Unaudited Interim Results for the Six Months Ended … · Unaudited Interim Results for the Six Months Ended 31 October 2017 Chris Hsu ... $1,234.5M total revenue, +80.7% y/y CCY

Unaudited Interim Results for the Six Months Ended 31 October 2017

Chris Hsu

Mike Phillips

8 January, 2018

▪ The following presentation is being made only to, and is only directed at, persons to whom such presentation may lawfully be communicated (“relevant persons”). Any person who is not a relevant person should not act or rely on this presentation or any of its contents. Information in the following presentation relating to the price at which relevant investments have been bought or sold in the past or the yield on such investments cannot be relied upon 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, subscribe for 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 jurisdictions into 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 facts included 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 comparable terminology. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Company’s present and future business strategies and the environment in which the Company will operate in the future. Such risks, uncertainties and other factors include, among others: the level of expenditure committed to development and deployment applications by organisations; the level of deployment-related turnover expected by the Company; the degree to which organisations adopt web-enabled services; the rate at which large organisations migrate applications from the mainframe environment; the continued use and necessity of the mainframe for business critical applications; the degree of competition faced by the Company; growth in the information technology services market; general economic and business conditions, 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, the Company does not undertake any obligation to update or revise publicly any forward-looking statement, whether as a result of new information, future events, or otherwise.

2

Safe Harbour Statement

Micro Focus Update

Financial Review

Questions and Answers

Agenda

3

Micro Focus UpdateChris Hsu

CEO, Micro Focus

8 January, 2018

▪ Micro Focus strategy and business model remains consistent – to deliver 15-20% annual shareholder return

▪ Combined company is a strong platform with a proven operating model for managing a portfolio of scale assets and is well-positioned to benefit from consolidation

▪ Customers are at the center of everything we do - our broad and deep portfolio is uniquely positioned to help customers across Hybrid IT

▪ Our lean operating model preserves capital and maximizes total shareholder returnson a sustainable basis

▪ HPE Software transaction thesis is intact and strong

▪ Committed to delivering the value creation outlined at the announcement of this transaction

5

Micro Focus Key Messages

Financial Highlights – 6 months ended Oct. 31, 2017

Overall Reported Performance▪ $1,234.5M total revenue, +80.7% y/y CCY basis

▪ $530.1M Adjusted EBITDA; +67.7% y/y CCY basis

▪ 103.87 cents Adjusted Diluted earnings per share; +16.4%

▪ 16.4% increase in interim dividend to 34.60 cents per share

Heritage HPE Software▪ $569.8M revenue, $226.9M Adjusted EBITDA reported for the 2

months post acquisition

▪ For the 12 months ended Oct. 31, 2017

▪ $2,891.3M revenue, which is within the guided range and -7.4% compared to 12 months ended Oct. 31, 2016 (prior to impact of deferred revenue haircut)

▪ $841.7M Adjusted EBITDA, +16.6% compared to 12 months ended Oct. 31, 2016 (prior to impact of deferred revenue haircut, bad debt provision policy alignment and cost recharge)

▪ 29.1% Adjusted EBITDA margin compared with 23.1% in 12 months ended Oct. 31, 2016. 600 bps margin increase with margin improvement programme on track

6

Existing Micro Focus International

▪ $664.7M revenue; -2.7% y/y CCY basis versus “broadly flat” guidance

Micro Focus Product Portfolio▪ $500.3M revenue, -7.0% y/y CCY

basis

▪ Revenue weakness due to Host Connectivity, particularly in North America

▪ Operational improvements put on hold in anticipation of the close of the transaction with HPE Software

SUSE

• $164.4M revenue; +13.1% y/y CCY basis

• Continues with its growth mandate

Pro-Forma Performance▪ $4,226.7M pro-forma revenue

▪ $1,401.1M pro-forma Adjusted EBITDA, at a margin of 33.1%

▪ Adjusted Net Debt of $4,409.7M

▪ Adjusted Net Debt to pro-forma Adjusted EBITDA multiple of 3.1 times versus target of 2.7 times (consistent with 2.5 times Facility EBITDA target set in 2014)

