On October 3, 2019, the Company completed the $200 million share buy-back program.Micro Focus Employee benefit trust (“EBT”). The total amount bought back under share buy-back programs was $710.0 million, excluding expenses.

In addition to purchasing ordinary shares on the London Stock Exchange Citi acquired ADRs representing ordinary shares listed on the New York Stock Exchange which it cancelled for the underlying shares and then sold such shares to the Company.

Shares bought back under these programs are held as treasury shares. Treasury share movements and share buy-back costs are shown below:

  
12 months ended
31 October 2019
  
18 months ended
31 October 2018
  
Total
 
Treasury shares Number  Number  Number 
Share buy-backs  29,160,054   
9,858,205
   
39,018,259
 
Shares issued to satisfy option awards  (4,804,817)  
-
   
(4,804,817
)
Share reorganization  (4,012,537)  
-
   
(4,012,537
)
   20,342,700   
9,858,205
   
30,200,905
 
             
Share buy-backs numbers:            
Ordinary shares bought on the London Stock Exchange  25,766,919   
8,567,659
   
34,334,578
 
ADRs purchased on the New York Stock Exchange  3,393,135   
1,290,546
   
4,683,681
 
   29,160,054   
9,858,205
   
39,018,259
 
             
Share buy-back cost: $ m 
$
 
m
 
$
 
m
Share buy-back cost  538.8   
171.2
   
710.0
 
Expenses  5.9   
0.5
   
6.4
 
   544.7   
171.7
   
716.4
 

The weighted average price of shares bought backEBT is included in the 12 monthsconsolidated financial statements in Item 18 therefore these purchases are treated as Treasury shares; however, they are owned by the EBT and can only be used to settle employee benefits for eligible employees.

Period 
Total Number of
Shares purchased
  
Average price paid
per share
  
Total Number of Shares
purchased as part of
publicly announced
plans or
programs
  
Maximum number of
Shares that may yet be
purchased under the
plans or
programs
 
November 1, 2020 to November 30, 2020  -   -   -   - 
December 1, 2020 to December 31, 2020  -   -   -   - 
January 1, 2021 to January 31, 2021  -   -   -   - 
February 1, 2021 to February 28, 2021  -   -   -   - 
March 1, 2021 to March 31, 2021  4,000,000
1 
 $6.81   -   - 
April 1, 2021 to April 30, 2021  -   -   -   - 
May 1, 2021 to May 31, 2021  -   -   -   - 
June 1, 2021 to June 30, 2021  -   -   -   - 
July 1, 2021 to July 31, 2021  -   -   -   - 
August 1, 2021 to August 31, 2021  -   -   -   - 
September 1, 2021 to September 30, 2021  -   -   -   - 
October 1, 2021 to October 31, 2021  -   -   -   - 
Total  4,000,000  $6.81   -   - 
1 During the year ended October 31, 2019 was £14.61 per2021 the Micro Focus Employee Benefit Trust (“EBT”) purchased four million of the Group’s shares in open-market transactions. The EBT will hold these shares to satisfy future exercises of share (18 months ended October 31, 2018 was £13.82 per share).options.

  
(a) Total
Number of
Shares
Purchased
  
(b) Average
Price Paid
per Share
  
(c) Total Number of
Shares (or Units)
Purchased as Part of
Publicly Announced
Plans or Programs
  
(d) Maximum Number
(or Approximate
Dollar Value) of
Shares ( or Units) that
May Yet Be Purchased
Under the Plans or
Programs
 
Period Number  
$
  Number  
$m
Brought forward November 1, 2018  
-
   
-
   
9,858,205
   
29.9
 
Month 1
Beginning November 1 2018;
Ending November 30, 2018
  
3,578,352
   
18.19
   
13,436,557
   
164.8
 
Month 2
Beginning December 1 2018;
Ending December 31, 2018
  
5,169,819
   
17.93
   
18,606,376
   
72.1
 
Month 3
Beginning January 1 2019;
Ending January 31, 2019
  
3,072,744
   
18.45
   
21,679,120
   
15.4
 
Month 4
Beginning February 1 2019;
Ending February 28, 2019
  
2,501,024
   
22.34
   
24,180,144
   
69.5
 
Month 5
Beginning March 1 2019;
Ending March 31, 2019
  
2,761,993
   
25.08
   
26,942,137
   
-
 
Month 6
Beginning April 1 2019;
Ending April 30, 2019
  
-
       
26,942,137
   
-
 
Month 7
Beginning May 1 2019;
Ending May 31, 2019
  
-
       
26,942,137
   
-
 
Month 8
Beginning June 1 2019;
Ending June 30, 2019
  
-
       
26,942,137
   
-
 
Month 9
Beginning July 1 2019;
Ending July 31, 2019
  
1,638,503
   
21.22
   
28,580,640
   
165.2
 
Month 10
Beginning August 1 2019;
Ending August 31, 2019
  
4,149,814
   
18.88
   
32,730,454
   
86.9
 
Month 11
Beginning September 1 2019;
Ending September 30, 2019
  
5,983,282
   
13.87
   
38,713,736
   
3.9
 
Month 10
Beginning October 1 2019;
Ending October 31, 2019
  
304,523
   
14.24
   
39,018,259
   
-
 
Total  
29,160,054
   
18.61
   
39,018,259
   
-
 

Item 16. F.16.FChange in Registrant’s certifying accountant


On April 11, 2017, Micro Focus announced that KPMG LLP (“KPMG”) had been successful in a competitive tender process to serve as its independent registered public accounting firm to audit its consolidated financial statements for the period beginning May 1, 2017. The audit tender process was led by the Audit Committee and arose because PricewaterhouseCoopers LLP (“PwC”) have a joint business arrangement with HPE Software which was expected to and has continued after the close of the business combination between Micro Focus and HPE Software. Consequently, PwC would not have been independent of Micro Focus following the close of the transaction with HPE Software and therefore could not continue to be the Company’s independent registered public accounting firm. On September 1, 2017, PwC resigned as the independent registered public accounting firm of Micro Focus. KPMG was formally appointed as the independent registered public accounting firm at the Micro Focus Annual General Meeting on September 4, 2017.Not applicable.

During the Micro Focus fiscal years ended April 30, 2016 and 2017, and the subsequent interim periods through September 1, 2017, there were “reportable events” as that term is used in Item 16F(a)(1)(v)(A)-(D) of Form 20-F. In relation to the fiscal year ended April 30, 2017, material weaknesses were identified that related to the fact that the Group did not have sufficient formally documented and implemented processes and review procedures, nor did it have sufficient formality and evidence of controls over key reports and spreadsheets.

Item 16. G.16.GCorporate Governance


Principles

Micro Focus International plc (the “Company”) has a primary listing on the London Stock Exchange. As such, it is required to comply with the UK Corporate Governance Code (the “Code”). For the year ended October 31, 20192021 this was the edition of the Code published by the UK’s Financial Reporting Council in April 2016.July 2018.


The Company’s ADSs are listed on the NYSE. As a Foreign Private Issuer, we are required to comply with some, but not all, of the NYSE’s corporate governance rules, and are required to disclose any significant ways in which the UK corporate governance practices employed by the Company differ from those followed by US companies under the NYSE listing standards.Listed Company Manual.


The directors are committed to ensuring that the Company operates in compliance with the main principles of the Code, as this provides a robust governance framework in support of the delivery of value to shareholders.


81
Compliance with the Code


UK listed companies are required to include in their Annual Report a narrative statement of (i) how they have applied the principles of the Code and (ii) whether or not they have complied with each of the provisions of the Code.


Throughout the year ended October 31, 20192021 and to the date of this report, the Board considers that the Company has been in full compliance with the principles of the Code, and with each of its provisions, other thansave for one element of Provision 38 in relation to the alignment of pension contribution rates.  Under Provision 38 the Company is partially compliant with this provision A.2.1. This single instanceand will be fully compliant in the alignment of non-compliancepension contribution rates for the executive directors with the wider workforce at the end of 2022. The pension contribution rate for Stephen Murdoch will be aligned at the end of 2022 as set out in the Directors’ Remuneration Policy which was approved by shareholders at the 2020 Annual General. The rate for Matt Ashley is as a resultalready aligned, and the rates for any new director on joining would be aligned with the wider workforce.

Non-executive directors’ Independence

Each of Kevin Loosemore’s role as Executive Chairman. A separate Chief Executive Officer has been in place at all timesthe non-executive directors who served during the financial period butNovember 1, 2020 to October 31, 2021, was considered by the Executive Chairman still retains executive responsibility for strategy, M&A activities, investor relations and executive director development. Stephen Murdoch, as Chief Executive Officer, is responsible for the evolution and delivery of the strategy and the day-to-day operation of the business. Kevin Loosemore continuesBoard to work to ensure an orderly transition of executive responsibilitiesbe independent. Karen Slatford1 was appointed to the Chief Executive Officer.

In orderBoard in July 2010 and has now served for more than ten years. The Board has specifically considered whether this was likely to mitigate any potential concerns around the concentration of decision-making power within the role of the Executive Chairman, the senior independent non-executive director, Karen Slatford, has separateaffect, or could appear to affect, her independence and defined responsibilities, including leading the board’s consideration ofconcluded that she continued to demonstrate independence in thought and deliberations on governance issues. In the year under review, this included overseeing the annual review of board effectiveness. As a further mitigation against any excess concentration of power, thejudgement, noting that there were no other relationships or circumstances that could affect her independence. The independent non-executive directors comprise a majority of the Board. In accordance with the Companies Act 2006, the Company has put in place procedures to deal with conflicts of interest, which have operated effectively. The board is aware of the other commitments of its directors and is satisfied that these do not conflict with their duties as directors of the Company. Any changes to these commitments are reported to the board.


The non-executive directors have metmeet together regularly without the Executive Chairman presentpresence of executive directors.  In addition, the Senior Independent Director meets with the non-executive and executive directors at least once a year to appraisereview the Executive Chairman’s performance. The meeting was chaired by the senior independent non-executive director, Karen Slatford.  A majorityperformance of the board is made up of independent non-executive directors.Non-Executive Chairman and to consider whether to recommend his re-election, providing feedback directly to the Chairman.


On1 As announced on February 14, 2020 the Executive Chairman, Kevin Loosemore, resigned from8, 2022, Karen Slatford has informed the Board of directors and on the same date Greg Lock was appointedher intention to retire as a non-executive director and as non-executive Chairmanof Micro Focus International Plc, following the conclusion of the Board.  The Company’s non-compliance with provision A.2.1 of the Code therefore ended on that date.2022 Annual General Meeting and consequently will not be seeking re-election.


Committees of the board of directors


The Company has three principal Board committees that are broadly comparable in purpose and composition to those required by NYSE rules for domestic US companies. For instance, the Company has a Nomination (rather than nominating/corporate governance) Committee and a Remuneration (rather than compensation) Committee. The Company also has an Audit Committee, which NYSE rules require for both US companies and foreign private issuers. All the committees are comprised of Non-Executive Directorsnon-executive directors only and none of the functions of these committees has been delegated to another committee.


Each Board Committee has clearly defined terms of reference approved by the Board setting out their respective authority and duties.  The terms of reference for each committee can be found on the Company’s website at www.microfocus.com.https://www.microfocus.com/en-us/governance-policies/committees-of-the-board


Under the US Securities Exchange Act of 1934 and the listing standards of the NYSE Listed Company Manual, the Company is required to have an audit committee that is comprised of at least three members from the independent non-executive directors of the Company’s Board. Our Audit Committee complies, and during the year ended October 31, 20192021 has complied, with these requirements. As stated in Item 16.A. above, the Board has determined that Richard Atkins possesses ‘accounting or related financial management expertise’, as required by rulesection 303A.07 (a) of the NYSE listing rules.Listed Company Manual. Richard Atkins also possesses the financial and audit committee experience set forth in the Code.


The Company’s Audit Committee does not have direct responsibility for the appointment, reappointment or removal of the independent auditors. Instead, it follows the UK Companies Act 2006 by making recommendations to the Board on these matters for it to put forward for shareholder approval at the AGM.

13382
Shareholder approval of equity compensation plans


Under NYSE listing rules, shareholders must be given the opportunity to vote on all equity-compensation plans and material revisions thereto, except for employment inducement awards, certain grants, plans and amendments in the context of mergers and acquisitions, and certain specific types of plans. The Company complies with corresponding UK requirements in the Listing Rules, requiring the Company to seek shareholder approval for employee share schemes and significant changes to existing schemes, save in circumstances permitted by the Listing Rules (Listing Rule 9.4.1). The Board, however, does not explicitly take into consideration the NYSE’s detailed definition of what are considered ‘material revisions’.


Corporate Governance Guidelines


RuleSection 303A.09 of the NYSE listing rulesListed Company Manual requires listed companies to adopt and disclose corporate governance guidelines. As noted above, in line with its obligations under the UK’s Listing Rules the Company applies the UK Corporate Governance Code and, as required by the Listing Rules, the UK Annual Report contains an explanation of (i) how it has applied the principles of the Code, and (ii) whether it complies in full with the Code’s provisions, or, where it does not, providing an explanation of any non-compliance and the reasons for this (LR 9.8.6).


In addition, the Company is required to make certain mandatory corporate governance statements in accordance with the UK Listing Authority’s Disclosure Guidance and Transparency Rules, DTR 7, which are also included in the Group’s UK Annual Report.Report and Accounts available on the Group’s website https://www.microfocus.com/en-us/investors/investor-download-centre.


Code of Business Conduct and Ethics

The Micro Focus Code of Conduct is available on the Company’s website at www.microfocus.com.


Item 16.HMine Safe Disclosure

Not applicable.

Item 16.IDisclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

13483
PART III
Item 16. H.Mine Safety Disclosure
Not applicable.

PART III

Item 17.17Financial Statements

Not applicable.


Item 18.18Financial Statements

The financial statements filed as part of this Annual Report on Form 20-F are included in Item 18 on pages F-1 through F-121F-92 hereof.


Item 19.19Exhibits

The following exhibits are filed as part of this report:


Articles of Association of Micro Focus International plc.
2.1
Description of the rights of each class of securities registered under Section 12 of the Exchange Act
  
4.1
Credit Agreement amendments, among Micro Focus International plc, Micro Focus Group Limited, MA FinanceCo., LLC, the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral Agent. (incorporated by reference to Exhibit 10.2 to the Registration Statement on Form F-4 (File No. 333-219678) filed with the Securities and Exchange Commission on August 4, 2017).
  
8.14.2
List of Significant Subsidiaries
Credit Agreement amendments, among Micro Focus International plc, Micro Focus Group Limited, Seattle Spinco, Inc., the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral Agent.
  
11.1
Code of Conduct
conduct
  
12.1
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  
12.2
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  
13.1
Certification of Stephen Murdoch under Section 906 of the Sarbanes-Oxley Act of 2002
  
13.2
Certification of Brian McArthur-MuscroftMatt Ashley under Section 906 of the Sarbanes-Oxley Act of 2002
  
15.1
Consent of KPMG LLP.

Consent of PricewaterhouseCoopers LLP.
Unaudited financial statements for the 12 months ended October 31, 2018 and the six months ended October 31, 2017.
101.INS
Inline XBRL Instance Document (the instance document does not appear in the Interactive Date File because its XBRL tags are embedded with the Inline XBRL document)


101.SCH
Inline XBRL Taxonomy Extension Schema Document


101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document


101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document


101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document


101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document

104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

13684
Signature


Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the RegistrantThe registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report to be signedannual report on its behalf by the undersigned, thereunto duly authorized.behalf.


Micro Focus International plc


/s/ Stephen Murdoch


Stephen Murdoch

Chief Executive Officer

Date:  February 20, 2020

Consolidated financial statements and notes

F-2
Reports of Independent Registered Public Accounting Firms
F-5
Consolidated statements of comprehensive income
F-11
Consolidated statements of financial position
F-13
Consolidated statements of changes in equity
F-16
Consolidated statements of cash flows
F-17
Summary of significant accounting policies
F-38
Notes to the consolidated financial statements

Report of Independent Registered Public Accounting Firm


To the Shareholders and Board of Directors
Micro Focus International plc:plc.:


Opinion on the ConsolidatedInternal Control Over Financial StatementsReporting


We have audited the accompanying consolidated statements of financial position of Micro Focus International plc and subsidiariessubsidiaries’ (the Company) internal control over financial reporting as of October 31, 2019 and 2018,2021, based on Internal Control – Integrated Framework (2013) issued by the related consolidated statementsCommittee of comprehensive income, changes in equity, and cash flows forSponsoring Organizations of the twelve month period ended October 31, 2019 and the eighteen month period ended October 31, 2018, and the related notes (collectively, the consolidated financial statements)Treadway Commission”. In our opinion, the consolidated financial statements present fairly, in all material respects, the financial positionbecause of the effect of the material weakness, described below, on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of October 31, 2019 and 2018, and the results of its operations and its cash flows for each of the periods then ended,2021, based on criteria established in conformity with International Financial Reporting Standards (“IFRS”) asInternal Control – Integrated Framework (2013) issued by the International Accounting Standards Board (“IASB”).

We also have audited the adjustments to the 2017 consolidated financial statements to retrospectively reflect discontinued operations (as described in note 37) and to retrospectively reflect changes in segment reporting (as described in note 1). In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to the 2017 consolidated financial statementsCommittee of Sponsoring Organizations of the Company other than with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2017 consolidated financial statements taken as a whole.Treadway Commission.


We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’sconsolidated statements of financial position of the Company as of October 31, 2021 and 2020, the related consolidated statements of comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended October 31, 2021, the summary of significant accounting policies and the related notes (collectively, the Consolidated financial statements), and our report dated February 24, 2022 expressed an unqualified opinion on those Consolidated financial statements.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, assuch that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. A material weakness has been identified and included in management’s assessment related to ineffective IT general controls and related business controls following the migration to a new enterprise platform in July 2021. In aggregate, these deficiencies impact all financial reporting processes and constitute a material weakness. The material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the October 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission,2021 Consolidated financial statements, and this report does not affect our report dated February 20, 2020 expressed an adverse opinion on the effectiveness of thethose Consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 1, the Company changedreporting and for its method of accounting for revenue from contracts with customers as of November 1, 2018 due to the adoption of IFRS 15, Revenue from Contracts with Customers.

Basis for Opinion

These consolidated financial statements are the responsibilityassessment of the Company’s management.effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these consolidatedthe Company’s internal control over financial statementsreporting based on our audits.audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.


We conducted our auditsaudit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the consolidated financial statements are freerisk that a material weakness exists, and testing and evaluating the design and operating effectiveness of material misstatement, whether due to error or fraud.internal control based on the assessed risk. Our auditsaudit also included performing such other procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosuresas we considered necessary in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.circumstances. We believe that our audits provideaudit provides a reasonable basis for our opinion.


Critical Audit MattersDefinition and Limitations of Internal Control Over Financial Reporting


A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

77
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG LLP
London, United Kingdom
February 24, 2022

78
Item 15.DChanges in internal control over financial reporting.

In the period, the Group completed the migration from legacy IT applications and infrastructure to the Enterprise Platform. The Enterprise Platform enables further improvement to process and controls. Improvements for the business include refining functional process and organisational simplification as referred to in Item 3.D, Item 5.A and Item 5.D. The migration was successfully completed in two planned phases, the first completed in January 2021 and the second completed in July 2021. The majority of the work was carried out within the requirements of remote working under COVID-19 restrictions. The timing of the phases meant that there was insufficient time prior to the financial year end to allow ITGC’s and related business controls to operate effectively.

During the period the Group continued to monitor and maintain the framework of SOX compliant internal controls under its central SOX Compliance Program (“SCP”) on the legacy systems as well as preparing and implementing controls for the Enterprise Platform. The SCP worked together with a specialist team from its outsourced internal audit partner, PwC. Governance for the SCP included a cross-functional SOX steering group (“SSG”). In addition, the cross functional disclosure committee continued to meet to assist the Chief Executive Officer and Chief Financial Officer in fulfilling their responsibilities in connection with the accuracy of financial reporting. The Group strengthened internal compliance by the appointment of an additional team from PwC to work alongside the business and the Enterprise Platform implementation project team to carry out end-to-end process mapping and support Risk and Control Matrix (“RACM”) development for the new Enterprise Platform controls. A key work stream of the SCP also relates to the adequacy of ITGCs. The work undertaken as part of the SCP identified a number of areas for improvement in the Group’s ITGCs. A remediation plan was agreed, which forms part of the SCP. Work in this area was carried out under an IT SOX Compliance Group chaired by the Chief Information Security Officer (CISO) reporting to the main SSG.

In the year, the Group has also reviewed its entity-level controls including continued supplementary SOX training plan across relevant parts of the Group. As part of the overall governance, the SSG continues to monitor potential adverse impacts of organisational change to the SCP.

In the 2020 Form 20-F the Group reported certain weaknesses in its internal control over financial reporting, which under Public Company Accounting Oversight Board auditing standards were considered to be a material weakness. The material weakness related to the fact that Company did not have adequate controls at that time surrounding existing IT applications, in particular regarding change management and access control. These controls and control deficiencies were then superseded in the year by the controls on the Enterprise Platform.

Remediation

The critical auditGroup continues its work under the SCP to remediate the material weakness and other control deficiencies, and any other matters, communicated below arewhich arise during its progress towards SOX compliance. As the business commenced the new financial year operating on the Enterprise Platform it has also been able to implement an enhanced testing program for year ended October 31, 2022.

To maintain the required control environment the Group relies upon automated, semi-automated and manual controls together with a combination of preventative and detective controls. The material weakness, control deficiencies and other matters arising from the current period audit of the consolidated financial statements that were communicated or requiredmay not be able to be communicatedremediated by October 31, 2022, and there is a risk that other deficiencies for the purposes of SOX may be identified. Failure to correct the audit committeematerial weakness, or our failure to discover and that: (1) relate to accountsaddress any other material weakness or disclosures that are material to the consolidatedcontrol deficiencies, could result in inaccuracies in our financial statements, and (2) involvedimpair our especially challenging, subjective, or complex judgments. The communicationability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis. It could also result in an adverse reaction in the financial markets due to a loss of critical audit matters does not alterconfidence in any way our opinionthe reliability of the Group’s financial statements and could have a material adverse effect on the consolidatedGroup’s business, financial statements, taken ascondition, results of operation and prospects.

79
Item 16

Item 16.AAudit committee audit report expert

The Audit Committee includes Richard Atkins who, in the opinion of the Board, is an ‘audit committee financial expert’ and is independent (as defined for this purpose in 17 CFR 240.10A-3).  The board considered that the Committee’s members have broad commercial knowledge and extensive business leadership experience, having held between them various roles in major business, financial management, and finance function supervision and that this constitutes a whole,broad suitable mix of business and we are not, by communicating the critical audit matters below, providing separate opinionsfinancial experience on the critical audit matters or on the accounts or disclosures to which they relate.committee.


Identification
Item 16.BCode of ethics

Micro Focus has adopted an updated code of performance obligations in certain non-standard bundled customer contracts containing licences

As discussed in Note 2 to the consolidated financial statements, the Company’s total licence revenue recognisedethics in the year ended October 31, 2019 was $800 million,2021 (the Micro Focus Code of Conduct) which a portion relatesapplies to licence revenue from certain bundled contracts with non-standard terms. Licence revenue recognition requiresall employees including the Company to make judgements to identify each separate performance obligationChief Executive Officer and Chief Financial Officer and other senior financial management. This code of a contract (for example licence, maintenance, SaaS & other recurring, and consulting), when sold together in a bundle.ethics is available on our website (https://www.microfocus.com/media/guide/micro_focus_code_of_conduct_guide.pdf). The information on our website is not incorporated by reference into this report.

We determined the identification of performance obligations in certain non-standard bundled customer contracts containing licences to be a critical audit matter because subjective and complex auditor judgement was required to evaluate the Company’s identification of each performance obligation within these contracts.


The primary procedure we performedCode of Ethics is included as Exhibit 11.1 MF Code of Conduct Guide.

Item 16.CPrincipal accountant fees and services

During the years ended October 31, 2021, 2020 and 2019, the Group obtained the following services from the Group’s auditors as detailed below:

  
Year
ended
October 31, 2021
  
Year
ended
October 31, 2020
  
Year
ended
October 31, 2019
 
  
$m

 
$m

 
$m

Audit of Company  8.0   7.2   12.8 
ICOFR  4.7   2.7   3.0 
Audit of subsidiaries  2.8   2.9   3.9 
Total audit fees  15.5   12.8   19.7 
             
Audit-related assurance fees  0.5   0.6   0.6 
Other assurance services  -   -   - 
Total audit related fees  0.5   0.6   0.6 
             
Tax compliance services  -   -   - 
Tax advisory services  -   -   0.1 
Tax fees  -   -   0.1 
             
All other fees  -   -   - 
             
Total  16.0   13.4   20.4 

The fees represent fees paid to address this critical audit matter includedKPMG LLP, as the following. We selected certain non-standard bundled customer contracts containing licencescurrent auditor.

There were no other fees in the years ended October 31, 2021, 2020 and performed an independent analysis2019.

Independence and objectivity of the performance obligationsexternal auditors
The Audit Committee approves all non-audit work commissioned from the external auditors. The committee is responsible for safeguarding the independence and compared our judgementsobjectivity of the external auditors and conclusionshas developed a robust policy designed to those made byensure that this is not compromised. As explained above, the Company.committee manages the risks that the external auditors undertake inappropriate non- audit work, or earn material levels of fees for non-audit services. It also considers the standing and experience of the external audit partner and takes comfort from the fact that KPMG took office relatively recently and from the external auditors’ confirmation that they have complied with relevant UK and US independence standards.

The committee is satisfied that the independence and objectivity of the external auditors has been maintained throughout the year ended October 31, 2021 and to the date of this report.


Item 16.DExemptions from the listing standards for audit committees
Evaluation
Not applicable.

Item 16.EPurchase of equity securities by the issuer and affiliated purchases

The purchase of goodwill impairment analysis

As discussedshares shown in Note 10 tothe table below were made on behalf of the Group’s all-employee share plans (a Sharesave plan and an Employee Stock Purchase Plan see Item 6E for further details on these plans) by the Micro Focus Employee benefit trust (“EBT”). The EBT is included in the consolidated financial statements in Item 18 therefore these purchases are treated as Treasury shares; however, they are owned by the goodwill balance as ofEBT and can only be used to settle employee benefits for eligible employees.

Period 
Total Number of
Shares purchased
  
Average price paid
per share
  
Total Number of Shares
purchased as part of
publicly announced
plans or
programs
  
Maximum number of
Shares that may yet be
purchased under the
plans or
programs
 
November 1, 2020 to November 30, 2020  -   -   -   - 
December 1, 2020 to December 31, 2020  -   -   -   - 
January 1, 2021 to January 31, 2021  -   -   -   - 
February 1, 2021 to February 28, 2021  -   -   -   - 
March 1, 2021 to March 31, 2021  4,000,000
1 
 $6.81   -   - 
April 1, 2021 to April 30, 2021  -   -   -   - 
May 1, 2021 to May 31, 2021  -   -   -   - 
June 1, 2021 to June 30, 2021  -   -   -   - 
July 1, 2021 to July 31, 2021  -   -   -   - 
August 1, 2021 to August 31, 2021  -   -   -   - 
September 1, 2021 to September 30, 2021  -   -   -   - 
October 1, 2021 to October 31, 2021  -   -   -   - 
Total  4,000,000  $6.81   -   - 
1 During the year ended October 31, 20192021 the Micro Focus Employee Benefit Trust (“EBT”) purchased four million of the Group’s shares in open-market transactions. The EBT will hold these shares to satisfy future exercises of share options.

Item 16.FChange in Registrant’s certifying accountant

Not applicable.

Item 16.GCorporate Governance

Principles

Micro Focus International plc (the “Company”) has a primary listing on the London Stock Exchange. As such, it is required to comply with the UK Corporate Governance Code (the “Code”). For the year ended October 31, 2021 this was $6,671.3 million,the edition of the Code published by the UK’s Financial Reporting Council in July 2018.

The Company’s ADSs are listed on the NYSE. As a Foreign Private Issuer, we are required to comply with some, but not all, of the NYSE’s corporate governance rules, and are required to disclose any significant ways in which relatedthe UK corporate governance practices employed by the Company differ from those followed by US companies under the NYSE Listed Company Manual.

The directors are committed to ensuring that the Company operates in compliance with the main principles of the Code, as this provides a robust governance framework in support of the delivery of value to shareholders.

81
Compliance with the Code

UK listed companies are required to include in their Annual Report a narrative statement of (i) how they have applied the principles of the Code and (ii) whether or not they have complied with each of the provisions of the Code.

Throughout the year ended October 31, 2021 and to the Company’s single cash generating unit (“CGU”). date of this report, the Board considers that the Company has been in compliance with the principles of the Code, and with each of its provisions, save for one element of Provision 38 in relation to the alignment of pension contribution rates.  Under Provision 38 the Company is partially compliant with this provision and will be fully compliant in the alignment of pension contribution rates for the executive directors with the wider workforce at the end of 2022. The pension contribution rate for Stephen Murdoch will be aligned at the end of 2022 as set out in the Directors’ Remuneration Policy which was approved by shareholders at the 2020 Annual General. The rate for Matt Ashley is already aligned, and the rates for any new director on joining would be aligned with the wider workforce.

Non-executive directors’ Independence

Each of the non-executive directors who served during the period November 1, 2020 to October 31, 2021, was considered by the Board to be independent. Karen Slatford1 was appointed to the Board in July 2010 and has now served for more than ten years. The Board has specifically considered whether this was likely to affect, or could appear to affect, her independence and concluded that she continued to demonstrate independence in thought and judgement, noting that there were no other relationships or circumstances that could affect her independence. The independent non-executive directors comprise a majority of the Board. In accordance with the Companies Act 2006, the Company has put in place procedures to deal with conflicts of interest, which have operated effectively. The board is aware of the other commitments of its directors and is satisfied that these do not conflict with their duties as directors of the Company. Any changes to these commitments are reported to the board.

The non-executive directors meet together regularly without the presence of executive directors.  In addition, the Senior Independent Director meets with the non-executive and executive directors at least once a year to review the performance of the Non-Executive Chairman and to consider whether to recommend his re-election, providing feedback directly to the Chairman.

1 As announced on February 8, 2022, Karen Slatford has informed the Board of her intention to retire as a director of Micro Focus International Plc, following the conclusion of the 2022 Annual General Meeting and consequently will not be seeking re-election.

Committees of the board of directors

The Company performs goodwill impairment testing onhas three principal Board committees that are broadly comparable in purpose and composition to those required by NYSE rules for domestic US companies. For instance, the Company has a Nomination (rather than nominating/corporate governance) Committee and a Remuneration (rather than compensation) Committee. The Company also has an annual basis, or whenever events or changes in circumstances indicate possible impairment.

We identified evaluationAudit Committee, which NYSE rules require for both US companies and foreign private issuers. All the committees are comprised of goodwill impairment analysis as a critical audit matter. The estimated recoverable amountnon-executive directors only and none of the CGU uses forward-looking estimates that involved a high degreefunctions of subjective auditor judgementthese committees has been delegated to evaluate. Specifically,another committee.

Each Board Committee has clearly defined terms of reference approved by the key assumptionsBoard setting out their respective authority and duties.  The terms of discount rate applied and medium term annual revenue growth rate by product group were challenging to test as reasonably possible changes to those assumptions had a significant effectreference for each committee can be found on the Company’s assessmentwebsite at https://www.microfocus.com/en-us/governance-policies/committees-of-the-board

Under the US Securities Exchange Act of 1934 and the NYSE Listed Company Manual, the Company is required to have an audit committee that is comprised of at least three members from the independent non-executive directors of the recoverable amountCompany’s Board. Our Audit Committee complies, and during the year ended October 31, 2021 has complied, with these requirements. As stated in Item 16.A. above, the Board has determined that Richard Atkins possesses ‘accounting or related financial management expertise’, as required by section 303A.07 (a) of the CGU.NYSE Listed Company Manual. Richard Atkins also possesses the financial and audit committee experience set forth in the Code.


The primary procedures we performedCompany’s Audit Committee does not have direct responsibility for the appointment, reappointment or removal of the independent auditors. Instead, it follows the UK Companies Act 2006 by making recommendations to address this critical audit matter included the following:Board on these matters for it to put forward for shareholder approval at the AGM.


82
We compared the Company’s historical revenue growth rate to actual results to assess the Company’s ability to accurately project future revenue growth.
Table of Contents

Shareholder approval of equity compensation plans

We comparedUnder NYSE listing rules, shareholders must be given the Company’s medium term annual revenue growth rate by product groupopportunity to external market data such as forecasted growth rates in corporate filingsvote on all equity-compensation plans and material revisions thereto, except for comparable companies.

We involved a valuation professional with specialised skillsemployment inducement awards, certain grants, plans and knowledge, who assisted in comparing the discount rate usedamendments in the valuation against a discount rate range that was independently developed using publiclycontext of mergers and acquisitions, and certain specific types of plans. The Company complies with corresponding UK requirements in the Listing Rules, requiring the Company to seek shareholder approval for employee share schemes and significant changes to existing schemes, save in circumstances permitted by the Listing Rules (Listing Rule 9.4.1). The Board, however, does not explicitly take into consideration the NYSE’s detailed definition of what are considered ‘material revisions’.

Corporate Governance Guidelines

Section 303A.09 of the NYSE Listed Company Manual requires listed companies to adopt and disclose corporate governance guidelines. As noted above, in line with its obligations under the UK’s Listing Rules the Company applies the UK Corporate Governance Code and, as required by the Listing Rules, the UK Annual Report contains an explanation of (i) how it has applied the principles of the Code, and (ii) whether it complies in full with the Code’s provisions, or, where it does not, providing an explanation of any non-compliance and the reasons for this (LR 9.8.6).

In addition, the Company is required to make certain mandatory corporate governance statements in accordance with the UK Listing Authority’s Disclosure Guidance and Transparency Rules, DTR 7, which are also included in the Group’s UK Annual Report and Accounts available market data for comparable entities.
on the Group’s website https://www.microfocus.com/en-us/investors/investor-download-centre.


We performed sensitivity analyses over the medium term annual revenue growth by product groupCode of Business Conduct and discount rate assumptions to assess their impactEthics
The Micro Focus Code of Conduct is available on the Company’s determination that the recoverable amount of the CGU exceeded its carrying value.
website at www.microfocus.com.


/s/ KPMG LLP
Item 16.HMine Safe Disclosure


We have served as the Company’s auditor since 2017.Not applicable.


London, United Kingdom
February 20, 2020
Item 16.IDisclosure Regarding Foreign Jurisdictions that Prevent Inspections


Not applicable.

F-383
PART III

Item 17Financial Statements

Not applicable.

Item 18Financial Statements

The financial statements filed as part of this Annual Report on Form 20-F are included in Item 18 on pages F-1 through F-92 hereof.

Item 19Exhibits

The following exhibits are filed as part of this report:

2.1
Description of the rights of each class of securities registered under Section 12 of the Exchange Act
4.1
Credit Agreement amendments, among Micro Focus International plc, Micro Focus Group Limited, MA FinanceCo., LLC, the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral Agent.
4.2
Credit Agreement amendments, among Micro Focus International plc, Micro Focus Group Limited, Seattle Spinco, Inc., the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral Agent.
11.1
Code of conduct
12.1
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
12.2
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
13.1
Certification of Stephen Murdoch under Section 906 of the Sarbanes-Oxley Act of 2002
13.2
Certification of Matt Ashley under Section 906 of the Sarbanes-Oxley Act of 2002
15.1
Consent of KPMG LLP.

101.INS
Inline XBRL Instance Document (the instance document does not appear in the Interactive Date File because its XBRL tags are embedded with the Inline XBRL document)

101.SCHInline XBRL Taxonomy Extension Schema Document

101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document

101.LABInline XBRL Taxonomy Extension Label Linkbase Document

101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document

104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
84
Signature

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

Micro Focus International plc

/s/ Stephen Murdoch

Report of Independent Registered Public Accounting Firm


To the boardShareholders and Board of directors and shareholders of Directors
Micro Focus International plc.:


Opinion on Internal Control Over Financial Reporting

We have audited Micro Focus International plc and subsidiaries’ (the Company) internal control over financial reporting as of October 31, 2021, based on Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission”. In our opinion, because of the accompanyingeffect of the material weakness, described below, on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of October 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial position of the Company as of October 31, 2021 and 2020, the related consolidated statements of comprehensive income, of changes in equity, and of cash flows for each of the years in the three-year period ended October 31, 2021, the summary of significant accounting policies and the related notes (collectively, the Consolidated financial statements), and our report dated February 24, 2022 expressed an unqualified opinion on those Consolidated financial statements.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. A material weakness has been identified and included in management’s assessment related to ineffective IT general controls and related business controls following the migration to a new enterprise platform in July 2021. In aggregate, these deficiencies impact all financial reporting processes and constitute a material weakness. The material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the October 31, 2021 Consolidated financial statements, and this report does not affect our report on those Consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

77
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG LLP
London, United Kingdom
February 24, 2022

78
Item 15.DChanges in internal control over financial reporting.

In the period, the Group completed the migration from legacy IT applications and infrastructure to the Enterprise Platform. The Enterprise Platform enables further improvement to process and controls. Improvements for the business include refining functional process and organisational simplification as referred to in Item 3.D, Item 5.A and Item 5.D. The migration was successfully completed in two planned phases, the first completed in January 2021 and the second completed in July 2021. The majority of the work was carried out within the requirements of remote working under COVID-19 restrictions. The timing of the phases meant that there was insufficient time prior to the financial year end to allow ITGC’s and related business controls to operate effectively.

During the period the Group continued to monitor and maintain the framework of SOX compliant internal controls under its central SOX Compliance Program (“SCP”) on the legacy systems as well as preparing and implementing controls for the Enterprise Platform. The SCP worked together with a specialist team from its outsourced internal audit partner, PwC. Governance for the SCP included a cross-functional SOX steering group (“SSG”). In addition, the cross functional disclosure committee continued to meet to assist the Chief Executive Officer and Chief Financial Officer in fulfilling their responsibilities in connection with the accuracy of financial reporting. The Group strengthened internal compliance by the appointment of an additional team from PwC to work alongside the business and the Enterprise Platform implementation project team to carry out end-to-end process mapping and support Risk and Control Matrix (“RACM”) development for the new Enterprise Platform controls. A key work stream of the SCP also relates to the adequacy of ITGCs. The work undertaken as part of the SCP identified a number of areas for improvement in the Group’s ITGCs. A remediation plan was agreed, which forms part of the SCP. Work in this area was carried out under an IT SOX Compliance Group chaired by the Chief Information Security Officer (CISO) reporting to the main SSG.

In the year, the Group has also reviewed its entity-level controls including continued supplementary SOX training plan across relevant parts of the Group. As part of the overall governance, the SSG continues to monitor potential adverse impacts of organisational change to the SCP.

In the 2020 Form 20-F the Group reported certain weaknesses in its internal control over financial reporting, which under Public Company Accounting Oversight Board auditing standards were considered to be a material weakness. The material weakness related to the fact that Company did not have adequate controls at that time surrounding existing IT applications, in particular regarding change management and access control. These controls and control deficiencies were then superseded in the year by the controls on the Enterprise Platform.

Remediation

The Group continues its work under the SCP to remediate the material weakness and other control deficiencies, and any other matters, which arise during its progress towards SOX compliance. As the business commenced the new financial year operating on the Enterprise Platform it has also been able to implement an enhanced testing program for year ended October 31, 2022.

To maintain the required control environment the Group relies upon automated, semi-automated and manual controls together with a combination of preventative and detective controls. The material weakness, control deficiencies and other matters may not be able to be remediated by October 31, 2022, and there is a risk that other deficiencies for the purposes of SOX may be identified. Failure to correct the material weakness, or our failure to discover and address any other material weakness or control deficiencies, could result in inaccuracies in our financial statements, and impair our ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis. It could also result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of the Group’s financial statements and could have a material adverse effect on the Group’s business, financial condition, results of operation and prospects.

79
Item 16

Item 16.AAudit committee audit report expert

The Audit Committee includes Richard Atkins who, in the opinion of the Board, is an ‘audit committee financial expert’ and is independent (as defined for this purpose in 17 CFR 240.10A-3).  The board considered that the Committee’s members have broad commercial knowledge and extensive business leadership experience, having held between them various roles in major business, financial management, and finance function supervision and that this constitutes a broad suitable mix of business and financial experience on the committee.

Item 16.BCode of ethics

Micro Focus has adopted an updated code of ethics in the year ended April 30, 2017, beforeOctober 31, 2021 (the Micro Focus Code of Conduct) which applies to all employees including the effectsChief Executive Officer and Chief Financial Officer and other senior financial management. This code of ethics is available on our website (https://www.microfocus.com/media/guide/micro_focus_code_of_conduct_guide.pdf). The information on our website is not incorporated by reference into this report.

The Code of Ethics is included as Exhibit 11.1 MF Code of Conduct Guide.

Item 16.CPrincipal accountant fees and services

During the years ended October 31, 2021, 2020 and 2019, the Group obtained the following services from the Group’s auditors as detailed below:

  
Year
ended
October 31, 2021
  
Year
ended
October 31, 2020
  
Year
ended
October 31, 2019
 
  
$m

 
$m

 
$m

Audit of Company  8.0   7.2   12.8 
ICOFR  4.7   2.7   3.0 
Audit of subsidiaries  2.8   2.9   3.9 
Total audit fees  15.5   12.8   19.7 
             
Audit-related assurance fees  0.5   0.6   0.6 
Other assurance services  -   -   - 
Total audit related fees  0.5   0.6   0.6 
             
Tax compliance services  -   -   - 
Tax advisory services  -   -   0.1 
Tax fees  -   -   0.1 
             
All other fees  -   -   - 
             
Total  16.0   13.4   20.4 

The fees represent fees paid to KPMG LLP, as the current auditor.

There were no other fees in the years ended October 31, 2021, 2020 and 2019.

Independence and objectivity of the adjustments to retrospectively reflect discontinued operations as described in Note 37external auditors
The Audit Committee approves all non-audit work commissioned from the external auditors. The committee is responsible for safeguarding the independence and before the effectsobjectivity of the adjustmentsexternal auditors and has developed a robust policy designed to retrospectively reflectensure that this is not compromised. As explained above, the committee manages the risks that the external auditors undertake inappropriate non- audit work, or earn material levels of fees for non-audit services. It also considers the standing and experience of the external audit partner and takes comfort from the fact that KPMG took office relatively recently and from the external auditors’ confirmation that they have complied with relevant UK and US independence standards.

The committee is satisfied that the independence and objectivity of the external auditors has been maintained throughout the year ended October 31, 2021 and to the date of this report.

80
Item 16.DExemptions from the listing standards for audit committees

Not applicable.

Item 16.EPurchase of equity securities by the issuer and affiliated purchases

The purchase of shares shown in the table below were made on behalf of the Group’s all-employee share plans (a Sharesave plan and an Employee Stock Purchase Plan see Item 6E for further details on these plans) by the Micro Focus Employee benefit trust (“EBT”). The EBT is included in the consolidated financial statements in Item 18 therefore these purchases are treated as Treasury shares; however, they are owned by the EBT and can only be used to settle employee benefits for eligible employees.

Period 
Total Number of
Shares purchased
  
Average price paid
per share
  
Total Number of Shares
purchased as part of
publicly announced
plans or
programs
  
Maximum number of
Shares that may yet be
purchased under the
plans or
programs
 
November 1, 2020 to November 30, 2020  -   -   -   - 
December 1, 2020 to December 31, 2020  -   -   -   - 
January 1, 2021 to January 31, 2021  -   -   -   - 
February 1, 2021 to February 28, 2021  -   -   -   - 
March 1, 2021 to March 31, 2021  4,000,000
1 
 $6.81   -   - 
April 1, 2021 to April 30, 2021  -   -   -   - 
May 1, 2021 to May 31, 2021  -   -   -   - 
June 1, 2021 to June 30, 2021  -   -   -   - 
July 1, 2021 to July 31, 2021  -   -   -   - 
August 1, 2021 to August 31, 2021  -   -   -   - 
September 1, 2021 to September 30, 2021  -   -   -   - 
October 1, 2021 to October 31, 2021  -   -   -   - 
Total  4,000,000  $6.81   -   - 
1 During the year ended October 31, 2021 the Micro Focus Employee Benefit Trust (“EBT”) purchased four million of the Group’s shares in open-market transactions. The EBT will hold these shares to satisfy future exercises of share options.

Item 16.FChange in Registrant’s certifying accountant

Not applicable.

Item 16.GCorporate Governance

Principles

Micro Focus International plc (the “Company”) has a primary listing on the London Stock Exchange. As such, it is required to comply with the UK Corporate Governance Code (the “Code”). For the year ended October 31, 2021 this was the edition of the Code published by the UK’s Financial Reporting Council in July 2018.

The Company’s ADSs are listed on the NYSE. As a Foreign Private Issuer, we are required to comply with some, but not all, of the NYSE’s corporate governance rules, and are required to disclose any significant ways in which the UK corporate governance practices employed by the Company differ from those followed by US companies under the NYSE Listed Company Manual.

The directors are committed to ensuring that the Company operates in compliance with the main principles of the Code, as this provides a robust governance framework in support of the delivery of value to shareholders.

81
Compliance with the Code

UK listed companies are required to include in their Annual Report a narrative statement of (i) how they have applied the principles of the Code and (ii) whether or not they have complied with each of the provisions of the Code.

Throughout the year ended October 31, 2021 and to the date of this report, the Board considers that the Company has been in compliance with the principles of the Code, and with each of its provisions, save for one element of Provision 38 in relation to the alignment of pension contribution rates.  Under Provision 38 the Company is partially compliant with this provision and will be fully compliant in the alignment of pension contribution rates for the executive directors with the wider workforce at the end of 2022. The pension contribution rate for Stephen Murdoch will be aligned at the end of 2022 as set out in the Directors’ Remuneration Policy which was approved by shareholders at the 2020 Annual General. The rate for Matt Ashley is already aligned, and the rates for any new director on joining would be aligned with the wider workforce.

Non-executive directors’ Independence

Each of the non-executive directors who served during the period November 1, 2020 to October 31, 2021, was considered by the Board to be independent. Karen Slatford1 was appointed to the Board in July 2010 and has now served for more than ten years. The Board has specifically considered whether this was likely to affect, or could appear to affect, her independence and concluded that she continued to demonstrate independence in thought and judgement, noting that there were no other relationships or circumstances that could affect her independence. The independent non-executive directors comprise a majority of the Board. In accordance with the Companies Act 2006, the Company has put in place procedures to deal with conflicts of interest, which have operated effectively. The board is aware of the other commitments of its directors and is satisfied that these do not conflict with their duties as directors of the Company. Any changes to these commitments are reported to the board.

The non-executive directors meet together regularly without the presence of executive directors.  In addition, the Senior Independent Director meets with the non-executive and executive directors at least once a year to review the performance of the Non-Executive Chairman and to consider whether to recommend his re-election, providing feedback directly to the Chairman.

1 As announced on February 8, 2022, Karen Slatford has informed the Board of her intention to retire as a director of Micro Focus International Plc, following the conclusion of the 2022 Annual General Meeting and consequently will not be seeking re-election.

Committees of the board of directors

The Company has three principal Board committees that are broadly comparable in purpose and composition to those required by NYSE rules for domestic US companies. For instance, the Company has a Nomination (rather than nominating/corporate governance) Committee and a Remuneration (rather than compensation) Committee. The Company also has an Audit Committee, which NYSE rules require for both US companies and foreign private issuers. All the committees are comprised of non-executive directors only and none of the functions of these committees has been delegated to another committee.

Each Board Committee has clearly defined terms of reference approved by the Board setting out their respective authority and duties.  The terms of reference for each committee can be found on the Company’s website at https://www.microfocus.com/en-us/governance-policies/committees-of-the-board

Under the US Securities Exchange Act of 1934 and the NYSE Listed Company Manual, the Company is required to have an audit committee that is comprised of at least three members from the independent non-executive directors of the Company’s Board. Our Audit Committee complies, and during the year ended October 31, 2021 has complied, with these requirements. As stated in Item 16.A. above, the Board has determined that Richard Atkins possesses ‘accounting or related financial management expertise’, as required by section 303A.07 (a) of the NYSE Listed Company Manual. Richard Atkins also possesses the financial and audit committee experience set forth in the Code.

The Company’s Audit Committee does not have direct responsibility for the appointment, reappointment or removal of the independent auditors. Instead, it follows the UK Companies Act 2006 by making recommendations to the Board on these matters for it to put forward for shareholder approval at the AGM.

82
Shareholder approval of equity compensation plans

Under NYSE listing rules, shareholders must be given the opportunity to vote on all equity-compensation plans and material revisions thereto, except for employment inducement awards, certain grants, plans and amendments in the context of mergers and acquisitions, and certain specific types of plans. The Company complies with corresponding UK requirements in the Listing Rules, requiring the Company to seek shareholder approval for employee share schemes and significant changes to existing schemes, save in circumstances permitted by the Listing Rules (Listing Rule 9.4.1). The Board, however, does not explicitly take into consideration the NYSE’s detailed definition of what are considered ‘material revisions’.

Corporate Governance Guidelines

Section 303A.09 of the NYSE Listed Company Manual requires listed companies to adopt and disclose corporate governance guidelines. As noted above, in line with its obligations under the UK’s Listing Rules the Company applies the UK Corporate Governance Code and, as required by the Listing Rules, the UK Annual Report contains an explanation of (i) how it has applied the principles of the Code, and (ii) whether it complies in full with the Code’s provisions, or, where it does not, providing an explanation of any non-compliance and the reasons for this (LR 9.8.6).

In addition, the Company is required to make certain mandatory corporate governance statements in accordance with the UK Listing Authority’s Disclosure Guidance and Transparency Rules, DTR 7, which are also included in the Group’s UK Annual Report and Accounts available on the Group’s website https://www.microfocus.com/en-us/investors/investor-download-centre.

Code of Business Conduct and Ethics
The Micro Focus Code of Conduct is available on the Company’s website at www.microfocus.com.

Item 16.HMine Safe Disclosure

Not applicable.

Item 16.IDisclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

83
PART III

Item 17Financial Statements

Not applicable.

Item 18Financial Statements

The financial statements filed as part of this Annual Report on Form 20-F are included in Item 18 on pages F-1 through F-92 hereof.

Item 19Exhibits

The following exhibits are filed as part of this report:

2.1
Description of the rights of each class of securities registered under Section 12 of the Exchange Act
4.1
Credit Agreement amendments, among Micro Focus International plc, Micro Focus Group Limited, MA FinanceCo., LLC, the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral Agent.
4.2
Credit Agreement amendments, among Micro Focus International plc, Micro Focus Group Limited, Seattle Spinco, Inc., the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral Agent.
11.1
Code of conduct
12.1
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
12.2
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
13.1
Certification of Stephen Murdoch under Section 906 of the Sarbanes-Oxley Act of 2002
13.2
Certification of Matt Ashley under Section 906 of the Sarbanes-Oxley Act of 2002
15.1
Consent of KPMG LLP.

101.INS
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101.SCHInline XBRL Taxonomy Extension Schema Document

101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document

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101.LABInline XBRL Taxonomy Extension Label Linkbase Document

101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document

104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
84
Signature

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

Micro Focus International plc

/s/ Stephen Murdoch

Stephen Murdoch

Chief Executive Officer

Date:  February 24, 2022

85
Consolidated financial statements and notes
Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

Micro Focus International plc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying Consolidated statements of financial position of Micro Focus International plc and subsidiaries (the Company) as of October 31, 2021 and 2020, the related Consolidated statements of comprehensive income, changes in segment reporting as describedequity, and cash flows for each of the years in Note 1,the three‑year period ended October 31, 2021, the summary of significant accounting policies, and the related notes (collectively, the Consolidated financial statements). In our opinion, the Consolidated financial statements present fairly, in all material respects, the financial position of the Company as of October 31, 2021 and 2020, and the results of its operations and its cash flows for each of Micro Focus International plc for the yearyears in the three-year period ended April 30, 2017October 31, 2021 in conformity with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (the 2017 financial statements before(“IASB”).

We also have audited, in accordance with the effectsstandards of the adjustmentsPublic Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of October 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 24, 2022 expressed an adverse opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle
As discussed in Note 37 and Notenote I.Q, the Company changed its method of accounting for leases as of November 1, are not presented herein). 2019 due to the adoption of IFRS 16, Leases.

Basis for Opinion

These Consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these Consolidated financial statements based on our audit.  audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit, before the effects of the adjustments described above, of these statementsaudits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Consolidated financial statements are free of material misstatement.  An audit includesmisstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the Consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the Consolidated financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, andas well as evaluating the overall presentation of the Consolidated financial statement presentation.statements. We believe that our audit providesaudits provide a reasonable basis for our opinion.


WeCritical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the Consolidated financial statements that were not engagedcommunicated or required to audit, review, or apply any proceduresbe communicated to the adjustmentsaudit committee and that: (1) relate to retrospectively reflect discontinued operationsaccounts or disclosures that are material to theConsolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the Consolidated financial statements, taken as describeda whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Identification of performance obligations in certain multi-element customer contracts containing licences

As discussed in Note 37 or the adjustments to retrospectively reflect changes in segment reporting as described in Note 1 and accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by other auditors.

/s/PricewaterhouseCoopers LLP
Reading, United Kingdom
July 17, 2017, except for the first paragraph of the Note2 to the Consolidated Statements of Cash Flows (not presented herein) appearingfinancial statements, the Company’s total licence revenue recognized in the Company’s consolidated financial statements includedyear ended October 31, 2021 was $688.6 million, a portion of which related to licence revenue from certain multi-element customer contracts. As discussed in Note II.D, the Registration Statement on Form F-4 (No.333-219678)Company makes significant judgements to identify each separate performance obligation in multi-element contracts (for example granting of Micro Focus International plc, as tolicences, maintenance, SaaS & other recurring and consulting services) which may impact the date is August 3, 2017timing of revenue recognition.


F-4F-2
We determined the identification of performance obligations in certain multi-element customer contracts containing licences to be a critical audit matter. Subjective and complex auditor judgement was required to evaluate the Company’s identification of each performance obligation within these contracts.

The following is the primary procedure we performed to address this critical audit matter. We selected certain multi-element customer contracts containing licences and performed an independent analysis of the performance obligations and compared our judgements and conclusions to those made by the Company.

Evaluation of Goodwill Impairment Analysis

As discussed in Note 10 to the Consolidated financial statements, the goodwill balance as at October 31, 2021 was $3,725.5 million, which related to the Company’s single cash generating unit (“CGU”). No impairment was recognized in the period. The Company performs goodwill impairment testing on an annual basis and whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable.

We identified the evaluation of goodwill impairment analysis as a critical audit matter. The estimated recoverable amount of the CGU uses forward-looking estimates that involve a high degree of subjective auditor judgement, in addition to specialized skills and knowledge to evaluate. Specifically, the key assumptions of the discount rate and annual revenue growth rate by product group in the initial five-year forecast (revenue growth rates) were challenging to test as reasonably possible changes to those assumptions had a significant effect on the Company’s assessment of the recoverable amount of the CGU.

The following are the primary procedures we performed to address this critical audit matter.

We compared the Company’s historical annual revenue growth rates to actual results to assess the Company’s ability to accurately forecast future revenue growth.
We evaluated the reasonableness of the Company’s forecasted revenue growth rates by comparing them to previous projections, relevant industry trends and current market indices.
We involved valuation professionals with specialized skills and knowledge, who assisted in evaluating the discount rate used in the valuation against a discount rate range that was independently developed using publicly available market data for comparable companies

/s/ KPMG LLP
We have served as the Company’s auditor since 2017.

London, United Kingdom
February 24, 2022

F-3
Consolidated statement of comprehensive income
for the 12 monthsYear ended October 31, 20192021


    
Before
exceptional
items
  
Exceptional
items
(note 4)
  Total 
Continuing operations Note  
$m
 
$m
 
$m
  Note  
Year ended
October 31, 2021
$m
  
Year ended
October 31, 2020
$m
  
Year ended
October 31, 2019
$m
 
Revenue 1,2  3,348.4  -  3,348.4   2   2,899.9   3,001.0   3,348.4 
Cost of sales    (777.3) (12.6) (789.9)      (776.3)  (702.7)  (789.9)
Gross profit    2,571.1  (12.6) 2,558.5       2,123.6   2,298.3   2,558.5 
Selling and distribution expenses    (1,216.4) (8.4) (1,224.8)      (1,344.6)  (1,112.1)  (1,224.8)
Research and development expenses    (491.7) 0.5  (491.2)      (521.8)  (513.6)  (491.2)
Administrative expenses    (347.1) (273.7) (620.8)      (522.8)  (3,334.0)  (620.8)
Operating profit    515.9  (294.2) 221.7 
            
Operating loss      (265.6)  (2,661.4)  221.7 
Finance costs 6  (282.4) -  (282.4)  6   (253.9)  (281.6)  (282.4)
Finance income 6  26.6  -  26.6   6   1.7   2.6   26.6 
Net finance costs 6  (255.8) -  (255.8)  6   (252.2)  (279.0)  (255.8)
            
Profit/(loss) before tax    260.1  (294.2) (34.1)
Loss before tax      (517.8)  (2,940.4)  (34.1)
Taxation 7  (38.3) 54.3  16.0   7   82.7   (34.2)  16.0 
Profit/(loss) from continuing operations    221.8  (239.9) (18.1)
Loss from continuing operations      (435.1)  (2,974.6)  (18.1)
Profit from discontinued operation (attributable to equity shareholders of the Company) 37  28.7  1,458.5  1,487.2   30   10.7   5.1   1,487.2 
Profit for the period    250.5  1,218.6  1,469.1 
            
Loss for the year      (424.4)  (2,969.5)  1,469.1 
Attributable to:                            
Equity shareholders of the Company    250.2  1,218.6  1,468.8       (424.4)  (2,969.5)  1,468.8 
Non-controlling interests    0.3  -  0.3       0   0   0.3 
Profit for the period    250.5  1,218.6  1,469.1 
Loss for the year      (424.4)  (2,969.5)  1,469.1 


The accompanying notes form part of the financial statements.

F-4
Consolidated statement of comprehensive income
for the Year ended October 31, 2021

  Note  
Year ended
October 31, 2021
  
Year ended
October 31, 2020
  
Year ended
October 31, 2019
 
(Loss)/profit for the year     (424.4)  
(2,969.5
)
  
1,469.1
 
Other comprehensive income/(expense) for the year:               
Items that will not be reclassified to profit or loss               
Continuing operations:               
Actuarial gain/(loss) on pension schemes liabilities  22   33.4   
(0.4
)
  
(26.2
)
Actuarial gain on non-plan pension assets  22   0.2   
0.4
   
0.3
 
Deferred tax movement on pension schemes      0   
(5.0
)
  
13.0
 
Discontinued operation:                
Actuarial gain on pension schemes liabilities  22   0   
0
   
0.1
 
Actuarial gain on non-plan pension assets  22   0   
0
   
0.1
 
Currency translation differences - discontinued operation      0   
0
   
(1.5
)
Continuing operations: Items that may be subsequently reclassified to profit or loss                
Cash flow hedge movements  27   42.2   
(41.3
)
  
(122.9
)
Current tax movement on cash flow hedge movements  27   (8.0)  
7.8
   
23.3
 
Deferred tax movement on currency translation differences      (7.8)  
(8.7
)
  
14.0
 
Current tax movement on Euro loan foreign exchange hedging      6.0   
0
   
0
 
Deferred tax movement on Euro loan foreign exchange hedging      (8.1)  
11.1
   
0
 
Currency translation differences      68.6   
(67.0
)
  
(206.2
)
Other comprehensive income/(expense) for the year      126.5   
(103.1
)
  
(306.0
)
Total comprehensive expense for the year      (297.9)  
(3,072.6
)
  
1,163.1
 
Attributable to:                
Equity shareholders of the Company      (297.9)  
(3,072.6
)
  
1,162.8
 
Non-controlling interests      0   
0
   
0.3
 
Total comprehensive expense for the year      (297.9)  
(3,072.6
)
  
1,163.1
 
                 
Total comprehensive (expense)/income attributable to the equity shareholders of the Company arises from:                
Continuing operations      (308.6)  
(3,077.7
)
  
(322.8
)
Discontinued operation      10.7   
5.1
   
1,485.9
 
Total comprehensive expense for the year      (297.9)  
(3,072.6
)
  
1,163.1
 
Earnings per share (cents)                
From continuing and discontinued operations     
cents
  
cents
  
cents
 
- basic  9   (126.12)  (884.63)  388.50 
-  - diluted      (126.12)  (884.63)  384.35 
From continuing operations                
- basic  9   (129.30)  (886.15)  (4.87)
-  - diluted      (129.30)  (886.15)  (4.87)
Earnings per share (pence)                
From continuing and discontinued operations             
Pence
 
- basic  9   (91.78)  (692.26)  305.07 
-  - diluted      (91.78)  (692.26)  301.81
 
From continuing operations                
- basic  9   (94.09)  (693.45)  (3.82)
-  - diluted
      (94.09)  (693.45)  (3.82)

The accompanying notes form part of the financial statements.

F-5
Consolidated statement of comprehensive income continuedfinancial position
for the 12 months ended October 31, 2019

     
Before
exceptional
items
  
Exceptional
items
(note 4)
  Total 
Continuing operations Note  
$m
 
$m
 $$m
Profit for the period     250.5   1,218.6   1,469.1 
Other comprehensive (expense)/income:               
Items that will not be reclassified to profit or loss               
Continuing operations:               
Actuarial loss on pension schemes liabilities  25   (26.2)  -   (26.2)
Actuarial gain on non-plan pension assets  25   0.3   -   0.3 
Deferred tax movement      13.0   -   13.0 
Discontinued operation:                
Actuarial gain on pension schemes liabilities  25   0.1   -   0.1 
Actuarial gain on non-plan pension assets  25   0.1   -   0.1 
Deferred tax movement      -   -   - 
Currency translation differences - discontinued operation      -   (1.5)  (1.5)
Items that may be subsequently reclassified to profit or loss                
Cash flow hedge movements  31   (122.9)  -   (122.9)
Current tax movement  31   23.3   -   23.3 
Deferred tax movement      14.0   -   14.0 
Currency translation differences - continuing operations  10, 11
   (206.2)  -   (206.2)
Other comprehensive expense for the period      (304.5)  (1.5)  (306.0)
Total comprehensive (expense)/income for the period      (54.0)  1,217.1   1,163.1 
Attributable to:                
Equity shareholders of the Company      (54.3)  1,217.1   1,162.8 
Non-controlling interests      0.3   -   0.3 
Total comprehensive (expense)/income for the period      (54.0)  1,217.1   1,163.1 
                 
Total comprehensive income attributable to the equity shareholders of the Company arises from:                
Continuing operations      (82.9)  (239.9)  (322.8)
Discontinued operations      28.9   1,457.0   1,485.9 
       (54.0)  1,217.1   1,163.1 
Earnings per share (cents)                
From continuing  and discontinued operations             cents 
- basic  9           388.50 
- diluted  9           384.35 
From continuing operations                
- basic  9           (4.87)
- diluted  9           (4.87)
Earnings per share (pence)                
From continuing and discontinued operations             pence 
- basic  9           305.07 
- diluted  9           301.81 
From continuing operations                
- basic  9           (3.82)
- diluted  9           (3.82)
  Note  
October 31, 2021
$m
  
October 31, 2020
$m
 
Non-current assets         
Goodwill
  10   3,725.5   
3,835.4
 
Other intangible assets
  11   4,331.2   
5,383.0
 
Property, plant and equipment
  12   75.4   
93.7
 
Right-of-use assets
  19   153.2   
207.2
 
Long-term pension assets
  22   17.1   
18.2
 
Contract-related costs
  15   31.9   
35.7
 
Non-current tax receivable
  7   48.0   
0
 
Deferred tax asset
  7   15.0   
0
 
Other non-current assets
  13   42.2   
31.8
 
       8,439.5   
9,605.0
 
Current assets            
Trade and other receivables
  14   886.3   
731.4
 
Contract-related costs
  15   33.0   
27.9
 
Current tax receivables
  7   59.1   
45.3
 
Cash and cash equivalents
  16   558.4   
737.2
 
       1,536.8   
1,541.8
 
Current assets classified as held for sale
  30   370.3   
0
 
       1,907.1   
1,541.8
 
Total assets      10,346.6   
11,146.8
 
Current liabilities            
Trade and other payables
  17   513.0   
503.5
 
Borrowings
  18   24.3   
21.4
 
Lease obligations
  19   74.9   
82.2
 
Provisions
  21   65.7   
49.7
 
Current tax liabilities
  7   94.1   
150.1
 
Derivative liability
  24   35.7   
0
 
Contract liabilities
  20   984.6   
981.4
 
Other current liabilities
      0.2   
0
 
       1,792.5   
1,788.3
 
Current liabilities classified as held for sale
  30   68.4   
0
 
       1,860.9   1,788.3 

The accompanying notes form part of the financial statements.


F-6
Consolidated statement of financial position continued

     October 31, 2021 October 31, 2020 
  Note  $m

$m
 
Non-current liabilities        
Contract liabilities
  20   131.8  
117.2
 
Borrowings
  18   4,524.1  
4,618.9
 
Lease obligations
  19   119.6  
168.2
 
Derivative liability
  24   0  
77.9
 
Retirement benefit obligations
  22   147.1  
155.0
 
Provisions
  21   19.8  
22.5
 
Other non-current liabilities
  23   31.3  
39.9
 
Non-current tax liabilities
  7   91.9  
102.7
 
Deferred tax liabilities
  7   599.1  
841.1
 
       5,664.7  
6,143.4
 
Total liabilities      7,525.6  
7,931.7
 
Net assets      2,821.0  
3,215.1
 
Capital and reserves           
Share capital
  25   47.4  
47.3
 
Share premium account
  26   46.8  
46.5
 
Merger reserve
  27   1,659.1  
1,767.4
 
Capital redemption reserve
  27   2,485.0  
2,485.0
 
Hedging reserve
  27   (28.9)  
(63.1)
 
Retained earnings
      (1,120.4)  
(741.3)
 
Foreign currency translation reserve
      (268.0)  
(326.7)
 
Total equity attributable to owners of the parent      2,821.0  
3,215.1
 
Total equity      2,821.0  
3,215.1
 

The accompanying notes form part of the financial statements.

F-7
Consolidated statement of changes in equity

For the Year ended October 31, 2021

     Share capital  Share premium account  Retained earnings  Foreign currency translation reserve  Capital redemption reserves  Hedging reserve  Merger reserve  
Total equity
attributable
to owners of
the parent
  Total equity 
  Note  
$m

 
$m

 
$m

 
$m

 
$m

 
$m

 
$m

 
$m

 
$m

Balance as at November 1, 2020     47.3   46.5   (741.3)  (326.7)  2,485.0   (63.1)  1,767.4   3,215.1   3,215.1 
Loss for the financial year     0   0   (424.4)  0   0   0   0   (424.4)  (424.4)
Other comprehensive income for the year     0   0   33.6   58.7   0   34.2   0   126.5   126.5 
Total comprehensive expense for the year     0   0   (390.8)  58.7   0   34.2   0   (297.9)  (297.9)
Transactions with owners                                       
Dividends  8   0   0   (81.1)  0   0   0   0   (81.1)  (81.1)
Share options:                                        
Issue of share capital – share options  25,26   0.1   0.3   (0.1)  0   0   0   0   0.3   0.3 
Share-based payment charge  28   0   0   12.0   0   0   0   0   12.0   12.0 
Deferred tax on share options  7   0   0   (0.2)  0   0   0   0   (0.2)  (0.2)
Purchase of Treasury Shares1
      0   0   (27.2)  0   0   0   0   (27.2)  (27.2)
Transfer from merger reserve  27   0   0   108.3   0   0   0   (108.3)  0   0 
Total movements for the year      0.1   0.3   (379.1)  58.7   0   34.2   (108.3)  (394.1)  (394.1)
Balance as at October 31, 2021      47.4   46.8   (1,120.4)  (268.0)  2,485.0   (28.9)  1,659.1   2,821.0   2,821.0 

1
During the 12 months ended October 31, 2021 the Micro Focus Employee Benefit Trust (“EBT”) purchased 4 million of the Group’s shares from the market. The EBT will hold these shares to satisfy future exercises of share options. In accordance with the requirement of IFRS 10 the EBT is treated as if it is a subsidiary of the Group. As a result, the purchase of shares held by the EBT is reported as a purchase of Treasury shares by the Group.

The accompanying notes form part of the financial statements.

