Company Announcements

9 July 2019

Micro Focus International plc

Interim results for the six months ended 30 April 2019

Micro Focus International plc ("the Company" or "the Group", LSE: MCRO.L, NYSE: MFGP), the international software product group, announces unaudited interim results for the six months ended 30 April 2019.

Key highlights:

·      Revenue performance in line with guidance and full year guidance maintained at minus 4% to minus 6% on a constant currency ("CCY") basis.

·      SUSE separation and disposal delivered in line with timetable resulting in a $1,727.2m profit on disposal and $1,800.0m returned to shareholders.

·      Adjusted EBITDA margin¹ increased 2.8ppt to 40.0% on a CCY basis.

·      Transformation programmes remain on target for completion in 2020.

·      Strong cash performance, with Adjusted Cash Conversion¹ of 115.1% (30 April 2018: 96.1%) and free cash flow¹ of $429.9m in the six months ended 30 April 2019 (30 April 2018: $213.7m).

·      Adjusted Net Debt¹ of $3,807.5m at 30 April 2019, 2.7 times Adjusted EBITDA, after including the $1,800.0m return to shareholders in May 2019.

·      Adjusted Diluted Earnings per Share growth from continuing operations of 8.4%.

·      Interim dividend of 58.33 cents per share (six months ended 30 April 2018: 58.33 cents).

·      Profit for the period of $1,397.1m (30 April 2018: $619.7m).

The table below shows the key results for the Group for the six months ended 30 April 2019:

¹ The definition and reconciliations of Adjusted EBITDA, Adjusted EPS, Adjusted Diluted EPS, Adjusted Net Debt, Adjusted Cash Conversion, Free cash flow and Constant Currency ("CCY") are in the "Alternative Performance Measures" section of this Interim Statement.

² The comparatives for the six months to 30 April 2018 have been restated to reflect the divestiture of the SUSE business segment (note 24).

Stephen Murdoch, Chief Executive Officer, commented:

"We have made steady progress this half year, delivering against our financial and operational commitments and doing what the company does best: making, selling and supporting infrastructure software solutions that customers value and rely on. Micro Focus helps customers around the world to drive further returns from their existing investments while also taking advantage of new technologies and innovations to support their digital transformation. We have continued to make progress on our significant program of work to fully integrate the HPE Software business through the sustained application of the Micro Focus business model. As a result, we are pleased to reiterate full-year guidance."

Results conference call

A conference call to cover the results for the six months ended 30 April 2019 will be held today at 1.30pm BST. The call will be accompanied by slides. 

A live webcast and recording of the presentation will be available at https://investors.microfocus.com/  during and after the event.  For dial in only, access numbers are as follows: 
 

UK: +44 (0)330 336 9411

US: +1 646-828-8193

Confirmation Code: 9926873

Enquiries:

Note to editors

Micro Focus (LSE: MCRO.L, NYSE: MFGP) is one of the world's leading enterprise software companies, with over 40,000 customers globally who rely on us to modernise and protect their existing technology. Micro Focus helps organizations run and transform their business. Driven by customer-centric innovation, our software provides the critical tools they need to build, operate, secure, and analyse the enterprise. By design, these tools bridge the gap between existing and emerging technologies-enabling faster innovation, with less risk, in the race to digital transformation.

For more information, please go to https://investors.microfocus.com/

Forward-looking statements

Certain statements in these preliminary results are forward-looking. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to be correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements. The Group undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

Chief Executive Officer's Statement 

Performance in the period (from continuing operations)

Our performance during the period was consistent with guidance for the full year given at the time of the Preliminary results on 14 February 2019 and reiterated in our mid-May trading update.

The period can be characterised as one of making steady progress, delivering against our financial and operational commitments, applying the Micro Focus operating model increasingly consistently across the Group, focusing intensely on the needs of our customers, and continuing to improve the culture to be more decisive and results-focused. As a result of these and other initiatives, during the six month period to 30 April 2019 the Group continued to moderate rates of revenue decline, improve Adjusted EBITDA margins and generate significant levels of cash to fulfil our overriding objective of providing sustainable and strong shareholder returns.

