Interim Results For Six Months Ended 31 October 2015 · 2017-08-10 · Interim Results For Six Months Ended 31 October 2015 Kevin Loosemore Mike Phillips ... growth in the information

Interim Results

For Six Months Ended 31 October 2015

Kevin Loosemore

Mike Phillips

10 December 2015

• The following presentation is being made only to, and is only directed at, persons to whom such presentation may lawfully be communicated (“relevantpersons”). Any person who is not a relevant person should not act or rely on this presentation or any of its contents. Information in the followingpresentation relating to the price at which relevant investments have been bought or sold in the past or the yield on such investments cannot be reliedupon as a guide to the future performance of such investments.

• This presentation does not constitute an offering of securities or otherwise constitute an invitation or inducement to any person to underwrite, subscribefor or otherwise acquire securities in Micro Focus International plc (the “Company”) or any company which is a subsidiary of the Company.

• The release, publication or distribution or this presentation in certain jurisdictions may be restricted by law, and therefore persons in such jurisdictionsinto which this presentation is released, published or distributed should inform themselves about, and observe, such restrictions.

• Certain statements contained in this presentation constitute forward-looking statements. All statements other than statements of historical factsincluded in this presentation, including, without limitation, those regarding the Company’s financial condition, business strategy, plans and objectives,are forward-looking statements. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms“believes”, “estimates”, “anticipates”, “expects”, “intends”, “may”, “will”, or “should” or, in each case, their negative or other variations or comparableterminology. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results,performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievementsexpressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding theCompany’s present and future business strategies and the environment in which the Company will operate in the future. Such risks, uncertainties andother factors include, among others: the level of expenditure committed to development and deployment applications by organisations; the level ofdeployment-related turnover expected by the Company; the degree to which organisations adopt web-enabled services; the rate at which largeorganisations migrate applications from the mainframe environment; the continued use and necessity of the mainframe for business criticalapplications; the degree of competition faced by the Company; growth in the information technology services market; general economic and businessconditions, particularly in the United States; changes in technology and competition; and the Company’s ability to attract and retain qualified personnel.These forward-looking statements speak only as at the date of this presentation. Except as required by the Financial Conduct Authority, or by law, theCompany does not undertake any obligation to update or revise publicly any forward-looking statement, whether as a result of new information, futureevents, or otherwise.

Safe Harbour Statement

2

• Overview

• Integration Summary and Outlook

• Financial Review

• Q&A

Agenda

3

2m 27s

• Transformational acquisition integrating well

• Results at the high end of management expectations

• Total Shareholder Return strategy continues

• Dividend up 10% in line with progressive dividend policy

Overview

4

1m 38s

• What are you doing about Chairman/CEO?

• SUSE is a growth business – can you manage that in Micro Focus?

• When will the next Return of Value be?

• When would you be able to execute another acquisition?

Preview Questions – A Range of Topics…

5

2m 10s

• Kevin Loosemore – Executive Chairman until at least April 2018

• Stephen Murdoch – Micro Focus Chief Executive – re-joins Board

• Nils Brauckmann – SUSE Chief Executive – joins Board

• Steve Schuckenbrock – NED – joins Board

• Prescott Ashe and David Golob step down from Board

• Board Composition will be 4 Executive Directors and 5 Independent NED’s

Board Structure and Management

6

2m 40s

North America International(EMEA, LATAM)

APAC

Corporate Operations

Finance IT HR

Product Development

Legal/ContractsTax & Treasury Facilities

Field Marketing

Product Management

Go To Market

Product

Development

NA and EMEA(LATAM/APAC from

MF shared team)

Product Mgmt

Field Marketing

Consulting, Premium Services, Shared Channel & SI, Customer Care, Renewals,

Shared Marketing Services, Sales Operations

Overall Organisation ModelOne company with two product portfolios supported by

corporate operations

Stephen Murdoch,

CEO

Nils Brauckmann,

CEO

7

4m 8s

When will the next Return of Value be?

When would you be able to execute another acquisition?

8

• There will be capacity for either a return of value in November 2016 or a

value enhancing acquisition

• We have been increasing management capability to enable us to have

optionality

– Top 100 leadership roles; 42 Micro Focus; 46 TAG; 12 new hires

4m 50s

SUSE is a growth business – can you manage

that in Micro Focus?

Can the market value SUSE as part of Micro Focus?

N.B. All numbers purely for illustration purposes; 217.59m shares, $1.50:£1 exchange rate and net debt of $1,454.3m

9

• We are investing in SUSE to realise the market opportunity

– Current opportunity – Linux Infrastructure

– Next wave – Open Stack / Software Defined Distributed Storage

• If the Group had an EV/EBITDA multiple of 10.5X before the acquisition of

TAG, then $440m of run rate EBITDA from the Micro Focus portfolio would

have a valuation of $4.62bn

• At 1300p share price Micro Focus has an EV of approximately $5.70bn

• Implies SUSE, growing at approximately 15% and run rate EBITDA of

approximately $85m, is valued today at approximately $1.08bn or 12.7X…

6m 13s

Integration Summary and Outlook

Kevin Loosemore

10

8m 9s

Four Phase Plan

Phase I: Assessment

• Deliver plans for

FY15

• Detailed review of

combined

businesses

• Invigorate Product

Management

Ac

tio

ns

Phase II: Integration

Ac

tio

ns

• Standardise systems

• Rationalise Properties

• Rationalise Legal

entities

• New Go to Market

(GTM) model

• Maintain/improve cash

conversion

• Rationalise

underperforming

elements

• New market initiatives

Phase III: Stabilisation

• Stabilise top line

• Improve GTM

productivity

• Growth from new areas

• Improved profitability


Ac

tio

ns

Phase IV: Growth

• Top line growth


Ac

tio

ns

FY15 FY16 FY17 FY18

11

8m 20s

Q4Q3Q2Q1Q4Q3Q2Q1

FY17FY16

Finance /

Other

SSOCS

Marketing

& Comms

IT Infra.