F-8
Consolidated statement of changes in equity

For the Year ended October 31, 2020

     
Share
capital
  
Share
premium account
  Retained earnings  Foreign currency translation reserve  Capital redemption reserves  Hedging reserve  Merger
reserve		  Total equity attributable to owners of the parent  
Non-
controlling interests
  
Total
equity
 
  Note  
$m

 
$m

 
$m

 
$m

 
$m

 
$m

 
$m

 
$m

 
$m

 
$m

Balance as at November 1, 2019     47.2   44.0   2,250.7   (262.1)  2,485.0   (29.6)  1,739.8   6,275.0   1.3   6,276.3 
Impact of adoption of IFRS 16     0   0   (8.4)  0   0   0   0   (8.4)  0   (8.4)
Revised balance at November 1, 2019     47.2   44.0   2,242.3   (262.1)  2,485.0   (29.6)  1,739.8   6,266.6   1.3   6,267.9 
Loss for the financial year
     0   0   (2,969.5)  0   0   0   0   (2,969.5)  0   (2,969.5)
Other comprehensive expense for the year
     0   0   (5.0)  (64.6)  0   (33.5)  0   (103.1)  0   (103.1)
Total comprehensive expense for the year
     0   0   (2,974.5)  (64.6)  0   (33.5)  0   (3,072.6)  0   (3,072.6)
                                            
Share options:                                           
Issue of share capital – share options  25,26   0.1   2.5   0.3   0   0   0   0   2.9   0   2.9 
Share-based payment charge  28   0   0   18.3   0   0   0   0   18.3   0   18.3 
Current tax on share options  7   0   0   0.1   0   0   0   0   0.1   0   0.1 
Deferred tax on share options  7   0   0   (1.5)  0   0   0   0   (1.5)  0   (1.5)
                                             
Purchase of remaining non-controlling interest      0   0   1.3   0   0   0   0   1.3   (1.3)  0 
Transfer to merger reserve  27   0   0   (27.6)  0   0   0   27.6   0   0   0 
Total movements for the year
      0.1   2.5   (2,983.6)  (64.6)  0   (33.5)  27.6   (3,051.5)  (1.3)  (3,052.8)
Balance as at October 31, 2020      47.3   46.5   (741.3)  (326.7)  2,485.0   (63.1)  1,767.4   3,215.1   0   3,215.1 

F-9
Consolidated statement of comprehensive incomechanges in equity
for
For the 18 monthsYear ended October 31, 201820191


     
Before
exceptional
items
  
Exceptional
items
(note 4)
  Total 
Continuing operations Note  

$m

 

$m

 

$m

Revenue  1,2   
4,754.4
   
-
   
4,754.4
 
Cost of sales      
(1,237.3
)
  
(65.4
)
  
(1,302.7
)
Gross profit      
3,517.1
   
(65.4
)
  
3,451.7
 
Selling and distribution costs      
(1,725.0
)
  
(39.2
)
  
(1,764.2
)
Research and development expenses      
(663.4
)
  
(17.4
)
  
(680.8
)
Administrative expenses      
(213.7
)
  
(416.2
)
  
(629.9
)
Operating profit      
915.0
   
(538.2
)
  
376.8
 
                 
Finance costs  6   
(344.0
)
  
(6.4
)
  
(350.4
)
Finance income  6   
7.1
   
0.6
   
7.7
 
Net finance costs  6   
(336.9
)
  
(5.8
)
  
(342.7
)
                 
Profit/(loss) before tax      
578.1
   
(544.0
)
  
34.1
 
Taxation  7   
(125.1
)
  
798.2
   
673.1
 
Profit from continuing operations      
453.0
   
254.2
   
707.2
 
Profit from discontinued operation (attributable to equity shareholders of the Company)  37   
76.9
   
-
   
76.9
 
Profit for the period      
529.9
   
254.2
   
784.1
 
                 
Attributable to:                
Equity shareholders of the Company      
529.8
   
254.2
   
784.0
 
Non-controlling interests      
0.1
   
-
   
0.1
 
Profit for the period      
529.9
   
254.2
   
784.1
 
     
Share
capital
  
Share
premium account
  Retained earnings  Foreign currency translation reserve  Capital redemption reserves  Hedging reserve  
Merger
reserve
  
Total equity
attributable
to owners of
the parent
  
Non-
controlling interests
  
Total
equity
 
  Note  $m
  $m
  $m
  $m
  $m
  $m
  $m
  $m
  $m
  $m
 
Balance as at November 1, 2018     65.8   41.0   3,275.2   (51.7)  666.3   70.0   3,724.4   7,791.0   1.0   7,792.0 
Impact of adoption of IFRS 15     0   0   52.4   0   0   0   0   52.4   0   52.4 
Impact of adoption of IFRS 9     0   0   (15.6)  0   0   0   0   (15.6)  0   (15.6)
Revised balance at November 1, 2018     65.8   41.0   3,312.0   (51.7)  666.3   70.0   3,724.4   7,827.8   1.0   7,828.8 
Profit for the year
     0   0   1,468.8   0   0   0   0   1,468.8   0.3   1,469.1 
Other comprehensive income/(expense) for the year
     0   0   4.0   (210.4)  0   (99.6)  0   (306.0)  0   (306.0)
Total comprehensive income/(expense) for the year
     0   0   1,472.8   (210.4)  0   (99.6)  0   1,162.8   0.3   1,163.1 
                                            
Transactions with owners:                                           
Dividends  8   0   0   (439.2)  0   0   0   0   (439.2)  0   (439.2)
Share options:                                            
Issue of share capital – share options  25,26   0.1   3.0   (3.8)  0   0   0   0   (0.7)  0   (0.7)
Share-based payment charge  28   0   0 �� 64.5   0   0   0   0   64.5   0   64.5 
Current tax on share options  7   0   0   13.1   0   0   0   0   13.1   0   13.1 
Deferred tax on share options  7   0   0   (7.6)  0   0   0   0   (7.6)  0   (7.6)
Share reorganization and buy-back:                                            
Return of Value – share consolidation  
   (18.7)  0   0   0   18.7   0   0   0   0   0 
Expenses relating to Return of Value  27   0   0   (1.0)  0   0   0   0   (1.0)  0   (1.0)
Issue and redemption of B shares  25   0   0   (1,800.0)  0   1,800.0   0   (1,800.0)  (1,800.0)  0   (1,800.0)
Share buy-back  25   0   0   (544.7)  0   0   0   0   (544.7)  0   (544.7)
Transfer from merger reserve  27   0   0   184.6   0   0   0   (184.6)  0   0   0 
Total movements for the year
      (18.6)  3.0   (1,061.3)  (210.4)  1,818.7   (99.6)  (1,984.6)  (1,552.8)  0.3   (1,552.5)
Balance as at October 31, 2019      47.2   44.0   2,250.7   (262.1)  2,485.0   (29.6)  1,739.8   6,275.0   1.3   6,276.3 


1
In accordance with the requirements of IFRS 16 “Leases” the results for the Year ended October 31, 2019 have not been restated.

The accompanying notes form part of these financial statements.


F-7F-10
Consolidated statementstatements of comprehensive income continuedcash flows
for the 18 months ended October 31, 2018
     
Year
ended
October 31, 2021		  
Year
ended
October 31, 2020
  
Year
ended
October 31, 20191
 
  Note  
$m

 
$m

 
$m

Cash flows from operating activities               
Cash generated from operations  32   690.5   
1,082.8
   
1,056.3
 
Interest paid      (218.1)  
(207.1
)
  
(227.1
)
Bank loan costs      (1.5)  
(47.9
)
  
0
 
Tax paid      (270.3)  
(149.6
)
  
(167.4
)
Net cash generated from operating activities      200.6   
678.2
   
661.8
 
Cash flows from investing activities                
Payments for intangible assets  11   (47.5)  
(60.6
)
  
(29.3
)
Purchase of property, plant and equipment  12   (17.7)  
(26.3
)
  
(56.3
)
Interest received      1.7   
2.4
   
26.6
 
Payment for acquisition of business and net cash acquired with acquisitions
  31   (12.4)  
(6.0
)
  
(89.0
)
Net cash acquired with acquisitions      0   
0
   
1.2
 
Investing cash flows generated from disposals  30   0   
1.3
   
20.0
 
Investing cash flows generated from discontinued operation, net of cash disposed  30   0   
0
   
2,473.5
 
Tax paid on divestiture gain      0   
0
   
(264.6
)
Net cash (used in)/from investing activities      (75.9)  
(89.2
)
  
2,082.1
 
Cash flows used in financing activities                
Proceeds from issue of ordinary share capital  25,26   0.4   
2.6
   
3.1
 
Purchase of treasury shares and related expenses  25   (27.2)  
0
   
(544.7
)
Return of Value paid to shareholders      0   
0
   
(1,800.0
)
Expenses relating to Return of Value      0   
0
   
(1.0
)
Payment for lease liabilities
  19   (79.5)  
(80.1
)
  
(12.9
)
Settlement of foreign exchange derivative  24   0   
(21.8
)
  
0
 
Repayment of bank borrowings  18   (114.1)  
(1,589.7
)
  
(212.6
)
Proceeds from bank borrowings  18   0   
1,490.8
   
0
 
Dividends paid to owners  8   (81.1)  
0
   
(439.2
)
Net cash used in financing activities      (301.5)  
(198.2
)
  
(3,007.3
)
Effects of exchange rate changes      (2.0)  
(9.3
)
  
(1.8
)
Net (decrease)/increase in cash and cash equivalents      (178.8)  
381.5
   
(265.2
)
Cash and cash equivalents at beginning of year
      737.2   
355.7
   
620.9
 
Cash and cash equivalents at end of year
  16   558.4   
737.2
   
355.7
 


1
In accordance with the requirements of IFRS 16 “Leases” the results for the Year ended October 31, 2019 have not been restated.
     
Before
exceptional
items
  
Exceptional
items
(note 4)
  
Total
 
  Note  

$m

 

$m

 

$m

Profit for the period     
529.9
   
254.2
   
784.1
 
Other comprehensive (expense)/income:               
Items that will not be reclassified to profit or loss               
Continuing operations:               
Actuarial loss on pension schemes liabilities  25   
(8.9
)
  
-
   
(8.9
)
Actuarial loss on non-plan pension assets  25   
(5.3
)
  
-
   
(5.3
)
Deferred tax movement      
3.8
   
-
   
3.8
 
Discontinued operation:                
Actuarial loss on pension schemes liabilities  25   
(1.5
)
  
-
   
(1.5
)
Actuarial loss on non-plan pension assets  25   
(0.5
)
  
-
   
(0.5
)
Deferred tax movement      
0.5
   
-
   
0.5
 
Items that may be subsequently reclassified to profit or loss                
Cash flow hedge movements  31   
86.4
   
-
   
86.4
 
Current tax movement  31   
(16.4
)
  
-
   
(16.4
)
Currency translation differences - continuing operations  10   
(29.5
)
  
-
   
(29.5
)
Currency translation differences - discontinued operation      
0.7
   
-
   
0.7
 
Other comprehensive income for the period      
29.3
   
-
   
29.3
 
Total comprehensive income for the period      
559.2
   
254.2
   
813.4
 
Attributable to:                
Equity shareholders of the Company      
559.1
   
254.2
   
813.3
 
Non-controlling interests      
0.1
   
-
   
0.1
 
Total comprehensive income for the period      
559.2
   
254.2
   
813.4
 
                 
Total comprehensive income attributable to the equity shareholders of the Company arises from:                
Continuing operations      
483.1
   
254.2
   
737.3
 
Discontinued operations      
76.1
   
-
   
76.1
 
       
559.2
   
254.2
   
813.4
 
Earnings per share (cents)                
From continuing  and discontinued operations             cents 
- basic  9           
201.70
 
- diluted  9           
196.17
 
From continuing operations                
- basic  9           
181.91
 
- diluted  9           
176.92
 
Earnings per share (pence)                
From continuing and discontinued operations             pence 
- basic  9           
151.61
 
- diluted  9           
147.45
 
From continuing operations                
- basic  9           
136.73
 
- diluted  9           
132.98
 


The accompanying notes form part of these financial statements.


F-8F-11
Consolidated statement of comprehensive income
for the 12 months ended April 30, 2017

     
Before
exceptional
items
  
Exceptional
items
(note 4)
  Total 
Continuing operations Note  

$m

 

$m

 

$m

Revenue  1,2   
1,077.3
   
-
   
1,077.3
 
Cost of sales      
(213.5
)
  
(2.9
)
  
(216.4
)
Gross profit      
863.8
   
(2.9
)
  
860.9
 
Selling and distribution costs      
(357.7
)
  
(5.5
)
  
(363.2
)
Research and development expenses      
(116.0
)
  
(6.8
)
  
(122.8
)
Administrative expenses      
(65.5
)
  
(82.0
)
  
(147.5
)
Operating profit      
324.6
   
(97.2
)
  
227.4
 
                 
Finance costs  6   
(96.8
)
  
-
   
(96.8
)
Finance income  6   
1.0
   
-
   
1.0
 
Net finance costs  6   
(95.8
)
  
-
   
(95.8
)
                 
Profit/(loss) before tax      
228.8
   
(97.2
)
  
131.6
 
Taxation  7   
(19.1
)
  
11.6
   
(7.5
)
Profit/(loss) from continuing operations      
209.7
   
(85.6
)
  
124.1
 
Profit from discontinued operation (attributable to equity shareholders of the Company)  37   
33.7
   
-
   
33.7
 
Profit/(loss) for the period      
243.4
   
(85.6
)
  
157.8
 
                 
Attributable to:                
Equity shareholders of the Company      
243.5
   
(85.6
)
  
157.9
 
Non-controlling interests      
(0.1
)
  
-
   
(0.1
)
Profit/(loss) for the period      
243.4
   
(85.6
)
  
157.8
 

The accompanying notes form part of these financial statements.

Consolidated statement of comprehensive income continued
for the 12 months ended April 30, 2017

     
Before
exceptional
items
  
Exceptional
items
(note 4)
  Total 
  Note  

$m

 

$m

 

$m

Profit for the period     
243.4
   
(85.6
)
  
157.8
 
Other comprehensive (expense)/income:               
Items that will not be reclassified to profit or loss               
Continuing operations:               
Actuarial loss on pension schemes liabilities  25   
(0.2
)
  
-
   
(0.2
)
Actuarial gain on non-plan pension assets  25   
0.3
   
-
   
0.3
 
Deferred tax movement      
(0.1
)
  
-
   
(0.1
)
Discontinued operation:                
Actuarial gain on pension schemes liabilities  25   
0.6
   
-
   
0.6
 
Actuarial loss on non-plan pension assets  25   
(0.2
)
  
-
   
(0.2
)
Deferred tax movement      
(0.2
)
  
-
   
(0.2
)
Items that may be subsequently reclassified to profit or loss                
Currency translation differences – continuing operations      
(4.9
)
  
-
   
(4.9
)
Currency translation differences - discontinued operation      
(1.0
)
  
-
   
(1.0
)
Other comprehensive expense for the period      
(5.7
)
  
-
   
(5.7
)
Total comprehensive income/(expense) for the period      
237.7
   
(85.6
)
  
152.1
 
Attributable to:                
Equity shareholders of the Company      
237.8
   
(85.6
)
  
152.2
 
Non-controlling interests      
(0.1
)
  
-
   
(0.1
)
Total comprehensive income/(expense) for the period      
237.7
   
(85.6
)
  
152.1
 
                 
Total comprehensive income attributable to the equity shareholders of the Company arises from:                
Continuing operations      
204.8
   
(85.6
)
  
119.2
 
Discontinued operations      
32.9
   
-
   
32.9
 
       
237.7
   
(85.6
)
  
152.1
 
Earnings per share                
Earnings per share (cents)                
From continuing  and discontinued operations             cents 
- basic  9           
68.88
 
- diluted  9           
66.51
 
From continuing operations                
- basic  9           
54.17
 
- diluted  9           
52.31
 
Earnings per share (pence)                
From continuing and discontinued operations             pence 
- basic  9           
53.25
 
- diluted  9           
51.42
 
From continuing operations                
- basic  9           
41.88
 
- diluted  9           
40.44
 

The accompanying notes form part of these financial statements.

Consolidated statements of financial position

  Note  
October 31, 2019
$m
  
October 31, 2018
$m
 
Non-current assets         
Goodwill  10   6,671.3   
6,805.0
 
Other intangible assets  11   5,942.3   
6,629.3
 
Property, plant and equipment  12   140.5   
144.3
 
Derivative asset  27   -   
86.4
 
Long-term pension assets  25   17.1   
16.7
 
Contract-related costs  17   31.5   
-
 
Other non-current assets  14   44.0   
38.8
 
       12,846.7   
13,720.5
 
Current assets            
Inventories  15   0.1   
0.2
 
Trade and other receivables  16   1,032.9   
1,272.0
 
Contract-related costs  17   19.3   
-
 
Current tax receivables  22   40.1   
24.5
 
Cash and cash equivalents  18   355.7   
620.9
 
       1,448.1   
1,917.6
 
Current assets classified as held for sale  37   -   
1,142.5
 
Total current assets      1,448.1   
3,060.1
 
Total assets      14,294.8   
16,780.6
 
             
Current liabilities            
Trade and other payables  19   611.0   
676.9
 
Borrowings  20   -   
3.7
 
Finance leases  21   11.8   
13.6
 
Provisions  24   29.3   
57.4
 
Current tax liabilities  22   104.0   
124.1
 
Contract liabilities  23   1,045.9   
1,134.7
 
       1,802.0   
2,010.4
 
Current liabilities classified as held for sale  37   -   
437.7
 
       1,802.0   
2,448.1
 
Non-current liabilities            
Contract liabilities  23   149.9   
178.1
 
Borrowings  20   4,670.7   
4,842.2
 
Finance leases  21   11.7   
14.9
 
Derivative liability  27   36.5   
-
 
Retirement benefit obligations  25   141.4   
110.4
 
Provisions  24   49.1   
35.4
 
Other non-current liabilities  26   50.4   
58.0
 
Current tax liabilities  22   119.7   
131.0
 
Deferred tax liabilities  28   987.1   
1,170.5
 
       6,216.5   
6,540.5
 
Total liabilities      8,018.5   
8,988.6
 
Net assets      6,276.3   
7,792.0
 

The accompanying notes form part of these financial statements.

Consolidated statements of financial position continued

  Note  
October 31, 2019
$m
  
October 31, 2018
$m
 
Capital and reserves         
Share capital  29   47.2   
65.8
 
Share premium account  30   44.0   
41.0
 
Merger reserve  31   1,739.8   
3,724.4
 
Capital redemption reserve  31   2,485.0   
666.3
 
Hedging reserve  31   (29.6)  
70.0
 
Retained earnings      2,250.7   
3,275.2
 
Foreign currency translation reserve      (262.1)  
(51.7
)
Total equity attributable to owners of the parent      6,275.0   
7,791.0
 
Non-controlling interests  32   1.3   
1.0
 
Total equity      6,276.3   
7,792.0
 

The accompanying notes form part of the financial statements.

Consolidated statement of changes in equity
For the 12 months ended April 30, 2017

     
Share
capital
  
Share
premium
account
  
Retained
earnings
  
Foreign
currency
translation
reserve
  
Capital
redemption
reserves
  
Hedging
reserve
  
Merger
reserve
  
Total equity
attributable
to owners of
the parent
  
Non-
controlling
interests
  
Total
equity
 
  Note  
$m
 
$m
 
$m
 
$m
 
$m
 
$m
 
$m
 
$m
 
$m
 
$m
Balance as at May 1, 2016     
39.6
   
190.3
   
228.3
   
(17.0
)
  
163.4
   
-
   
988.1
   
1,592.7
   
1.0
   
1,593.7
 
                                            
Profit for the financial period     
-
   
-
   
157.9
   
-
   
-
   
-
   
-
   
157.9
   
(0.1
)
  
157.8
 
Other comprehensive income/(expense) for the period     
-
   
-
   
0.2
   
(5.9
)
  
-
   
-
   
-
   
(5.7
)
  
-
   
(5.7
)
Total comprehensive income/(expense) for the period     
-
   
-
   
158.1
   
(5.9
)
  
-
   
-
   
-
   
152.2
   
(0.1
)
  
152.1
 
Transactions with owners:                                           
Dividends  8   
-
   
-
   
(177.5
)
  
-
   
-
   
-
   
-
   
(177.5
)
  
-
   
(177.5
)
Treasury shares purchased      
-
   
-
   
(7.7
)
  
-
   
-
   
-
   
-
   
(7.7
)
  
-
   
(7.7
)
Share options:                                            
Issue of share capital – share options  29,30   
0.1
   
1.8
   
(0.1
)
  
-
   
-
   
-
   
-
   
1.8
   
-
   
1.8
 
Share-based payment charge      
-
   
-
   
24.0
   
-
   
-
   
-
   
-
   
24.0
   
-
   
24.0
 
Current tax on share options      
-
   
-
   
4.1
   
-
   
-
   
-
   
-
   
4.1
   
-
   
4.1
 
Deferred tax on share options      
-
   
-
   
23.0
   
-
   
-
   
-
   
-
   
23.0
   
-
   
23.0
 
Reallocation of merger reserve  31   
-
   
-
   
650.0
   
-
   
-
   
-
   
(650.0
)
  
-
   
-
   
-
 
Total movements for the period      
0.1
   
1.8
   
673.9
   
(5.9
)
  
-
   
-
   
(650.0
)
  
19.9
   
(0.1
)
  
19.8
 
Balance as at April 30, 2017      
39.7
   
192.1
   
902.2
   
(22.9
)
  
163.4
   
-
   
338.1
   
1,612.6
   
0.9
   
1,613.5
 

The accompanying notes form part of the financial statements.

Consolidated statement of changes in equity
For the 18 months ended October 31, 2018

     
Share
capital
  
Share
premium
account
  
Retained
earnings
  
Foreign
currency
translation
reserve
  
Capital
redemption
reserves
  
Hedging
reserve
  
Merger
reserve
  
Total equity
attributable
to owners of
the parent
  
Non-
controlling
interests
  
Total
equity
 
  Note  
$m
 
$m
 
$m
 
$m
 
$m
 
$m
 
$m
 
$m
 
$m
 
$m
Balance as at May 1, 2017     
39.7
   
192.1
   
902.2
   
(22.9
)
  
163.4
   
-
   
338.1
   
1,612.6
   
0.9
   
1,613.5
 
                                            
Profit for the financial period     
-
   
-
   
784.0
   
-
   
-
   
-
   
-
   
784.0
   
0.1
   
784.1
 
Other comprehensive income for the period     
-
   
-
   
(11.9
)
  
(28.8
)
  
-
   
70.0
   
-
   
29.3
   
-
   
29.3
 
Total comprehensive income/(expense) for the period     
-
   
-
   
772.1
   
(28.8
)
  
-
   
70.0
   
-
   
813.3
   
0.1
   
813.4
 
Transactions with owners:                                           
Dividends  8   
-
   
-
   
(542.2
)
  
-
   
-
   
-
   
-
   
(542.2
)
  
-
   
(542.2
)
Share options:                                            
Issue of share capital – share options  29,30   
0.2
   
5.6
   
-
   
-
   
-
   
-
   
-
   
5.8
   
-
   
5.8
 
Share-based payment charge      
-
   
-
   
78.6
   
-
   
-
   
-
   
-
   
78.6
   
-
   
78.6
 
Current tax on share options  7   
-
   
-
   
4.1
   
-
   
-
   
-
   
-
   
4.1
   
-
   
4.1
 
Deferred tax on share options  7   
-
   
-
   
(23.7
)
  
-
   
-
   
-
   
-
   
(23.7
)
  
-
   
(23.7
)
Acquisitions:                                            
Shares issued to acquire the HPE Software business  29   
28.8
   
-
   
-
   
-
   
-
   
-
   
6,485.4
   
6,514.2
   
-
   
6,514.2
 
Share reorganization and buy-back:                                            
Return of Value – share consolidation  29,31   
(2.9
)
  
-
   
-
   
-
   
2.9
   
-
   
-
   
-
   
-
   
-
 
Issue and redemption of B shares  30,31   
-
   
(156.7
)
  
(500.0
)
  
-
   
500.0
   
-
   
(343.3
)
  
(500.0
)
  
-
   
(500.0
)
Share buy-back  29   
-
   
-
   
(171.7
)
  
-
   
-
   
-
   
-
   
(171.7
)
  
-
   
(171.7
)
Reallocation of merger reserve  31   
-
   
-
   
2,755.8
   
-
   
-
   
-
   
(2,755.8
)
  
-
   
-
   
-
 
Total movements for the period      
26.1
   
(151.1
)
  
2,373.0
   
(28.8
)
  
502.9
   
70.0
   
3,386.3
   
6,178.4
   
0.1
   
6,178.5
 
Balance as at October 31, 2018      
65.8
   
41.0
   
3,275.2
   
(51.7
)
  
666.3
   
70.0
   
3,724.4
   
7,791.0
   
1.0
   
7,792.0
 

The accompanying notes form part of the financial statements.

Consolidated statement of changes in equity
For the 12 months ended October 31, 2019

     
Share
capital
  
Share
premium
account
  
Retained
earnings
  
Foreign
currency
translation
reserve
  
Capital
redemption
reserves
  
Hedging
reserve
  
Merger
reserve
  
Total
equity
attributable
to owners of
the parent
  
Non-
controlling
interests
  
Total
equity
 
  Note  
$m
 
$m
 
$m
 
$m
 
$m
 
$m
 
$m
 
$m
 
$m
 
$m
Balance as at November 1, 2018     65.8   41.0   3,275.2   (51.7)  666.3   70.0   3,724.4   7,791.0   1.0   7,792.0 
Impact of adoption of IFRS 15     -   -   52.4   -   -   -   -   52.4   -   52.4 
Impact of adoption of IFRS 9     -   -   (15.6)  -   -   -   -   (15.6)  -   (15.6)
Revised balance at November 1, 2018     65.8   41.0   3,312.0   (51.7)  666.3   70.0   3,724.4   7,827.8   1.0   7,828.8 
Profit for the financial period     -   -   1,468.8   -   -   -   -   1,468.8   0.3   1,469.1 
Other comprehensive income/(expense) for the period1
     -   -   4.0   (210.4)  -   (99.6)  -   (306.0)  -   (306.0)
Total comprehensive income/(expense) for the period     -   -   1,472.8   (210.4)  -   (99.6)  -   1,162.8   0.3   1,163.1 
                                            
Transactions with owners:                                           
Dividends  8   -   -   (439.2)  -   -   -   -   (439.2)  -   (439.2)
Share options:                                            
Issue of share capital – share options  29,30   0.1   3.0   (3.8)  -   -   -   -   (0.7)  -   (0.7)
Share-based payment charge      -   -   64.5   -   -   -   -   64.5   -   64.5 
Current tax on share options  7   -   -   13.1   -   -   -   -   13.1   -   13.1 
Deferred tax on share options  7   -   -   (7.6)  -   -   -   -   (7.6)  -   (7.6)
Share reorganization and buy-back:                                            
Return of Value – share consolidation  29,31   (18.7)  -   -   -   18.7   -   -   -   -   - 
Expenses relating to Return of Value  29   -   -   (1.0)  -   -   -   -   (1.0)  -   (1.0)
Issue and redemption of B shares  31   -   -   (1,800.0)  -   1,800.0   -   (1,800.0)  (1,800.0)  -   (1,800.0)
Share buy-back  29   -   -   (544.7)  -   -   -   -   (544.7)  -   (544.7)
Reallocation of merger reserve  31   -   -   184.6   -   -   -   (184.6)  -   -   - 
Total movements for the period      (18.6)  3.0   (1,061.3)  (210.4)  1,818.7   (99.6)  (1,984.6)  (1,552.8)  0.3   (1,552.5)
Balance as at October 31, 2019      47.2   44.0   2,250.7   (262.1)  2,485.0   (29.6)  1,739.8   6,275.0   1.3   6,276.3 

The accompanying notes form part of these financial statements.

1  $21.6m of foreign exchange movements arising on the re-denomination of intangible assets, see note 11, have been recognized as ‘‘currency translation differences – continuing operations’’ and $1.5m of currency translation differences are recorded in retained earnings at October 31, 2019, net of $4.9m of deferred tax.

Consolidated statements of cash flows
    
12 months
ended
October 31,
2019
  
18 months
ended
October 31,
2018
  
12 months
ended
April 30,
2017
 
  Note  
$m
 

$m
m
 

$m

Cash flows from operating activities               
Cash generated from operations  39   1,056.3   
1,424.3
   
564.8
 
Interest paid      (227.1)  
(301.8
)
  
(81.1
)
Bank loan costs      -   
(101.2
)
  
(6.7
)
Tax paid      (167.4)  
(99.5
)
  
(24.6
)
Net cash generated from operating activities      661.8   
921.8
   
452.4
 
Cash flows from/(used in) investing activities                
Payments for intangible assets1
  11   (29.3)  
(92.1
)
  
(31.4
)
Purchase of property, plant and equipment1
  12   (56.3)  
(40.1
)
  
(11.7
)
Finance leases2
  21   -   
(0.7
)
  
-
 
Interest received      26.6   
9.2
   
1.0
 
Payment for acquisition of business  38   (89.0)  
(19.2
)
  
(299.1
)
Repayment of bank borrowings on acquisition of businesses      -   
-
   
(316.6
)
Net cash acquired with acquisitions  38   1.2   
321.7
   
68.1
 
Investing cash flows generated from disposals  37   20.0   
-
   
-
 
Investing cash flows generated from discontinued operation, net of cash disposed  37   2,473.5   
-
   
-
 
Tax paid on divestiture gain      (264.6)  
-
   
-
 
Net cash from/(used in) investing activities      2,082.1   
178.8
   
(589.7
)
Cash flows used in financing activities                
Investment in non-controlling interest  32   -   
(0.1
)
  
(0.1
)
Proceeds from issue of ordinary share capital  29,30   3.1   
5.8
   
2.0
 
Purchase of treasury shares and related expenses  29   (544.7)  
(171.7
)
  
(7.7
)
Return of Value paid to shareholders  29,31   (1,800.0)  
(500.0
)
  
-
 
Expenses relating to Return of Value  29   (1.0)  
-
   
-
 
Repayment of working capital in respect of the HPE Software business acquisition  38   -   
(225.8
)
  
-
 
Finance leases2
  21   (12.9)  
-
   
-
 
Repayment of bank borrowings  20   (212.6)  
(252.9
)
  
(372.1
)
Proceeds from bank borrowings  20   -   
1,043.8
   
180.0
 
Dividends paid to owners  8   (439.2)  
(542.2
)
  
(177.5
)
Net cash used in financing activities      (3,007.3)  
(643.1
)
  
(375.4
)
Effects of exchange rate changes      (1.8)  
15.3
   
(3.5
)
Net (decrease)/increase in cash and cash equivalents      (265.2)  
472.8
   
(516.2
)
Cash and cash equivalents at beginning of period      620.9   
151.0
   
667.2
 
   18   355.7   
623.8
   
151.0
 
Reclassification to current assets classified as held for sale  37   -   
(2.9
)
  
-
 
Cash and cash equivalents at end of period  18   355.7   
620.9
   
151.0
 

The accompanying notes form part of these financial statements.

1The principal non-cash transactions in the 12 months ended October 31, 2019 were property, plant and equipment finance lease additions of $9.0m (note 12).
The principal non-cash transactions in the 18 months ended October 31, 2018 were the issuance of shares as purchase consideration for the HPE Software business acquisition (note 38) and property, plant and equipment finance lease additions of $12.0m (note 12).

2Cash outflows in relation to repayments of finance lease liabilities have been reclassified as a financing activity in the current year as repayments relating to all leases will be presented as financing activities in future periods following the adoption of IFRS 16. The comparative continues to be shown as an investing activity.

Consolidated financial statements and notes
Summary of significant accounting policies


For the year ended October 31, 2021

General information
Micro Focus International plc (“Company”) is a public limited company incorporated and domiciled in the UK.England and Wales. The address of its registered office is,is: The Lawn, 22-30 Old Bath Road, Newbury, RG14 1QN, UK.

Micro Focus International plc and its subsidiaries (together “Group”) provide innovative software to clients around the world enabling them to dramatically improve the business value of their enterprise applications. As at October 31, 2019,2021, the Group had a presence in 48 countries (October 31, 2018: 49; April 30, 2017: 40)2020: 48; October 31, 2019: 48) worldwide and employed approximately 12,10011,355 people (October 31, 2018: 14,800 including 1,200 SUSE employees; April 30, 2017: 4,800)2020; 11,900; October 31, 2019: 12,100).


The Company is listed on the London Stock Exchange and its American Depositary Shares are listed on the New York Stock Exchange.


In the prior period, the Company changed its financial year-end from April 30 to October 31 and reported 18-monthThe Group Consolidated financial statements running from May 1, 2017 to October 31, 2018.were authorized for issuance by the board of directors on February 7, 2022.


1
I Significant Accountingaccounting policies


A Basis of preparation
The consolidatedConsolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IASB”) and, in accordance with international accounting standards in conformity with IFRSthe requirements of the Companies Act 2006 and in accordance with international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union (“IFRSs as adopted by the European Union (collectively “IFRS”EU”).


The consolidated financial statements have beenare prepared on a going concern basis under the historical cost convention. These financial statements have been prepared for a 12-month period as compared with a prior 18-month and 12-month reporting periods and therefore are not entirely comparable. The use of an 18 month reporting period is permitted under the UK Companies Act 2006.


The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgmentjudgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgmentjudgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed below in II, ‘Critical“Critical accounting estimates, assumptions and judgments’judgements”.


The principal accounting policies adopted by the Group in the preparation of the consolidated financial statements are set out below.


The accounting policies adopted are consistent with those of the Annual Report on Form 20-F for the 18 monthsyear ended October 31, 20182020 apart from standards, amendments to or interpretations of published standards adopted during the period and the revision in the period to allocate goodwill and purchased intangible assets into functional currencies of the underlying foreign operations and then retranslate goodwill and purchased intangible assets at closing rates,year, as set out in Accounting Policy J(b) “Foreign currency translation - transactionsW “Adoption of new and balances”, and which has been recorded in the 12 months ended October 31, 2019 (note 11)revised IFRS”.


Going concern
The directors, having made enquiries, consider that the Group has adequate resources to continue in operational existence for the foreseeable future and therefore it is appropriate to maintain the going concern basis in preparing these financial statements.

Consolidated statement of comprehensive income – Prior Period Revision
In the prior period, certain costs were incorrectly presented as administrative expenses ($159.0m) and should have been classified as $43.4m in cost of sales, $94.2m in selling and distribution expenses and $21.4m in research and development expenses. Management have therefore decided to correctThe Group has revised the presentation and record these immaterial adjustments to reviseof the Consolidated statementStatement of comprehensive incomeComprehensive Income to remove the additional two columns showing exceptional items and the pre-exceptional item results which were included in prior periods. The revised presentation is considered to be simpler to the users of the accounts and aligns to the statutory basis of presentation.

Going concern
In line with IAS 1 ‘Presentation of financial statements’, and the FRC guidance on ‘risk management, internal control and related financial and business reporting’, management has taken into account available information about the future for a period of at least, but not limited to, 12 months from the date of approval of the consolidated financial statements when assessing the Group’s ability to continue as a going concern.

Item 5.A and Item 5.B includes information on the Group’s market, structure, strategy and business model, Group financial results, cash flow and net debt, and the balance sheet position. This report also covers the agreed disposal of the Group’s Digital Safe business for net consideration of $335 million. The transaction completed on January 31, 2022 therefore this going concern assessment is prepared for the 18 months ended October 31, 2018. Group excluding the Digital Safe business.

The impactGroup manages solvency and liquidity as part of its budgeting and performance management. The Group’s forecasting and planning cycle consists of a budget and a long-range plan which are used to generate income statement and cash flow projections. The cash flow projections also forecast the revision is to reduce administrative expenses by $159.0m, increase cost of sales by $43.4m, increase selling and distribution expenses by $94.2m and increase research and development expenses by $21.4m as compared with previously reported amounts. The revision has no impactheadroom on the operating profit, profit forGroup’s undrawn Revolving Credit Facility (“RCF”) and expected net leverage. Actual and forecast liquidity are reviewed at least weekly by the period, assets and liabilities or cash flows forGroup’s working capital management group which reports to the 18 months ended October 31, 2018. This revision has also been reflected in the unaudited financial information for the 12-month period ended October 31, 2018 and the 6-month period ended October 31, 2017 presented in Exhibit 15.4.Chief Financial Officer.


F-17F-12
Consolidated financial statements and notes
Summary of significant accounting policies continued


In making this assessment, the directors considered the Group’s liquidity and solvency position. Since year end the Group has refinanced $1.6 billion of the 2024 term loans extending the maturity until 2027 and extended its RCF by 18 months to December 2026, reducing the facility to $250 million and increasing the Group’s ability to utilise the facility. See note 18 for further details of the Groups borrowings, including the RCF, and the refinancing. Whilst the Group has quarterly instalment payments due and, dependent on leverage, may be subject to an excess cash sweep against its external borrowing in the period to February 2023, the Group has no term loans maturing until June 2024. Under the amended RCF agreement the net leverage covenant applies when the RCF is more than 40% drawn at the quarter end. Under the Group’s forecast the RCF is not forecast to be drawn in the period to February 2023 and therefore no tests of this covenant are expected to apply.

Also, in assessing liquidity, the board considered the reported net current liability position of $255.7 million at October 31, 2021. This is the result of $984.6 million of advance billing for services which is required to be recognised as a contract liability. The cost of delivering these services is fully included in the Group’s forecasting and sensitivities.

Sensitivity
In assessing going concern the Group has estimated the financial impact of the severe but plausible scenarios considered in assessing viability on the going concern assessment period. This stress testing confirmed that existing projected cash flows and cash management activities provide us with significant headroom over the going concern assessment period. In addition, under the severe but plausible scenarios, there is no point at which the Group would likely need to draw upon the RCF in the period to February 2023 and therefore the covenant test on the RCF would not be expected to apply.

Conclusion
Having performed the assessments discussed above, the directors considered it appropriate to adopt the going concern basis of accounting when preparing the Consolidated financial statements. This assessment covers the period through February 2023, which is consistent with the FRC guidance.

B Consolidation
The financial statements of the Group comprise the financial statements of the Company and entities controlled by the Company and its subsidiaries and the Group’s share of its interests in associates prepared at the consolidated statement of financial position date.


Subsidiaries
Subsidiaries are entities controlled by the Group. The Group has control over an entity where the Group is exposed to, or has rights to, variable returns from its involvement within the entity and it has the power over the entity to effect those returns. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing control. Control is presumed to exist when the Group owns more than half of the voting rights (which does not always equal percentage ownership) unless it can be demonstrated that ownership does not constitute control. The results of subsidiaries are consolidated from the date on which control passes to the Group. The results of disposed subsidiaries are consolidated up to the date on which control passes from the Group.


The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, with costs directly attributable to the acquisition being expensed. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill.


Where new information is obtained within the ‘measurement period’“measurement period” (defined as the earlier of the period until which the Group receives the information it was seeking about facts and circumstances that existed as of the acquisition date or learns that more information is not obtainable, or one year from the acquisition date) about facts and circumstances that existed as at the acquisition date and, if known, would have affected the measurement of the amounts recognized as of that date, the Group recognizes these adjustments to the acquisition balance sheet with an equivalent offsetting adjustment to goodwill. Where new information is obtained after this measurement period has closed, this is reflected in the post-acquisition period.


For partly owned subsidiaries, the allocation
F-13
Consolidated financial statements and net earnings to outside shareholders is shown in the line ‘Attributable to non-controlling interests’ on the facenotes
Summary of the Consolidated statement of comprehensive income and the Consolidated statement of financial position.significant accounting policies continued


B Consolidation continued
Inter-company transactions, balances and unrealized gains on transactions between Group companies are eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

At October 31, 2019, the Group had an 84.24% (2018: 81.05%; 2017: 74.70%) interest in Novell Japan Ltd which gives rise to the minority interest reported in these financial statements (note 32).


C Assets held for sale and discontinued operations
A currentnon-current asset (or disposal group) is classified as held for sale if the Group will recover the carrying amount principally through a sale transaction rather than through continuing use. A currentnon-current asset (or disposal group) classified as held for sale is measured at the lower of its carrying amount and fair value less costs to sell. If the asset (or disposal group) is acquired as part of a business combination it is initially measured at fair value less costs to sell.

Assets and liabilities of disposal groups classified as held for sale are shownpresented separately onas current items in the faceconsolidated statement of financial position and are measured at the balance sheet.lower of their carrying amount and fair value less costs to sell. Property, plant and equipment, right-of-use assets and intangible assets are not depreciated or amortized once classified as held for sale.


The results of discontinued operations are shown as a single amount on the face of the Consolidated statement of comprehensive income comprising the post-tax profit or loss of discontinued operations and the post-tax gain or loss recognized either on measurement to fair value less costs to sell or on the disposal of the discontinued operation. The Consolidated statement of cash flows has been presented including the discontinued operations.

Consolidated financial statements and notes
Summary of significant accounting policies continued


D Revenue recognition
On November 1, 2018, the Group adopted IFRS 15 using the modified retrospective approach which means that the cumulative impact of the adoption was recognized in retained earnings as of November 1, 2018 and that comparatives are not restated. IFRS 15 replaces guidance in IAS 18 and IAS 11. The accounting policies applied under IAS 18 and IAS 11 in the comparative period are presented below under the heading ‘Revenue recognition policy in the prior period’.  This standard establishes a new principle-based model of recognizing revenue from customer contracts. It introduces a five-step model that requires revenue to be recognized when control over goods and services are transferred to the customer. Additionally, there is a requirement in the new standard to capitalize certain incremental contract costs. The guidance also requires disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.

The Group follows the principle-based five-step model in IFRS 15 and recognizes revenue on transfer of control of promised goods or services to customers incustomer when or as the performance obligation is satisfied at an amount that reflects the consideration, which the Group expects to be entitled in exchange for those goods, or services. Customer contracts can include combinations of goods and services, which are generally capable of being distinct and accounted for as separate performance obligations. Typically, a licence deal includes support, a separate performance obligation consisting of: call in assistance and when-and-if available updates. The right to get assistance and updates is not mandatory to use the licence. Contracts may also include professional services, which primarily comprise installation, implementation, configuration, advisory services and staff augmentation; these services are available both from the Group and other external service providers. All software is considered off-the-shelf and most services make use of existing configuration functionality and do not modify or customize the source code within the products, nor do they create custom software. The professional service personalize the software to the customer’s requirements and preferences. Customers can benefit from both the software on its own and the subsequent services, individually and together. On this basis, the Group concludes that services are typically distinct from licences and constitute a separate performance obligation, although this is also assessed on an individual contract basis.


Revenue is allocated to the various performance obligations on a relative stand-alone selling price (“SSP”) basis.


On an on-going basis, the Group utilizes available data points based on relevant historical transactions, to establish the observable stand-alone selling prices to be used in allocating transaction consideration. For observable stand-alone sales a reasonable range of prices will be determined to represent the stand-alone selling priceSSP of that performance obligation. Given the highly variable selling price of licences, the Group has not established SSP for licences. When SSP is established for the undelivered performance obligations (typically maintenance and professional services), the residual approach is used to allocate the transaction price to the delivered licences.


For performance obligations where observable stand-alone sales are not available, SSP will be estimated using the following methods in the order set out below:
-
Market price
-
Expected cost plus a margin
-
Residual approach


The Group recognizes revenues from sales of software licences (including Intellectual Property and Patent rights) to end-users, resellers and Independent Software Vendors (“ISV”), software maintenance, subscription, Software as a Service (“SaaS”), technical support, training and professional services. ISV revenue includes fees based on end usage of ISV applications that have our software embedded in their applications.


F-14
Consolidated financial statements and notes
Summary of significant accounting policies continued

D Revenue recognition continued
Software licence revenue is the sale of right to use the software on customer premises and is recognized at a point in time when the software is made available to the customer and/or reseller (i.e. when control of the asset is transferred)transferred and the performance obligation is satisfied).Software licence revenue includes revenue resulting from term/time extensions to existing agreements and the sale of additional use rights associated to existing licences including granting third party access, virtualization or novation rights. Typically term extensions and these additional rights do not require incremental support as they do not result in an additional licence, only a different use of the existing licences. The Group enters into licence verification arrangements, for customers who are not in compliance with their contractual licence and/or maintenance terms, by agreeing a one-off settlement fee. If themore than one performance obligation can be identified in the contract, revenue is allocated to each performance obligation, otherwise the Group policy is to recognize it as licence revenue. The allocation of revenue does not impact the timing of revenue recognition in these deals, given the performance obligation(s) have already been fulfilled, but will impact the presentation of revenue recognized during the period, (as licence or licence and maintenance).


For Subscriptions and SaaS arrangements, which include cloud arrangements, where customers access the functionality of a hosted software over the contract period without taking possession of the software, and performance obligations are provided evenly over a defined term, the Group recognizes revenue over the period in which the subscriptions are provided as the service is delivered, generally on a straight-line basis.


In SaaS arrangements, which include cloud arrangements, where the customer has the contractual right to take possession of the software at any time during the contractual period without significant penalty and the customer can operate, or contract with another vendor to operate the software, the Group evaluates whether the arrangement includes the sale of a software licence. In SaaS arrangements where software licences are sold, licence revenue is generally recognized at a point in time when control of the software is transferred to the customer.


Maintenance revenue is recognized on a straight-line basis over the term of the contract, which in most cases is one year.

Consolidated financial statements and notes
Summary of significant accounting policies continued

D Revenue recognition continued


For time and material-based professional services contracts, the Group recognizes revenue as services are rendered. The Group recognizes revenue from fixed-price professional services contracts as work progresses over the contract period on a percentage of completion basis, as determined by the percentage of laborlabour costs incurred to date compared to the total estimated laborlabour costs of a contract. Estimates of total project costs for fixed-price contracts are regularly reassessed during the life of a contract. Service costs are expensed as incurred; amounts collected prior to satisfying the above conditions are shown as contract liabilityliabilities.

Where consideration is received in advance of satisfying the performance obligation and includedthe performance obligation will be satisfied within one year of receipt of the consideration no significant financing component is recognized. The majority of the Group’s SaaS and maintenance contracts are for periods of one year. In addition, for multi-year contracts where consideration is received in deferred income.advance, the purpose of the upfront billing is not for the Group to obtain financing, rather to avoid the administrative tasks of subsequent invoicing, cash collection and risk of cancellation.


Rebates paid to resellers as part of a contracted programprogramme are accounted for as a reduction of the transaction price and netted against revenue where the rebate paid is based on the achievement of sales targets made by the partner. If the Group receives an identifiable good or service from the reseller that is separable from the sales transaction and for which fair value can be reasonably estimated, the Group accounts for the purchase of the good or service in the same way that it accounts for other purchases from suppliers.

Revenue recognition policy in the prior periods
The Group recognized revenues from sales of software Licences (including Intellectual Property and Patent rights), to end-users, resellers and Independent Software Vendors (“ISV”), software maintenance, subscription, Software as a Service (“SaaS”), technical support, training and professional services, upon firm evidence of an arrangement, delivery of the software and determination that collection of a fixed or determinable fee is reasonably assured. ISV revenue included fees based on end usage of ISV applications that have our software embedded in their applications. When the fees for software upgrades and enhancements, maintenance, consulting and training were bundled with the Licence fee, they were unbundled using the Group’s objective evidence of the fair value of the elements represented by the Group’s customary pricing for each element in separate transactions. If evidence of fair value existed for all undelivered elements and there was no such evidence of fair value established for delivered elements, revenue was first allocated to the elements where fair value has been established and the residual amount was allocated to the delivered elements. If evidence of fair value for any undelivered element of the arrangement did not exist, all revenue from the arrangement was deferred until such time that there was evidence of delivery.

If the arrangement included acceptance criteria, revenue was not recognized until the Group could objectively demonstrate that the acceptance criteria have been met, or the acceptance period lapses, whichever was earlier.

The Group recognized Licence revenue derived from sales to resellers upon delivery to resellers, provided that all other revenue recognition criteria was met; otherwise revenue was deferred and recognized upon delivery of the product to the end-user. Where the Group sold access to a Licence for a specified period of time and collection of a fixed or determinable fee was reasonably assured, Licence revenue was recognized upon delivery, except in instances where future substantive upgrades or similar performance obligations were committed to. Where future performance obligations were specified in the Licence agreement, and fair value could be attributed to those upgrades, revenue for the future performance obligations was deferred and recognized on the basis of the fair value of the upgrades in relation to the total estimated sales value of all items covered by the Licence agreement. Where the future performance obligations were unspecified in the Licence agreement, revenue was deferred and recognized rateably over the specified period.

For Subscription revenue where access and performance obligations were provided evenly over a defined term, the revenue was deferred and recognized rateably over the specified period.

The Group recognized revenue for SaaS arrangements as the service was delivered, generally on a straight-line basis, over the contractual period of performance. In SaaS arrangements, the Group considered the rights provided to the customer (e.g. whether the customer has the contractual right to take possession of the software at any time during the contractual period without significant penalty, and the feasibility of the customer to operate or contract with another vendor to operate the software) in determining whether the arrangement included the sale of a software licence. In SaaS arrangements where software licences were sold, licence revenue was generally recognized according to whether perpetual or term licences are sold, when all other revenue recognition criteria was satisfied.

Maintenance revenue was recognized on a straight-line basis over the term of the contract, which in most cases was one year.

Consolidated financial statements and notes
Summary of significant accounting policies continued

D Revenue recognition continued

For time and material-based professional services contracts, the Group recognized revenue as services are rendered and recognized costs as they were incurred. The Group recognized revenue from fixed-price professional services contracts as work progressed over the contract period on a proportional performance basis, as determined by the percentage of labour costs incurred to date compared to the total estimated labour costs of a contract. Estimates of total project costs for fixed-price contracts were regularly reassessed during the life of a contract. Amounts collected prior to satisfying the above revenue recognition criteria were included in deferred income.

Rebates paid to partners as part of a contracted program were netted against revenue where the rebate paid was based on the achievement of sales targets made by the partner, unless the Company received an identifiable good or service from the partner that was separable from the sales transaction and for which the Group could reasonably estimate fair value.


E Contract-related costs
The Group capitalizes the costs of obtaining a customer contract when they are incremental and, if expected to be recovered, they are amortized over the customer life or pattern of revenue for the related contract.


Normally sales commissions paid for customer contract renewals are not commensurate with the commissions paid for new contracts. It follows that the commissions paid for new contracts also relate to expected future renewals of these contracts. Accordingly, the Group amortizes sales commissions paid for new customer contracts on a straight-line basis over the expected customer life, based on expected renewal frequency. The current average customer life is five years. If the expected amortization period is one year or less the costs are expensed when incurred.


Amortization of the capitalized costs of obtaining customer contracts is classified as sales and marketing expense. Capitalized costs from customer contracts are classified as non-financial assets in our statement of financial position.


F-15
Consolidated financial statements and notes
Summary of significant accounting policies continued

F Cost of sales
Cost of sales includes costs related to the amortization of product development costs, amortization of acquired technology intangibles, costs of the consulting business and helpline support and royalties payable to third parties.


G Segment reporting
In accordance with IFRS 8, ‘Operating Segments’“Operating Segments”, the Group has derived the information for its segmental reporting using the information used by the Chief Operating Decision Maker (“CODM”), defined as the Operating Committee. The segmental reporting is consistent with those used in internal management reporting and the measure used by the Operating Committee is the Adjusted EBITDA as set out in note 1.1, “Segmental reporting”.


H Exceptional items
Exceptional items are those significant items, which are separately disclosed by virtue of their size, nature or incidence to enable a full understanding of the Group’s financial performance. In setting the policy for exceptional items, judgmentjudgement is required to determine what the Group defines as ‘exceptional’“exceptional”. The Group considers whether an item to beis exceptional in nature ifby considering its materiality or the frequency of the transaction occurring or whether it is material, non-recurring or does not reflectreflects the underlying performance of the business. Exceptional items are allocated to the financial statement lines (for example: cost of sales) in the Consolidated statement of comprehensive income based on the nature and function of the costs, for example restructuring costs related to employees are classified where their original employment costs are recorded.


Management of the Group first evaluates Group strategic projects such as acquisitions, divestitures and integration activities and significant Group restructuring and other one-off events such as restructuring programs.or similar activities. In determining whether an event or transaction is exceptional, management of the Group considers quantitative and qualitative factors such as its expected size, precedent for similar items and the commercial context for the particular transaction, while ensuring consistent treatment between favorablefavourable and unfavorableunfavourable transactions impacting revenue, income and expense. Examples of transactions which may be considered of an exceptional nature include major restructuring programs,programmes, cost of acquisitions, the cost of integrating acquired businesses, or gains on the disposal of discontinued operations.operations or impairment charges recognized against goodwill.

Consolidated financial statements and notes
Summary of significant accounting policies continued


I Employee benefit costs


a) Pension and other defined benefit obligations and long-term pension assets
The Group operates various pension schemes and long-term employee benefit plans, including both defined contribution and defined benefit pension plans. A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. A defined benefit plan is a pension plan or other long-term employee benefit that is not a defined contribution plan.


For defined contribution plans, the Group pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognized as an employee benefit expense when they are due. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in the future payments is available.


Typically, the Group’s defined benefit pension plans define an amount of pension benefit that an employee will receive on retirement or termination. This is usually dependent on one or more factors such as age, years of service and compensation.Additionally, the Group sponsors vacation and other types of leave plans which qualify under IAS 19 as other long-term benefits as these liabilities are not expected to be settled within the next fiscal year. As such, these plans are defined benefit in nature. These plans are typically unfunded.


The liability recognized in the Consolidatedconsolidated statement of financial position in respect of defined benefit pension and other long-term employee benefit plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. Certain long-term pension assets do not meet the definition of plan assets as they have not been pledged to the plan and are subject to the creditors of the Group. Such assets are recorded separately in the Consolidatedconsolidated statement of financial position as long-term pension assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that have terms to mature approximating to the terms of the related pension obligation.


Actuarial
F-16
Consolidated financial statements and notes
Summary of significant accounting policies continued

I Employee benefit costs continued
For defined benefit pension plans, actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise. Past-service costsFor other long-term benefit plans actuarial gains and losses are recognized immediately in income.profit or loss in the period in which they arise.


The current service cost of the defined benefit plan,plans, recognized in the Consolidated statement of comprehensive income in employee benefit expense except where included in the cost of an asset, reflects the increase in the defined benefit obligation resulting from employee service in the current year, benefit changes, curtailments and settlements.Past-service costs are recognized immediately in the Consolidated statement of comprehensive income.


The net interest cost is calculated by applying the discount rate to the net balance of the defined benefit obligation and the fair value of plan assets. This cost is included in finance costs in the Consolidated statement of comprehensive income.


Long-term pension assets relate to the reimbursement right under insurance policies held in the Group with guaranteed interest rates that do not meet the definition of a qualifying insurance policy as they have not been pledged to the plan and are subject to the creditors of the Group. Such reimbursement rights assets are recorded in the Consolidated statement of financial position as long-term pension assets. These contractual arrangements are treated as financial assets measured at fair value through other comprehensive income. Gains and losses on long-term pension assets are charged or credited to equity in other comprehensive income in the period in which they arise.


b) Share basedShare-based compensation
The Group operated various equity-settled, share basedshare-based compensation plans during the period.


The fair value of the employee services received in exchange for the grant of the shares or options is recognized as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the shares or options granted. Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. Market vesting conditions are taken into account when determining the fair value of the options at grant date. At each Consolidated statement of financial position date, the Group revises its estimates of the number of options that are expected to become exercisable.exercisable for non-market vesting conditions. It recognizes the impact of the revision of original estimates, if any, in the Consolidated statement of comprehensive income, and a corresponding adjustment to equity over the current reporting period.


The shares are recognized when the options are exercised and the proceeds received allocated between ordinary sharesshare capital and share premium account. Fair value is usually measured using the Black-Scholes pricing model. The expected life used in the model has been adjusted, based on management’s best estimate for the effects of non-transferability, exercise restrictions and behavioralbehavioural considerations. The Additional Share GrantsWhere appropriate, some LTIP options have been valueda fair value measured using the share price or the Monte-Carlo simulation pricing model.

Consolidated financial statements and notes
Summary of significant accounting policies continued

I Employee benefit costs continued
b) Share based compensation continued


When the terms of an equity-settled award are modified, the minimum expense recognized is the grant date fair-valuefair value of the unmodified award, provided the original terms of the award are met. An additional expense, measured as at the date of modification, is recognized for any modification that increases the total fair value of the share-based payment transaction, or is otherwise beneficial to the employee.


The social security contributions payable in connection with the grant of the share options is considered an integral part of the grant itself, and the charge is treated as a cash-settled transaction.


J Foreign currency translation


a) Functional and presentation currency
The presentation currency of the Group is US dollars. Items included in the financial statements of each of the Group’s entities are measured in the functional currency of each entity.


b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year endyear-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the Consolidated statement of comprehensive income within administrative expenses.

F-17
Consolidated financial statements and notes
Summary of significant accounting policies continued

J Foreign currency translation continued
Non-monetary items that are measured in terms of historical costs in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments (including purchased intangible assets) to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at the closing rate.


On consolidation, the results and financial position of all the Group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows:



i)
Assets and liabilities for each Consolidated statement of financial position presented are translated at the closing rate at the date of that Consolidated statement of financial position;


ii)
Income and expenses for each Consolidated statement of comprehensive income item are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and


iii)
All resulting exchange differences are recognized as a separate component of equity.


On consolidation, exchange differences arising from the translation of the net investment in foreign entities are taken to other comprehensive income.


Goodwill arising before May 1, 2004 is treated as an asset of the Company and expressed in the Company’s functional currency.


c) Exchange rates
The most important foreign currencies for the Group areare: Pounds Sterling, the Euro, Canadian Dollar, Israeli ShekelJapanese Yen, Indian Rupee and Japanese Yen.the Australian Dollar. The exchange rates used are as follows:


 
Year ended
October 31, 2021
  
Year ended
October 31, 2020
  
Year ended
October 31, 2019
 
 
12 months ended
October 31, 2019
  
18 months ended
October 31, 2018
  
12 months ended
April 30, 2017
          
 Average  Closing  Average  Closing  Average  Closing  Average  Closing  Average  Closing  Average  Closing 
£1 = $ 1.27  1.29  
1.33
  
1.27
  
1.29
  
1.29
  1.37  1.37  
1.28
  
1.30
  
1.27
  
1.29
 
€1 = $ 1.12  1.12  
1.18
  
1.14
  
1.09
  
1.09
  1.19  1.16  
1.13
  
1.17
  
1.12
  
1.12
 
C$ = $ 0.75  0.76  
0.78
  
0.76
  
0.76
  
0.73
  0.80  0.81  
0.74
  
0.75
  
0.75
  
0.76
 
ILS = $ 0.28  0.28  
0.28
  
0.27
  
0.26
  
0.28
 
100 JYP = $ 1.10  1.08  
0.90
  
0.92
  
0.91
  
0.90
 
AUD = $ 0.75  0.75  
0.68
  
0.70
  n/a  n/a 
100 INR = $ 1.36  1.33  
1.36
  
1.34
  
n/a
  
n/a
 
100 JPY = $ 0.92  0.88  
0.93
  
0.96
  
1.10
  
1.08
 

Consolidated financial statements and notes
Summary of significant accounting policies continued


K Intangible assets


a) Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill is tested annually for impairment andor whenever there is an indication that the asset may be impaired. Goodwill is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing. Each of those cash-generating units represents the Group’s investment in each area of operation by each primary reporting segment.


Where goodwill has been allocated to a cash-generating unit (CGU) and part of the operation within that unit is classified as held for sale, the goodwill associated with the held-for-sale operation is measured based on the relative values of the held-for-sale operation and the portion of the cash-generating unit retained.


F-18
Consolidated financial statements and notes
Summary of significant accounting policies continued

K Intangible assets continued
b) Computer software
Computer software licences are capitalized on the basis of the costs incurred to acquire and bring into use the specific software. These costs are amortized using the straight-line method over their estimated useful lives of three to seven years.years for perpetual licence or based on the agreement for term licence.


c) Research and development
Research expenditure is recognized as an expense as incurred in the Consolidated statement of comprehensive income in research and development expenses. Costs incurred on product development projects relating to the developing of new computer software programsprogrammes and significant enhancement of existing computer software programsprogrammes are recognized as intangible assets when it is probable that the project will be a success, considering its commercial and technological feasibility, and costs can be measured reliably. Only direct costs are capitalized which are the software development employee costs and third-party contractor costs. Product development costs previously recognized as an expense are not recognized as an asset in a subsequent period.


Product development costs are amortized from the commencement of the commercial production of the product on a straight-line basis over the period of its expected benefit, typically being three years, and are included in costs of sales in the Consolidatedconsolidated statement of comprehensive income.


d) Intangible assets – arising on business combinations
Other intangible assets that are acquired by the Group as part of a business combination are recognized at their fair value at the date of acquisition, and are subsequently amortized. Amortization is charged to the Consolidated statement of Comprehensivecomprehensive income on a straight-line basis over the estimated useful life of each intangible asset. Intangible assets are amortized from the date they are available for use. The estimated useful lives will vary for each category of asset acquired and to date are as follows:


Purchased software
Term licenceLicence agreement based, generally three to seven years
Technology
Three to 12 years
Trade names
Three to 20 years
Customer relationships
Two to 15 years
Lease contracts
Term of the lease agreement


Amortization of purchased software intangibles is included in administrative expenses, amortization of purchased technology intangibles is included in cost of sales and amortization of acquired purchased trade names and customer relationships and lease contracts intangibles are included in selling and distribution costs in the Consolidated statement of comprehensive income.

Consolidated financial statements and notes
Summary of significant accounting policies continued


L Property, plant and equipment

All property, plant and equipment is stated at historical cost less accumulated depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance expenditures are charged to the Consolidatedconsolidated statement of comprehensive income during the financial year in which they are incurred. Depreciation is calculated using the straight-line method to write off the cost of each asset to its residual value over its estimated useful life as follows:


Buildings
30 years
Leasehold improvements
Three to 10 years (not exceeding the remaining lease period)
Fixtures and fittings
Two to seven years
Computer equipment
One to five years


Freehold land is not depreciated. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each Consolidated statement of financial position date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing the disposal proceeds with the carrying amount and are included in the Consolidated statement of comprehensive income.

Property held for sale is measured at the lower of its carrying amount or estimated fair value less costs to sell.


F-19
Consolidated financial statements and notes
Summary of significant accounting policies continued

M Impairment of non-financial assets
Assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment.impairment or whenever there is an indication that the asset may be impaired. Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows being cash-generating units. Any non-financial assets other than goodwill which have suffered impairment are reviewed for possible reversal of the impairment at each reporting date. Assets that are subject to amortization and depreciation are also reviewed for any possible impairment at each reporting date.


N Inventories
Inventories are stated at the lower of cost and net realizable value. The cost of finished goods comprises software for resale and packaging materials. Net realizable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.

When work has been performed and the revenue is not yet recognized, the direct costs of third-party contractors and staff will be treated as work in progress where the probability of invoicing and evidence of collectability can be demonstrated.

O Trade receivables
Trade receivables are initially recognized at fair value and subsequently measured at amortized cost less provisions for impairment based upon an expected credit loss methodology. The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables. A provision of the lifetime expected credit loss is established upon initial recognition of the underlying asset and are calculated using historical account payment profiles along with historical credit losses experienced. The loss allowance is adjusted for forward lookingforward-looking factors specific to the debtor and the economic environment. The amount of the provision is the difference between the asset’s carrying amount and the present value of the probability weighted estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognized in the Consolidated statement of comprehensive income.


PO Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the Consolidated statement of financial position.


F-25
Consolidated financial statements and notes
Summary of significant accounting policies continued

QP Borrowings
Borrowings are recognized initially at fair value, net of transaction costs incurred. Subsequent to initial recognition, interest bearing borrowings are stated at amortized cost with any difference between cost and redemption value being recognized in the Consolidated statement of comprehensive income over the periodexpected life of the of borrowing on an effective interest basis.


R FinanceQ Leases
As a lessee
When the Group leases an asset a ‘right-of-use asset’ is recognized for the leased item and a lease liability is recognized for any lease payments due over the lease term at the lease commencement date. The right-of-use asset is initially measured at cost, being the present value of the lease payments paid or payable, plus any initial direct costs incurred in entering the lease and less any lease incentives received.

Right-of-use assets are depreciated on a straight-line basis from the commencement date to the earlier of the end of the asset’s useful life or the end of the lease term. The lease term is the non-cancellable period of the lease plus any periods for which the Group is ‘reasonably certain’ to exercise any extension options (note 19, “Leases”). The useful life of the asset is determined in a manner consistent to that for owned property, plant and equipment described in L above. If right-of-use assets are considered to be impaired, the carrying value is reduced accordingly.

Lease liabilities are initially measured at the value of the lease payments that are not paid at the commencement date and are usually discounted using the incremental borrowing rates of the Group for the relevant portfolio (the rate implicit in the lease is used if it is readily determinable). Lease payments included in the lease liability include both fixed payments and in-substance fixed payments during the term of the lease.

After initial recognition, the lease liability is recorded at amortized cost using the effective interest method. It is re-measured when there is a change in future lease payments arising from a change in an index or rate (e.g. an inflation related increase) or if the Group’s assessment of the lease term changes; any change in the lease liability as a result of these changes also results in a corresponding change in the recorded right-of-use asset.

F-20
Consolidated financial statements and notes
Summary of significant accounting policies continued

Q Leases continued
As a lessor
Where the Group is a lessor, it determines at inception whether the lease is a finance or an operating lease. When a lease transfers substantially all the risks and rewards of ownership of the underlying asset then the lease is a finance lease; otherwise, the lease is an operating lease.

Where the Group is an intermediate lessor, the interest in the head lease and the sub-lease is accounted for separately and the lease classification of a sub-lease is determined by reference to the right-of-use asset arising from the head lease.

Income from operating leases is recognized on a straight-line basis over the lease term. Income from finance leases is recognized in full at lease commencement.

Lease policy in the year ended October 31, 2019 under IAS 17 and IFRIC 4
A lease is classified at the inception date as a finance lease or an operating lease. A lease that transfers substantially all the risks and rewards incidental to ownership to the Group is classified as a finance lease.


Finance leases are capitalized at the commencement of the lease at the inception date fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognized in finance costs in the Consolidated statement of comprehensive income.


A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term.


An operating lease is a lease other than a finance lease. Operating lease payments are recognized as an operating expense in the statement of profit or loss on a straight-line basis over the lease term.


Operating sub-lease income is recorded as operating income on a straight-line basis over the sub-lease term.


SR Taxation
Current and deferred tax are recognized in the Consolidated statement of comprehensive income, except when the tax relates to items charged or credited directly to equity, in which case the tax is also dealt with directly in equity.


Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, if the deferred income tax arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit nor loss, it is not accounted for. Deferred tax liabilities are not recognized if they arise from the initial recognition of goodwill. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the Consolidated statement of financial position date and are expected to apply when the related deferred income tax asset is realized, or the deferred income tax liability is settled. Deferred income tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized.


Deferred income tax is provided on temporary differences arising on investments in subsidiaries, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.


Deferred tax assets and liabilities are offset where there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.


Current tax is recognized based on the amounts expected to be paid or recovered under the tax rates and laws that have been enacted or substantively enacted at the Consolidated statement of financial position date.


T
F-21
Consolidated financial statements and notes
Summary of significant accounting policies continued

S Ordinary shares, share premium and dividend distribution
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Dividend distributions to the Company’s shareholders are recognized as a liability in the Group’s financial statements in the period in which the dividends are approved by the Company’s shareholders. Interim dividends are recognized when they are paid.


F-26
Consolidated financial statements and notes
Summary of significant accounting policies continued

UT Derivative financial instruments and hedge accounting
Financial assets and liabilities are recognized in the Group’s Consolidated statement of financial position when the Group becomes a party to the contractual provision of the instrument. Trade receivables are non-interest bearing and are initially recognized at fair value and subsequently measured at amortized cost less provisions for impairment based upon an expected credit loss methodology. Trade payables are non-interest bearing and are stated at their fair value. Derivative financial instruments are only used for economic hedging purposes and not as speculative investments.


The Group uses derivative financial instruments, such as interest rate swaps, to hedge its interest rate risks. Such derivative financial instruments are initially recognized at fair value on the date on which the contract is entered into and are subsequently re-measured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.


IFRS 9 replaces the provisions of IAS 39 that relate to the recognition, classification and measurement of financial assets and financial liabilities, de-recognition of
T Derivative financial instruments impairment of financial assets and hedge accounting. IFRS 9 also amends certain other standards coveringaccounting continued
Non-derivative financial instruments, such as IAS 1 “PresentationEuro borrowings, have also been designated as hedges for net investments in foreign operations. Hedges of Financial Statements”.a net investment in a foreign operation are accounted for similarly to cash flow hedges.

IFRS 9 was effective for accounting periods beginning on or after January 1, 2018 and the impact of the adoption by the Group with effect from November 1, 2018 can be seen in Section X “Adoption of new and revised International Financial Reporting Standards”.


Hedge accounting is permitted under certain circumstances provided the following criteria are met:


At inception of the hedge, the documentation must include the risk management objective and strategy for undertaking the hedge, identification of the hedging instrument, the hedged item, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness. Such hedges are expected to be effective in achieving offsetting changes in cash flows and are assessed on an on-going basis to determine the level of effectiveness.

The measurement of effectiveness determines the accounting treatment. For effective results, changes in the fair value of the hedging instrument should be recognized in other comprehensive income, in the hedging reserve, while any material ineffectiveness should be recognized in the statement of comprehensive income. If prospectiveeffectiveness testing is not satisfactorily completed, all fair value movements on the hedging instrument should be recorded in the Consolidated statement of comprehensive income. The IFRS 9 hedge accounting requirements are applicable to the interest swaps and net investment hedges that have been designated for hedge accounting.


Hedge accounting is ceased prospectively if the instrument expires or is sold, terminated or exercised; the hedge criteria are no longer met;met or the forecast transaction is no longer expected to occur.


VU Provisions
Provisions for onerous leases,contracts, property restoration costs, restructuring costs and legal claims are recognized when the Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognized for future operating losses.


Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognized even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.


Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation.obligation where the impact is material. The increase in the provision due to the passage of time is recognized as an interest expense.


WV Contingent Liabilitiesliabilities
Contingent liabilities are possible obligations that arise from past events and whose existence will be confirmed only by uncertain future events or present obligations that arise from past events where the transfer of economic resources is uncertain or cannot be reliability estimated. Contingent liabilities are not recognizedrecognised in the consolidated financial statements, except if they arise from a business combination; they are disclosed in the notes to the consolidated financial statements unless the likelihood of an outflow of economic resources is remote.


F-27F-22
Consolidated financial statements and notes
Summary of significant accounting policiescontinued


XW Adoption of new and revised International Financial Reporting Standards


TheOther than as described below, the accounting policies, presentation and methods of calculation adopted in these consolidated financial statements are consistent with those of the annual financial statementsAnnual Report on Form 20-F for the 18 monthsyear ended October 31, 2018, with the exception of the following2020, apart from standards, amendments to or interpretations of published standards thatadopted during the period.

The following standards, interpretations and amendments to existing standards are now effective and have been adopted duringby the period:Group.


The impacts of applying these policies are not considered material:



-
IFRS 15 “Revenue from contracts with customers” established the principles that an entity should apply to report useful information to users of financial statements about the nature, amount, timing, and uncertainty of revenue and cash flows arising from a contract with a customer. Application of the standard was mandatory for annual reporting periods starting from January 1, 2018 onwards. The standard replaced IAS 18 “Revenue” and IAS 11 “Construction contracts” and related interpretations clarifications. Clarifications to IFRS 15 “Revenue from Contracts with Customers” comprised guidance on identifying performance obligations, accounting for licences of intellectual property and the principal versus agent assessment (gross versus net revenue presentation).


-
IFRS 9 “Financial instruments”. This standard replaces the guidance in IAS 39 and applies to periods beginning on or after January 1, 2018. It includes requirements on the classification and measurement of financial assets and liabilities; it also includes an expected credit loss model that replaces the current incurred loss impairment model.


-
Amendments to IFRS 2, “Share based payments” on clarifying how to account for certain types of share-based payment transactions are effective on periods beginning on or after January 1, 2018. These amendments clarify the measurement basis for cash-settled share-based payments and the accounting for modifications that change an award from cash-settled to equity-settled. It also introduces an exception to the principles in IFRS 2 that will require an award to be treated as if it was wholly equity-settled, where an employer is obliged to withhold an amount for the employee’s tax obligation associated with a share-based payment and pay that amount to the tax authority. This amendment has no material impact on the reported results and financial position.