There has been on-going progress improving customer engagement, aligning our portfolio and releasing new product capabilities. We continue to deliver innovation that customers rely on to solve real and complex issues today and position themselves to capture new opportunities as they drive their own digital transformation programmes.

The Group reported revenues of $1,657.1m (2018: $1,749.6m CCY, $1,791.3m reported). This reflects a decline of 5.3% on a CCY basis and 7.5% on a reported basis. Adjusted EBITDA was $662.3m (2018: $650.4m CCY) which represents an Adjusted EBITDA margin of 40.0% (2018: 37.2% CCY). This was driven primarily by continued cost management actions related to the integration program. On a statutory reported basis, the business generated an Operating Profit of $32.6m (2018: $31.8m).

During the period, we completed the sale of the SUSE business and as a result returned $1,800.0m to shareholders. This transaction is an excellent proof point of the effectiveness of Micro Focus' portfolio management approach.

Further narrative in respect of the financial performance can be found in the Financial Review section of this report.

The Micro Focus Strategy and Business Model

Micro Focus' strategy and business model are designed to deliver sustained customer value and strong, consistent shareholder returns over the long-term. Our approach evolves with changes in the overall market but the values and core of our model have remained consistent since 2011.

The infrastructure software market is fragmented and consolidating and Micro Focus is well placed to succeed within this market context. We believe the four key components necessary for success are:

·      a clear long term strategy;

·      scale to enable consistent execution;

·      operational efficiency; and

·      commitment to product innovation that addresses critical customer needs.

Our operating model is founded on customer engagement and feedback, and our product strategy can be summarised as delivering "customer-centric innovation". This means helping customers bridge both existing and emerging technologies to balance cost, risk and speed. To accomplish this we build the latest innovative, enterprise-grade and scalable features into our products, helping customers optimise existing investments and avoid unnecessary "rip and replace" approaches, helping increase returns from investments already made. We also offer flexibility in both deployment and commercial models to ensure customers and partners can exploit this innovation appropriately within their own financial and organisational models.

Across the Group, our products span a range of revenue profiles from double-digit growth to decline. Our business model is focused on ensuring the right decisions are taken at a granular level to enable the allocation of appropriate levels of investment on a product-by-product basis, to innovate, market, sell and support the product to best deliver value to customers. This enables revenue declines to be moderated and product portfolios repositioned to achieve growth where possible by aligning appropriate R&D and Go-To-Market investment to help deliver high levels of profitability and strong cash generation in a balanced portfolio approach.

In the period we delivered major new capabilities across each of the portfolios and more than 160 releases in total. Notable highlights include:

·      Enterprise DevOps: application modernisation capabilities enabling mainframe to mobile development productivity with new robotic process automation capabilities being introduced;

·      Hybrid IT Management: cloud native and hybrid deployment options in Service Management and introduction of new Artificial Intelligence capabilities;

·      Security, Risk & Governance: introduction of new User Behavioural Analytics and application security capabilities and end-to-end solutions for data privacy; and

·      Predictive Analytics: integrated into core solutions or enterprise wide with cloud or hybrid deployment choices reducing customer infrastructure costs.

Micro Focus' scale enables us to meet the important business needs of our customers and partners around the world, with our business operations spanning 49 countries with approximately 12,200 employees making, selling and supporting more than 300 products. The consistent execution of our business model provides us with a platform to deliver exceptional returns to shareholders over the long- term.

Integration Update

The complexities of the HPE Software business integration continue to require detailed attention and substantial programme planning and execution. We are making steady progress with notable examples including: the completion of the project to build our own IT operational infrastructure and separate from the HPE operational environment, continued improvements to our core business systems and ongoing consolidation of physical locations to improve operational effectiveness and team collaboration and eliminate unnecessary costs. More broadly we continue to focus on delivering the key changes needed to reach our future goals. These include: the project to deliver a single IT platform with a simplified and integrated systems architecture, simplifying central functions, strengthening compliance and controls, and continually improving our customer and employee experience.