Inte

gra

tio

n

Telco Rationalisation

Data centre consolidation

Network Rationalisation

Quote to Cash / Common Finance Systems

Intranet Consolidation

Rebranding

Facilities Consolidation

HR

Legal Entity Simplification

Common HoldCo Structure

Production Development Methodologies

Cross processes across finance and procurement

IT Service desk

New MFI Website

CRM Enhancements

Sales Productivity & Reporting

Customer Care Integration

Maintenance Renewal Opportunities

Phase 2 HP MediaBin – Strategic Solution

Internet Web Transition

Phase 1 DocRep – Content Validation

Data Governance

IT Asset Management

Automated Expenses

Banking Consolidation

Common HoldCo

Management Information Novell Renaming

Facilities Asset Management

IT Projects Business Projects

Key:

Finance /

Quote to

Cash

BI Platform RationalisationBI Strategy

Technical Architecture Design & Infrastructure Refresh

Sales and Revenue Support Programmes

Security Management Systems

12

Integration Programmes

9m 30s

13

Integration Progress

• Key achievements to date

– Implemented new GTM model and centralised shared services for

Finance

– Rationalised property portfolio

– Commenced harmonisation of core employee processes and benefits

– Simplified branding messaging

– Mapped out and simplified our core Quote to Cash (QTC) processes

• Next key items to progress

– Select, design and implement technical solution for QTC

– Continue the simplification of IT systems and IT architecture

– Migration of web content to desired platforms

– Legal entity simplification

10m 0s

Outlook

Kevin Loosemore

14

11m 33s

• Consistent Double Digit Shareholder Returns

• Planned revenue reduction to ‘right size’ business

• Expecting a slow 1H as changes start to bed in

• Return to Revenue Growth in FY18

• Low single Digits Revenue Growth in the Medium Term

Outlook at FY15 Preliminary Results

15

11m 33s

• Consistent Double Digit Shareholder Returns

– NO CHANGE

• Planned revenue reduction to ‘right size’ business

– NO CHANGE

• Expecting a slow 1H as changes start to bed in

– NOW EXPECTING THIS IMPACT IN 2H

• Return to Revenue Growth in FY18

– NO CHANGE

• Low single Digits Revenue Growth in the Medium Term

– NO CHANGE

• Reiterate FY outlook of -2% to -4% CCY revenue decline

Outlook - UPDATED

16

11m 40s

Mike Phillips

Financial Review

17

13m 0s

Six months to

31 Oct 15

$m

Six months to

31 Oct 14

$m Change

Year ended

30 April 2015

$m

Total Revenue at Constant Currency

- Licence 134.5 70.5 90.8% 253.1

- Maintenance 327.4 116.4 181.3% 426.7

- Subscriptions 118.7 - N/A 96.5

- Consultancy 23.9 5.6 326.8% 32.8

604.5 192.5 214.0% 809.1

Total Reported Revenue 604.5 208.3 190.2% 834.5

NON GAAP MEASURES

Adjusted EBITDA

Constant Currency 270.6 95.1 184.5% 347.5

Reported 270.6 102.5 164.0% 357.6

Underlying Adjusted EBITDA


Reported 263.8 98.3 168.4% 348.3

STATUTORY MEASURES

Pre-tax profit


Reported 98.8 57.1 73.0% 91.4

Net debt 1,454.3 258.9 461.7% 1,403.5

Earnings per share cents cents cents

Diluted 38.58 35.07 10.0% 56.71

Adjusted Diluted 74.01 58.92 25.6% 129.43

Dividend per share 16.94 15.40 10.0% 48.40

Results at a Glance

18

13m 38s

Profitability by Portfolio – Reported

6 Months to 31 October 2014 Micro Focus Total

$m $m

Segment revenue 208.3 208.3

Directly managed costs (48.1) (48.1)

Allocation of centrally managed costs (60.6) (60.6)

Total segment costs (108.7) (108.7)

Adjusted operating profit 99.6 99.6

Exceptional items

Share based compensation charge

(25.1)

(3.9)

Amortization of purchased intangibles (6.9)

OPERATING PROFIT 63.7

• Regional Profit & Loss Accounts

– Directly managed costs under control of Portfolio Senior Management

– Centrally managed costs allocated to the Portfolios

6 Months to 31 October 2015 Micro Focus SUSE Total

$m $m $m

Segment revenue 483.3 121.2 604.5

Directly managed costs (96.8) (62.0) (158.8)

Allocation of centrally managed costs (165.6) (16.2) (181.8)

Total segment costs (262.4) (78.2) (340.6)

Adjusted operating profit 220.9 43.0 263.9

Exceptional items (10.7)

Share based compensation charge (11.8)

Amortization of purchased intangibles (91.0)

OPERATING PROFIT 150.4

19

14m 28s

Profitability by Portfolio – Adjusted Operating Profit to

Underlying Adjusted EBITDA

6 Months to 31 October 2015 Micro Focus SUSE Total

$m $m $m

Segment revenue 483.3 121.2 604.5

Directly managed costs (96.8) (62.0) (158.8)

Allocation of centrally managed costs (165.6) (16.2) (181.8)

Total segment costs (262.4) (78.2) (340.6)

