Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in Registration Statement Nos. 333-249181, 333-214427, 333-184670, 333-146351, 333-146350, 333-121377, 333-109505 and 333-87024 on Form S-8 and Registration Statement No. 333-261510 on Form S-3 of Open Text Corporation of our report dated January 30, 2023, with respect to the consolidated financial statements of Micro Focus International Limited (formerly Micro Focus International plc), which report appears in this Current Report on Form 8-K/A of Open Text Corporation dated April 10, 2023.

/s/ KPMG LLP

London, United Kingdom

April 10, 2023

Exhibit 99.1

MICRO FOCUS INTERNATIONAL PLC

Consolidated financial statements and notes

 

2		Consolidated statement of comprehensive income
5		Consolidated statement of financial position
7		Consolidated statement of changes in equity
9		Consolidated statement of cash flows
10		Summary of significant accounting policies
25		Notes to the consolidated financial statements
103		Report of Independent Registered Public Accounting Firm

 

Consolidated financial statements				1

MICRO FOCUS INTERNATIONAL PLC

 

Consolidated statement of comprehensive income

For the year ended 31 October 2022

 

Continuing operations		Note				Year ended 31 October 2022 $m				Year ended 31 October 2021 $m
Revenue			2				2,534.5				2,899.9
Cost of sales							(715.5	)			(776.3	)
Gross profit							1,819.0				2,123.6
Selling and distribution expenses							(1,145.1	)			(1,344.6	)
Research and development expenses							(462.6	)			(521.8	)
Administrative expenses							(730.4	)			(522.8	)
Other operating income							9.0				—
Operating loss							(510.1	)			(265.6	)
Operating profit prior to depreciation, amortisation and exceptional items							878.7				1,044.9
Depreciation and amortisation			3				(890.2	)			(1,063.4	)
Exceptional items			4				(498.6	)			(247.1	)
Operating loss							(510.1	)			(265.6	)
Finance costs			6				(262.7	)			(253.9	)
Finance income			6				111.4				1.7
Net finance costs			6				(151.3	)			(252.2	)
Loss before tax							(661.4	)			(517.8	)
Taxation1			7				42.5				82.7
Loss from continuing operations							(618.9	)			(435.1	)
Profit from discontinued operation (attributable to equity shareholders of the Company)			28				3.2				10.7
Loss for the year							(615.7	)			(424.4	)
Attributable to:
Equity shareholders of the Company							(615.7	)			(424.4	)
Loss for the year							(615.7	)			(424.4	)

 

 

1	Taxation includes a debit of $0.4m (2021: credit $76.3m) relating to exceptional items, see note 4.

 

Consolidated financial statements				2

MICRO FOCUS INTERNATIONAL PLC

 

		Note				Year ended 31 October 2022 $m				Year ended 31 October 2021 $m
Loss for the year							(615.7	)			(424.4	)
Other comprehensive (expense)/income for the year:
Items that will not be reclassified to profit or loss
Continuing operations:
Actuarial gain on pension schemes liabilities			20				81.3				33.4
Actuarial gain on non-plan pension assets			20				0.5				0.2
Deferred tax movement on pension schemes			7				(20.3	)			—
Continuing operations: Items that may be subsequently reclassified to profit or loss
Cash flow hedge movements			25				105.5				42.2
Current tax movement on cash flow hedge movements			25				(6.8	)			(8.0	)
Deferred tax movement on cash flow hedge movements			25				(16.8	)			—
Deferred tax movement on currency translation differences							40.2				(7.8	)
Current tax movement on Euro loan foreign exchange hedging							(6.3	)			6.0
Deferred tax movement on Euro loan foreign exchange hedging							—				(8.1	)
Currency translation differences							(320.2	)			68.6
Other comprehensive (expense)/income for the year							(142.9	)			126.5
Total comprehensive expense for the year							(758.6	)			(297.9	)
Attributable to:
Equity shareholders of the Company							(758.6	)			(297.9	)
Total comprehensive expense for the year							(758.6	)			(297.9	)
Total comprehensive expense attributable to the equity shareholders of the Company arises from:
Continuing operations							(761.8	)			(308.6	)
Discontinued operation			28				3.2				10.7
Total comprehensive expense for the year							(758.6	)			(297.9	)
Earnings per share (cents)
From continuing and discontinued operations						cents				cents
– basic			9				(190.13	)			(126.12	)
– diluted			9				(190.13	)			(126.12	)
From continuing operations
– basic			9				(191.12	)			(129.30	)
– diluted			9				(191.12	)			(129.30	)