Integration work to improve our operational effectiveness is closely linked to instilling the right corporate culture of sharper execution, simpler business operations and a dynamic, accountable team. Progress is being made against this goal but there remains more to do on this front.

In summary, whilst the integration of the HPE Software business remains a complex and significant programme of work, we are confident in our ability to complete this and thereby deliver on our original thesis of making Micro Focus an efficient and optimised platform operating at scale with sector-leading margins and the opportunity to grow further through acquisition.

SUSE Disposal

The separation and sale of the SUSE business provided significant returns to shareholders and demonstrates the value of our 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 $2.3bn, we achieved a total cash consideration of $2.5bn for the SUSE asset alone just four years later, at an accounting profit on disposal of $1.7bn.

Between announcement of the disposal and its completion we returned $510.0m to shareholders by way of share buybacks, and following transaction completion in March 2019 we made a Return of Value to shareholders in May 2019 of $1.8bn.

I am proud of the team's operational rigour to complete the transaction on time, on budget and deliver the SUSE asset for its new owner EQT Partners as a fully carved out business from the rest of the Group's infrastructure and operations.

The SUSE business financial contribution during the period was an Operating profit of $37.5m. The results of the SUSE business together with the $1.7bn profit on the sale of the SUSE business have been reported as a discontinued operation. The SUSE business was also treated as a discontinued operation in the 18 months ended 31 October 2018 Annual Report and Accounts. Following the separation of SUSE our employees now total 12,200. As such, this interim results statement focuses on the continuing operations.

Capital allocation

The board continues to target a modest level of gearing for a company with the cash generating qualities of Micro Focus, with a target net debt to Adjusted EBITDA multiple of 2.7 times. We are confident that this level of debt will allow us 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. Micro Focus has a strong balance sheet and our lenders are supportive of our strategy and business model.

At 30 April 2019, we had reported Net Debt of $2,007.5m. After reflecting the settlement of the Return of Value to shareholders, paid in May 2019, the Adjusted Net Debt for the Group was $3,807.5m. This represents a ratio of Adjusted Net Debt to trailing 12 month Adjusted EBITDA ($1,421.4m) of 2.7 times.

Board Update

Further to the announcement on 5 November 2018, Brian McArthur-Muscroft joined the Board as Chief Financial Officer on 21 February 2019.

The Board and management team continue to have confidence in the strength of our strategy and model, our ability to complete the current integration to build an effective operating platform, and, over time, drive margins closer towards the levels achieved historically by the Group. We would like to thank our employees for their continued professionalism and hard work.

Dividend

Following the 18 month period covered in the 31 October 2018 Annual Report and Accounts and the payment of three six-monthly dividends, the Group is now returning to its customary two dividend payments during the financial year. The dividend policy remains unchanged at approximately two times covered by the adjusted post-tax earnings of the company.

As a result, we are pleased to announce that the interim dividend will be 58.33c. We expect to maintain this level of interim dividend per share in future years, with a progressive final dividend consistent with our policy, as we return towards our historic dividend phasing of paying approximately one third by way of interim and two thirds by way of final dividend.

The dividend will be paid in Sterling equivalent to 46.66 pence per share, based on an exchange rate of £1 = $1.25, the rate applicable on 8 July 2019, the date on which the board resolved to pay the dividend. The dividend will be paid on 30 September 2019 to shareholders on the register as at 6 September 2019.

Group Outlook

We reiterate our constant currency revenue guidance for the 12 months to 31 October 2019 of minus 4% to minus 6% compared to the 12 months ended 31 October 2018.