Adjusted operating profit 220.9 43.0 263.9

Depreciation of property, plant and equipment 4.7 1.1 5.8

Amortization of software intangibles 0.7 0.2 0.9

Adjusted EBITDA 226.3 44.3 270.6

Foreign Exchange Credit (0.4) - (0.4)

Net Capitalisation of development costs (6.4) - (6.4)

Underlying Adjusted EBITDA 219.5 44.3 263.8

Underlying Adjusted EBITDA Margin 45.4% 36.6% 43.6%

20

15m 0s

• Revenue, Underlying Adjusted EBITDA and EPS at the top end of management

expectations driven by:

– Strong performance by the SUSE Product Portfolio where revenues grew by 14.1% on a pro-forma CCY

basis (and by 17.8% excluding the impact of the deferred revenue haircut), offset by anticipated

reductions in the Micro Focus Portfolio

– Integration benefits resulting in a $42.0m decrease in Adjusted Operating Costs ($34.8m excluding the

impact of capitalized R&D)

– Introduction of quarterly rather than annual sales targets in leading to reduced second half weighting of

revenues, especially in Host Connectivity

• On a pro-forma CCY basis to provide a better comparison of performance

– Total revenues of $604.5m (2014: pro-forma CCY $616.6m), a reduction of 2.0%, at the top of

management’s guidance range of minus 2% to minus 4%.

• growth in SUSE subscription and licence revenues

• largely offsetting declines in maintenance and consultancy revenues

– Adjusted EBITDA of $270.6m (2014: pro-forma CCY $242.6m), an increase of 11.5%

– Underlying Adjusted EBITDA of $263.8m (2014: pro-forma CCY $235.3m), an increase of 12.1%

• Growth in Adjusted diluted earnings per share of 25.6% to 74.01 cents

(2014: 58.92 cents)

Key Highlights

21

15m 28s

• Net Debt at 31 October 2015 of $1,454.3m up from $1,403.5m at 30 April 2015

– Net debt to pro-forma Facility EBITDA for 12 month period to 31 October 2015 multiple of 2.62 times;

medium-term target remains 2.5 times

• Cash generated from operations of $162.1m (2014: $68.4m)

– Cash flow conversion was 62.4% (2014: 88.4%)

• Primarily impacted by the following items in TAG

– The change in year-end (c$18m)

– The move away from Multi Year maintenance agreements($15m)

– Settlement of provision made in FY15 that have been settled in cash in the period ($15m)

– Movement in current deferred income balances ($7m)

• Other large outflows

– 2015 Final Dividend paid $70.0m

– Group cash restructuring $25.1m

– Debt repayments (net) $106.4m

– Corporation tax paid $47.7m

– Acquisition of Authasas BV $10.0m

– Interest paid $52.2m

• Proposed interim dividend increased by 10.0% to 16.94 cents per share

(2014: 15.4 cents per share)

Key Highlights (continued)

22

17m 35s

Cash Conversion

23

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

140.0%

160.0%

180.0%

-150

-100

-50

0

50

100

150

200

250

300

6m-Oct 10 6m-Apr 11 6m-Oct 11 6m-Apr 12 6m-Oct 12 6m-Apr 13 6m-Oct 13 6m-Apr 14 6m-Oct 14 6m-Apr 15 6m-Oct 15

$m

Provisions Movement (non Cash)

Changes in Working Capital (including cash movements on Provisions)

Net cash generated from operating activities before changes in working capital and provisions

Cash Conversion %

22m 36s

Changes in Working Capital

24

32

34

36

38

40

42

44

46

48

50

52

54

-140

-120

-100

-80

-60

-40

-20

0

20

40

60

80

6m-Apr 13 6m-Oct 13 6m- Apr 14 6m-Oct 14 6m-Apr 15 6m-Oct 15

Days S

ale

s O

uts

tan

din

g

Trade Debtors Deferred Income Provision (cash element) TAG Acquisition fees paid Others DSO

$2.6m

Net Change in Working Capital

$6.0m

$m

$(8.7)m $(22.1)m $(30.3)m $(108.7)m

23m 0s

Pro-forma Revenue and Underlying Adjusted EBITDA

25

Revenue Costs

Underlying

Adjusted

EBITDA

$m $m $m

Pro-forma at actual rates of exchange 1,320.7 817.7 503.0

Based on H1 16 currency rates 1,277.1 787.2 489.9

Currency Impact -3.3% 3.7% -2.6%

Pro-forma is year to 30 April 15

• US Dollar has strengthened against Sterling, Yen and Euro by 7.1%, 14.6% and 16.0%

respectively when looking at the average exchange rates in the six months ended 31

October 2015 compared to those in the six months ended 31 October 2014.

• In order to provide CCY comparatives, we have restated the pro-forma results of the

Enlarged Group for the 12 months ended 30 April 2015 at the same average exchange

rates as those used in reported results for the six months to 31 October 2015.

• Consequently, revenues reduce from $1,320.7m to $1,277.1m, a reduction of 3.3%,

and Underlying Adjusted EBITDA reduces from $503.0m to $489.9m a reduction of

2.6%.