-
Annual improvements 2014–2016 (which includes amendments to IFRS 1 First-time adoption of IFRS, IFRS 12 Disclosure of interests in other entities and IAS 28 Investments in associates and joint ventures) and IFRIC 22 Foreign currency transactions and advance consideration were adopted on November 1, 2018 and had no impact on the reported results and financial position.

Impact of IFRS 15 ‘Revenue from contracts with customers’

IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue and certain incremental contract costs are recognized. IFRS 15 is effective for accounting periods beginning on or after January 1, 2018 and has been adopted by the Group with effect from November 1, 2018. The Group adopted the standard using the modified retrospective approach which means that the cumulative impact of the adoption was recognized in retained earnings as of November 1, 2018 and the comparatives are not restated and continue to be presented in accordance with IAS 18 and IAS 11. The accounting policies applied in the comparative period are presented in Section D “Revenue recognition” above under the heading “Revenue recognition policy in the prior period”.

The effect of initially applying this standard is mainly attributed to:

the earlier recognition of revenue from consideration paid to a customer; and
later recognition of costs of obtaining customer contracts.

IFRS 15 replaces guidance in IAS 18 and IAS 11. This standard establishes a new principle-based model of recognizing revenue from customer contracts. It introduces a five-step model that requires revenue to be recognized when control over goods and services are transferred to the customer. Additionally, there is a requirement in the new standard to capitalize certain incremental contract costs.

Set out below are the three primary areas of difference of the new accounting policy under IFRS 15.

Cost of obtaining customer contracts
The Group has considered the impact of IFRS 15 on the recognition of sales commission costs, which meet the definition of incremental costs of obtaining a contract under IFRS 15. The Group applies a practical expedient to expense the sales commission’s costs as incurred where the expected amortization period is one year or less. An asset is recognized for the sales commissions, which will typically be amortized across the contract length or customer life where the practical expedient cannot be applied. The customer life has been assessed as five years for the Group and six years in the SUSE business, until the date of disposal.

Consolidated financial statements and notes
Summary of significant accounting policies continued

X Adoption of new and revised International Financial Reporting Standards continued

Impact of IFRS 15 ‘Revenue from contracts with customers’ continued.

At transition date, the Group has only capitalized commissions paid for uncompleted contracts at November 1, 2018 and has amortized those balances in the year ended October 31, 2019, as compared to capitalizing all relevant commissions in future periods.  By taking this practical expedient there is a benefit to profit before tax in the 12 months ended October 31, 2019 as the capitalization of commissions is greater than the amortization and consequently the overall commission costs is reduced under IFRS 15 compared to prior accounting policies where sales commissions were expensed as incurred.

Rebillable expenses
The Group now reports expenses that are recharged to customers, such as travel and accommodation, as Consulting revenue. Under previous accounting policies, these were presented as an offsetting entry within cost of sales.

Consideration payable to a customer
The Group makes payments, including rebates, to customers. The Group accounts for consideration payable to a customer as a reduction of the transaction price and therefore revenue. An adjustment is recorded as the total expected considerations payable over the contract term is accounted for as variable consideration at the outset of the contract and treated as a reduction in the transaction price to be recognized over the life of the contract, previously amounts were treated as revenue reductions when incurred. Where the payment is for a distinct good or service, then the Group accounts for the purchase in the same way as it does for purchases from suppliers in the normal course of business. Certain marketing costs, which were previously presented as an offsetting entry within revenue, are now presented as a Selling and Distribution cost

Presentation
Under the new IFRS 15 based policies, the Group no longer reports items as deferred revenue and accrued revenue. Instead, we present these as either a contract liability or contract asset. Rights to consideration from customers are only presented as accounts receivable if the rights are unconditional.

IFRS 9 “Financial Instruments”
IFRS 9 replaces the provisions of IAS 39 that relate to the recognition, classification and measurement of financial assets and financial liabilities, de-recognition of financial instruments, impairment of financial assets and hedge accounting. IFRS 9 also amends certain other standards covering financial instruments such as IAS 1 “Presentation of Financial Statements”.

IFRS 9 is effective for accounting periods beginning on or after January 1, 2018 and has been adopted by the Group with effect from November 1, 2018.

The classification and measurement basis for the Group’s financial assets is largely unchanged by the adoption of IFRS 9.

There is no impact on the Group’s accounting for financial liabilities, as the new requirements only affect the accounting for financial liabilities that are designated at fair value through profit or loss and the Group does not have any such liabilities. The de-recognition rules have been transferred from IAS 39 “Financial Instruments: Recognition and Measurement” and have not been changed.

Under the new hedge accounting rules as a general rule, more hedge relationships might be eligible for hedge accounting, as the standard introduces a more principles-based approach. The Group has confirmed that its current hedge relationships continue to qualify as hedges under IFRS 9.

The main impact of adopting IFRS 9 is the application of the expected credit loss model, which requires the recognition of impairment provisions based on expected credit losses (ECL) rather than only incurred credit losses as was the case under the prior standard, IAS 39.

The new impairment requirements apply to the consolidated Group’s financial assets classified at amortized cost, particularly to its trade receivables and contract assets. The Group has elected to apply the practical expedient allowed under IFRS 9 to recognize the full amount of credit losses that would be expected to be incurred over the full recovery period of trade receivables. The adoption of IFRS 9 resulted in an increase to trade receivables loss reserves of $20.0m being recorded on November 1, 2018 against retained earnings. IFRS 9 has no material impact on the carrying value of contract assets. There is no material impact on the Group’s basic or diluted EPS for the periods ended October 31, 2018 or 2019.

Consolidated financial statements and notes
Summary of significant accounting policies continued

X Adoption of new and revised International Financial Reporting Standards

IFRS 9 “Financial Instruments” continued

Reclassification of financial instruments on adoption of IFRS 9

Upon adoption of IFRS 9 on November 1, 2018, there were no changes to the measurement categories of financial instruments. The adoption of IFRS 9 did not result in any changes to the measurement of financial instruments other than as a result of applying the new expected credit loss methodology when determining the trade receivables loss allowance.  The change in measure of the trade receivables loss allowance had no material impact on the Group’s basic or diluted earnings per share for the 12 months ended October 31, 2019 or the 18 months ended October 31, 2018.

    Measurement category Carrying amount 
  
Note
 IAS 39 IFRS 9 
October 31,
2018
  
IFRS 9
Adjustments1
  
November 1,
2018
 
           

$m

 
$m
 
$m
Financial assets                  
                   
Non-current                  
 
 
 
Long-term pension assets
  
25
 
 Available-for-sale financial
assets
 Fair value through other comprehensive income  
16.7
   -   16.7 
 
 
Derivative financial instruments
  
31
 Fair value through profit and loss Fair value through profit and loss  
86.4
   -   86.4 
                    
Current                   
Cash and cash  
18
 Amortized cost Amortized cost  
620.9
   -   620.9 
Trade and other receivables  
16
 Amortized cost Amortized cost  
1,212.0
   (20.0)  1,192.0 
                    
Financial liabilities – financial liabilities at amortized cost                   
                    
Non-current                   
Borrowings (gross)  
20
 Amortized cost Amortized cost  
4,946.6
   -   4,946.6 
Finance leases  
21
 Amortized cost Amortized cost  
14.9
   -   14.9 
Provisions  
24
 Amortized cost Amortized cost  
35.4
   -   35.4 
                    
Current                   
Borrowings (gross)  
20
 Amortized cost Amortized cost  
50.3
   -   50.3 
Finance leases  
21
 Amortized cost Amortized cost  
13.6
   -   13.6 
Trade and other payables  
19
 Amortized cost Amortized cost  
676.9
   -   676.9 
Provisions  
24
 Amortized cost Amortized cost  
57.4
   -   57.4 

1 The IFRS 9 adjustment of an increase in the trade receivables loss allowance of $20.0m resulted in a corresponding decrease in retained earnings of $20.0m, net of $4.4m of deferred tax.

Summary of quantitative impact of IFRS 15 “Revenue from contracts with customers” and IFRS 9 “Financial Instruments”

Under the IFRS 15 and IFRS 9, adoption methods chosen by the Group, prior period comparatives are not restated to conform to the new policies. Consequently, the period-over-period change of revenue and profit in the 12 months to October 31, 2019 is impacted by the new policies.

We have set out below the estimated impacts on the Group of the areas described above, including the adjustment to retained earnings recorded on the transition date of November 1, 2018, which resulted in a corresponding $52.4m asset being recorded relating to IFRS 15 and a $20.0m liability and related deferred tax asset of $4.4m being recorded relating to IFRS 9 on the balance sheet. The in-year impact of IFRS 9 therefore is immaterial.

Consolidated financial statements and notes
Summary of significant accounting policies continued

X Adoption of new and revised International Financial Reporting Standards continued

Summary of quantitative impact of IFRS 15 “Revenue from contracts with customers” and IFRS 9 “Financial Instruments” continued

The following tables summarize the impact of adopting IFRS 15 on the Group’s Consolidated statement of financial position as at October 31, 2019 and its Consolidated statement of comprehensive income for the 12 months then ended for each of the lines affected.  There was no material impact on the Group’s Consolidated statement of cash flows for the 12 months ended October 31, 2019.

Consolidated statement of comprehensive income – impact of IFRS 15 in the year ended October 31, 2019

     
12 months ended
October 31, 2019
  
18 months ended
October 31, 2018
 
     
Post
IFRS 15
  
IFRS 15
Adjustments
  
Pre
IFRS 15
    
  Note  
$m
 
$m
 
$m
 

$m

Revenue  1,2   3,348.4   (16.1)  3,332.3   
4,754.4
 
                     
Operating profit      221.7   (22.1)  199.6   
376.8
 
Finance costs  6   (282.4)  -   (282.4)  
(350.4
)
Finance income  6   26.6   -   26.6   
7.7
 
(Loss)/ profit before tax      (34.1)  (22.1)  (56.2)  
34.1
 
Taxation  7   16.0   1.6   17.6   
673.1
 
(Loss)/profit from continuing operations      (18.1)  (20.5)  (38.6)  
707.2
 
Profit from discontinued operation (attributable to equity shareholders of the Company)  37   1,487.2   30.6   1,517.8   
76.9
 
Profit for the period      1,469.1   10.1   1,479.2   
784.1
 
                     
Attributable to:                    
Equity shareholders of the parent      1,468.8   10.1   1,478.9   
784.0
 
Non-controlling interests      0.3   -   0.3   
0.1
 
Profit for the period      1,469.1   10.1   1,479.2   
784.1
 
                     
Earnings per share (cents)                    
From continuing and discontinued operations     
cents
  
cents
  
cents
  
cents
 
-          Basic  9   
388.50
   
2.67
   
391.17
   
201.70
 
-          Diluted  9   
384.35
   
2.64
   
386.99
   
196.17
 
                     
From continuing operations                    
-          Basic  9   
(4.87
)
  
(5.42
)
  
(10.29
)
  
181.91
 
-          Diluted  9   
(4.87
)
  
(5.42
)
  
(10.29
)
  
176.92
 
                     
Earnings per share (pence)                    
From continuing and discontinued operations     
pence
  
pence
  
pence
  
pence
 
-          Basic  9   
305.07
   
2.10
   
307.17
   
151.61
 
-          Diluted  9   
301.81
   
2.08
   
303.89
   
147.45
 
                     
From continuing operations                    
-          Basic  9   
(3.82
)
  
(4.26
)
  
(8.08
)
  
136.73
 
-          Diluted  9   
(3.82
)
  
(4.26
)
  
(8.08
)
  
132.98
 

Consolidated financial statements and notes
Summary of significant accounting policies continued

X Adoption of new and revised International Financial Reporting Standards continued

Summary of quantitative impact of IFRS 15 “Revenue from contracts with customers” and IFRS 9 “Financial Instruments” continued

Consolidated statement of financial position – impact of IFRS 15 on year ended October 31, 2019

     
12 months ended
October 31, 2019
  
18 months ended
October 31, 2018
 
     
Post
IFRS 15
  
IFRS 15
Adjustments
  
Pre
IFRS 15
    
  Note  
$m
 
$m
 
$m
 

$m

ASSETS                   
Non-current assets                   
Contract-related costs  17   31.5   (31.5)  -   
-
 
                     
Current assets                    
Trade and other receivables  16   1,032.9   (0.9)  1,032.0   
1,272.0
 
Contract-related costs  17   19.3   (19.3)  -   
-
 
                     
LIABILITIES                    
Current liabilities                    
Trade and other payables  19   (611.0)  -   (611.0)  
(676.9
)
Contract liabilities  23   (1,045.9)  -   (1,045.9)  
(1,134.7
)
Non-current liabilities                    
Contract liabilities  23   (149.9)  -   (149.9)  
(178.1
)
Deferred tax liabilities  28   (987.1)  9.0   (978.1)  
(1,170.5
)
                     

Table below shows the impact of IFRS 15 on opening retained earnings at November 1, 2018 and the continuing operations and discontinued operation for the 12 months ended October 31, 2019.

     Continuing operations  
Discontinued
operation
 
  
Increase /
(decrease) in
opening
retained
earnings on
November 1,
2018
  
Increase /
(decrease) in
Revenue
in the
12 months
ended
October 31,
2019
  
Increase /
(decrease) in
Operating
expenses
in the
12 months
ended
October 31,
2019
  
Increase /
(decrease) in
Profit before
tax in the
12 months
ended
October 31,
2019
  
Profit/(loss)
from
discontinued
operation
(attributable to
equity
shareholders
of the
Company) in
the 12 months
ended
October 31,
2019
 
  
$m
 
$m
 
$m
 
$m
 
$m
Cost of obtaining customer contracts  
64.7
   
-
   
(21.2
)
  
21.2
   
(35.4
)
Rebillable expenses  
-
   
2.4
   
2.4
   
-
   
-
 
Consideration payable to a customer  
5.0
   
13.7
   
12.8
   
0.9
   
(5.0
)
Deferred tax  
(17.3
)
  
-
   
-
   
-
   
9.8
 
   
52.4
   
16.1
   
(6.0
)
  
22.1
   
(30.6
)

During the 12 months ending October 31, 2019, the Group amortized $10.2m contract-related costs and capitalized $31.4m, resulting in a net increase in profit before tax of $21.2m (note 17).

Consolidated financial statements and notes
Summary of significant accounting policies continued

X Adoption of new and revised International Financial Reporting Standards continued

Summary of quantitative impact of IFRS 15 “Revenue from contracts with customers” and IFRS 9 “Financial Instruments” continued

Retained earnings – impact of IFRS 15 and IFRS 9

  
Retained
earnings at
October 31,
2018
  
IFRS 15
Adjustment
  
IFRS 9
Adjustment
  
Retained
earnings at
November 1,
2018
 
  
$m
 
$m
 
$m
 
$m
Retained earnings  3,275.2   52.4   (15.6)  3,312.0 

The impact of the application of future new and revised IFRSs, which are expected to have a material impact to the Group is described below:

IFRS 16 “Leases”
In January 2016, the IASB published IFRS 16 “Leases”, which will replace IAS 17 “Leases” and IFRIC 4 “Determining whether an arrangement contains a lease”.  IFRS 16 is effective for the Group from November 1, 2019.

IFRS 16 introduces a new definition of a lease, with a single lessee accounting model eliminating the previous distinction between operating leases and finance leases. Under IFRS 16, lessees are required to account for all leases in a similar manner to finance lease accounting under IAS 17. Current finance lease accounting remains largely unchanged and so the primary impact of the standard is on leases that are currently classified as operating leases.

The determination of when an arrangement contains a lease is largely unchanged from current requirements and the Group does not expect to recognize any new leases as a result of adopting IFRS 16.

The Group’s portfolio of leases materially comprises office facilities around the world that the Group uses to conduct its business, and vehicles for use by the workforce.

The Group has elected to implement IFRS 16 on a modified retrospective basis, which means the cumulative effect of initially applying the standard will be adjusted in retained earnings on November 1, 2019. The Group has a choice, on a lease-by-lease basis, to measure the right-of-use asset at either:

its carrying amount as if IFRS 16 had been applied since the commencement of the lease; or
an amount equal to the lease liability, adjusted for accruals or prepayments.

Where historical information is readily available for property leases, we intend to apply the former accounting method.  For all other leases, we intend to apply the latter method.

The Group has other elections and accounting policy choices to make in adopting IFRS 16 and as such, the Group has elected not to apply IFRS 16 to leases for which the underlying asset is of low value, nor does the Group intend to apply IFRS 16 to leases of intangible assets.

Consolidated financial statements and notes
Summary of significant accounting policies continued

X Adoption of new and revised International Financial Reporting Standards continued

IFRS 16 ‘Leases’ continued

In adopting IFRS 16, the Group has applied the following practical expedients that are available in IFRS 16:

We have not reassessed whether an arrangement is, or contains, a lease at November 1, 2019. Instead, the Group has applied IFRS 16 to leases that had previously been identified as leases under IAS 17 “Leases” and IFRIC 4 “Determining whether an arrangement contains a lease”;
Where there is a group of leases with reasonably similar characteristics, we have applied a single discount rate to each lease portfolio;
The Group intends to rely on its assessment of whether leases are onerous by applying IAS 37 “Provisions, Contingent Liabilities and Contingent Assets” at October 31, 2019 as an alternative to performing an impairment review on the application date. The Group will adjust the right-of-use asset at November 1, 2019 by the amount of any provision for onerous leases recognized in the Consolidated statement of financial position on October 31, 2019;
The Group will exclude initial direct costs from the measurement of the right-of-use asset at November 1, 2019; and
Where the Group has measured a right-of-use asset as its carrying amount as if IFRS 16 had been applied since its inception, The Group has applied hindsight in assessing extension or termination options.

Effect of IFRS 16 on the Consolidated Statement of Financial Position
While the Group is still evaluating the effect that IFRS 16 will have on the Consolidated financial statements, the Group expects to recognize in the Consolidated Statement of Financial Position on November 1, 2020:

an asset of between $241.0m and $261.0m representing the Group’s right to use leased assets, including $20.9m of assets currently classified as finance leases within property, plant and equipment;
a liability of between $286.0m and $306.0m representing the Group’s contractual obligation to make lease payments (including $23.5m of liabilities currently classified as finance leases); and
a reduction of between $7.0m and $7.8m in retained earnings.

The asset of between $241.0m and $261.0m disclosed above excludes costs related to obligations to restore leased properties, which are capitalized as part of property, plant and equipment under IAS 17, which will be reclassified to right-of-use assets on adoption of IFRS 16.

The recognition of the new lease liability will increase the Group’s debt.

The operating lease expense currently recognized in the Consolidated statement of comprehensive Income will be replaced by a depreciation expense against the right-of-use asset and a finance expense related to the lease liability. The impact on profit before tax for the year ended October 31, 2020 is not expected to be material.

The impact on tax balances as a result of the above changes is still being assessed. There will be no net impact on the Consolidated statement of cash flows, however the operating lease cash out-flows within operating cash-flows will largely be replaced by a financing cash-outflow.

Key judgments and estimates made in calculating the initial impact of adoption include the determination of the lease term, the grouping of leases for the purpose of assigning a discount rate and calculating the discount rate.

The Group’s undiscounted non-cancellable operating lease commitments is $301.2m at October 31, 2019 (October 31, 2018: $228.0m) under IAS 17 “Leases” (note 34).

The lease liability of between $286.0m and $306.0m (inclusive of amounts already reported as finance leases under IAS 17) shown above with be included in Net debt as at November 1, 2019.

Consolidated financial statements and notes
Summary of significant accounting policies continued

X Adoption of new and revised International Financial Reporting Standards continued

The following interpretations and amendments to existing standards are not yet effective and have not been adopted early by the Group:


-
IFRIC 23, “Uncertainty over Income Tax Treatments” clarifies how to apply the recognition and measurement requirements in IAS 12 when there is uncertainty over income tax treatments. In such a circumstance, an entity shall recognize and measure its current or deferred tax asset or liability applying the requirements in IAS 12 based on taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates determined applying this interpretation. This interpretation is effective for annual periods beginning on or after January 1, 2019. The Group does not expect a material impact upon adoption of IFRIC23.


-
Annual Improvements 2017 includes amendments to IFRS 3, “Business combinations”, IFRS 11 “Joint arrangements” and IAS 12 Income taxes applies for periods beginning on or after January 1, 2019.


-
Amendments to IAS 28 Investments in Associates and Joint Ventures – “Long-term Interests in Associates and Joint Ventures”, clarifies that IFRS 9 “Financial instruments” applies, including its impairment requirements to long-term interests in an associate or joint venture that form part of the net investment in the associate or joint venture but to which the equity method is not applied.


-
Amendments to IAS 19 “Employee Benefits” clarify that on a plan amendment, curtailment or settlement of a defined benefit plan, entities must use updated actuarial assumptions to determine its current service cost and net interest for the period; and the effect of the asset ceiling is disregarded when calculating the gain or loss on any settlement of the plan and is dealt with separately in other comprehensive income, effective January 1, 2019.


-
Amendments to References to the Conceptual Framework in IFRS Standards -– Amendments to IFRS 2, IFRS 3, IFRS 6, IFRS 14, IAS 1, IAS 8, IAS 34, IAS 37, IAS 38, IFRIC 12, IFRIC 19, IFRIC 20, IFRIC 22, and SIC-32 to update those pronouncements with regard to the revised the Conceptual Framework effective January 1, 2020..



-
Amendments to IFRS 3 Business Combinations, effective January“Business Combinations”, clarifies the definition of a business in acquisitions.

-
Amendments to IAS1 and IAS 8: guidance on the definition of material.

-
Amendments to IFRS9, IAS 39, IFRS 7, IFRS 16 and IFRS 4: Interest rate benchmark reforms. Phase 1 2020, subjectcovers hedge accounting impacts and discontinuance exemptions. Managing the transition to EU endorsement.new interest rate benchmarks is discussed further in note 24, “Financial risk management and financial instruments”


Interpretations and amendments
The following interpretations and amendments to existing standards are not yet effective and have not been adopted early by the Group. These interpretations and amendments were not endorsed by the EU as at December 31, 2020 and have not yet been endorsed by the UK Endorsement Board (“UK EB”) except where stated below:

Effective for periods commencing after January 1, 2021 (applicable to the Group from November 1, 2021):



-
Amendments to IFRS 9,IFRS9, IAS 39, IFRS 7, IFRS 16 and IFRS 7:4: Interest rate benchmark reforms effectivephase 2. Phase 2 covers further disclosures on transition to a new benchmark, UK EB endorsed January 1, 2020.5, 2021.


Effective for periods commencing after January 1, 2022 (applicable to the Group from November 1, 2022):


-
Annual Improvements cycle 2018-2020 includes relevant amendments clarifying capitalisation of transaction fees/inclusion of specific fees in modification/extinguishment test within IFRS 9 Financial Instruments. Other included improvement in IFRS 1 (First time adoption) and IAS 41 (agriculture) are not applicable to the Group.

-
Amendments to IFRS 3 “Business combinations”, IAS 16 “Property, plant and equipment” and IAS 37 “Provisions, Contingent assets and Contingent liabilities”.

Effective for periods commencing after January 1, 2023, (applicable to the Group from November 1, 2023) subject to UK endorsement except as noted below:


-
Amendments to IAS 1 “Presentation of financial statements”. Amendment is presentational and relates to the classification of liabilities as current and non-current.

-
Amendments to IAS 1 “Presentation of financial statements” aims to provide guidance on the application of materiality judgements to policy disclosures.

-
Amendments to IAS 8 “Accounting policies, changes in accounting estimates and errors” provides clarifications around the definition of accounting estimates and further clarification around the difference between policy changes and estimates.

-
Amendments to IAS 12 “Income taxes” covering temporary timing differences for deferred tax on the recognition of asset and liabilities from a single transaction.

-
IFRS 17 “Insurance contracts” and Amendments to IFRS 17 “Insurance contracts”.

The impact of the amendments and interpretations listed above willare not expected to have a material impact on the consolidated financial statements.


F-23
Consolidated financial statements and notes
Summary of significant accounting policiescontinued

II Critical accounting estimates, assumptions and judgments

judgements
In preparing these consolidated financial statements, the Group has made its best estimates and judgmentsjudgements of certain amounts included in the financial statements, giving due consideration to materiality. The Group regularly reviews these estimates and judgements and updates them as required. The Group has reviewed its critical accounting estimates, assumptions and judgements and a new critical accounting estimate has been identified in relation to the useful economic lives of the Group’s purchased intangible assets. The critical judgement identified in the prior year in relation to the assessment of lease term is no longer considered critical as IFRS 16 has been applied for two years and the level of remaining judgement has reduced following changes to the Group’s largest leases over the last two years.

Actual results could differ from these estimates. Unless otherwise indicated, the Group does not believe that there is a significant risk of a material change to the carrying value of assets and liabilities within the next financial year related to the accounting estimates and assumptions described below. The Group considers the following to be a description of the most significant estimates and judgments,judgements which require the Group to make subjective and complex judgments,judgements and matters that are inherently uncertain.


Critical accounting estimates and assumptions

A Potential impairment of goodwill and other intangible assets
Each period,year, or whenever there are changes in circumstances indicating that the carrying amounts may not be recoverable, the Group carries out impairment tests of goodwill and other intangible assets which require estimates to be made of the value in use of its CGUs. These value in use calculations are dependent on estimates of future cash flows including long-term growth rates, the medium-termaverage annual revenue growth rate by product group and an appropriate discount rate to be applied to future cash flows. Further details on these estimates and sensitivity of the carrying value of goodwill to the discount rate, and the medium-termaverage annual revenue growth rate by product group in particularand the long-term growth rate are provided in note 10.10, “Goodwill”.


B Retirement benefit obligations
The valuation of retirement benefit obligations is dependent upon a number of assumptions that are estimated at the year-endyear end date, including estimates of mortality rates, inflation, salary growth rates and the rate at which scheme liabilities are discounted. Further detail on these estimates and the sensitivity of the carrying value of the defined benefit obligation to these is provided in note 25.22, “Pension and other long-term benefit commitments”.


F-35C Useful economic lives of purchased intangible assets
The economic lives of the Group’s purchased intangible assets are determined on initial acquisition and reassessed annually or whenever there are changes in circumstances indicating that the economic lives may not be appropriate. In reassessing the lives factors such as changes in actual and expected trading performance of the Group and how these compare to the initial acquisition assessment are considered. Using this information an estimate of the remaining useful economic lives is determined and if different to the currently applied life the remaining life is adjusted prospectively.
Table
Following the goodwill impairment in the year ended October 31, 2020, management reviewed the estimated lives of Contentspurchased intangible assets. The assessment performed in the current year resulted in a reduction in the economic lives of certain purchased intangible assets, see note 11, “Other intangible assets”, for details on the impacts in the current period, expected impact in future periods and sensitivity.

Consolidated financial statements and notes
Summary of significant accounting policies continued

II Critical accounting estimates, assumptions and judgments continuedjudgements

CD Revenue recognition
The key areas of judgment in respect of recognizing revenue are the timing of recognition and how the different elements of bundled contracts are identified, for example between licence and maintenance revenues.

Revenue recognition under IFRS 15 is significantly more complex than under previous reporting requirements and necessitates the increasedrequires significant use of management judgments and estimatesjudgement to produce financial information. IFRS 15 also introduces management judgment in relation to the timing of recognition of certain categories of cost. The most significant accounting judgmentsjudgement in applying IFRS 15 are disclosed below.

Identificationthe identification of performance obligations and the determination of the transaction price when the contract contains variable considerations.
Revenue recognition requires significant judgment in identifying
Judgement is required to (i) identify each distinct performance obligation requiring separate recognition in a multi-elementmulti element contract (e.g. licence, maintenance, material rights for option to acquire additional products or services at discounted prices)., and (ii) allocate the transaction price to the various performance obligations. This judgment impacts the timing of revenue recognition, as certain performance obligations are recognized at a point in time and others are recognized over the life of the contract, as explained in Accounting Policy D “Revenue recognition”, and therefore the judgement impacts the quantum of revenue and profit recognized in eacha period.


D
F-24
Consolidated financial statements and notes
Summary of significant accounting policies continued

II Critical accounting estimates, assumptions and judgements continued
E Exceptional item classification
The Group classifies items as exceptional in line with Accounting Policy H.H “Exceptional items”. The classification of these items as an exceptional is a matter of judgment.judgement. This judgmentjudgement is made by management after evaluating each item deemed to be exceptional against the criteria set out within the defined accounting policy.

E

F Provision for income taxes
The Group is subject to income taxes in numerous jurisdictions. Significant judgmentjudgement is required in determining the worldwide provision for income taxes including structuring activities undertaken by the Group and the application of complex transfer pricing rules. The Group recognizes liabilities for anticipated settlement of tax issues based on judgmentsjudgements of whether additional taxes will be due. Significant issues may take several periods to resolve. In making judgmentsjudgements on the probability and amount of any tax charge, management takes into account:

Status of the unresolved matter;
Strength of technical argument and clarity of legislation;
External advice;
Resolution process, past experience and precedents set with the particular taxing authority;
Agreements previously reached in other jurisdictions on comparable issues; and
Statute of limitations.


Key judgmentsjudgements in the periodyear were related to the structuring activities undertakenEU state aid and UK tax authority challenge in relationrespect of prior periods. Specifically, these judgements covered (i) the probability of success of either the appeal by the UK Government or the appeal by the Group itself in respect of the EU state aid, (ii) the probability of success of UK tax authority challenge, and therefore recovery of the $48 million current tax receivable, and (iii) the interaction of the two matters in the context of the maximum liability, which we consider to be $60 million, associated with both the disposal of SUSEUK State Aid and whether these activities would create an additionalUK tax charge through US and other overseas tax legislation.authority challenge. Based on their assessment (and supported by advice received by the Group’s tax advisors), the directors have concluded that no additional material tax provisions are required with regards to these matters. See note 7, “Taxation”, for additional details.


The ultimate tax liability may differ from the amount provided depending on interpretations of tax law, settlement negotiations or changes in legislation. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the periodyear in which such determination is made. There is no estimate associated with the provision for income taxes that could be expected to result in a material change within the next 12 months.


F-36
Consolidated financial statements and notes
Summary of significant accounting policies continued

III Financial risk factors
The Group’s multi-national operations expose it to a variety of financial risks that include the effects of changes in credit risk, foreign currency risk, interest rate risk and liquidity risk. Risk management is carried out by a central treasury department under policies approved by the board of directors. Group treasury identifies and evaluates financial risks alongside the Group’s operating units. The board provides written principles for risk management together with specific policies covering areas such as foreign currency risk, interest rate risk, credit risk and liquidity risk, use of derivative financial instruments and non-derivative financial instruments as appropriate, and investment of excess funds.

A Credit risk
Financial instruments which potentially expose the Group to a concentration of credit risk consist primarily of cash and cash equivalents and accounts receivable. Cash equivalents are deposited with high-credit quality financial institutions. The Group provides credit to customers in the normal course of business. Collateral is not required for those receivables, but on-going credit evaluations of customers’ financial conditions are performed. The Group maintains a provision for impairment based upon the expected credit losses. The Group sells products and services to a wide range of customers around the world and therefore believes there is no material concentration of credit risk.

B Foreign currency risk
The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the Euro, UK Pound Sterling, Israeli Shekel, Japanese Yen and the Canadian Dollar. Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities and net investments in foreign operations. Foreign exchange risk arises when future commercial transactions, recognized assets and liabilities are denominated in a currency that is not the entity’s functional currency.

There were no foreign currency hedging transactions in place at October 31, 2019 and October 31, 2018. The Group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk.

C Interest rate risk
The Group’s income and cash generated from operations are substantially independent of changes in market interest rates. The Group’s interest rate risk arises from short-term and long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. The Group currently uses four interest rate swaps to manage its cash flow interest rate risk arising from potential increases in the LIBOR interest rate.

D Liquidity risk
Central treasury carries out cash flow forecasting for the Group to ensure that it has sufficient cash to meet operational requirements and to allow the repayment of the bank facility. Surplus cash in the operating units over and above what is required for working capital needs is transferred to Group treasury. These funds are used to repay bank borrowings or are invested in interest bearing current accounts, time deposits or money market deposits of the appropriate maturity period determined by consolidated cash forecasts.

Trade payables arise in the normal course of business and are all current. Onerous lease provisions are expected to mature between less than 12 months and eight years.

At October 31, 2019 gross borrowings of $4,775.0m (October 31, 2018: $4,996.9m) related to our senior secured debt facilities (note 20).  $nil (October 31, 2018: $50.3m) is current of which $nil (October 31, 2018: $nil) is the revolving credit facility. The borrowings disclosed in the balance sheet are net of pre-paid facility costs and original issue discounts.

Consolidated financial statements and notes
Notes to the consolidated financial statements

1 Segmental reporting
In accordance with IFRS 8 “Operating Segments”, the Group has derived the information for its segmental reporting using the information used by the Chief Operating Decision Maker for the purposes of resource allocation and assessment of segment performance. The Chief Operating Decision Maker (“CODM”) is defined as the Operating Committee.


For the 12 monthsyear ended April 30, 2017 the Chief Operating Decision Marker (“CODM”) was defined as the Executive Committee.

On July 2, 2018, the Group announced the proposed sale of SUSE, one of the Group’s two historical operating segments, approved by the shareholders on August 21, 2018. As a result, for management purposes, following the agreement to dispose of the SUSE business, which is presented as a discontinued operation, the Group is organized into a single reporting segment comprising the Micro Focus Product Portfolio. Consistent with this the Chief Executive Officer of SUSE, Nils Brauckmann, stepped down from the Board on July 11, 2018 to concentrate on the sale. As such, the CODM from July 11, 2018 consisted of the Executive Chairman, the Chief Executive Officer and the Chief Financial Officer.

For the 12 months to October 31, 2019, the CODM consisted of the Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, Vice President Strategy and Planning and the Chief HR Officer. With the disposal of the SUSE business completed, the Group is organized into a single reporting segment.


For the year ended October 31, 2020, the Operating Committee consisted of the Chief Executive Officer, the Chief Financial Officer, Chief Operating Officer, Chief HR Officer and Vice President Business Operations and the Chief Legal Officer. The Group is organized into a single reporting segment.

For the year ended October 31, 2021, the Operating Committee consisted of the Chief Executive Officer, the Chief Financial Officer, Chief Operating Officer, Chief HR Officer and Senior Vice President Business Operations and the Chief Legal Officer (To August 7, 2021). The Group is organized into a single reporting segment.

The Group’s segment under IFRS 8 is:

is the Micro Focus Product Portfolio –. The Micro Focus Product Portfolio segment contains mature infrastructure software products that are managed on a portfolio basis akin to a “fund of funds” investment portfolio. This portfolio is managed with a single product group that makes and maintains the software, whilst the software is sold and supported through a geographicone single Go-to-Market organization. organisation with specialist skills targeted by sub-portfolio.
F-25
Consolidated financial statements and notes
Notes to the consolidated financial statements

1 Segmental reporting continued
The products within the existing Micro Focus Product Portfolio are grouped together into five5 sub-portfolios based on industrial logic and management of the Micro Focus sub-portfolios: Application ModernizationModernisation & Connectivity (“AMC”), Application Delivery Management (“ADM”), IT Operations Management Security(“ITOM”), CyberRes and Information Management & Governance.Governance (“IM&G”).


The segmental reporting is consistent with that used in internal management reporting and the profit measure used by the Operating Committee is Adjusted EBITDA.


     
Year ended
October 31, 2021
  
Year ended
October 31, 2020
  
Year ended
October 31, 2019
 
  Note  
$m

 
$m

 
$m

Reconciliation to Adjusted EBITDA:               
Loss before tax     (517.8)  
(2,940.4
)
  
(34.1
)
Finance costs  6   253.9   
281.6
   
282.4
 
Finance income  6   (1.7)  
(2.6
)
  
(26.6
)
Depreciation of property, plant and equipment  12   33.7   
42.0
   
66.5
 
Right-of-use asset depreciation  19
   73.3   
76.9
   
0
 
Amortization of intangible assets  11   956.4   
674.1
   
716.5
 
Exceptional items (reported in Operating loss)  4   247.1   
3,011.6
   
294.2
 
Share-based compensation charge  28   14.3   
17.0
   
68.8
 
Product development intangible costs capitalized  11   (19.1)  
(16.2
)
  
(16.5
)
Foreign exchange credit  3   0.1   
29.7
   
11.3
 
Adjusted EBITDA      1,040.2   
1,173.7
   
1,362.5
 
The internal management reporting that the Operating Committee receives includes a pool of centrally managed costs, which were allocated between Micro Focus and the SUSE business (up to the date of disposal) based on identifiable segment specific costs with the remainder allocated based on other criteria including revenue and headcount.

     
12 months ended
October 31, 2019
  
18 months ended
October 31, 2018
  
12 months ended
April 30, 20171
 
  Note  
$m
 

$m

 

$m

Reconciliation to Adjusted EBITDA:               
(Loss)/profit before tax     (34.1)  
34.1
   
131.6
 
Finance costs  6   282.4   
350.4
   
96.8
 
Finance income  6   (26.6)  
(7.7
)
  
(1.0
)
Depreciation of property, plant and equipment  12   66.5   
88.6
   
9.7
 
Amortization of intangible assets  11   716.5   
903.1
   
206.7
 
Exceptional items (reported in Operating profit)  4   294.2   
538.2
   
97.2
 
Share-based compensation charge  33   68.8   
64.3
   
31.5
 
Product development intangible costs capitalized  11   (16.5)  
(44.4
)
  
(27.6
)
Foreign exchange loss/(credit)  3   11.3   
(37.4
)
  
(2.9
)
Adjusted EBITDA      1,362.5   
1,889.2
   
542.0
 

1 The comparatives for the 12 months to April 30, 2017 have been revised to reflect the divestiture of the SUSE business segment (note 37)
For the reportable segment, the total assets were $14,294.8m$10,346.6 million (2020: $11,146.8 million; 2019: $14,294.8 million) and the total liabilities were $8,018.5m$7,525.6 million (2020: $7,931.7 million; 2019: $8,018.5 million) as at October 31, 2019. No measure of total assets and total liabilities has been reported for the 18 months ended October 31, 2018 and the 12 months ended April 30, 2017 as these were not regularly provided to the CODM.2021.


F-38
Consolidated financial statements and notes
Notes to the consolidated financial statements

2 Supplementary information


Analysis by geography
The Group is domiciled in the UK. The Group’s total segmental revenue from external customers by geographical location is detailed below:


 
12 months ended
October 31, 2019
  
18 months ended
October 31, 2018
  
12 months ended
April 30, 2017
  
Year ended
October 31, 2021
  
Year ended
October 31, 2020
  
Year ended
October 31, 2019
 
 
$m
 
$m
 
$m

$m


$m


$m

UK 206.9  
299.6
  
52.2
   160.0   
173.0
   
206.9
 
USA 1,523.0  
2,279.8
  
551.5
   1,263.0   
1,289.8
   
1,523.0
 
Germany 220.7  
309.5
  
86.8
   223.0   
218.7
   
220.7
 
Canada  110.3   
108.0
   115.9
 
France 123.3  
195.5
  
43.2
   100.7   
101.4
   
123.3
 
Japan 108.6  
145.8
  
42.4
   95.6   
96.9
   
108.6
 
Other 1,165.9  
1,524.2
  
301.2
   947.3   
1,013.2
   
1,050.0
 
Total 3,348.4  
4,754.4
  
1,077.3
   2,899.9   
3,001.0
   
3,348.4
 


The total of non-current assets other than financial instruments and deferred tax assets as at October 31, 20192021 located in the USA is $4,623.0m$2,798.3 million (October 31, 2018: $5,145.8m),2020: $3,301.0 million; October 31, 2019: $4,623.0 million) the total in the non-USArest of the world is $8,192.2m$5,641.2 million (October 31, 2018: $8,488.3m)2020: $6,304.0 million; October 31, 2019: $8,192.2 million). They exclude trade and other receivables, derivative financial instruments and deferred tax.

As at April 30, 2017 the total of non-current assets other than financial instruments and deferred tax assets located in the UK was $147.7m, the total in the USA was $3,778.7m and the total of such non-current assets located in other countries was $67.3m. They exclude trade and other receivables, derivative financial instruments and deferred tax.

Analysis of revenue from contracts with customers

  
12 months ended
October 31, 2019
  
18 months ended
October 31, 2018
  
12 months ended
April 30, 2017
 
  
$m
 
$
$m

 

$m

Revenue from contracts with customers  3,348.4   
4,754.4
   
1,077.3
 
             
Being:            
Recognized over time:            
Maintenance revenue  2,051.6   
2,818.9
   
720.7
 
SaaS & other recurring revenue  278.9   
365.1
   
-
 
   2,330.5   
3,184.0
   
720.7
 
Recognized at point in time:            
Licence revenue  800.0   
1,206.1
   
308.4
 
Consulting revenue  217.9   
364.3
   
48.2
 
   1,017.9   
1,570.4
   
356.6
 
             
Total revenue  3,348.4   
4,754.4
   
1,077.3
 


F-39F-26

Consolidated financial statements and notes
Notes to the consolidated financial statements

2 Supplementary information continued


Analysis of revenue from contracts with customers

  
Year ended
October 31, 2021
  
Year ended
October 31, 2020
  
Year ended
October 31, 2019
 
 
$m


$m


$m

Revenue from contracts with customers  2,899.9   
3,001.0
   
3,348.4
 
Being:            
Recognized over time:            
Maintenance revenue  1,791.7   
1,920.8
   
2,051.6
 
SaaS & other recurring revenue  239.8   
245.3
   
278.9
 
   2,031.5   
2,166.1
   
2,330.5
 
Recognized at point in time:            
Licence revenue  688.6   
646.5
   
800.0
 
Consulting revenue  179.8   
188.4
   
217.9
 
   868.4   
834.9
   
1,017.9
 
             
Total Revenue  2,899.9   
3,001.0
   
3,348.4
 

Analysis of revenue by product
Set out below is an analysis of revenue from continuing operations recognized between the principal product portfoliosProduct Portfolios for the 12 monthsYear ended October 31, 2019, 18 months2021 with comparatives:

Year ended October 31, 2018 and 12 months ended April 30, 2017. As a result of the acquisition of HPE Software business the Group’s product portfolios have been redefined. The comparatives for the 12 months ended April 30, 2017 have not been represented into the new product portfolios.2021:


  Licence  Maintenance  
SaaS & other
recurring
  Consulting  Total 
 
$m


$m


$m

 $m


$m

AMC
  155.3   315.9   0   10.3   481.5 
ADM
  106.1   408.5   78.9   18.6   612.1 
ITOM
  172.7   507.8   4.3   106.3   791.1 
CyberRes
  174.5
   383.9
   36.3
   29.1
   623.8
 
IM&G  80.0   175.6   120.3   15.5   391.4 
Total Revenue  688.6   1,791.7   239.8   179.8   2,899.9 

12 monthsYear ended October 31, 2019:
  
Licence
  
Maintenance
  
Consulting
  
SaaS &
other
recurring
  
Total
 
  
$m
 
$m
 
$m
 
$m
 
$m
Application Modernization & Connectivity  170.9   326.1   11.7   -   508.7 
Application Delivery Management  130.3   485.4   18.2   87.8   721.7 
IT Operations Management  237.5   645.8   127.5   11.0   1,021.8 
Security  185.7   416.7   43.9   35.0   681.3 
Information Management & Governance  75.6   183.6   16.6   145.9   421.7 
Subtotal  800.0   2,057.6   217.9   279.7   3,355.2 
Deferred revenue haircut  -   (6.0)  -   (0.8)  (6.8)
Total Revenue  800.0   2,051.6   217.9   278.9   3,348.4 

2020:
18 months ended October 31, 2018:
  
Licence
  
Maintenance
  
Consulting
  
SaaS &
other
recurring
  
Total
 
  

$m

 

$m

 

$m

 

$m

 

$m

Application Modernization & Connectivity  
256.3
   
497.6
   
17.9
   
-
   
771.8
 
Application Delivery Management  
185.5
   
646.7
   
41.6
   
114.1
   
987.9
 
IT Operations Management  
363.1
   
869.9
   
192.8
   
15.1
   
1,440.9
 
Security  
291.6
   
580.2
   
81.4
   
41.6
   
994.8
 
Information Management & Governance  
117.2
   
267.2
   
32.6
   
203.1
   
620.1
 
Subtotal  
1,213.7
   
2,861.6
   
366.3
   
373.9
   
4,815.5
 
Deferred revenue haircut  
(7.6
)
  
(42.7
)
  
(2.0
)
  
(8.8
)
  
(61.1
)
Total Revenue  
1,206.1
   
2,818.9
   
364.3
   
365.1
   
4,754.4
 
  Licence  Maintenance  
SaaS & other
recurring
  Consulting  Total 
 
$m


$m


$m


$m


$m

AMC
  
138.6
   
321.6
   
0
   
10.1
   
470.3
 
ADM
  
102.0
   
439.2
   
73.9
   
15.9
   
631.0
 
ITOM
  
175.1
   
559.4
   
4.6
   
113.9
   
853.0
 
CyberRes  
162.6
   
416.8
   
33.6
   
33.1
   
646.1
 
IM&G  
68.2
   
184.2
   
133.4
   
15.4
   
401.2
 
Subtotal  
646.5
   
1,921.2
   
245.5
   
188.4
   
3,001.6
 
Deferred revenue haircut  
0
   
(0.4
)
  
(0.2
)
  
0
   
(0.6
)
Total Revenue  
646.5
   
1,920.8
   
245.3
   
188.4
   
3,001.0
 

12 months ended April 30, 2017:
  
Licence
  
Maintenance
  
Consulting
  
SaaS &
other
recurring
  
Total
 
  

$m

 

$m

 

$m

 

$m

 

$m

Application Modernization & Connectivity  
106.0
   
149.7
   
9.5
   
-
   
265.2
 
Application Delivery Management  
69.1
   
104.9
   
1.9
   
-
   
175.9
 
IT Operations Management  
48.6
   
141.3
   
18.4
   
-
   
208.3
 
Security  
55.5
   
219.6
   
13.8
   
-
   
288.9
 
Information Management & Governance  
29.2
   
112.1
   
4.6
   
-
   
145.9
 
Subtotal  
308.4
   
727.6
   
48.2
   
-
   
1,084.2
 
Deferred revenue haircut  
-
   
(6.9
)
  
-
   
-
   
(6.9
)
Total Revenue  
308.4
   
720.7
   
48.2
   
-
   
1,077.3
 


F-40F-27

Consolidated financial statements and notes
Notes to the consolidated financial statements

2 Supplementary information continued

Year ended October 31, 2019:

  
Licence
  
Maintenance
  
SaaS & other
recurring
  
Consulting
  
Total
 
 
$m


$m


$m


$m


$m

AMC
  
170.9
   
326.1
   
0
   
11.7
   
508.7
 
ADM
  
130.3
   
485.4
   
87.8
   
18.2
   
721.7
 
ITOM
  
237.5
   
645.8
   
11.0
   
127.5
   
1,021.8
 
CyberRes  
185.7
   
416.7
   
35.0
   
43.9
   
681.3
 
IM&G  
75.6
   
183.6
   
145.9
   
16.6
   
421.7
 
Subtotal  
800.0
   
2,057.6
   
279.7
   
217.9
   
3,355.2
 
Deferred revenue haircut  
0
  
(6.0
)
  
(0.8
)
  
0
  
(6.8
)
Total Revenue  
800.0
   
2,051.6
   
278.9
   
217.9
   
3,348.4
 

3 ProfitLoss before tax


The (loss)/profitloss before tax is stated after charging/(crediting) the following operating costs/(gains) classified by the nature of the costs/(gains):


     
12 months ended
October 31, 2019
  
18 months ended
October 31, 2018
  
12 months ended
April 30, 2017
 
  Note  
$m
 

$m

 

$m

Staff costs  33   1,409.0   
2,095.0
   
480.7
 
Depreciation of property, plant and equipment:                
-  owned assets  12   52.6   
71.2
   
9.7
 
-  leased assets  12   13.9   
17.4
   
-
 
Loss on disposal of property, plant and equipment  12   3.6   
4.7
   
0.5
 
Amortization of intangibles  11   716.5   
903.1
   
206.7
 
Inventories                
– cost of inventories recognized as a debit (included in cost of sales)  15   0.1   
0.3
   
-
 
Operating lease rentals payable:                
-  plant and machinery      7.0   
8.8
   
2.9
 
-  property      58.9   
85.3
   
18.4
 
Provision for receivables impairment  16   16.0   
40.0
   
2.0
 
Foreign exchange gain on derivative financial instruments      (6.9)  
-
   
-
 
Foreign exchange loss/(gain)      18.2   
(37.4
)
  
(2.9
)
     
Year ended
October 31, 2021
  
Year ended
October 31, 2020
  
Year ended
October 31, 2019
 
  Note   $m

  $m

  $m

Staff costs  28   1,396.0   
1,344.4
   
1,409.0
 
Depreciation of property, plant and equipment:  12   33.7   
42.0
   
52.6
 
Depreciation of right-of-use asset (2019: finance lease depreciation)1
  19   73.3   
76.9
   
13.9
 
Loss on disposal of property, plant and equipment  12   1.2   
5.6
   
3.6
 
Amortization of intangible assets
  11   956.4   
674.1
   
716.5
 
Operating lease rentals payable:                
-  plant and machinery      0   
0
   
7.0
 
-  property      0   
0
   
58.9
 
Provision for receivables impairment charge/(release)  14   0.6   
(4.8
)
  
16.0
 
Foreign exchange loss/(gain) on derivative financial instruments      0   
21.8
   
(6.9
)
Foreign exchange loss      0.1   
7.9
   
18.2
 


4 Exceptional items
1
$13.9 million of depreciation on leased assets was included in depreciation of property, plant and equipment in the Year ended October 31, 2019. No depreciation in relation to leased assets is included in depreciation of property, plant and equipment in the periods ended October 31, 2020 and 2021 as all leased assets are classified as right-of-use assets following the adoption of IFRS 16.


     
12 months ended
October 31, 2019
  
18 months ended
October 31, 2018
  
12 months ended
April 30, 2017
 
Reported within Operating profit: Note  
$m
 

$m

 

$m

Integration costs     245.9   
279.0
   
27.6
 
Pre-acquisition costs     -   
43.0
   
58.0
 
Acquisition costs     1.5   
27.1
   
2.6
 
Property related costs     16.3   
38.1
   
5.6
 
Severance and legal costs     32.1   
129.7
   
3.4
 
Divestiture     2.1   
21.3
   
-
 
Gain on disposal of Atalla     (3.7)  
-
   
-
 
      294.2   
538.2
   
97.2
 
Reported within finance costs:               
Finance costs incurred in escrow period  6   -   
6.4
   
-
 
Reported within finance income:                
Finance income earned in escrow period  6   -   
(0.6
)
  
-
 
       -   
5.8
   
-
 
Exceptional costs before tax      294.2   
544.0
   
97.2
 
                 
Tax:                
Tax effect of exceptional items      (54.3)  
(105.9
)
  
(11.6
)
Tax exceptional item      -   
(692.3
)
  
-
 
       (54.3)  
(798.2
)
  
(11.6
)
Reported within profit from discontinued operation (attributable to equity shareholders of the Company):                
 
Gain on disposal of discontinued operation
  37   (1,458.5)  
-
   
-
 
                 
Exceptional profit after tax      (1,218.6)  
(254.2
)
  
85.6
 

F-41F-28

Consolidated financial statements and notes
Notes to the consolidated financial statements

4 Exceptional itemscontinued


        
Year ended
October 31, 2021
  
Year ended
October 31, 2020
  
Year ended
October 31, 2019
 
Reported within Operating loss:Note 
$m

 
$m

 
$m

Integration costs   98.0   
152.6
   
245.9
 
Divestiture and acquisition costs   3.6   
0.2
   
3.6
 
Property-related costs   11.1   
15.2
   
16.3
 
Severance and legal costs   27.3   
33.7
   
32.1
 
Legal settlement and associated costs
   75.4
   0
   0
 
Other restructuring costs   31.7   
10.7
   
0
 
Goodwill impairment   0   
2,799.2
   
0
 
Gain on disposal of Atalla   0   
0
   
(3.7
)
Exceptional costs before tax   247.1   
3,011.6
   
294.2
 
              
Tax effect of exceptional items   (76.3)  
(38.7
)
  
(54.3
)
              
Reported within profit from discontinued operation (attributable to equity shareholders of the Company):             
              
(Gain)/loss on disposal of discontinued operation30  (10.7)  
2.2
   
(1,458.5
)
              
Exceptional costs/(profit) after tax   160.1   
2,975.1
   
(1,218.6
)

Exceptional items are allocated to the financial statement lines (for example: cost of sales) in the Consolidated statement of comprehensive income based on the nature and function of the costs,costs; for example restructuring costs related to employees are classified where their original employment costs are recorded. Exceptional items included in operating profit are reported in the following financial statement lines Cost of sales $2.6 million (2020: $4.0 million; 2019: $12.6 million), Selling and distribution expenses $4.8 million  (2020: $12.9 million; 2019: $8.4 million), research and development expense $0.4 million credit (2020: $0.9 million; 2019: $0.5 million credit ) and Administrative expenses $240.1 million (2020: $2,993.8 million; 2019: $273.7 million).


Integration costs
Integration costs of $245.9m$98.0 million for the 12 monthsyear ended October 31, 2019 arose from2021 (2020: $152.6 million; 2019; $245.9 million) reflect the continuing work being donecosts incurred in integrating the HPE SoftwareIT design, build and migration onto a single new transformative IT platform for the entire group and a wide range of projects undertaken to conform, simplify and increase efficiency across the business into Micro Focus as referred to in Item 5.A. Operating results. Other activities include system and processes integration costs. Integrationare exceptional by virtue of size and nature.

Divestiture and acquisition costs
Acquisition costs of $279.0m$1.3 million in the 18 monthsyear ended October 31, 2018 (12 months2021 relate to April 30, 2017: $27.6m) arose mainly from the work done to integrate Serena, GWAVAacquisitions of Streamworx and the HPE Software business into the Micro Focus business.

Pre-acquisition costs
There were no pre-acquisition costs for the 12 months to October 31, 2019. Pre-acquisitionFull 360 and are exceptional by virtue of nature. Acquisition costs of $43.0m for$0.2 million in the 18 monthsyear ended October 31, 2018 (12 month ended April 30, 2017: $58.0m) related2020 relate to the evaluation of the acquisition of HPE SoftwareAtar Labs. Divestiture costs of $2.3 million in the year ended October 31, 2021 relate to the disposal of the Digital Safe business which was announced in October 2016 and was completed on September 1, 2017. The costs related to due diligence work, legal work on the acquisition agreements, professional advisors on the transaction and pre-integration costs.

Acquisition costs
Theare exceptional by virtue of nature. There were acquisition costs of $1.5m$1.5 million in the 12 monthsYear ended October 31, 2019 related mostly to the acquisition of Interset Software Inc. (note 38). The acquisitionInc and divestiture costs of $2.1 million related mostly to employee activities involved in the 18 monthsdisposal of SUSE.

Property-related costs
Property-related costs of $11.1 million for the year ended October 31, 2018 of $27.1m included external costs in completing the acquisition of the HPE Software business and costs relating to the acquisition of COBOL-IT SAS. The external costs mainly relate to due diligence work, legal work on the acquisition agreements and professional advisors on the transaction. Costs of $2.6m in the 12 months to April 30, 2017 related to the acquisitions of Serena in May 2016 and GWAVA in October 2016.

Property related costs
Property related costs of $16.3m for the 12 months ended October 31, 2019 (18 months to October 31, 2018: $38.1m, 12 months to April 30, 2017: $5.6m)2021 (2020: $15.2 million; 2019: $16.3 million) relate to the assessment and reassessmentimpairment or amendment to the impairments of leases onright-of-use assets for empty or sublet properties held by the Group, in particular in North America,any related onerous non-rental costs and the cost of site consolidations resulting fromconsolidations. These costs are incurred as the ongoing integrationGroup simplifies and rationalizes its real estate footprint as a result of the acquisition of HPE software business into Micro Focus.Software or other significant restructuring projects and are exceptional by virtue of nature.


Severance and legal costs
Severance and legal costs of $32.1m$27.3 million for the 12 monthsyear ended October 31, 2019 (18 months ended October 31, 2018: $129.7m, 12 months to April 30, 2017: $3.4m)2021 (2020: $33.7 million; 2019: $32.1 million) relate mostly to termination costs for employees after acquisition, relatingas the Group continues to remove duplication and simplify the continuing operations as it executes the target operating model resulting from the Strategic & Operational review and are exceptional by virtue of nature.

F-29

Consolidated financial statements and notes
Notes to the integrationconsolidated financial statements
4 Exceptional items continued

Legal settlements and associated costs
Legal settlements and associated costs of the HPE Software business into Micro Focus. The costs$75.4 million for the 12 months ended April 30, 2017 of $3.4m related to termination costs for senior Serena executives after acquisition.

Divestiture
Divestiture costs of $2.1m for the 12 monthsyear ended October 31, 20192021 (2020: $nil; 2019:$nil) relate mostly to employee activities (18 monthsthe settlement of the Wapp patent infringement case and are exceptional by virtue of size and incidence. On July 2, 2018, Wapp Tech Limited Partnership and Wapp Tech Corp (collectively “Wapp”) brought a claim against Micro Focus in the Eastern District of Texas, accusing the Company of infringing 3 patents in connection with Micro Focus’ sale of certain products in the ADM product line, including LoadRunner and Performance Centre. The Company reached a settlement with Wapp on July 15, 2021 for payment of $67.5 million for complete resolution of the dispute without admission of liability. This amount was recognized as a provision in the Group’s statement of financial position as at April 30, 2021.

In concluding this matter, the Board considered a range of factors, including the possible time, cost and significant resources required for the appeal process and concluded that it was in the best interests of the Company that a settlement should be reached.

Pursuant to the settlement, the Company has been granted a fully paid-up, worldwide, irrevocable licence for the patents asserted by Wapp for current and future Micro Focus products and services, covering the Company as well as its customers. No consideration was allocated to the licence received.

The agreed settlement amount of $67.5 million was paid in September 2021 therefore 0 remaining balances are held in relation to Wapp at October 31, 2021.

Other restructuring costs
Other restructuring costs of $31.7 million for the year ended October 31, 2018: $21.3m, 12 months2021 (2020: $10.7 million; 2019: $nil) relates to April 30, 2017: $nil) relate mostly to fees paid to professional advisors involvedthe costs of implementing the initiatives included in the disposalStrategic & Operational review and are exceptional by virtue of nature. These include costs of restructuring of the SUSE business completedGroup to deliver the target operating model design and cost base and certain IT expenditure required to support the related simplification of the Group.

Goodwill impairment
NaN goodwill impairment charge was made in 2019.the year ended October 31, 2021 (2020: $2,799.2 million; 2019 $nil), see note 10, “Goodwill”, for additional information.


Tax effect of exceptional items
The tax effect of exceptional items on the income statement is a credit of $76.3 million for the year ended October 31, 2021 (2020: $38.7 million credit; 2019: $54.3 million credit). Exceptional items include a tax credit of $19.1 million (2020 charge: $19.1 million, 2019: $nil) in relation to the transfer of assets between tax jurisdictions as a result of acquisitions by the Group in the year ended October 31, 2019. This is considered exceptional in nature as it has resulted from the integration activities to simplify and increase efficiency across the business.

EU State aid
Whilst no income statement charge has been recognized in the period, payments totaling $46.8 million (2020: nil; 2019: nil) have been made in relation to the EU State Aid case which we consider to be exceptional. Details of this case are set out in note 7 Taxation.

Gain on disposal of Atalla
The non-recurring gain on disposal of $3.7m$3.7 million for the 12 monthsYear ended October 31, 2019 (18 monthsrelated to Atalla business disposal.

Gain on disposal of discontinued operation
The gain on disposal of discontinued operation of $10.7m in the year ended October 31, 2018: $nil)2021 (2020: loss of $2.2 million, 2019: $1,458.5 million) relates to Atalla business disposal (note 37).

Finance income and finance costs
Finance costs of $6.4m and finance income of $0.6m for the 18 months ended October 31, 2018 (12 monthsadjustments in indemnification amounts owed to April 30 2017: $nil) related to interest (charged and gained) on additional term loan facilities drawn down in relation to the acquisitionSUSE as part of the HPE Software business, between the date the facilities were drawn into escrowdisposal agreement and the acquisition date. No such income or costs arose in the 12 months ended October 31, 2019.is exceptional by virtue of nature. See note 30 “Discontinued operation and Assets held for sale” for further details.


F-42F-30

Consolidated financial statements and notes
Notes to the consolidated financial statements

4 Exceptional items continued

Tax
The tax effect of exceptional items on the income statement is a credit of $54.3m for the 12 months ended October 31, 2019 (18 months ended October 31, 2018: $798.2m credit, 12 months to April 30, 2017: $11.6m). The exceptional tax credit of $692.3m  in the 18 months ended October 31, 2018 (April 30, 2017: $nil) related to the impact of US tax reforms, comprised of a credit of $930.6m in respect of the re-measurement of deferred tax liabilities and a transition tax charge of $238.3m payable over eight years.

Gain on disposal of discontinued operation
The element of the profit for the period on the discontinued operation related to the gain on disposal is included as an exceptional item (note 37).

5 Services provided by the Group’s auditors and network of firms


During the 12 monthsYear ended October 31, 2019,2021, the Group obtained the following services from the Group’s auditors as detailed below which have been disclosed in line with the ICAEW Technical Release “Tech 14/13 FRF” guidance on the disclosure of auditor remuneration for the audit of accounts and other (non-audit) services, in accordance with the requirements of the Companies (Disclosure of Auditor Remuneration and Liability Agreements) Regulation 2008 (Statutory Instrument 2008/489) as amended:
below:

  
Year ended
October 31, 2021
  
Year ended
October 31, 2020
  
Year ended
October 31, 2019
 
  $m
  $m
  $m
 
          
Audit of Company
  8.0   
7.2
   
12.8
 
ICOFR audit
  4.7   
2.7
   
3.0
 
Audit of subsidiaries
  2.8   
2.9
   
3.9
 
Total audit  15.5   
12.8
   
19.7
 
             
Audit-related assurance services
  0.5   
0.6
   
0.6
 
Total assurance services  0.5   
0.6
   
0.6
 
             
Tax advisory services
  0   
0
   
0.1
 
Services relating to taxation  0   
0
   
0.1
 
             
Total  16.0   
13.4
   
20.4
 

  
12 months ended
October 31, 2019
  
18 months ended
October 31, 2018
  
12 months ended
April 30, 2017
 
  
$m
 

$m

 

$m

             
Audit of Company  12.8   
12.2
   
1.0
 
Audit of subsidiaries  3.9   
1.9
   
2.5
 
Total audit  16.7   
14.1
   
3.5
 
             
Audit related assurance services  3.6   
0.9
   
2.6
 
Other assurance services  -   
0.7
   
-
 
Total assurance services  3.6   
1.6
   
2.6
 
             
Tax compliance services  -   
0.2
   
-
 
Tax advisory services  0.1   
0.2
   
0.1
 
Services relating to taxation  0.1   
0.4
   
0.1
 
             
Other non-audit services  -   
0.1
   
7.5
 
             
Total  20.4   
16.2
   
13.7
 

The 12 months ended October 31, 2019 fees and 18 months ended October 31, 2018 fees represent fees paid to KPMG LLP, as the current auditor. Fees for the years ended April 30, 2017 represent amounts paid to the previous auditor, PricewaterhouseCoopers LLP.


Of the audit relatedaudit-related assurance services engagements undertaken in the 12 monthsyear ended October 31, October 20192021 only one (2020: one; 2019: one) was considered to be significant. This related to the controls attestation ofreview procedures over the Group’s implementation of Sarbanes-Oxley Section 404,interim financial statements, for which a fee of $3.0m$0.5 million (2020: $0.6 million, 2019 $0.6 million) was paid.


Audit related assurance services in the 18 months ended October 31, 2018 relate primarily to the additional audit procedures  performed on the Micro Focus International plc financial statements that are included in US filings and two interim reviews, for both six-month periods ending October 31, 2017 and April 30, 2018.

Other assurance services in the 18 months ended October 31, 2018 relate primarily to the auditor’s assurance work in relation to the SUSE divestiture and licence verification compliance work.

The remaining non-audit services in the period included a limited amount of tax compliance and tax advice.

F-43
6 Finance income and finance costs

     
Year ended
October 31, 2021
  
Year ended
October 31, 2020
  
Year ended
October 31, 2019
 
  Note  $m
  $m
  $m
 
Finance costs            
Interest on bank borrowings     163.6   
176.1
   
225.4
 
Commitment fees     1.3   
1.7
   
1.9
 
Amortization of facility costs and original issue discounts     34.0   
58.0
   
46.7
 
Finance costs on bank borrowings     198.9   
235.8
   
274.0
 
                
Net interest expense on retirement obligations  22   1.5   
1.8
   
2.4
 
Interest on lease liabilities  19   10.0   
13.2
   
2.0
 
Interest rate swaps: cash flow hedges      41.3   
23.7
   
0
 
Other      2.2   
7.1
   
4.0
 
Total      253.9   
281.6
   
282.4
 

     
Year ended
October 31, 2021
  
Year ended
October 31, 2020
  
Year ended
October 31, 2019
 
     $m
  $m
  $m
 
Finance income            
Bank interest     1.5   
2.4
   
16.3
 
Interest on non-plan pension assets  22   0.2   
0.2
   
0.3
 
Interest rate swaps: cash flow hedges      0   
0
   
9.9
 
Other      0   
0
   
0.1
 
Total      1.7   
2.6
   
26.6
 
                 
Net finance cost      252.2   
279.0
   
255.8
 

F-31

Consolidated financial statements and notes
Notes to the consolidated financial statements

6 Finance income and finance costs

     
12 months ended
October 31, 2019
  
18 months ended
October 31, 2018
  
12 months ended
April 30, 2017
 
  Note  
$m
 

$m

 

$m

Finance costs               
Interest on bank borrowings     225.4   
276.5
   
81.2
 
Commitment fees     1.9   
3.3
   
0.8
 
Amortization of facility costs and original issue discounts     46.7   
60.4
   
14.2
 
Finance costs on bank borrowings     274.0   
340.2
   
96.2
 
                
Net interest expense on retirement obligations  25   2.4   
2.8
   
0.6
 
Finance lease expense      2.0   
2.7
   
-
 
Interest rate swaps: cash flow hedges, transfer from equity      -   
3.4
   
-
 
Other      4.0   
1.3
   
-
 
Total      282.4   
350.4
   
96.8
 

     
12 months ended
October 31, 2019
  
18 months ended
October 31, 2018
  
12 months ended
April 30, 2017
 
     
$m
 

$m

 

$m

Finance income               
Bank interest     16.3   
3.6
   
0.4
 
Interest on non-plan pension assets  25   0.3   
0.6
   
0.4
 
Interest rate swaps: cash flow hedges, transfer to equity      9.9   
-
   
-
 
Other      0.1   
3.5
   
0.2
 
Total      26.6   
7.7
   
1.0
 
                 
Net finance cost      255.8   
342.7
   
95.8
 
                 
Included within exceptional items                
Finance costs incurred in escrow period  4   -   
6.4
   
-
 
Finance income earned in escrow period  4   -   
(0.6
)
  
-
 
       -   
5.8
   
-
 

7 Taxation

  
12 months ended
October 31, 2019
  
18 months ended
October 31, 2018
  
12 months ended
April 30, 2017
 
  
$m
 

$m

 

$m

Current tax            
Current period  163.9   
245.8
   
33.9
 
Adjustments to tax in respect of previous periods  (35.3)  
(14.7
)
  
1.7
 
   128.6   
231.1
   
35.6
 
Deferred tax            
Origination and reversal of temporary differences  (139.7)  
26.4
   
(22.4
)
Adjustments to tax in respect of previous periods  24.5   
1.2
   
(4.4
)
Previously unrecognized temporary differences  (29.4)  
-
   
-
 
Impact of change in tax rates  -   
(931.8
)
  
(1.3
)
   (144.6)  
(904.2
)
  
(28.1
)
             
Total tax (credit)/expense  (16.0)  
(673.1
)
  
7.5
 


F-44A Taxation in the Consolidated statement of comprehensive income

  
Year ended
October 31, 2021
  
Year ended
October 31, 2020
  
Year ended
October 31, 2019
 
Continuing operations 
$m

 
$m

 
$m

Current tax            
Current year  145.7   
175.4
   
163.9
 
Adjustments to tax in respect of previous periods  0.9   
7.8
   
(35.3
)
   146.6   
183.2
   
128.6
 
Deferred tax            
Origination and reversal of temporary differences  (237.9)  
(195.3
)
  
(139.7
)
Adjustments to tax in respect of previous periods  (23.3)  
10.7
   
24.5
 
Previously unrecognized temporary differences  0   
0
   
(29.4
)
Impact of changes in tax rates  31.9   
35.6
   
0
 
   (229.3)  
(149.0
)
  
(144.6
)
             
Total tax (credit)/charge  (82.7)  
34.2
   
(16.0
)
Table of Contents
Consolidated financial statements and notes
Notes to the consolidated financial statements

7 Taxation continued


For the 12 monthsyear ended October 31, 2019,2021, a deferred tax debitcharge of $7.6m (18 months ended October 31, 2018: $23.7m debit; 12 months ended April 30, 2017: $23.0m credit)$0.2 million (2020: $1.5 million charge; 2019: $7.6 million charge) and 0 current tax credit of $13.1m (18 months ended October 31, 2018: $4.1m credit, 12 months ended April 30, 2017: $4.1mimpact (2020: $0.1 million credit; 2019: $13.1 million credit) have been recognized in equity in relation to share options.

A current tax creditcharge of $23.3m (18 months ended October 31, 2018: $16.4m debit)$8.0 million (2020: $7.8 million credit; 2019: $23.3 million credit) has been recognized in the hedging reserve (note 31)27, “Other reserves”).

There is also a current tax credit of $6.0 million (2020: 0 tax impact; 2019: 0 impact) and a deferred tax charge of $8.1 million (2020: $11.1 million credit; 2019: 0 impact) in relation to the currency translation differences. In addition, a deferred tax creditcharge of $13.0m (18 months ended October 31, 2018: $4.3m credit, 12 months ended April 30, 2017: $0.3m debit)$7.8 million (2020: $8.7 million; 2019: $14.0 million) has been recognized in the Consolidated statement of comprehensive income in relation to defined benefit pension schemes and a deferred tax credit of $14.0m (18 months ended October 31, 2018: $nil, 12 months ended April 30, 2017: $nil) in relation to foreign exchange movements on intangibles.intangibles and 0 charge (2020: $5.0 million charge; 2019: $13.0 million credit) in relation to defined benefit pension schemes.


There are also profits of $10.7 million in respect of discontinued operations and we do not expect a tax charge to arise on these.
 