Stephen Murdoch

Chief Executive Officer

8 July 2019

Financial Review

The following discussion provides an analysis of our results and should be read in conjunction with our unaudited consolidated interim financial statements included elsewhere in this report. We include certain Alternative Performance Measures which assist management in comparing our performance on a consistent basis for purposes of business decision-making by removing the impact of certain items that management believes do not directly reflect our underlying operations. Included in the following discussion is Adjusted EBITDA which is an Alternative Performance Measure. For additional information on Adjusted EBITDA see the "Alternative Performance Measures" section of this report. The comparatives for the six months to 30 April 2018 have been restated to reflect the divestiture of the SUSE business segment (note 24). All result discussed in this section are from continuing operations, unless otherwise stated.

Revenue (versus CCY comparatives)

Revenue for the six months ended 30 April 2019 was as follows:

*AMC (Application Modernisation & Connectivity), ADM (Application Delivery Management), ITOM (IT Operations Management), and IM&G (Information Management & Governance).

 **The trends discussed in this section are presented after the impact of the deferred revenue haircut (see Alternative Performance Measures).

*** The prior year comparatives have been restated to reflect the reorganisation of the LATAM operations from North America (previously named "Americas") to International (previously named "EMEA"). This restatement ensures consistent revenue trend reporting. 

Revenue from continuing operations declined by 5.3% in the six months ended 30 April 2019 on a CCY basis. The 5.3% decline is inclusive of a benefit from the year-on-year impact of the deferred revenue haircut and IFRS15, which is offset by the impact of the Atalla disposal and the change in approach to serving US Government contracts. 

This CCY decline is partly driven by deliberate management actions in relation to the SaaS and other recurring and Consulting revenue streams, which together account for 2.5ppts of the decline (excluding deferred revenue haircut), as we continue to refocus these revenue streams on delivering better quality, sustainable profits for the business. The impact of these actions will continue in the remaining six months of the financial period and begin to moderate thereafter. 

Revenue performance in the six months ended 30 April 2019 by stream:

Licence Revenue 

Licence revenue declined by 11.1% in the six months ended 30 April 2019 on a CCY basis.

The revenue decline in Security was higher than expected due to two factors. Firstly, the product group experienced significant levels of sales force attrition during FY18. This was compounded by corrective actions which were made to products within the portfolio over the last twelve months. The improvements we have made in these areas will take time to flow through to pipeline and revenue.

Performance within ADM, AMC and IM&G demonstrate the portfolio effects of our business and underlying performance in ITOM was stronger than the actual performance given the challenging prior period compare.

Performance at a regional level broadly mirrored the portfolio performance summarised above.

Maintenance Revenue

Maintenance revenue declined by 1.0% in the six months ended 30 April 2019 on a CCY basis. The impact of the deferred revenue haircut improves the rate of decline by 1.6ppts in the period with the underlying decline 2.6% being more representative of the current trajectory.

Renewal rates vary at a product level but across the portfolio, we continue to see renewal rates consistent with historical rates.

SaaS and other recurring revenue

SaaS and other recurring revenue decreased by 8.3% in the six months ended 30 April 2019 on a CCY basis. In the last six months of the previous financial period, the Group took actions to rationalise unprofitable operations and practices and refocused resources and investments to deliver the product enhancements required for long term success. As a result, SaaS and other recurring revenue overall declined in line with our expectations, in order to deliver a more sustainable growth in SaaS revenue at a higher profit margin in the medium term.

Consulting Revenue

Consulting revenue declined by 18.3% in the six months ended 30 April 2019 on a CCY basis. The managed decline in consulting revenue can be broadly attributed to the Group's continued desire to focus only on consulting engagements that are directly related to the software portfolio.

The restructuring of the consultancy operations is progressing as anticipated and is expected to continue in the second half of the year with the revenue stream beginning to moderate and ultimately track underlying software revenue.

Adjusted EBITDA

The continuing operations generated an Adjusted EBITDA of $662.3m, at an Adjusted EBITDA margin of 40.0%. This represents a 2.8ppt increase in Adjusted EBITDA margin between the periods at constant currency.