24m 21s

Group Pro-forma Revenue by Product Portfolios at CCY

($m)

542.3572.4

510.4551.0

483.3

92.3

101.0

106.2

109.5

121.2

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

H1 14 H2 14 H1 15 H2 15 H1 16

Micro Focus SUSE

26

25m 23s

Identity, Access and

Security Solutions

Host Connectivity

Solutions

COBOL

Development

and Mainframe

Solutions

Development

and IT Operations

Management

Tools

Collaboration

and Networking

Solutions

Linux and Open Source

27

Product Portfolios

17% 19%

17%

20%

13% 14%

25m 34s

Revenue by product portfolio ($m) Revenue by type ($m)

Group Pro-forma revenue at CCY by Half Year

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

H1 14 H2 14 H1 15 H2 15 H1 16

CDMS Host ConnectivityIAS Development & ITOMCollaboration & Network SUSE

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

H1 14 H2 14 H1 15 H2 15 H1 16

Maintenance Subscription Licence Services

28

26m 0s

Group Pro-forma revenue by Portfolio at CCY

19.8% 20.4% 19.2%

13.5%18.5% 17.2%

17.9%16.4%

17.0%

14.6%14.0%

12.8%

17.0%14.1%

13.8%

17.2% 16.6% 20.0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

H1 15 H2 15 H1 16

CDMS Host ConnectivityIAS Development and ITOMCollaboration and Network SUSE

29

26m 17s

Mapping of the Old and the New Product Portfolios

SUSE CDMS

Host

Connectivity

Identity

Access

Security

Development

and IT

Operations

Management

Tools

Collaboration

and Networking

COBOL

Development

COBOL

Development

Mainframe

Solutions

Mainframe

Solutions

(excl. Rumba) Rumba

Borland Borland

CORBA CORBA

Niche Niche

Attachmate Attachmate

Novell Zenworks

Novell

(excl. Zenworks)

NetIQ

NetIQ

(excl. Data

Center &

Workload)

Data Center

and Workload

SUSE SUSE

30

26m 22s

COBOL Development and Mainframe

Solutions

Group Pro-forma revenue at CCY by type ($m)

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

H1 14 H2 14 H1 15 H2 15 H1 16

Maintenance Licence Services

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

H1 14 H2 14 H1 15 H2 15 H1 16


Host Connectivity

31

26m 32s

Identity and Access Security


0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

H1 14 H2 14 H1 15 H2 15 H1 16


0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

H1 14 H2 14 H1 15 H2 15 H1 16


Development and IT Operations

Management Tools

32

27m 37s

SUSE


0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

H1 14 H2 14 H1 15 H2 15 H1 16


0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

H1 14 H2 14 H1 15 H2 15 H1 16

Subscription Services

Collaboration and Networking

Solutions

33

27m 38s

Underlying Adjusted EBITDA (Pro-forma at CCY)

Six months to

31 October 15

Six months to

31 October 14

Pro-forma at

CCY

Year ended 30

April 2015

Pro-forma at

CCY

$m $m $m

Revenue 604.5 616.6 1,277.1

Adjusted EBITDA 270.6 242.6 502.5

Foreign Exchange credit (0.4) (8.1) (12.7)

Net (Capitalization)/Amortization of Development Costs (6.4) 0.8 0.1

Underlying Adjusted EBITDA 263.8 235.3 489.9

Underlying Adjusted EBITDA Margin 43.6% 38.2% 38.4%

34

27m 39s

Exceptional costs

Exceptional

Costs

H1 16

Exceptional

Costs

H1 15

Exceptional

Costs

FY15

$m $m $m

Acquisition Costs 0.5 25.1 26.9

Property Costs 1.1 - 18.2

Severance and Legal Costs 0.7 - 30.7

Impairment of Intangible Assets - - 11.6

Impairment of prepayments - - 1.7

Integration costs 8.4 - 7.6

Reported with Operating Profit 10.7 25.1 96.7

Accelerated amortization of facility fees - 2.4 2.4

Total 10.7 27.5 99.1

35

27m 40s

31 Oct 2015 30 Apr 2015 31 Oct 2014

$m $m $m

Non-current assets 3,785.0 3,879.6 456.9

Inventories 0.1 0.1 0.1

Trade and other receivables 215.2 218.6 84.8

Cash and cash equivalents 91.6 241.3 30.0

Assets classified as held for sale 0.9 0.9 -

Total assets 4,092.8 4,340.6 571.8

Liabilities

Current liabilities

Trade and other payables 137.0 161.4 67.4

Borrowings 50.6 125.7 288.9

Provisions 27.8 49.3 1.5

Current tax liabilities 27.5 67.9 42.2

Deferred income 537.3 583.7 124.6

Non-current liabilities

Deferred income 171.4 194.9 11.0

Borrowings 1,495.3 1,519.1 -

Retirement benefit obligations 26.7 32.7 -

Long-term provisions 16.6 17.9 5.5

Other non-current liabilities 4.0 5.3 -

Deferred tax liabilities 286.5 304.6 33.5

Total liabilities 2,780.7 3,062.5 574.6

Net assets/(liabilities) 1,312.1 1,278.1 (2.8)

Summary Balance Sheet

36

29m 7s

• Reported effective tax rate “ETR” in the period is 11.4% (2014: 11.6%)

• Adjusted ETR in the period is 21.0% (2014: 11.1%)

= (Adjusted tax charge)

(Adjusted PBT)

Taxation

6 Months

ended 31

October 2015 ETR

6 months

ended 31

October 2014 ETR

$m $m

PBT 98.8 57.1

Share based compensation 11.9 4.0

Amortization of purchased intangibles 90.9 6.9

Exceptional costs 10.7 25.1

Exceptional finance costs 0.0 -

Adjusted PBT 212.3 93.1

Tax credit / (charge) as reported 11.3 11.4% 6.6 11.6%

Tax on adjusted items 33.3 4.0

Adjusted tax charge 44.6 21.0% 10.6 11.1%

37

29m 38s

• Adjusted ETR impacted by increased level of profits taxed at the

higher US rate following the acquisition of TAG

• The Group’s medium term Adjusted ETR is expected to be between

21% and 25% of Adjusted Profit Before Tax

Taxation

38

29m 58s

• Taxes paid during the period were $47.7m (H1 15: tax paid $5.2m)

• Cash taxes paid in the period increased by $42.5m as a result of the

acquisition of TAG, in particular US tax payments of $32m

– US federal tax payments expected to cover liabilities for rest of the year

– Taxes paid in H2 will be significantly lower than H1, with the exception of UK Accelerated

Payment below

• Ongoing HMRC claim:

– Accelerated Payment Notice received on 26 November 2015 and payable by 29

February 2016 for £17.2m (equivalent of $26.6m).