F-32

Consolidated financial statements and notes
Notes to the consolidated financial statements
7 Taxation continued

The tax charge for the 12 monthsyear ended October 31, 20192021 is higher than the standard rate of corporation tax in the UK of 19.00% (18 months(Year ended October 31, 2018:2020: 19.00%; 12 monthsYear ended April 30, 2017: 19.92%October 31, 2019 19.00%). The differences are explained below:


 
12 months ended
October 31, 2019
  
18 months ended
October 31, 2018
  
12 months ended
April 30, 2017
  
Year ended
October 31, 2021
  
Year ended
October 31, 2020
  
Year ended
October 31, 2019
 
 
$m
 

$m

 

$m

 
$m

 
$m

 
$m

(Loss)/profit before taxation (34.1) 
34.1
  
131.6
 
Loss before taxation
  (517.8)  
(2,940.4
)
  
(34.1
)
                     
Tax at UK corporation tax rate 19.00% (2018: 19.00%; 2017: 19.92%) (6.5) 
6.5
  
26.0
 
Tax at UK corporation tax rate 19.00% (2020: 19.00%, 2019: 19.00%)
  (98.4)  
(558.7
)
  
(6.5
)
Effects of:                     
Tax rates other than the UK standard rate (4.4) 
17.8
  
0.6
   (8.6)  
(78.0
)
  
(4.4
)
Intra-Group financing (42.8) 
(52.5
)
 
(15.7
)
  0.3   
(21.0
)
  
(42.8
)
Interest restrictions -  
31.8
  
-
 
Innovation tax credit benefits (13.5) 
(21.4
)
 
(9.8
)
  (22.3)  
(31.8
)
  
(13.5
)
US foreign inclusion income 43.7  
39.0
  
0.4
   15.5   
20.4
   
43.7
 
US transition tax -  
238.3
  
-
 
Share options 7.1  
10.2
  
-
   1.6   
4.1
   
7.1
 
Movement in deferred tax not recognized 14.4  
7.3
  
0.2
   5.3   
11.1
   
14.4
 
Previously unrecognized temporary differences (29.4) 
-
  
-
   0   
0
   
(29.4
)
Effect of change in tax rates -  
(931.9
)
 
(1.3
)
Impact of rate changes  31.9   
35.6
   
0
 
Goodwill impairment  0   
592.8
   
0
 
Expenses not deductible and other permanent differences 26.2  
(4.7
)
 
9.8
   14.4   
41.2
   
26.2
 
 (5.2) 
(659.6
)
 
10.2
   (60.3)  
15.7
   
(5.2
)
Adjustments to tax in respect of previous periods:                     
Current tax (35.3) 
(14.7
)
 
1.7
   0.9   
7.8
   
(35.3
)
Deferred tax 24.5  
1.2
  
(4.4
)
  (23.3)  
10.7
   
24.5
 
 (10.8) 
(13.5
)
 
(2.7
)
  (22.4)  
18.5
   
(10.8
)
                     
Total taxation (16.0) 
(673.1
)
 
7.5
   (82.7)  
34.2
   
(16.0
)


The Group continues to benefit from the UK’s Patent Box regime, US R&D tax credits and other innovation-based tax credits offered by certain jurisdictions, the benefit for the 12 monthsyear ended October 31, 20192021 being $13.5m (18 months ended October 31, 2018: $21.4m, 12 months ended April 30, 2017: $9.8m)$22.3 million(2020: $31.8 million; 2019: $13.5 million). The Group realized benefits in relation toFollowing the unwind of the intra-Group financing of $42.8min FY20, the Group does not realize a benefit from this for the 12 months ended October 31, this period onwards (2020: $21.0 million; 2019 ($52.5m for the 18 months ended October 31, 2018; 12 months ended April 30, 2017: $15.7m): $42.8 million). The benefits mostly relate to arrangements put in place to facilitate the acquisitions of the HPE Software business, The Attachmate Group and Serena.


US foreign inclusion income of $43.7m$15.5 million arising in the 12 monthsyear ended October 31, 2019 (18 months ended October 31, 2018: $39.0m; 12 months ended April 30 2017: $0.4m)2021 (2020: $20.4 million; 2019: $43.7 million) is largely driven by new US tax legislation introduced as part of US tax reforms in 2018.


A change to the future main UK corporation tax rate, announced in the 2021 UK Budget, was substantively enacted for IFRS purposes on May 24, 2021. The rate applicable from April 1, 2023 will be increased from 19% to 25%. The Group has remeasured its UK deferred tax assets and liabilities at the end of the reporting period at a blended rate, based on when the UK temporary differences are expected to reverse. The impact of this and other changes in tax rate across the group has resulted in a tax charge of $31.9 million in the income statement.

The Group recognized a net overallexpenses not deductible and other permanent differences charge of $14.4 million (2020: $41.2 million; 2019: $26.2 million) includes $6.4 million in relation to uncertain tax positions, $16.3 million in respect of share options dueUS Base Erosion (“BEAT”) rules and $9.9 million related to deferredirrecoverable withholding tax. Following an election made in the US for an intangible asset previously transferred into the US, tax credits arisingdeductions are now available on options held at the balance sheet date being lower than the current tax charge becauseamortization of the termsasset. There is a tax benefit of $19.1 million in the options.year ended October 31, 2021 which is included in expenses not deductible and other permanent differences.

 
F-45F-33

Consolidated financial statements and notes
Notes to the consolidated financial statements

7 Taxation continued


During the period the directors reassessed the deferred tax asset recognized in relation to interest restrictions and have recognized an asset to the extent that sufficient taxable temporary differences exist at the balance sheet date. Previously a deferred tax asset was not recognized as the directors forecast that the Group would be unable to utilize the interest restrictions in future periods. This has resulted in a credit of $29.4m in the period in respect of historical interest amounts, recognized as previously unrecognized temporary differences above.

The movement in deferred tax assets and liabilities during the period is analyzed in note 28.

The expenses not deductible and other permanent differences charge of $26.2m (18 months ended October 31, 2018: $4.8m credit; 12 months ended April 30, 2017: $9.8m) included $8.1m in relation to uncertain tax positions and $6.1m related to irrecoverable withholding tax.

The Group realized a net credit in relation to the true-up of prior period,periods, current and deferred tax estimates of $10.8m$22.4 million credit for the 12 monthsyear ended October 31, 2019 (18 months ended October 31, 2018: $13.5m; 12 months ended April 30, 2017: $2.7m)2021 (2020: $18.5 million charge; 2019: $10.8 million credit).


The Group’s tax charge is subject to various factors, many of which are outside the control of the Group, including changes in local tax legislation, and specifically additional changes expected to be introduced in the US and global tax reform as governments respond to COVID-19 and the OECD’s Base Erosion and Profit Shifting project and the consequences of Brexit.(“BEPS”).


In April 2019, the European Commission published its final decision on its state aidState Aid investigation into the UK’s “Financing‘Financing Company Partial Exemption”Exemption’ legislation and concluded that part of the legislation is in breach of EU State Aid rules. Similar to other UK basedUK-based international groups that have acted in accordance with the UK legislation in force at the time, the Group may be affected by the finding and is monitoring developments. The UK Governmentgovernment and UK-based international companies, including the Group, have appealed to the General Court of the European Union against the decision. TheIn February 2021 the Group received and settled State Aid charging notices (excluding interest) totaling $44.2 million, issued by HM Revenue and Customs, following the requirement for the UK Government is requiredgovernment to start collection proceedings in advanceproceedings. In May 2021, the Group received and settled State Aid interest charging notices from HM Revenue and Customs totaling $2.6 million. In addition, there has been a challenge from the UK Tax Authorities into the historic financing arrangements of the appeal results and it is possible that the Group will be required to make a payment in the year ending October 31, 2020. If the decision of the European Commission is upheld, the Group have calculated the maximum potential liability to be $60.3m.Group. Based on its current assessment and supported by external professional advice, the Group consider that the maximum liability of both of these items to be $60 million. Based on its current assessment and also supported by external professional advice, the Group believes that no provision is required in respect of this issue.  Thethese issues and a long-term current tax receivable has been recognized in respect of the amounts paid (including movements due to FX) at the balance sheet date. No additional liability should accrue in future periods in respect of these matters, following (i) an amendment of the UK legislation affected by thisthe EU Commission finding was amended on January 1, 2019, to be compliant with EU law, and therefore no longer impacts(ii) the Groupunwind of the financing company arrangements in question. A judgement in respect of the appeal that was heard in the General Court in November 2021 is expected in 2022 and so no additionalManagement intend to reassess the above position at that time.

BCurrent tax receivables

  October 31, 2021  October 31, 2020 
  $m
  $m
 
Corporation tax  59.1
   45.3
 

CNon-current tax receivables

  
October 31, 2021
  October 31, 2020 
  $m
  $m
 
Corporation tax  48.0   0 

The non-current tax liabilityreceivable is $48.0 million (2020: nil). This non-current receivable reflects the payment that was made following the final decision published by the European Commission on its State Aid investigation into the UK’s ‘Financing Company Partial Exemption’ legislation. As this amount was paid in GBP, the long-term debtor balance will accrue in future periods that could be subject to the same challenge.vary year on year as a result of foreign exchange movements.


8 Dividends
D
Current tax liabilities


  
12 months ended
October 31, 2019
  
18 months ended
October 31, 2018
  
12 months ended
April 30, 2017
 
Equity - ordinary 
$m
 

$m

 

$m

Final paid 58.33 cents (2018: 58.33 cents, 2017: 49.74 cents) per ordinary share  240.7   
133.9
   
111.0
 
First Interim paid 58.33 cents (2018: 34.60 cents; 2017: 29.73 cents) per ordinary share  198.5   
156.2
   
66.5
 
Second Interim paid nil cents (2018: 58.33 cents; 2017: nil cents) per ordinary share  -   
252.1
   
-
 
   439.2   
542.2
   
177.5
 
  October 31, 2021  October 31, 2020 
  $m
  $m
 
Corporation tax  94.1
   
150.1
 


The directors announced a final dividend of 58.33 cents per share payable on May 7, 2020 to shareholders who are registered at April 14, 2020. This final dividend, amounting to $194.5m, has not been recognized, as a liability ascurrent tax creditor at October 31, 2019.2021 is $94.1 million (2020: $150.1 million). The current tax creditor includes liabilities in respect of uncertain tax positions, net of overpayments.


F-46Within current tax liabilities is $75.1 million (2020: $84.8 million) in respect of the group income tax reserve, the majority of which relates to the risk of challenge from the local tax authorities. Due to the uncertainty associated with such tax items, it is possible that at a future date, on conclusion of open tax matters, the final outcome may vary significantly.

F-34

Consolidated financial statements and notes
Notes to the consolidated financial statements

7 Taxation continued

E
Non-current tax liabilities

  October 31, 2021  October 31, 2020 
  $m
  $m
 
Corporation tax
  91.9
   
102.7
 

The non-current tax creditor is $91.9 million (2020: $102.7 million). The non-current creditor reflects the US transition tax payable more than 12 months after the balance sheet date.

F
Deferred tax

     
Year ended
October 31, 2021
  
Year ended
October 31, 2020
 
Net Deferred tax liability Note  $m
  $m
 
At November 1     (841.1)  
(987.1
)
            
Reallocated to deferred tax assets     (15.0)  0 
Credited to consolidated statement of comprehensive income:     229.3   
147.9
 
-          Continuing operations  7A
  229.3   
149.0
 
-          Discontinued operation      0   
(1.1
)
             
Charged directly to equity
      (0.2)  
(1.5
)
             
Charged to other comprehensive income:
      (15.9)  
(2.5
)
             
             
Acquisitions in the period      (1.9)  0 
Reallocated to liabilities held for sale      45.5   0 
Impact of adoption of IFRS 16
      0   
1.8
 
Foreign exchange adjustment
      0.2   
0.3
 
At October 31,      (599.1)  
(841.1
)

  
Year ended
October 31, 2021
  
Year ended
October 31, 2020
 
Net Deferred tax asset $m
  $m
 
At November 1
  0
   0
 
Reallocated from deferred tax liabilities  15.0
    0
 
At October 31,
  15.0
   0
 

Deferred tax assets and liabilities below are presented net where there is a legally enforceable right to offset and the intention to settle on a net basis.

F-35

Consolidated financial statements and notes
Notes to the consolidated financial statements
7 Taxation continued

Deferred tax assets

  
Tax losses
and interest
restrictions
  
Share
based
payments
  
Deferred
revenue
  
Tax
credits
  
Intangible
  assets
  
Other
temporary
differences
  
Research
and
development
  Total 
  $m
  $m
  $m
  $m
  $m
  $m
  $m
  $m
 
At November 1, 2020
  133.5   0.8   90.5   16.3   0   69.7   86.5   397.3 
Credited/(charged) to consolidated statement of   comprehensive income – continuing operations  8.0   3.3  7.7  (8.4)   0   11.4  36.3   58.3 
Credited to consolidated statement of comprehensive income – discontinued operation  0   0   0   0   0   0  0   0
Charged directly to equity  0   (0.2)  0   0   0   0   0   (0.2)
Charged to other comprehensive income
  0   0   0   0   0   (8.1)   0   (8.1) 
Foreign exchange adjustment  0   0.1   0   0   0  (0.1)   0   0 
Subtotal  141.5   4.0   98.2   7.9   0   72.9   122.8   447.3 
Jurisdictional offsetting                              (432.3)
At October 31, 2021
                              15.0 

  
Tax losses and interest
restrictions
  Share based payments  Deferred revenue  Tax credits  Intangible assets  
Other temporary
differences
  
Research
and
development
  Total 
  
$m

 
$m

 
$m

 
$m

 
$m

 
$m

 
$m

 
$m

At November 1, 2019  100.5   5.0   108.6   6.8   0   88.6   0   309.5 
Transferred from deferred tax liabilities  0   0   0   0   0   0   13.6   13.6 
Credited/(charged) to consolidated statement of comprehensive income – continuing operations  33.0   (2.7)  (18.1)  9.5   0.2   (24.4)  72.9   70.4 
Credited to consolidated statement of comprehensive income – discontinued operation  0   0   0   0   0   (1.1)  0   (1.1)
Credited directly to equity  0   (1.5)  0   0   0   0   0   (1.5)
Debited to other comprehensive income  0   0   0   0   0   6.2   0   6.2 
Foreign exchange adjustment  0   0   0   0   (0.2)  0.4   0   0.2 
Subtotal  133.5   0.8   90.5   16.3   0   69.7   86.5   397.3 
Jurisdictional offsetting                              (397.3)
At October 31, 2020                              0 

A deferred tax charge to equity of $0.2 million (2020: $1.5 million) arises during the year in relation to share-based payments.

The deferred tax asset relating to other temporary differences of $72.9 million as at October 31, 2021 (2020: $69.7 million) has increased during the year primarily due to the movement of various short term timing differences. Deferred tax assets are recognized in respect of tax losses carried forward to the extent that the realisation of the related tax benefit through the utilization of future taxable profits is probable.

F-36

Consolidated financial statements and notes
Notes to the consolidated financial statements
7 Taxation continued

Deferred tax assets
The Group did not recognize deferred tax assets in relation to the following gross temporary differences, the expiration of which is determined by the tax law of each jurisdiction:

  Expiration: 
  2022
  2023
  2024
  2025
  2026
  Thereafter  No expiry  Total 
  $m
  $m
  $m
  $m
  $m
  $m
  $m
  $m
 
At October 31, 2021
                        
Type of temporary difference:                        
Losses  0.6   7.4   23.8   40.5   8.2   2,045.1   54.1   2,179.7 
Credits  3.2   1.8   1.4   1.4   0.9   4.7   41.1   54.5 
Other  0   0   0   0   0   35.3   23.9   59.2 
Total  3.8   9.2   25.2   41.9   9.1   2,085.1   119.1   2,293.4 

  Expiration: 
  2021
  2022
  2023
  2024
  2025
  Thereafter  No expiry  Total 
  $m
  $m
  $m
  $m
  $m
  $m
  $m
  $m
 
At October 31, 2020
                        
Type of temporary difference:                        
Losses  5.0   11.9   23.7   43.4   13.3   2,226.7   50.7   2,374.7 
Credits  3.5   3.1   1.8   1.4   0.7   5.5   45.4   61.4 
Other  0   0   0   0   0   88.4   23.9   112.3 
Total  8.5   15.0   25.5   44.8   14.0   2,320.6   120.0   2,548.4 

Deferred tax liabilities

  
Intangible
assets
  
Research
and
development
  Other temporary differences  Total 
  $m
  $m
  $m
  $m
 
At November 1, 2020
  (1,180.5)  0   (57.9)  (1,238.4)
Charged to Consolidated statement of comprehensive income – continuing operations  176.8   0   (5.8)  171.0 
Credited to other comprehensive income – continuing operations  (7.8)  0   0
   (7.8)
Acquisitions  (1.9)  0   0
   (1.9)
Deferred tax liabilities reallocated to liabilities held for sale  45.5   0   0
   45.5 
Foreign exchange adjustment  0.2   0   0
   0.2 
Subtotal  (967.7)  0   (63.7)  (1,031.4)
Jurisdictional offsetting              432.3 
At October 31, 2021
              (599.1)
 
F-37

Consolidated financial statements and notes
Notes to the consolidated financial statements
7 Taxation continued
EDeferred tax continued

  
Intangible
assets
  
Research
and
development
  Other temporary differences  Total 
  $m
  $m
  $m
  $m
 
At November 1, 2019
  (1,257.1)  13.6   (53.1)  (1,296.6)
Transferred to deferred tax assets  0   (13.6)  0   (13.6)
Charged to Consolidated statement of comprehensive income – continuing operations  85.4   0   (6.8)  78.6 
Credited to other comprehensive income – continuing operations  (8.7)  0   0   (8.7)
Credited to equity – impact of adoption of IFRS 16  0   0   1.8   1.8 
Foreign exchange adjustment  (0.1)  0   0.2   0.1 
Subtotal  (1,180.5)  0   (57.9)  (1,238.4)
Jurisdictional offsetting              397.3 
At October 31, 2020
              (841.1)

No deferred tax liability is recognized in respect of temporary differences associated with investments in subsidiaries and branches because the Group is in a position to control the timing of the reversal of the temporary differences, and none are expected to reverse in the foreseeable future.
 
8 Dividends


  
Year ended
October 31, 2021
  
Year ended
October 31, 2020
  
Year ended
October 31, 2019
 
Equity - ordinary $m
  $m
  $m
 
Final paid 15.5 cents (2020: nil cents) per ordinary share
  51.7   
0
   
240.7
 
Interim paid 8.8 cents (2020: nil cents) per ordinary share
  29.4   
0
   
198.5
 
   81.1   
0
   
439.2
 

The directors announced a final dividend of 20.3 cents per share payable on April 21, 2022 to shareholders who are registered at March 11, 2022. This final dividend, amounting to $68.2 million, has not been recognized as a liability as at October 31, 2021.

F-38

Consolidated financial statements and notes
Notes to the consolidated financial statements
9 Earnings per share
The calculation of the basic earnings per share has been based on the earnings attributable to owners of the parent and the weighted average number of shares for each period.year.


Reconciliation of the earnings and weighted average number of shares:


 
12 months ended
October 31, 2019
  
18 months ended
October 31, 2018
  
12 months ended
April 30, 2017
  
Year ended
October 31, 2021
  
Year ended
October 31, 2020
  
Year ended
October 31, 2019
 
Earnings ($m)          
       
(Loss)/profit for the period from continuing operations (18.1) 
707.2
  
124.1
 
Profit for the period from discontinued operation 1,487.2  
76.9
  
33.7
 
Loss for the year from continuing operations  (435.1)  
(2,974.6
)
  
(18.1
)
Profit for the year from discontinued operation  10.7   
5.1
   
1,487.2
 
 1,469.1  
784.1
  
157.8
   (424.4)  
(2,969.5
)
  
1,469.1
 
                     
Number of shares (m)                     
Weighted average number of shares 378.1  
388.7
  
229.2
   336.5   
335.7
   
378.1
 
Dilutive effects of shares 4.1  
11.0
  
8.2
   0   
0
   
4.1
 
 382.2  
399.7
  
237.4
   336.5   
335.7
   
382.2
 
                     
Earnings per share                     
Basic earnings per share (cents)                     
Continuing operations 
(4.87
)
 
181.91
  
54.17
   (129.30)  
(886.15
)
  
(4.87
)
Discontinued operation 
393.37
  
19.79
  
14.71
   3.18   
1.52
   
393.37
 
Total Basic earnings per share 388.50  
201.70
  
68.88
   (126.12)  
(884.63
)
  
388.50
 
                     
Diluted earnings per share (cents)                     
Continuing operations 1
 
(4.87
)
 
176.92
  
52.31
   (129.30)  
(886.15
)
  
(4.87
)
Discontinued operation 
389.16
  
19.25
  
14.20
   3.18   
1.52
   
389.16
 
Total Diluted earnings per share 1
 384.35  
196.17
  
66.51
   (126.12)  
(884.63
)
  
384.35
 
                     
Basic earnings per share (pence)                     
Continuing operations 
(3.82
)
 
136.73
  
41.88
   (94.09)  
(693.45
)
  
(3.82
)
Discontinued operation 
308.89
  
14.88
  
11.37
   2.31   
1.19
   
308.89
 
Total Basic earnings per share 305.07  
151.61
  
53.25
   (91.78)  
(692.26
)
  
305.07
 
                     
Diluted earnings per share (pence)                     
Continuing operations 1
 
(3.82
)
 
132.98
  
40.44
   (94.09)  
(693.45
)
  
(3.82
)
Discontinued operation 
305.59
  
14.47
  
10.98
   2.31   
1.19
   
305.59
 
Total Diluted earnings per share 1
 301.81  
147.45
  
51.42
   (91.78)  
(692.26
)
  
301.81
 
                     
Earnings attributable to ordinary shareholders                     
From continuing operations (18.1) 
707.2
  
124.1
   (435.1)  
(2,974.6
)
  
(18.1
)
Excluding non-controlling interests (0.3) 
(0.1
)
 
0.1
   0   
0
   
(0.3
)
(Loss)/profit for the period from continuing operations (18.4) 
707.1
  
124.2
 
(Loss)/profit for the year from continuing operations  (435.1)  
(2,974.6
)
  
(18.4
)
From discontinued operation 1,487.2  
76.9
  
33.7
   10.7   
5.1
   
1,487.2
 
 1,468.8  
784.0
  
157.9
   (424.4)  
(2,969.5
)
  
1,468.8
 
Average exchange rate $1.27/£1  
$
1.33/£1
  
$
1.29/£1
  $1.37/£1  
$
1.28/£1
  
$
1.27/£1
 


1 As there is a loss from continuing operations attributable to the ordinary equity shareholders of the Company for the 12 months ended October 31, 2019 ($18.4m), the Diluted EPS is reported as equal to Basic EPS, as no account can be taken of the effect of dilutive securities under IAS 33. There was total earnings attributable to ordinary equity shareholders of the Company for the 12 months ended October 31, 2019 of $1,468.8m and therefore the effect of dilutive securities can be reflected in the total Diluted EPS above.
1
The Group reported a loss from continuing operations and a loss for the year attributable to the ordinary equity shareholders of the Company for the year ended October 31, 2021 and October 31, 2020. The Diluted EPS is reported as equal to Basic EPS, as no account can be taken of the effect of dilutive securities under IAS 33.


The weighted average number of shares excludes treasury shares that do not have dividend rights (note 29)25, “Share capital”).


F-47F-39

Consolidated financial statements and notes
Notes to the consolidated financial statements

10 Goodwill


     October 31, 2019  October 31, 2018 
  Note  
$m
 

$m

Cost and net book amount           
At November 1 /May 1     6,805.0   
2,828.6
 
Acquisitions  38   26.8   
4,863.9
 
Effects of movements in exchange rates      (160.5)  
-
 
Reclassification to assets held for sale  37   -   
(887.5
)
       6,671.3   
6,805.0
 
A segment-level summary of the goodwill allocation is presented below:            
Micro Focus      6,671.3   
6,805.0
 
 
    October 31, 2021  October 31, 2020 
 
   Note  $m
  $m
 
Net book value          
At November 1     3,835.4
   6,671.3 
Acquisitions  31   7.2
   1.4 
Impairment charge      0   (2,799.2)
Effects of movements in exchange rates      30.1   (38.1)
Transferred to assets held for sale  30   (147.2)  0 
At October 31,      3,725.5   
3,835.4
 
A CGU-level summary of the goodwill allocation is presented below:             
Micro Focus       3,725.5   
3,835.4
 


Goodwill acquired through business combinations has been allocated to a cash-generating unit (“CGU”) for the purpose of impairment testing.


The goodwill arising in the 12 monthsyear ended October 31, 2019,2021, related to the Streamworx and Full 360 acquisitions of $7.2 million (note 31, “Acquisitions”) 2020: $1.4 million related to the acquisition of Interset Software Inc. of $26.8m (note 38)Atar Labs), has been allocated to the Micro Focus CGU as this is consistent with the segment reporting that is used in internal management reporting. Of the additionsaddition to goodwill, all amounts are expected to be deductible for tax purposes.

The goodwill arising in the 18 months ended October 31, 2018 related to the acquisition
Goodwill with a net book value of the HPE Software business of $4,858.3m (note 38) and COBOL-IT, SAS (“COBOL-IT”) $5.6m (note 38), have$147.2 million (Costs $253.4 million, impairment ($106.2) million) has been allocated to the Micro Focus CGUDigital Safe business and been reclassified as this is consistent with the segment reporting that is used in internal management reporting. Of the additions to goodwill, there were no amounts expected to be deductibleheld for tax purposes.

In addition, during the year, following a review of the allocation of goodwill to foreign operations, the directors have determined that goodwill of $6,497.5m, which arose on previous acquisitions (in particular the acquisitions of the HPE Software business on September 1, 2017 and The Attachmate Group on November 20, 2014, being the two most significant) should have been allocated into functional currencies of the underlying foreign operations. The re-denomination has given rise to a total reductionsale in the carrying value of goodwill of $160.5m,period and is shown as a result of foreign exchange movement, that has been recognized in the 12 months ended October 31, 2019. Had this allocation taken place from the acquisition dates, a $154.9m decrease in the carrying value of goodwill would have been recognized in the 18 months ended October 31, 2018 and a cumulative decrease of $69.4m in the carrying value would have been recognized as at May 1, 2017. As this change has no impact on the Group’s profit before taxation, or statement of cash flows and as the net prior-period impact of $224.3m is not material in the context of the overall value of goodwill or net assets, it is, in the judgment of the directors, appropriate to affect the change in allocation in the current period. Movements in Other comprehensive income are not considered a key performance metric.

This change in the carrying value of $160.5m is a part of the amount reflectedcurrent assets held for sale in the line “effectconsolidated statement of movements in exchange rates”financial position and not included in the tablebalance at October 31, 2021 shown above. The change has been recognized within “currency translation differences – continuing operations” in other comprehensive income,See note 30 “Discontinued operation and subsequently the translation reserve in equity.assets held for sale” for additional details.

This adjustment has had no impact on the conclusion of the Group’s annual impairment review.

Impairment test
Impairment of goodwill
Goodwill is tested annually for impairment, or more frequently where there is an indication of impairment. An impairment test is a comparison of the carrying value of the assets of the CGU with their recoverable amount. Where the recoverable amount is less than the carrying value, an impairment results. The Group performed itsGroup’s annual test foris performed at October 31.

The Group has performed the impairment astest at October 31, 2019 (2018: October 31, 2018),2021 incorporating its knowledge of the business into that testing and noting at that date the market capitalizationcapitalisation was less than the net assets of the Group, which was taken into account during the impairment test. The recoverable amount of the Micro Focus CGU is $9.3 billion and excludes the Digital Safe business which is held for sale (2020: $9.3 billion including the Digital Safe business) based on its value in use (“VIU”) calculation. As of October 31, 2021 the Group’s recoverable amount exceeds the carrying value of the net assets of the CGU by $1.2 billion (October 31, 2020: an impairment charge of $2.8 billion, solely related to goodwill, was recognized in administrative expenses as an exceptional cost in the Consolidated Statement of Comprehensive Income).

F-48
Consolidated financial statements and notes
Notes to the consolidated financial statements

10 Goodwill continued

The recoverable amount of the Micro Focus CGU is determined based on its Value In Use (“VIU”).VIU. The VIU includes estimates about the future financial performance of the CGU and is based on five-year projections and then a terminal value calculation. It utilizes discounted board approved forecasts for the first four years discounted to present value and the fifth year reflects management’s expectationexpectations of the long-term growth prospects which have been applied based upon the expected operating performance of the CGU and growthGrowth prospects in the CGU’s market. The cash flow projections and inputs combine past performance with adjustments as appropriate where the directors believe that past performance and rates are not indicative of future performance and rates. The VIU calculation excludes the cash outflow and resulting cash inflow assumptions arising from the investment decisions made in the Strategic Review and which are included within the board approved forecasts.

Impairment reviews under IAS 36 are required to exclude the estimated cash inflow and outflows arisingcost savings resulting from improving or enhancing the performance of existing assets, and therefore the impairment test performedrestructuring activities which have not yet commenced. The VIU calculation excludes such cost saving impacts, which are included in the current year considersboard approved forecasts.

F-40

Consolidated financial statements and notes
Notes to the recoverable amount of the CGU based on its current condition without the impact of the approved investment plans.consolidated financial statements

10 Goodwill continued
Key assumptions
Key assumptions in the VIU are considered to be the discount rate, medium termaverage annual revenue growth rate by product group and the long-term cash flow growth rate. These have been assessed taking into consideration the current economic climate and the resulting impact on expected growth and discount rates.


The medium-termaverage annual revenue growth rate by product group, long-term cash flow growth rate and discount rate used in the VIU calculation are:

  2019  2018 
Long-term cash flow growth rate  1.0%  
1.0
%
Pre-tax discount rate 1
  10.3%  
9.7
%
Medium term annual revenue growth rate by product group2
 (2.0)% to 2.1 %  
-
 

1 This equates to a Post-tax discount rate of 8.0% (2018: 7.8%)
 October  31, 2021October 31, 2020Basis of assumptions
Long-term cash flow growth rate for terminal value
1.0%
1.0%
Long-term growth rate into perpetuity is based on nominal long term GDP growth forecasts for the main countries in which the CGU operates adjusted where deemed relevant by management to factor in competition and the maturity of the business.
Pre-tax discount rate1
10.6%
10.9%
The discount rate applied to the cash flows is based on the risk free rate for 30 year US government bonds. This rate is adjusted for a risk premium to reflect the increased risk of investing in equities. This risk premium is derived by observing an equity market risk premium (that is the required return over and above a risk free rate by an investor who is investing in the market as a whole) based on external sources and adjusting this with reference to both a beta and a size premium to reflect the risk of the cash-generating unit relative to the market as a whole to provide a cost of equity. Cost of debt is based on external indices reflecting the Group’s credit rating. Cost of equity and debt are then weighted based on market participant leverage.
Average annual revenue growth rate by product group
(4.2)% to 4.5%
(8.1)% to 2.2%
Average annual growth rates by product group are based on a combination of management’s past experience, management’s plans and observable trends in the markets in which the Group’s products operate in and updated for the impact of significant new agreements entered into where relevant, for example, the agreement with AWS on the modernization of mainframe applications and workloads signed in FY21.
2 Medium-term annual revenue growth rate by product group was not a key assumption in 2018 and so has not been presented.

1This equates to a post-tax discount rate of 8.0% (2020: 8.2%).


Sensitivity analysis
The results of the sensitivity analysis are set out below.
In undertaking this analysis, the directors have considered reasonably possible changes in the key assumptions, that could have an adverse impact, taking into consideration that the Group is insulated from some significant adverse impacts by its geographical spread and that the Group’s cost base is flexible and could quickly respond to market changes. The headroom and breakevensensitivities are prepared on the basis that the reasonably possible change in each key assumption would not have a consequential impact on other key assumptions used in the impairment review. The sensitivities disclosed below are on the VIU calculation, which, as explained above, excludes the cash outflow and resulting cash inflow assumptions arisingcost savings expected from the investment decisions made in the Strategic Review.restructuring which has not commenced as at October 31, 2021.


The directors have assessed that a reasonably possible change in the discount rate is an absolute movement of 2.0% (2018: 2.0%1.0% (2020: 1.0%) and this increase would cause the carrying value of the Micro Focus CGU to exceed its recoverable amount.. An increase in the discount rate of 0.4%1% to 10.7% (2018:11.6% would reduce the headroom at October 31, 2021 by $0.8 billion to $0.4 billion. An increase in the discount rate of 1.3% to 11.0%)1.5% would reduce the amount by which the recoverable amount exceeds its carrying value from $0.5bn$1.2 billion to $nil (2018: from $2.2bn$nil. A decrease in the discount rate of 1% to $nil).9.6% would increase the headroom at October 31, 2021 by $1.0 billion to $2.2 billion.


The directors have assessed that a reasonably possible change in the average of the medium-term annual revenue growth rate by product group is an absolute reduction of 2.0% and this decrease would cause the carrying value of the Micro Focus CGU to exceed its recoverable amount (2018: not a reasonably possible change)(2020: 2.0%). A decrease in the average of the medium-term annual revenue growth rate by product group of 0.7%2.0% would result in an impairment recognized at October 31, 2021 of $0.8 billion. A decrease in the average annual revenue growth rate by product group of 1.2% would reduce the amount by which the recoverable amount exceeds its carrying value from $0.5bn$1.2 billion to $nil.$nil. This sensitivity has been presented exclusivebefore the impact of mitigating actions, such as cost saving that would be taken in such a scenario and which would at least partially offset such a reduction in cash flows.inflows.


The directors have also assessed that there is not a reasonably possible change in the long-term cash flowgrowth rate is an absolute change of 0.5% (2020: 0.5%). An increase of 0.5% would increase the headroom at October 31, 2021 by $0.4 billion to $1.6 billion. A decrease of 0.5% would decrease the headroom at October 31, 2021 by $0.3 billion to $0.9 billion. The directors have assessed that there is not a reasonable possible change in the long-term growth rate that would reduce the recoverable amount to below its carrying value.

No impairment charge resulted from the goodwill tests for impairment in the 12 months ended October 31, 2019 (18 months ended October 31, 2018: no impairment).


F-49F-41

Consolidated financial statements and notes
Notes to the consolidated financial statements

11 Other intangible assets

           Purchased intangibles    
     
Purchased
software
  
Product
development
costs
  
Technology
  
Trade
names
  
Customer
relationships
  
Lease
contracts
  
Total
 
  Note  
$m
 
$m
 
$m
 
$m
 
$m
 
$m
 
$m
Cost                               
At November 1, 2018     141.1   259.1   2,158.5   267.7   5,377.2   15.0   8,218.6 
Acquisitions – Interset Software Inc.  38   -   -   44.5   4.2   12.5   -   61.2 
Additions      12.3   16.5   -   -   -   -   28.8 
Additions – external consultants      -   0.5   -   -   -   -   0.5 
Disposals      (7.4)  (19.1)  -   -   -   -   (26.5)
Effects of movements in exchange rates      0.7   -   (24.4)  (4.6)  (66.4)  (0.1)  (94.8)
At October 31, 2019      146.7   257.0   2,178.6   267.3   5,323.3   14.9   8,187.8 
                                 
Accumulated amortization                                
At November 1, 2018      50.1   206.7   478.9   48.9   801.5   3.2   1,589.3 
Amortization charge for the period      34.1   26.7   200.1   20.9   424.8   9.9   716.5 
Disposals      (7.4)  (19.1)  -   -   -   -   (26.5)
Effects of movements in exchange rates      0.1   -   (10.1)  (1.8)  (22.0)  -   (33.8)
At October 31, 2019      76.9   214.3   668.9   68.0   1,204.3   13.1   2,245.5 
                                 
Net book amount at October 31, 2019      69.8   42.7   1,509.7   199.3   4,119.0   1.8   5,942.3 
Net book amount at October 31, 2018      91.0   52.4   1,679.6   218.8   4,575.7   11.8   6,629.3 


During the period, the estimated useful life of certain purchased software was revised. The net effect of the changes in the current financial period was an increase in amortization expense by $8.9m.
           Purchased intangibles    
  Note  
Purchased software
$m
  
Product development costs
$m
  
Technology
$m
  
Trade names
$m
  
Customer relationships
$m
  
Total
$m
 
Cost                     
At November 1, 2020
     191.5   274.0   2,201.2   269.2   5,364.0   8,299.9 
Acquisitions  31   0   0   7.8   0   0   7.8 
Additions      28.4   19.1   0   0   0   47.5 
Disposals      (13.5)  0   0   0   0   (13.5)
Effects of movements in exchange rates      1.2   (0.1)  10.4   1.2   26.3   39.0 
Transferred to current assets classified as held for sale  30   0   0   (82.0)  (7.0)  (185.5)  (274.5)
At October 31, 2021
      207.6   293.0   2,137.4   263.4   5,204.8   8,106.2 
Accumulated amortisation                            
At November 1, 2020
      113.5   237.9   865.7   87.9   1,611.9   2,916.9 
Amortisation charge for the year      37.4   19.6   257.2   20.7   621.5   956.4 
Disposals      (13.5)  0   0   0   0   (13.5)
Effects of movements in exchange rates      0.6   0   2.6   0.2   4.2   7.6 
Transferred to current assets classified as held for sale  30   0   0   (37.6)  (1.9)  (52.9)  (92.4)
At October 31, 2021
      138.0   257.5   1,087.9   106.9   2,184.7   3,775.0 
Net book amount at October 31, 2021
      69.6   35.5   1,049.5   156.5   3,020.1   4,331.2 
Net book amount at October 31, 2020
      78.0   36.1   1,335.5   181.3   3,752.1   5,383.0 
 

F-50F-42

Consolidated financial statements and notes
Notes to the consolidated financial statements

11 Other intangible assets continued

           Purchased intangibles    
     
Purchased
software
  
Product development
costs
  Technology  
Trade
names
  Customer relationships  
Lease
contracts
  Total 
  Note  $m
 $m
 $m
 $m
 $m
 $m
 $m
Cost                               
At October 31, 2019
     146.7   257.0   2,178.6   267.3   5,323.3   14.9   8,187.8 
Transfers to right-of-use assets1
     0   0   0   0   0   (14.9)  (14.9)
At November 1, 2019
     146.7   257.0   2,178.6   267.3   5,323.3   0   8,172.9 
Acquisitions – Atar Labs  31   0   0   6.6   0   0   0   6.6 
Additions      55.5   16.2   0   0   0   0   71.7 
Additions – external consultants      0   0.8   0   0   0   0   0.8 
Disposals      (11.2)  0   0   0   0   0   (11.2)
Effects of movements in exchange rates      0.5   0   16.0   1.9   40.7   0   59.1 
At October 31, 2020
      191.5   274.0   2,201.2   269.2   5,364.0   0   8,299.9 
Accumulated amortisation                                
At October 31, 2019
      76.9   214.3   668.9   68.0   1,204.3   13.1   2,245.5 
Transfers to right-of-use assets1
      0   0   0   0   0   (13.1)  (13.1)
At November 1, 2019
      76.9   214.3   668.9   68.0   1,204.3   0   2,232.4 
Amortisation charge for the year      46.5   23.5   190.2   19.1   394.8   0   674.1 
Disposals      (10.6)  0   0   0   0   0   (10.6)
Effects of movements in exchange rates      0.7   0.1   6.6   0.8   12.8   0   21.0 
At October 31, 2020
      113.5   237.9   865.7   87.9   1,611.9   0   2,916.9 
Net book amount at October 31, 2020
      78.0   36.1   1,335.5   181.3   3,752.1   0   5,383.0 
Net book amount at October 31, 2019
      69.8   42.7   1,509.7   199.3   4,119.0   1.8   5,942.3 

           Purchased intangibles    
     
Purchased
software
  
Product
development
costs
  
Technology
  
Trade
names
  
Customer
relationships
  
Lease
contracts
  
Total
 
  Note  
$m
 
$m
 
$m
 
$m
 
$m
 
$m
 
$m
Cost                               
At May 1, 2017     
24.6
   
213.8
   
398.9
   
239.6
   
972.4
   
-
   
1,849.3
 
                                
Continuing operations:                               
Acquisitions - HPE Software business  38   
72.8
   
-
   
1,809.0
   
163.0
   
4,480.0
   
15.0
   
6,539.8
 
Acquisitions – COBOL-IT  38   
-
   
-
   
1.5
   
0.2
   
12.3
   
-
   
14.0
 
Acquisitions – Covertix  38   
2.5
   
-
   
-
   
-
   
-
   
-
   
2.5
 
Additions      
46.8
   
44.4
   
-
   
-
   
-
   
-
   
91.2
 
Additions – external consultants      
-
   
0.9
   
-
   
-
   
-
   
-
   
0.9
 
Effects of movements in exchange rates      
(0.4
)
  
-
   
-
   
-
   
-
   
-
   
(0.4
)
                                 
Discontinued operation:                                
Reclassification to current assets classified as held for sale  37   
(5.2
)
  
-
   
(50.9
)
  
(135.1
)
  
(87.5
)
  
-
   
(278.7
)
At October 31, 2018      141.1   259.1   2,158.5   267.7   5,377.2   15.0   8,218.6 
                                 
Accumulated amortization                                
At May 1, 2017      
21.0
   
164.7
   
223.0
   
38.8
   
312.5
   
-
   
760.0
 
                                 
Continuing operations:                                
Amortization charge for the period      
30.7
   
42.0
   
280.5
   
26.7
   
520.0
   
3.2
   
903.1
 
Effects of movements in exchange rates      
(0.9
)
  
-
   
-
   
-
   
-
   
-
   
(0.9
)
                                 
Discontinued operation:                                
Amortization charge for the period      
0.8
   
-
   
13.4
   
9.1
   
16.9
   
-
   
40.2
 
Reclassification to current assets classified as held for sale  37   
(1.5
)
  
-
   
(38.0
)
  
(25.7
)
  
(47.9
)
  
-
   
(113.1
)
At October 31, 2018      50.1   206.7   478.9   48.9   801.5   3.2   1,589.3 
                                 
Net book amount at October 31, 2018      91.0   52.4   1,679.6   218.8   4,575.7   11.8   6,629.3 
Net book amount at April 30, 2017      
3.6
   
49.1
   
175.9
   
200.8
   
659.9
   
-
   
1,089.3
 

1
Lease contracts have been reclassified to right-of-use assets following the adoption of IFRS 16 on November 1, 2019.

Intangible assets, with the exception of purchased software and internally generated product development costs, relate to identifiable assets purchased as part of the Group’s business combinations. Intangible assets are amortized on a straight-line basis over their expected useful economic life - see Accounting Policy K.


In addition, duringExpenditure totalling $47.5 million (2020: $72.5 million) was made in the year following a review of the allocation of purchased intangible assets to foreign operations, the directors have determined that intangible assets of $7,321.0m which arose on previous acquisitions (in particular the acquisitions of the HPE Software business on September 1, 2017 and The Attachmate Group on November 20, 2014, being the two most significant) should have been allocated into functional currencies of the underlying foreign operations.

The re-denomination has given rise to a total reduction in the carrying value of purchased intangible assets of $61.0m that has been recognized in the 12 months ended October 31, 2019. Had this allocation taken place from2021, including $19.1 million in respect of development costs and $28.4 million of purchased software primarily related to the development of the Group’s single IT platform.

The acquisition dates, a $40.5m decreaseof Streamworx and Full 360 in the carrying value of purchased intangible assets would have been recognized in the 18 monthsyear ended October 31, 2018 and a cumulative decrease2021 gave rise to additions of $20.8m$7.8 million to purchased intangibles. The acquisition of Atar Labs in the carrying value would have been recognized as at May 1, 2017. As this change has no impact on the statementyear ended October 31, 2020 gave rise to an addition of cash flows and as the net prior-period impact of $61.3m and the impact on profit before taxation is not material in the context$6.6 million to purchased intangibles (note 31, “Acquisitions”).

All of the overall value$19.1 million of purchased intangible assets or net assets, it is, in the judgmentadditions to product development costs (2020: $16.2 million of the directors, appropriate$17.0 million) relates to effect the change in allocation in the current period. Movements in Other comprehensive income are not considered a key performance metric.internal product development costs and $nil (2020: $0.8 million) to external consultants’ product development costs.

 
F-51F-43

Consolidated financial statements and notes
Notes to the consolidated financial statements

11 Other intangible assets continued

This change in the carrying value of $61.0m consists of $94.8m and $33.8m reflected in the lines “effect of movements in exchange rates” for cost, this includes the cumulative impact on amortization of acquisition intangible assets which is not considered material, and cumulative amortization respectively in the table above. $83.3m of this has been recognized as “currency translation differences – continuing operations” in other comprehensive income, and subsequently the translation reserve in equity, and an offsetting $21.6m of this has been recognized as “currency translation differences – continuing operations” in other comprehensive income and subsequently retained earnings within equity.

Expenditure totalling $29.3m (18 months to October 31, 2018: $91.2m) was made in the 12 months ended October 31, 2019, including $17.0m in respect of development costs and $12.3m of purchased software. The acquisition of Interset Software Inc. in the 12 months ended October 31, 2019 gave rise to an addition of $61.2m to purchased intangibles (note 38). The acquisitions of the HPE Software business ($6,539.8m), COBOL-IT ($14.0m) and Covertix ($2.5m) in the 18 months ended October 31, 2018 gave rise to an addition of $6,556.3m to purchased intangibles (note 38).

Of the $17.0m of additions to product development costs, $16.5m (18 months to October 31, 2018: $44.4m) relates to internal product development costs and $0.5m (18 months ended October 31, 2018: $0.9m) to external consultants’ product development costs.

At October 31, 2019,2021, the unamortized lives of technology assets were in the range of two to 10eight years, customer relationships in the range of one to 1311 years and trade names in the range of 10three to 2015 years. The HPE Software business acquired purchased intangibles, the largest component of the Group,Group’s purchased intangibles, have up to another 10 yearseight years’ life remaining for technology (carrying value $1.0 billion) and 13 yearsup to 11 years’ life remaining for customer relationships purchased intangibles.intangibles (carrying value $3.0 billion), assuming no further investments were made.


Included in the Consolidatedconsolidated statement of comprehensive income forwas:

  
Year ended
October 31, 2021
  
Year ended
October 31, 2020
 
For continuing operations:
$m


$m

Cost of sales:      
-         amortization of product development costs  19.6   
23.5
 
-         amortization of acquired purchased technology  257.2   
190.2
 
Selling and distribution:        
-         amortization of acquired purchased trade names and customer relationships  642.2   
413.9
 
Administrative expenses:        
-         amortization of purchased software  37.4   
46.5
 
Total amortization charge for the year  956.4   
674.1
 
         
Research and development:        
-         capitalization of product development costs  19.1   
16.2
 

On November 1, 2020, the Group conducted a review on the estimated lives of its intangible assets with specific focus on those recognized as part of the HPE Software acquisition. This review considered the actual and expected trading performance of the Group compared to the original projections produced at the time of HPE Software acquisition as the directors believe these forecasts better reflect the expected future use of the economic benefits in these acquired intangibles. As a result of this review, the expected lives of certain purchased technology and customer relationship intangibles with a carrying value of $3,736.8 million as at November 1, 2020 have been reduced with the shorter lives applied from November 1, 2020.

The intangibles assets impacted by this change are customer relationships in the ITOM and ADM product groups and customer relationships within certain products in IM&G, which had a total carrying value of $2,770.4 million as at November 1, 2020. These have reduced from 12 months ended October 31, 2019years remaining life to between five and 11 years. In addition, purchased technology in the 18 months ended October 31, 2018 was:ITOM and ADM product groups and certain purchased technology in IM&G, which had a carrying value of $966.4 million as at November 1, 2020, have reduced from seven years remaining life to five years.

In line with the requirements of IFRS3, these technology assets were originally recognized at the acquisition date in September 2017 and so the asset life represented the estimated period of time before the technology became obsolete if no future investment into that technology were made. However there has been and continues to be significant R&D activity across these portfolios with the Group releasing c.500 product releases each year to ensure that the technology remains relevant beyond the life assigned under the requirements of IFRS 3.

The effect of these changes on actual and expected amortization expense is as follows:

  
12 months ended
October 31, 2019
  
18 months ended
October 31, 2018
  
12 months ended
April 30, 2017
 
For continuing operations: 
$m
 

$m

 

$m

Cost of sales:            
-      amortization of product development costs  26.7   
42.0
   
22.4
 
-      amortization of acquired purchased technology  200.1   
280.5
   
59.0
 
Selling and distribution:            
-      amortization of acquired purchased trade names, customer relationships and lease contracts  455.6   
549.9
   
124.2
 
Administrative expenses:            
-      amortization of purchased software  34.1   
30.7
   
1.1
 
Total amortization charge for the period  716.5   
903.1
   
206.7
 
             
Research and development:            
-      capitalization of product development costs  16.5   
44.4
   
27.7
 
  Impact in the year ended October 31,    
 $m 2021
  2022
  2023
  2024
  2025
  2026
  
Impact in
all later
periods
 
Increase/(decrease)  in amortization expense  261   261   261   261   192   (145)  (1,091)
                             
Recognized in:
                            
Costs of sales (amortization of acquired purchased)  59   59   59   59   25   (141)  (120)
Selling and distribution expenses (amortization of customer relationships)  202   202   202   202   167   (4)  (971)
   261   261   261   261   192   (145)  (1,091)

 
F-52F-44

Consolidated financial statements and notes
Notes to the consolidated financial statements

11 Other intangible assets continued

If the remaining economic lives of all purchased intangibles were one year longer than the revised lives, expected amortization would be $158.1 million lower than that shown in the table above in the year ended October 31, 2021, with consequential impacts in subsequent years. If the remaining economic lives of all purchased intangibles were one year shorter than the revised lives, amortization would be $166.4 million higher than that shown in the table above in the year ended October 31, 2021, with consequential impacts in subsequent years.

12 Property, plant and equipment

     
Freehold land
and buildings
  
Leasehold
improvements
  
Computer
equipment
  
Fixtures and
fittings
  
Total
 
  Note  
$m
 
$m
 
$m
 
$m
 
$m
Cost                       
At November 1, 2018     14.3   79.2   103.3   29.1   225.9 
Acquisition – Interset Software Inc.  38   -   -   0.2   0.1   0.3 
Additions      -   37.7   24.6   3.0   65.3 
Disposals      -   (3.6)  (3.0)  -   (6.6)
Reclassification      -   -   19.8   (19.8)  - 
Effects of movements in exchange rates      (0.3)  0.2   (0.5)  0.8   0.2 
At October 31, 2019      14.0   113.5   144.4   13.2   285.1 
                         
Accumulated depreciation                        
At November 1, 2018      2.2   34.3   36.6   8.5   81.6 
Charge for the period      0.3   18.8   46.1   1.3   66.5 
Disposals      -   (1.7)  (1.3)  -   (3.0)
Reclassification      -   -   4.6   (4.6)  - 
Effects of movements in exchange rates      (0.3)  0.3   (0.9)  0.4   (0.5)
At October 31, 2019      2.2   51.7   85.1   5.6   144.6 
Net book amount at October 31, 2019      11.8   61.8   59.3   7.6   140.5 
Net book amount at November 1, 2018      12.1   44.9   66.7   20.6   144.3 


Net book value of $15.2m of laptop computer equipment previously disclosed as fixtures and fitting have been reclassified as computer equipment in the period.
     
Freehold land
and buildings
  
Leasehold
improvements
  
Computer
equipment
  
Fixtures and
fittings
  Total 
  Note  
$m

 
$m

 
$m

 
$m

 
$m

Cost                       
At November 1, 2020     14.0
   83.6   107.9   7.8   213.3 
Acquisition
 
   0   0   0   0.1   0.1 
Additions     0   1.2   15.6   0.9   17.7 
Disposals     0   (4.5)  (14.0)  (0.8)  (19.3)
Effects of movements in exchange rates     0.8   0.6   1.9   0.2   3.5 
Transferred to current assets classified as held for sale
  30
   0   (4.1)  (2.3)  0   (6.4)
At October 31, 2021      14.8   76.8   109.1   8.2   208.9 
                         
Accumulated depreciation                        
At November 1, 2020      2.5   47.3   69.5   0.3   119.6 
Disposals      0   (3.6)  (14.0)  (0.5)  (18.1)
Charge for the year
      0.4   10.9   20.3   2.1   33.7 
Effects of movements in exchange rates      0.1   0.2   1.6   0.2   2.1 
Transferred to current assets classified as held for sale  30
   0   (1.8)  (2.0)  0   (3.8)
At October 31, 2021
      3.0   53.0   75.4   2.1   133.5 
Net book amount at October 31, 2021
      11.8   23.8   33.7   6.1   75.4 
Net book amount at November 1, 2020      11.5   36.3   38.4   7.5   93.7 

 
F-53F-45

Consolidated financial statements and notes
Notes to the consolidated financial statements

12 Property, plant and equipment continued

 

 
Freehold land
and buildings
  
Leasehold
improvements
  
Computer
equipment
  
Fixtures and
fittings
  Total 
  $m
 $m
 $m
 $m
 $m
Cost                    
At October 31, 2019
  14.0   113.5   144.4   13.2   285.1 
Transfers to right-of-use assets1
  0   (9.8)  (50.6)  0   (60.4)
At November 1, 2019  14.0   103.7   93.8   13.2   224.7 
Additions  0   4.8   28.4   2.9   36.1 
Other2
  0   (9.8)  0   0   (9.8)
Disposals  0   (15.3)  (14.1)  (8.5)  (37.9)
Effects of movements in exchange rates  0   0.2   (0.2)  0.2   0.2 
At October 31, 2020
  14.0   83.6   107.9   7.8   213.3 
                     
Accumulated depreciation                    
At October 31, 2019
  2.2   51.7   85.1   5.6   144.6 
Transfers to right-of-use assets1
  0   (5.2)  (29.7)  0   (34.9)
At November 1, 2019  2.2   46.5   55.4   5.6   109.7 
Disposals  0   (11.0)  (13.5)  (7.8)  (32.3)
Charge for the year
  0.3   11.9   27.6   2.2   42.0 
Effects of movements in exchange rates  0   (0.1)  0   0.3   0.2 
At October 31, 2020
  2.5   47.3   69.5   0.3   119.6 
Net book amount at October 31, 2020
  11.5   36.3   38.4   7.5   93.7 
                     
Net book amount at October 31, 2019
  11.8   61.8   59.3   7.6   140.5 
Transfers to right-of-use assets1
  0   (4.6)  (20.9)  0   (25.5)
Net book amount at November 1, 2019  11.8   57.2   38.4   7.6   115.0 
     
Freehold land
and buildings
  
Leasehold
improvements
  
Computer
equipment
  
Fixtures and
fittings
  
Total
 
  Note  
$m
 
$m
 
$m
 
$m
 
$m
Cost                       
At May 1, 2017     
14.3
   
27.3
   
32.6
   
6.0
   
80.2
 
                        
Continuing operations:                       
Acquisition – HPE Software business  38   
-
   
56.5
   
79.5
   
24.1
   
160.1
 
Acquisition – COBOL-IT  38   
-
   
-
   
0.1
   
-
   
0.1
 
Additions      
-
   
10.4
   
33.3
   
6.4
   
50.1
 
Disposals      
-
   
(7.5
)
  
(27.1
)
  
(4.6
)
  
(39.2
)
Effects of movements in exchange rates      
-
   
(3.4
)
  
(8.2
)
  
(2.5
)
  
(14.1
)
                         
Discontinued operation:                        
Additions      
-
   
-
   
2.0
   
-
   
2.0
 
Disposals      
-
   
-
   
(0.1
)
  
-
   
(0.1
)
Effects of movements in exchange rates      
-
   
-
   
0.3
   
-
   
0.3
 
Reclassification to current assets classified as held for sale  37   
-
   
(4.1
)
  
(9.1
)
  
(0.3
)
  
(13.5
)
At October 31, 2018      14.3   79.2   103.3   29.1   225.9 
                         
Accumulated depreciation                        
At May 1, 2017      
1.8
   
12.7
   
22.1
   
2.7
   
39.3
 
                         
Continuing operations:                        
Charge for the period      
0.4
   
26.3
   
50.7
   
11.2
   
88.6
 
Disposals      
-
   
(4.0
)
  
(26.9
)
  
(3.7
)
  
(34.6
)
Effects of movements in exchange rates      
-
   
(1.3
)
  
(6.4
)
  
(2.9
)
  
(10.6
)
                         
Discontinued operation:                        
Charge for the period      
-
   
2.7
   
2.6
   
1.3
   
6.6
 
Disposals      
-
   
-
   
-
   
-
   
-
 
Effects of movements in exchange rates      
-
   
-
   
0.1
   
-
   
0.1
 
Reclassification to current assets classified as held for sale  37   
-
   
(2.1
)
  
(5.6
)
  
(0.1
)
  
(7.8
)
At October 31, 2018      2.2   34.3   36.6   8.5   81.6 
Net book amount at October 31, 2018      12.1   44.9   66.7   20.6   144.3 
Net book amount at May 1, 2017      
12.5
   
14.6
   
10.5
   
3.3
   
40.9
 


1
Property, plant and equipment held under finance leases and hire purchase contracts under IAS 17 and assets recognized in relation to asset retirement obligations on leased asset have been reclassified to right-of-use assets following the adoption of IFRS 16 on November 1, 2019.

2
Other movements of $9.8million relates to amounts received in relation to the reimbursement of leasehold improvement costs.

Depreciation for the 12 monthsyear ended October 31, 20192021 of $66.5m (18 months ended October 31, 2018: $95.2m)$33.7 million (2020: $42.0 million) is included within administrative expenses and cost of sales in the Consolidated statement of comprehensive income. The carrying value of computer equipment held under finance leases and hire purchase contracts, as at October 31, 2019 was $20.9m (October 31, 2018: $25.9m).


F-54
Consolidated financial statements and notes
Notes to the consolidated financial statements

13 Related undertakings

In accordance with section 409 of the UK Companies Act 2006 (the “Act”), information on all related undertakings of the Group is set out below. Related undertakings are categorized in the Act as being “subsidiaries”, “associated undertakings” and “significant holdings in undertakings other than subsidiary companies”. The information below is stated as at October 31, 2019.

The definition of a subsidiary undertaking in the Act is different from the definition of that term under IFRS. As a result, related undertakings included within this list may not be the same as the related undertakings consolidated in the Group IFRS financial statements.  All undertakings in which the Group has an equity interest of greater than 50% are considered as subsidiary undertakings for the purpose of this note:

 Company name
Country of
incorporation
Class(es) of
shares held1,2
Principal activities
Key to
Registered
office
address
 Subsidiaries    
1
Attachmate Australasia Pty Limited
Australia
Ordinary Shares AU$1.00
Sale and support of software
1
2
Attachmate Group Australia Pty Limited
Australia
Ordinary Shares
Sale and support of software
1
3
Autonomy Australia Pty Limited
Australia
Ordinary Shares AU$1.00
Sale and support of software
1
4
Autonomy Systems Australia Pty Limited
Australia
Ordinary Shares AU$1.00
Sale and support of software
1
5
Borland Australia Pty Limited
Australia
Ordinary Shares AU$1.00
Sale and support of software
1
6
Entco Australia Pty Limited
Australia
Ordinary Shares AU$1.00
Sale and support of software
1
7
Micro Focus Australia Pty Ltd (formerly Entcorp Australia Pty Limited)
Australia
Ordinary Shares AU$1.00
Sale and support of software
1
8
Micro Focus Pty Limited
Australia
Ordinary Shares AU$1.00
Sale and support of software
1
9
Serena Software Pty Limited
Australia
Ordinary Shares AU$1.00
Sale and support of software
1
10
Borland Entwicklung GmbH
Austria
Registered capital
Development of software
2
11
Autonomy Belgium BVBA
Belgium
Ordinary Shares
Sale and support of software
3
12
Micro Focus Belgium BV (formerly Entco Belgium BVBA)
Belgium
Ordinary Shares
Sale and support of software
3
13
Micro Focus Srl (formerly Micro Focus SPRL)
Belgium
Ordinary Shares
Sale and support of software
4
14
Borland Latin America Ltda
Brazil
Quota RS$1.00
Sale and support of software
5
15
Cambridge Technology Partners do Brasil s.c. Ltda
Brazil
Quota RS$1.00
Dormant
5
16
Micro Focus Brasil Serviços de Tecnologia Ltda (formerly Entco Brasil Serviços de Tecnologia Ltda)
Brazil
Quota RS$1.00
Sale and support of software
5
17
Micro Focus Programmeação de Computadores Ltda
Brazil
Quota RS$1.00
Sale and support of software
5
18
Peregrinne Systems do Brasil Limitada
Brazil
Quota RS$1.00
Sale and support of software
6
19
Serena Software Do Brasil Ltda
Brazil
Quota RS$1.00
Sale and support of software
7

Consolidated financial statements and notes
Notes to the consolidated financial statements

13 Related undertakings continued

 Company name
Country of
incorporation
Class(es) of
shares held1,2
Principal activities
Key to
Registered
office
address
 Subsidiaries    
20
Verity Worldwide Limited
British Virgin Islands
Ordinary Shares US$50,000.00
Sale and support of software
8
21
Micro Focus APM Solutions Limited (EOOD)
Bulgaria
Ordinary Shares BGN1,000.00
Development of software
9
22
Micro Focus Bulgaria EOOD (formerly Entco Bulgaria EOOD)
Bulgaria
Ordinary Shares BGN1.00
Sale and support of software
10
23
Autonomy Systems (Canada) Limited
Canada
Class A Common Stock
Sale and support of software
11
24
Borland Canada Software ULC
Canada
Common Shares
Dormant
12
25
Entcorp Canada, Inc.
Canada
Common Stock
Sale and support of software
13
26
GWAVA ULC (formerly GWAVA Inc.)
Canada
Common Stock
Holding Company
12
27
Interset Software Inc.
Canada
Class A
Preferred Shares
Class B
Preferred Shares
Class B-1 Preferred Shares
Class B-2 Preferred Shares
Common Shares
Sale and support of software
14
28
Micro Focus (Canada) ULC
Canada
Common Shares
Development, sale and support of software
12
29
Micro Focus Acquisition ULC
Canada
Common Shares
Holding Company
15
30
Micro Focus Software (Canada), ULC
Canada
Common Shares
Sale and support of software
16
31
Micro Focus Software Solutions Canada Co. / Solutions Logiciels Micro Focus Canada Cie. (formerly Entco Software Canada Co. Logiciels Entco Canada Cie)
Canada
Common Shares
Sale and support of software
17
32
NetManage Canada ULC
Canada
Common Shares
Dormant
12
33
Entco Bellatrix HoldCo
Cayman Islands
Ordinary Shares US$1.00
Sale and support of software
18
34
Entco Capital Co
Cayman Islands
Ordinary Shares US$1.00
Sale and support of software
18
35
Entco Investment Co
Cayman Islands
Ordinary Shares US$1.00
Sale and support of software
18

Consolidated financial statements and notes
Notes to the consolidated financial statements

13 Related undertakings continued

 Company name
Country of
incorporation
Class(es) of
shares held1,2
Principal activities
Key to
Registered
office
address
 Subsidiaries    
36
Micro Focus International Limited
Cayman Islands
Class A Ordinary Shares US$0.00001
Class B Ordinary Shares US$0.00001
Class C Ordinary Shares US$0.00001
Class L Ordinary Shares US$0.00001
Dormant
18
37
Micro Focus IP Limited
Cayman Islands
Class A Ordinary Shares €0.01
Class B Preferred Redeemable Shares €0.01
Holding Company
18
38
Entco Marigalante Limited
Cayman Islands
Ordinary Shares US$1.00
Sale and support of software
18
39
Autonomy Systems (Beijing) Limited Company
China
Registered Capital
Sale and support of software
19
40
Borland Software Corporation Beijing Representative Office
China
Branch
In liquidation
104
41
Shanghai Entco Software Technology Co., Limited
China
Registered Capital
Sale and support of software
20
42
Shanghai Entco Software Technology Co., Limited, Beijing Branch
China
Branch
Sale and support of software
21
43
Shanghai Entco Software Technology Co., Limited, Chongqing Branch
China
Branch
Sale and support of software
22
44
Shanghai Entco Software Technology Co., Limited, Shenzhen Branch
China
Branch
Sale and support of software
23
45
Singapore Micro Focus Pte Ltd Shanghai Representative Office
China
Branch
Sale and support of software
24
46
UK Micro Focus Limited Beijing Representative Office
China
Branch
Sale and support of software
25
47
Micro Focus CentroAmerica CAC Limiteda (formerly Entco CentroAmerica CAC Limitada)
Costa Rica
Quota CRC1,000.00
Sale and support of software
26
48
Micro Focus Costa Rica Limiteda (formerly Entco Costa Rica Limitada)
Costa Rica
Quota CRC1,000.00
Sale and support of software
26
49
NetIQ Software International Limited
Cyprus
Ordinary Shares of C£1.00
Dormant
103
50
Micro Focus Czechia s.r.o (formerly Entco Czechia, s.r.o.)
Czech Republic
Registered Capital
Sale and support of software
27
51
NOVL Czech s.r.o.
Czech Republic
Registered Capital
Dormant
28

Consolidated financial statements and notes
Notes to the consolidated financial statements

13 Related undertakings continued

 Company name
Country of
incorporation
Class(es) of
shares held1,2
Principal activities
Key to
Registered
office
address
 Subsidiaries    
52
Micro Focus Denmark, filial af Micro Focus AS, Norge (Branch)
Denmark
Branch
Sale and support of software
29
53
Micro Focus Software Denmark ApS (formerly Entco Denmark ApS)
Denmark
Ordinary Shares DKK1.00
 
Sale and support of software
29
54
Attachmate Middle East LLC
Egypt
Cash Shares LE100.00
In liquidation
105
55
Micro Focus AS, Filial i Finland (Branch)
Finland
Branch
Sale and support of software
30
56
Attachmate Group France SARL
France
Ordinary Shares €16.00
Sale and support of software
31
57
Borland (France) Sarl
France
Ordinary Shares €15.25
Sale and support of software
31
58
Cobol-IT, SAS
France
Ordinary Shares €1.00
Sale and support of software
31
59
Micro Focus France SAS (formerly Entco France SAS)
France
Ordinary Shares €1.00
Sale and support of software
32
60
Micro Focus SAS
France
Ordinary Shares €10.00
Sale and support of software
31
61
Attachmate Group Germany GmbH
Germany
Ordinary Shares €191,000.00
Sale and support of software
33
62
Borland GmbH
Germany
Ordinary Shares €49,500.00 
Ordinary Shares €450,000.00  
Ordinary Shares €100,000.00
Ordinary Shares €500.00
Dormant
33
63
GWAVA EMEA GmbH
Germany
Registered Capital
Sale and support of software
34
64
Micro Focus Deutschland GmbH (formerly Entco Deutschland GmbH)
Germany
Registered Capital
Sale and support of software
 
35
65
Micro Focus GmbH
Germany
Registered Capital
Sale and support of software
33
66
Novell Holdings Deutschland GmbH
Germany
Registered Capital
Holding Company
36
67
Serena Software GmbH
Germany
Registered Capital
Sale and support of software
37
68
Attachmate (Hong Kong) Limited
Hong Kong
Ordinary Shares HK$1.00
Dormant
38
69
Borland (H.K.) Limited
Hong Kong
Ordinary Shares HK$1.00
Dormant
38
70
EntCorp Hong Kong Limited
Hong Kong
Ordinary Shares HK$1.00
Sale and support of software
39

Consolidated financial statements and notes
Notes to the consolidated financial statements

13 Related undertakings continued

 Company name
Country of
incorporation
Class(es) of
shares held1,2
Principal activities
Key to
Registered
office
address
 Subsidiaries    
71
Micro Focus Limited Hong Kong (Branch)
Hong Kong
Branch
Sale and support of software
38
72
Micro Focus Software HK Limited (formerly Attachmate Group Hong Kong Limited)
Hong Kong
Ordinary Shares HK$10.00
 
Sale and support of software
 
38
73
NetIQ Asia Ltd.
Hong Kong
Ordinary Shares HK$1.00
Dormant
38
74
Autonomy Software Asia Private Limited
India
Equity Shares INR10.00
Sale and support of software
40
75
Borland Software India Private Limited
India
Equity Shares INR10.00
Dormant
41
76
Entco IT Services Private Limited
India
Equity Shares INR10.00
Sale and support of software
42
77
Interwoven, Inc., India Branch
India
Branch
Sale and support of software
43
78
Micro Focus India Private Limited
India
Equity Shares INR10.00
Support of software
41
79
Micro Focus Software India Private Limited
India
Equity Shares INR10.00
Development, sale and support of software
41
80
Micro Focus Software Solutions Private Limited (formerly Entco Software India Private Limited)
India
Equity Shares INR10.00
Sale and support of software
44
81
Novell India Private Ltd.
India
Equity Shares INR10.00
Dormant
45
82
Relativity Technologies Private Limited
India
Equity Shares INR10.00
Sale and support of software
41
83
Attachmate Ireland Limited
Ireland
Ordinary Shares €1.27
Sale and support of software
46
84
Entsoft Holding Ireland Unlimited Company
Ireland
Ordinary Shares US$1.00
Holding Company
46
85
Micro Focus (IP) Ireland Limited
Ireland
Ordinary Shares US$1.00
Dormant
47
86
Micro Focus (Ireland 1) Limited (formerly SUSE Linux Holdings Limited)
Ireland
Ordinary Shares US$1.00
 
Holding Company
47
87
Micro Focus (Ireland 2) Limited (formerly SUSE Linux Ireland Limited)
Ireland
Ordinary Shares US$1.00
 
Dormant
47
88
Micro Focus Finance Ireland Limited
Ireland
Ordinary Shares US$1.00
Holding Company
48
89
Micro Focus Galway Limited (formerly Entsoft Galway Limited
Ireland
Ordinary Shares €1.00
 
Sale and support of software
 
46
90
Micro Focus Group Holdings Unlimited Company
Ireland
Ordinary Shares €1.00
Holding Company
47
91
Micro Focus International Holdings Limited
Ireland
Ordinary Shares €1.00
Holding Company
47

Consolidated financial statements and notes
Notes to the consolidated financial statements

13 Related undertakings continued

 Company name
Country of
incorporation
Class(es) of
shares held1,2
Principal activities
Key to
Registered
office
address
 Subsidiaries    
92
Micro Focus Ireland Limited
Ireland
Ordinary Shares €1.00
Development, sale and support of software
47
93
Micro Focus Software (Ireland) Limited
Ireland
Ordinary Shares €1.25
Ordinary Shares US$1.00
Development, sale and support of software
48
94
Micro Focus Software Solutions Ireland Limited (formerly Entsoft Ireland Limited)
Ireland
Ordinary Shares €1.00
Sale and support of software
 