 

Consolidated financial statements				3

MICRO FOCUS INTERNATIONAL PLC

 

		Note				Year ended 31 October 2022 $m				Year ended 31 October 2021 $m
From continuing and discontinued operations						pence				pence
– basic			9				(151.12	)			(91.78	)
– diluted			9				(151.12	)			(91.78	)
From continuing operations
– basic			9				(151.91	)			(94.09	)
– diluted			9				(151.91	)			(94.09	)

The accompanying notes form part of the financial statements.

 

Consolidated financial statements				4

MICRO FOCUS INTERNATIONAL PLC

 

Consolidated statement of financial position

As at 31 October 2022

 

		Note				31 October 2022 $m				31 October 2021 $m
Non-current assets
Goodwill			10				3,050.6				3,725.5
Other intangible assets			11				3,475.5				4,331.2
Property, plant and equipment			12				187.6				228.6
Non-current tax receivable			7				40.6				48.0
Deferred tax asset			7				13.0				15.0
Financial assets			22				69.8				—
Trade and other receivables			14				14.3				19.6
Other non-current assets			13				51.9				71.6
							6,903.3				8,439.5
Current assets
Trade and other receivables			14				948.6				886.3
Other current assets			13				40.1				33.0
Current tax receivables			7				22.9				59.1
Cash and cash equivalents			15				536.2				558.4
							1,547.8				1,536.8
Current assets classified as held for sale			28				—				370.3
							1,547.8				1,907.1
Total assets							8,451.1				10,346.6
Current liabilities
Trade and other payables			16				510.5				513.2
Financial liabilities			22				75.1				134.9
Provisions			19				143.3				65.7
Current tax liabilities			7				124.8				94.1
Contract liabilities			18				934.1				984.6
							1,787.8				1,792.5
Current liabilities classified as held for sale			28				—				68.4
							1,787.8				1,860.9

 

Consolidated financial statements				5

MICRO FOCUS INTERNATIONAL PLC

 

		Note				31 October 2022 $m				31 October 2021 $m
Non-current liabilities
Contract liabilities			18				171.8				131.8
Financial liabilities			22				3,967.5				4,643.7
Retirement benefit obligations			20				64.7				147.1
Provisions			19				13.0				19.8
Other non-current liabilities			21				9.8				31.3
Non-current tax liabilities			7				81.0				91.9
Deferred tax liabilities			7				415.8				599.1
							4,723.6				5,664.7
Total liabilities							6,511.4				7,525.6
Net assets							1,939.7				2,821.0
Capital and reserves
Share capital			23				47.5				47.4
Share premium account			24				47.6				46.8
Other reserves			25				1,983.7				3,847.2
Retained earnings							(139.1	)			(1,120.4	)
Total equity							1,939.7				2,821.0

The accompanying notes form part of the financial statements.

 

Consolidated financial statements				6

MICRO FOCUS INTERNATIONAL PLC

 

Consolidated statement of changes in equity

For the year ended 31 October 2022

Year ended 31 October 2022

 

																		Other reserves
		Note				Share capital $m				Share premium account $m				Retained earnings $m				Foreign currency translation reserve $m				Capital redemption reserve $m				Hedging reserve $m				Merger reserve $m				Total equity $m
Balance as at 1 November 2021							47.4				46.8				(1,120.4	)			(268.0	)			2,485.0				(28.9	)			1,659.1				2,821.0
Loss for the financial year							—				—				(615.7	)			—				—				—				—				(615.7	)
Other comprehensive expense for the year							—				—				61.5				(286.3	)			—				81.9				—				(142.9	)
Total comprehensive expense for the year							—				—				(554.2	)			(286.3	)			—				81.9				—				(758.6	)
Transactions with owners
Dividends			8				—				—				(91.3	)			—				—				—				—				(91.3	)
Share options:
Issue of share capital – share options			23,24				0.1				0.8				—				—				—				—				—				0.9
Share-based payment charge			26				—				—				33.6				—				—				—				—				33.6
Deferred tax on share options			7				—				—				1.3				—				—				—				—				1.3
Purchase of treasury shares1							—				—				(67.2	)			—				—				—				—				(67.2	)
Transfer from merger reserve			25				—				—				1,659.1				—				—				—				(1,659.1	)			—
Total movements for the year							0.1				0.8				981.3				(286.3	)			—				81.9				(1,659.1	)			(881.3	)
Balance as at 31 October 2022							47.5				47.6				(139.1	)			(554.3	)			2,485.0				53.0				—				1,939.7

The accompanying notes form part of the financial statements.