– No income statement benefit taken

– Cash tax benefit to date is $28.5m (30 April 15: $27.2m)

– Interest accrued as at 31 October is $3.0m (30 April 15: $2.6m, 31 October 14: $nil)

– No penalties anticipated

Taxation – Cash tax

39

30m 30s

Financial Review

Appendix

40

Currency Impact

H1 FY16 H1 FY15 (Pro-forma) FY 15 (Pro-forma)

Revenue Cost Revenue Cost Revenue Cost

USD 62.3% 53.9% 62.5% 58.2% 61.7% 56.4%

EUR 19.7% 17.3% 19.6% 16.0% 20.3% 17.0%

GBP 4.9% 12.8% 4.7% 10.1% 4.9% 11.1%

YEN 3.5% 1.5% 3.3% 1.5% 3.3% 1.4%

Average exchange rate movements from in H1 16 vs H2 15 and H1 16 vs H1 15:

USD to GBP strengthened by 7.1% versus H1 15 and weakened by 1.1% when compared to H2 15.

USD to JPY strengthened by 14.6% versus H1 15 and 2.5% when compared to H2 15.

USD to EUR strengthened by 16.0% versus H1 15 and 3.5% when compared to H2 15.

1.0000

1.0555

1.1110

1.1665

1.2220

1.2775

1.3330

1.3885

1.4440

H1 14 H2 14 H1 15 H2 15 H1 16

USD to EUR

1.3000

1.3673

1.4346

1.5019

1.5693

1.6366

1.7039

H1 14 H2 14 H1 15 H2 15 H1 16

USD to GBP

0.0080

0.0085

0.0090

0.0095

0.0100

0.0105

H1 14 H2 14 H1 15 H2 15 H1 16

USD to JPY

The revenue and cost profiles of the main currencies are:

41

Group Pro-forma Revenue Actual Exchange Rates and at CCY

Revenue by type ($m)

0.0

200.0

400.0

600.0

800.0

1000.0

1200.0

1400.0

FY 15 Pro-forma ActualExchange Rates

FY15 Pro-forma CCY

Maintenance Subscription Licence Services

• Impact of Currency movements

can be seen from the restatement

of FY15 pro-forma revenue of

$1,320.7m at FY15 Exchange

Rates to $1,277.1m at H1 16

Exchange Rates, a reduction of

3.3%.

• Revenue Guidance for FY16

remains at minus 4% to minus 2%

against the pro-forma CCY

revenues, a range of $1,226.0m to

$1,251.6m (assumes exchange

rates in H2 16 remain the same as

H1 16)

$1,320.7m$1,277.1m

42

Pro-forma Revenue at Constant Currency by Half YearMicro Focus Portfolio

Revenue by region ($m) Revenue by type ($m)

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

H1 14 H2 14 H1 15 H2 15 H1 16

North America International Asia Pacific & Japan

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

H1 14 H2 14 H1 15 H2 15 H1 16


43

Pro-forma Revenue at Constant Currency by Half YearSUSE

Revenue by region ($m) Revenue by type ($m)

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

H1 14 H2 14 H1 15 H2 15 H1 16

North America International Asia Pacific & Japan

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

H1 14 H2 14 H1 15 H2 15 H1 16


44

North America International Asia Pacific

0.0

50.0

100.0

150.0

200.0

250.0

300.0

H1 14 H2 14 H1 15 H2 15 H1 16


0.0

50.0

100.0

150.0

200.0

250.0

300.0

H1 14 H2 14 H1 15 H2 15 H1 16


0.0

50.0

100.0

150.0

200.0

250.0

300.0

H1 14 H2 14 H1 15 H2 15 H1 16


45

Pro-forma Revenue at Constant Currency by Half Year

Region Revenue by type ($m)

Micro Focus

North America International Asia Pacific

0.0

10.0

20.0

30.0

40.0

50.0

60.0

H1 14 H2 14 H1 15 H2 15 H1 16


0.0

10.0

20.0

30.0

40.0

50.0

60.0

H1 14 H2 14 H1 15 H2 15 H1 16


0.0

10.0

20.0

30.0

40.0

50.0

60.0

H1 14 H2 14 H1 15 H2 15 H1 16


46


Region Revenue by type ($m)

SUSE

0.0

50.0

100.0

150.0

200.0

250.0

300.0

H1 14 H2 14 H1 15 H2 15 H1 16

CDMS Host Connectivity

IAS Development & ITOM

Collaboration & Network

0.0

50.0

100.0

150.0

200.0

250.0

300.0

H1 14 H2 14 H1 15 H2 15 H1 16


47


North America

Micro Focus

Revenue by product ($m) Revenue by type ($m)


International

Revenue by product ($m)

0.0

50.0

100.0

150.0

200.0

250.0

300.0

H1 14 H2 14 H1 15 H2 15 H1 16

CDMS Host ConnectivityIAS Development & ITOMCollaboration & Network

Micro Focus

0.0

50.0

100.0

150.0

200.0

250.0

300.0

H1 14 H2 14 H1 15 H2 15 H1 16


48

Revenue by type ($m)