46
95
NetIQ Europe Limited
Ireland
Ordinary Shares €1.00
Sale and support of software
46
96
NetIQ Ireland Limited
Ireland
Ordinary Shares €1.00
Holding Company
47
97
Novell Cayman Software International Unlimited Company
Ireland
Ordinary Shares US$1.00
 
Holding Company
47
98
Novell Cayman Software Unlimited Company
Ireland
Ordinary Shares US$1.00
Holding Company
47
99
Novell Ireland Real Estate Unlimited Company
Ireland
Ordinary Shares €1.25            
A Ordinary Shares €1.25
Holding Company
47
100
Novell Software International Limited
Ireland
Ordinary Shares US$1.00
 
Holding Company
47
101
Micro Focus Interactive Israel Ltd (formerly Entco Interactive (Israel) Limited)
Israel
Ordinary Shares of NIS1.00
Sale and support of software
 
49
102
Micro Focus Israel Limited
Israel
Ordinary Shares NIS1.00
Development and support of software
50
103
Micro Focus Software Israel Ltd (formerly Entcorp Software Israel Limited)
Israel
Ordinary Shares NIS1.00
Sale and support of software
49
104
N.Y. NetManage (Yerushalayim) Ltd
Israel
Ordinary Shares NIS1.00
Dormant
51
105
Novell Israel Software International Limited
Israel
Ordinary Shares NIS1.00
In liquidation
106
106
Enterprise Corp Italiana S.r.l.
Italy
Registered Capital
Sale and support of software
52
107
Micro Focus Italiana S.r.l. (formerly Entco Italiana Srl
Italy
Registered Capital
Sale and support of software
53
108
Micro Focus Srl
Italy
Registered Capital
Sale and support of software
53
109
Serena Software Europe Limited - Italy Branch
Italy
Branch
Sale and support of software
53
110
Verity Italia S.r.l.
Italy
Registered Capital
Sale and support of software
54
111
Entcorp Japan K.K.
Japan
Ordinary Shares
Sale and support of software
55
112
Micro Focus Enterprise Ltd
Japan
Ordinary Shares
Sale and support of software
56
113
Micro Focus LLC (formerly Micro Focus KK)
Japan
Interest in capital
Sale and support of software
56

Consolidated financial statements and notes
Notes to the consolidated financial statements

13 Related undertakings continued

 Company nameCountry of
incorporation
Class(es) of
shares held1,2
Principal activities
Key to
Registered
office
address
 Subsidiaries    
114
Novell Japan, Ltd
Japan
Common Stock
Sale and support of software
56
115
Serena Software Japan LLC (formerly Serena Software Japan KK)
Japan
Interest in Capital
Sale and support of software
 
56
116
Micro Focus Korea Limited
 
South Korea
Units KRW5000
Sale and support of software
57
117
Serena Software Europe Limited - Korea Branch
South Korea
Branch
Sale and support of software
58
118
Micro Focus Finance S.à r.l.
Luxembourg
Ordinary Shares US$1.00
In liquidation
59
119
Micro Focus Luxembourg S.à r.l. (formerly Entco Luxembourg Sarl)
Luxembourg
Ordinary Shares
Sale and support of software
 
59
120
Minerva Finance S.à r.l.
Luxembourg
Ordinary Shares US$1.00
In liquidation
59
121
Verity Luxembourg S.à r.l.
Luxembourg
Ordinary Shares €25.00
Sale and support of software
60
122
Micro Focus Malaysia Sdn. Bhd. (formerly Entco Software Malaysia Sdn. Bhd.)
Malaysia
Ordinary Shares RM1,000.00
 
Sale and support of software
 
61
123
Novell Corporation (Malaysia) Sdn. Bhd.
Malaysia
Ordinary Shares RM1.00
Sale and support of software
62
124
Micro Focus International Mexico, S. de R.L. de C.V. (formerly Entco México, S. de R.L. de C.V. )
Mexico
Equity Interest Quota MXN1.00
Sale and support of software
63
125
Micro Focus Limited Mexico (Branch)
Mexico
Branch
Sale and support of software
64
126
Micro Focus Software Mexico, S. De R.L. De C.V. (formerly Entco Software México, S. de R.L. de C.V.)
Mexico
Equity Interest Quota MXN1.00
Sale and support of software
63
127
Micro Focus Software Solutions Mexico, S. de R.L. de C.V. (formerly Entcorp Software México, S. de R.L. de C.V.)
Mexico
Equity Interest Quota MXN1.00
Sale and support of software
 
63
128
Attachmate Group Netherlands B.V.
Netherlands
Ordinary Shares €100.00
Sale and support of software
65
129
Authasas Advanced Authentication B.V.
Netherlands
Ordinary Shares €1.00
Dormant
65
130
Authasas B.V
Netherlands
Ordinary Shares A €1.00       
Ordinary Shares B €1.00
Sale and support of software
65
131
Autonomy HoldCo B.V.
Netherlands
Ordinary Shares US$100.00
Sale and support of software
65
132
Autonomy Netherlands BV
Netherlands
Common Shares €100.00
Sale and support of software
65
133
Borland BV
Netherlands
Ordinary Shares €5.00
Sale and support of software
65
134
Entco Eastern Holding B.V.
Netherlands
Ordinary Shares US$100.00
Holding Company
65
135
Entco Gatriam Holding B.V.
Netherlands
Ordinary Shares US$100.00
Holding Company
65

Consolidated financial statements and notes
Notes to the consolidated financial statements

13 Related undertakings continued

 Company nameCountry of incorporation
Class(es) of shares held1,2
Principal activitiesKey to Registered office address
 Subsidiaries    
136
Entco HoldCo I B.V.
Netherlands
Ordinary Shares US$100.00
Holding Company
65
137
Entco HoldCo II B.V.
Netherlands
Ordinary Shares US$100.00
Holding Company
65
138
Entco HoldCo III B.V.
Netherlands
Ordinary Shares US$100.00
Holding Company
65
139
Entco HoldCo IV B.V.
Netherlands
Ordinary Shares US$100.00
Holding Company
65
140
Entco Holding Berlin B.V.
Netherlands
Ordinary Shares US$100.00
Holding Company
65
141
Entco Holding Hague II B.V.
Netherlands
Ordinary Shares US$100.00
Holding Company
65
142
Entco Sinope Holding B.V.
Netherlands
Ordinary Shares US$100.00
Holding Company
65
143
Entcorp Nederland B.V.
Netherlands
Ordinary Shares €100.00
Sale and support of software
65
144
Micro Focus B.V.
Netherlands
Common Shares €100.00
Sale and support of software
65
145
Micro Focus Caribe Holding B.V. (formerly Entco Caribe B.V.)
Netherlands
Ordinary Shares US$100.00
 
Sale and support of software
 
65
146
Micro Focus Eastern Holding II B.V. (formerly Entco Eastern Holding II B.V.)
Netherlands
Ordinary Shares US$100.00
 
Holding Company
65
147
Micro Focus Enterprise B.V. (formerly Entco Enterprise B.V.)
Netherlands
Ordinary Shares US$100.00
 
Sale and support of software
 
65
148
Micro Focus HoldCo B.V. (formerly Entco HoldCo B.V.)
Netherlands
Ordinary Shares US$100.00
 
Holding Company
65
149
Micro Focus Holding Finance B.V. (formerly Entco Holding Finance B.V.)
Netherlands
Ordinary Shares US$100.00
 
Holding Company
65
150
Micro Focus Holding Hague B.V. (formerly Entco Holding Hague B.V.)
Netherlands
Ordinary Shares US$100.00
 
Holding Company
65
151
Micro Focus Holding PR B.V. (formerly Entco Puerto Rico B.V.)
Netherlands
Ordinary Shares US$100.00
 
Sale and support of software
 
65
152
Micro Focus International Trade B.V. (formerly Entco International Trade B.V.)
Netherlands
Ordinary Shares US$100.00
 
Sale and support of software
 
65
153
Micro Focus Nederland B.V. (formerly Entco Nederland B.V.)
Netherlands
Ordinary Shares US$100.00
 
Sale and support of software
 
65
154
Verity Benelux B.V.
Netherlands
Common Shares of €500.00
Sale and support of software
65
155
Micro Focus Software (New Zealand) Unlimited
New Zealand
Ordinary Shares
Sale and support of software
66
156
Micro Focus AS
Norway
Ordinary Shares NOK1,602.00
Sale and support of software
67

Consolidated financial statements and notes
Notes to the consolidated financial statements

13 Related undertakings continued

 Company name
Country of
incorporation
Class(es) of
shares held1,2
Principal activities
Key to
Registered
office
address
 Subsidiaries    
157
Entcorp Philippines, Inc.
Philippines
Common Stock PHP1.00
Sale and support of software
68
158
Micro Focus Polska sp. z o.o. (formerly Entco Polska sp. z.o.o.)
Poland
Ordinary Shares PLN500.00
 
Sale and support of software
69
159
Micro Focus S.L. - Sucursal Em Portugal (Branch)
Portugal
Branch
Sale and support of software
70
160
Novell Portugal - Informática Lda
Portugal
Ordinary Shares €14,864.18    
Ordinary Shares €99.76
Sale and support of software
71
161
Micro Focus Caribe Holding B.V. LLC Branch (formerly Entco Caribe B.V. LLC )
Puerto Rico
Branch
Sale and support of software
 
72
162
Micro Focus Holding PR B.V. LLC Branch (formerly Entco Puerto Rico B.V. LLC )
Puerto Rico
Branch
Sale and support of software
 
73
163
Micro Focus Software Romania SRL (formerly Entco Software Romania SRL)
Romania
Ordinary Shares RON10.00
 
Sale and support of software
 
74
164
Limited Liability Company Micro Focus (formerly  Limited Liability Company Entco)
Russian Federation
Interest in Capital
Sale and support of software
 
75
165
Micro Focus LLC
Saudi Arabia
Ordinary Shares SAR50
Sale and support of software
76
166
Autonomy Systems Singapore Pte. Ltd.
Singapore
Ordinary Shares
Sale and support of software
77
167
Borland (Singapore) Pte. Ltd.
Singapore
Ordinary Shares
Sale and support of software
78
168
Entco Software Pte. Ltd.
Singapore
Ordinary Shares
Sale and support of software
77
169
Mercury Interactive (Singapore) Pte Ltd
Singapore
Ordinary Shares
In liquidation
107
170
Micro Focus Pte. Ltd.
Singapore
Ordinary Shares
Sale and support of software
78
171
Micro Focus Software Pte. Ltd.
Singapore
Ordinary Shares
Sale and support of software
77
172
Autonomy Systems Software South Africa Pty Ltd
South Africa
Ordinary Shares ZAR1.00
Sale and support of software
79
173
Micro Focus Software South Africa (Pty) Ltd (formerly Attachmate Group South Africa (Pty) Limited
South Africa
Ordinary Shares ZAR1.00
 
Sale and support of software
 
80
174
Micro Focus South Africa (Pty) Ltd
South Africa
Ordinary Shares ZAR1.00
Sale and support of software
80
175
Micro Focus Field Delivery Spain, S.L.U. (formerly Entco Field Delivery Spain, S.L.U.)
Spain
Ordinary Shares €1.00
Sale and support of software
81
176
Micro Focus S.L.U.
Spain
Registered Shares €9.00
Sale and support of software
82
177
Micro Focus Software Spain S.L.U. (formerly Entco Software Spain S.L.U.)
Spain
Ordinary Shares €1.00
 
Sale and support of software
 
81

Consolidated financial statements and notes
Notes to the consolidated financial statements

13 Related undertakings continued

 Company name
Country of
incorporation
Class(es) of
shares held1,2
Principal activities
Key to
Registered
office
address
 Subsidiaries    
178
Serena Software SA
Spain
Ordinary Shares €546.92
Sale and support of software
83
179
Micro Focus AS, Norge, filial i Sverige (Branch)
Sweden
Branch
Sale and support of software
84
180
Micro Focus Sverige AB (formerly Entco Sverige AB)
Sweden
Quota SEK1.00
Sale and support of software
84
181
Micro Focus Enterprise B.V., Amstelveen, Versoix Branch
Switzerland
Branch
Sale and support of software
 
85
182
Micro Focus GmbH
Switzerland
Quotas CHF100.00
Sale and support of software
86
183
Micro Focus International Suisse Sàrl (formerly Entco International Sàrl )
Switzerland
Ordinary Shares CHF1,000.00
Sale and support of software
85
184
Micro Focus Schweiz GmbH (formerly Entco Schweiz GmbH )
Switzerland
Ordinary Shares CHF100.00
 
Sale and support of software
 
86
185
Serena Software GmbH- Swiss Branch
Switzerland
Branch
Sale and support of software
87
186
Trilead GmbH
Switzerland
Ordinary Shares CHF100.00
Sale and support of software
88
187
Interwoven, Inc., Taiwan Branch
Taiwan
Branch
Sale and support of software
89
188
Novell (Taiwan) Co., Ltd.
Taiwan
Ordinary Shares NT$10.00
Sale and support of software
90
189
Micro Focus Enterprise Tunisia SARL
Tunisia
Ordinary Shares TND10.00
Sale and support of software
91
190
Micro Focus Teknoloji Çözümleri Limited Şirketi (formerly Entco Turkey Teknoloji Çözümleri Limited Şirketi)
Turkey
Ordinary Shares TRY25.00
 
Sale and support of software
92
191
Serena Software Ukraine LLC
Ukraine
Interest in Capital
Sale and support of software
93
192
Entco International SARL-Abu Dhabi - Branch
United Arab Emirates
Branch
Sale and support of software
94
193
Entco International SARL-Jebel Ali Free Zone - Branch
United Arab Emirates
Branch
Sale and support of software
95
194
Entco Software Services Middle East FZ-LLC
 
United Arab Emirates
Ordinary Shares AED1,000.00
 
Sale and support of software
96
195
Attachmate Sales UK Limited
United Kingdom
Ordinary Shares £1.00
Sale and support of software
97
196
Autonomy Digital Limited
United Kingdom
Ordinary Shares £1.00
In liquidation
108
197
Autonomy Systems Limited
United Kingdom
Ordinary Shares £1.00
Sale and support of software
98
198
Borland (Holding) UK Ltd
United Kingdom
Ordinary Shares £1.00
Dormant
97

Consolidated financial statements and notes
Notes to the consolidated financial statements

13 Related undertakings continued

 Company name
Country of
incorporation
Class(es) of
shares held1,2
Principal activities
Key to
Registered
office
address
 Subsidiaries    
199
Borland (UK) Limited
United Kingdom
Ordinary Shares £1.00
Dormant
97
200
Entcorp Marigalante UK Limited
United Kingdom
Ordinary Shares £1.00
Sale and support of software
98
201
Interwoven UK Limited
United Kingdom
Ordinary Shares
£1.00
In liquidation
108
202
Longsand Limited
United Kingdom
Ordinary Shares £1.00
Sale and support of software
98
203
Merant Holdings
United Kingdom
Ordinary Shares £1.00
 
Holding Company
97
204
Meridio Limited
United Kingdom
Ordinary Shares £1.00
In liquidation
109
205
Micro Focus (IP) Holdings Limited
United Kingdom
Ordinary Shares US$1.00
 
Dormant
97
206
Micro Focus (IP) Ltd
United Kingdom
Ordinary Shares £1.00
Holding Company
97
207
Micro Focus (US) Holdings
United Kingdom
Ordinary Shares US$1.00
Holding Company
97
208
Micro Focus APM Solutions Limited
United Kingdom
Ordinary Shares £1.00
In liquidation
97
209
Micro Focus CHC Limited
United Kingdom
Ordinary Shares US$0.01        
Redeemable Preference Shares
US$1.00
C Preference Shares
US$1.00
Holding Company
97
210
Micro Focus Foreign HoldCo Ltd (formerly Entco Foreign HoldCo Ltd)
United Kingdom
Ordinary Shares £1.00
Holding Company
98
211
Micro Focus Global Limited (formerly Novell U.K. Limited
United Kingdom
Ordinary Shares £1.00
Sale and support of software
97
212
Micro Focus Group Limited
United Kingdom
Ordinary Shares £1.00
Holding Company
97
213
Micro Focus Holdings Unlimited
United Kingdom
Ordinary Shares £0.01
Holding Company
97
214
Micro Focus Integration Holdings Limited
United Kingdom
Ordinary Shares US$1.00
Holding Company
97
215
Micro Focus Integration Limited
United Kingdom
Ordinary Shares US$1.00
Sale and support of software
97
216
Micro Focus IP Development Limited
United Kingdom
Ordinary Shares US$1.00
Development and support of software
97

Consolidated financial statements and notes
Notes to the consolidated financial statements

13 Related undertakings continued

 Company name
Country of
incorporation
Class(es) of
shares held1,2
Principal activities
Key to
Registered office
address
 Subsidiaries    
217
Micro Focus Limited
United Kingdom
Ordinary Shares £1.00
Sale and support of software
97
218
Micro Focus MHC Limited
United Kingdom
A Ordinary Shares
 £0.00001
B Ordinary Shares
£0.00001
Holding Company
97
219
Micro Focus Midco Holdings Limited
United Kingdom
Ordinary Shares US$0.01
Holding Company
97
220
Micro Focus Midco Limited
United Kingdom
Ordinary Shares US$0.0001
Holding Company
97
221
Micro Focus Situla Holding Ltd (formerly Entco Situla Holding Ltd)
United Kingdom
Ordinary Shares £1.00
 
Holding Company
98
222
Micro Focus Software (IP) Holdings Limited
United Kingdom
Ordinary Shares US$0.01    
Preferred Shares US$1.00
Holding Company
97
223
Micro Focus Software Holdings Ltd (formerly Novell UK Software Limited)
United Kingdom
Ordinary Shares £1.00
Sale and support of software
97
224
Micro Focus Software UK Ltd (formerly Entcorp UK Ltd )
United Kingdom
Ordinary Shares £1.00
Sale and support of software
98
225
Micro Focus UK Limited
United Kingdom
Ordinary Shares £1.00
Dormant
97
226
NetIQ Limited
United Kingdom
Ordinary Shares £1.00
Dormant
97
227
Ryan McFarland Limited
United Kingdom
Ordinary Shares £1.00
In liquidation
97
228
Serena Holdings
United Kingdom
Ordinary Shares US$1.00
Holding Company
97
229
Serena Software Europe Limited
United Kingdom
Ordinary Shares £1.00
Sale and support of software
97
230
XDB (UK) Limited
United Kingdom
Ordinary Shares £1.00
In liquidation
97
231
ZANTAZ UK Limited
United Kingdom
Ordinary Shares £1.00
In liquidation
108
232
Attachmate Corporation
United States
Common Stock US$0.01
Development and support of software
99
233
Borland Corporation
United States
Common Stock US$0.01
Holding Company
100
234
Borland Software Corporation
United States
Common Stock US$0.01
Development and support of software
100
235
Borland Technology Corporation
United States
Common Stock US$0.01
Dormant
100

Consolidated financial statements and notes
Notes to the consolidated financial statements

13 Related undertakings continued

 Company name
Country of
incorporation
Class(es) of
shares held1,2
Principal activities
Key to
Registered
office
address
 Subsidiaries    
236
Entco Delaware LLC
United States
Interest in Capital
Sale and support of software
100
237
Entco Holdings, Inc.
United States
Common Stock US$0.01
Holding Company
100
238
Entco Technologies, Inc.
United States
Common Stock US$0.001
Sale and support of software
100
239
Entco, LLC
United States
Interest in Capital
Sale and support of software
100
240
GWAVA Technologies Inc
United States
Common Stock of US$1.00
Sale and support of software
100
241
Interset Software - US, Inc.
United States
Common Stock US$0.0001
Sale and support of software
100
242
MA FinanceCo., LLC
United States
Units
Holding Company
100
243
Marcel Holdings LLC
United States
Limited Liability Company Interest US$1.00
Sale and support of software
101
244
Micro Focus (US) Group, Inc
United States
Common Stock US$0.01
Holding Company
100
245
Micro Focus (US) International Holdings, Inc.
United States
Common Stock US$0.01
Holding Company
100
246
Micro Focus (US), Inc.
United States
Common Stock US$0.01
Development and support of software
100
247
Micro Focus Brazil Holdings LLC (formerly Entco Brazil Holdings LLC)
United States
Interest in Capital
Holding Company
100
248
Micro Focus Government Solutions LLC (formerly Entco Government Solutions LLC)
United States
Interest in Capital
Sale and support of software
100
249
Micro Focus LLC (formerly EntIT Software LLC)
United States
Limited Liability Company Interests
Sale and support of software
100
250
Micro Focus Software Inc.
United States
Voting Common Stock
US$0.01
Non-voting Common Stock US$0.01
Development and support of software
 
100
251
MicroLink LLC
United States
Limited Liability Company Interests
Sale and support of software
 
102
252
NetIQ Corporation
United States
Common Stock US$0.001
Development and support of software
100
253
Novell Holdings, Inc.
United States
Common Stock US$0.01
Holding Company
100

Consolidated financial statements and notes
Notes to the consolidated financial statements

13 Related undertakings continued

 Company name
Country of
incorporation
Class(es) of
shares held1,2
Principal activities
Key to
Registered
office
address
 Subsidiaries    
254
Novell International Holdings, Inc.
United States
Common Stock US$0.01
Holding Company
100
255
Seattle SpinCo, Inc.
United States
Class A Common Stock US$0.01
Class B Common Stock US$0.01
Holding Company
100
256
Serena Software, Inc.
United States
Common Stock US$0.01
Holding Company
100
257
Spartacus Acquisition Holdings Corp
United States
Common Stock US$0.001
Holding Company
100
258
Stratify, Inc.
United States
Common Stock US$0.001
Sale and support of software
100
259
The Attachmate Group, Inc.
United States
Common Stock US$0.001
Holding Company
100
260
Vertica Systems, LLC
United States
Limited Liability Company Interests
Sale and support of software
 
100

1 The Group has a 100% equity ownership interest in each of the subsidiary undertakings, with the exception of Novell Japan Ltd, in which it has an 84.24% equity interest (note 32).

2. The ultimate parent company is Micro Focus International plc (the “Company”). The Company has a direct interest in Micro Focus Midco Holdings Limited and an indirect interest in all of the other related undertakings. The Company has an effective interest of 100% in all of the related undertakings listed in the table, save as disclosed above.

The financial results of all of the related undertakings listed above are included in the Group’s consolidated financial statements.
None of the related undertakings holds any shares in the Company.

For each of the subsidiaries listed above, the Registered office or, in the case of undertakings other than subsidiaries, the principal place of business is as follows:

Registered office addresses:

NumberAddress
1
Level 8, 76 Berry Street, North Sydney, NSW 2060, Australia
2
Donau Centre, Hauptstrasse 4-10, Linz, 4040, Austria
3
Officenter, Luchthavenlaan 27,  1800 Vilvoorde, Belgium
4
EU Parliament, 4th Floor, 37 De Meeussquare, Brussels, 1000, Belgium
5
Rua Joaquim Floriano, 466-12 Ander, Sao Paulo, CEP 04534-002, Brazil
6
Avenida das nações Unidas, nº 12.901, conjunto 2302, sala 72, Itaim Bibi, São Paulo, CEP 04578-000, Brazil
7
Rua Dom Jose de Barros, 177, 3rd Floor, Suite 302, Vila Buarque, Sao Paulo 01038-100, Brazil
8
Estera Corporate Services (BVI) Limited, Jayla Place Wickhams Cay 1, Road Town, Tortola, British Virgin Islands
9
76A James Bourchier Blvd, Lozenetz, Sofia, 1407, Bulgaria
10
1715 Sofia, Mladost district, Business Park Sofia, Building 9, Sophia, Bulgaria
11
200-204 Lambert Street, Whitehorse, Y1A 3T2, Canada
12
250 Howe Street, Suite 1400-C, Vancouver, BC V6C 3S7, Canada
13
Barker House , Suite 600, Fredericton E3B 6Z6, Canada

Consolidated financial statements and notes
Notes to the consolidated financial statements

13 Related undertakings continued

Registered office addresses continued

NumberAddress
14
411 Legget Drive, Suite 503, Ottawa ON K2K 3C9, Canada
15
Suite 1700, Park Place, 666 Burrard Street, Vancouver BC V6C 2X8, Canada
16
4300 Bankers Hall West, 888 - 3rd Street S.W., Calgary, Alberta T2P 5C5, Canada
17
1300-1960 Upper Water Street, Halifax, Nova Scotia B3J 3R7, Canada
18
Estera Trust (Cayman) Limited, PO Box 1350, Clifton House, 75 Fort Street, Grand Cayman, KY1-1108, Cayman Islands
19
Unit 601, Block A, Yuanyang International Center, Building 56, Dong Si Huan Zhong Dong Road, Beijing, Chaoyang District, China
20
Floor 2, Building 1, No. 799 Naxian Road, Pilot Free Trade Zone, Shanghai, China
21
8 Guangshun Avenue South, B01, 3F, Building 1, Chaoyang District, ,China,
22
No. 209, Chuangxin Plaza, No. 5 Keyuanyi Road, Jiulongpo District, Chongqing, China
23
14/F, Office 1436, Times Financial Center, 4001 Shennan Avenue, Futian District, Shenzhen, Guangdong, 518046, China or Unit H 1483 - 04, 14th Floor, Times Financial Center, 4001 Shennan Avenue, Fu’An Community, Futian Street, Shenzhen, Futian District, China
24
Room 810, Level 8, International Finance Center, Tower 2, 8 Century Avenue, Pudong, Shangahi 200120, P.R. China
25
Madrid 17-02F Suite, 17/F Ping An International Financial Center, Tower B, No. 3 Xin Yuan South Road, Chao Yang District, Beijing China 100027
26
San José, Cantón Montes de Oca, Distrito San Pedro, cincuenta metros al sur del Restaurante Le Chandelier, Edificio Blanco, Costa Rica
27
Za Brumlovkou 1559/5, Michle, Prague, 140 00, Czech Republic
28
Krizikova 148/34, Karlin, 186 00 Praha 8 Czech Republic
29
Borupvang 3, 2750, Ballerup, Denmark
30
Accountor Turku Oy, Yliopistonkatu 34,5 krs, Turku FI-20100
31
Tour, Atlantique, La Defense 9, 1 Place de la Pyramide, La Defense, Cedex, Paris, 92911, France
32
1 Avenue du Canada, Les Ulis, 91947, France
33
Fraunhoferstrasse 7, Ismaning, 85737, Germany
34
Von-Braun-Strabe 38a, 48683 Ahaus, Germany
35
Herrenberger Str. 140, 71034 Boeblingen, Germany
36
Maxfeldstr. 5, 90409 Nürnberg, Germany
37
Nöerdlicher Zubringer 9-11, 40470 Düsseldorf
38
21st floor, Henley Building, 5 Queen’s Road Central, Hong Kong
39
19th Floor, Cityplaza One, 1111 King’s Road, Taikoo Shing, Hong Kong
40
4th Floor, Laurel Building ‘A” Block, Bagmane Tech Park, Survey no.65/2, C.V.Raman Nagar, Byrasandra Village, KR Pura Hobli, Bangalore South Taluk, Bengaluru-560093, India
41
Laurel, Block D, 65/2, Bagmane Tech Park, C.V. Raman Nagar, Byrasasdraa Post, Bangalore 560093, India
42
4th Floor, Bagmane Tech Park, Olympia Building Survey Nos. 66/1, 66/66-1 & 66/1-3, CV Raman Nagar, Bangalore, 560093, India
43
602 MMTC House C-22 Bandra Kurla Complex Bandra East, Mumbai, MH 400051, India
44
66/1, 6th Floor, Olympia Building, Bagmane Tech Park, Byrasandra, C V Raman Nagar, Bangalore, Karnataka, 560093, India
45
Leela Galleria, 1st Floor, Andheri Kurla Road, Andheri (East), Mumbai - 400059, Maharashtra, India
46
Block A, Ballybrit Business Park, Ballybane Road, Galway, Eircode, NE2 2003, Ireland
47
One Spencer Dock, North Wall Quay, Dublin 1, Ireland
48
Corrig Court, Corrig Road, Sandyford Industrial Estate, Sandyford, Dublin 18, Ireland
49
5 Altalef St., Yahud, Israel
50
Matam Advanced Tech Center, Building 5/1, Haifa, 31 905, Israel
51
Scientific Industries Center, Haifa, 33263, Israel
52
Via Filippo Turati 8, 20121, Milan, Italy
53
Viale Sarca 235, 20126, Milan, Italy

Consolidated financial statements and notes
Notes to the consolidated financial statements

13 Related undertakings continued

Registered office addresses continued

NumberAddress
54
Via Santa - Maria alla Porta n.9, 20123, Milan, Italy
55
No. 8 Center Plaza Bldg, 5F, 1-10-16 Horidomecho Nihonbashi, Chuo-ku, Tokyo 103-0012, Japan
56
Midtown Tower 19F, 9-7-1 Akasaka, Minato-ku, Tokyo, 107-6219, Japan
57
Yeoidodong, SK Building, 15F, 31 Gukjegeumyung-ro 8-gil, Yeongdeungpo-gu, Seoul, Korea
58
Gangnam Finance Centre, Level 41, 152 Teheren-ro, Gangnam-gu, Seoul - 06236 Korea
59
20, rue des Peupliers, L-2328 Luxembourg, Luxembourg
60
15, Boulevard F.W. Raiffeisen, L - 2411, Luxembourg
61
Level 11, 1 Sentral, Jalan Rakyat, Kuala Lumpur Sentral, 50470 59200 Kuala Lumpur, Malaysia
62
Unit 501 Lvl 5 Uptwn 1, 1 Jalan SS2, Selangor Darul Ehsan, Malaysia
63
Av. Periférico Sur 6751, Col. Toluquilla, Municipio Tlaquepaque, Jalisco, CP 45610, Mexico
64
Insurgentes Sur 1898, Pisos 12 y 14, Col. La Florida, Mexico City 1020, Mexico
65
Van Deventerlaan 31-51, 3528 AG Utrecht, The Netherlands
66
Level 8, 188 Quay Street, Auckland, 1010, New Zealand
67
7th Floor, Dronning Eufemias gate 16, 0191 Oslo, Norway
68
2/F Three World Square, Upper Mckinley Road, Taguig City, Philippines
69
Centrum Biurowe Globis, Powstańców Śląskich 7A, 53-332, Wrocław, Poland
70
Centro Empresarial Torres de Lisboa, Rua Tomás da Fonseca, Torre G, 1.º, 1600-209 Lisbon, Portugal
71
Centro Empresarial Torres de Lisboa, Rua Tomás da Fonseca, Torre G, 1600-203 Lisbon, Portugal
72
110 Highway North Km. 28, Bldg. #1, Aguadilla, 00603, Puerto Rico
73
350 Chardon Avenue, Chardon Tower, Suite 801, San Juan, 00918, Puerto Rico
74
2nd District, 3 George Constantinescu Street, BOC Office Building, Bucharest, Romania
75
Leningradskoye shosse 16 A, building 3, floor 10, premise XV, room 16, 125171, Moscow, Russian Federation
76
Maazar Street, Futuro Tower, 3rd Floor, P.O. Box 69171, Riyadh 11547, Saudi Arabia
77
#12-04/06, 1 Harbourfront Place, Harbourfront Tower 1, 098633, Singapore
78
80 Robinson Road #02 - 00, 068898, Singapore
79
PO Box 2238, Florida Hills, 1716, South Africa
80
Morning View Office Park 255 Rivonia Road, Morningside, South Africa
81
Calle José Echegaray 8, Las Rozas de Madrid, 28232 Madrid, Spain
82
Paseo de la Castellana 42, Madrid, 28046, Spain
83
Ronda General Mitre 28-30, Barcelona 08017, Spain
84
Kronborgsgränd 1, 164 46 Kista, Stockholm, Sweden
85
Chemin Jean-Baptiste Vandelle 3A, 1290 Versoix, Switzerland
86
Ueberlandstrasse 1, 8600 Dübendorf, Switzerland
87
Kirchgasse 24, 8001 Zurich, Switzerland
88
Rembach 7, 8852, Altendorf, Switzerland
89
10F.-1 No.66, Jing Mao 2nd Road, Nangang Distric, Taipei City, 115, Taiwan
90
Room B 26/F #216 Tun-Hwa S Road Sec, Taipei ROC 106, Taiwan
91
ZI Chotrana, Technopole El Ghazala, Lot No 45, Ariana, 2088, Tunisia
92
AND Plaza Kozyatağa İçerenköy Mahallesi Umut Sk. 10/12, Kat: 16 34752 Ataşehir/İstanbul, Turkey
93
13 Pimonenko str., building 1, Office 1B/22, Kiev 04050, Ukraine
94
Al Hilal Building, Al Falah Road, Office 318, Abu Dhabi, United Arab Emirates
95
JAFZA One building, Unit No. AB 1005, Jebel Ali Free Zone, Dubai, United Arab Emirates
96
1204 - 1205, Floor 12 Al Shatha Tower, Dubai, United Arab Emirates
97
The Lawn, 22‑30 Old Bath Road, Newbury, Berkshire, United Kingdom, RG14 1QN, England
98
Cain Road, Amen Corner, Bracknell, Berkshire, RG12 1HN, United Kingdom
99
505 Union Ave SE STE120, Olympia, WA  98501, USA
100
The Corporation Trust Company, Corporation Trust Center, 1209 Orange St, Wilmington, New Castle, DE 19801, USA
101
Corporation Service Company, 251 Little Falls Drive, Wilmington, New Castle, DE19808, USA
102
4701 Cox Road, Suite 285, Henrico County, Glen Allen VA 23060, United States

Consolidated financial statements and notes
Notes to the consolidated financial statements

13 Related undertakings continued

Registered office addresses continued

NumberAddress
103
54 Digeni Akrita, Akritas 2nd Floor, Office 201-202, PC 1061, Nicosia, Cyprus
104
Room 1213A Tower B, Full Link Plaza, No 18 Chaoyangmen Wai Avenue, Chaoyang District, Beijing, China
105
19 Helmy El Masry Street, Almaza, Cairo, Egypt
106
17 Hatidhar St., Raannana, 43665, Israel
107
450 Alexandra Road, Singapore 119960, Singapore
108
Autonomy House, Cambridge Business Park, Cambridge, Cambridgeshire, CB4 0WZ
109
The Innovation Centre, Northern Ireland Science Park, Queen’s Road, Queens Island, Belfast, BT3 9DT

14 Other non-current assets


 October 31, 2019  October 31, 2018  October 31, 2021
  October 31, 2020
 
 
$m
 
$m


$m


$m

Employee benefit deposit 33.4  
31.1
  22.6  
17.9
 
Long-term rent deposits 4.9  
4.1
  8.3  
5.3
 
Long-term prepaid expenses 4.5  
2.9
  4.0  
2.3
 
Net investment in finance sub-leases 6.0  
5.5
 
Other 1.2  
0.7
  1.3  
0.8
 
 44.0  
38.8
  42.2  
31.8
 


Employee benefit deposits are held in Germany ($16.4m), Israel ($11.9m)17.3 million), Italy ($2.4m)2.5 million) and the Netherlands ($2.7m) (October 31, 2018: Germany $15.4m,2.8 million) (2020: Israel $10.2m,$12.8 million, Italy $2.7m$2.4 million and the Netherlands $2.8m)$2.7 million). Employers in Germany, Italy and Israel are required by law to maintain funds to satisfy certain employee benefit liabilities, including free time off and compensation for involuntary termination of employment. These investment-based deposits are managed by third parties and the carrying values are marked-to-market based on third-partythird party investment reports. In addition, a cash deposit was held in the Netherlands on behalf of certain employees to cover legacy employment subsistence benefits.

15 Inventories

  October 31, 2019  October 31, 2018 
  
$m
 

$m

Work in progress  -   
-
 
Finished goods  0.1   
0.2
 
   0.1   
0.2
 

The Group utilized $0.1m (18 months to October 31, 2018: $0.3m) of inventories included in cost of sales during the 12 months to October 31, 2019.


F-71F-46

Consolidated financial statements and notes
Notes to the consolidated financial statements

16
14 Trade and other receivables


 October 31, 2019  October 31, 2018  October 31, 2021
  October 31, 2020
 
 
$m
 

$m

 $m


 $m
Trade receivables 877.9  
1,089.6
   738.8   
628.4
 
Loss allowance (42.4) 
(41.9
)
  (14.0)  
(17.9
)
Trade receivables net 835.5  
1,047.7
   724.8   
610.5
 
Prepayments 53.9  
60.0
   40.1   
49.1
 
Other receivables 87.2  
79.0
   59.4   
38.1
 
Contract assets 56.3  
85.3
   62.0   
33.7
 
 1,032.9  
1,272.0
   886.3   
731.4
 


Concentrations of credit risk with respect to trade receivables are limited due to the Group’s customer base being large and unrelated. The Group considers the credit quality of trade and other receivables on a customer-by-customer basis. The Group considers that the carrying value of the trade and other receivables that is disclosed below gives a fair presentation of the credit quality of the assets. This is considered to be the case as there is a low risk of default due to the high number of recurring customers and credit control policies. In determining the recoverability of a trade receivable, the Group considers the ageing of each debtor and any change in the circumstances of the individual receivable. Other than ageing (included below), no other credit rating grades are assessed. Due to this, management believes there is no further credit risk provision required in excess of the normal provision determined by the expected credit loss methodology applied.


At October 31, 20192021 and October 31, 2018,2020, the carrying amount approximates the fair value of the instrument due to the short-term nature of the instrument. The trade receivables of $877.9m at October 31, 2019 (October 31, 2018: $1,089.6m) are net of the $nil (October 31, 2018: $21.5m) loss allowance in the opening balance sheet for the HPE Software business (note 38) as amounts provided in the prior period have been utilized in the current period.

As at October 31, 2019,2021, a loss allowance of $42.4m (October 31, 2018: $41.9m)$14.0 million (2020: $17.9 million) was recognized for trade receivables.


The ageing of these receivables is as follows:


 
Current
$m
  
Up to three
months
$m
  
Three to four
months
$m
  
Over four
months
$m
  
Total
$m
  Current  
Up to three
months
  
Three to four
months
  
Over four
months
  Total 
October 31, 2019               

$m


$m


$m


$m


$m

October 31, 2021:
               
Gross trade receivables 696.0  110.1  8.9  62.9  877.9   655.3   61.3   6.6   15.6   738.8 
Loss allowance (8.9) (3.8) (1.5) (28.2) (42.4)  (2.6)  (1.1)  (0.5)  (9.8)  (14.0)
Net trade receivables 687.1  106.3  7.4  34.7  835.5   652.7   60.2   6.1   5.8   724.8 
                                   
October 31, 2018               
October 31, 2020:
                    
Gross trade receivables 
798.5
  
153.4
  
13.6
  
124.1
  
1,089.6
   
561.4
   
42.3
   
4.3
   
20.4
   
628.4
 
Loss allowance 
-
  
-
  
(3.6
)
 
(38.3
)
 
(41.9
)
  
(6.1
)
  
(0.9
)
  
(0.4
)
  
(10.5
)
  
(17.9
)
Net trade receivables 
798.5
  
153.4
  
10.0
  
85.8
  
1,047.7
   
555.3
   
41.4
   
3.9
   
9.9
   
610.5
 


Movements in the Group provision for impairment of trade receivables were as follows:


  October 31, 2019  October 31, 2018 
  
$m
 

$m

At November 1 / May 1 (calculated under IAS 39)  41.9   
2.6
 
Accounting policy change (IFRS 9 - recognized against retained earnings on November 1, 2018)  20.0   
-
 
Revised November 1 / May 1  61.9   
2.6
 
Loss allowance provided in the period  16.0   
40.0
 
Receivables written off as uncollectable  (35.5)  
(0.7
)
At October 31  42.4   
41.9
 
  October 31, 2021
  October 31, 2020
 
 
$m


$m

At November 1
  17.9   
42.4
 
Loss allowance provided/(released)in the year
  0.6  
(4.8)
 
Receivables written off as uncollectable  (4.5)  
(19.7
)
At October 31,  14.0   
17.9
 

Consolidated financial statements and notes
Notes to the consolidated financial statements

16 Trade and other receivables continued


The creation and release of the loss allowance for receivables have been included in selling and distribution costs in the Consolidated statement of comprehensive income. Amounts charged in the allowance account are generally written off when there is no expectation of recovering additional cash. The Group does not hold any collateral as security.

The loss allowance for trade receivables is measured at an amount equal to the life-timelifetime expected credit losses as allowed for byunder IFRS 9. Prior

F-47

Consolidated financial statements and notes
Notes to the adoption of IFRS 9 on November 1, 2018, trade receivables were stated net of allowances for estimated irrecoverable amounts due to the identification of a loss event (the incurred loss method).consolidated financial statements
14
Trade and other receivables continued


Contract assets relate to amounts not yet billed and so not yet due from customers and contain no amounts past due.which are expected to be invoiced to customers. The movement in contract assets in the year is primarily the result of a number of multi-year billing contracts, totalling circa $14 million, entered into shortly before the period end where the licences were delivered in October. Excluding these contracts, the level of new contract assets that have arisen during the year is consistent with the level of billings on existing contract assets. The Group considers the credit quality of contract assets on a customer-by-customer basis. As with trade receivables, which contract assets convert to upon invoicing, there is considered to be a low risk of default due to the high number of recurring customers. In determining the recoverability of a contract asset, the Group considers the specific circumstances of each contract asset and any change in the circumstances of the balance. Due to this management believes significant provision is not required.

17

15 Contract-related costs


October 31, 2019October 31, 2018

$m

$m

Current19.3
-
Non-current31.5
-
50.8
-
  October 31, 2021
  October 31, 2020
 
 

$m



$m

Current  33.0   
27.9
 
Non-current  31.9   
35.7
 
   64.9   
63.6
 


The Group capitalizecapitalizes the costs of obtaining a customer contract when they are incremental and, if expected to be recovered, they are amortized over the customer life or pattern of revenue for the related contract. All amounts capitalized relate to commission costs.


Normally sales commissions paid for customer contract renewals are not commensurate with the commissions paid for new contracts. It follows that the commissions paid for new contracts also relate to expected future renewals of these contracts. Accordingly, we amortize sales commissions paid for new customer contracts on a straight-line basis over the expected customer life, based on expected renewal frequency. The current average customer life is five years.years. If the expected amortization period is one year or less the Group expenses the costs when incurred.


As at November 1, 2018, the date of transition to IFRS 15, the capitalized commissions paid for uncompleted contracts were $64.7m ($35.4m was disposed of as part of the discontinued operation), of which $14.1m were current and $50.6m non-current.

The amortization expenses in the periodyear for the costs of obtaining customer contracts were $10.2m.$22.6 million(2020: $16.1 million).


Amortization of the capitalized costs of obtaining customer contracts is classified as sales and marketing expense. Capitalized costs from customer contracts are classified as non-financial assets in our statement of financial position.


October 31, 2019October 31, 2018

$m

  October 31, 2021
  October 31, 2020
 
 
$m


$m

Asset recognized from costs incurred to acquire a contract
  27.2   
29.1
 
Amortization and impairment loss recognized as cost of providing services during the year
  (22.6)  
(16.1
)

$m

Asset recognized from costs incurred to acquire a contract31.4
-
Amortization and impairment loss recognized as cost of providing services during the period(10.2)
-

F-73
16 Cash and cash equivalents

  October 31, 2021
  October 31, 2020
 
  
$m



$m

Cash at bank and in hand
  355.9   
374.3
 
Short-term bank deposits
  202.5   
362.9
 
Cash and cash equivalents  558.4   
737.2
 

F-48

Consolidated financial statements and notes
Notes to the consolidated financial statements

18
16 Cash and cash equivalentscontinued

     October 31, 2019  October 31, 2018 
  Note  
$m
 

$m

Cash at bank and in hand     292.2   
387.1
 
Short-term bank deposits     63.5   
236.7
 
      355.7   
623.8
 
Reclassification to current assets classified as held for sale  37   -   
(2.9
)
Cash and cash equivalents      355.7   
620.9
 


At October 31, 20192021 and October 31, 2018,2020, the carrying amount approximates to the fair value. The Group’s credit risk on cash and cash equivalents is limited as the counterparties are well established banks with generally high credit ratings. The credit quality of cash and cash equivalents is as follows:


   October 31, 2019  October 31, 2018 
   
$m
 

$m

S&P/Moody’s/Fitch rating:
         
AAA
   69.8   
231.5
 
AA-
   87.6   
81.0
 
A+
  144.4   
260.4
 
A
  23.4   
20.1
 
A-   14.4   
3.8
 
BBB+
   1.7   
4.5
 
BBB
   4.5   
1.0
 
BBB-
   0.8   
0.6
 
BB+
   0.8   
2.0
 
BB
   0.3   
-
 
BB-
   6.3   
15.2
 
B+

  0.2   
-
 
CCC+
   -   
0.2
 
C-   -   
0.3
 
Not rated
   1.5   
0.3
 
    355.7   
620.9
 
  October 31, 2021
  October 31, 2020
 
 
$m

$m
S&P/Moody’s/Fitch rating:
        
AAA
  184.8   
358.4
 
AA-
  2.8   
27.2
 
A+
  348.6   
318.6
 
A
  11.6   
9.9
 
A-
  2.6   
9.1
 
BBB+ to C-
  8.0   
14.0
 
   558.4   
737.2
 


Where the opinions of the rating agencies differ, the lowest applicable rating has been assigned to the counterparty.


19
17 Trade and other payables – current


  October 31, 2019  October 31, 2018 
  
$m
 

$m

Trade payables
  105.0   
46.1
 
Tax and social security
  80.7   
46.5
 
Accruals
  425.3   
584.3
 
   611.0   
676.9
 


  October 31, 2021
  October 31, 2020
 
 

$m



$m

Trade payables
  80.9   
71.5
 
Tax and social security
  72.9   
84.3
 
Accruals
  359.2   
347.7
 
   513.0   
503.5
 

At October 31, 20192021 and at October 31, 2018,2020, the carrying amount approximates to the fair value. At October 31, 20192021 accruals include vacation and payroll – $88.4m (October 31, 2018: $147.0m)$79.7 million (2020: $82.8 million), commission and employee bonuses - $74.9m (October 31, 2018: $162.7m)$133.1 million (2020: $90.5 million), integration and divestiture expenses - $26.4m (October 31, 2018: $44.5m)$6.6 million (2020: $30.1 million) and consulting and audit fees - $36.9m (October 31, 2018: $30.3m)$26.8 million (2020: $23.8 million).


F-74
18 Borrowings

  October 31, 2021
  October 31, 2020
 
 
$m


$m

Bank loan secured  4,608.0   
4,733.2
 
Unamortized prepaid facility arrangement fees and original issue discounts  (59.6)  
(92.9
)
Carrying value  4,548.4   
4,640.3
 

  October 31, 2021
  October 31, 2020
 
  
Bank loan
secured
  
Unamortized
prepaid facility
arrangement fees and
original issue
discounts
  Total  
Bank loan
secured
  
Unamortized
prepaid facility
arrangement fees and
original issue
discounts
  
Total
 
Reported within:
$m


$m


$m


$m


$m


$m
 
Current liabilities  42.0   (17.7)  24.3   
34.2
   
(12.8)
   
21.4
 
Non-current liabilities  4,566.0   (41.9)  4,524.1   
4,699.0
   
(80.1
)
  
4,618.9
 
   4,608.0   (59.6)  4,548.4   
4,733.2
   
(92.9
)
  
4,640.3
 

F-49

Consolidated financial statements and notes
Notes to the consolidated financial statements

20 Borrowings

  October 31, 2019  October 31, 2018 
  
$m
 

$m

Bank loan secured  4,775.0   
4,996.9
 
Unamortized prepaid facility arrangement fees and original issue discounts  (104.3)  
(151.0
)
   4,670.7   
4,845.9
 

  October 31, 2019  October 31, 2018 
  
Bank loan
secured
  
Unamortized prepaid
facility arrangement
fees and original issue
discounts
  Total  
Bank loan
secured
  
Unamortized
prepaid facility
arrangement fees
and original issue
discounts
  Total 
Reported within: 
$m
 
$m
 
$m
 

$m

 

$m

 

$m

Current liabilities  -   -   -   
50.3
   
(46.6
)
  
3.7
 
Non-current liabilities  4,775.0   (104.3)  4,670.7   
4,946.6
   
(104.4
)
  
4,842.2
 
   4,775.0   (104.3)  4,670.7   
4,996.9
   
(151.0
)
  
4,845.9
 

In April 2019, early repayments totaling $200.0m in total were made against the existing term loans, utilizing some of the proceeds from the sale of the SUSE business. As a result of this no further repayments are expected within the next 12 months. The term of the loans remains unchanged.

The following facilities were drawn as at October 31, 2019:
The $1,414.7m senior secured term loan B-2 issued by MA FinanceCo LLC is priced at LIBOR plus 2.25% (subject to a LIBOR floor of 0.00%);
The $368.2m senior secured seven-year term loan B-3 issued by MA FinanceCo LLC is priced at LIBOR plus 2.50% (subject to a LIBOR floor of 0.00%) with an original issue discount of 0.25%;18 Borrowings Continued
The $2,486.3m senior secured seven-year term loan B issued by Seattle SpinCo. Inc. is priced at LIBOR plus 2.50% (subject to a LIBOR floor of 0.00%) with an original issue discount of 0.25%; and
The €452.8m m (equivalent to $505.8m) senior secured seven-year term loan B issued by MA FinanceCo LLC is priced at EURIBOR plus 2.75% (subject to a EURIBOR floor of 0.00%) with an original issue discount of 0.25%.

The following facilities were undrawn as at October 31, 2019:
A senior secured revolving credit facility of $500.0m, “Revolving Facility”, with an interest rate of 3.25% above LIBOR on amounts drawn (and 0.375% on amounts undrawn) thereunder (subject to a LIBOR floor of 0.00%).

The only financial covenant attaching to these facilities relates to the Revolving Facility, which is subject to an aggregate net leverage covenant only in circumstances where more than 35% of the Revolving Facility is outstanding at a fiscal quarter end. At October 31, 2019, $nil of the Revolving Facility was drawn together with $4,775.0m of Term Loans giving gross debt of $4,775.0m drawn. As a covenant test is only applicable when the Revolving Facility is drawn down by 35% or more, and $nil of Revolving Facility was drawn at October 31, 2019, no covenant test is applicable.

Consolidated financial statements and notes
Notes to the consolidated financial statements

20 Borrowings

The movements on the Group loans in the period were as follows:

  
Term Loan
B-2
  
Term Loan
B-3
  
Seattle Spinco
Term Loan B
  
Euro Term
Loan B
  
Revolving
Facility
  
Total
 
  
$m
 
$m
 
$m
 
$m
 
$m
 
$m
At May 1, 2017  
1,515.2
   
-
   
-
   
-
   
80.0
   
1,595.2
 
Acquisitions  
-
   
-
   
2,600.0
   
-
   
-
   
2,600.0
 
Draw downs  
-
   
385.0
   
-
   
523.8
   
135.0
   
1,043.8
 
Repayments  
(11.4
)
  
(2.9
)
  
(19.5
)
  
(4.1
)
  
(215.0
)
  
(252.9
)
Foreign exchange  
-
   
-
   
-
   
10.8
   
-
   
10.8
 
At October 31, 2018  
1,503.8
   
382.1
   
2,580.5
   
530.5
   
-
   
4,996.9
 
                         
At November 1, 2018  1,503.8   382.1   2,580.5   530.5   -   4,996.9 
Draw downs  -   -   -   -   -   - 
Repayments  (89.1)  (13.9)  (94.2)  (15.4)  -   (212.6)
Foreign exchange  -   -   -   (9.3)  -   (9.3)
At October 31, 2019  1,414.7   368.2   2,486.3   505.8   -   4,775.0 

Borrowingscarrying value for borrowings are stated after deducting unamortized prepaid facility fees and original issue discounts. Facility arrangement costs and original issue discounts are originally amortized between three and six years. The remaining unamortized fees of $59.6 million have a remaining period of amortization of up to two years. Long-term borrowings withhave a carryingdrawn value of $4,775.0m$4,608.0 million before unamortized prepaid facility fees. The fair value of the Long-term borrowings before unamortized prepaid facility fees have a fair value estimatecan be found in note 24, “Financial risk management and financial instruments”.

Short-term borrowing of $4,686.0m based$24.3 million represents capital repayments of $42.0 million falling due on trading pricesthe Group borrowings within one year less unamortized prepaid facility arrangement fees and original issue discounts of $17.7 million.

The Group’s earliest debt maturity is in June 2024, however as described below, annual instalment payments are required.

The following facilities were drawn as at October 31, 2019.2021:



•
The €585.0 million (equivalent to $676.0 million) senior secured five-year term loan B-1 issued by MA FinanceCo., LLC, maturing in June 2025, is priced at EURIBOR plus 4.5% (subject to a EURIBOR floor of 0.00%) with an original issue discount of 3.0%;

•
The $359.5 million senior secured seven-year term loan B-3 issued by MA FinanceCo., LLC, maturing in June 2024, is priced at LIBOR plus 2.75% (subject to a LIBOR floor of 0.00%) with an original issue discount of 0.25%;

•
The $633.7 million senior secured five-year term loan B-4 issued by MA FinanceCo., LLC, maturing in June 2025, is priced at LIBOR plus 4.25% (subject to a LIBOR floor of 1.00%) with an original issue discount of 2.5%;

•
The $2,427.9 million senior secured seven-year term loan B issued by Seattle SpinCo, Inc., maturing in June 2024, is priced at LIBOR plus 2.75% (subject to a LIBOR floor of 0.00%) with an original issue discount of 0.25%; and
Maturity of borrowings

•
The €442.2 million (equivalent to $510.9 million) senior secured seven-year term loan B issued by MA FinanceCo., LLC, maturing in June 2024, is priced at EURIBOR plus 3.00% (subject to a EURIBOR floor of 0.00%) with an original issue discount of 0.25%.

The maturity profilefollowing facilities were undrawn as at October 31, 2021:

A senior secured revolving credit facility of $350.0 million (“Revolving Facility”), with an interest rate of 3.25% above LIBOR on amounts drawn (and 0.5% on amounts undrawn) thereunder (subject to a LIBOR floor of 0.00%).

At October 31, 2021, NaN of the anticipated future cash flows includingRevolving Facility was drawn (October 31, 2020: $nil), together with $4,608.0 million of term loans giving gross debt of $4,608.0 million drawn.

On January 17, 2022, the Group announced the refinancing of $1.6 billion of existing term loans. This refinancing comprised a €750 million and a $750 million Senior Secured Term Loan B. The new 5-year Facilities have been used by the Group to fully refinance its existing Senior Secured Term Loan B Euro facility issued by MA FinanceCo., LLC due June 2024 as well as partially refinance the existing Senior Secured Term Loan B USD facilities issued by Seattle SpinCo, Inc., ($750 million refinanced, $1,678 million remaining) and MA FinanceCo., LLC, ($359.5 million B-3 fully replaced by additional Euro borrowing) due June 2024.

The new 5-year Facilities incurs interest at 4.00% above EURIBOR (subject to 0% floor) at an original issue discount of 0.5% on the Euro denominated tranche, and 4.00% above SOFR and CSA (subject to 0.5% floor) at an original issue discount of 1.0% on the US dollar denominated tranche. This represents an increase in relationannualised interest costs of approximately $23.0 million.

The following covenants related to net leverage apply to the Group’s borrowings on an undiscounted basis, which therefore, differs from bothterm-loan borrowing facilities:


•
The Revolving Facility is subject to a single financial covenant, only in circumstances when more than 35% of the Revolving Facility is outstanding at a fiscal quarter end. Throughout the year the applicable covenant threshold was 3.85x, however no test was applicable at October 31, 2021 or any previous test date, as the facility was not drawn in excess of the 35% threshold. This facility has been amended post year end with the facility reduced to $250 million and with maturity extended until December 2026, subject to tests for the term loan maturities in June 2024 and June 2025. The amended facility is subject to a covenant test when more than 40% of the revolving credit facility is outstanding at a fiscal quarter end with a 5.00x net leverage covenant being applied.
Additional debt repayments when the carrying value and fair value, is as follows:

AsGroup’s net leverage at October 31, 2019:exceeds 3.00x, when 25% of excess cash flow for the year is required to be paid, and 3.30x, when 50% of excess cash flow for the year is required to be paid

  
Term Loan
B-2
  
Term Loan
B-3
  
Seattle Spinco
Term Loan B
  
Euro
Term
Loan B
  
Revolving
Facility
  
Total
 
  
$m
 
$m
 
$m
 
$m
 
$m
 
$m
Within one year  61.6   17.0   114.6   14.1   1.9   209.2 
In one to two years  61.5   16.9   114.3   14.6   1.9   209.2 
In two to three years  1,419.8   18.5   124.1   19.3   1.6   1,583.3 
In three to four years  -   20.6   139.4   19.1   -   179.1 
In four to five years  -   373.5   2,522.6   503.6   -   3,399.7 
In more than five years  -   -   -   -   -   - 
At October 31, 2019  1,542.9   446.5   3,015.0   570.7   5.4   5,580.5 

F-76Net proceeds from divestitures in excess of $45 million are required to be used to make debt repayments. When the Group’s net leverage exceeds 3.00x, 100% of net proceeds must be used for debt repayments. When net leverage is below 3.00x, 50% of net proceeds must be used to make a debt repayment; however no further debt repayment is required once repayment reduces net leverage below 2.50x on a pro forma basis therefore use of excess disposal proceeds at this point is at the Group’s discretion; and
F-50

Consolidated financial statements and notes
Notes to the consolidated financial statements

20 Borrowings continued

18
Borrowings continued


•
An additional 25 basis points of margin is required to be paid on the term loans maturing in June 2024 when net leverage exceeds 3.00x. The Group is currently paying this margin.

MaturityThese covenants are not expected to inhibit the Group’s future operations or funding plans.

Net leverage is defined as net debt (see note 24)/Adjusted EBITDA (see note 1). The credit facility agreements apply frozen GAAP for IFRS 16 and allows certain expected cost savings to be included in the measurement therefore the calculated value differs from that using net debt/Adjusted EBITDA as presented in this annual report. The difference has not exceeded 0.20x during the current period.

In addition to the net leverage related payments the Group’s borrowing arrangements include annual repayments of 1% of the initial par value for the B-3, Seattle Spinco and Euro term B loans and 2.5% of the initial par value for the B-1 and B4 loans with the amount paid in 4 equal quarterly instalments and then a final balloon payment on maturity.

The movements on the Group loans in the year were as follows:

  
term
loan
B-1
EUR
  
term
loan
B-2
USD
  
term
loan
B-3
USD
  
term
loan
B-4
USD
  
Seattle
Spinco
term loan
B
  
Euro
term
loan
B
  
Revolving
Facility
  Total 
  
$m

 
$m

 
$m

 
$m

 
$m

 
$m

 
$m

 
$m

At November 1, 2020  700.3   0   368.2   650.0   2,486.3   528.4   0
   4,733.2
 
Draw downs
  0   0   0   0   0   0   0   0 
Repayments  (17.9)  0   (8.7)  (16.3)  (58.4)  (12.8)  0   (114.1)
Foreign exchange  (6.4)  0   0   0   0   (4.7)  0   (11.1)
At October 31, 2021
  676.0   0   359.5   633.7   2,427.9   510.9   0   4,608.0 
                                 
At November 1, 2019  0   1,414.7   368.2   0   2,486.3   505.8   0   4,775.0 
Draw downs  665.8   0   0   650.0   0   0   175.0   1,490.8 
Repayments  0   (1,414.7)  0   0   0   0   (175.0)  (1,589.7)
Foreign exchange  34.5   0   0   0   0   22.6   0   57.1 
At October 31, 2020
  700.3   0   368.2   650.0   2,486.3   528.4   0   4,733.2 

The maturity of borrowings continuedcan be seen in note 24, “Financial risk management and financial instruments”.

  
Less than 1
year
  
1-3
years
  
3-5
years
  
After
5 years
  
Total
 
  
$m


$m


$m


$m


$m
Debt principal repayment  -   1,431.7   3,343.3   -   4,775.0 
Interest payment on debt  209.2   360.6   235.7   -   805.5 
At October 31, 2019  209.2   1,792.3   3,579.0   -   5,580.5 

As at October 31, 2018:

  
Term Loan
B-2
  
Term
Loan B-3
  
Seattle Spinco
Term Loan B
  
Euro Term
Loan B
  
Revolving
Facility
  
Total
 
  
$m


$m


$m


$m


$m


$m
Within one year  
84.3
   
22.4
   
151.2
   
20.1
   
1.9
   
279.9
 
In one to two years  
83.8
   
22.2
   
150.2
   
20.0
   
1.9
   
278.1
 
In two to three years  
82.9
   
22.0
   
148.6
   
19.8
   
1.9
   
275.2
 
In three to four years  
1,462.1
   
21.8
   
147.4
   
19.6
   
1.6
   
1,652.5
 
In four to five years  
-
   
21.6
   
146.1
   
19.5
   
-
   
187.2
 
In more than five years  
-
   
374.2
   
2,526.8
   
512.7
   
-
   
3,413.7
 
At October 31, 2018  
1,713.1
   
484.2
   
3,270.3
   
611.7
   
7.3
   
6,086.6
 

  
Less than 1
year
  
1-3
years
  
3-5
years
  
After
5 years
  
Total
 
  
$m


$m


$m


$m


$m
Debt principal repayment  
50.3
   
100.7
   
1,528.8
   
3,317.1
   
4,996.9
 
Interest payment on debt  
229.6
   
452.6
   
310.9
   
96.6
   
1,089.7
 
At October 31, 2018  
279.9
   
553.3
   
1,839.7
   
3,413.7
   
6,086.6
 


Assets pledged as collateral
An all assets security has been granted in the US and England & Wales by certain members of the Micro Focus Group organized in such jurisdictions, including security over intellectual property rights and shareholdings of such members of the Micro Focus Group.


F-77F-51

Consolidated financial statements and notes
Notes to the consolidated financial statements

21 Finance leases
19 Leases

  October 31, 2019  October 31, 2018 
  
$m


$m
Current  11.8   
13.6
 
Non-current  11.7   
14.9
 
   23.5   
28.5
 


Finance lease liabilities – minimum lease payments:

  October 31, 2019  October 31, 2018 
  
$m


$m
Within one year  13.1   
15.1
 
Between one and five years  12.5   
16.0
 
   25.6   
31.1
 
Future lease charges  (2.1)  
(2.6
)
   23.5   
28.5
 

The carrying valueGroup enters into leasing arrangements in the normal course of computer equipment held under finance leases and hire purchase contracts as at October 31, 2019 was $20.9m (October 31, 2018: $25.9m) (note 12).its business including:


-Office space (included in “Leasehold land and buildings”);
Finance lease liabilities – present value of minimum lease payments:

-Data centers (included in “Leasehold land and buildings”);


-Vehicles (included in “Other”); and
  October 31, 2019  October 31, 2018 
  
$m


$m
Within one year  11.8   
13.6
 
Between one and three years  10.8   
13.3
 
Between three and five years  0.9   
1.6
 
   23.5   
28.5
 


-Computer equipment.

The Group’s obligationslease arrangements can contain a number of features including some or all of:

-Extension and break options;

-Variable lease payments;

-Annual or periodic set rental increases; and

-Indexed or market-based rental increases.

Consistent with the requirements of IFRS 16, extension options are only included in the lease liability where they are considered reasonably certain, see below, and only fixed rental increases are included in the lease liability. Indexed or market-based rental increases are only included in the lease liability once the indexation or rent review date has passed. Variable lease payments are expensed as incurred. The Group makes no material payments for variable payments not included in the lease liability.

NaN individual leased properties are material to the Group. One is located in Provo, Utah, where the Group currently leases approximately 405,700 square feet of office space. The Group has recently concluded negotiations with the landlord for this facility for which the lease was set to end in 2024 to extend the lease term with a reduction in floor space in stages. In February 2022, an initial reduction to approximately 239,100 square feet, then from June 2024 to approximately 219,900 square feet with a further reduction in floor space from December 2024 to approximately 142,300 square feet. This new lease agreement expires in 2034, with an option to extend for a further 3, five-year periods. The Group’s current annual rent under financethis lease is $8.7 million (2020: $8.4 million) and this will reduce as the floor space reduces to $5.3 million per annum in February 2022 and $3.6 million per annum from December 2024. Since March 1, 2019, part of the property has been sublet. Current annual sub-lease income is $1.1 million (2020: $1.1 million). The second property is located in Santa Clara, California, where the Group currently leases are secured by charges overapproximately 635,000 square feet of office space. The lease on this facility expires in 2029, with an option to extend for 1 further five-year period. The Group’s current annual rent under this lease is $4.9 million (2020: $4.7 million). The Group is currently not utilizing one and a half floors of this facility and the related leased assets. The weighted average fixed interest rate onright-of-use assets has been tested for impairment with a partial impairment recorded.

Right-of-use assets
During the outstanding finance lease liabilities is 7.5% (October 31, 2018: 8.5%)year the Group entered into new leasing arrangements, extended existing leasing agreements and was party to rent reviews and therefore recognized additions to right-of-use assets of $38.8 million (2020: $42.0 million). Right-of-use assets of $8.9 million were transferred to held for sale during the period, see note 30, “Discontinued operations and Assets held for sale.”


  
Leasehold land
and buildings
  
Computer
equipment
  Other  Total 
  
$m



$m



$m



$m
Net book value at October 31, 2021
  128.5   16.0   8.7   153.2 
Net book value at October 31, 2020
  
180.1
   
20.4
   
6.7
   
207.2
 
                 
Depreciation charge for the year ended October 31, 2021
  56.9   9.6   6.8   73.3 

F-78F-52

Consolidated financial statements and notes
Notes to the consolidated financial statements

22 Current tax receivables, current tax liabilities
19
Leases continued

Amounts recognized in the statement of comprehensive income:


    
Year ended
October 31, 2021
  
Year ended
October 31, 2020
  
Year ended
October 31, 2019
Under IAS 17
 
  Note  
$m

 

$m

 

$m

                
Interest on lease liabilities  6   10.0   
13.2
   
-
 
Depreciation of right-of-use assets      73.3   
76.9
   
-
 
Impairment of right-of-use assets*      5.6   
5.9
   
-
 
Income from sub-leasing right-of-use assets      0.2   
0.4
   
-
 
                 
Under IAS 17:                
Interest on lease liabilities  6   -   -   2.0 
Depreciation of lease assets      -   -   13.9 
Lease expense      -   -   65.9 
Income from sub-leasing right-of-use assets      -   -   1.0 

*The Group assessed right-of-use assets for indicators of impairment during the year in particular leases, which have become vacant or part vacant or changes in sub-lease expectations on existing vacant properties. As a result, an additional impairment of $5.6 million was recognized in the year (2020: $5.9 million). The impairment against the right-of-use asset carrying value reflects any expected sub lease-income over the remainder of the lease.

Amounts recognized in statement of cash flows:

  
Year ended
October 31, 2021
  
Year ended
October 31, 2020
 
  
$m

 
 $m

Interest payments on lease liabilities  10.0   
13.2
 
Payment for lease liabilities  79.5   
80.1
 
Total cash outflow for leases  89.5   
93.3
 

Extension options
Some property leases contain extension options exercisable by the Group before the end of the non-cancellable contract period. Where practicable, the Group seeks to include extension options in new leases to provide operational flexibility. The extension options held are exercisable only by the Group and non-current tax liabilitiesnot by the lessors. As a lessee, optional periods are included in the lease term if the Group is reasonably certain it will exercise an extension option or will not exercise a termination option; this depends on an analysis by management of all relevant facts and circumstances including the leased asset’s nature and purpose, the economic and practical potential for replacing the asset and any plans that the Group has in place for the future use of the asset. Where it is impractical or uneconomic to replace then the Group is more likely to judge that lease extension options are reasonably certain to be exercised.

The normal approach adopted for lease term by asset class is described below.
Current tax receivables

  October 31, 2019  October 31, 2018 
  
$m


$m
Corporation tax
  40.1   
24.5
 


The current tax receivablelease terms can vary significantly by type and use of asset and geography. In addition, the exact lease term is subject to the non-cancellable period and rights and options in each contract. Generally, lease terms are judged to be the longer of the minimum lease term and:

Up to five years for offices, unless the non-cancellable period exceeds this, with optional extension periods only included in leases expiring in the earlier part of this period and where clear plans to extend the leases are already in place; and
Up to three years for data centres with optional extensions periods, where they exist, only included for leases expiring in the next year and for which relocation of the assets located in the data centre is considered uneconomic.

For vehicle leases the minimum lease term, typically three to four years, is judged to be the lease term. Extension options for vehicles are not considered reasonably certain as the assets are not highly customized or difficult to replace.

The Group reassesses whether it is reasonably certain to exercise the options if there is a significant event or significant changes in circumstances within its control. Significant changes in assumptions or activities e.g. such as an acquisition or disposal, would impact the expected future cash outflows related to leasing activities. Where a significant event or change in circumstances does not occur, the lease term and therefore the lease liability and right-of-use asset, will decline over time. The Group’s cash outflow for leases in the year ended October 31, 2021 was $89.5 million (2020: $93.3 million). Leases with annual cash outflows during the year ended October 31, 2021 of $3.0 million (2020: $8.9 million) ended and were not renewed or replaced. Considering the impact of these terminations and
F-53

Consolidated financial statements and notes
Notes to the consolidated financial statements
19
Leases continued

absent significant future changes in the volume of the Group’s activities or strategic changes to lease fewer assets the Group’s cash outflow would be expected to continue for future periods at a consistent level, subject to any contractual price increases.

The maturity analysis of the Group’s lease liability, in note 24 “Financial risk management and financial instruments”, only includes the reasonably certain payments to be made; cash outflows in these future periods will likely exceed these amounts as payments will be made on optional periods not considered reasonably certain at present and on new leases entered into in future periods.

Lease obligations:
Under IFRS 16 “Leases”, the Group recognizes the discounted future lease payments over the reasonably certain lease term as a liability along with an associated right-of-use asset, see above.

The movement on the Group lease obligations in the year were as follows:

  Note  
October 31, 2021
$m
  
October 31, 2020
$m
 
IFRS 16 adoption      0   
269.8
 
Transfer from Finance lease liability      0   
23.5
 
Balance at November 1     250.4   
293.3
 
Additions      35.1   
41.6
 
Disposals      0   
(0.2
)
Payments      (89.5)  
(93.3
)
Interest   6   10.0   
13.2
 
Transferred to held for sale  30   (11.4)  
0
 
Foreign exchange       (0.1)  
(4.2
)
Balance at October 31,        194.5   
250.4
 
             
Included within:             
Current liabilities       74.9   
82.2
 
Non-current liabilities       119.6   
168.2
 
Total       194.5   
250.4
 

Leases as lessor
The Group acts as a lessor where it is able to sub-lease vacant property space. Sub-leases are classified as either finance leases or operating leases dependent upon the transfers of substantially all of the risk and rewards associated with the head lease to the lessee in the sub-lease agreement.