The ability to drive operational efficiencies within the two businesses via integration was a key thesis for the HPE Software business deal and remains a key strategic objective of management. Total costs within the continuing operations in the six months ended 30 April 2019 were $994.8m. This reflects a reduction of $104.4m on the comparable period to 30 April 2018 at CCY.

Alongside this cost reduction, we continue to work on multiple transformation projects to simplify and standardise our systems and processes, including building a new IT Stack to run more streamlined business processes. These projects remain on target for completion during financial year 2020. Once this work is complete, we anticipate opportunity to realise further efficiencies across our centralised Finance, HR, IT and Legal functions, allowing for further cost reductions in financial year 2021.

Ultimately, we remain focused on driving margins closer towards the levels achieved historically by the Group.

Currency impact

During the six months to 30 April 2019, 61.2% of our revenues were contracted in US dollars, 18.8% in Euros, 5.4% in Sterling, 3.0% in Canadian dollars and 11.6% in other currencies. In comparison, 48.0% of our costs are US dollar denominated, 14.4% in Euros, 10.8% in Sterling, 1.6% in Canadian dollars and 25.2% in other currencies. 

The weighting of revenue and costs means that if the US$: Euro or US$: CAD exchange rates move during the period, the revenue impact is greater than the costs impact, whilst if US$: Sterling rates move during the period the cost impact exceeds the revenue impact. Consequently, actual US$ Adjusted EBITDA can be impacted by significant movements in US$ to Euro, CAD & Sterling exchange rates.

The currency movement for the US dollar against Euro, Sterling and CAD was a strengthening of 6.6%, 5.8% and 4.9% respectively when looking at the average exchange rates in the six months to 30 April 2019 compared to those in the six months to 30 April 2018.

In order to provide CCY comparatives, we have restated the revenue and Adjusted EBITDA of the Group for the six months ended 30 April 2018 at the same average exchange rates as those used in the reported results for the six months ended 30 April 2019. In the six months ended 30 April 2018, the currency impact has reduced revenue and costs by 2.2% and 3.3% respectively. The net impact for the Group results using CCY was a decrease of $41.7m in revenue and a decrease of $4.1m Adjusted EBITDA.

Operating profit to Adjusted EBITDA

The Operating profit for the six months ended 30 April 2019 was $32.6m, compared to $31.8m in the six months ended 30 April 2018. The operating profit includes the impact of certain items that management believes do not directly reflect our underlying performance. These include exceptional items, share based compensation and amortisation of purchased intangibles.

A reconciliation between Operating profit and Adjusted EBITDA is shown below:

Exceptional (gains) / costs including the gain on disposal of SUSE

In the six months ended 30 April 2019, exceptional costs reported in operating profit decreased from $195.4m to $161.4m as the integration of HPE Software business into the Micro Focus Product Portfolio continued during this period. The costs incurred in the period primarily include:

·      System and IT infrastructure costs of $80.9m principally reflect the IT migration of the legacy Micro Focus business onto a single IT platform;

·      Integration costs of $56.0m across a wide range of projects undertaken to conform, simplify and increase efficiency across the business;

·      Severance costs of $15.7m in relation to ongoing headcount reductions as we continue to remove duplication and simplify the continuing operations; and

·      Property costs of $10.6m as the Group continues the process of simplifying the real estate footprint.

On 29 March 2019, the Group completed the disposal of the SUSE business for a total cash consideration of $2,540.3m. As a result of the transaction, the business recognised a net profit on disposal of $1,727.2m (after taking account of transaction costs).

Further information on exceptional costs can be found in note 7 to the interim financial statements.

Net finance costs

Net finance costs were $132.2m in the six months ended 30 April 2019, compared to $132.7m in the six months ended 30 April 2018.

Taxation

Tax for the six months ended 30 April 2019 was a credit of $21.3m (2018: credit of $700.9m) on continuing operations and a tax charge of $289.0m on SUSE discontinued operations, including tax on the gain on the sale of the SUSE business. The tax charge on Adjusted Profit before tax for the six months ended 30 April 2019 was $95.5m (2018: $100.3m), which represents an effective tax rate ("ETR") on Adjusted Profit before Tax ("Adjusted ETR") of 20.5% (2018: 21.9%). The Group's forecast Adjusted ETR in the medium-term remains at 25%.