 

Consolidated financial statements				7

MICRO FOCUS INTERNATIONAL PLC

 

Year ended 31 October 2021

 

																		Other reserves
		Note				Share capital $m				Share premium account $m				Retained earnings $m				Foreign currency translation reserve $m				Capital redemption reserve $m				Hedging reserve $m				Merger reserve $m				Total equity $m
Balance as at 1 November 2020							47.3				46.5				(741.3	)			(326.7	)			2,485.0				(63.1	)			1,767.4				3,215.1
Loss for the financial year							—				—				(424.4	)			—				—				—				—				(424.4	)
Other comprehensive income for the year							—				—				33.6				58.7				—				34.2				—				126.5
Total comprehensive expense for the year							—				—				(390.8	)			58.7				—				34.2				—				(297.9	)
Transactions with owners
Dividends			8				—				—				(81.1	)			—				—				—				—				(81.1	)
Share options:
Issue of share capital – share options			23,24				0.1				0.3				(0.1	)			—				—				—				—				0.3
Share-based payment charge			26				—				—				12.0				—				—				—				—				12.0
Deferred tax on share options			7				—				—				(0.2	)			—				—				—				—				(0.2	)
Purchase of treasury shares1							—				—				(27.2	)			—				—				—				—				(27.2	)
Transfer from merger reserve			25				—				—				108.3				—				—				—				(108.3	)			—
Total movements for the year							0.1				0.3				(379.1	)			58.7				—				34.2				(108.3	)			(394.1	)
Balance as at 31 October 2021							47.4				46.8				(1,120.4	)			(268.0	)			2,485.0				(28.9	)			1,659.1				2,821.0

 

1

During the year ended 31 October 2022 the Micro Focus Employee Benefit Trust (“EBT”) purchased 12 million of the Group’s 10p ordinary shares from the market (year ended 31 October 2021: 4 million 10p ordinary shares). 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.

 

Consolidated financial statements				8

MICRO FOCUS INTERNATIONAL PLC

 

Consolidated statement of cash flows

For the year ended 31 October 2022

 

		Note				Year ended 31 October 2022 $m				Year ended 31 October 2021 $m
Cash flows from operating activities
Cash generated from operations			30				817.9				690.5
Interest paid							(211.0	)			(218.1	)
Bank loan costs							(24.4	)			(1.5	)
Tax paid							(90.8	)			(270.3	)
Net cash generated from operating activities							491.7				200.6
Cash flows from investing activities
Payments for intangible assets			11				(103.0	)			(47.5	)
Purchase of property, plant and equipment			12				(18.9	)			(17.7	)
Interest received							4.3				1.7
Payment for acquisition of business and net cash acquired with acquisitions			29				(27.6	)			(12.4	)
Sub lease income receipts			17				11.8				—
Investing cash flows generated from disposals			28				366.8				—
Tax paid on disposal			28				(10.3	)			—
Net cash generated from/(used in) investing activities							223.1				(75.9	)
Cash flows used in financing activities
Proceeds from issue of ordinary share capital			23,24				0.9				0.4
Purchase of treasury shares and related expenses			23				(67.2	)			(27.2	)
Payment for lease liabilities			17				(67.4	)			(79.5	)
Repayment of bank borrowings			22				(2,085.9	)			(114.1	)
Proceeds from bank borrowings			22				1,599.3				—
Dividends paid to owners			8				(91.3	)			(81.1	)
Net cash used in financing activities							(711.6	)			(301.5	)
Effects of exchange rate changes							(25.4	)			(2.0	)
Net decrease in cash and cash equivalents							(22.2	)			(178.8	)
Cash and cash equivalents at beginning of the year							558.4				737.2
Cash and cash equivalents at end of the year			15				536.2				558.4

The accompanying notes form part of these financial statements.