Finance leases
The Group has 6 lease arrangements classified as finance leases. The long-term element of net investment in leases of $6.0 million as at October 31, 20192021 (2020: $5.5 million) is $40.1m (October 31, 2018: $24.5m)included in note 13 “Other non-current assets”.

Current tax liabilities

  October 31, 2019  October 31, 2018 
  
$m


$m
Corporation tax
  104.0   
124.1
 

The current tax creditorshort-term element of net investments in leases of $1.9 million as at October 31, 20192021 (2020: $2.1 million) is $104.0m (October 31, 2018: $124.1m)included in other receivables in note 14 “Trade and other receivables”. The current tax creditor includes

20 Contract liabilities

  October 31, 2021
  October 31, 2020
 
  
$m



$m

Current  984.6   
981.4
 
Non-current  131.8   
117.2
 
   1,116.4   
1,098.6
 

Revenue billed but not recognized in the Consolidated statement of comprehensive income under the Group’s accounting policy for revenue recognition is classified as contract liabilities in respectthe Consolidated statement of uncertain tax positions, net of overpayments.

Within current tax liabilities is $78.3m (October 31, 2018: $67.7m) in respectfinancial position and recognized over the period of the Group income tax reserve, the majority of whichcontract. Contract liabilities primarily relates to the risk of challenge from the local tax authorities. The Group does not anticipate that there will be any material change to these provisions in the next 12 months. Due to the uncertainty associated with such tax items, it is possible that at a future date,undelivered maintenance and subscription services on conclusion of open tax matters, the final outcome may vary significantly.billed contracts.

Non-current tax liabilities

  October 31, 2019  October 31, 2018 
  
$m


$m
Corporation tax
  119.7   
131.0
 

The non-current tax creditor is $119.7m (October 31, 2018: $131.0m). The non-current creditor reflects the US transition tax payable more than 12 months after the balance sheet date.

23 Contract liabilities

  October 31, 2019  October 31, 2018 
  
$m


$m
Current
  1,045.9   
1,134.7
 
Non-current
  149.9   
178.1
 
   1,195.8   
1,312.8
 


Contract liabilities as at October 31, 20192021 were $1,195.8m (October 31, 2018: $1,312.8m)$1,116.4 million (2020: $1,098.6 million). The movement in contract liabilities in the periodyear mainly results from new amounts being deferred, where the billing is in advance of satisfaction of the related performance obligation, and amounts being recognized as revenue, where performance obligations have been satisfied. The amount of revenue recognized in the reporting periodyear that was included in the contract liability balance as at November 1, 20182020 was $1,134.7m.$981.4 million (2020: $1,045.9 million).


Revenue billed but not recognized in the
F-54

Consolidated statement of comprehensive income under the Group’s accounting policy for revenue recognition is classified as contract liabilities infinancial statements and notes
Notes to the consolidated statement of financial position to be recognized in future periods. Contract liabilities primarily relates to undelivered maintenance and subscription services on billed contracts.statements

20
Contract liabilities continued

Remaining Performance Obligationsperformance obligations
Revenue allocated to remaining performance obligations represents contracted revenue that has not yet been recognized which includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods.years. The remaining revenue allocated to future performance obligations was $1,468.9m$1,563.9 million as at October 31, 2019,2021 (2020: $1,598.1 million), of which approximately 80%76% (2020: 77%) of the revenue is expected to be recognized over the next 12 months and the remainder thereafter.


This amount mostly comprises obligations to provide maintenance and SaaS subscriptions as the contracts have durations of one or multiple years.


F-79
21 Provisions and contingent liabilities

  October 31, 2021
  October 31, 2020
 
  
$m

 

$m

Onerous leases and dilapidations  25.4   
16.9
 
Restructuring  23.0   
30.8
 
Legal  25.0   
9.7
 
Other  12.1   
14.8
 
Total  85.5   
72.2
 
         
Current  65.7   
49.7
 
Non-current  19.8   
22.5
 
Total  85.5   
72.2
 
Table of Contents
     
Onerous
contracts and
dilapidations
  Restructuring  Legal  Other  Total 
  Note  $m

 $m

 $m

 $m

 $m

At November 1, 2020    16.9  30.8  9.7  14.8  72.2 
Acquisitions  31  0  0  0  0.1  0.1 
Additional provision in the year     17.9  32.6  93.3  3.1  146.9 
Released     (2.5) (7.6) (2.5) (2.8) (15.4)
Utilization of provision     (5.9) (32.8) (75.6) (3.1) (117.4)
Effects of movements in exchange rates     0.2  0  0.1  0  0.3 
Transferred to current liabilities classified as held for sale     (1.2) 0  0  0  (1.2)
At October 31, 2021
     25.4  23.0  25.0  12.1  85.5 
                    
Current     11.6  19.0  25.0  10.1  65.7 
Non-current     13.8  4.0  0  2.0  19.8 
Total     25.4  23.0  25.0  12.1  85.5 
Consolidated financial statements and notes
Notes to the consolidated financial statements

24 Provisions

  October 31, 2019  October 31, 2018 
  
$m


$m
Onerous leases and dilapidations  34.2   
35.1
 
Restructuring  36.4   
50.7
 
Legal  5.7   
7.0
 
Other  2.1   
-
 
Total  78.4   
92.8
 
         
Current  29.3   
57.4
 
Non-current  49.1   
35.4
 
Total  78.4   
92.8
 

     
Onerous
leases and
dilapidations
  
Restructuring
  
Legal
  
Other
  
Total
 
  Note  
$m


$m


$m


$m


$m
At November 1, 2018     35.1   50.7   7.0   -   92.8 
                        
Acquisitions – Interset Software Inc.  38   -   -   -   0.7   0.7 
Additional provision in the period      19.2   49.4   5.4   2.1   76.1 
Released      (7.4)  (19.8)  (6.2)  -   (33.4)
Utilization of provision      (13.9)  (43.5)  (0.5)  (0.7)  (58.6)
Unwinding of discount      1.1   -   -   -   1.1 
Effects of movements in exchange rates      0.1   (0.4)  -   -   (0.3)
At October 31, 2019      34.2   36.4   5.7   2.1   78.4 
                         
Current      9.5   12.0   5.7   2.1   29.3 
Non-current      24.7   24.4   -   -   49.1 
Total      34.2   36.4   5.7   2.1   78.4 

Consolidated financial statements and notes
Notes to the consolidated financial statements

24 Provisions continued

     
Onerous
leases and
dilapidations
  
Restructuring
  
Legal
  
Other
  
Total
 
  Note  
$m


$m


$m


$m


$m
At May 1, 2017     
16.3
   
12.1
   
3.2
   
0.5
   
32.1
 
                        
Continuing operations:                       
Acquisitions – HPE Software business  38   
11.3
   
21.4
   
36.5
   
-
   
69.2
 
Additional provision in the period      
17.7
   
133.4
   
1.4
   
-
   
152.5
 
Released      
(3.9
)
  
(3.7
)
  
(4.7
)
  
(0.4
)
  
(12.7
)
Utilization of provision      
(5.6
)
  
(110.0
)
  
(29.3
)
  
(0.1
)
  
(145.0
)
Effects of movements in exchange rates      
(0.7
)
  
(2.5
)
  
(0.1
)
  
-
   
(3.3
)
                         
Discontinued operation:                        
Additional provision in the period      
2.8
   
0.2
   
-
   
-
   
3.0
 
Reclassification of current assets classified as held for sale  37   
(2.8
)
  
(0.2
)
  
-
   
-
   
(3.0
)
At October 31, 2018      
35.1
   
50.7
   
7.0
   
-
   
92.8
 
                         
Current      
11.2
   
39.2
   
7.0
   
-
   
57.4
 
Non-current      
23.9
   
11.5
   
-
   
-
   
35.4
 
Total      
35.1
   
50.7
   
7.0
   
-
   
92.8
 


Onerous leasescontracts and dilapidations provisions
The onerous leasecontracts include onerous non-rental related property costs and dilapidations provision relatesother onerous contracts. Additional onerous contracts in relation to leased Group properties and this position is expected to be fully utilized within eight years. An additional provisionproperty of $19.2m$4.8 million was recorded in the 12 monthsyear ended October 31, 2019,2021 (2020: $3.2 million), mainly across European and US sites, as the property portfolio was reassessed, including planned site vacations andvacations. Additional provisions of $10.4 million were also recorded for other onerous contracts principally related to IT contracts in relation to the Group’s former enterprise platforms.

The dilapidations provision relates to obligations to restore leased Group properties. The positions regarding the non-rental related property costs are expected to be fully utilized within 13 years. An additional provision of $2.7 million was recorded in the year ended October 31, 2021 (2020: $3.2 million) following a review of obligations to restore leased property at the end of the lease period.

The provision was increased by $29.0m in the 18 months ended October 31, 2018, due
F-55

Consolidated financial statements and notes
Notes to the acquisition of the HPE Software business ($11.3m) and relating to legal obligations to restore leased properties at the end of the lease period and a reassessment of sites across North America, United Kingdom, Israel and Australia ($17.7m). Provisions of $3.9m were released following the renegotiation/exit of leases of two North American properties.consolidated financial statements

21
Provisions and contingent liabilities continued

Restructuring provisions
Restructuring provisions relate to severance resulting from headcount reductions. The majority of provisions are expected to be fully utilized within 2412 months. Restructuring costs are reported within exceptional costs (note 4)4, “Exceptional items”).


Legal provisions and Contingent liabilities
Legal provisions include the directors’ best estimate of the likely outflow of economic benefits associated with on-going legal matters. Further information on legal mattersThis includes the following two matters:

Patent litigation
On the matter of litigation with Wapp the Company reached a settlement with Wapp for payment of $67.5 million to completely resolve the dispute for itself and its customers without admission of liability during the year. The matter was previously disclosed as a contingent liability. The provision movement in the period includes this settlement and associated costs. In line with our accounting policy, the cost of recording this provision has been treated as an exceptional cost in the Consolidated Statement of Comprehensive Income for the year ended October 31, 2021 and further details can be found in note 35,4, “Exceptional items.”

Shareholder litigation
The shareholder litigation complaint in the United States District Court for the Southern District of New York, previously disclosed as a contingent liabilities.liability, has been followed by a mediation during the period where the parties have reached an agreement to settle the case on terms including a payment of $15.0 million to a settlement class. The proposed settlement is subject to the court’s approval. The Group has recognized a legal provision of $15.0 million and an insurance receivable, within other receivables, of $15.0 million. Therefore, the charge to establish the provision nets to zero in the Consolidated Statement of Comprehensive Income for the shareholder litigation. The settlement amount will be paid from insurance coverage. The Company and all defendants have denied, and continue to deny, the claims alleged in the case and the settlement does not reflect any admission of fault, wrongdoing or liability as to any defendant.


In the Superior Court of California, the matter is ongoing. No liability has been recognized in this case as it is too soon to estimate whether there will be any financial impact.

California employee claim
In 2018, a putative class action complaint was filed alleging that HPE pays California-based female employees “systemically lower compensation” than male employees performing substantially similar work. This action remains on-going. As part of the Group’s acquisition of the HPE Software business, terms were agreed that allocate potential financial responsibility for litigation between both parties. The Group has recognised no liability in this case as we are unable to estimate whether there will be any financial impact.

Other provisions
Other provisions during the 12 months endedat October 31, 20192021 predominantly relate to interest on uncertain tax provisions of $2.1m. Releases$5.6 million (2020: $7.6 million) and a provision for estimated unclaimed property exposure pertaining to accounts payable of other provisions during$4.2 million (2020: $4.4 million). Discussion on the 18 months ended October 31, 2018 relate to future fees no longer considered likely to be incurred.

Consolidated financial statements and notes
NotesEU State Aid tax contingent liability in relation to the consolidated financial statementsEU State Aid case is included in note 7, “Taxation”.


25
22 Pension and other long-term benefit commitments

a)a) Defined contribution

The Group has established a number of pension schemes around the world covering many of its employees. The principal funds are those in the US, UK and Germany. These were funded schemes of the defined contribution type.


Pension costs for defined contributionscontribution schemes are as follows:


    
12 months ended
October 31, 2019
  
18 months ended
October 31, 2018
  
12 months ended
April 30, 2017
     
Year ended
October 31, 2021
  
Year ended
October 31, 2020
  
Year ended
October 31, 2019
 
Continuing operations Note  
$m

$m

$m
 Note  
$m

 
$m

 

$m

Defined contribution schemes 33  32.7  
43.3
  
10.9
  28  34.2
  
31.2
  
32.7
 


b)Defined benefit
b) Defined benefit
  October 31, 2021
  October 31, 2020
 
  
$m

 
$m

Within non-current assets:        
Long-term pension assets
  17.1
   
18.2
 
         
Within non-current liabilities:        
Retirement and other benefit obligations
  (147.1)  
(155.0
)


  October 31, 2019  October 31, 2018 
  
$m


$m
Within non-current assets:        
Long-term pension assets  17.1   
16.7
 
Within non-current liabilities:        
Retirement benefit obligations  (141.4)  
(110.4
)

F-56
The acquisition

Consolidated financial statements and subsequent integration ofnotes
Notes to the software segment of Hewlett Packard Enterprise Company (“HPE Software”) on September 1, 2017 added 27 definedconsolidated financial statements
22 Pension and other long-term benefit plans primarily in France, Germany and Switzerland.commitments continued


As of October 31, 20192021, there are a total of 3036 defined benefit plans in 1012 countries around the world (October 31, 2018: 30)(2020: 33). The highest concentration of the pension schemesdefined benefit plans are in Germany, where the Group sponsor 11sponsors 12 (2020: 12) separate schemes that comprise over 85%73% (2020: 83%) of the total net retirement benefit obligation recorded on our Consolidatedin the Group’s consolidated statement of financial position. OurThe Group’s German schemes are primarily final salary pension plans, which provide benefits to members either in the form of a lump sum payment or a guaranteed level of pension payable for life in the case of retirement, disability and death. The level of benefits provided depends not only on the final salary but also on members’member’s length of service, social security ceiling and other factors. Although most of these schemes in Germany are funded at some level, there are typically no funding requirements in Germany. There are no requirements for the appointment of independent trustees in Germany, and all of these schemes are administered locally with the assistance of German pension experts. Final pension entitlements, including benefits for death in service and disability amounts, are calculated by these experts. Plan assets for three3 of our German schemes include re-insurance contracts with guaranteed interest rates, while the majority of the schemes invest in a funds focusing on equities and debt instruments. Most of ourthe Group’s German schemes are closed to new entrants, however, two3 of the schemes are open to new members.


The remainder of the Group’s defined benefit schemes are comprised of a mix of final salary plans, termination or retirement indemnity plans, and other types of statutory plans that provide a one-time benefit at termination.termination and leave plans which allow the participants to carry over leave time earned for a period of time exceeding one year. Final pension entitlements are calculated by local administrators in the applicable country. They also complete calculations for cases of death in service and disability. Where required by local or statutory requirements, some of the schemes are governed by an independent Board of Trustees that is responsible for the investment strategies with regard to the assets of the funds,funds; however, other schemes are administered locally with the assistance of local pension experts. Many of the Group’s plans outside of Germany are funded and the Group makes at least the minimum contributions required by local government, funding and taxing authorities. Plan assets for these schemes include a range of assets including investment funds or re-insurance contracts. Not all of these plans are closed forto new membership.members. The Group sponsors 1024 plans outside of Germany that(2020: 12). Of these, 17 plans are open to new members, most of which are termination or retirement indemnity plans, or statutory plans providing a one-time benefit at termination, retirement, death or disability. As a result of the acquisition of HPE Software, thedisability and leave plans. The Group participates in multi-employer plans in Switzerland and Japan. These plans are accounted for as defined benefit plans and the Group’s obligations are limited to the liabilities of our employees.


There were 7 leave plans reclassified to the net retirement and other defined benefit obligation during the year ended October 31, 2021 and 3 plans reclassified to the net retirement obligation during the year ended October 31, 2020. None of the plans are final salary plans and none are material.

Long-term pension assets

Long-term pension assets relate to the contractual arrangement under insurance policies held by the Group with guaranteed interest rates that do not meet the definition of a qualifying insurance policy, as they have not been pledged to the plan or beneficiaries and are subject to the creditors of the Group. Such arrangements are recorded in the Consolidatedconsolidated statement of financial position as long-term pension assets. During the years ended October 31, 2021 and 2020, some of the insurance policies previously unpledged were pledged to the pension plans and transferred to plan assets. These contractual arrangements are treated as financial assets measured at fair value through Otherother comprehensive income. Movement in the fair value of long-term pension assets is included in Otherother comprehensive income. All non-plan assets are held in Germany.


The movement on the long-term pension assets is as follows:

     October 31, 2021
  October 31, 2020
 
  Note  $m
  $m
 
As at November 1     18.2   
17.1
 
Transfer to plan assets     (1.2)  
(0.4
)
Interest on non-plan assets  6   0.2   
0.2
 
Benefits paid      (0.2)  
(0.1
)
Contributions      0.1   
0.3
 
             
Included within other comprehensive income:            
- Change in fair value assessment      0.2   
0.4
 
       0.2   
0.4
 
             
Effects of movements in exchange rates      (0.2)  
0.7
 
             
At October 31      17.1   
18.2
 
Included within other comprehensive income:            
Continuing operations      0.2   
0.4
 
       0.2   
0.4
 

F-82F-57

Consolidated financial statements and notes
Notes to the consolidated financial statements

2522 Pension commitments and other long-term benefit commitmentscontinued
Long-term pension assetscontinued

The movement on the long-term pension asset is as follows:

     October 31, 2019  October 31, 2018 
  Note  
$m


$m
As at November 1 / May 1     16.7   
22.0
 
Reclassification to assets held for sale     0.1   
(1.5
)
Interest on non-plan assets  6   0.3   
0.6
 
Benefits paid      (0.1)  
(0.2
)
Contributions      0.3   
0.5
 
             
Included within other comprehensive income:            
-  Change in fair value assessment      0.4   
(6.1
)
-  Actuarial gain on non-plan assets      -   
0.3
 
       0.4   
(5.8
)
             
Effects of movements in exchange rates      (0.6)  
1.1
 
As at October 31,      17.1   
16.7
 
             
Included within other comprehensive income:            
Continuing operations      0.3   
(5.3
)
Discontinued operation      0.1   
(0.5
)
       0.4   
(5.8
)


The non-plan assets are considered to be Level 3 asset under the fair value hierarchy as of October 31, 2019.2021. These assets have been valued by an external insurance expert by applying a discount rate to the future cash flows and taking into account the fixed interest rate, mortality rates and term of the insurance contract. There have been no transfers between levels for the periodyear ended October 31, 2019 (October 31, 2018:2021 (2020: none).


Retirement benefit obligations
The following amounts have been included in the Consolidatedconsolidated statement of comprehensive income for defined benefit pension arrangements:


     
12 months ended
October 31, 2019
  
18 months ended
October 31, 2018
  
12 months ended
April 30, 2017
 
  Note  
$m


$m


$m
Current service charge     9.0   
12.6
   
0.5
 
Past service credit     -   
(5.5
)
  
-
 
Charge to operating profit  33   9.0   
7.1
   
0.5
 
                 
Current service charge – discontinued operations      0.1   
0.3
   
0.1
 
                 
Interest on pension scheme liabilities      4.2   
5.2
   
0.7
 
Interest on pension scheme assets      (1.8)  
(2.4
)
  
(0.1
)
Charge to finance costs  6   2.4   
2.8
   
0.6
 
                 
Total continuing charge to profit for the period      11.5   
10.2
   
1.2
 
     
Year ended
October 31, 2021
  
Year ended
October 31, 2020
  
Year ended
October 31, 2019
 
  Note  
$m

 
$m

 
$m

Current service charge  28   11.3   
10.4
   
9.0
 
Changes in other long-term benefits     1.4
   
0
   
0
Charge to operating loss  
   12.7   
10.4
   
9.0
 
                 
Current service charge – discontinued operations      0   
0
   
0.1
 
                 
Interest on defined benefit liabilities      2.6   
3.1
   
4.2
 
Interest on defined benefit assets      (1.1)  
(1.3
)
  
(1.8
)
Charge to finance costs  6   1.5   
1.8
   
2.4
 
                 
Total continuing charge to loss for the year
      14.2   
12.2
   
11.5
 

Past service credits are the result of headcount reductions under the Group’s restructuring and integration activities relating to the acquisition of the HPE Software business (note 38).


The contributions for the year ended October 31, 20202022 are expected to be broadly in line with the 12 months toyear ended October 31, 2019. 2021.

The Group funds the schemes so that it makes at least the minimum contributions required by local government, funding and taxing authorities. There are no funding requirements in Germany.


The following amounts have been recognized as movements in the statement of other comprehensive income:

  
Year ended
October 31, 2021
  
Year ended
October 31, 2020
  
Year ended
October 31, 2019
 
  $m
  $m
  $m
 
Actuarial return on assets excluding amounts included in interest income  20.7   
1.8
   
5.9
 
             
Re-measurements – actuarial gains/(losses):            
-     Demographic  1.3   
0
   
(1.6
)
-     Financial  9.8   
(0.6
)
  
(38.8
)
-     Experience  1.6   
3.0
   
8.4
 
   12.7   
2.4
   
(32.0
)
             
Reclassification from defined contribution scheme or other assets and liabilities to defined benefit scheme  0   
(4.6
)
  
0
 
Movement in the year  33.4   
(0.4
)
  
(26.1
)
             
Continuing operations  33.4   
(0.4
)
  
(26.2
)
Discontinued operation  0   
0
   
0.1
 
   33.4   
(0.4
)
  
(26.1
)

F-83F-58

Consolidated financial statements and notes
Notes to the consolidated financial statements

25
22 Pension commitments commitmentscontinued

The following amounts have been recognized as movements in the Consolidated statement of other comprehensive income:

  
12 months ended
October 31, 2019
  
18 months ended
October 31, 2018
  
12 months ended
April 30, 2017
 
  
$m


$m


$m
Actuarial return on assets excluding amounts included in interest income  5.9   
0.6
   
-
 
             
Re-measurements – actuarial gains/(losses):            
-    Demographic  (1.6)  
0.3
   
-
 
-    Financial  (38.8)  
(11.1
)
  
2.8
 
-    Experience  8.4   
1.9
   
0.6
 
   (32.0)  
(8.9
)
  
3.4
 
             
Reclassification from defined contribution scheme to defined benefit scheme  -   
(2.1
)
  
(3.0
)
             
Movement in the period  (26.1)  
(10.4
)
  
0.4
 
             
Continuing operations  (26.2)  
(8.9
)
  
(0.2
)
Discontinued operation  0.1   
(1.5
)
  
0.6
 
   (26.1)  
(10.4
)
  
0.4
 

The weighted average key assumptions used for the valuation of the schemes were:


 October 31, 2019  October 31, 2018  October 31, 2021
  October 31, 2020
 
 Germany  
Rest of
World
  Total  
Germany
  
Rest of
World
  
Total
  Germany  
Rest of
World
  Total  
Germany
  
Rest of
World
  
Total
 
Rate of increase in final pensionable salary 2.50% 3.09% 2.65% 
2.50
%
 
2.75
%
 
2.61
%
 2.50% 3.10% 2.69% 
2.50
%
 
3.09
%
 
2.64
%
Rate of increase in pension payments 1.75% 1.50% 1.75% 
2.00
%
 
1.50
%
 
1.99
%
 1.75% 1.50% 1.75% 
1.50
%
 
1.50
%
 
1.50
%
Discount rate 1.09% 1.71% 1.20% 
1.83
%
 
2.14
%
 
1.92
%
 1.07% 1.87% 1.25% 
0.79
%
 
1.41
%
 
0.90
%
Inflation 1.75% 1.16% 1.69% 
2.00
%
 
1.26
%
 
1.89
%
 1.75% 1.36% 1.69% 
1.50
%
 
1.25
%
 
1.47
%

During the 12 months ended October 31, 2019, the model used to derive our discount rates was updated to better reflect yields on corporate bonds over the life of our schemes. The key difference in the revised model lies in the extrapolation of yields in the outlying years of the curve and uses AA government bond rates to determine these yields. This change resulted in a decrease in our defined benefit obligation of approximately $14.0m. The old and revised models are both considered standard models devised by our external consolidating actuary.


The mortality assumptions for the German schemes are set based on the ‘Richttafeln 2018 G’ by Prof. Dr. Klaus Heubeck. The mortality assumptions for the remaining schemes are set based on actuarial advice in accordance with published statistics and experience in each territory.


These assumptions translate into a weighted average life expectancy in years for a pensioner retiring at age 65:


 October 31, 2019  October 31, 2018  October 31, 2021
  October 31, 2020
 
 Germany  
Rest of
World
  Total  
Germany
  
Rest of
World
  
Total
  Germany  
Rest of
World
  Total  
Germany
  
Rest of
World
  
Total
 
Retiring at age 65 at the end of the reporting period:                  
Retiring at age 65 at the end of the reporting year:                  
Male 20  20  20  
20
  
20
  
20
  20  21  21  
20
  
22
  
20
 
Female 23  23  23  
23
  
23
  
23
  24  24  24  
24
  
25
  
24
 
                                    
Retiring 15 years after the end of the reporting period:                  
Retiring 15 years after the end of the reporting year:                  
Male 22  23  22  
22
  
22
  
22
  23  22  23  
22
  
23
  
22
 
Female 25  26  25  
25
  
25
  
25
  26  25  26  
26
  
26
  
25
 

Consolidated financial statements and notes
Notes to the consolidated financial statements

25 Pension commitments continued


The net liability included in the Consolidatedconsolidated statement of financial position arising from obligations in respect of defined benefit schemes is as follows:


 October 31, 2019  October 31, 2018  October 31, 2021
  October 31, 2020
 
 Germany  
Rest of
World
  Total  
Germany
  
Rest of
World
  
Total
  Germany  
Rest of
World
  Total  
Germany
  
Rest of
World
  
Total
 
Present value of defined benefit obligations 213.5  48.0  261.5  
173.8
  
47.4
  
221.2
   246.1   74.5   320.6   
248.4
   
54.9
   
303.3
 
Fair values of plan assets (92.0) (28.1) (120.1) 
(82.1
)
 
(28.7
)
 
(110.8
)
  (138.8)  (34.7)  (173.5)  
(119.1
)
  
(29.2
)
  
(148.3
)
 121.5  19.9  141.4  
91.7
  
18.7
  
110.4
   107.3   39.8   147.1   
129.3
   
25.7
   
155.0
 

The defined benefit obligation has moved as follows:

  October 31, 2019 
  Germany  Rest of World  Total 
Defined benefit obligations 
Defined
benefit
obligations
  
Scheme
assets
  
Retirement
benefit
obligations
  
Defined
benefit
obligations
  
Scheme
assets
  
Retirement
benefit
obligations
  
Defined
benefit
obligations
  
Scheme
assets
  
Retirement
benefit
obligations
 
  
$m


$m


$m


$m


$m


$m


$m


$m


$m
At November 1, 2018  173.8   (82.1)  91.7   47.4   (28.7)  18.7   221.2   (110.8)  110.4 
Reclassification to assets held for sale  0.3   -   0.3   0.2   (0.2)  -   0.5   (0.2)  0.3 
Current service cost  6.0   -   6.0   3.1   -   3.1   9.1   -   9.1 
Past service credit  -   -   -   -   -   -   -   -   - 
Benefits paid  (0.4)  0.3   (0.1)  (4.2)  4.1   (0.1)  (4.6)  4.4   (0.2)
Contributions by plan participants  1.5   (1.5)  -   0.3   (0.3)  -   1.8   (1.8)  - 
Contribution by employer  -   (0.3)  (0.3)  -   (4.2)  (4.2)  -   (4.5)  (4.5)
Interest cost/(income)
(note 6)
  3.1   (1.5)  1.6   1.1   (0.3)  0.8   4.2   (1.8)  2.4 
                                     
Included within Other comprehensive income:                                    
Re-measurements - actuarial (gains) and losses:                                    
- Demographic  1.6   -   1.6   -   -   -   1.6   -   1.6 
- Financial  34.0   -   34.0   4.8   -   4.8   38.8   -   38.8 
- Experience  (3.2)  -   (3.2)  (5.2)  -   (5.2)  (8.4)  -   (8.4)
                                     
Actuarial return on assets excluding amounts included in interest income  -   (8.0)  (8.0)  -   2.1   2.1   -   (5.9)  (5.9)
   32.4   (8.0)  24.4   (0.4)  2.1   1.7   32.0   (5.9)  26.1 
Effects of movements in exchange rates  (3.2)  1.1   (2.1)  0.5   (0.6)  (0.1)  (2.7)  0.5   (2.2)
                                     
At October 31, 2019  213.5   (92.0)  121.5   48.0   (28.1)  19.9   261.5   (120.1)  141.4 


F-85F-59

Consolidated financial statements and notes
Notes to the consolidated financial statements

2522 Pension commitments commitmentscontinued

The defined benefit obligation has moved as follows:
  October 31, 2018 
  Germany  Rest of World  Total 
Defined benefit obligations 
Defined
benefit
obligations
  
Scheme
assets
  
Retirement
benefit
obligations
  
Defined
benefit
obligations
  
Scheme
assets
  
Retirement
benefit
obligations
  
Defined
benefit
obligations
  
Scheme
assets
  
Retirement
benefit
obligations
 
  
$m


$m


$m


$m


$m


$m


$m


$m


$m
At May 1, 2017  
36.5
   
(5.7
)
  
30.8
   
-
   
-
   
-
   
36.5
   
(5.7
)
  
30.8
 
HPE Software business acquisition  
121.1
   
(77.0
)
  
44.1
   
60.4
   
(33.0
)
  
27.4
   
181.5
   
(110.0
)
  
71.5
 
Reclassification to assets held for sale  
(4.8
)
  
0.7
   
(4.1
)
  
(4.3
)
  
2.9
   
(1.4
)
  
(9.1
)
  
3.6
   
(5.5
)
Current service cost  
7.7
   
-
   
7.7
   
5.2
   
-
   
5.2
   
12.9
   
-
   
12.9
 
Past service credit  
(0.8
)
  
-
   
(0.8
)
  
(4.7
)
  
-
   
(4.7
)
  
(5.5
)
  
-
   
(5.5
)
Benefits paid  
(0.3
)
  
0.1
   
(0.2
)
  
(9.3
)
  
9.3
   
-
   
(9.6
)
  
9.4
   
(0.2
)
Contributions by plan participants  
1.5
   
(1.5
)
  
-
   
1.0
   
(0.8
)
  
0.2
   
2.5
   
(2.3
)
  
0.2
 
Contribution by employer  
-
   
(0.1
)
  
(0.1
)
  
-
   
(3.9
)
  
(3.9
)
  
-
   
(4.0
)
  
(4.0
)
Interest cost/(income)
(note 6)
  
4.0
   
(2.0
)
  
2.0
   
1.2
   
(0.4
)
  
0.8
   
5.2
   
(2.4
)
  
2.8
 
                                     
Included within Other comprehensive income:                                    
Re-measurements - actuarial (gains) and losses:                                    
- Demographic  
(0.1
)
  
-
   
(0.1
)
  
(0.2
)
  
-
   
(0.2
)
  
(0.3
)
  
-
   
(0.3
)
- Financial  
13.8
   
-
   
13.8
   
(2.7
)
  
-
   
(2.7
)
  
11.1
   
-
   
11.1
 
- Experience  
0.5
   
-
   
0.5
   
(2.4
)
  
-
   
(2.4
)
  
(1.9
)
  
-
   
(1.9
)
                                     
Actuarial return on assets excluding amounts included in interest income  
-
   
(0.2
)
  
(0.2
)
  
-
   
(0.4
)
  
(0.4
)
  
-
   
(0.6
)
  
(0.6
)
Reclassification from defined contribution scheme to defined benefit scheme  
-
   
-
   
-
   
5.5
   
(3.4
)
  
2.1
   
5.5
   
(3.4
)
  
2.1
 
   
14.2
   
(0.2
)
  
14.0
   
0.2
   
(3.8
)
  
(3.6
)
  
14.4
   
(4.0
)
  
10.4
 
Effects of movements in exchange rates  
(5.3
)
  
3.6
   
(1.7
)
  
(2.3
)
  
1.0
   
(1.3
)
  
(7.6
)
  
4.6
   
(3.0
)
                                     
At October 31, 2018  
173.8
   
(82.1
)
  
91.7
   
47.4
   
(28.7
)
  
18.7
   
221.2
   
(110.8
)
  
110.4
 


  October 31, 2021
 
  Germany  Rest of World  Total 
 Defined benefit obligations 
Defined
benefit
obligations
  
Scheme
assets
  
Net
defined
benefit
obligations
  
Defined
benefit
obligations
  
Scheme
assets
  
Net
defined
benefit
obligations
  
Defined
benefit
obligations
  
Scheme
assets
  
Net
defined
benefit
obligations
 
  $m
  $m
  $m
  $m
  $m
  $m
  $m
  $m
  $m
 
At November 1, 2020
  248.4   (119.1)  129.3   54.9   (29.2)  25.7   303.3   (148.3)  155.0 
Current service cost  6.1   -
   6.1   5.2   -
   5.2   11.3   -
   11.3 
Changes in other long-term benefits  1.4   0   1.4   0   0   0   1.4   0   1.4 
Reclassification from other liabilities/assets  0   0   0   20.2   0   20.2   20.2   0   20.2 
Transferred to current assets classified as held for sale  0   0   0   (0.2)  0   (0.2)  (0.2)  0   (0.2)
Transfer from long-term pension assets  0   (1.2)  (1.2)  0   0   0   0   (1.2)  (1.2)
Benefits paid  (1.9)  1.9   0   (1.9)  1.9   0   (3.8)  3.8   0 
Contributions by plan participants  1.2   (1.2)  0   0.6   (0.6)  0   1.8   (1.8)  0 
Contribution by employer  0   (1.7)  (1.7)  0   (6.0)  (6.0)  0   (7.7)  (7.7)
Interest cost/(income) (note 6)  1.9   (0.8)  1.1   0.7   (0.3)  0.4   2.6   (1.1)  1.5 
                                     
Included within other comprehensive income:                                    
Re-measurements - actuarial (gains) and losses:                                    
-     Demographic  0   -   0   (1.3)  -   (1.3)  (1.3)  -   (1.3)
-     Financial  (6.7)  -   (6.7)  (3.1)  -   (3.1)  (9.8)  -   (9.8)
-     Experience  (2.1)  -   (2.1)  0.5   -   0.5   (1.6)  -   (1.6)
                                     
Actuarial return on assets excluding amounts included in interest income  0   (18.8)  (18.8)  0   (1.9)  (1.9)  0   (20.7)  (20.7)
   (8.8)  (18.8)  (27.6)  (3.9)  (1.9)  (5.8)  (12.7)  (20.7)  (33.4)
Effects of movements in exchange rates  (2.2)  2.1   (0.1)  (1.1)  1.4   0.3   (3.3)  3.5   0.2 
                                     
At October 31, 2021
  246.1   (138.8)  107.3   74.5   (34.7)  39.8   320.6   (173.5)  147.1 

F-86F-60

Consolidated financial statements and notes
Notes to the consolidated financial statements

2522 Pension commitments commitmentscontinued
  
October 31, 2020
 
  Germany  Rest of World  Total 
Defined benefit
obligations
 
Defined
benefit
obligations
  
Scheme
assets
  
Net defined
benefit
obligations
  
Defined
benefit
obligations
  
Scheme
assets
  
Net defined
benefit
obligations
  
Defined
benefit
obligations
  
Scheme
assets
  
Net defined
benefit
obligations
 
  $m
  $m
  $m
  $m
  $m
  $m
  $m
  $m
  $m
 
At November 1, 2019
  213.5   (92.0)  121.5   48.0   (28.1)  19.9   261.5   (120.1)  141.4 
Current service cost  6.9   -
   6.9   3.5   -
   3.5   10.4   -
   10.4 
Reclassification from other liabilities/assets  14.7   (17.8)  (3.1)  1.5   0   1.5   16.2   (17.8)  (1.6)
Transfer from long-term pension assets  0   (0.4)  (0.4)  0   0   0   0   (0.4)  (0.4)
Benefits paid  (0.6)  0.6   0   (2.9)  2.9   0   (3.5)  3.5   0 
Contributions by plan participants  1.1   (1.1)  0   0.6   (0.6)  0   1.7   (1.7)  0 
Contribution by employer  0   (0.7)  (0.7)  0   (2.3)  (2.3)  0   (3.0)  (3.0
)
Interest cost/(income) (note 6)  2.3   (1.0)  1.3   0.8   (0.3)  0.5   3.1   (1.3)  1.8 
                                     
Included within other comprehensive income:                                    
Re-measurements - actuarial (gains) and losses:                                    
-     Demographic  0   -   0   0   -   0   0   -   0 
-     Financial  (0.4)  -   (0.4)  1.0   -   1.0   0.6   -   0.6 
-     Experience  (2.0)  -   (2.0)  (1.0)  -   (1.0)  (3.0)  -   (3.0
)
                                     
Actuarial return on assets excluding amounts included in interest income  0   (2.4)  (2.4)  0   0.6   0.6   0   (1.8)  (1.8
)
                                     
Reclassification to defined benefit scheme  3.1   0   3.1   1.5   0   1.5   4.6   0   4.6 
   0.7   (2.4)  (1.7)  1.5   0.6   2.1   2.2   (1.8)  0.4 
Effects of movements in exchange rates  9.8   (4.3)  5.5   1.9   (1.4)  0.5   11.7   (5.7)  6.0 
                                     
At October 31, 2020
  248.4   (119.1)  129.3   54.9   (29.2)  25.7   303.3   (148.3)  155.0 


None of the plan assets are represented by financial instruments of the Group. None of the plan assets are occupied or used by the Group. The major categories of the plan assets are as follows:


 October 31, 2019  October 31, 2021
 
 Germany  Rest of World  Total  Germany  Rest of World  Total 
 Quoted  Unquoted  Total  Quoted  Unquoted  Total  Quoted  Unquoted  Total  Quoted  Unquoted  Total  Quoted  Unquoted  Total  Quoted  Unquoted  Total 
 
$m

$m

$m


$m

$m

$m


$m

$m

$m
 
$m
 
$m
 
$m
 
$m
 
$m
 
$m
 
$m
 
$m
 
$m
Funds that invest in:                                                          
- Equity instruments 39.8  -  39.8   -  5.5  5.5   39.8  5.5  45.3  69.0  0  69.0   4.9  3.0  7.9   73.9  3.0  76.9 
- Debt instruments 46.6  -  46.6   3.0  6.0  9.0   49.6  6.0  55.6  61.7  0  61.7   4.1  5.4  9.5   65.8  5.4  71.2 
- Real estate -  -  -   -  3.1  3.1   -  3.1  3.1  0  0  0   3.5  0.1  3.6   3.5  0.1  3.6 
Cash and cash equivalents -  -  -   -  1.7  1.7   -  1.7  1.7  0  0  0   0  1.6  1.6   0  1.6  1.6 
Re-insurance contracts with guaranteed interest rates * -  5.6  5.6   -  -  -   -  5.6  5.6  0  8.1  8.1   0  0  0   0  8.1  8.1 
Other -  -  -   -  8.8  8.8   -  8.8  8.8  0  0  0   0  12.1  12.1   0  12.1  12.1 
Total 86.4  5.6  92.0   3.0  25.1  28.1   89.4  30.7  120.1  130.7  8.1  138.8   12.5  22.2  34.7   143.2  30.3  173.5 


  October 31, 2018 
  Germany  Rest of World  Total 
  Quoted  Unquoted  Total  Quoted  Unquoted  Total  Quoted  Unquoted  Total 
  
$m


$m


$m


$m


$m


$m


$m


$m


$m
Funds that invest in:                                    
- Equity instruments  
42.3
   
-
   
42.3
   
7.6
   
1.6
   
9.2
   
49.9
   
1.6
   
51.5
 
- Debt instruments  
34.3
   
-
   
34.3
   
3.1
   
5.1
   
8.2
   
37.4
   
5.1
   
42.5
 
- Real estate  
-
   
-
   
-
   
2.0
   
0.1
   
2.1
   
2.0
   
0.1
   
2.1
 
Cash and cash equivalents  
-
   
-
   
-
   
-
   
2.3
   
2.3
   
-
   
2.3
   
2.3
 
Re-insurance contracts with guaranteed interest rates *  
-
   
5.5
   
5.5
   
-
   
-
   
-
   
-
   
5.5
   
5.5
 
Other  
-
   
-
   
-
   
-
   
6.9
   
6.9
   
-
   
6.9
   
6.9
 
Total  
76.6
   
5.5
   
82.1
   
12.7
   
16.0
   
28.7
   
89.3
   
21.5
   
110.8
 
*The majority of the re-insurance contracts have guaranteed interest rates of 4.0%, with the remaining at 3.25% or 2.75%.


* The majority
F-61

Consolidated financial statements and notes
Notes to the re-insurance contracts have guaranteed interest rates of 4.0%, with the remaining at 3.25% or 2.75%.consolidated financial statements

22 Pension commitmentscontinued
  October 31, 2020
 
  Germany  Rest of World  Total 
  Quoted  Unquoted  Total  Quoted  Unquoted  Total  Quoted  Unquoted  Total 
  
$m
 
$m
 
$m
 
$m
 
$m
 
$m
 
$m
 
$m
 
$m

Funds that invest in:                                    
- Equity instruments  49.3   0   49.3   0   6.4   6.4   49.3   6.4   55.7 
- Debt instruments  63.3   0   63.3   2.6   4.9   7.5   65.9   4.9   70.8 
- Real estate  0   0   0   0   2.9   2.9   0   2.9   2.9 
Cash and cash equivalents  0   0   0   0   2.6   2.6   0   2.6   2.6 
Re-insurance contracts with guaranteed interest rates *  0   6.5   6.5   0   0   0   0   6.5   6.5 
Other  0   0   0   0   9.8   9.8   0   9.8   9.8 
Total  112.6   6.5   119.1   2.6   26.6   29.2   115.2   33.1   148.3 

*The majority of the re-insurance contracts have guaranteed interest rates of 4.0%, with the remaining at 3.25% or 2.75%.

Risk Management
Through its defined benefit schemes the Group is exposed to a number of risks, the most significant of which are detailed below:


–
Changes in bond yields – A decrease in corporate bond yields will increase the Group’s IAS 19 plan liabilities, although this will be partially offset by increases in the value of scheme assets.

–
Inflation – Some of the Group pension obligations are linked to inflation, and higher inflation will lead to higher liabilities.

–
Life expectancy – The majority of the plan obligations are to provide benefits over the life of the member, so increases in life expectancy will result in an increase in the plan liabilities as benefits would be paid over a longer period.

Consolidated financial statements and notes
Notes to the consolidated financial statements

25 Pension commitments continued

– Asset returns – Returns on plan assets are subject to volatility and may not move in line with plan liabilities. The Group ensures that the investment positions are managed within an asset liability matching (“ALM”) to achieve long-term investments that are in line with the obligations under the pension schemes. Within this framework the Group’s objective is to match assets to the pension obligations by investing in assets that match the benefit payments as they fall due and in the appropriate currency.


Sensitivities

The table below provides information on the sensitivity of the defined benefit obligation to changes to the most significant actuarial assumptions. The table shows the impact of changes to each assumption in isolation, although, in practice, changes to assumptions may occur at the same time and can either offset or compound the overall impact on the defined benefit obligation.


These sensitivities have been calculated using the same methodology as used for the main calculations. The weighted average duration of the defined benefit obligation is 2522 years for Germany and 1412 years for all other schemes.


 Germany  Rest of World  Germany  Rest of World 
 
Change in
assumption
  
Change in defined
benefit obligation
  
Change in
assumption
  
Change in defined
benefit obligation
  
Increase
in
assumption
  
Change in
defined
benefit
obligation
  
Decrease
in
assumption
  
Change in
defined
benefit
obligation
  
Increase
in
assumption
  
Change in
defined
benefit
obligation
  
Decrease
in
assumption
  
Change in
defined
benefit
obligation
 
Discount rate for scheme liabilities 0.50% (11.5%) 0.50% (6.7%)  0.50%  (10.1%)  0.50%  11.8%  0.50%  (5.5%)  0.50%  6.1%
Price inflation 0.25% 3.8% 0.25% 0.9%
Price inflation/rate of increase in pension payments*  0.25%  3.67%  0.25%  (3.49%)  0.25%  1.0%  0.25%  (1.0%)
Salary growth rate 0.50% 1.0% 0.50% 3.6%  0.50%  1.1%  0.50%  (1.0%)  0.50%  3.0%  0.50%  (3.0%)
Life expectancy 1 year  3.7% 1 year  1.3%  1 year
 
  4.0%  --
   --
   1 year
   2.0%  --
   --
 


26 Other non-current liabilities

  October 31, 2019  October 31, 2018 
  
$m


$m
Accruals  50.4   
58.0
 
   50.4   
58.0
 

Accruals includes employee benefit liability $33.3m (October 31, 2018: $31.0m) that relates to employee obligations in certain countries, a deferred gain on real estate $8.1m (October 31, 2018: $14.0m) relating to free-rent incentives or tenant improvement allowances given by landlords and an IT contractual liability $6.6m (October 31, 2018: $11.3m).

*For the German schemes the same values are used for both the inflation assumption and the rate of increase in pension payments.
F-88
F-62

Consolidated financial statements and notes
Notes to the consolidated financial statements

27 Financial instruments

The tables below set out the values of financial and non-financial assets and liabilities.

     
Financial
October 31,
2019
 
 

Non-
financial
October 31,
2019
  
Total
October 31,
2019
  
Financial
October 31,
2018
  
Non-
financial
October 31,
2018
  
Total
October 31,
2018
 
  Note  
$m


$m


$m


$m


$m


$m
Financial and non-financial assets                           
                            
Non-current                           
Long-term pension assets  25   17.1   -   17.1   
16.7
   
-
   
16.7
 
Derivative financial instruments – Interest rate swaps  31   -   -   -   
-
   
86.4
   
86.4
 
Current                            
Cash and cash equivalents  18   355.7   -   355.7   
620.9
   
-
   
620.9
 
Trade and other receivables  16   922.7   110.2   1,032.9   
1,212.0
   
60.0
   
1,272.0
 
       1,295.5   110.2   1,405.7   
1,849.6
   
146.4
   
1,996.0
 

     
Financial
October 31,
2019
  
Non-
financial
October 31,
2019
  
Total
October 31,
2019
  
Financial
October 31,
2018
  
Non-
financial
October 31,
2018
  
Total
October 31,
2018
 
  Note  
$m


$m


$m


$m


$m


$m
Financial and non-financial liabilities – financial liabilities at amortized cost                           
                            
Non-current                           
Derivative financial instruments – Interest rate swaps     36.5   -   36.5   
-
   
-
   
-
 
Borrowings (gross)  20   4,775.0   -   4,775.0   
4,946.6
   
-
   
4,946.6
 
Finance leases  21   11.7   -   11.7   
14.9
   
-
   
14.9
 
Provisions  24   49.1   -   49.1   
35.4
   
-
   
35.4
 
Current                            
Borrowings (gross)  20   -   -   -   
50.3
   
-
   
50.3
 
Finance leases  21   11.8   -   11.8   
13.6
   
-
   
13.6
 
Trade and other payables  19   530.3   80.7   611.0   
676.9
   
-
   
676.9
 
Provisions  24   29.3   -   29.3   
57.4
   
-
   
57.4
 
       5,443.7   80.7   5,524.4   
5,795.1
   
-
   
5,795.1
 

Fair value measurement
For trade and other receivables, cash and cash equivalents, trade and other payables, obligations under finance leases and provisions, fair values approximate to book values due to the short maturity periods of these financial instruments. For trade and other receivables, allowances are made for credit risk.

Long-term borrowings with a carrying value of $4,775.0m before unamortized prepaid facility fees, have a fair value estimate of $4,686.0m based on trading prices as at October 31, 2019 (note 20).

Derivative financial instruments measured at fair value are classified as level 2 in the fair value measurement hierarchy as they have been determined using significant inputs based on observable market data. The fair values of interest rate derivatives are derived from forward interest rates based on yield curves observable at the balance sheet date together with the contractual interest rates.

There were no transfers of assets or liabilities between levels of the fair value hierarchy during the period.

F-89
23 Other non-current liabilities

  October 31, 2021
  October 31, 2020
 
  
$m

 
$m

Accruals  31.3   
39.9
 
   31.3   
39.9
 

Table of ContentsAccruals includes employee benefit liability $31.3 million (2020: $30.6 million) that relates to employee obligations in certain countries.
Consolidated financial statements
24 Financial risk management and notes
Notes to the consolidated financial statements

27 Financial instruments continued

The Group has four interest rate swaps which are designated in a hedge relationship and also utilized forward exchange contracts to fix Sterling equivalent on the April 2019 Return of Value to shareholders (note 29) and the April 2019 and September 2019 dividend payments. The forward contracts were not designated for formal hedge accounting and matured for delivery within the reporting period.

  October 31, 2019  October 31, 2018 
  
$m


$m
Derivative financial instruments- non-current asset – interest rate swaps  -   86.4 
Derivative financial instruments- non-current liabilities – interest rate swaps  (36.5)  - 
   (36.5)  86.4 

Derivative financial instruments
Derivatives are only used for economic hedging purposes
Risk factors and not as speculative investments. Four interest rate swaps are in place with a total notional value of $2.25bn to hedge against the impact of potential rises in interest rates until September 30, 2022. The swaps are designated against the $2,486.3m (note 20) loan issued by Seattle SpinCo. Inc. and the notional value covers 52.7% of the overall dollar loan principal outstanding for the Group.

The swap contracts require settlement of net interest receivable or payable on a monthly basis. The fixed interest rate for each swap is 1.949% and the Group receives a variable rate in line with LIBOR. The Seattle loan is priced at LIBOR (with a floor) plus a current margin of 2.50% with the swaps aimed at addressing thetreasury risk of a rising LIBOR element. As such, the total interest cost of the hedged element of the Seattle loan is 4.44%. For the period to October 31, 2019, net interest received for the swaps amounted to $9.9m. For the life of the swap, net interest received amounted to $6.5m.

Hedge effectiveness is determined at the inception of the hedge relationship, and through periodic effectiveness assessments (adjusted for credit risk) to ensure that an economic relationship exists between the hedged item and the hedging instrument. The testing determined that the hedge was highly effective throughout the financial reporting period for which the hedge was designated.

The impact of changes in the fair value of interest rate swaps in the year ended October 31, 2019 is shown in the Consolidated statement of comprehensive income. Note 31 shows the derivative financial instruments relating to hedging transactions entered into in the period ended October 31, 2019 (other reserves).

  October 31, 2019  October 31, 2018 
  
$m


$m
Carrying amount  (36.5)  
86.4
 
Notional amount (4 x $562.5m)  2,250.0   
2,250.0
 
Maturity date September 30, 2022  September 30, 2022 
Change in fair value of outstanding hedging instruments (note 31)  (122.9)  
86.4
 
Change in value of hedging instruments adjusted for credit risk  (121.9)  
84.7
 

Credit risk
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at October 31, 2019 was:

     October 31, 2019  October 31, 2018 
  Note  
$m


$m
Trade receivables (gross)  16   877.9   
1,089.6
 
Cash and cash equivalents  18   355.7   
620.9
 
Total      1,233.6   
1,710.5
 

Consolidated financial statements and notes
Notes to the consolidated financial statements

27 Financial instruments continued

The Group applies the IFRS 9 expedited approach to measuring expected credit losses, which uses a lifetime expected credit loss allowance for all trade receivables.

A provision of the lifetime expected credit loss is established upon initial recognition of the underlying asset by predicting the future cash flows based upon the days past due status of an invoice and other relevant information. The model uses historical collection data along with historical credit losses experienced. The loss allowance is adjusted for forward-looking factors specific to the receivable and the economic environment.

Trade receivables are written off when there is no reasonable expectation of recovery. Impairment losses on trade receivables are presented as net impairment losses within operating profit. Subsequent recoveries of amounts previously written off are credited against the same line item.

On that basis, the loss allowance as at October 31, 2019 and November 1, 2018 (on adoption of IFRS 9) was determined as follows for trade receivables (note 16):

  October 31, 2019  October 31, 2018 
  
$’m


$’m

At November 1 / May 1 – calculated under IAS 39  41.9   
2.6
 
Accounting policy change – IFRS 9 (recognized against retained earnings on November 1, 2018)  20.0   
-
 
   61.9   
2.6
 
Loss allowance provided in the period  16.0   
40.0
 
Receivables written off as uncollectable  (35.5)  
(0.7
)
At October 31  42.4   
41.9
 

In the prior period, the impairment of trade receivables was assessed based on the incurred loss model. Individual receivables, which were known to be uncollectable were written off by reducing the carrying amount directly. The other receivables were assessed collectively to determine whether there was objective evidence that an impairment had been incurred but not yet been identified. Receivables for which an impairment provision was recognized were written off against the provision when there was no expectation of recovering additional cash.

Market riskmanagement
The Group’s treasury function aims to reduce exposures to interest rate, foreign exchange and other financial risks, to ensure liquidity is available as and when required, and to invest cash assets safely and profitably. The Group does not engage in speculative trading in financial instruments. The treasury function’s policies and procedures are reviewed and monitored by the Audit committee and are subject to internal audit review.


The Group’s multi-national operations expose it to a variety of financial risks that include the effects of changes in credit risk, foreign currency risk, interest rate risk and liquidity/capital risk. Treasury risk management is carried out by a central treasury department under policies approved by the board of directors.

Group treasury identifies and evaluates financial risks alongside business management. The board provides written principles for risk management together with specific policies covering areas such as foreign currency risk, interest rate risk, credit risk and liquidity risk, the use of derivative and non-derivative financial instruments as appropriate, and investment of excess funds.

Liquidity and capital risk
Central treasury carries out cash flow forecasting for the Group to ensure that it has sufficient cash to meet operational requirements and to allow the repayment of the bank facilities. Surplus cash in the operating units over and above what is required for working capital needs is transferred to Group treasury. These funds are used to repay bank borrowings or are invested in interest bearing current accounts, time deposits, earning credit programmes or money market deposits of the appropriate maturity period determined by consolidated cash forecasts.

The Group seeks to maximize financial flexibility and minimize refinancing risk by issuing debt from a variety of sources and with a range of maturities. The level of facilities required are determined through the preparation of cash flow forecasts which consider a range of business performance scenarios. Borrowings are refinanced substantially prior to falling current to minimize refinancing risk.

The Group’s objective when managing its capital structures is to minimize the cost of capital while maintaining adequate capital to protect against volatility in earnings and net asset values. The strategy is designed to maximize shareholder return over the long-term.

In the current year, a conservative dividend policy has been reinstated and the Company announced an interim dividend of 8.80 cents per share. Final dividends for the current year are set out in note 8, “Dividends”

On January 17, 2022, the Group announced the refinancing of $1.6 billion of existing term loans and the RCF was refinanced in December 2021, see note 18, “Borrowings”.

The financial covenants related to the RCF and term loans are disclosed in note 18, “Borrowings”.

The Group uses cash pooling structures and intercompany loans to mobilize cash efficiently within the Group. The key objectives of the treasury function with respect to cash and cash equivalents are to protect their principal value, concentrate cash centrally, minimize the requirements for external borrowing and optimize yield.

As part of its short-term cash management the Group invests in a range of cash and cash equivalents, including money market funds, which are considered to be highly liquid and not exposed to significant changes in fair value.

Subsidiary companies are funded through share capital, retained earnings and loans from central finance companies on commercial terms. Subsidiary companies do not enter into local borrowings with external counterparties.

F-63

Consolidated financial statements and notes
Notes to the consolidated financial statements
24 Financial risk management and financial instruments continued

Interest rate risk
The Group’s income and cash generated from operations are substantially independent of changes in market interest rates. The Group’s interest rate risk arises from short-term and long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. The Group currently uses 4 interest rate swaps to manage its cash flow interest rate risk arising from potential increases in the LIBOR interest rate.

The objective of the Group’s interest rate risk management policy is to manage the uncertainty and adverse impact on the Group’s net interest charge due to changes in interest rates to an acceptable level. In doing so, the Group seeks to minimize the cost of hedging and the level of associated counterparty risk.

The Group has set a target of approximately half its borrowings being subject to fixed interest rates in order to minimize its exposure to changes in interest rates. This is achieved through 4 US dollar interest swaps for a total notional value of $2.25 billion, with a maturity date of September 2022. The hedge accounting is discussed further later in the note.

The Group’s borrowing facilities do not contain any covenants with respect to interest cover ratios.

Foreign exchange risk
The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the Euro, UK Pound Sterling, Indian Rupee, Israeli Shekel, Japanese Yen, Australian Dollar and the Canadian Dollar. Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities and net investments in foreign operations where the transactions are denominated in a currency that is not the entity’s functional currency.

The Group is subject to exposure on the translation of the net assets of foreign currency subsidiaries into its reporting currency, US dollar. The Group’s primary balance sheet translation exposures are noted in the exposure analysis below. These exposures are kept under regular review with the Group treasury function providing reporting to the Treasury Risk committee and the Audit committee.

Group borrowings are denominated in US dollars and Euros. The Group seeks to match the currency profile of borrowings to the cash flows arising from the Group’s operations used to service those borrowings. The May 2020 and January 2022 debt refinancings both included an additional proportion of Euro debt and a reduction in US dollar debt which is intended to better match the currency profile of the Group’s debt with the cash flows used to service that debt (note 18 “Borrowings”). Group Treasury will continually review the currency profile of the business and to take actions to align the group’s debt profile with the cash flow arising from the Group’s operations.

The Group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk. The Group faces currency exposures arising from the translation of profits earned in foreign currency subsidiaries into the Group’s reporting currency of US dollars. As at October 31, 2021 2 net investment hedges totaling €1.03billion have been designated using non-derivative Euro debt instruments to minimize the volatility in shareholders’ equity arising from foreign currency translation (2020: 2 net investment hedges totaling €1.05 billion).

Exposures also arise from foreign currency denominated trading transactions undertaken by subsidiaries and exposures here are not hedged. The Group utilizes constant currency reporting to enable management and investors to understand the underlying performance of the Group excluding exchange rate impacts.

Credit risk
The Group provides credit to customers in the normal course of business. Collateral is not required for those receivables but the Group has policies in place requiring appropriate credit checks on potential customers before sales commence and a monitoring process for assessing overdue receivables and customer payment behaviour post sale. These policies and procedures include assessing customer credit limits and the use of third party financial and risk reporting to control our exposure and credit risk.

Financial instruments which potentially expose the Group to a concentration of credit risk consist primarily of cash and cash equivalents and accounts receivable.

The Group maintains a provision for impairment based upon the measurement of lifetime expected credit losses for all trade receivables using the IFRS 9 simplified approach.

The risk management practices noted above provide the historical customer payment profiles and a view on customer behaviour with any historical credit losses experienced. The loss allowance is adjusted for forward-looking factors specific to the debtor and the economic environment resulting in an overall assessment of any provision required.

F-64

Consolidated financial statements and notes
Notes to the consolidated financial statements
24 Financial risk management and financial instruments continued

The Group sells products and services to a wide range of customers around the world and therefore believes there is no significant concentration of customer credit risk.

The Group’s credit risk on cash and cash equivalents is limited as the counterparties are generally well established financial institutions with generally high credit ratings.

Cash deposits and other financial instruments give rise to credit risk on the amounts due from the related counterparties. Generally, the Group aims to transact with counterparties with strong investment grade credit ratings. However, the Group recognizes that due to the need to operate over a large geographic footprint, this will not always be possible. Counterparty credit risk is managed on a global basis by limiting the aggregate amount of exposure to any one counterparty, taking into account its credit rating. The credit ratings of all counterparties are reviewed regularly. All derivatives are subject to ISDA (International Swaps and Derivatives Association) agreements or equivalent documentation.

The maximum exposure to the credit risk of financial assets at the balance sheet date is reflected by the carrying values included in the Group’s balance sheet. Please refer to the credit risk table further below. The credit quality of cash and cash equivalents is listed in note 16 “Cash and cash equivalents” with 96% rated from A+ to AAA.

Financial instruments

The tables below sets out the measurement categories and carrying values of financial assets and liabilities with fair value inputs where relevant.

    
 
Measurement
category
 
Carrying value
October 31, 2021
  
Fair value
2021
  
Fair value
hierarchy
2021/2020
  
Carrying value
October 31, 2020
 
  Note 
 
$m

       
$m

Financial assets:                  
                   
Non-current                  
Long-term pension assets
  22 
FV OCI
  17.1   Fair value insurance–based input
  Level 3   18.2 
                    
Current                   
Cash and cash equivalent  16 Amortized cost  558.4   -   -   737.2 
Trade and other receivables  14 Amortized cost  784.2   -   -   648.6 
Contract assets  14 Amortized cost  62.0   -   -   33.7 
        1,421.7           1,437.7 
                      
Financial liabilities:                     
                      
Non-current                     
Derivative financial instruments – interest rate swaps1
  24 
 
 
FV OCI
  0  Fair value Bank institutions  Level 2   77.9 
Borrowings (gross)2
  18 Amortized cost  4,566.0   4,556.5   -   4,699.0 
Lease obligations  19 Amortized cost  119.6   -   -   168.2 
                      
Current                     
Derivative financial instruments - interest rate swaps1
  24
  FV OCI  35.7   Fair value Bank Institutions   Level 2   0 
Borrowings (gross)2
  18 Amortized cost  42.0   41.9   -   34.2 
Lease obligations  19 Amortized cost  74.9   -   -   82.2 
Trade payables and accruals
  17 Amortized cost  440.1   -   -   419.2 
        5,278.3           5,480.7 

1
Derivative interest rate swaps are measured at Fair Value through Other Comprehensive Income (“FV OCI”) as a result of hedge accounting. All interest rate swaps are in designated hedge relationships and there are no other derivative financial instruments held as Fair Value through Profit or Loss (“FVTPL”).
2
Borrowings have a carrying value (net of unamortised prepaid facility arrangement fees and original issue discount) of $4,548.4 million (2020: $4,640.3 million). Total borrowings (gross) are shown in this table as $4,608.0 million (2020: $4,733.2 million) for the fair value comparison.

Fair value measurement

For trade and other receivables, cash and cash equivalents, trade and other payables, fair values approximate to book values due to the short maturity periods of these financial instruments. For trade receivables, allowances are made for credit risk.

F-65

Consolidated financial statements and notes
Notes to the consolidated financial statements
24 Financial risk management and financial instruments continued

Long-term borrowings with a carrying value of $4,548.4 million (2020: $4,640.3 million) (note 18 “Borrowings”) including unamortized prepaid facility fees and discounts, have a fair value estimate of $4,598.4 million (2020: $4,535.1 million) based on trading prices obtained from external banking providers as at October 31, 2021.

Derivative financial instruments measured at fair value are classified as Level 2 in the fair value measurement hierarchy as they have been determined using significant inputs based on observable market data. The fair values of interest rate derivatives are derived from forward interest rates based on yield curves observable at the balance sheet date together with the contractual interest rates. Valuations are updated by the counter-party banks on a monthly basis.

The long-term pension assets are considered to be Level 3 assets under the fair value hierarchy as of October 31, 2021. These assets have been valued by an external insurance expert, by applying a discount rate to the future cash flows and taking into account the fixed interest rate, mortality rates and term of the insurance contract. The movement in the long-term pension assets is disclosed in note 22 “Pension commitments”.

For derivatives and long-term pension assets there were no transfers of assets or liabilities between levels of the fair value hierarchy during the year.

  October 31, 2021
  October 31, 2020
 
Interest rate risk 
$m

 
$m

Interest rate swaps (receive variable, pay fixed)        
Fair value of Derivative liability (total of 4 swaps)  (35.7)  (77.9)
Notional amount (4 x $562.5 million)  2,250.0   2,250.0 
Maturity date September 30, 2022  September 30, 2022 
Change in fair value of outstanding hedging instruments (OCI hedging reserve excluding deferred tax) (note 27)  
42.2


  
(41.3

)

Change in value of hedging instruments (as above adjusted for impact of credit risk)  
41.9


  
(39.9

)

Hedging ratio  1:1   1:1 

The Group has 4 interest rate swaps, which are designated in a hedge relationship.

The Group’s approved strategy in accordance with our risk management policies is to minimize the risk of cash flow fluctuations due to interest rate changes in relation to the 1M-USD LIBOR rate for up to half of the Group’s external borrowings for the period October 19, 2017 to September 30, 2022.

The specific risk management objective of the 4 interest rate swaps is to hedge the interest rate risk (cash flow risk) due to changes in the 1M-USD LIBOR rate charged on $2,250.0 million of the debt issued by Seattle Spin Co Inc. between October 19, 2017 and September 30, 2022.

Derivatives are only used for economic hedging purposes and not as speculative investments.

The swap contracts require settlement of net interest receivable or payable on a monthly basis. The fixed interest rate for each swap is 1.949% and the Group receives a variable rate in line with LIBOR. The Seattle loan is priced at LIBOR (with a 0% floor) plus a current margin of 2.75% with the swaps aimed at addressing the risk of a rising LIBOR element. As such, the total interest cost of the hedged element of the Seattle loan is 4.699%. For the year to October 31, 2021, net interest (finance cost) paid for the swaps amounted to $41.3 million. For the life of the swap, net interest paid to date amounted to $58.5 million.


F-66

Consolidated financial statements and notes
Notes to the consolidated financial statements
24 Financial risk management and financial instruments continued

Non-Derivative financial instruments – Designated Euro borrowings

  October 31, 2021
  October 31, 2020
 
Foreign exchange risk 
$m

 
$m

Debt designated in hedge relationships
        
Euro B-1 2020 tranche €600 million (Borrowing maturity date: June 2025), €585 million designated
  676.0   700.3 
Foreign exchange gain/(loss) on revaluation transferred to OCI-CTA - no sources of ineffectiveness observed in review  6.5   (34.5)
Euro 2017 tranche €453 million  (Borrowing maturity date: June 2024), €442 million designated
  510.9   528.5 
Foreign exchange gain/(loss) on revaluation transferred to OCI-CTA - no sources of ineffectiveness observed in review  4.8   (24.2)
Hedge ratio for each of the 2 Net investment hedges
  1:1   1:1 

The Group has designated 2 tranches of non-derivative Euro borrowings in 2 hedge relationships The borrowings in place have a designated carrying value of approximately €1.03 billion (note 18 “Borrowings”) hedged against Euro designated net investments in foreign operations.

The specific risk management objective is to carry out a net investment hedge in the consolidated financial statements of the Group, to reduce the foreign currency translation exposure arising from the Group’s investments in foreign entities with Euro functional currency through the use of Euro currency borrowings as hedging instruments as permitted by the Group’s Treasury policy.

Hedge effectiveness
Hedge effectiveness is determined at the inception of the hedge relationship, and through periodic effectiveness assessments to ensure that an economic relationship exists between the hedged item and the hedging instrument. The testing determined that the hedges met the IFRS 9 requirements for the financial reporting year. The IFRS 9 hedging requirements apply to both the interest swaps and the net investment hedges.

The impact of changes in the fair value of interest rate swaps in the year ended October 31, 2021 is shown in the Consolidated statement of comprehensive income. The foreign exchange gains/losses for the revaluation of the net investment hedging instruments are compared against the translation of goodwill and intangibles affecting the cumulative translation reserve on consolidation. No amounts have been reclassified from the hedging reserve to the loss for the year.

Hedge effectiveness may be affected by credit risk (in the case of the interest rate swaps) and the net investment hedged items may be affected by events impacting the carrying value of goodwill and intangible assets such as asset disposals or impairment reviews.

IBOR transition
Managing interest rate benchmark reform
A fundamental reform of major interest rate benchmarks is being undertaken globally, including the replacement of some interbank offered rates (IBORs) with alternative nearly risk-free rates (referred to as “IBOR reform”).

The Group has exposures to IBORs on its financial instruments that may be replaced or reformed as part of these market-wide initiatives. The Group holds 4 interest rate swaps for risk management purposes which are designated in cash flow hedging relationships. The interest rate swaps have floating legs that are indexed to US LIBOR. The Group’s exposure to LIBOR designated in hedging relationships is $2,250 million nominal amount at October 31, 2021, representing the nominal amount of the 4 interest rate swaps.

The Treasury risk management committee monitors and manages the Group’s transition to alternative rates. The committee evaluates the extent to which contracts reference IBOR cash flows, whether such contracts will need to be amended as a result of IBOR reform and how to manage communication about IBOR reform with counterparties. The committee reports to the Company’s board of directors quarterly and collaborates with other business functions as needed. It provides periodic reports to management of interest rate risk and risks arising from IBOR reform.

Possible (phase 1) reliefs available for hedging exposures have not been applied as the benchmark quotes will continue to be available through to the maturity of the swaps in September 2022. The interest rate cashflows for the hedged debt have not been and will not be impacted by any IBOR related matters in the period as referenced benchmarks were still available in the reporting period.

F-67

Consolidated financial statements and notes
Notes to the consolidated financial statements
24 Financial risk management and financial instruments continued

The Group has evaluated the extent to which its cash flow hedging relationships are subject to uncertainty driven by IBOR reform as at October 31, 2021. The Group’s hedged items and hedging instruments continue to be referenced to US LIBOR. These benchmark rates are quoted each day and the IBOR cash flows are exchanged with counterparties as usual. This allows market participants to continue to use LIBOR for existing contracts and the Group expects that LIBOR will continue to exist as a benchmark rate until June 2023. The Group is actively working to refinance the near term debt of the group into SOFR based debt instruments to address the cessation of LIBOR. The Group plans to have all LIBOR denominated debt repaid or refinanced prior to the planned LIBOR cessation date of June 2023.

The Group has measured its hedging instruments indexed to LIBOR using available quoted market rates for LIBOR-based instruments of the same tenor and similar maturity and has measured the cumulative change in the present value of hedged cash flows attributable to changes in LIBOR on a similar basis.

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at October 31, 2021 was:

     October 31, 2021
  October 31, 2020
 
  Note  
$m



$m

Trade receivables (gross)  14   738.8   628.4 
Cash and cash equivalents  16   558.4   737.2 
       1,297.2   1,365.6 

The Group applies the IFRS 9 expedited approach to measuring expected credit losses, which uses a lifetime expected credit loss allowance for all trade receivables.

A provision of the lifetime expected credit loss is established upon initial recognition of the underlying asset by predicting the future cash flows based upon the days past due status of an invoice and other relevant information. The model uses historical collection data along with historical credit losses experienced. The loss allowance is adjusted for forward-looking factors specific to the receivable and the economic environment.