Profit from discontinued operations

The Group generated profit from discontinued operations of $1,475.4m in the six months ended 30 April 2019 compared to $19.7m in six months ended 30 April 2018. This profit reflects the trading performance of the SUSE business in the period of $37.2m, before disposal on the 15 March 2019, together with the profit on the disposal of $1,727.2m and a net taxation charge of $289.0m. The profit from discontinued operations is excluded from the Alternative performance measures.

The disposal of SUSE is an excellent example of the Micro Focus strategy in action and highlights the benefits of managing the products on a portfolio basis. We believe the $2,540.3m price (note 24) represents a highly attractive enterprise valuation for SUSE and reflects an excellent return on the investments we have made to support and grow this business since it was acquired in 2014. The Group expects to pay taxes of approximately $300m in the second half of the financial year in relation to the disposal.

The ability to carve out SUSE and create a fully operational standalone business in less than a year demonstrates the Group's ability to manage complex corporate actions in order to deliver exceptional returns to our shareholders.

Since announcing the SUSE transaction, the Group has made on-market share buy-backs totalling $510.0m in addition to returning $1,800.0m through a return of value and share consolidation. These returns equate to approximately 20% of the Group's market capitalisation (at the date of the return) on top of the regular dividend payments highlighting the Group's proactive returns strategy.

Earnings per share

The Group's earnings per share ("EPS") on a basic, diluted and adjusted basis are as follows:

 Full details are set out in the "Alternative performance measures" section of these interim financial statements.

Cash Generation

The following section sets out the cash generation for the Group including the SUSE business up to the point at which the operations were sold on 15 March 2019. The Group's Adjusted cash conversion ratio (defined as cash generated from operations divided by Adjusted EBITDA less exceptional items) for the six months ended 30 April 2019 was 115.1% compared to 96.1% in the comparable period.

The cash flow for the Group for the six months ending 30 April 2019 was:

Within the six months ended 30 April 2019, the Group had a working capital inflow of $47.3m. This inflow was due to a combination of the natural seasonality of cash collections within the business in which we typically collect the peak quarter four billings in the first half of the following financial year combined with a focus on reducing the Days Sales Outstanding ("DSO") which reduced from 94 days at 31 October 2018 to 88 days at 30 April 2019. These factors resulted in a working capital inflow in relation to receivables of $282.7m. The Group has made good progress in reducing this balance in six months to 30 April 2019 and the quality of the debtor book has vastly improved. The amount of overdue receivables have reduced from $342.2m to $251.2m and we continue to anticipate a reduction over the course of the remaining financial period.

Net Debt

* The Adjusted EBITDA for the trailing 12 months to 30 April 2019 is for continuing operations only, the comparatives include the discontinued operation.

As at 30 April 2019, Net Debt was $2,007.5m (30 April 2018: $4,337.3m). This figure includes the gross proceeds received in relation to the disposal of the SUSE business. Adjusted Net debt of $3,807.5m takes into account the $1,800.0m which was paid to shareholders in May 2019 in relation to the Return of Value. This equates to an Adjusted Net Debt to Adjusted EBITDA ratio of 2.7 times. In the second six months of the financial period, it is likely that the ratio will increase marginally due to the timing of the one-off tax payment in relation to the disposal of SUSE.

The board continues to target a modest level of gearing for a company with the cash generating qualities of Micro Focus with a target net debt to Adjusted EBITDA multiple of 2.7 times. We are confident that this level of debt will not reduce our ability to deliver our strategy, invest in products and/or make appropriate acquisitions. The level of interest payments on the term loans remain at a manageable level relative to the scale of the Group. 

The movements on the Group loans in the six months to 30 April 2019 were as follows:

In addition to the term loans and cash reserves, the Group has access to a $500m revolving credit facility, which remains undrawn.