 

Consolidated financial statements				9

MICRO FOCUS INTERNATIONAL PLC

 

Summary of significant accounting policies

For the year ended 31 October 2022

General information

Micro Focus International plc (“Company”) is a public limited company incorporated and domiciled in England and Wales. The address of its registered office 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 31 October 2022, the Group had a presence in 47 countries (2021: 48) worldwide and employed approximately 10,501 people (2021: 11,355).

As of October 31, 2022 the Company was listed on the London Stock Exchange and its American Depositary Shares are listed on the New York Stock Exchange.

The Group consolidated financial statements were authorised for issuance by the board of directors on 30 January 2023.

I Significant accounting policies

 

A	Basis of preparation

These financial statements have been prepared solely for the purpose of meeting the requirements of the US Securities and Exchange Commission (“SEC”) Rule 3-05 of Regulation S-X in relation to the acquisition of the Group by OpenText on 31 January 2023.

The information in this document, which was approved by the Board of Directors on 30 January 2023, does not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 October 2022, which contain an unmodified audit report under Section 495 of the Companies Act 2006 (which does not make any statements under Section 498 of the Companies Act 2006), will be delivered to the Registrar of Companies in accordance with Section 441 of the Companies Act 2006.

The Consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IASB”).

The consolidated financial statements are prepared on a going concern basis under the historical cost convention.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed below in II, “Critical accounting estimates, assumptions and 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 and Accounts for the year ended 31 October 2021 apart from standards, amendments to or interpretations of published standards adopted during the year, as set out in Accounting Policy W “Adoption of new and revised IFRS.”

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.

In making this assessment, the directors considered the Group’s liquidity and solvency position. In January 2022 the Group refinanced $1.6bn of the 2024 term loans, extending their maturity until 2027 and extended its Revolving Credit Facility (RCF) by 18 months to December 2026, reducing the facility to $250m and increasing the Group’s ability to utilise the facility. In February 2022 $335m of the proceeds from the disposal of the Digital

 

Consolidated financial statements				10

MICRO FOCUS INTERNATIONAL PLC

 

Safe business were used to repay borrowings and a further repayment of $100m out of surplus cash was made in July 2022. Following these actions the Group’s borrowings at 31 October 2022 are $3,880.0m with Group cash of $536.2m. At 31 October 2022, the RCF remains undrawn. See note 22 for further details of the Group’s 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 January 2024, the Group has no term loans maturing until June 2024 when $1,280m is due. Notwithstanding the Group’s proposed acquisition by OpenText (see below). The Group would otherwise expect to refinance these loans prior to maturity. As the directors expect that these loans would be refinanced they are not considered a significant risk to going concern therefore the directors consider the use of a 12-month period to be an appropriate period to assess going concern.

The shareholders of the Company have approved the takeover offer from OpenText. The directors have assessed the impact of this on the going concern basis of accounting and have outlined their considerations below. In addition the directors have assessed the Group’s ability to continue as a going concern in its own right.

Consideration of the acquisition by Open Text Corporation (OpenText)

The Group’s financing arrangements include a change of control clause as detailed in note 22 to the financial statements. Subsequent to announcing the acquisition OpenText have successfully raised all the required funding from capital markets increasing the previously agreed term loans to an aggregate commitment of $3,585m and completing the sale of $1,000m of 6.9% senior secured notes due 2027. In addition the directors reviewed the level of cash and undrawn revolving credit facilities reported by OpenText and these provide sufficient resources to repay the remainder of the Groups’ borrowings and operate the Group after the completion of the acquisition.

The Directors also examined the intention statements outlined in the Scheme Document, including the commitments by and intention of OpenText around the operation of the enlarged group. Accordingly the Directors believe that sufficient liquidity should be in place to allow the Group to continue as a going concern.

The Group’s ability to continue as a going concern in its own right

The Group 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 headroom on the Group’s undrawn RCF and expected net leverage. Actual and forecast liquidity are reviewed at least weekly by the Group’s working capital management group which reports to the Chief Financial Officer. As at 31 October 2022, the Group holds a significant level of cash of $536.2m.

The Group’s forecasts, based on reasonable assumptions, indicate that the Group should be able to operate within the level of its currently available and expected future facilities. Under the Group’s forecast the RCF is not forecast to be drawn in the period to January 2024, and therefore no tests of this covenant are expected to apply.