Trade receivables are written off when there is no reasonable expectation of recovery. Impairment losses on trade receivables are presented as net impairment losses within operating profit. Subsequent recoveries of amounts previously written off are credited against the same line item.

Ageing is the main internal rating assessment around credit quality for trade receivables. The ageing of gross trade receivables and associated loss allowances can be found in note 14, “Trade and other receivables”. Contract assets relate to amounts not yet due from customers and contain no amounts past due.

On that basis, the loss allowance as at October 31, 2021 and 2020 and movements in the loss allowance during each year were as disclosed in note 14 “Trade and other receivables”.

Foreign exchange risk
The Group’s currency exposures comprise those that give rise to net currency gains and losses to be recognized in the Consolidated statement of comprehensive income as well as gains and losses on consolidation, which go to reserves. Such exposures reflect the monetary assets and liabilities of the Group that are not denominated in the operating or functional currency of the operating unit involved and the Group’s investment in net assets in currencies other than US Dollar.dollar.


Note 3 “Loss before tax” shows the impact on the Consolidated statement of comprehensive income of foreign exchange losses in the 12 monthsyear ended October 31, 20192021 of $11.3m (18 months ended October 31, 2018: $37.4m gain)$0.1 million (2020: $29.7 million loss; 2019: $11.3 million).

Consolidated financial statements and notes
Notes$21.8 million due to the consolidated financial statementssettlement of the foreign exchange contract regarding the cancelled dividend.


27 Financial instruments continued

SensitivityExposure report analysis
The Group’s principal exposures in relation to market risks are the changes in the exchange rates between the US Dollardollar and transactions made in other currencies as well as changes in interest rates from US Dollar LIBOR interest rates.and Euro capital markets. Foreign exchange exposures for all re-measuring balances are tracked and reported to management.



F-68

Consolidated financial statements and notes
Notes to the consolidated financial statements
24 Financial risk management and financial instruments continued

The key drivers for foreign exchange exposure are cash, borrowings and inter-company positions with trade receivables and trade payables having less relative aggregate exposure. As at October 31, 2019, the key aggregate exposures involved the Euro, British Sterling, Japanese Yen, Israeli Shekel and Canadian Dollar. The table below illustrates the equity sensitivity analysis ofrepresents a key currency extract from the Group exposures to movements in currency and interest rates.

  
Group
exposure
   +/- 5%
  +/- 10%
 
+/- 1%
interest
 
Key aggregate currency exposures 
$m


$m


$m


$m
Euro  512.6   25.6   51.2     
GBP  137.2   6.8   13.7     
JPY  69.6   3.5   6.9     
ILS  36.7   1.8   3.7     
CAN$  26.1   1.3   2.6     
Borrowings -Interest rate LIBOR +1%
(based on gross debt excluding the effects of hedging)
  n/a   n/a   n/a   47.75 

Capital risk management
presenting exposures in excess of $10 million equivalent. The Group’s objective when managing its capital structures is to minimize the cost of capital while maintaining adequate capital to protect against volatility in earnings and net asset values. The strategy is designed to maximize shareholder return over the long-term.

The only financial covenant attaching to these facilitieskey exposure relates to the Revolving Facility, whichincreased Euro debt profile since the May refinancing. This Euro exposure is subjectshown in its totality and is not represented by the offsetting net investment hedge The GB Pound, Japanese Yen, Indian Rupee, Australian Dollar, Canadian Dollar and Israeli Shekel also had key inter-company positions during the year.

Foreign exchange analysis is shown as for reporting to anthe Treasury Risk committee. Please note that aggregate net leverage covenant only in circumstances where more than 35%foreign exchange exposures for the Euro below do not consider the impact of the Revolving Facility is outstanding at a fiscal quarter end. The facility was not utilized as at October 31, 2019 and therefore no covenant test is applicable.net investment hedges. However, the impact can be seen in the hedging table above.


  Group exposure   +/- 5%
  +/- 10%
Key aggregate currency exposures* 
$m

 
$m

 
$m

Euro (EUR)  1,504.6  75.2   150.4 
GB Pounds (GBP)  156.7  7.8   15.6 
Indian Rupee (INR)  64.4  3.2   6.4 
Japanese Yen (JPY)  53.0  2.7   5.3 
Australian Dollar (AUD)  32.5  1.6   3.3 
Canadian Dollar (CAD)  31.9   1.6   3.2 
Israeli Shekel (ILS)  29.5   1.5   3.0 
Chinese Yuan (CNY)  27.3   1.4   2.7 
Swedish Krona (SEK)  24.3   1.2   2.4 
United Arab Emirates Dirham (AED)  24.2   1.2   2.4 
Czech Koruna (CZK)  12.0   0.6   1.2 
Mexican Peso (MXN)  10.4   0.5   1.0 
Turkish Lira (TRY)  10.2   0.5   1.0 
Danish Krone (DKK)  10.1
   0.5
   1.0
 
*Presenting aggregate foreign exchange exposures in excess of $10 million equivalent.

Interest rate exposure

Borrowings exposures to variable interest rate changes
(based on gross debt excluding the effects of hedging)
   Note Group exposure  LIBOR,
EURIBOR +1%		 

  


$m



$m

Euro     1,186.9   11.9 
US dollar
     3,421.1   34.2 
Total gross debt
   18  4,608.0   46.1 

Net debt

The capital structurenet debt of the Group at the Consolidated statement of financial position date is as follows:


     October 31, 2019  October 31, 2018 
  Note  
$m
 

$m

Bank and other borrowings (net of arrangement fees)  20   4,670.7   
4,845.9
 
Finance lease obligations  21   23.5   
28.5
 
Less cash and cash equivalents  18   (355.7)  
(620.9
)
Total net debt      4,338.5   
4,253.5
 
Total equity      6,276.3   
7,792.0
 
Debt/equity %      69.1%  
54.6
%
     October 31, 2021
  October 31, 2020
 
  Note  
$m

 
$m

Borrowings  18   (4,548.4)  (4,640.3)
Cash and cash equivalents  16   558.4   737.2 
Lease obligations
  19   (194.5)  (250.4)
Net debt      (4,184.5)  (4,153.5)


Borrowings are shown here net of unamortized prepaid facility arrangement fees of $104.3m. (October 31, 2018: $151.0m)$59.6 million (2020: $92.9 million). Gross borrowings are $4,775.0m (October 31, 2018: $4,996.9m)$4,608.0 million (2020: $4,733.2 million).


F-69

Consolidated financial statements and notes
Notes to the consolidated financial statements
24 Financial risk management and financial instruments continued

Change in liabilities arising from financing activities for interest bearing loans (note 20)18 “Borrowings”) and finance leaseslease obligations (note 21)19 “Leases”) were as follows:


  
Interest
bearing loans
  
Finance
leases
  
Total
 
  
$m


$m


$m
At November 1, 2018  4,996.9   28.5   5,025.4 
Draw down/New leases
  -   9.0   9.0 
Repayments
  (212.6)  (14.9)  (227.5)
Foreign exchange
  (9.3)  0.9   (8.4)
At October 31, 2019  4,775.0   23.5   4,798.5 
  
Interest bearing
loans
  
Lease
obligations
  Total 
  
$m

 
$m

 
$m

At November 1, 2020  4,733.2
   250.4   4,983.6 
Movements arising from financing cash flows  
  
  
 
Repayments
  (114.1)  (89.5)  (203.6)
Other changes  0   0   0 
New leases  0   35.1   35.1 
Interest  0   10.0   10.0 
Transfer to held for sale  0   (11.4)  (11.4)
The effect of change in foreign exchange rates  (11.1)  (0.1)  (11.2)
At October 31, 2021
  4,608.0   194.5   4,802.5 



Maturity analysis of non-derivative and derivative financial liabilities
The following table summarises the contractual maturities of the Group’s financial liabilities as at October 31, 2021. The amounts are reported gross and un-discounted and include contractual interest payments where applicable. As a result, these amounts can differ from both the reported carrying value and fair value.

As at October 31, 2021
  Borrowings
$m		  Lease obligations
$m		  Derivatives – interest rate swaps
$m		  Trade payables & accruals
$m		  Total
$m		 
Within one year  202.6   74.9   35.7   440.1   753.3 
In one to two years  191.1   39.9   0   0   231.0 
In two to three years  3,453.6   29.7   0   0   3,483.3 
In three to five years  1,235.5   28.5   0   0   1,264.0 
In more than five years  0   49.1   0   0   49.1 
Total  5,082.8   222.1   35.7   440.1   5,780.7 
Impact of discount/ financing rates  0   (27.6)  0   0   (27.6)
Total  5,082.8   194.5   35.7   440.1   5,753.1 

As at October 31, 2020
  Borrowings
$m		  Lease obligations
$m		  Derivatives – interest rate swaps
$m		  Trade payables & accruals
$m		  Total
$m		 
Within one year  203.6   82.2   0   419.2   705.0 
In one to two years  224.2   69.5   77.9   0   371.6 
In two to three years  230.3   43.3   0   0   273.6 
In three to five years  3,487.7   49.3   0   0   3,537.0 
In more than five years  1,242.0   36.3   0   0   1,278.3 
Total  5,387.8   280.6   77.9   419.2   6,165.5 
Impact of discount/ financing rates  0   (30.2)  0   0   (30.2)
Total  5,387.8   250.4   77.9   419.2   6,135.3 

F-92F-70

Consolidated financial statements and notes
Notes to the consolidated financial statements

28 Deferred tax

     
12 months ended
October 31, 2019
  
18 months ended
October 31, 2018
 
Net Deferred tax liability Note  
$m


$m
At November 1 / May 1     (1,170.5)  
(118.5
)
            
Credited/(debited) to consolidated statement of comprehensive income:     188.7   
(17.1
)
-       Continuing operations  7   156.4   
(27.6
)
-       Discontinued operation      32.3   
10.5
 
             
Credited directly to equity in relation to share options      (7.6)  
(23.7
)
             
Credited to other comprehensive income:      27.0   
4.3
 
-       Continuing operations      27.0   
3.8
 
-       Discontinued operation      -   
0.5
 
             
Acquisition of subsidiaries:      -   
(1,957.4
)
Acquisition of subsidiaries – HPE Software business  38   -   
(1,953.5
)
Acquisition of subsidiaries – COBOL-IT  38   -   
(3.9
)
             
Impact of adoption of IFRS 9      4.4   
-
 
Impact of adoption of IFRS15      (17.3)  
-
 
Foreign exchange adjustment      (11.8)  
11.6
 
Reclassification to current assets held for sale  37   -   
(1.6
)
Effect of change in tax rates – charged to Consolidated statement of comprehensive income      -   
931.9
 
At October 31      (987.1)  
(1,170.5
)

Deferred tax assets and liabilities below are presented net where there is a legally enforceable right to offset and the intention to settle on a net basis.

Deferred Tax Assets

  
Tax losses
and interest
restrictions
  
Share-
based
payments
  
Deferred
revenue
  
Prepaid
royalty
  
Tax
credits
  
Intangible
fixed
assets
  
Other
temporary
differences
  
Total
 
  
$m


$m


$m


$m


$m


$m


$m


$m
At May 1, 2017  
56.7
   
43.7
   
44.5
   
-
   
33.8
   
5.9
   
23.6
   
208.2
 
Acquisition of subsidiaries  - HPE Software business  
4.5
   
-
   
(36.5
)
  
332.0
   
39.0
   
-
   
43.7
   
382.7
 
(Charged)/credited to Consolidated statement of comprehensive income – continuing operations  
(13.5
)
  
0.1
   
45.2
   
(201.4
)
  
(46.1
)
  
(0.8
)
  
14.1
   
(202.4
)
Credited directly to equity  
-
   
(23.7
)
  
-
   
-
   
-
   
-
   
-
   
(23.7
)
Debited to Other comprehensive income  
-
   
-
   
-
   
-
   
-
   
-
   
4.3
   
4.3
 
Foreign exchange adjustment  
-
   
(0.3
)
  
-
   
-
   
-
   
-
   
-
   
(0.3
)
Reclassification to current assets held for sale  
-
   
-
   
-
   
-
   
-
   
-
   
(1.6
)
  
(1.6
)
Effect of change in tax rates – credited to Consolidated statement of comprehensive income  
(21.1
)
  
(2.4
)
  
66.7
   
(88.7
)
  
3.0
   
(2.1
)
  
(13.3
)
  
(57.9
)
Subtotal  
26.6
   
17.4
   
119.9
   
41.9
   
29.7
   
3.0
   
70.8
   
309.3
 
Jurisdictional offsetting                              
(309.3
)
At October 31, 2018                              
-
 

F-93
Consolidated financial statements and notes
Notes to the consolidated financial statements

28 Deferred tax continued

Deferred Tax Assets continued

  
Tax losses
and interest
restrictions
  
Share-
based
payments
  
Deferred
revenue
  
Prepaid
royalty
  
Tax
credits
  
Intangible
fixed assets
  
Other
temporary
differences
  
Total
 
  
$m


$m


$m


$m


$m


$m


$m


$m
At November 1, 2018  26.6   17.4   119.9   41.9   29.7   3.0   70.8   309.3 
(Charged)/credited to Consolidated statement of comprehensive income – continuing operations  73.9   (5.1)  (12.0)  (41.9)  (22.9)  (3.0)  12.7   1.7 
Credited/(charged) to Consolidated statement of comprehensive income – discontinued operation  -   -   0.7   -   -   -   (12.3)  (11.6)
Credited directly to equity  -   (7.6)  -   -   -   -   -   (7.6)
Debited to Other comprehensive income  -   -   -   -   -   -   13.0   13.0 
Foreign exchange adjustment  -   0.3   -   -   -   -   -   0.3 
Impact of adoption of IFRS 9  -   -   -   -   -   -   4.4   4.4 
Subtotal  100.5   5.0   108.6   -   6.8   -   88.6   309.5 
Jurisdictional offsetting                              (309.5)
At October 31, 2019                              - 

A deferred tax charge to equity of $7.6m (October 31, 2018: $23.7m) arises during the period in relation to share-based payments. The change is primarily due to the decrease in the Group’s share price during the 12 months ended October 31, 2019.

The deferred tax asset relating to other temporary differences of $88.6m as at October 31, 2019 (October 31, 2018: $70.8m) has increased during the current period primarily due to hedging movements and also includes temporary differences arising on fixed assets, short-term temporary differences and defined benefit pension schemes. The deferred tax asset relating to tax losses and interest restrictions has increased by $73.9m during the 12 months ended October 31, 2019 due to the recognition of the deferred tax asset relating to interest restrictions. Deferred tax assets are recognized in respect of tax losses carried forward to the extent that the realization of the related tax benefit through the utilization of future taxable profits is probable.

The Group did not recognize deferred tax assets in relation to the following gross temporary differences, the expiration of which is determined by the tax law of each jurisdiction:

  Expiration: 
  2020  2021  2022  2023  2024  Thereafter  No expiry  Total 
  
$m


$m


$m


$m


$m


$m


$m


$m
At October 31, 2019                                
Type of temporary difference:                                
Losses  56.3   99.2   40.1   33.6   41.8   2,191.6   50.7   2,513.3 
Credits  3.5   3.6   2.1   1.3   0.7   1.7   28.9   41.8 
Other  -   -   -   -   -   -   23.9   23.9 
Total  59.8   102.8   42.2   34.9   42.5   2,193.3   103.5   2,579.0 

Consolidated financial statements and notes
Notes to the consolidated financial statements

28 Deferred tax continued

  
Expiration:
 
  2019  2020  2021  2022  2023  Thereafter  No expiry  Total 
  
$m


$m


$m


$m


$m


$m


$m


$m
At October 31, 2018                                
Type of temporary difference:                                
Losses  
35.2
   
66.1
   
99.2
   
37.5
   
33.6
   
2,117.7
   
95.6
   
2,484.9
 
Credits  
2.2
   
4.4
   
4.0
   
2.4
   
1.3
   
5.2
   
196.4
   
215.9
 
Other  
1.9
   
-
   
-
   
-
   
-
   
-
   
47.7
   
49.6
 
Total  
39.3
   
70.5
   
103.2
   
39.9
   
34.9
   
2,122.9
   
339.7
   
2,750.4
 

Deferred Tax Liabilities

  
Intangible
fixed
assets
  
Other
temporary
differences
  
Total
 
  
$m


$m


$m
At May 1, 2017  
(311.7
)
  
(15.0
)
  
(326.7
)
Acquisition of subsidiaries – HPE Software business  
(2,324.1
)
  
(12.1
)
  
(2,336.2
)
Acquisition of subsidiaries – COBOL-IT  
(3.9
)
  
-
   
(3.9
)
Charged/(credited) to Consolidated statement of comprehensive income – continuing operations  
186.8
   
(12.0
)
  
174.8
 
Charged to Consolidated statement of comprehensive income – discontinued operations  
10.5
   
-
   
10.5
 
Foreign exchange adjustment  
11.9
   
-
   
11.9
 
Effect of change in tax rates – charged to consolidated statement of comprehensive income  
982.0
   
7.8
   
989.8
 
Subtotal  
(1,448.5
)
  
(31.3
)
  
(1,479.8
)
Jurisdictional offsetting          
309.3
 
At October 31, 2018          
(1,170.5
)

  
Intangible
fixed
assets
  
Other
temporary
differences
  
Total
 
  
$m


$m


$m
At November 1, 2018  (1,448.5)  (31.3)  (1,479.8)
Charged to Consolidated statement of comprehensive income – continuing operations  155.5   (0.8)  154.7 
Charged to Consolidated statement of comprehensive income – discontinued operation  34.0   9.9   43.9 
Credited to other comprehensive income – continuing operations  14.0   -   14.0 
Impact of adoption of IFRS15  -   (17.3)  (17.3)
Foreign exchange adjustment  (12.1)  -   (12.1)
Subtotal  (1,257.1)  (39.5)  (1,296.6)
Jurisdictional offsetting          309.5 
At October 31, 2019          (987.1)

No deferred tax liability is recognized in respect of temporary differences associated with investments in subsidiaries, branches, associates and interests in joint arrangements because the Group is in a position to control the timing of the reversal of the temporary differences and none are expected to reverse in the foreseeable future.

Consolidated financial statements and notes
Notes to the consolidated financial statements

2925 Share capital


Ordinary shares at 10 pence each as at October 31, 2019 (October 31, 2018:2021 (2020: 10 pence each).

     October 31, 2019  October 31, 2018  April 30, 2017 
  Note  Shares  
$m

Shares  
$m
 Shares  
$m
Issued and fully paid                        
At November 1 /May 1     436,800,513   65.8   
229,674,479
   
39.7
   
228,706,210
   
39.6
 
Shares issued to satisfy option awards     6,109,091   0.1   
1,894,673
   
0.2
   
968,269
   
0.1
 
Shares utilized to satisfy option awards     (4,804,817)  -   
-
   
-
   
-
   
-
 
Share reorganisation     (74,521,459)  (18.7)  
(16,935,536
)
  
(2.9
)
  
-
   
-
 
Shares issued relating to acquisition of  the HPE Software business  38   -   -   
222,166,897
   
28.8
   
-
   
-
 
At October 31      363,583,328   47.2   
436,800,513
   
65.8
   
229,674,479
   
39.7
 


  October 31, 2021
  October 31, 2020
  October 31, 2019
 
  Shares  $m
  Shares  $m
  Shares  $m
 
Issued and fully paid                  
At November 1  364,545,377   47.3   363,583,328   47.2   436,800,513   65.8 
Shares required to satisfy option awards  745,910   0.1   1,518,327   0.1   6,109,091   0.1 
Shares utilized to satisfy option awards  (441,549)  0   (556,278)  0   (4,804,817)   0 
Share reorganisation  0   0   0  0  (74,521,459)  (18.7)
At October 31  364,849,738   47.4   364,545,377   47.3   363,583,328   47.2 

“B” shares at 335.859391335.85939 pence each (October 31, 2018: 168(2019: 335.85939 pence each)


 October 31, 2019  October 31, 2018  April 30, 2017  October 31, 2021  October 31, 2020  October 31, 2019 
 Shares  
$m
 Shares  
$m
 Shares  
$m
 Shares  
 $m
 Shares  
 $m
 Shares  
 $m
Issued and fully paid                             
   
   
  
At November 1 / May 1 -  -  
-
  
-
  
-
  
-
 
At November 1  0   0   0   0   0   0 
Issue of B shares 413,784,754  1,800.0  
229,799,802
  
500.0
  
-
  
-
   0   0   0   0   413,784,754   1,800.0 
Redemption of B shares (413,784,754) (1,800.0) 
(229,799,802
)
 
(500.0
)
 
-
  
-
   0   0   0   0   (413,784,754)  (1,800.0)
At October 31 -  -  
-
  
-
  
-
  
-
   0   0   0   0   0   0 

Deferred D Sharesshares at 10 pence each


October 31, 2019October 31, 2018April 30, 2017
Shares
$m
Shares
$m
Shares
$m
Issued and fully paid
At November 1 / May 1--
-
-
-
-
Issue of Deferred shares74,521,459-
-
-
-
-
Redemption of Deferred shares(74,521,459)-
-
-
-
-
At October 31--
-
-
-
-

  October 31, 2021  October 31, 2020  October 31, 2019 
  Shares  
 $m
 Shares  
 $m
 Shares  
 $m
Issued and fully paid                     
At November 1  0   0   0   0   0   0 
Issue of Deferred shares  0   0   0   0   74,521,459   0 
Redemption of Deferred shares  0   0   0   0   (74,521,459)  0 
At October 31  0   0   0   0   0   0 

Share issuances during the 12 monthsyear ended to October 31, 20192021
In the 12 months toyear ended October 31, 2019, 6,109,0912021, 745,910 ordinary shares of 10 pence each (18 months to October 31, 2018: 1,894,673 ordinary shares(2020: 1,518,327; 2019: 6,109,091) were required, of 10 pence; 12 months to April 2017: 968,269)which 441,549 (2020: 556,278; 2019: 4,804,817) were issued and 4,804,817transferred from treasury shares were utilized by the Company, to settle exercised share options. The gross consideration received in the 12 monthsyear ended to October 31, 20192021 was $3.1m (18 months to October 31, 2018: $5.8m; 12 months to April 30, 2017: $2.0m). 222,166,897 ordinary shares of 10pence each were issued by the Company as consideration for the acquisition of the HPE Software business in the 18 months ended October 31, 2018 (note 38)$0.1 million (2020: $2.6 million, 2019: $3.1 million).


At October 31, 2019, 30,200,9052021, 29,203,078 treasury shares were held (October 31, 2018: 9,858,205; April 30, 2017: nil)(2020: 29,644,627; 2019: 30,200,905) such that the number of ordinary shares with voting rights was 333,382,423 (October 31, 2018: 426,942,308; April 30, 2017: 229,674,479)335,646,660 (2020: 334,900,750) and the number of listed shares at October 31, 20192021 was 363,583,328 (October 31, 2018: 436,800,513; April 30, 2017: 229,674,479)364,849,738 (2020: 364,545,377; 2019: 363,583,328). In addition 4,002,289 shares are held by the Micro Focus Employee Benefit Trust (2020: 2,089; 2019: 2,089).


Potential issues of shares
Certain employees hold options to subscribe for shares in the Company at prices ranging from nil pence to 1,963.001,411 pence under the following share option schemes approved by shareholders in 2005 and 2006: The Long-Term Incentive Plan 2005, the Additional Share Grants, the Sharesave Plan 2006 and the Employee Stock Purchase Plan 2006.


The number of shares subject to options at October 31, 20192021 was 14,533,973 (October 31, 2018: 18,156,060; April 30, 2017: 8,607,889)18,877,264 (2020: 18,856,680; 2019: 14,533,973).

Consolidated financial statements and notes
Notes to the consolidated financial statements

29 Share capital continued


Share buy-back
On August 29, 2018, the Company announced the start of a share buy-back program for an initial tranche of up to $200m, which was extended on November 5, 2018 to a total value of $400m$400 million (including the initial tranche). On February14,February 14, 2019, the buy-back program was extended into a third tranche of up to $110m$110 million up until the day before the AGM which took place on March 29, 2019 when the current buy-back authority approved by shareholders at the 2017 AGM to make market purchases of up to 65,211,171 ordinary shares expired.


F-71

Consolidated financial statements and notes
Notes to the consolidated financial statements
On July 17, 2019, the Company announced a new share buy-back program with an initial tranche of up to $200m.$200 million. The Programprogram was effectedaffected in accordance with the terms of the authority granted by shareholders at the 2019 AGM and the Listing Rules. On October 3, 2019, the Company completed the $200m$200 million share buy-back program. The total amount bought back under share buy-back programs was $710.0m,$710.0 million, excluding expenses.


In addition to purchasing ordinary shares on the London Stock Exchange, Citi acquired American Depository Receipts representing ordinary shares (“ADRs”) listed on the New York Stock Exchange which it cancelled for the underlying shares and then sold such shares to the Company.


Shares bought back under these programsprogrammes are held as treasury shares. Treasury share movements and share buy-back costs are shown below:


 
12 months ended
October 31, 2019
  
18 months ended
October 31, 2018
  
Total
  
Year ended
October 31, 2021
  
Year ended
October 31, 2020
  
Year ended
October 31, 2019
 
Treasury shares Number  Number  Number  Number  Number  Number 
Share buy-backs 29,160,054  
9,858,205
  39,018,259   0   0   29,160,054 
Shares issued to satisfy option awards (4,804,817) 
-
  (4,804,817)  0   0   (4,804,817)
Share reorganisation (4,012,537) 
-
  (4,012,537)  0   0   (4,012,537)
 20,342,700  
9,858,205
  30,200,905   0   0   20,342,700 
                     
Share buy-back numbers:         
Share buy-backs numbers:            
Ordinary shares bought on the London Stock Exchange 25,766,919  
8,567,659
  34,334,578   0   0   25,766,919 
ADRs purchased on the New York Stock Exchange 3,393,135  
1,290,546
  4,683,681   0   0   3,393,135 
 29,160,054  
9,858,205
  39,018,259   0   0   29,160,054 
                     
Share buy-back cost: 
$m

$m

$m
 
$m

 
$m

 
 $m
Share buy-back cost 538.8  
171.2
  710.0   0   0   538.8 
Expenses 5.9  
0.5
  6.4   0   0   5.9 
 544.7  
171.7
  716.4   0   0   544.7 

The weighted average price of shares bought back in the 12 months ended October 31, 2019 was £14.61 per share (18 months ended October 31, 2018 was £13.82 per share).share.


Return of Value
On April 29, 2019, a Return of Value was made to shareholders amounting to $1,800.0m$1,800.0 million (£1,389.7m)1,389.7 million) in cash (335.89(336 pence per existing Ordinary Share and American Depositary Shares (“ADS”) held at the Record Time of 6.00 pm on April 29, 2019). The Return of Value was approved by shareholders on 29 April 2019. The Return of Value was effected through an issue and redemption of B shares and resulted in a $1,800.0m$1,800.0 million increase in capital redemption reserve and a $1,800.0m$1,800.0 million reduction in the merger reserve. 413,784,754 “B” shares were issued at 335.859391335.85939 pence each, resulting in a total $1,800.0m$1,800.0 million being credited to the “B” share liability account. Subsequently and on the same date, 413,784,754 “B” shares were redeemed at 335.859391pence335.85939 pence each and an amount of $1,800.0m$1,800.0 million was debited from the “B share liability account. The Group entered into a forward exchange contract to protect the Company from any foreign exchange movement and the resulting payment to shareholders of $1,800.0m$1,800.0 million incurred net transaction costs of $1.0m.$1.0 million. The Return of Value was accompanied by a 0.8296 share consolidation and the share consolidation resulted in the issue of D deferred shares which were subsequently bought back for 1 pence, resulting in a transfer of $18.7m$18.7 million to the capital redemption reserve. The settlement date was May 13, 2019 for the Ordinary Shares.


F-97Commercial Agreement with Amazon Web Services
On March 2, 2021, the Group entered into a commercial agreement with Amazon Web Services (“AWS”), which grants AWS the right to deploy the Group’s technology to migrate customers to the AWS’ cloud. The launch was announced on December 1, 2021. Warrants have been issued to Amazon NV Investment Holdings LLC to subscribe for ordinary shares (the “warrants”) at 446.60 pence per share, with 398,110 vesting on signing on March 2, 2021 and a further 1,194,329 vesting on launch on December 1, 2021.

As at October 31, 2021, AWS have not exercised any of the warrants earned on signing.

26 Share premium account

     October 31, 2021
  October 31, 2020
  October 31, 2019
 
  Note  $m
  $m
  $m
 
At November 1     46.5   
44.0
   41.0 
Movement in relation to share options exercised  28   0.3   
2.5
   3.0 
At October 31      46.8   
46.5
   44.0 

F-72

Consolidated financial statements and notes
Notes to the consolidated financial statements

29 Share capital continued
On August 31, 2017 a Return of Value was made to shareholders amounting to $500.0m. The Return of Value was effected through an issue and
27 Other reserves

     
Capital
redemption
reserve 1
  
Merger
reserve 2
  
Hedging
reserve 3
  Total 
  Note  
$m

 
$m

 
$m

 
$m

As at November 1, 2020     2,485.0   1,767.4   (63.1)  4,189.3 
Hedge accounting  24   0   0   42.2   42.2 
Current tax movement on hedging      0   0   (8.0)  (8.0)
Transfer from merger reserve to retained earnings  0
   (108.3)  0   (108.3)
As at October 31, 2021  2,485.0   1,659.1   (28.9)  4,115.2 

As at November 1, 2019     2,485.0   1,739.8   (29.6)  4,195.2 
Hedge accounting  24   0   0   (41.3)  (41.3)
Current tax movement on hedging      0   0   7.8   7.8 
Transfer to merger reserve from retained earnings      0   27.6   0   27.6 
As at October 31, 2020      2,485.0   1,767.4   (63.1)  4,189.3 

1  Capital redemption of B shares and resulted in a $500.0m increase in thereserve
The capital redemption reserve, a $343.3m reduction in the mergernon-distributable reserve, and a $156.7m reduction in share premium. 229,799,802 “B” shares were issued at 168 pence each, resulting in a total $500.0m being credited to the “B” share liability account. Subsequently and on the same date, 229,799,802 “B” shares were redeemed at 168 pence each and an amount of $500.0m was debited from the “B share liability account. The Return of Value was accompanied by a 0.9263 share consolidation and the share consolidation resulted in the issue of D deferred shares which were subsequently bought back for 1 penny, resulting in a transfer of $2.9m (note 31) to the capital redemption reserve.

30 Share premium account

     October 31, 2019  October 31, 2018  April 30, 2017 
  Note  
$m


$m


$m
At November 1/ May 1     41.0   
192.1
   
190.3
 
Issue and redemption of B shares  29   -   
(156.7
)
  
-
 
Movement in relation to share options exercised  33   3.0   
5.6
   
1.8
 
At October 31      44.0   
41.0
   
192.1
 

31 Other reserves

     
Capital
redemption
reserve
  
Merger
reserve
  
Hedging
reserve
  Total 
  Note  
$m


$m


$m


$m
As at May 1, 2016     
163.4
   
988.1
   
-
   
1,151.5
 
Reallocation of merger reserve     
-
   
(650.0
)
  
-
   
(650.0
)
As at April 30, 2017     
163.4
   
338.1
   
-
   
501.5
 
                    
Return of Value - share consolidation  29   
2.9
   
-
   
-
   
2.9
 
Return of Value - issue and redemption of B shares  29   
500.0
   
(343.3
)
  
-
   
156.7
 
Hedge accounting1
  27   
-
   
-
   
86.4
   
86.4
 
Current tax movement on hedging1
      
-
   
-
   
(16.4
)
  
(16.4
)
Acquisition of the HPE Software business2
  38   
-
   
6,485.4
   
-
   
6,485.4
 
Reallocation of merger reserve 3
      
-
   
(2,755.8
)
  
-
   
(2,755.8
)
As at October 31, 2018      
666.3
   
3,724.4
   
70.0
   
4,460.7
 
                     
As at November 1, 2018      666.3   3,724.4   70.0   4,460.7 
Return of Value - share consolidation  29   18.7   -   -   18.7 
Return of Value - issue and redemption of B shares  29   1,800.0   (1,800.0)  -   - 
Hedge accounting1
  27   -   -   (122.9)  (122.9)
Current tax movement on hedging1
      -   -   23.3   23.3 
Reallocation of merger reserve 3
      -   (184.6)  -   (184.6)
As at October 31, 2019      2,485.0   1,739.8   (29.6)  4,195.2 

1Hedging reserve
A debit of $99.6m was recognized in the hedging reserve in relation to hedging transactions entered into in the 12 months ended October 31, 2019 (18 months ended October 31, 2018: $70.0m credit).

2 Acquisition of HPE Software
On September 1, 2017, the acquisition of the HPE Software business was completed (note 38). Ascreated as a result of this aReturns of Value in prior periods.

2  Transfer to and from merger reserve was created of $6,485.4m. The acquisition was structured by way of equity consideration; this transaction fell within the provisions of section 612 of the Companies Act 2006 (merger relief) such that no share premium was recorded in respect of the shares issued. The Parent Company chose to record its investment in the HPE Software business at fair value and therefore recorded a merger reserve equal to the value of the share premium which would have been recorded had section 612 of the Companies Act 2006 not been applicable (i.e. equal to the difference between the fair value of the HPE Software business and the aggregate nominal value of the shares issued).

Consolidated financial statements and notes
Notes to the consolidated financial statements

31 Other reserves continued

3 Reallocation of merger reserve
In the 12 months ended October 31, 2019, an amount of $184.6m was transferred from the merger reserve to retained earnings. The merger reserve is an unrealized profit until it can be realized by the settlement of the intercompany loan by qualifying consideration.

In the 18 monthsyear ended October 31, 2018,2020, it was disclosed that $2,755.8m$337.0 million of the merger reserve would be settled in the period.following year. However, as at October 31, 2019,2021, only $2,540.4m$123.3 million of the balance was settled asand the balance of $215.4m$213.7 million was not required for any Returns of Valuetransferred back to shareholders.the merger reserve. However, the remaining $215.4m and an additional $184.6m$322.0 million is expected to be settled in qualifying consideration during the year ended October 31, 2020 (18 months ended October 31, 2018: $2,540.4m)2022 and as such an equivalent proportion of the merger reserve of $332.0 million is considered realized, in accordance with section 3.11(d) of Tech 02/17 and therefore has been transferred to retained earnings. An amountAs a result a net transfer of $650.0m was transferred$108.3 million from the merger reserve to retained earnings has occurred.

3 Hedging reserve
A credit of $34.2 million was recognized in the 12 monthshedging reserve in relation to hedging transactions entered into in the year ended April 30, 2017.October 31, 2021 (2020: $33.5 million debit).

32 Non-controlling interests
The Group has minority shareholders in one subsidiary, Novell Japan Ltd.
On October 25, 2019, a payment of 340,700 JPY ($3,140) was made to acquire 170,350 ordinary 1 JPY shares held. This payment increased the Group’s shareholding from 81.05% to 84.24%.

  October 31, 2019  October 31, 2018  April 30, 2017 
  
$m


$m


$m
At November 1 / May 1  1.0   
0.9
   
1.0
 
Share of profit after tax  0.3   
0.1
   
(0.1
)
At October 31  1.3   
1.0
   
0.9
 

Non-controlling interests relate to the companies detailed below:

 
 
Company name
 
Country of incorporation and
principal place of business
 
October 31, 2019
Proportion
held
  
October 31, 2018
Proportion
held
  
April 30, 2017
Proportion
held
 
Novell Japan LtdJapan  84.24%  
81.05
%
  
74.70
%

33
28 Employees and directors


Staff costs


 
12 months ended
October 31, 2019
  
18 months ended
October 31, 2018
  
12 months ended
April 30, 2017
  
Year ended
October 31, 2021
  
Year ended
October 31, 2020
  
Year ended
October 31, 2019
 
 
$m

$m

$m

$m


$m


$m

Staff costs                  
Wages and salaries 1,204.4  
1,819.2
  
382.5
  1,231.5  1,187.3  1,204.4 
Redundancy and termination costs (non-exceptional) 0.5  
2.1
  
2.1
  1.2  1.0  0.5 
Social security costs 93.6  
159.0
  
53.2
  103.5  97.5  93.6 
Other pension costs 41.7  
50.4
  
11.4
  45.5  41.6  41.7 
 1,340.2  
2,030.7
  
449.2
  1,381.7  1,327.4  1,340.2 
Cost of employee share schemes (Share-based payments section) 68.8  
64.3
  
31.5
 
Cost of employee share schemes (Share-based payments section below) 14.3  17.0  68.8 
Total 1,409.0  
2,095.0
  
480.7
  1,396.0  1,344.4  1,409.0 


    
12 months ended
October 31, 2019
  
18 months ended
October 31, 2018
  
12 months ended
April 30, 2017
     
Year ended
October 31, 2021
  
Year ended
October 31, 2020
  
Year ended
October 31, 2019
 
 Note  
$m

$m

$m
 Note  
$m


$m


$m

Pension costs comprise:                        
Defined benefit schemes 25  9.0  
7.1
  
0.5
  22  11.3  10.4  9.0 
Defined contribution schemes 25  32.7  
43.3
  
10.9
  22  34.2  31.2  32.7 
Total    41.7  
50.4
  
11.4
     45.5  41.6  41.7 


F-99F-73

Consolidated financial statements and notes
Notes to the consolidated financial statements

33
28 Employees and directorscontinued


Staff Numbers

numbers
  
12 months ended
October 31, 2019
  
18 months ended
October 31, 2018
  
12 months ended
April 30, 2017
 
  Number  Number  Number 
Average monthly number of people         
(including executive directors) employed by the Group:         
          
Continuing Operations         
Sales and distribution  5,413   
5,860
   
1,818
 
Research and development  5.056   
4,323
   
1,400
 
General and administration  1,991   
1,378
   
642
 
   12,460   
11,561
   
3,860
 
             
Discontinued Operation            
Sales and distribution  164   
515
   
323
 
Research and development  170   
629
   
476
 
General and administration  3   
8
   
4
 
   337   
1,152
   
803
 
             
Total            
Sales and distribution  5,577   
6,375
   
2,141
 
Research and development  5,226   
4,952
   
1,876
 
General and administration  1,994   
1,386
   
646
 
Total  12,797   
12,713
   
4,663
 


  
Year ended
October 31, 2021
  
Year ended
October 31, 2020
  
Year ended
October 31, 2019
 
  Number  Number  Number 
Average monthly number of people         
(including executive directors) employed by the Group:         
          
Continuing operations         
Sales and distribution  4,300   5,066   5,413 
Research and development  5,272   5,091   5,056 
General and administration  2,210   1,937   1,991 
   11,782   12,094   12,460 
             
Discontinued operation            
Sales and distribution  0   0   164 
Research and development  0   0   170 
General and administration  0   0   3 
   0   0   337 
             
Total            
Sales and distribution  4,300   5,066   5,577 
Research and development  5,272   5,091   5,226 
General and administration  2,210   1,937   1,994 
Total  11,782   12,094   12,797 

Directors and Key Managementkey management


 
12 months ended
October 31, 2019
  
18 months ended
October 31, 2018
  
12 months ended
April 30, 2017
  
Year ended
October 31, 2021
  
Year ended
October 31, 2020
  
Year ended
October 31, 2019
 
 
$m

$m

$m
 $m
  $m
  $m
 
Directors                  
Aggregate emoluments 3.7  
14.6
  
5.2
   5.4   4.1   3.7 
Aggregate gains made on the exercise of share options 79.7  
77.7
  
8.2
   0   0.3   79.7 
Company contributions to money purchase pension scheme -  
0.7
  
0.5
 
Total 83.4  
93.0
  
13.9
   5.4   4.4   83.4 

  
12 months ended
October 31, 2019
  
18 months ended
October 31, 2018
  
12 months ended
April 30, 2017
 
  
$m


$m


$m
Key management compensation            
Short-term employee benefits  9.5   
25.9
   
8.0
 
Share-based payments  25.3   
44.5
   
9.4
 
Total  34.8   
70.4
   
17.4
 


For further information on the directors of the Company, refer to the Item 6.B.

  
Year ended
October 31, 2021
  
Year ended
October 31, 2020
  
Year ended
October 31, 2019
 



$m



$m



$m

Key management compensation            
Short-term employee benefits  13.5   12.4   9.5 
Share based payments  1.9   2.2   25.3 
Total  15.4   14.6   34.8 

The key management figures above include the executive management team and directors. There are no0 post-employment benefits.


F-100
F-74

Consolidated financial statements and notes
Notes to the consolidated financial statements

33
28 Employees and directorscontinued


Share-based payments


The amount charged to the Consolidated statement of comprehensive income in respect of share-based payments was $71.3m$14.3 million for the 12 monthsyear ended October 31, 2019 (18 months ended October 31, 2018: $72.2m)2021 (2020: $17.0 million). The Consolidated statement of comprehensive income has been presented split between continuing and discontinued operations. The table below provides information of the share-based payments on a continuing operations basis. The tables below for each type of share option are presented on a combined continuing and discontinued operations basis.


 
12 months ended
October 31, 2019
  
18 months ended
October 31, 2018
  
12 months ended
April 30, 2017
  
Year ended
October 31, 2021
  
Year ended
October 31, 2020
  
Year ended
October 31, 2019
 
Continuing operations 
$m

$m

$m

 $m
  $m
  $m
 
Share-based compensation – IFRS 2 charge 62.0  
70.9
  
20.8
   12.0   18.3   62.0 
Employer taxes 6.8  
(6.6
)
 
10.7
   2.3   (1.3)  6.8 
 68.8  
64.3
  
31.5
 
Continuing operations  14.3   17.0   68.8 
Discontinued operation  0   0   2.5 
Total  14.3   17.0   71.3 


As at October 31, 2019,2021, accumulated employer taxes of $1.9m (October 31, 2018: $20.6m; April 30, 2017: $17.0m)$1.3 million (2020: $0.6 million) are included in trade and other payables and $nil (October 31, 2018: $0.5m; April 30, 2017: $1.2m)$nil (2020: $nil) is included in other non-current liabilities.


The Group has various equity-settled share-based compensation plans details of which are provided below.


a)Incentive Plan 2005

On April 27, 2005, the remuneration committee approved the rules of theThe Micro Focus International plc Incentive Plan 2005 (“LTIP”) which permits the granting of share optionsawards to executive directors and senior management. The total number of options they receive is determined by the performance criteria set by the remuneration committee overselected employees on a three-year performance period. Prior to April 18, 2011 performance conditions required that cumulative EPS growth over a three-year vesting period is at least equal to Retail Prices Index (“RPI”) plus 11% (at which point 25% ofdiscretionary basis. Awards can be granted as conditional awards will vest), 60% of shares will vest for cumulative EPS growth of RPI plus 13% and for full vesting the cumulative EPS growth will be required to be RPI plus 15% per annum. RPI is the general index of the UK retail prices (for all items) published by the Office of National Statistics or any similar index replacing it. Straight-line vesting will apply between these points.as nil-cost options.


  
Year ended
October 31, 2021
  
Year ended
October 31, 2020
 
  
Number of
awards
  
Weighted average
exercise price of
awards
  
Number of
awards
  
Weighted average
exercise price of
awards
 
   ‘000  pence   ‘000  pence 
Outstanding at November 1  14,222   0   9,227   6 
Exercised  (576)  1   (734)  1 
Forfeited/lapsed  (5,496)  0   (2,100)  22 
Granted  4,566   0   7,829   0 
Outstanding at October 31,  12,716   0   14,222   0 
Exercisable at October 31,  732   5   938   4 
Awards granted are subject to either Absolute Shareholder Returns (“ASR”) over a three-year period, cumulative EPS growth or a combination of both. ASR is defined as the average closing share price over the period of five days ending on the day prior to the vesting date less the reference price plus the total of all dividends and cash distributions and any other measures as determined by the Remuneration Committee between the award date and the vesting date. Where the cumulative EPS growth over a three-year period is at least equal to RPI plus 3% per annum 25% of awards will vest, with full vesting achieved when the cumulative EPS growth is RPI plus 9% per annum. Straight-line vesting will apply between these points.  Where the award is subject to ASR, the resulting level of vesting will be reduced by 25% if the ASR is below 150 pence or increased by 50% if ASR is 300 pence or more.

Consolidated financial statements and notes
Notes to the consolidated financial statements

33 Employees and directors continued

  
12 months ended
October 31, 2019
  
18 months ended
October 31, 2018
 
  
Number
of
Options
  
Weighted
average
exercise price
  
Number
of
Options
  
Weighted
average
exercise price
 
   ‘000  pence   
‘000
  pence 
Outstanding at November 1 / May 1  5,620   14   
4,662
   
29
 
Exercised  (3,410)  17   
(1,283
)
  
12
 
Forfeited  (545)  27   
(582
)
  
3
 
Granted  7,562   -   
2,823
   
-
 
Outstanding at October 31  9,227   6   
5,620
   
14
 
Exercisable at October 31  1,416   34   
2,270
   
51
 


The weighted average share price in the period for optionsawards on the date of exercise was 1,707469 pence for the 12 monthsyear ended October 31, 2019 (18 months ended October 31, 2018: 1,7812021 (2020: 526 pence).


The amount charged to the Consolidated statement of comprehensive income in respect of the LTIP scheme was $31.1m$6.7 million for the 12 monthsyear ended October 31, 2019 (18 months ended October 31, 2018: $30.3m)2021 (2020: $9.3 million,
2019: $31.1 million). In addition to this $8.5m (18 months ended October 31, 2018: $4.1m$2.3 million (2020: $1.3 million credit, 2019: $8.5 million charge) was charged to the Consolidatedconsolidated statement of comprehensive income in respect of National Insurance on these share options.awards.


   October 31, 2019  October 31, 2018 
Range of exercise prices  
Weighted
average
exercise
price
pence
  
Number
of
options
‘000
  
Weighted
average
remaining
contractual
life (years)
  
Weighted
average
exercise
price
pence
  
Number
of
options
‘000
  
Weighted
average
remaining
contractual
life (years)
 
£0.10 or less
   1   8,982   3.4   
1
   
5,127
   
6.7
 
£0.11 – £1.00
   13   137   3.7   
13
   
205
   
4.9
 
£1.01 – £2.00
   -   -   -   
-
   
-
   
-
 
£2.01 – £3.00
   -   -   -   
-
   
-
   
-
 
£3.01 - £4.00
   -   -   -   
358
   
146
   
0.7
 
More than £4.00
   402   108   0.7   
402
   
142
   
1.7
 
    6   9,227   3.4   
14
   
5,620
   
4.0
 
   October 31, 2021
  October 31, 2020
 
Range of exercise prices  
Weighted
average
exercise price
pence
  
Number of
awards
‘000
  
Weighted
average
remaining
contractual life
years
  
Weighted
average
exercise price
pence
  
Number of
awards
‘000
  
Weighted
average
remaining
contractual life
years
 
£0.10 or less   0   12,607   5.0   0   14,104   17.2 
£0.11 – £1.00   13   109   1.8   13   118   2.8 
    0   12,716   4.9   0   14,222   17.1 


F-75

Consolidated financial statements and notes
Notes to the consolidated financial statements
28 Employees and directorscontinued

Share-based payments continued

Unvested awards granted are subject to the following vesting conditions of either:

Performance criteria
Unvested options
Number ‘000
Description
Free cash flow/ Relative TSR growth4,267
Awards made with a free cash flow target and relative TSR target over a three-year period.
Continued employment6,277
Awards under a continuing employment criteria over a two or three-year period.
Cumulative Earnings per share (“EPS”) growth1,309
EPS for these awards is defined as Diluted Adjusted EPS*. Where the cumulative EPS growth over a three- or four-year period is at least equal to RPI plus 3% per annum 25% of awards will vest, with full vesting achieved when the cumulative EPS growth is RPI plus 9% per annum. Straight-line vesting will apply between these points.
Other131Various other vesting conditions
11,984
* Earnings per share adjusted by adding back all exceptional items including the profit on the disposal of discontinued operation, share-based compensation charge and the amortisation of intangibles acquired in a business combination because they are individually or collectively material items that are not considered to be representative of the trading performance of the Group.

Further details regarding awards to executive directors are provided in the Item 6.B.

The weighted average fair value of optionsawards granted during the 12 monthsyear ended October 31, 20192021 determined using the Black-Scholes valuation model was £14.54 (18 months ended October 31, 2018: £15.25)£4.51 (2020: £2.01).

The significant inputs into the model for the 12 monthsyear ended October 31, 20192021 were:

  
12 monthsYear ended
October 31, 20192021
 
18 monthsYear ended
October 31, 20182020
Weighted average share price at the grant date £16.445.25 £16.872.50
Expected volatility between 48.91%68.42% and 49.68%70.03% between 28.59% and 48.54%
72.85%
Expected dividend yield between 4.78%4.89% and 5.87%5.10% between 2.82% and 7.02%
23.76%
Expected option life 0.76 to four2 or 3 years three2 years
Annual risk-free interest rate between 0.49%0.75% and 1.38%0.80% between 1.0% and 1.6%
0.17%

The volatility measured at the standard deviation of continuously compounded share returns is based on statistical daily share prices over the last three years.

The fair value of awards granted in the year ended October 31, 2021, as determined using the Monte Carlo simulation was $2.80 (2020: $2.67) and the fair value of awards granted using the share price at the date of grant was $7.32 (2020: $4.65).


  
Year ended
October 31, 2021
  
Year ended
October 31, 2020
 
  Number of Options     Number of Options    
  
TAG
ASGs
  
HPE Software
ASGs
  Total  
Weighted average exercise
price
  
TAG
ASGs
  HPE Software ASGs  Total  
Weighted average
exercise
price
 
   ‘000   ‘000   ‘000  pence   ‘000   ‘000   ‘000  pence 
Outstanding at November 1  446   0   446   0   461   3,215   3,676   0 
Granted  0   0   0   0   0   0   0   0 
Exercised  (40)  0   (40)  0   (15)  0   (15)  0 
Surrendered  0   0   0   0   0   (2,385)  (2,385)  0 
Lapsed  0   0   0   0   0   (830)  (830)  0 
Outstanding at October 31,  406   0   406   0   446   0   446   0 
Exercisable at October 31,  406   0   406   0   446   0   446   0 

F-102F-76

Consolidated financial statements and notes
Notes to the consolidated financial statements

33
28 Employees and directorscontinued

Share based payments continued


Share-based payments continued
b)Additional Share grants

  
12 months ended
October 31, 2019
  
18 months ended
October 31, 2018
 
  Number of Options     Number of Options    
  
TAG
ASGs
  
HPE
Software
ASGs
  
Total
  
Weighted
average
exercise
price
  
TAG
ASGs
  
HPE
Software
ASGs
  
Total
  
Weighted average
exercise
price
 
   ‘000   ‘000   ‘000  pence   
‘000
   
‘000
   
‘000
  pence 
Outstanding at November 1 /  May 1  3,062   7,427   10,489   -   
3,262
   
-
   
3,262
   
-
 
Granted  -   458   458   -   
-
   
13,115
   
13,115
   
-
 
Exercised  (2,601)  -   (2,601)  -   
(200
)
  
-
   
(200
)
  
-
 
Lapsed  -   (4,670)  (4,670)  -   
-
   
(2,412
)
  
(2,412
)
  
-
 
Cancelled  -   -   -   -   
-
   
(3,276
)
  
(3,276
)
  
-
 
Outstanding at October 31  461   3,215   3,676   -   
3,062
   
7,427
   
10,489
   
-
 
Exercisable at  October 31  461   -   461   -   
3,062
   
-
   
3,062
   
-
 

Additional Share Grants – The Attachmate Group (“TAG”) acquisition

The Remuneration Committee awarded Additional Share Grants (“ASGs”) to a number of senior managers and executives, critical to delivering the anticipated results of the acquisition of The Attachmate Group, which completed on November 20, 2014.

The ASGs were nil cost options over ordinary shares. The ASGs became exercisable, subject to the satisfaction of the performance condition, on the third anniversary of the date of Completion or November 1, 2017, whichever is earlier (the “vesting date”) and remained exercisable until the tenth anniversary of Completion.

The performance condition applicable was that the percentage of ordinary shares subject to the ASG which may be acquired on exercise on or after the vesting date was as follows:

(i)  0% if the Shareholder Return Percentage (as defined below) is 50% or less;
(ii) 100% if the Shareholder Return Percentage is 100% or more; and
(iii) A percentage determined on a straight-line basis between (i) and (ii) above.

The “Shareholder Return Percentage” was calculated by deducting 819.425 pence per share (the “Reference Price”), being the average of the 20 days before June 3 2014, from the sum of the “Vesting Price” (calculated as the average closing share price over the period of 20 days ending on the day prior to the vesting date) plus the total of all dividends per share between Completion and the vesting date. This was divided by the Reference Price, multiplying the resulting figure by 100 to obtain the Shareholder Return Percentage.

These TAG ASG options vested in full. As at October 31, 2019, 460,917 of these options were vested but not yet exercised.

Consolidated financial statements and notes
Notes to the consolidated financial statements

33 Employees and directors continued

Share based payments continued


Additional Share Grants – The HPE Software business acquisition

The Remuneration Committee awarded a number of Additional Share Grants (“ASGs”) to a number of senior managers and executives, critical to delivering the anticipated results of the acquisition of the HPE Software business, which completed on September 1, 2017.


The ASGsAll awards were nil cost options over ordinary shares. The ASGs became exercisable, subject to the satisfaction of the performance condition, on the third anniversary of the announcement date of September 7, 2016 (the “vesting date”) and remained exercisable for a period of 84 months commencing on the vesting date.

The performance condition applicable was that the percentage of ordinary shares subject to the ASG, which may be acquired on exercise on or after the vesting date was as follows:

(i)  0% if the Shareholder Return Percentage (as defined below) is 50% or less;
(ii) 100% if the Shareholder Return Percentage is 100% or more; and
(iii) A percentage determined on a straight-line basis between (i) and (ii) above.

The “Shareholder Return Percentage” will be calculated by deducting 1,817.75 pence per share (the “Reference Price”), being the average of the 20 days before August 1, 2016, from the sum of the “Vesting Price” (calculated as the average closing share price over the period of 20 days ending on the day prior to the vesting date) plus the total of all dividends per share between the announcement date and the vesting date. This was dividedeither surrendered by the Reference Price, multiplying the resulting figure by 100 to obtain the Shareholder Return Percentage.

Amendments made on September 20, 2018

On September 20, 2018, the Group announced that, following a review of existing Additional Share Grant (“ASG”) awards, ASG awards made to Executive Directors on completion of the HPE Software business acquisition on September 1, 2017 were to be cancelled. New ASG awards were granted in order to align with the business plan to deliver value by October 2020 and focus Executive Directors on delivering significant value to shareholders over the three years from completion of the transaction. The Company believed that,or lapsed in the light of the HPE Software business integration and the wider competitive environment evidenced by recent M&A activity in the software sector, the alignment of the vesting period to September 1, 2020 was essential to provide an effective incentive over the period of the business plan.prior year.

The Executive Directors (Kevin Loosemore, Stephen Murdoch and Chris Kennedy) and those who were Executive Directors at the time of the existing award and remained in employment (Nils Brauckmann and Mike Phillips) as at September 20, 2018, agreed to surrender their existing ASG awards made on September 1, 2017 which were due to vest on September 7, 2019.  In return, the Company made new ASG awards over ordinary shares in the Company as detailed below, which are due to vest on September 1, 2020 (being three years from the completion of the Transaction).

  
Number of granted and cancelled
nil cost share options
over Ordinary Shares
  
Number of replacement
nil cost options
over Ordinary Shares
 
Director  ‘000   ‘000 
Kevin Loosemore  1,100   1,100 
Stephen Murdoch  500   947 
Chris Kennedy1
  500   676 
Mike Phillips1
  676   676 
Nils Brauckmann1
  500   500 
   3,276   3,899 

1 These ASG options awarded to Chris Kennedy (all), Nils Brauckmann (all) and Mike Phillips (partial) lapsed as a result of their resignations and subsequent leaving employment.

Consolidated financial statements and notes
Notes to the consolidated financial statements

33 Employees and directors continued

Share based payments continued

b) Additional Share Grants continued

The Total Shareholder Returns (“TSR”) performance thresholds for the new awards were unchanged from the previous awards, save in respect of the period to vesting. The number of new awards was equal to the number of previous awards which they replace, except for Stephen Murdoch and Chris Kennedy where increases of 447,000 and 176,000 awards respectively were made to reflect Stephen’s promotion to Chief Executive Officer and to align Chris’ awards to those granted to his predecessor.
As new ASGs were granted to replace the original ASGs that were cancelled, this was treated under IFRS 2 “Share-based payment” as modification of the original ASG grant. Due to the performance conditions attached to them, the fair value for ASGs was determined using the Monte Carlo simulation method. The fair value of the original awards was determined at the modification date (September 20, 2018) i.e. replacing the original fair values. The incremental fair value of the new awards over the original awards at the date of modification was recognized in addition to the grant date fair value. The original expense continued to be recognized over the original service period, the incremental expense was recognized over the remaining service period for the new awards i.e. to September 1, 2020 rather than September 7, 2019.

Lapses in the 12 months ended October 31, 2019
In the 12 months ended October 31, 2019, 4,669,454 ASGs relating to the HPE Software business acquisition lapsed as a result of either leavers (1,234,454) or performance conditions not met (3,435,000).

Additional Share Grants made in the 12 months ended October 31, 2019
In the 12 months ended October 31, 2019, 458,000 ASG options were granted including 338,000 ASG options to Brian McArthur- Muscroft, the Chief Financial Officer. These ASG grants each had a vesting date of September 1, 2020 with the same performance threshold as the amended grants issued on September 20, 2018.

The weighted average fair value of options granted during the period determined using the Monte-Carlo simulation model was £0.54 (18 months ended October 31, 2018: £4.80).

The significant inputs into the model for the 12 months ended October 31, 2019 were:

12 months ended
October 31, 2019
18 months ended
October 31, 2018
Weighted average share price at the grant date
£22.81

£18.35
Expected volatility28.00%Between 28.00% - 31.00%
Expected dividend yield2.85%Between 3.26% - 5.29%
Expected option life1.75 years – 1.78 years1.96 years
Annual risk-free interest rate0.43%Between 0.43% - 0.84%

The volatility measured at the standard deviation of continuously compounded share returns is based on statistical daily share prices over the last three years.


The amount charged to the Consolidated statement of comprehensive income in respect of the ASGs was $30.6m$nil for the 12 monthsyear ended October 31, 2019 (18 months ended2021 (2020: $3.9 million).

Additional Share Grants – The Attachmate Group (“TAG”) acquisition
The Remuneration Committee awarded ASGs to a number of senior managers and executives, critical to delivering the anticipated results of the acquisition of The Attachmate Group, which completed on November 20, 2014. These TAG ASG options vested in full.

As at October 31, 2018: $45.6m. In addition to this $1.7m (18 months ended October 31, 2018: $2.5m charge) was credited to the Consolidated statement2021, 405,917 (2020: 445,917) of comprehensive income in respect of National Insurance on these share options in the 12 months ended October 31, 2019.were vested but not yet exercised.

   October 31, 2019  October 31, 2018 
Range of exercise prices  
Weighted
average
exercise
price
pence
  
Number
of
options
‘000
  
Weighted
average
remaining
contractual
life (years)
  
Weighted
average
exercise
price
pence
  
Number
of
options
‘000
  
Weighted
average
remaining
contractual
life (years)
 
£0.00
   -   3,676   7.3   -   10,489   5.5 
    -   3,676   7.3   
-
   
10,489
   
5.5
 


F-105
   October 31, 2021  October 31, 2020 
Range of exercise prices  
Weighted
average
exercise
price
pence
  
Number
of
options
‘000
  
Weighted
average
remaining
contractual
life (years)
  
Weighted
average
exercise
price
pence
  
Number
of
options
‘000
  
Weighted
average
remaining
contractual
life (years)
 
₤0.00
   0   406   3.1   0   446   4.1 
    0   406   3.1   0   446   4.1 

Consolidated financial statements and notes
Notes to the consolidated financial statements

33 Employees and directors continued

Share based payments continued

c) Sharesave and Employee Stock Purchase Plan 2006

b)Sharesave and Employee Stock Purchase Plan 2006
In August 2006, the Company introduced the Micro Focus Employee Stock Purchase Plan 2006 and the Micro Focus Sharesave Plan 2006, approved by members on July 25, 2006. The Group operates several plans throughout2 all-employee plans; the world, but the two main plans are theMicro Focus Sharesave Plan 2006 (“Sharesave”) primarily for UK and Ireland based employees and the Micro Focus Employee Stock Purchase Plan 2006 (“ESPP”) for employees in the USA and Canada.all other locations. The Sharesave and ESPP provide for an annual award of options at a discount to the market price and are open to all eligible Group employees. Under these plans employees make monthly savings over a period (Sharesave three years , ESPP two years) linked to the grant of an option with an option price which can be at a discount (Sharesave(for Sharesave this can be up to 20%, ESPP 15%) of the market value of the shares on grant.grant and for ESPP, this can be up to 15% of the market value of the shares on grant or maturity, whichever is lower). The option grants are subject to employment conditions and continuous savings.


Further Sharesave and ESPP grants were made during the 12 months to October 31, 2019.2021.


Sharesave


 
12 months ended
October 31, 2019
  
18 months ended
October 31, 2018
  
Year ended
October 31, 2021
  
Year ended
October 31, 2020
 
 
Number
of
options
‘000
  
Weighted
average
exercise price
pence
  
Number
of
options
‘000
  
Weighted
average
exercise price
pence
  
Number
of
options
‘000
  
Weighted
average
exercise price
pence
  
Number
of
options
‘000
  
Weighted
average
exercise price
pence
 
Outstanding at November 1 / May 1 496  1,185  
559
  
1,039
 
Outstanding at November 1  1,935   293   438   1,221 
Exercised (81) 1,171  
(294
)
 
829
   (2)  241   0   1,023 
Forfeited (102) 1,297  
(223
)
 
1,508
   (316)  408   (912)  855 
Granted 125  1,374  
454
  
1,293
   355   203   2,409   338 
Outstanding at October 31 438  1,221  
496
  
1,185
   1,972   259   1,935   293 
Exercisable at October 31 62  1,461  
47
  
1,116
   14   1,023   0   0 

Number
of
options
   
Exercise
price
per share
  
 ‘000 Date of grant pence Exercise period
 61 August 12, 2016  
1,465.6
 October 1, 2019 – February 1, 2020
 21 February 23, 2018  
1,720.0
 April 1, 2021 – September 30, 2021
 2 February 23, 2018  
1,963.0
 April 1, 2021 – September 30, 2021
 221 August 3, 2018  
1,023.0
 October 1, 2021 – March 31, 2022
 19 August 3, 2018  
1,159.0
 October 1, 2021 – March 31, 2022
 67 March 7, 2019  
1,344.0
 April 1, 2022 – September 30, 2022
 4 March 7, 2019  
1,533.0
 April 1, 2022 – September 30, 2022
 40 August 5, 2019  
1,411.0
 October 1, 2021 – August 4, 2022
 3 August 5, 2019  
1,574.3
 October 1, 2021 – August 4, 2022
 438         


F-106F-77

Consolidated financial statements and notes
Notes to the consolidated financial statements

33
28 Employees and directorscontinued


Share basedShare-based paymentscontinued


Number
of
options
‘000
 Date of grant 
Exercise price
per share
pence
 Exercise period
13
August 3, 2018 1,023.0 October 1, 2021 – March 31, 2022
1
August 3, 2018 1,159.0 October 1, 2021 – March 31, 2022
8
March 7, 2019 1,344.0 April 1, 2022 – September 30, 2022
1
March 7, 2019 1,533.0 April 1, 2022 – September 30, 2022
6
August 5, 2019 1,411.0 October 1, 2021 – March 31, 2023
1
August 5, 2019 1,574.3 October 1, 2021 – March 31, 2023
54
March 5, 2020 617.7 April 1, 2023 – September 30, 2023
3
March 5, 2020 728.2 April 1, 2023 – September 30, 2023
1,494
August 21, 2020 241.3 October 1, 2023 – March 31, 2024
86
August 21, 2020 241.1 October 1, 2023 – March 31, 2024
135
March 5, 2021 373.2 April 1, 2024 – September 30, 2024
10 March 5, 2021 373.2 April 1, 2024 – September 30, 2024
160
August 6, 2021 321.8 October 1, 2024 – March 31, 2025
1,972
       

ESPP
  
Year ended
October 31, 2021
  
Year ended
October 31, 2020
 
  
Number
of
options
‘000
  
Weighted
average
exercise price
‘000
  
Number
of
options
‘000
  
Weighted
average
exercise price
pence
 
Outstanding at November 1  2,255   617   1,192   1,182 
Exercised  (1,022)  1,430   (1,472)  1,027 
Forfeited  (238)  1,341   (423)  1,082 
Granted  2,789   360   2,958   660 
Outstanding at October 31,  3,784   384   2,255   617 
Exercisable at October 31,  0   0   0   0 


  
12 months ended
October 31, 2019
  
18 months ended
October 31, 2018
 
  
Number
of
options
  
Weighted
average
exercise price
  
Number
of
options
  
Weighted
average
exercise price
 
   ‘000  pence   
‘000
  pence 
Outstanding at November 1 / May 1  800   1,047   
124
   
1,510
 
Exercised  (17)  1,114   
(110
)
  
1,598
 
Forfeited  (44)  1,440   
(31
)
  
1,236
 
Granted  453   1,444   
817
   
1,057
 
Outstanding at October 31  1,192   1,182   
800
   
1,047
 
Exercisable at October 31  -   -   
-
   
-
 
Number
of
options
‘000
 Date of grant 
Exercise price
per share
pence
 Exercise period
684 March 1, 2020 635.9 March 1, 2022 – May 31, 2022
1,085 September 1, 2020 270.2 September 1, 2022 – October 1, 2022
1,258 April 1, 2021 369.2 March 1, 2023 – May 31, 2023
757 October 1, 2021 344.8 October 1, 2023 – November 1, 2023
3,784 
 
 

Number
of
Options
   
Exercise price
per
share
  
 ‘000 Date of grant pence Exercise period
 309 March 1, 2018  
1,235.6
 March 1, 2020 – May 31, 2020
 430 July 1, 2018  
868.5
 July 1, 2020 – September 30, 2020
 244 March 1, 2019  
1,428.0
 March 1, 2021 – May 31, 2021
 209 October 1, 2019  
1,462.8
 October 1, 2021 – December 31, 2021
 1,192         


The amount charged to the Consolidated statement of comprehensive income in respect of the Sharesave and ESPP schemes was $2.8m$5.3 million for the 12 monthsyear ended October 31, 2019 (18 months ended October 31, 2018: $2.9m)2021 (2020: $5.1 million).


The weighted average fair value of options granted in theunder Sharesave and ESPP schemes during the 12 monthsyear ended October 31, 20192021 determined using the Black-Scholes valuation model was £5.93 (18 months ended October 31, 2018: £6.28)£1.61 (2020: £1.27).


The significant inputs into the model for the 12 monthsyear ended October 31, 20192021 were:


  
12 monthsYear ended
October 31, 20192021
 
18 monthsYear ended
October 31, 20182020
Weighted average share price at the grant date 
£17.56
4.23		 
£15.48
4.38
Expected volatility between 49.06%68.86% and 49.68%77.52% between 28.82% - 48.60%57.72% and 72.37%
Expected dividend yield between 4.63%4.73% and 5.87%5.78% between 3.86% - 7.02%8.22% and 16.11%
Expected option life Two2 or three3 years two2 or three3 years
Annual risk-free interest rate between 0.49%0.52% and 1.16%0.76% between 1.3% - 1.5%0.20% and 0.52%


The volatility measured at the standard deviation of continuously compounded share returns is based on statistical daily share prices over the last three years.


F-107F-78

Consolidated financial statements and notes
Notes to the consolidated financial statements

34 Operating lease commitments – minimum lease payments

At October 31, 2019 the Group has a number of lease agreements in respect of properties, vehicles, plant and equipment, for which the payments extend over a number of years.

  October 31, 2019  October 31, 2018 
  
$m


$m
Future minimum lease payments under non-cancellable operating leases falling due:        
No later than one year  78.6   
65.8
 
Later than one year and no later than three years  123.6   
86.4
 
Later than three years and no later than five years  61.4   
53.3
 
Later than five years  37.6   
22.5
 
Total  301.2   
228.0
 

The Group leases various offices under non-cancellable operating lease agreements that are included in the table. The leases have various terms, escalation clauses and renewal rights.

The properties owned or leased and operated by the Group’s subsidiaries are maintained in good condition and are believed to be suitable and adequate for the Group’s present needs.  The Group’s headquarters are located at premises in Newbury, England. The Group owns or leases properties amounting to over 2.4 million square feet of space, in over 40 countries worldwide. Two individual leased properties are material to the Group. One is located in Provo, Utah, where the Group currently leases approximately 405,700 square feet of office space. The lease on this facility expires in 2024, with an option to extend for a further three, five-year periods. The Group’s current annual rent under this lease is $8.2m.  Since March 1, 2019, part of the property has been sublet.  Current annual sub-lease income is $1.0m. The other property is located in Santa Clara, California, where the Group currently lease approximately 635,000 square feet of office space. The lease on this facility expires in 2029, with an option to extend for one further five-year period. The Group’s current annual rent under this lease is $4.6m.

The minimum lease payments payable under operating leases recognized as an expense in the 12 months ended October 31, 2019 were $65.9m (18 months ended October 31, 2018: $94.1m).

The total of future minimum sublease payments expected to be received under non-cancellable subleases as at October 31, 2019 is $3.9m (October 31, 2018: $4.7m)

35 Contingent liabilities
The Company and several of its subsidiaries are, from time to time, parties to legal proceedings and claims, which arise in the ordinary course of business. The directors do not anticipate that the outcome of these proceedings, actions and claims, either individually or in aggregate, will have a material adverse effect upon the Group’s financial position.

Shareholder litigation
Micro Focus International plc and certain current and former directors and officers are involved in two class action lawsuits in which plaintiffs are seeking damages for alleged violations of the Securities Act of 1933 and the Exchange Act of 1934.  Plaintiffs allege false and misleading statements or omissions in offering documents issued in connection with the Hewlett Packard Enterprise software business merger and issuance of Micro Focus American Depository Shares (“ADS”) as merger consideration, and other purportedly false and misleading statements. No liability has been recognized in either case as these are still very early in proceedings and it is too early to estimate whether there will be any financial impact.