Asia Pacific and Japan

0.0

50.0

100.0

150.0

200.0

250.0

300.0

H1 14 H2 14 H1 15 H2 15 H1 16

CDMS Host ConnectivityIAS Development & ITOMCollaboration & Network

0.0

50.0

100.0

150.0

200.0

250.0

300.0

H1 14 H2 14 H1 15 H2 15 H1 16


49

Micro Focus

Revenue by product ($m) Revenue by type ($m)

• Revenues declined by 2.0% to $604.5m (2014: $616.6m)

– Growth in Licence (1.0%) and SUSE Subscription (13.3%) with decline in Maintenance

(7.0%) and Consultancy (9.8%)

• Micro Focus Portfolio declined by 5.3% to $483.3m (2014: $510.4m)

– CDMS declined by 5.2% to $115.9m (2014: $122.3)

• Growth in Maintenance (1.6%) and Consultancy (2.6%) offset by declines in Licence of 16.0%

– Host Connectivity grew by 24.9% to $103.9m (2014: $83.2m)

• Growth in Licence by 80.3% offset partially by decline in Maintenance (0.6%) and Consultancy (33.3%)

– IAS declined by 6.8% to $102.6m (2014: $110.1m)

• Decline in Licence (10.1%), Maintenance (5.0%) and Consultancy (11.4%)

– Development & ITOM declined by 13.7% to $77.7m (2014: $90.0m)


– Collaboration & Networking declined by 20.6% to $83.2m (2014: $104.8m)


• SUSE grew by 14.1% to $121.2m (2014: $106.2m)– Growth in Subscription of 13.3% and growth in Consultancy of 78.6%

Group Pro-forma Revenue by Product Portfolio at CCY:

Six Months to 31 October 2015

50

Consolidated Income Statement

Period ended 31 October 2015

(unaudited) $’000


(unaudited) $’000

Year ended 30 April 2015

(audited) $’000

Revenue 604,523 208,319 834,539

Cost of sales (66,510) (14,699) (91,490)

Gross profit 538,013 193,620 743,049

Selling and distribution costs (198,802) (54,596) (290,475)

Research and development expenses (122,659) (29,171) (162,349)

Administrative expenses (66,149) (46,192) (142,989)

Operating profit 150,403 63,661 147,236

Analyzed as:

Adjusted Operating profit 263,868 99,629 347,773

Share based compensation (11,856) (3,953) (15,561)

Amortization of purchased intangibles (90,958) (6,925) (88,298)

Exceptional items (10,651) (25,090) (96,678)


Finance costs (50,887) (6,791) (56,231)

Finance income 448 263 1,120

Share of results of associates (1,129) - (788)

Profit before tax 98,835 57,133 91,427

Taxation (11,297) (6,609) 10,024

Profit for the period 87,538 50,524 101,451

51 * Items that may be subsequently reclassified to profit or loss

52

Consolidated Income Statement (Continued)


(unaudited) $’000


(unaudited) $’000

Year ended 30 April 2015

(audited) $’000

Profit for the period 87,538 50,524 101,451

Other comprehensive income

Actuarial gain/(loss) on pension liabilities 6,260 - (4,196)

Actuarial gain on long-term pension assets 1,205 - -

Currency translation differences (1,774) (1,666) (8,375)

Other comprehensive income/(expense) for the

period3,347 (1,666) (11,270)

Total comprehensive income for the period 90,885 48,858 90,181

Attributable to:

Owners of the parent 90,668 48,858 90,483

Non-controlling interests 217 - (302)

90,885 48,858 90,181

Earnings per share expressed in cents per

sharecents cents cents

- basic 40.17 36.17 58.54

- diluted 38.58 35.07 56.71

Earnings per share expressed in pence per

sharepence pence pence

- basic 25.96 21.66 36.64

- diluted 24.94 21.00 35.50

As at 31 October 2015

(unaudited) $’000


(unaudited) $’000

As at 30 April 2015

(audited) $’000

ASSETS

Non-current assets

Goodwill 2,436,168 308,524 2,421,745

Other intangible assets 1,050,581 84,602 1,132,221

Property, plant and equipment 42,525 20,938 42,896

Investment in associates 13,772 - 14,901

Long-term pension assets 19,114 - 14,076

Other non-current assets 3,515 - 3,909

Deferred tax assets 219,343 43,382 249,886

3,785,018 456,906 3,879,634

Current assets

Inventories 78 108 110

Trade and other receivables 215,224 84,784 218,645

Cash and cash equivalents 91,566 29,993 241,324

Assets classified as held for sale 888 - 888

307,756 114,885 460,967

TOTAL ASSETS 4,092,774 571,791 4,340,601

Liabilities

Current liabilities

Trade and other payables 137,020 67,367 161,365

Borrowings 50,600 288,908 125,733

Provisions 27,784 1,452 49,334

Current tax liabilities 27,515 42,219 67,895

Deferred income 537,280 124,588 583,703

780,199 524,534 988,030

Non-current liabilities

Non-current deferred income 171,407 10,958 194,863

Borrowings 1,495,272 - 1,519,130

Retirement benefit obligations 26,695 - 32,742

Long-term provisions 16,634 5,453 17,919

Other non-current liabilities 4,039 - 5,264

Deferred tax liabilities 286,450 33,641 304,592

2,000,497 50,052 2,074,510

TOTAL LIABILITIES 2,780,696 574,586 3,062,540

NET ASSETS/(LIABILITIES) 1,312,078 (2,795) 1,278,061

53

Consolidated Balance Statement

EQUITY

Ordinary shares 39,558 37,863 39,555

Share premium account 16,559 14,785 16,087

Merger reserve 1,168,104 (27,085) 1,168,104

Capital redemption reserve 163,363 103,983 163,363

Accumulated losses (61,380) (125,502) (96,479)