7

Pro-forma Group Product PortfoliosPro-forma is 12 months to 31 October 2017 (FY17)

$2,866.0M (HPE Software) + $1,040.3M (Micro Focus PP) + $320.4M (SUSE) = $4,226.7M (Pro-Forma Group)

Information Management & Governance

IT Operations Management

Application Delivery Management

Security

18% of FY17 revenue

14% of FY17 revenue

12% of FY17revenue

27% of FY17revenue

23% of FY17 revenue

Application Modernization & Connectivity

12% of FY17 revenue

SUSESoftware Defined Infrastructure and

Application Delivery

8% of FY17 revenue

8

6 Focused Strategic Priorities

Integratethe companies seamlessly

Drivecustomer-centered innovation in everything we do

Strengthenthe go-to-market engine

Capture value from the deal ($600M EBITDA improvement)

Builda combined company that employees want to be part of and that customers value as a strategic partner

Executevalue creating mergers and acquisitions

Phase I: Assessment

• Deliver plans for FY17

• 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

• Standardise systems

• Rationalise Legal entities

Ac

tio

ns

Phase IV: Growth

• Top line growth

• Click and repeat!

Ac

tio

ns

FY17 FY18 FY19 FY20

Day

2

Day

1

Day

3

9

Our high level strategic plan delivers in four distinct phases

FAST1 delivery, stand up new Go To Market and Product Group orgs

& launch Value Capture Plan

FAST2 & new infrastructure

Integratethe companies seamlessly

10

Integration Progress

Systems and Infrastructure

• Migrated HPE Software to a completely new state-of-the-art IT platform (FAST) from multiple, complex legacy HP systems

• Exited 15 Transitional Service Agreements from HPE with 12 more targeted by end of February 2018

Simplification & Business Structure

• Developed overall and functional budgets for FY18 using the Micro Focus operating model

• Integrated the Sales organization into one Global team working to one compensation plan and operational cadence

• Established Micro Focus Government Solutions as a separate entity to comply with U.S. regulatory requirements

• Combined Professional Services and Support teams focused on supporting deployments of Micro Focus software

• Integrated Product Groups across the 2 companies and began implementing the 4-Box Model, common processes for delivery of products to market, and leveraging shared technology

• Closed or vacated 16 real estate properties to date with plans in place to close around 40 more by the end of FY19

• Mitigated more than $50M in dis-synergies arising from the separation from HPE

Communication

• Extensive communication plan executed, including a 16 city roadshow event reaching 3500+ customers and partners

Integration Management Office managing 15 work streams with >7500 individual tasks completed to date

11

Detailed plans for Day 2 to Day 3 transition are in execution underpinned by strong governance

Governance structure

Regulatory

Key value delivery

Infrastructure

Required Enablers

Project Categories Assessment

Expected benefits

Budget alignment

Change capacityEnterprise Architecture

Investment Committee

Systems & Infrastructure

▪ Evolution of FAST stack and transition of rest of business to FAST enabling effective operation as a single business

▪ Project Cornwall: stand-alone systems that remove remaining technology dependencies on HPE

▪ Rationalisation and simplification of Product Group and SaaS infrastructure

Simplification & Business Structure

▪ Organisational design and sizing

▪ Corporate structure and processes

▪ Shared service centre strategy

▪ Continued execution and acceleration of real estate consolidation

Compliance

▪ SOX readiness

▪ GDPR

Mike PhillipsDirector of M&A

Jane SmithardGroup General Counsel & Board Secretary

Swavek BialkiewiczStrategy, Operations & Pricing

12

Micro Focus Management Team

Chris LiveseyApplication Modernization and Connectivity Product Group

John DelkChief Product Officer & Security and Information Management Product Groups