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 January 2024 and therefore the covenant test on the RCF would not be expected to apply.

Also, in assessing liquidity, the board considered the reported net current liability position of $240m at 31 October 2022. This is the result of $934m 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.

Conclusion

Having performed the assessments discussed above, the directors considered it appropriate to adopt the going concern basis of accounting when preparing the consolidated and Company financial statements. This assessment covers the period to January 2024, which is consistent with the FRC guidance.

 

Consolidated financial statements				11

MICRO FOCUS INTERNATIONAL PLC

 

Consolidated statement of financial position

The Group has revised the presentation of the Consolidated statement of financial position to combine line items presented separately in previous periods. Financial liabilities comprises the borrowings and lease obligations previously presented separately, property, plant & equipment comprises the property, plant & equipment and right-of-use assets previously presented separately and other reserves comprises merger reserve, foreign currency translation reserve, capital redemption reserve and hedging reserve previously reported separately. The revised presentation is considered to be simpler to the users of the accounts. The comparatives have been represented to be consistent with the revised presentation format.

 

B	Consolidation

The financial statements of the Group comprise the financial statements of the Company and entities controlled by the Company and its subsidiaries 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. 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” (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 recognised as of that date, the Group recognises 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.

Inter-company transactions, balances and unrealised 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.

 

C	Assets held for sale and discontinued operations

A non-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 non-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 classified as held for sale are presented separately as current items in the consolidated statement of financial position and are measured at the 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 amortised 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 recognised 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				12

MICRO FOCUS INTERNATIONAL PLC

 

D	Revenue recognition

The Group follows the principle-based five-step model in IFRS 15 and recognises revenue on transfer of control of promised goods or services to customer 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 customise the source code within the products, nor do they create custom software. Professional services personalise 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 ongoing basis, the Group utilises 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 SSP 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 recognises revenues from sales of software licences (including Intellectual Property and Patent rights) to end-users, resellers and Independent Software Vendors (“ISV”), software maintenance, 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.

Software licence revenue is the sale of the right to use the software and is recognised 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 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 as well as new 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 more than one performance obligation can be identified in the contract, revenue is allocated to each performance obligation, otherwise the Group policy is to recognise 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 recognised during the period, (as licence or licence and maintenance).

The Group sells Subscription SW (or Term Licences) where the bundled price is allocated to Licence revenue (recognised upfront) and Maintenance revenue (recognised rateably over the term) based on the annualised attach rate. Upon renewal of an existing Subscription, the Group recognises Licence revenue on the execution of the agreement and the previous maintenance revenue stream is considered as SSP to allocate Maintenance revenue for the renewal. The residual value is allocated to Licence.

 

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For 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 recognises revenue over the period in which the subscriptions are provided as the service is delivered, generally on a straight-line basis.

Where customers can access the functionality of hosted software with an increase or decrease in the capacity or move from one functionality to the other over the contract period (consumption based model or SaaS Flex), the Group recognises revenue over the period based on actual consumption.

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 recognised at a point in time when control of the software is transferred to the customer.

Maintenance revenue is recognised on a straight-line basis over the term of the contract, which in most cases is one year.

For time and material-based professional services contracts, the Group recognises revenue as services are rendered. The Group recognises 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 labour costs incurred to date compared to the total estimated labour costs of a contract. The estimate is determined at deal inception and reflected in internal milestones driving the accounting 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 liabilities.

Where consideration is received in advance of satisfying the performance obligation and the performance obligation will be satisfied within one year of receipt of the consideration no significant financing component is recognised. 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 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 programme 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.

 

E	Contract-related costs

The Group capitalises the costs of obtaining a customer contract when they are incremental and, if expected to be recovered, they are amortised 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 amortises 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 amortisation period is one year or less the costs are expensed when incurred.

Amortisation of the capitalised costs of obtaining customer contracts is classified as sales and marketing expense. Capitalised costs from customer contracts are classified as non-financial assets in our statement of financial position.

 

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F	Cost of sales

Cost of sales includes costs related to the amortisation of product development costs, amortisation 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”, 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 Adjusted EBITDA as set out in note 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, judgement is required to determine what the Group defines as “exceptional”. The Group considers whether an item is exceptional in nature by considering its materiality or the frequency of the transaction occurring or whether it reflects 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 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 favourable and unfavourable transactions impacting revenue, income and expense. Examples of transactions which may be considered of an exceptional nature include major restructuring programmes, cost of acquisitions, the cost of integrating acquired businesses, gains on the disposal of discontinued operations or impairment charges recognised against goodwill.