Foreign currency translation reserve (deficit) (15,322) (6,839) (13,548)

TOTAL EQUITY/(DEFICIT) ATTRIBUTABLE TO OWNERS OF THE

PARENT

1,310,882 (2,795) 1,277,082

Non-controlling interests 1,196 - 979

TOTAL EQUITY/(DEFICIT) 1,312,078 (2,795) 1,278,061

54

Balance Sheet (Continued)


(unaudited) $’000


(unaudited) $’000

As at 30 April 2015

(audited) $’000

As reported Period ended 31 October 2015 Period ended 31 October 2014 Year ended 30 April 2015

$'000 % of revenue $'000 % of revenue $’000 % of revenue

Revenue 604,523 208,319 834,539

Cost of sales (66,510) 11.0% (14,699) 7.1% (91,490) 11.0%

Selling and distribution costs (198,802) 32.9% (54,596) 26.2% (290,475) 34.8%

Research and development expenses (122,659) 20.3% (29,171) 14.0% (162,349) 19.5%

Administrative expenses (66,149) 10.9% (46,192) 22.2% (142,989) 17.1%

Total costs (454,120) (144,658) (687,303)


Group Income Statement: Key Ratios

55

EBITDA Reconciliation

Period ended

31 October 2015

Period ended

31 October 2014

Year ended

30 April 2015

$’000 $’000 $’000


Exceptional items 10,651 25,090 96,678

Share-based compensation charges 11,856 3,953 15,561

Amortization of purchased intangibles 90,958 6,925 88,298

Adjusted operating profit 263,868 99,629 347,773

Depreciation 5,770 1,965 7,674

Amortization of software 918 859 2,189

Adjusted EBITDA 270,556 102,453 357,636

EBITDA 256,817 82,882 264,986

Amortization of capitalized development costs (8,768) (9,472) (19,589)

Exceptional items 10,651 25,090 96,678

Share-based compensation charges 11,856 3,953 15,561

Adjusted EBITDA 270,556 102,453 357,636

Adjusted EBITDA less Exceptional items 259,905 77,363 260,958

Cash generated from continuing operations 162,054 68,361 288,741

Cash conversion ratio = Cash generated from continuing operations

Adjusted EBITDA less Exceptional items62.4% 88.4% 110.6%

56

Cash Generated from Operations

Period ended 31 October 2015 Period ended 31 October 2014 Year ended 30 April 2015

$’000 $’000 $’000

Cash flows from operating activities

Net profit for the period 87,538 50,524 101,451

Adjustments for:

Net interest 50,439 6,528 55,021

Taxation 11,297 6,609 (10,024)

Share of results of associates 1,129 - 788


Research and development tax credits (936) (1,131) (2,135)

Depreciation 5,770 1,965 7,674

Loss on disposal of property, plant and equipment 7 15 41

Gain on disposal of intangible assets - - (1,603)

Amortization of intangibles 100,644 17,256 109,092

Impairment of intangibles - 984 984

Impairment of long-term assets - - 11,642

Share-based compensation 11,856 3,953 15,561

Provisions movements (22,835) 1,555 46,485

Exchange movements 719 (406) (87)

Changes in working capital:

Inventories 44 25 39

Trade and other receivables 4,276 22,477 40,127

Payables and other non-current liabilities (17,993) (14,742) (108,558)

Deferred income (69,879) (27,251) 21,657

Pension finding in excess of charge to operating profit (22) - 586

Cash generated from operations 162,054 68,361 288,741

57

Consolidated Cash Flow and Net Debt Position

Period ended 31 October 2015 Period ended 31 October 2014 Year ended 30 April 2015

$’000 $’000 $’000

Cash generated from operating activities 162,054 68,361 288,741

Interest paid (52,200) (3,114) (50,482)

Tax paid (47,707) (5,161) 1,798

Net cash generated from operating activities 62,147 60,086 240,057

Cash flows from investing activities

Payments of intangible assets (15,786) (10,525) (21,240)

Purchase of property, plant and equipment (5,917) (1,762) (4,972)

Costs associated with relisting on the LSE - 255 320

Interest received 448 255 320

Payments for the acquisition of business (9,960) - -

Net cash acquired with acquisitions 106 - 165,946

Short-term investments - - (2)

Net cash (outflow)/inflow in investing activities (31,109) (12,032) 139,329

Cash flows from financing activities

Proceeds from issue of ordinary share capital 475 (146) 1,647

Return of Value paid to shareholders - - (131,565)

Costs associated with Return of Value - - (55)

Repayment of bank borrowings (126,375) (58,000) (522,000)

Repayment of bank borrowings from TAG acquisition - - (1,294,726)

Proceeds from bank borrowings 20,000 50,000 1,903,625

Bank loan costs (753) (590) (40,174)

Dividends paid to owners (70,015) (40,215) (72,707)

Net cash used in financing activities (176,668) (48,951) (155,955)

Effects of exchange rate changes (4,128) (1,910) (14,907)

Net (decrease)/increase in cash and cash

equivalents(149,758) (2,807) 208,524

Cash and cash equivalents at beginning of period 241,324 32,800 32,800

Cash and cash equivalents at end of period 91,566 29,993 241,324

Debt outstanding at end of period (1,545,872) (288,908) (1,644,863)

Net debt at end of period (1,454,306) (258,915) (1,403,539)

58

Geographic Analysis Revenue

(at constant currency) Period ended 31 October 2015 Period ended 31 October 2014 Year ended 30 April 2015