Consolidated statement of financial position

The Group's Consolidated statement of financial position is presented later in this document. A summarised version is presented below:

The net assets of the Group have decreased by $886.4m from $7,792.0m to $6,905.6m in the six months to 30 April 2019.

In the period, the key movements were as follows:

·       Non-current assets decreased by $284.4m to $13,436.1m primarily due to the net decrease of other intangible assets of $276.4m (including $61.2m of additions relating to the acquisition of Interset Software Inc. and amortisation of $356.3m in the period) and a decrease of $69.0m in the derivative asset, offset by the recognition of $26.4m of contract-related costs after the adoption of IFRS 15 and an increase in goodwill of $34.2m on the acquisition of Interset Software Inc.

·       Current assets increased by $1,711.7m to $3,629.3m, primarily due to an increase in cash and cash equivalents of $2,045.3m in the period after the sale of the SUSE business offset by a reduction of $334.8m in trade and other receivables. Cash and cash equivalents were $2,666.2m as at 30 April 2019, however, $1,800.0m of this was held in anticipation of settling the Return of Value to shareholders in May 2019.

·       Current assets and current liabilities classified as held for sale as at 31 October 2018 primarily reflected the assets and liabilities of SUSE business segment, which were disposed of in the period.  

·       Current liabilities increase by $1,917.7m to $3,928.1m, primarily due to recognition of the "B" Share liability of $1,800.0m relating to the Return of Value to shareholders, which was settled in May 2019.

·       Non-current liabilities decreased by $308.8m to $6,231.7m, primarily due to the repayment of term loans in the period.

·       Total equity attributable to the owners of the parent decreased by $886.4m from $7,791.0m to $6,904.6m in the six months to 30 April 2019. This decrease was driven primarily by Return of Value to shareholders of $1,800.0m, share buy-backs of $343.4m, dividends paid of $240.7m offset by the profit for the period of $1,397.1m (including the profit on disposal of SUSE of $1,727.2m).

Dividend

The board continues to adopt a dividend policy such that it is approximately two times covered by the adjusted earnings of the Group. The directors are maintaining an interim dividend of 58.33 cents per share. The dividend payable in the previous financial period was impacted by the 18 month accounting period which resulted in exceptional phasing of the dividend.

The total interim dividend payment will amount to approximately $200m which represents 49.9% of our Adjusted post tax earnings for the period (including discontinued operations). The dividend per share exceeds one half of our Adjusted earnings per share, because the latter is calculated with reference to our average shares in issue during the period, whereas the dividend will be paid on the reduced number of shares now in issue as a result of the share consolidation associated with the Return of Value. We expect to maintain this level of interim dividend per share in future years, with a progressive final dividend consistent with our policy, as we return towards our historical dividend phasing of paying approximately one third by way of interim and two thirds by way of final dividend.

The dividend will be paid in Sterling equivalent to 46.66 pence per share, based on an exchange rate of £1 = $1.25 being the rate applicable on 8 July 2019, the date on which the board resolved to propose the dividend. The dividend will be paid on 30 September 2019 to shareholders on the register at 6 September 2019.

Group Risk Factors

As with all businesses, the Group is affected by certain risks, not wholly within our control, which could have a material impact on the Group's long-term performance and cause actual results to differ materially from forecast and historical results.

The principal risks and uncertainties facing the Group have not changed, except for the SUSE business disposal risk no longer required, following its disposal, from those set out in the Annual Report and Accounts for the 18 months ended 31 October 2018 (pages 32 to 41):

·              Products;

·              Go to Market models;

·              Competition;

·              Employees and culture;

·              Tax;

·              Business strategy and change management;

·              Intellectual property;

·              Legal and regulatory compliance;

·              Macro-economic environment and Brexit;

·              IT systems and information;

·              Cyber security;

·              Treasury and

·              Internal Controls over Financial Reporting.

Brian McArthur-Muscroft

Chief Financial Officer

8 July 2019