 

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 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 recognised as an employee benefit expense when they are due. Prepaid contributions are recognised 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 recognised in the consolidated 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 consolidated 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 obligation.

 

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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. For other long-term benefit plans actuarial gains and losses are recognised in profit or loss in the period in which they arise.

The current service cost of the defined benefit plans, recognised in the Consolidated statement of comprehensive income in employee benefit expense 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 recognised 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-based compensation

The Group operated various equity-settled, share-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 recognised 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 for non-market vesting conditions. It recognises 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 recognised when the options are exercised and the proceeds received allocated between ordinary share 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 behavioural considerations. Where appropriate, some LTIP options have a fair value measured using the share price or the Monte-Carlo simulation pricing model.

When the terms of an equity-settled award are modified, the minimum expense recognised is the grant date fair 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 recognised 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.

 

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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-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Consolidated statement of comprehensive income within administrative expenses other than amounts related to borrowings denominated in foreign currencies which are not hedged by net investment hedges which are recognised within net finance costs.

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 recognised 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.

Foreign exchange gains and losses resulting from the translation to period end exchange rates on borrowings denominated in foreign currencies which are not hedged by net investment hedges are recognised in the Consolidated statement of comprehensive income within net finance costs. Previously the Group had no borrowings denominated in foreign currencies which were not hedged by net investment hedges.

Goodwill arising before 1 May 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 are: Pounds Sterling, the Euro, Canadian Dollar, Japanese Yen, Indian Rupee and the Australian Dollar. The exchange rates used are as follows:

 

		Year ended 31 October 2022								Year ended 31 October 2021
		Average				Closing				Average				Closing
£1 = $			1.26				1.16				1.37				1.37
€1 = $			1.07				1.00				1.19				1.16
C$ = $			0.78				0.73				0.80				0.81
AUD = $			0.70				0.64				0.75				0.75
100 INR = $			1.29				1.21				1.36				1.33
100 JPY = $			0.79				0.68				0.92				0.88

 

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 or 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.

 

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MICRO FOCUS INTERNATIONAL PLC

 

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 CGU retained.

b) Computer software

Computer software licences are capitalised on the basis of the costs incurred to acquire and bring into use the specific software. These costs are amortised using the straight-line method over their estimated useful lives of three to seven years for perpetual licence or based on the length of the agreement for term licences.

c) Research and development

Research expenditure is recognised 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 programmes and significant enhancement of existing computer software programmes are recognised 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 capitalised which are the software development employee costs and third party contractor costs. Product development costs previously recognised as an expense are not recognised as an asset in a subsequent period.

Product development costs are amortised 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 consolidated 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 recognised at their fair value at the date of acquisition and are subsequently amortised. Amortisation is charged to the Consolidated statement of comprehensive income on a straight-line basis over the estimated useful life of each intangible asset. Intangible assets are amortised from the date they are available for use. The estimated useful lives are as follows:

 

Purchased software		Licence agreement based, generally three to seven years
Technology		Three to 12 years
Trade names		Three to 20 years
Customer relationships		Two to 15 years

Amortisation of purchased software intangibles is included in administrative expenses, amortisation of purchased technology intangibles is included in cost of sales and amortisation of acquired purchased trade names and customer relationships are included in selling and distribution costs in the Consolidated statement of comprehensive income.

 

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 recognised 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 consolidated 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

 

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MICRO FOCUS INTERNATIONAL PLC

 

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.

 

M	Impairment of non-financial assets

Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment or whenever there is an indication that the asset may be impaired. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised 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 amortisation and depreciation are also reviewed for any possible impairment at each reporting date.

 

N	Trade receivables

Trade receivables are initially recognised at fair value and subsequently measured at amortised 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-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 recognised in the Consolidated statement of comprehensive income.

 

O	Cash and cash equivalents

Cash and cash equivalents include 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.

 

P	Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Subsequent to initial recognition, interest bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the Consolidated statement of comprehensive income over the expected life of the of borrowing on an effective interest basis.