$m % $m % $m %

CDMS

North America 52.7 45.5% 51.9 42.4% 110.7 43.1%

International 47.7 41.2% 54.0 44.2% 116.2 45.2%

Asia Pacific 15.5 13.3% 16.4 13.4% 29.9 11.7%

Total 115.9 100.0% 122.3 100.0% 256.8 100.0%

Host Connectivity

North America 74.8 72.0% 55.8 67.1% 131.8 64.1%

International 25.5 24.5% 22.2 26.7% 60.6 29.5%

Asia Pacific 3.6 3.5% 5.2 6.2% 13.1 6.4%

Total 103.9 100.0% 83.2 100.0% 205.5 100.0%

IAS

North America 51.4 50.1% 60.1 54.6% 115.4 52.8%

International 43.0 41.9% 41.1 37.3% 83.1 38.0%

Asia Pacific 8.2 8.0% 8.9 8.1% 20.2 9.2%

Total 102.6 100.0% 110.1 100.0% 218.7 100.0%

Development & ITOM

North America 39.1 50.3% 49.5 55.0% 100.4 55.0%

International 29.7 38.3% 32.3 35.9% 64.5 35.4%

Asia Pacific 8.9 11.4% 8.2 9.1% 17.5 9.6%

Total 77.7 100.0% 90.0 100.0% 182.4 100.0%

Collaboration & Network

North America 42.8 51.4% 54.8 52.3% 103.7 52.4%

International 34.2 41.1% 42.0 40.1% 76.4 38.6%

Asia Pacific 6.2 7.5% 8.0 7.6% 17.9 9.0%

Total 83.2 100.0% 104.8 100.0% 198.0 100.0%

Micro Focus

North America 260.8 54.0% 272.1 53.3% 562.0 52.9%

International 180.1 37.3% 191.6 37.5% 400.8 37.8%

Asia Pacific 42.4 8.7% 46.7 9.2% 98.6 9.3%

Total 483.3 100.0% 510.4 100.0% 1,061.4 100.0%

SUSE

North America 50.9 42.1% 42.8 40.3% 87.5 40.6%

International 56.2 46.3% 48.4 45.6% 99.4 46.1%

Asia Pacific 14.1 11.6% 15.0 14.1% 28.8 13.3%

Total 121.2 100.0% 106.2 100.0% 215.7 100.0%

TOTAL

North America 311.7 51.6% 314.9 51.1% 649.5 50.9%

International 236.3 39.1% 240.0 38.9% 500.2 39.2%

Asia Pacific 56.5 9.3% 61.7 10.0% 127.4 9.9%

TOTAL 604.5 100.0% 616.6 100.0% 1,277.1 100.0%

Pro-forma Revenues by Geography at Constant Currency

59

Group Pro-forma revenue by Geography at CCY

Six months

ended

31 October 2015

As Reported

Six months

Ended

31 October 2014

Pro-forma

CCY

Six months

ended

31 October 2015

Pro-forma CCY Growth

Year ended

30 April 2015

Pro-forma

CCY

$m $m % $m

Micro Focus

North America 260.8 272.1 (4.2%) 562.0

International 180.1 191.6 (6.0%) 400.8

Asia Pacific & Japan 42.4 46.7 (9.2%) 98.6

Total 483.3 510.4 (5.3%) 1,061.4

SUSE

North America 50.9 42.8 18.9% 87.5

International 56.2 48.4 16.1% 99.4


Total 121.2 106.2 14.1% 215.7

Group

North America 311.7 314.9 (1.0%) 649.5

International 236.3 240.0 (1.5%) 500.2


Total revenue 604.5 616.6 (2.0%) 1,277.1

60

Micro Focus Pro-forma revenue at CCY

Six months

ended

31 October 2015

As Reported

Six months ended 31

October 2014

Pro-forma

CCY

Six months

ended

31 October 2015

Pro-forma CCY Growth

Year

Ended

30 April 2015

Pro-forma

CCY

$m $m % $m

Micro Focus Product Portfolio

CDMS

Licence 40.0 47.6 (16.0%) 106.1

Maintenance 71.9 70.8 1.6% 142.5

Consultancy 4.0 3.9 2.6% 8.2

115.9 122.3 (5.2%) 256.8

Host Connectivity

Licence 48.5 26.9 80.3% 95.1

Maintenance 54.2 54.5 (0.6%) 106.4

Consultancy 1.2 1.8 (33.3%) 4.0

103.9 83.2 24.9% 205.5

Identity, Access and Security

Licence 20.4 22.7 (10.1%) 43.2

Maintenance 70.5 74.2 (5.0%) 148.0

Consultancy 11.7 13.2 (11.4%) 27.5

102.6 110.1 (6.8%) 218.7

Development & IT Operations Management Tools

Licence 13.4 17.8 (24.7%) 41.9

Maintenance 62.8 70.6 (11.0%) 137.6

Consultancy 1.5 1.6 (6.3%) 2.9

77.7 90.0 (13.7%) 182.4

Collaboration & Networking

Licence 12.2 18.2 (33.0%) 34.9

Maintenance 68.0 82.0 (17.1%) 156.2

Consultancy 3.0 4.6 (34.8%) 6.9

83.2 104.8 (20.6%) 198.0

Micro Focus Product Portfolio

Licence 134.5 133.2 1.0% 321.2

Maintenance 327.4 352.1 (7.0%) 690.7

Consultancy 21.4 25.1 (14.7%) 49.5

483.3 510.4 (5.3%) 1,061.4

61

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Interim Results For Six Months Ended 31 October 2015 · 2017-08-10 · Interim Results For Six Months Ended 31 October 2015 Kevin Loosemore Mike Phillips ... growth in the information