Colin MahonyBig Data

Tom GoguenIT Operations Management Product Group

Raffi Margaliot Application Delivery Management Product Group

Stephen MurdochChief Operating Officer

Chris KennedyChief Financial Officer

Ian FraserChief Human Resources Officer

Michael SteinmetzSupport, Professional Services & License Verification

Sue BarsamianSales & Marketing

Robert Makheja Micro Focus Government Solutions

Chris HsuChief Executive Officer

Kevin LoosemoreExecutive Chairman

Nils BrauckmannCEO, SUSE

▪ Prior Chief Financial Officer at ARM

▪ Prior Chief Financial Officer at easyJet

▪ Over 20 yeas of international experience in senior financial roles

▪ Strong track record of driving detailed operating rigouracross UK and US listed companies

13

New Micro Focus Leaders

▪ Prior Group HR Director at RELX Group

▪ Prior HR Director at BHP Billiton Plc

▪ Strong HR executive with extensive international experience having worked and lived in five different continents

▪ Proven track record of helping organizations increase shareholder value by building and developing strong talent

Chris KennedyChief Financial Officer

Ian FraserChief Human Resources Officer

▪ We anticipate revenues for the Enlarged Group for the 12 months ending 31 October 2018 on a CCY basis will decline by 2% to 4% when compared to the pro-forma revenues for the 12 months ended 31 October 2017 of $4,226.7M.

▪ We continue to work toward driving $600M in EBITDA improvement by the end of the third fiscal year post close of the HPE Software transaction.

▪ Our focus continues to be delivering annual returns to investors in the range of 15%-20%.

▪ We believe we have a strong operational and financial model that can continue to scale and provide excellent returns to our shareholders.

14

Outlook and Guidance Going Forward

Financial ReviewMike Phillips

CFO, Micro Focus

8 January, 2018

Results at a GlanceSix months ended

31 October 2017 $m

Six months ended 31 October 2016

$m

(Decline)/ Growth %

Year ended30 April 2017

$mTotal Constant Currency Revenue 1,234.5 683.0 80.7% 1,387.6

- License 327.7 148.1 121.3% 314.0

- Maintenance 611.5 363.2 68.4% 723.8

- Subscriptions 162.6 142.7 13.9% 295.7

- Consultancy 80.3 29.0 176.9% 54.1

- SAAS 52.4 - -% -

Total Reported Revenue 1,234.5 684.7 80.3% 1,380.7

NON IFRS MEASURES

Adjusted EBITDA

Constant Currency 530.1 316.1 67.7% 635.4

Reported 530.1 320.3 65.5% 640.9

STATUTORY MEASURES

Pre-tax profit

Constant Currency 145.7 108.9 33.8% 182.4

Reported 145.7 113.2 28.7% 196.3

Reported Earnings per share (cents)

Basic 35.83c 39.57c (9.5%) 68.88c

Diluted 34.64c 38.12c (9.1%) 66.51c

Adjusted 107.44c 92.59c 16.0% 181.91c

Adjusted Diluted 103.87c 89.20c 16.4% 175.65c

Dividend per share 34.60c 29.73c 16.4% 88.06c

Net debt 4,151.7m 1,612.6m 157.5% 1,410.6m

Adjusted Net Debt 4,409.7m 1,612.6m 173.5% 1,410.6m

The table above shows the reported results for the Group at actual exchange rates for the six months ended 31 October 2017, together with CCY comparatives except where stated otherwise. Comparative information for HPE Software has not been presented in the six months ended 31 October 2017 interim results and this analyst presentation.

Included within the six months ended 31 October 2017 reported results, is two months HPE Software post-acquisition results from 01 September 2017 to the end of the reporting period.16

▪ Completion of the HPE Software transaction on 1 September 2017

▪ Reported revenue growth of $551.5m (80.7%) on a CCY basis driven by:

▪ Acquisition of HPE Software contributed $569.8m

▪ SUSE Product Portfolio where revenues grew by 13.1% on a CCY basis in line with the market for Infrastructure Linux

▪ Offset by decline in Micro Focus revenues by 7.0% on a CCY basis

▪ Adjusted EBITDA increased by 67.7% to $530.1m (2016: CCY $316.1m)

▪ Adjusted EBITDA margins decreased to 42.9% (2016: CCY 46.3%), reflecting the lower margins in the HPE Software acquisition.