 

Q

Leases

As a lessee

When the Group leases an asset a ‘right-of-use asset’ is recognised for the leased item and a lease liability is recognised 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 17, “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.

 

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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 amortised 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.

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 recognised on a straight-line basis over the lease term. Income from finance leases is recognised in full at lease commencement.

 

R

Taxation

Current and deferred tax are recognised 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 recognised 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 realised, or the deferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

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 recognised 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.

 

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 recognised 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 recognised when they are paid.

 

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T	Derivative financial instruments and hedge accounting

Financial assets and liabilities are recognised 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 recognised at fair value and subsequently measured at amortised 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 recognised 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.

Non-derivative financial instruments, such as Euro borrowings, have also been designated as hedges for net investments in foreign operations. Hedges of a net investment in a foreign operation are accounted for similarly to cash flow hedges.

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 recognised in other comprehensive income, while any material ineffectiveness should be recognised in the statement of comprehensive income. If effectiveness 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 or the forecast transaction is no longer expected to occur.

 

U	Provisions

Provisions for onerous contracts, property restoration costs, restructuring costs and legal claims are recognised 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 recognised 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 recognised 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 where the impact is material. The increase in the provision due to the passage of time is recognised as an interest expense.

 

V	Contingent liabilities

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 recognised 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.

 

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MICRO FOCUS INTERNATIONAL PLC

 

W	Adoption of new and revised International Financial Reporting Standards

Other than as described below, the accounting policies, presentation and methods of calculation adopted are consistent with those of the Annual Report and Accounts for the year ended 31 October 2021, apart from standards, amendments to or interpretations of published standards adopted during the period.

The following standards, interpretations and amendments to existing standards are now effective and have been adopted by the Group. The impacts of applying these policies are not considered material:

 

•

Amendments to IFRS9, IAS 39, IFRS 7, IFRS 16 and IFRS 4: Interest rate benchmark reforms. Phase 2 effective January 2021 covers further disclosures on transition to a new benchmark.

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 have been endorsed by the UK Endorsement Board (“UK EB”) except where stated below:

Effective for periods commencing after 1 January 2022 (applicable to the Group from 1 November 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 1 January 2023 (applicable to the Group from 1 November 2023):

 

•

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.

 

•

Amendments to IFRS 17 “Insurance contracts”.

Effective for periods commencing after 1 January 2024 (applicable to the Group from 1 November 2024) and not currently endorsed by the UK EB:

 

•

Amendments to IAS 1 “Presentation of financial statements”. Amendment is presentational relates to the classification of liabilities current and non-current (the amendment was deferred until after January 2024).

The impact of the amendments and interpretations listed above are not expected to have a material impact on the consolidated financial statements.

II Critical accounting estimates, assumptions and judgements

In preparing these consolidated financial statements, the Group has made its best estimates and judgements 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 has made the following amendments to those identified in the prior year:

The estimate identified in the prior year in relation to the potential impairment of goodwill and other intangible assets assessment is no longer considered critical. Potential impairments are assessed using the higher of value in use (“VIU”) or fair value less cost of disposal (“FVLCD”) as the recoverable amount. In the prior year recoverable amount was assessed based on VIU which required significant estimates to be made in determining the assumptions used in the VIU calculation. In light of the proposed acquisition of the Group by OpenText, recoverable amount has been assessed based on the FVLCD of the Group, which is based on the observable OpenText offer price and is higher than VIU. Therefore, estimates for VIU have not been used in determining the recoverable amount for purpose of the impairment testing and these are no longer a significant estimate.

 

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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 judgements which require the Group to make subjective and complex judgements and matters that are inherently uncertain.

Critical accounting estimates

 

A	Retirement benefit obligations

Having assessed the impact of the assumptions used in estimating the retirement benefit obligation the Group has concluded that only the discount rate and inflation are critical. Mortality rates and salary growth rates are no longer considered critical estimates. Further detail on these estimates and the sensitivity of the carrying value of the defined benefit obligation to these is provided in note 20, “Pension and other long-term benefit commitments”.

 

B	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.

Critical accounting judgements

 

C	Revenue recognition

Revenue recognition requires significant use of management judgement to produce financial information. The most significant accounting judgements in applying IFRS 15 are the identification of performance obligations and the determination of the transaction price when the contract contains variable considerations.