Patent litigation
Several indirect subsidiaries of Micro Focus International plc are involved in a patent infringement lawsuit in which plaintiffs allege that certain Micro Focus ADM software products infringe three patents in the field of mobile application development and testing. Plaintiffs are seeking monetary damages in an amount that has yet to be specified. No liability has been recognized in these cases as they are still at an early stage in proceedings, and it is too soon to estimate whether there will be any financial impact.

Consolidated financial statements and notes
Notes to the consolidated financial statements

3629 Related party transactions
The Group’s related parties are its subsidiary undertakings, key management personnel and post-employment benefit plans.


Subsidiaries
Transactions between the Company and its subsidiaries have been eliminated on consolidation.


Remuneration of key management personnel
The remuneration of key management personnel of the Group (which is defined as members of the executive management team andcommittee including executive directors) is set out in note 33.28, “Employees and directors”. There are no loans between the Group and the key management personnel.


Transactions with other related parties.parties
The following transactions occurred with other related parties:


Contributions made to pension plans by the Group on behalf of employees are set out in note 25.

22, “Pension and other long-term benefit commitments”.
Sales and purchases of goods and services between related parties are not considered material.


F-109
Consolidated financial statements and notes
Notes to the consolidated financial statements

37
30 Discontinued operation assets classified asand Assets held for sale and disposals

Net Assets classified as held for sale
There are no disposal groups classified as held for sale in the current period. At October 31, 2018, the assets and liabilities relating to the SUSE and Atalla businesses were presented as held for sale.

  October 31, 2019  October 31, 2018 
  
Current
Assets
  
Current
liabilities
  
Total
  
Current
assets
  Current liabilities  
Total
 
Reported in: 
$m


$m


$m


$m


$m


$m
SUSE  -   -   -   
1,114.5
   
(427.4
)
  
687.1
 
Atalla  -   -   -   
28.0
   
(10.3
)
  
17.7
 
   -   -   -   
1,142.5
   
(437.7
)
  
704.8
 

The net asset assets held for sale relating to the disposals of SUSE and Atalla are detailed in the tables below. These include non-current assets and non-current liabilities that are shown as current assets and liabilities in the Consolidated statement of financial position.


A.SUSE Businessbusiness

On July 2, 2018, the Group announced the proposedThe sale of the SUSE business segment to Blitz 18-679 GmbH (subsequently renamed to Marcel Bidco GmbH), a newly incorporated directly wholly owned subsidiary of EQTVIII SCSp, which is advised by EQT Partners. The total cash consideration of $2.5bn was on a cash and debt free basis and subject to normalization of working capital.

On August 21, 2018, Shareholders voted to approve the proposed transaction whereby the Company agreed to sell its SUSE business segment to Marcel Bidco GmbH, for a total cash consideration of approximately $2.5bn, subject to customary closing adjustments. Following this vote, all applicable antitrust, competition, merger control and governmental clearances were obtained. The sale was completed on March 15, 2019 and2019. The profit on disposal of the SUSE business segment has been treatedfor the year ended October 31, 2021 of $10.7 million (year ended October 31, 2020 profit $5.1 million; 2019 $1,487.2 million) related to adjustments in indemnification amounts owed to SUSE as discontinuedpart of the disposal agreement. The profit in these financial statements.the year ended October 31, 2020 related to the conclusion of the working capital settlement and adjustments in respect of income tax balances owed in respect of pre-transaction periods.


Discontinued operation – Financial performance


 
12 months ended
October 31, 2019
  
18 months ended
October 31, 2018
  
12 months ended
April 30, 2017
  
Year ended
October 31, 2021
  
Year ended
October 31, 2020
  
Year ended
October 31, 2019
 
 
Before
Exceptional
Items
  
Exceptional
Items
  
Total
  
Total
  
Total
  Total
  Total  Total 
 
$m

$m

$m

$m

$m
 $m
  $m
  $m
 
Revenue 127.0  -  127.0  
538.2
  
303.4
   0   0   127.0 
Operating costs (89.3) -  (89.3) 
(425.3
)
 
(238.6
)
  0   0   (89.3)
Operating profit 37.7  -  37.7  
112.9
  
64.8
   0   0   37.7 
Share of results of associate (0.3) -  (0.3) 
(1.8
)
 
-
   0   0   (0.3)
Profit on disposal of the SUSE business -  1,767.9  1,767.9  
-
  
-
 
Profit before taxation 37.4  1,767.9  1,805.3  
111.1
  
64.8
 
(Loss)/profit on disposal of the SUSE business  10.7   (3.0)  1,767.9 
(Loss)/profit before taxation  10.7   (3.0)  1,805.3 
Taxation (8.7) (309.4) (318.1) 
(34.2
)
 
(31.1
)
  0   8.1   (318.1)
Profit for the period from discontinued operation 28.7  1,458.5  1,487.2  
76.9
  
33.7
 
Profit for the year from discontinued operation  10.7   5.1   1,487.2 

Discontinued operation – Cash flow
The cash flow statement shows amounts related to the discontinued operations:


 
12 months ended
October 31, 2019
  
18 months ended
October 31, 2018
  
12 months ended
April 30, 2017
  
Year ended
October 31, 2021
  
Year ended
October 31, 2020
  
Year ended
October 31, 2019
 
 
$m

$m

$m
  $m  $m
  $m
 
Net cash inflows from operating activities
 18.6  
136.1
  
70.4
   0   0   18.6 
Net cash outflows from investing activities
 -  
(2.5
)
 
(7.4
)
  0   1.3   0 
Net cash flows from financing activities
 -  
-
  
-
   0   0   0 

The assets and liabilities relating to SUSE were presented as held for sale following the shareholder approval on August 21, 2018. Costs to sell have been included in trade and other payables.


F-110F-79

Consolidated financial statements and notes
Notes to the consolidated financial statements

37
30 Discontinued operation assets classified as held for sale and disposals continued


A.
SUSE Business continued

     October 31, 2019  October 31, 2018 
  Note  
$m


$m
Non-current assets           
Goodwill  10   -   
859.6
 
Other Intangible assets  11   -   
165.6
 
Property, plant and equipment  12   -   
5.7
 
Investment in associates      -   
9.6
 
Deferred tax assets      -   
1.6
 
Long-term pension assets  25   -   
1.5
 
Other non-current assets      -   
2.2
 
       -   
1,045.8
 
Current assets            
Trade and other receivables      -   
65.8
 
Cash and cash equivalents      -   
2.9
 
       -   
68.7
 
Total assets held for sale      -   
1,114.5
 
Current liabilities            
Trade and other payables      -   
(38.0
)
Provisions  24   -   
(0.7
)
Current tax liabilities      -   
(1.2
)
Deferred income      -   
(218.3
)
       -   
(258.2
)
Non-current liabilities            
Deferred income      -   
(160.8
)
Retirement benefit obligations  25   -   
(5.5
)
Long-term provisions  24   -   
(2.3
)
Other non-current liabilities      -   
(0.6
)
       -   
(169.2
)
Total liabilities held for sale      -   
(427.4
)
Net assets classified as held for sale      -   
687.1
 

Disposal of the SUSE business

On March 15, 2019, the Group disposed of the SUSE business for $2,540.3m.$2,540.3 million. Details of net assets disposed of and the profit on disposal are as follows:

  Carrying value pre-disposal 
  

$m



Non-current assets classified as held for sale  989.8 
Current assets classified as held for sale  127.3 
Current liabilities classified as held for sale  (288.5)
Non-current liabilities classified as held for sale  (177.3)
Net assets disposed  651.3 

Consolidated financial statements and notes
Notes to the consolidated financial statements

37 Discontinued operation, assets classified as held for sale and disposals continued

A.
SUSE Business continued

The profit on disposal iswas calculated as follows:


 

$m


Disposal proceeds  2,540.3 
Costs to sell recognized in the periodyear  (45.3)
Disposal proceeds, less costs to sell recognized in the periodyear  2,495.0 
Net assets disposed  (651.3)
Profit on disposal  1,843.7 
Cumulative exchange gain in respect of the net assets of the subsidiaries, reclassified from equity on disposal  (75.8)
Profit on disposal  1,767.9 


The profit on disposal is reflected in the prior year in profit for the periodyear from discontinued operations in the Consolidated statement of comprehensive income. All cash flows occurred in the current period.prior year.

The inflow of cash and cash equivalents on the disposal of the SUSE business is calculated as follows:

  

$m


Disposal proceeds, less total costs to sell  2,495.0 
Cash disposed  (21.5)
Investing cash flows generated from discontinued operations, net of cash disposed  2,473.5 

B.AtallaArchiving and Risk Management portfolio

On May 18, 2018November 3, 2021, the Company entered into anGroup announced the agreement with Utimacoof definitive terms to sell its Archiving and Risk Management portfolio (the “Digital Safe business”) to Smarsh Inc. (“Utimaco”), underfor a total cash consideration of $375 million (subject to customary completion accounts adjustments based on net debt and working capital) which Utimaco would acquire Atalla for $20mis payable in cash. The dealfull on completion of the transaction. On January 31,2022 the sale was subject to regulatory approval bycompleted.

As a consequence, the Committee on Foreign Investment in the United States (“CFUIS”). CFIUS placed the deal into investigation in September and final approval was received October 10, 2018. The deal closed on November 5, 2018 and Utimaco acquired the Atalla HSM product line, the Enterprise Security Manger (“ESKM”) product line, and related supporting assets, including applicable patents and other IP.

The assets and liabilities relating toof the AtallaDigital Safe business includedhave been classified as held for sale in these financial statements.

The Digital Safe business forms part of the Financial Statements at October 31, 2018 amount to $17.7m.IM&G Product Group and includes the Digital Safe products and the complementary offerings of Social Media Governance, Supervisor and eDiscovery.


     October 31, 2019  October 31, 2018 
  Note  
$m


$m
Goodwill  10   -   
27.9
 
Property, plant and equipment  12   -   
0.1
 
Non-current assets      -   
28.0
 
             
Deferred income      -   
(10.3
)
Current liabilities      -   
(10.3
)
             
Net assets classified as held for sale      -   
17.7
 

Net assets classified as held for sale

  Year ended October 31, 2021 
 
Reported in:
 
Current
Assets
  
Current
liabilities
  Total 
  $m
  $m
  $m
 
Digital Safe  370.3   68.4   301.9 
F-112
F-80

Consolidated financial statements and notes
Notes to the consolidated financial statements

37
30 Discontinued operation and Assets held for sale continued

The net asset assets classified as held for sale relating to the disposal of Digital Safe are detailed in the tables below. These include non-current assets and disposals continuednon-current liabilities that are shown as current assets and liabilities in the Consolidated statement of financial position.


B.
Atalla continued
  Note  
Year ended
October 31, 2021
$m
 
Non-current assets      
Goodwill  10   147.2 
Other Intangible assets (including purchased software)  11   182.1 
Property, plant and equipment (including right-of-use assets)  12,19   11.5 
Other non-current assets      0.1 
       340.9 
Current assets        
Trade and other receivables      24.6 
Other current assets      4.8 
       29.4 
Total assets held for sale      370.3 
         
Current liabilities        
Trade and other payables      1.8 
Lease obligations
  19   3.1 
Contract liabilities      4.8 
Other current liabilities      3.0 
       12.7 
Non-current liabilities        
Deferred tax liabilities  7   45.5 
Lease obligations
  19   8.3 
Contract liabilities      0.5 
Other non-current liabilities      1.4 
       55.7 
Total liabilities held for sale      68.4 

On November 5, 2018,
Allocation of assets and liabilities to the Group disposedDigital Safe business and held for sale
Assets and liabilities related to the Digital Safe business are included as held for sale where they can be allocated directly, or allocated on a reasonable and consistent basis to the Digital Safe business.

Goodwill and intangible assets allocated to the Digital Safe business.
Trade names and acquired technology related intangibles were separately valued as part of the AtallaHPE software business foracquisition and are included based on their current carrying values.

Customer relationships were valued at an IM&G level as part of the HPE software business therefore an allocation to the Digital Safe business based on a net cash considerationrelative value of $20.0m. Detailsthe Digital Safe business versus the total value of net assets disposed of and the profit on disposal are as follows:

IM&G has been performed.
Carrying value pre-disposal

$m
Goodwill28.0
Property, plant and equipment0.3
Non-current assets28.3
Deferred income(12.0)
Current liabilities(12.0)
Net assets disposed16.3


The profit on disposal whichgoodwill allocated to the Digital Safe business has been recorded as exceptional (note 4) is calculated as follows:


$m
Disposal proceeds20.0
Net assets disposed(16.3)
Profit on disposal3.7

38 Acquisitions

Summaryallocated based on a relative value of acquisitionsthe Digital Safe business versus the total Micro Focus Product Portfolio. Information on the basis of the Group’s value in use, used in the allocations for goodwill and customer relationships, including the key assumptions made are included in note 10, Goodwill. We have considered the sensitivity of the allocation to these key assumptions and no reasonably possible movements would result in a material change in the allocation.

           Consideration 
  
Carrying value
at acquisition
  
Fair value
adjustments
  Goodwill  
Shares
  Cash  
Total
 
  
$m


$m


$m


$m


$m


$m
                         
Acquisitions in the 12 months ended
October 31, 2019:
                        
Interset Software Inc.  0.9   61.3   26.8   -   89.0   89.0 
   0.9   61.3   26.8   -   89.0   89.0 
                         
Acquisitions in the 18 months ended
October 31, 2018:
                        
HPE Software business  
(2,487.8
)
  
4,143.7
   
4,858.3
   
6,514.2
   
-
   
6,514.2
 
COBOL-IT  
(3.0
)
  
14.0
   
5.6
   
-
   
16.7
   
16.7
 
   
(2,490.8
)
  
4,157.7
   
4,863.9
   
6,514.2
   
16.7
   
6,530.9
 
                         
   (2,489.8)  4,219.0   4,890.7   6,514.2   105.7   6,619.9 

F-113
F-81

Consolidated financial statements and notes
Notes to the consolidated financial statements

38
31 Acquisitionscontinued


Summary of acquisitions

           Consideration 
  
Carrying
value at
acquisition
  Intangible assets  Goodwill  Shares  Cash  Total 

 
$m

 
$m

 
$m

 
$m

 
$m

 
$m

                         
Acquisitions in the year ended October 31, 2021:                        
Full 360
  (0.3)  3.4   1.0   0   3.3   3.3 
Streamworx  0.2   4.4   6.2   0   9.7   9.7 
   (0.1)  7.8   7.2   0   13.0   13.0 
 Acquisitions in the year ended October 31, 2020:                        
ATAR Labs  0.9   6.6   1.4   0   7.3   7.3 
   0.9   6.6   1.4   0   7.3   7.3 
Acquisitions in the year ended October 31, 2019:                        
Interset Software Inc. 0.9  61.3  26.8  0  89.0  89.0 
  0.9  61.3  26.8  0  89.0  89.0 

The Group has not presented the full IFRS 3 “Business Combinations” disclosures as these acquisitions are not material to the Group.

Acquisitions in the year ended October 31, 2021: Full 360
On June 11, 2021, the Group completed the acquisition of Full 360 inc. Full 360 inc will integrate into the Vertica portfolio to create proven unified analytics platform in public clouds and in enterprise data centres. Total consideration of $3.3 million was paid in cash at the point of acquisition, when the business had a carrying value comprising $0.3 million of assets and $0.6 million of liabilities. A fair value review was carried out on the assets and liabilities of the acquired business, resulting in the identification of purchased intangible assets of $3.4 million.

Streamworx
On August 19, 2021, the Group completed the acquisition of Streamworx.ai. Streamworx.ai will integrate into the CyberRes product group to create proven unified analytics platform in public clouds and in enterprise data centres. Total consideration of $9.7 million was paid in cash at the point of acquisition, when the business had a carrying value comprising $0.8 million of assets and $0.6 million of liabilities. A fair value review was carried out on the assets and liabilities of the acquired business, resulting in the identification of purchased intangible assets of $4.4 million.

Acquisitions in the year ended October 31, 2020: ATAR Labs
On July 1, 2020, the Group completed the acquisition of ATAR Labs. ATAR Labs integrates into the ArcSight portfolio to create a fast-acting environment against threats with top-of-the-line capabilities. Total consideration of $7.3 million consists of initial consideration of $6 million with a further deferred consideration payment of $1.3 million to be paid in 2 yearly instalments. At acquisition the business had a carrying value of $1.7 million of assets and $0.8 million of liabilities. A fair value review was carried out on the assets and liabilities of the acquired business, resulting in the identification of intangible assets of $6.6 million.


Acquisitions in the 12 months ended October 31, 2019:

1Acquisition of Interset Software Inc.
Interset Software Inc.
On February 15, 2019, the Group completed the acquisition of Interset Software Inc. (“Interset”), a worldwide leader in security analytics software that provides highly intelligent and accurate cyber-threat protection. The addition of this predictive analytics technology adds depth to Micro Focus’ Security, Risk & Governance portfolio, and aligns with the Company’s strategy to help customers quickly and accurately validate and assess risk as they digitally transform their businesses.


Consideration of $89.0m consists of a completion payment of $85.0m,$85.0 million, working capital adjustments and net cash adjustments. The Group hasdid not presented the full IFRS 3 “Business Combinations” disclosures as this acquisition is not material to the Group, given that it was an acquisition of a business with a carrying value of $5.5m$5.5 million of assets and $4.6m$4.6 million of liabilities.


A provisional fair value review was carried out on the assets and liabilities of the acquired business, resulting in the identification of intangible assets. Adjustments to the provisional fair values have been recorded in the period which has reduced the amount of Goodwill recognized by $7.4m. At the time these consolidated financial statements were authorised for issue, the Group had not yet fully completed its assessment of the Interset Software Inc. acquisition.

The fair value review will bewas finalised in the 12-month period following completion.completion, which ended on February 15, 2020. No adjustments were identified.

 
     
Carrying value at
acquisition
  
Fair value
adjustments
  
Fair value
 
  Note  
$m


$m


$m
Intangible assets – purchased 1
  11   
-
   
61.2
   61.2 
Property, plant and equipment  12   
0.3
   
-
   0.3 
Other non-current assets      
0.2
   
-
   0.2 
Trade and other receivables      
3.8
   
-
   3.8 
Cash and cash equivalent      
1.2
   
-
   1.2 
Trade and other payables      
(1.5
)
  
-
   (1.5)
Finance leases obligations – short-term      
(0.1
)
  
-
   (0.1)
Provisions – short-term  24   
(0.7
)
  
-
   (0.7)
Deferred income – short-term 2
      
(2.1
)
  
0.1
   (2.0)
Deferred income – long-term 2
      
(0.2
)
  
-
   (0.2)
Net assets      
0.9
   
61.3
   62.2 
Goodwill (note 10)              26.8 
Consideration              89.0 
                 
Consideration satisfied by:                
Cash              89.0 

F-82

Consolidated financial statements and notes
Notes to the consolidated financial statements
31 Acquisitions continued
     Carrying value at acquisition  Fair value adjustments  Fair value 
  Note  $m
  $m
  $m
 
Intangible assets – purchased 1
  11   0   61.2   61.2 
Property, plant and equipment  12   0.3   0   0.3 
Other non-current assets      0.2   0   0.2 
Trade and other receivables      3.8   0   3.8 
Cash and cash equivalent      1.2   0   1.2 
Trade and other payables      (1.5)  0   (1.5)
Finance leases obligations – short term      (0.1)  0   (0.1)
Provisions – short-term  21   (0.7)  0   (0.7)
Deferred income – short-term 2
      (2.1)  0.1   (2.0)
Deferred income – long-term 2
      (0.2)  0   (0.2)
Net assets      0.9   61.3   62.2 
Goodwill (note 10)              26.8 
Consideration              89.0 
                 
Consideration satisfied by:                
Cash              89.0 


The fair value adjustments relate to:
1
Purchased intangible assets of $61.2m$61.2 million ($44.5m44.5 million Technology, $4.2m$4.2 million Trade names, $12.5m$12.5 million Customer Relationships) have been valued based on a market participant point of view and the fair value has been based on various characteristics of the product lines and intangible assets of Interset.
2
Deferred income has been valued taking account of the remaining performance obligations.


The value of the goodwill represents the value of the assembled workforce at the time of the acquisition with specific knowledge and technical skills. It also represents the prospective future economic benefits that are expected to accrue from enhancing the portfolio of products available to the Company’s existing customer base with those of the acquired business.customer.


F-114F-83

Consolidated financial statements and notes
Notes to the consolidated financial statements

38 Acquisitions continued
32. Cash flow statement


     
Year ended
October 31, 2021
  
Year ended
October 31, 2020
  
Year ended
October 31, 2019
 
  Note  $m
  $m
  $m
 
Cash flows from operating activities            
Loss from continuing operations     (435.1)  (2,974.6)  (18.1)
Profit from discontinued operation     10.7   5.1   1,487.2 
Loss for the year     (424.4)  (2,969.5)  1,469.1 
Adjustments for:               
(Gain)/Loss on disposal of discontinued operation  31   (10.7)  3.0   (1,767.9)
Net finance costs  6   252.2   279.0   255.8 
Taxation – continuing operations  7   (82.7)  34.2   (16.0)
Taxation – discontinued operation  31   0   (8.1)  318.1 
Share of results of associates      0   0   0.3 
Operating (loss)/profit (attributable to continuing and discontinued operations)      (265.6)  (2,661.4)  259.4 
Goodwill impairment charge  10   0   2,799.2   0 
Research and development tax credits      (1.1)  (1.8)  (1.2)
Property, plant and equipment depreciation
  12   33.7   
42.0
   
52.6
 
Right-of-use asset depreciation (2019 : finance lease depreciation)
  19   73.3   
76.9
   
13.9
 
Loss on disposal of property, plant and equipment  12   1.2   5.6   3.6 
Loss on disposal of intangible assets  11   0   0.6   0 
Gain on disposal of Atalla      0   0   (3.7)
Amortization of intangible assets  11   956.4   674.1   716.5 
Leases impairment  19   5.6   5.9   0 
Share-based compensation charge  28   14.3   17.0   71.3 
Foreign exchange movements  3   0.1   29.7   11.1 
Changes in working capital :
                
Inventories      0   0.1   0 
Trade and other receivables and contract related costs1
      (195.2)  251.6   156.5 
Payables and other liabilities      36.9   (62.4)  (110.4)
Provisions2
  21   14.1   8.8   (14.8)
Contract liabilities - deferred income      16.8   (103.1)  (98.5)
Cash generated from operations      690.5   1,082.8   1,056.3 

Acquisitions
1
Change in trade and other receivables and contract-related costs is adjusted for non-cash movements of ($19.0 million) (2020: ($51.7 million); (2019 $50.9 million)
2
In the year ended October 31, 2021 provisions movements have been presented net, in the year ended October 31, 2020 they were presented gross as provision movements $46.3 million (2019; $43.8 million) and provision utilisation ($37.5 million) (2019: ($58.6 million)).

33 Post balance sheet events

Subsequent to the end of the reporting period for the year ended October 31, 2018:2021 the following events have taken place:


1Acquisition of the HPE Software business
Re-purchase of shares
On September 1, 2017,December 20, 2021, the Company completedGroup’s employee benefit trust (“EBT”) commenced the acquisitionpurchase of HPE’s software business (“HPE Software”) by way12 million shares, equivalent to £43.4 million at the share price on December 20, 2021. These shares will be purchased on the open market and will be used for the settlement of merger with a wholly owned subsidiary of HPE incorporatedexisting and future employee share schemes awarded to holdsenior leaders and employees who are critical to achieving the business of HPE Softwarestrategic initiatives set out in the Chief Executive Officer’s report. In accordance with the termsrequirement of IFRS 10 the EBT is treated as if it is a subsidiary of the previously announced merger agreement (“Completion”). Accordingly, on Admission, American Depositary Shares representing 222,166,897 Consideration Shares were issued to HPE Shareholders, representing 50.1%Group. As a result, the purchase of shares held by the fully diluted share capital of the Company. The fair value of the ordinary shares issued was based on the listed share price of the Company as of August 31, 2017 of $6.5 billion. The costs of acquiring the HPE Software business of $70.1m are included in exceptional items (note 4) and include costs relating to due diligence work, legal work on the acquisition agreement and professional advisors on the transaction.

There was judgment used in identifying who the accounting acquirer was in the acquisition of the HPE Software business,EBT will reported as the resulting shareholdingspurchase of Treasury shares by the Group.

Archiving and Risk management portfolio: Completion of Digital Safe disposal
On November 3, 2021, the Group announced the agreement of definitive terms to sell its Archiving and Risk Management portfolio (the “Digital Safe business”) to Smarsh Inc., for a total cash consideration of $375m. On January 31, 2022, this disposal was completed.

Re-financing of long-term debt and revolving credit facility
On January 17, 2022, the Group announced the refinancing of $1.6 billion of existing term loans and updates to the revolving credit facility were not definitive to identify the entity, which obtains controlannounced in the transaction. The Group considered the other factors laid downDecember. Further details can be found in IFRS, such as the composition of the governing body of the combined entity, composition of senior management of the combined entity, the entity that issued equity interest, terms of exchange of equity interests, the entity which initiated the combination, relative size of each entity, the existence of a large minority voting interest in the combined entity and other factors (e.g. location of headquarters of the combined entity and entity name)Note 18, “Borrowings”. The conclusion of this assessment is that the Company is the accounting acquirer of the HPE Software business, and the acquisition accounting, as set out below, has been performed on this basis.

Details of the net assets acquired and goodwill are as follows:

     
Carrying value
at acquisition
  
Fair value
adjustments
  
Fair value
 
  Note  
$m


$m


$m
Intangible assets  11   
72.8
   
6,467.0
   6,539.8 
Property, plant and equipment  12   
160.1
   
-
   160.1 
Other non-current assets      
41.9
   
-
   41.9 
Inventories      
0.2
   
-
   0.2 
Trade and other receivables      
721.2
   
-
   721.2 
Current tax recoverable      
0.5
   
-
   0.5 
Cash and cash equivalents      
320.7
   
-
   320.7 
Trade and other payables      
(686.8
)
  
1.6
   (685.2)
Current tax liabilities      
(9.9
)
  
-
   (9.9)
Borrowings      
(2,547.6
)
  
-
   (2,547.6)
Short-term provisions  24   
(30.2
)
  
-
   (30.2)
Short-term deferred income 2
      
(701.2
)
  
58.0
   (643.2)
Long-term deferred income 2
      
(116.9
)
  
8.7
   (108.2)
Long-term provisions  24   
(39.0
)
  
-
   (39.0)
Retirement benefit obligations  25   
(71.5
)
  
-
   (71.5)
Other non-current liabilities      
(52.3
)
  
12.1
   (40.2)
Deferred tax assets/(liabilities) 3
      
450.2
   
(2,403.7
)
  (1,953.5)
Net (liabilities)/assets      
(2,487.8
)
  
4,143.7
   1,655.9 
Goodwill  10   
-
       4,858.3 
Consideration              6,514.2 
                 
Consideration satisfied by:                
Shares              6,514.2 

The Group has used acquisition accounting for the purchase and the goodwill arising on consolidation of $4,858.3m has been capitalized. The Group made a repayment of working capital in respect of the HPE Software business acquisition of $225.8m in the period.

Trade and other receivables are net of a provision for impairment of trade receivables of $21.5m.

 
F-115F-84

Consolidated financial statements and notes
Notes to the consolidated financial statements

38 Acquisitions 33 Post Balance Sheet Events continued


Acquisitions inStandard overnight financing rate (“SOFR”) 1M USD interest rate swap
On January 19, 2022, the 12 months ended October 31, 2018 continued:Group executed a new 1m USD SOFR swap with a notional value of $750 million and a maturity date of February 28, 2027. The forward swap is effective on September 21, 2022 with a fixed interest rate of 1.656% swapped against the variable 1m SOFR USD rates.


34 Related undertakings
1
Acquisition of HPE Software business continued


A fair value review has been carried out on the assets and liabilitiesIn accordance with section 409 of the acquired business, resulting in the identificationUK Companies Act 2006 (the “Act”), information on all related undertakings of intangible assets.

The fair value adjustments include:

1
Purchased intangible assets have been valued based on a market participant point of view and the fair value has been based on various characteristics of the product lines and intangible assets of the HPE Software business;
2
Deferred income has been valued taking account of the remaining performance obligations; and
3
A deferred tax liability has been established relating to the purchase of intangibles.

The purchased intangible assets acquired as part of the acquisition can be analyzed as follows (note 11):

Fair value

$m
Technology1,809.0
Customer relationships4,480.0
Trade names163.0
Leases15.0
6,467.0

The value of the goodwill represents the value of the assembled workforce at the time of the acquisition with specific knowledge and technical skills. It also represents the prospective future economic benefits that are expected to accrue from enhancing the portfolio of products available to the Company’s existing customer base with those of the acquired business.

As a consequence of the HPE Software business transaction, the Group is subject to potentially significant restrictions relating to tax issuesset out below. Related undertakings are categorized in the Act as being “subsidiaries”, “associated undertakings” and “significant holdings in undertakings other than subsidiary companies”. The information below is stated as at October 31, 2021.

The definition of a subsidiary undertaking in the Act is different from the definition of that could limitterm under IFRS. As a result, related undertakings included within this list may not be the Group’s ability to undertake certain corporate actions (suchsame as the issuance of Micro Focus shares or Micro Focus ADSs orrelated undertakings consolidated in the undertaking of a merger or consolidation) that otherwise could be advantageous to the Group.Group IFRS financial statements. The Group is obliged to indemnify HPE for tax liabilities relating to the separationowns 100% of the HPE Software business from HPE if such liabilities are triggered by actions taken by the Group. The Group has robust procedures in place, including on-going consultation with its tax advisors, to ensure no such triggering actions are taken.all subsidiary undertakings.


 Company nameCountry of
incorporation		Principal activities
Key to
Registered
office address
1Attachmate Australasia Pty. Ltd.AustraliaIn Liquidation1
2Attachmate Group Australia Pty LtdAustraliaSale and support of software1
3Autonomy Australia Pty LtdAustraliaIn Liquidation1
4Autonomy Systems Australia Pty LtdAustraliaIn Liquidation1
5Borland Australia Pty LtdAustraliaIn Liquidation1
6Entcorp Australia Pty LimitedAustraliaIn Liquidation1
7
Full 360 Pty Ltd
Australia
Sale and support of software
2
8
Micro Focus Australia Pty LtdAustraliaSale and support of software1
9
Micro Focus Pty LimitedAustraliaSale and support of software1
10
Serena Software Pty LimitedAustraliaIn Liquidation1
11Micro Focus Austria GmbHAustriaDevelopment of software3
12Autonomy Belgium BVBelgiumSale and support of software4
13Micro Focus Belgium BVBelgiumSale and support of software4
14Micro Focus S.r.lBelgiumSale and support of software5
15Borland Latin America LtdaBrazilSale and support of software6
16Cambridge Technology Partners do Brasil LtdaBrazilDormant6
17Micro Focus Brasil Serviços de Tecnologia LtdaBrazilSale and support of software6
18Micro Focus Programação de Computadores LtdaBrazilSale and support of software6
19Peregrine Systems do Brasil Ltda.BrazilSale and support of software7
20Serena Software Do Brasil LtdaBrazilSale and support of software6
21Micro Focus APM Solutions EOODBulgariaDevelopment of software8
22Micro Focus Bulgaria EOODBulgariaSale and support of software8
23Autonomy Systems (Canada) Ltd.CanadaSale and support of software9
24GWAVA ULCCanadaHolding Company10
25Interset Software ULCCanadaHolding Company10
26Micro Focus (Canada) ULCCanadaDevelopment, sale and support of software10

2Acquisition of COBOL-IT, SAS

On December 1, 2017, the Group completed on the acquisition of COBOL-IT SAS (“COBOL-IT”). COBOL-IT is in the business of designing, editing and commercialization of software, IT devices and related services.

Consideration of $16.7m consists of a completion payment of Euro 11.3m, retention amounts of Euro 2.7m payable at a later date, working capital adjustments and net cash adjustments. The Group did not present the full IFRS 3 “Business Combinations” disclosures as this acquisition was not material to the Group.

A fair value review was carried out on the assets and liabilities of the acquired business, resulting in the identification of intangible assets. The fair value review was finalised in the 12 month period following completion, which ended on November 30, 2018. Goodwill of $5.6m (note 10), deferred tax liabilities of $3.9m, purchased intangibles of $14.0m (note 11) (Purchased Technology $1.5m, Customer relationships $12.3m and Trade names $0.2m) and cash of $1.0m were recorded as a result of the COBOL-IT acquisition and no adjustments were identified.

F-116F-85

Consolidated financial statements and notes
Notes to the consolidated financial statements
 Company name
Country of
incorporation
Principal activities
Key to
Registered
office address
27Micro Focus Acquisition Canada ULCCanadaSale and support of software11
28Micro Focus Software (Canada) ULCCanadaSale and support of software12
29Micro Focus Software Solutions Canada Co. / Solutions Logiciels Micro Focus Canada Cie.CanadaSale and support of software13
30NetManage Canada ULCCanadaDormant10
31Entco Capital CoCayman IslandsIn Liquidation14
32Entco Investment CoCayman IslandsIn Liquidation14
33Micro Focus International LimitedCayman IslandsIn Liquidation14
34Micro Focus IP Ltd.Cayman IslandsIn Liquidation14
35Micro Focus Marigalante Ltd.Cayman IslandsSale and support of software15
36Autonomy Systems (Beijing) Limited CompanyChinaSale and support of software16
37Micro Focus Limited Beijing Representative OfficeChinaSale and support of software17
38Shanghai Micro Focus Software Technology Co., LtdChinaSale and support of software18
39Shanghai Micro Focus Software Technology Co., Ltd, Beijing BranchChinaSale and support of software19
40Shanghai Micro Focus Software Technology Co., Ltd. Shandong BranchChinaSale and support of software20
41Shanghai Micro Focus Software Technology Co., Ltd., Chongqing BranchChinaSale and support of software41
42Shanghai Micro Focus Software Technology Co., Ltd., Shenzhen BranchChinaSale and support of software42
43Singapore Micro Focus Pte. Ltd Shanghai Representative OfficeChinaSale and support of software43
44Micro Focus Software LATAM S.A.SColombiaSale and support of software44
45Micro Focus Centroamerica CAC LimitadaCosta RicaSale and support of software45
46Micro Focus Costa Rica LimitadaCosta RicaSale and support of software46
47NetIQ Software International LimitedCyprusIn Liquidation47
48Micro Focus Czechia s.r.o.Czech RepublicSale and support of software48
49Micro Focus Denmark, filial af Micro Focus AS, Norge BranchDenmarkSale and support of software49
50Micro Focus Software Denmark ApSDenmarkSale and support of software50
51
Micro Focus AS, Filial i FinlandFinlandSale and support of software51
52Borland (France) SarlFranceSale and support of software52
53Cobol-IT, SASFranceSale and support of software53
54Micro Focus France SASFranceSale and support of software54
55Micro Focus SASFranceSale and support of software55
56Attachmate Group Germany GmbHGermanySale and support of software56
57Borland GmbHGermanyDormant57
58GWAVA EMEA GmbHGermanySale and support of software58
59Micro Focus Deutschland GmbHGermanySale and support of software59
60
Micro Focus GmbHGermanySale and support of software32
61
Novell Holding Deutschland GmbHGermanyHolding Company32
62Serena Software GmbHGermanySale and support of software34
63EntCorp Hong Kong LimitedHong KongSale and support of software35
64Micro Focus Limited Hong Kong BranchHong KongSale and support of software36
65Micro Focus Software HK LimitedHong KongSale and support of software36
66
Autonomy Software Asia Private Limited
India
Sale and support of software
37
67Entco IT Services Private LimitedIndiaSale and support of software38
68
Interwoven, Inc., India BranchIndiaSale and support of software39

38 Acquisitions continued

Acquisitions in the 12 months ended October 31, 2018 continued:


3Acquisition of Covertix

On May 15, 2018, the Group entered into an Asset Purchase Agreement (“the agreement”) to acquire certain assets of Covertix, an Israeli company that had entered voluntary liquidation in April 2018. Covertix used their patented solutions to develop and sell security products that offered control and protection of confidential files when shared with both internal and external parties. Prior to entering liquidation Covertix had offices in Israel and the US, with partners in the Netherlands and Singapore.

Under the agreement, the Group paid $2.5m in cash to acquire certain equipment, patents, and licence rights under certain agreements, and seven employees all involved in R&D activities. The purchase completed on July 26, 2018.

Under IFRS 3, the Covertix Ltd. acquisition was considered to be a business combination, however due to the immaterial amount of the transaction, the assets acquired have been recorded at cost and are being amortized over their useful lives within the ledgers of the acquiring entities. The Company did not create a new subsidiary for Covertix and no goodwill has been recorded.

Acquisitions in the year ended April 30, 2017:

1Acquisition of Serena Software Inc.

On May 2, 2016, the Group acquired the entire share capital of Spartacus Acquisition Holdings Corp. the holding company of Serena Software Inc. (“Serena”) and its subsidiaries for $277.6m, payable in cash at completion. The Group then repaid the outstanding Serena bank borrowings of $316.7m as at May 2, 2016, making the total cash outflow for the Group of $528.5m, net of cash acquired of $65.8m. The transaction costs for the Serena acquisition were $0.9m ($0.5m was incurred in the 12 months ended April 30, 2016).

The acquisition is highly consistent with the Group’s established acquisition strategy and focus on the efficient management of mature infrastructure software products.

Serena is a leading provider of enterprise software focused on providing Application Lifecycle Management products for both mainframe and distributed systems. Whilst Serena is headquartered in San Mateo, California the operations are effectively managed from offices in Hillsboro, Oregon and St. Albans in the United Kingdom. It operates in a further 10 countries. The Serena Group’s customers are typically highly regulated large enterprises, across a variety of sectors including banking, insurance, telco, manufacturing and retail, healthcare and government.

Serena was integrated into the Micro Focus Product Portfolio and the revenues reported in the Development and IT Operations Management Tools sub-portfolio.

The transaction was funded through the Group’s existing cash resources together with additional debt and equity finance arranged through Barclays, HSBC, the Royal Bank of Scotland and Numis Securities. On May 2, 2016, the Group’s existing revolving credit facility was extended from $225m to $375m and the Group raised approximately £158.2m (approximately $225.7m) through a Placing underwritten by Numis Securities incurring $3.0m of costs associated with the Placing in March 2016.

A fair value review was carried out and finalized on the assets and liabilities of the acquired business, resulting in the identification of intangible assets.

The purchased intangible assets acquired as part of the acquisition can be analyzed as follows:

Fair value

$m
Technology86.1
Customer relationships210.2
Trade names21.4
317.7

F-117F-86

Consolidated financial statements and notes
Notes to the consolidated financial statements
 Company name
Country of
incorporation
Principal activities
Key to
Registered
 office address
69
Micro Focus Software India Private LimitedIndiaDevelopment, sale and support of software40
70Micro Focus Software Solutions India Private LimitedIndiaSale and support of software41
71Micro Focus Software Pte. Ltd. – Representative OfficeIndonesiaSale and support of software42
72
Attachmate Ireland LimitedIrelandSale and support of software43
73
Entsoft Holding Ireland Unlimited CompanyIrelandIn Liquidation43
74
Micro Focus (IP) Ireland LimitedIrelandDormant44
75
Micro Focus Galway LimitedIrelandSale and support of software43
76
Micro Focus Group Holdings UnlimitedIrelandHolding Company44
77
Micro Focus International Holdings LimitedIrelandHolding Company44
78Micro Focus Ireland LimitedIrelandDevelopment, sale and support of software44
79
Micro Focus Software (Ireland) LimitedIrelandDevelopment, sale and support of software43
80
Micro Focus Software Solutions Ireland LimitedIrelandSale and support of software43
81
NetIQ Europe LimitedIrelandSale and support of software43
82
NetIQ Ireland LimitedIrelandHolding Company44
83
Novell Cayman Software International Unlimited CompanyIrelandHolding Company44
84
Novell Cayman Software Unlimited CompanyIrelandHolding Company44
85
Novell Software International LimitedIrelandHolding Company44
86
Micro Focus Interactive Israel LtdIsraelSale and support of software45
87
Micro Focus Israel LimitedIsraelDevelopment and support of software46
88Micro Focus Software Israel LtdIsraelSale and support of software45
89N.Y. NetManage (Yerushalayim) LtdIsraelDormant47
90
Novell Israel Software LimitedIsraelDormant48
91
Micro Focus Italiana S.r.l.ItalySale and support of software49
92
Micro Focus S.r.l.ItalySale and support of software49
93
Verity Italia S.r.l.ItalyIn Liquidation50
94
Entcorp Japan K.K.JapanSale and support of software51
95
Micro Focus Enterprise LtdJapanSale and support of software52
96
Micro Focus LLCJapanSale and support of software52
97
Novell Japan, LtdJapanSale and support of software52
98
Serena Software Japan LLCJapanSale and support of software52
99
Micro Focus Luxembourg S.à r.l.LuxembourgSale and support of software53
100
Verity Luxembourg S.à r.l.LuxembourgSale and support of software54
101
Micro Focus Malaysia Sdn. Bhd.MalaysiaSale and support of software55
102
Novell Corporation (Malaysia) Sdn. Bhd.MalaysiaSale and support of software56
103
Micro Focus International Mexico, S. de R.L. de C.V.MexicoSale and support of software57
104
Micro Focus Limited Mexico BranchMexicoSale and support of software57
105
Micro Focus Software Mexico, S. De R.L. De C.V.MexicoSale and support of software57
106
Micro Focus Software Solutions Mexico, S. de R.L. de C.V.MexicoSale and support of software57
107Authasas B.V.NetherlandsSale and support of software58
108Autonomy HoldCo B.V.NetherlandsSale and support of software58
109Autonomy Netherlands B.V.NetherlandsSale and support of software58

38 Acquisitions continued

Acquisitions in the 12 months ended October 31, 2017 continued

The value of the goodwill represents the value of the assembled workforce at the time of the acquisition with specific knowledge and technical skills. It also represents the prospective future economic benefits that are expected to accrue from enhancing the portfolio of products available to the Company’s existing customer base with those of the acquired business.

The Group has used acquisition accounting for the purchase and the goodwill arising on consolidation of $379.7m has been capitalized.

Details of the net assets acquired and goodwill are as follows:

  
Carrying value
at acquisition
  
Fair value
adjustments
  
Fair value
 
  
$m


$m


$m
Goodwill  
462.4
   
(462.4
)
  
-
 
Intangible assets - purchased  
-
   
317.7
   317.7 
Intangible assets1 - other
  
0.1
   
-
   0.1 
Property, plant and equipment  
1.9
   
-
   1.9 
Other non-current assets  
0.2
   
-
   0.2 
Deferred tax asset  
15.3
   
-
   15.3 
Trade and other receivables  
27.4
   
-
   27.4 
Cash and cash equivalents  
65.8
   
-
   65.8 
Trade and other payables  
(27.7
)
  
-
   (27.7)
Current tax liabilities  
(11.8
)
  
-
   (11.8)
Borrowings – short term  
(4.0
)
  
-
   (4.0)
Short-term provisions  
(3.2
)
  
-
   (3.2)
Short-term deferred income 2
  
(72.3
)
  
3.8
   (68.5)
Long-term deferred income 2
  
(14.9
)
  
0.8
   (14.1)
Borrowings – long term  
(288.9
)
  
-
   (288.9)
Other non-current liabilities  
(0.7
)
  
-
   (0.7)
Deferred tax liabilities 3
  
(2.4
)
  
(109.2
)
  (111.6)
Net assets/(liabilities)  147.2   (249.3)  (102.1)
Goodwill  
-
   
-
   379.7 
Consideration  -   -   277.6 
             
Consideration satisfied by:          277.6 
Cash          277.6 

The fair value adjustments relate to:
1
Purchased intangible assets have been valued based on a market participant point of view and the fair value has been based on various characteristics of the product lines and intangible assets of Serena;
2
Deferred income has been valued taking account of the remaining performance obligations; and
3
A deferred tax liability has been established relating to the purchase of intangibles.

F-118F-87

Consolidated financial statements and notes
Notes to the consolidated financial statements

 Company name
Country of
incorporation
Principal activities
Key to
Registered
office address
110Borland B.V.NetherlandsSale and support of software58
111Entco Eastern Holding B.V.NetherlandsIn Liquidation58
112Entco Gatriam Holding B.V.NetherlandsHolding company58
113Entco Holding Berlin B.V.NetherlandsHolding company58
114Entco Holding Hague II B.V.NetherlandsHolding company58
115Entco Sinope Holding B.V.NetherlandsHolding company58
116Entcorp Nederland B.V.NetherlandsSale and support of software58
117Micro Focus B.V.NetherlandsSale and support of software58
118Micro Focus Caribe Holding B.V.NetherlandsSale and support of software58
119Micro Focus Eastern Holding II B.V.NetherlandsHolding Company58
38 Acquisitions continued
120Micro Focus Enterprise B.V.NetherlandsSale and support of software58
121Micro Focus HoldCo B.V.NetherlandsHolding Company58
122Micro Focus Holding Finance B.V.NetherlandsHolding Company58
123Micro Focus Holding Hague B.V.NetherlandsHolding Company58
124Micro Focus Holding PR B.V.NetherlandsSale and support of software58
125Micro Focus International Trade B.V.NetherlandsSale and support of software58
126Micro Focus Nederland B.V.NetherlandsSale and support of software58
127Verity Benelux B.V.NetherlandsSale and support of software58
128Micro Focus Software (New Zealand) UnlimitedNew ZealandSale and support of software59
129Micro Focus ASNorwaySale and support of software60
130Micro Focus Software, Inc.PhilippinesSale and support of software61
131Micro Focus Polska sp. z o.o.PolandSale and support of software62
132Micro Focus Portugal Informática, LdaPortugalSale and support of software63
133Micro Focus, S.L.- Sucursal em Portugal BranchPortugalSale and support of software63
134Micro Focus Caribe Holding B.V. LLC BranchPuerto RicoSale and support of software64
135Micro Focus Holding PR B.V. LLC BranchPuerto RicoSale and support of software64
136Micro Focus Software Romania SRLRomaniaSale and support of software65
137Limited Liability Company Micro FocusRussian FederationSale and support of software66
138Micro Focus LLCSaudi ArabiaSale and support of software67
139Autonomy Systems Singapore Pte. Ltd.SingaporeIn Liquidation68
140Borland (Singapore) Pte. Ltd.SingaporeIn Liquidation68
141Entco Software Pte. Ltd.SingaporeSale and support of software68
142Mercury Interactive (Singapore) Pte LtdSingaporeIn Liquidation68
143Micro Focus Pte. Ltd.SingaporeSale and support of software68
144Micro Focus Software Pte. Ltd.SingaporeSale and support of software68
145Autonomy Systems Software South Africa Pty LtdSouth AfricaSale and support of software69
146Micro Focus Software South Africa (Pty) LtdSouth AfricaSale and support of software70
147Micro Focus South Africa (Pty) LtdSouth AfricaSale and support of software71
148Micro Focus Korea LtdSouth KoreaSale and support of software72
149Micro Focus Field Delivery Spain S.L.U.SpainSale and support of software73
150
Micro Focus S.L.U.SpainSale and support of software73
151Micro Focus Software Spain S.L.U.SpainSale and support of software73

Acquisitions in the year ended April 30, 2017 continued:


2Acquisition of GWAVA Inc.

On September 30, 2016, the Group acquired the entire share capital of GWAVA Inc. (“GWAVA”) and its subsidiaries for $16.4m, payable in cash at completion. The transaction costs for the GWAVA acquisition were $1.5m.

The acquisition is highly consistent with the Group’s established acquisition strategy and focus on the efficient management of mature infrastructure software products.

GWAVA is a leading company in email security and enterprise information archiving (“EIA”). GWAVA has approximately 90 employees, based in the US, Canada and Germany. More than a million users across 60 countries rely on its products in over 3,000 customer organizations, supported by GWAVA’s global team, with a further 1,000 GWAVA business partners collaborating closely to ensure successful customer solutions. In addition to GWAVA’s award winning EIA product Retain, GWAVA has a full suite of products to protect, optimize, secure and ensure compliance for customers running Micro Focus GroupWise.

A fair value review was carried out on the assets and liabilities of the acquired business, resulting in the identification of intangible assets.

Details of the net assets acquired and goodwill are as follows:

  
Carrying value
at acquisition
  
Fair value
adjustments
  
Fair value
 
  
$m


$m


$m
Intangible assets – purchased1
  
-
   
5.3
   5.3 
Intangible assets – other 2
  
1.2
   
(1.2
)
  - 
Property, plant and equipment  
0.2
   
-
   0.2 
Trade and other receivables  
3.0
   
-
   3.0 
Cash and cash equivalents  
2.4
   
-
   2.4 
Trade and other payables  
(1.4
)
  
-
   (1.4)
Short-term deferred income 3
  
(4.0
)
  
0.3
   (3.7)
Long-term deferred income 3
  
(0.8
)
  
-
   (0.8)
Deferred tax liabilities 4
  
-
   
(1.4
)
  (1.4)
Net assets  0.6   3.0   3.6 
Goodwill          12.8 
Consideration          16.4 
             
Consideration satisfied by:            
Cash          16.4 

The fair value adjustments relate to:

1
Purchased intangible assets have been valued based on a market participant point of view and the fair value has been based on various characteristics of the product lines and intangible assets of GWAVA Inc.;

2
Other intangible assets relating to historic IP has been written down to nil;

3
Deferred income has been valued taking account of the remaining performance obligations; and

4
A deferred tax liability has been established relating to the purchase of intangibles.

F-119F-88

Consolidated financial statements and notes
Notes to the consolidated financial statements
 Company name
Country of
incorporation
Principal activities
Key to
Registered
office address
152Micro Focus AS, Norge, filial i Sverige BranchSwedenSale and support of software74
153Micro Focus Sverige ABSwedenSale and support of software74
154Micro Focus Enterprise B.V., Amstelveen, Wallisellen BranchSwitzerlandSale and support of software75
155Micro Focus GmbHSwitzerlandSale and support of software76
156Micro Focus International Suisse SàrlSwitzerlandSale and support of software77
157Micro Focus Schweiz GmbHSwitzerlandSale and support of software76
158Entco, LLC Taiwan BranchTaiwanSale and support of software78
159Micro Focus Taiwan Co., LtdTaiwanSale and support of software79
160Micro Focus Enterprise Tunisia SARLTunisiaSale and support of software80
161Atarlabs Bilişim Anonim ŞirketiTurkeyDevelopment and support of software81
162Micro Focus Teknoloji Çözümleri Limited ŞirketiTurkeySale and support of software82
163Micro Focus Ukraine, LLC.UkraineSale and support of software83
164
Entco International SARL - Jebel Ali Free Zone BranchUnited Arab EmiratesSale and support of software84
165Entco International SARL-Abu Dhabi BranchUnited Arab EmiratesSale and support of software85
166Micro Focus Software Middle East FZ-LLCUnited Arab EmiratesSale and support of software86
167Attachmate Sales UK LimitedUnited KingdomSale and support of software87
168Autonomy Systems LimitedUnited KingdomSale and support of software87
169Borland (Holding) UK LimitedUnited KingdomIn Liquidation87
170Borland (UK) LimitedUnited KingdomIn Liquidation87
171Dart UK Newco LimitedUnited KingdomDivestiture company87
172Entco Holding Berlin B.V. - UK BranchUnited KingdomHolding Company87
173Longsand LimitedUnited KingdomSale and support of software87
174Merant HoldingsUnited KingdomHolding Company87
175Micro Focus (IP) Holdings LimitedUnited KingdomDormant87
176Micro Focus (IP) LtdUnited KingdomHolding Company87
177Micro Focus (US) HoldingsUnited KingdomHolding Company87
178
Micro Focus CHC LimitedUnited KingdomHolding Company87
179
Micro Focus Foreign HoldCo LtdUnited KingdomHolding Company87
180
Micro Focus Global LimitedUnited KingdomSale and support of software87
181
Micro Focus Group LimitedUnited KingdomHolding Company87
182
Micro Focus Holdings UnlimitedUnited KingdomHolding Company87
183
Micro Focus Integration LimitedUnited KingdomSale and support of software87
184
Micro Focus IP Development LimitedUnited KingdomDevelopment and support of software87
185
Micro Focus LimitedUnited KingdomSale and support of software87
186
Micro Focus Marigalante Ltd. - UK BranchUnited KingdomSale and support of software87
187
Micro Focus MHC LimitedUnited KingdomHolding Company87
188
Micro Focus Midco Holdings LimitedUnited KingdomHolding Company87
189
Micro Focus Midco LimitedUnited KingdomHolding Company87
190
Micro Focus Situla Holding LtdUnited KingdomHolding Company87
191
Micro Focus Software (IP) Holdings LimitedUnited KingdomHolding Company87
192
Micro Focus Software Holdings LtdUnited KingdomSale and support of software87

Acquisitions in the year ended April 30, 2017 continued


2
Acquisition of GWAVA Inc. continued

The purchased intangible assets acquired as part of the acquisition can be analyzed as follows:

Fair value

$m
Technology4.1
Customer relationships0.5
Trade names0.7
5.3

The value of the goodwill represents the value of the assembled workforce at the time of the acquisition with specific knowledge and technical skills. It also represents the prospective future economic benefits that are expected to accrue from enhancing the portfolio of products available to the Company’s existing customer base with those of the acquired business.

The Group has used acquisition accounting for the purchase and the goodwill arising on consolidation of $12.8m has been capitalized.

3Acquisition of OpenATTIC

On November 1, 2016, the Group acquired the OpenATTIC storage management technology and engineering talent from the company it-novum GmbH for a cash consideration of 4.7m Euros ($5.0m). The OpenATTIC technology aligns perfectly with SUSE’s strategy to provide open source, software defined infrastructure solutions for the enterprise and will strengthen SUSE Enterprise Storage solution by adding enterprise grade storage management capabilities to the portfolio. The transaction costs for the OpenATTIC acquisition were $1.2m. OpenATTIC will be included in the Group’s SUSE business disposal.

A fair value review was carried out on the assets and liabilities of the acquired business, resulting in the identification of intangible assets.

Details of the net assets acquired and goodwill are as follows:

  
Carrying value
at acquisition
  
Fair value
adjustments
  
Fair value
 
  
$m


$m


$m
Intangible assets – purchased technology  
-
   
5.0
   5.0 
Net assets  -   5.0   5.0 
Goodwill          - 
Consideration  -   -   5.0 
             
Consideration satisfied by:            
Cash          5.0 

4Acquisition of OpenStack

During the year ended April 30, 2017, the Group acquired purchased technology and talent from HPE for $nil consideration that will expand SUSE’s OpenStack Infrastructure-as-a-Service (“IaaS”) solution and accelerate SUSE’s entry into the growing Cloud Foundry Platform-as-a-Service (“PaaS”) market, subject to regulatory clearances. The last regulatory clearance was received on March 8, 2017 and the deal was completed then. OpenStack will be included in the Group’s SUSE business disposal.

The acquired OpenStack technology assets were integrated into SUSE OpenStack Cloud and the acquired Cloud Foundry and PaaS assets will enable SUSE in the future to bring to market a certified, enterprise-ready SUSE Cloud Foundry PaaS solution for all customers and partners in the SUSE ecosystem. Additionally, SUSE has increased engagement with the Cloud Foundry Foundation, becoming a platinum member and taking a seat on the Cloud Foundry Foundation Board.

As part of the transaction, HPE has named SUSE as its preferred open source partner for Linux, OpenStack IaaS and Cloud Foundry PaaS. HPE’s choice of SUSE as their preferred open source partner further cements SUSE’s reputation for delivering high-quality, enterprise-grade open source solutions and services.

F-120F-89

Consolidated financial statements and notes
Notes to the consolidated financial statements
 Company name
Country of
incorporation
Principal activities
Key to
Registered
office address
193
Micro Focus Software UK LtdUnited KingdomSale and support of software87
194
Micro Focus UK LimitedUnited KingdomDormant87
195
Serena HoldingsUnited KingdomHolding Company87
196
Serena Software Europe LimitedUnited KingdomSale and support of software87
197
Attachmate CorporationUnited StatesDevelopment and support of software88
198
Borland CorporationUnited StatesHolding Company89
199
Borland Software CorporationUnited StatesDevelopment and support of software89
200
Borland Technology CorporationUnited StatesDormant89
201
Dart US Newco LLCUnited StatesDivestiture company89
202Entco Delaware LLCUnited StatesSale and support of software89
203Entco, LLCUnited StatesSale and support of software89
204
Full 360 Group Inc.United StatesHolding Company89
205
Full 360 IncUnited StatesSale and support of software90
206
GWAVA Technologies, Inc.United StatesSale and support of software89
207
MA FinanceCo., LLCUnited StatesHolding Company89
208
Marcel Holdings LLCUnited StatesSale and support of software89
209
Micro Focus (US) Group, Inc.United StatesHolding Company89
210
Micro Focus (US) International Holdings, Inc.United StatesHolding Company89
211
Micro Focus (US), Inc.United StatesDevelopment and support of software89
212
Micro Focus Brazil Holdings LLCUnited StatesHolding Company89
213
Micro Focus Government Solutions LLCUnited StatesSale and support of software89
214
Micro Focus LLCUnited StatesSale and support of software89
215
Micro Focus Software Inc.United StatesDevelopment and support of software89
216
NetIQ CorporationUnited StatesDevelopment and support of software89
217
Novell Holdings, Inc.United StatesHolding Company89
218
Novell International Holdings, Inc.United StatesHolding Company89
219
Seattle SpinCo, Inc.United StatesHolding Company89
220
Serena Software, Inc.United StatesHolding Company89
221
Stratify, Inc.United StatesSale and support of software89
222
The Attachmate Group, Inc.United StatesHolding Company89
223
Vertica Systems, LLCUnited StatesSale and support of software89


39. Cash Flow Statement


     
12 months ended
October 31, 2019
  
18 months ended
October 31, 2018
  
12 months ended
April 30, 20171
 
  Note  
$m


$m


$m
Cash flows from operating activities               
(Loss) / Profit from continuing operations     (18.1)  
707.2
   
124.1
 
Profit from discontinued operation     1,487.2   
76.9
   
33.7
 
Profit for the period     1,469.1   
784.1
   
157.8
 
Adjustments for:               
Gain on disposal of discontinued operation  37   (1,767.9)  
-
   
-
 
Net finance costs  6   255.8   
342.7
   
95.8
 
Taxation – continuing operations  7   (16.0)  
(673.1
)
  
38.5
 
Taxation – discontinued operation  37   318.1   
34.2
   
-
 
Share of results of associates      0.3   
1.8
   
1.3
 
Operating profit (attributable to continuing and discontinued operations)      259.4   
489.7
   
293.4
 
                 
-       continuing operations      221.7   
376.8
   
293.4
 
-       discontinued operation  37   37.7   
112.9
   
-
 
       259.4   
489.7
   
293.4
 
                 
Research and development tax credits      (1.2)  
(2.0
)
  
(3.0
)
Depreciation  12   66.5   
95.2
   
11.8
 
Loss on disposal of property, plant and equipment      3.6   
4.7
   
0.5
 
Gain on disposal of Atalla  37, 4   (3.7)  
-
   
-
 
Amortization of intangible assets  11   716.5   
943.3
   
236.4
 
Amortization of contract-related costs      10.2   
-
   
-
 
Share-based compensation charge  33   71.3   
72.2
   
34.5
 
Foreign exchange movements      11.1   
(34.6
)
  
(4.9
)
Provisions movements  24   43.8   
142.8
   
47.3
 
Changes in working capital:                
Inventories      -   
0.1
   
-
 
Trade and other receivables      183.0   
(408.8
)
  
10.3
 
Increase in contract-related costs      (36.7)  
-
   
-
 
Payables and other liabilities      (114.8)  
131.3
   
(33.3
)
Provision utilization  24   (58.6)  
(145.0
)
  
(43.5
)
Contract liabilities - deferred income      (98.5)  
131.4
   
15.5
 
Pension funding in excess of charge to operating profit      4.4   
4.0
   
(0.2
)
Cash generated from operations      1,056.3   
1,424.3
   
564.8
 

1The comparatives for the 12 months to April 30, 2017 have been revised to reflect the divestitureGroup has a 100% equity ownership interest in each of the SUSE business segment (note 37)subsidiary undertakings.





The ultimate parent Company is Micro Focus International plc (the “Company”). The Company has a direct interest in Micro Focus Midco Holdings Limited and an indirect interest in all of the other related undertakings. The Company has an effective interest of 100% in all of the related undertakings listed in the table.

The financial results of all of the related undertakings listed above are included in the Group’s consolidated financial statements. None of the related undertakings holds any shares in the Company.

F-121
F-90

Consolidated financial statements and notes
Notes to the consolidated financial statements
For each of the subsidiaries listed above, the registered office or, in the case of undertakings other than subsidiaries, the principal place of business is as follows:

Registered office addresses:

NumberAddress
1Level 8, 76 Berry Street, North Sydney NSW 2060, Australia
2Suite 9, 191 Victoria Road, Gladesville NSW 2111, Australia
3Donau-City-Straße 7, 40. OG, 1220 Wien, Austria
4Officenter, Luchthavenlaan 27, 1800 Vilvoorde, Belgium
5EU Parliament, 4th Floor, 37 De Meeussquare, 1000 Brussels, Belgium
6Rua Joaquim Floriano, 466 - 12 Andar, Ed. Corporate, Itaim Bibi, São Paulo, SP, 04534-002, Brazil
7Avenida das Nações Unidas, 1201, conj. 2302. sala 72, São Paulo, SP, 04578-000, Brazil
876A James Boucher Blvd., Hill Tower 3rd floor, Lozenets District, Sofia, 1407, Bulgaria
9200-204 Lambert Street, Whitehorse Y1A 3T2, Canada
10250, Howe Street, Suite 1400-C, Vancouver BC V6C 3S7, Canada
111300-1969 Upper Water Street, McInnes Cooper Tower - Purdy's Wharf Halifax, NS, B3J 3R7, Canada
124300 Bankers Hall West, 888 - 3rd Street S.W., Calgary T2P 5C5, Canada
13Cogswell Tower, 2000 Barrington Street, Suite 1101-C. , Halifax NS B3J 3K1 , Canada
14PwC Corporate Finance & Recovery (Cayman) Limited., P.O. Box 258, 18 Forum Lane, Camana Bay, Grand Cayman , KY1-1104, Cayman Islands
15Ocorian Trust (Cayman) Limited, Windward 3, Regatta Office Park, PO Box 1350, West Bay Road, Grand Cayman , KY1-1108, Cayman Islands
16Unit 601, Block A, Yuanyang International Center, No. 56 Dong Si Huan Zhong Road, Beijing, Chaoyang District, China
17Unit 04, B01, 3rd Floor, 101, 1st Floor, No.1 building, No.8 Yard Guangshun South Avenue , Chaoyang District, Beijing, China
18Floor 2, Building 1, No. 799 Naxian Road, Pilot Free Trade Zone, Shanghai, China
198 Guangshun Avenue South, B01, 3F Building 1, Chaoyang District , China
201807-1811, 18th Floor, Kechuang Building, interchange of Yingxiong Mountain Road and 2nd Ring South Rd, Shizhong District, Jinan, Shangdong, China
21No. 209, Chuangxin Plaza, No. 5 Keyuanyi Road, Jiulongpo District, Chongqing, China
2214/F, Office 1436, Times Financial Center, 4001 Shennan Avenue, Futian District, Shenzhen, Guangdong, 518046, China
23
Unit B011, 3rd Floor, No. 1 building, No.799 Naxian Road, Free Trade Zone, Shanghai, China
24
Calle 111 # 47A-96, Bogotá D.C., Colombia
25
San José, Cantón Montes de Oca, Distrito San Pedro, cincuenta metros al sur del Restaurante Le Chandelier, Edificio Blanco, Costa Rica
26Digeni Akrita, 54, Akritas, Floor 2, Flat 201-202, 1061, Nicosia, Cyprus
27
Za Brumlovkou 1559/5, Michle, Prague, 140 00, Czech Republic
28Borupvang 3, 2750, Ballerup, Denmark
29
Accountor Turku Oy, Yliopistonkatu 34,5 krs, Turku, FI-20100, Finland
30
5 place de la Pyramide, Tour Ariane, La Défense 9 , 92088 , Paris , France
31
Tour Carpe Diem, 31 Place des Corolles, 92400, Courbevoie, France
32
Herrenberger Strasse 140, 71034, Böblingen, Germany
33
Von-Braun-Strabe 38a, 48683, Ahaus, Germany
34
Nördlicher Zubringer 9-11, 40470, Düsseldorf, Germany
35
19th Floor, Cityplaza One, 1111 King's Road, Taikoo Shing, Hong Kong
36
21st Floor, Henley Building, 5 Queens Road Central, Hong Kong
37
4th Floor, Laurel Building ‘A' Block, Bagmane Tech Park, Survey no.65/2, C.V.Raman Nagar, Byrasandra Village, KR Pura Hobli, Bangalore South Taluk, Bengaluru-560093, India
38
4th Floor, Bagmane Tech Park, Olympia Building Survey Nos. 66/1, 66/66-1 & 66/1-3, CV Raman Nagar , Bangalore, 560093, India
397th Floor, Unit 705 Leela Business Park, Andheri – Kurla Road, Andheri East, Mumbai , 400059, India
40
Laurel Block D 65/2, Bagmane Tech Park, C.V. Raman Nagar Byrasandra Post, Bangalore, India

F-91

Consolidated financial statements and notes
Notes to the consolidated financial statements
Number
Address
41
66/1, 6th Floor, Olympia Building, Bagmane Tech Park, Byrasandra, C V Raman Nagar, Bangalore, Karnataka, 560093, India
42
WTC 3, Unit no. 207, Jalan Jenderal Sudirman Kav 29-31, Kel. Karet Semanggi, Kec. Setiabudi, Kota Adm, Jakarta Selatan, DKI Jakarta, Indonesia
43Block A, Ballybrit Business Park, Ballybane Road, Galway, H91 WP08, Ireland
44One Spencer Dock, North Wall Quay, Dublin 1, D01 X9R7, Ireland
455 Altalef St., Yahud, Israel
46Matam Advanced Tech Center, Building 5/1, Haifa, 31 905, Israel
47Scientific Industries Center, Haifa, 33263, Israel
48
17 Hatidhar St, Raannana, 43665, Israel
49
Viale Sarca 235, 20126, Milan, Italy
50Via Santa Maria alla Porta 9, 20123, Milan, Italy
51No. 8 Center Plaza Bldg, 5F, 1-10-16 Horidomecho Nihonbashi, Chuo-ku, Tokyo 103-0012, Japan
52Midtown Tower 19F, 9-7-1 Akasaka, Minato-ku, Tokyo, 107-6219, Japan
5312 rue Jean Engling, L-1466, Luxembourg
5415, Boulevard F.W. Raiffeisen, L - 2411, Luxembourg
55Level 11 , 1 Sentral, Jalan Rakyat, Kuala Lumpur Sentral, 50470 59200 Kuala Lumpur, Malaysia
56Unit 501, Level 5, Uptown 1, 1 Jalan SS21/58, Damansara Uptown, 47400 Selangor Darul Ehsan, Malaysia
57Av. Periférico Sur 6751, Col. Toluquilla, Municipio Tlaquepaque, Jalisco, CP 45610, Mexico
58Van Deventerlaan 31, 3528 AG, Utrecht, Netherlands
59Level 26, PWC Tower, 15 Customs Street West, Auckland, 1010, New Zealand
60
C/O House of Business AS, 7th Floor Dronning Eufemias gate 16, Oslo, 0191, Norway
61
2/F Three World Square, Upper Mckinley Road, Taguig City, Philippines
62ul. Sucha 2/3, 50-086 Wrocław, Poland
63
Centro Empresarial Torres de Lisboa, Rua Tomás da Fonseca, Torre G, 1.º, Sala 111, Freguesia de São Domingos de Benfica, 1600 203, Lisboa, Portugal
64Metro Office Park, Metro Parque 7, Street # 1, Suite 204 , Guaynabo, PR 00968, Puerto Rico
65
2nd District, 3 George Constantinescu Street, BOC Office Building, 4th floor, entrance B, 2nd District, Bucharest, PC 020339, Romania
66Leningradskoye shosse 16 A, building 3, floor 10, premise XV, room 16, 125171, Moscow, Russian Federation
67Nimr Al Nakheel Centre, Building A, 1st floor, Imam Saud Bin Abdulaziz Bin Muhammad Road, Riyadh, 11564, Saudi Arabia
68#12-04/06, 1 Harbourfront Place, Harbourfront Tower 1, Singapore, 098633, Singapore
69
78 Sophia Street, Fairland, 2195, South Africa
70
Novell House, MorningWedge Office, 255 Rivonia Road, Morningside, 2196, South Africa
71Morningside Wedge Office Park , 255 Rivonia Road, Morningside, Sandton, Gauteng, 2057, South Africa
72Yeoidodong, SK Building, 15F, 31 Gukjegeumyung-ro 8-gil, Yeongdeungpo-gu, Seoul, Korea, Republic of
73Torre Espacio, Planta 16, Paseo de la Castellana, 259D, 28046 Madrid, Spain
74Kronborgsgränd 1, 164 46 Kista, Stockholm, Sweden
75
Richtistrasse 7, 8304 Wallisellen, Switzerland
76Wallisellen Business Park, Offices 201-204, Richtistrasse 7, 8304, Wallisellen, Switzerland
77Chemin Jean-Baptiste Vandelle 3A, 1290 Versoix, Switzerland
79
9F., No. 200, Sec. 1, Keelung Rd., Xinyi Dist., Taipei City, 110, Taiwan
80
ZI Chotrana, Technopole El Ghazala, Lot No 45, Ariana, 2088, Tunisia
81
Üniversiteler Mahallesi 1605 Cad. No: 3A, Çankaya , Ankara, Turkey
82AND Plaza Kozyatağa İçerenköy Mahallesi Umut Sk. 10/12, Kat: 16 34752 Ataşehir/İstanbul, Turkey
8313 Pimonenko Str., building 6, Office 6A/61, Kiev, 04050, Ukraine

F-92

Consolidated financial statements and notes
Notes to the consolidated financial statements
Number
Address
84JAFZA One building, Unit No. AB 1005, Jebel Ali Free Zone, Dubai, United Arab Emirates
85Al Hilal Building, Al Falah Road, Office 318, Abu Dhabi, United Arab Emirates
861204 - 1205, Floor 12 Al Shatha Tower, Dubai, United Arab Emirates
87The Lawn, 22-30 Old Bath Road, Newbury, Berkshire, RG14 1QN, United Kingdom
88
Corporation Service Company, MC-CSC1, 300 Deschutes Way SW, Suite 208, Tumwater, WA98501, United States
89
Corporation Service Company, 251 Little Falls Drive, Wilmington, Delaware 19808, United States
90
Corporation Service Company, 80 State Street, Albany, NY 12207-2543, United States


F-92