Judgement is required to (i) identify each distinct performance obligation requiring separate recognition in a multi 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 judgement impacts the timing of revenue recognition, as certain performance obligations are recognised at a point in time and others are recognised 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 recognised in a period.

 

D	Exceptional item classification

The Group classifies items as exceptional in line with Accounting Policy H “Exceptional items”. The classification of these items as an exceptional is a matter of judgement. This judgement is made by management after evaluating each item deemed to be exceptional against the criteria set out within the defined accounting policy.

 

E	Provision for income taxes

The Group is subject to income taxes in numerous jurisdictions. Significant judgement 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 recognises liabilities for anticipated settlement of tax issues based on judgements of whether additional taxes will be due. Significant issues may take several periods to resolve. In making judgements 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.

 

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MICRO FOCUS INTERNATIONAL PLC

 

Key judgements in the year were related to the EU State Aid and UK tax authority challenge in respect 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 $40.6m non-current tax receivable, and (iii) the interaction of the two matters in the context of the maximum liability, which we consider to be $51m, associated with both the UK State Aid and UK tax authority challenge. Based on their assessment (and supported by advice received by the Group’s tax advisors), the directors have concluded that no additional tax provisions are required with regards to these matters. See note 7, “Taxation”, for additional details.

The ultimate tax liability may differ materially 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 year in which such determination is made.

 

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MICRO FOCUS INTERNATIONAL PLC

 

Notes to the consolidated financial statements

For the year ended 31 October 2022

 

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 year ended 31 October 2022, 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. The Group is organised into a single reporting segment.

The Group’s segment under IFRS 8 is the Micro Focus Product Portfolio. The products within the Micro Focus Product Portfolio are grouped together into five sub-portfolios based on industrial logic and management of the Micro Focus sub-portfolios: Application Modernisation & Connectivity (“AMC”), Application Delivery Management (“ADM”), IT Operations Management (“ITOM”), CyberRes and Information Management & 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.

As announced on 30 November 2021 the Group has changed the definition of Adjusted EBITDA to exclude capitalised development costs. This change aligns the definition to the definition included in our loan agreements. The table below has been updated to reflect this updated definition including the comparatives. Under the previous definition Adjusted EBITDA would be $791.5m (year ended 31 October 2021: $1040.2m).

 

		Note				Year ended 31 October 2022 $m				Year ended 31 October 2021 $m
Reconciliation to Adjusted EBITDA:
Loss before tax							(661.4	)			(517.8	)
Finance costs			6				262.7				253.9
Finance income			6				(111.4	)			(1.7	)
Depreciation of property, plant and equipment			12				26.2				33.7
Right-of-use asset depreciation			17				52.2				73.3
Amortisation of intangible assets			11				811.8				956.4
Exceptional items (reported in Operating loss)			4				498.6				247.1
Share-based compensation charge			26				34.1				14.3
Foreign exchange (gain)/loss			3				(35.5	)			0.1
Adjusted EBITDA							877.3				1,059.3

For the reportable segment, the total assets were $8,451.1m (2021: $10,346.6m) and the total liabilities were $6,511.4m (2021: $7,525.6m) as at 31 October 2022.

 

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MICRO FOCUS INTERNATIONAL PLC

 

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:

 

		Year ended 31 October 2022 $m				Year ended 31 October 2021 $m
UK			139.2				160.0
US			1,181.1				1,263.0
Germany			174.9				223.0
Canada			90.6				110.3
France			83.3				100.7
Japan			71.0				95.6
Other			794.4				947.3
Total			2,534.5				2,899.9

The total of non-current assets as at 31 October 2022 located in the US is $2,771.0m (31 October 2021: $2,798.3m), the total in the rest of the world is $4,132.3m (31 October 2021: $5,641.2m).

Analysis of revenue from contracts with customers

 

		Year ended 31 October 2022 $m				Year ended 31 October 2021 $m
Revenue from contracts with customers			2,534.5				2,899.9
Being:
Recognised over time:
Maintenance revenue			1,603.9				1,791.7
SaaS & other recurring revenue			164.8				239.8
Consulting revenue			46.0				—
			1,814.7				2,031.5
Recognised at point in time:
Licence revenue			602.0				688.6
Consulting revenue			117.8				179.8
			719.8				868.4
Total Revenue			2,534.5				2,899.9

 

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