▪ Exceptional costs incurred in the period of $98.5m (2016: $41.0m) relate to integration costs, acquisition costs, pre-acquisition costs, property costs, severance and legal costs.

▪ Medium-term Adjusted ETR guidance revised to c.25% from c.33% following US tax reforms. Cash tax rate expected to be lower (c.15 %) in FY18 and FY19 and broadly aligned with Adjusted ETR from FY20

▪ Growth in Adjusted Diluted EPS of 16.4% to 103.87 cents (2016: 89.20 cents)

▪ Interim dividend increased by 16.4% to 34.60 cents per share (2016: 29.73 cents per share) in line with dividend policy of full year dividend being twice covered by adjusted earnings

Key Highlights

17

18

Pro-forma Enlarged Group FY17 vs FY16

LTM LTM Growth/ LTM LTM Growth/ LTM LTM Growth/

31-Oct-16 31-Oct-17 (Decline) 31-Oct-16 31-Oct-17 (Decline) 31-Oct-16 31-Oct-17 (Decline)

$m $m % $m $m % $m $m %Licence 852.3 707.2 (17.0)% 335.3 284.4 (15.2)% 1,187.6 991.6 (16.5)%

Maintenance 1,580.3 1,553.7 (1.7)% 748.6 713.9 (4.6)% 2,328.9 2,267.6 (2.6)%

Consultancy 396.0 324.1 (18.2)% 58.3 49.3 (15.4)% 454.3 373.4 (17.8)%

Saas 294.6 306.3 4.0% 294.6 306.3 4.0%

Subscription 0.0 0.0 - 279.5 318.5 14.0% 279.5 318.5 14.0%

Revenue before deferred revenue haircut 3,123.2 2,891.3 (7.4)% 1,421.7 1,366.1 (3.9)% 4,544.9 4,257.4 (6.3)%

Deferred revenue haircut (25.3) (11.8) (5.4) (11.8) (30.7)

Revenue post deferred revenue haircut 3,123.2 2,866.0 (8.2)% 1,409.9 1,360.7 (3.5)% 4,533.1 4,226.7 (6.8)%

Reported Adjusted EBITDA (pre-adjustments) 722.0 841.7 16.6% 645.1 625.4 (3.1)% 1,367.1 1,467.1 7.3%

Bad debt provision (35.3) (35.3)

Recharge of audit fees/insurance (3.8) 3.8 - -

Adjusted EBITDA post adjustments 722.0 802.6 11.2% 645.1 629.2 (2.5)% 1,367.1 1,431.8 4.7%

Deferred revenue haircut (25.3) (11.8) (5.4) (11.8) (30.7)

Adjusted EBITDA 722.0 777.3 7.7% 633.3 623.8 (1.5)% 1,355.3 1,401.1 3.4%

Adjusted EBITDA (pre-haircut and adjustments) % 23.1% 29.1% 45.4% 45.8% 30.1% 34.5%

Adjusted EBITDA (post-haircut and adjustments) % 23.1% 27.1% 44.9% 45.8% 29.9% 33.1%

HPE MF ENLARGED GROUP

Six months ended 31 October 2017Reported

$m

Six months ended 31 October 2016CCY $m


Reported$m

ExistingMicro Focus

HPE Software

Micro Focus SUSE Group



Segment revenue 500.3 569.8 1,070.1 164.4 1,234.5 537.7 145.3 683.0 537.3 147.4 684.7

Directly managed costs (262.9) (352.8) (615.7) (98.6) (714.3) (278.5) (82.2) (360.7) (277.3) (81.2) (358.5)

Allocation of centrally managed costs 19.8 (3.8) 16.0 (16.0) - 12.7 (12.7) - 12.7 (12.7) -

Total Adjusted Operating Costs (243.1) (356.6) (599.7) (114.6) (714.3) (265.8) (94.9) (360.7) (264.6) (93.9) (358.5)

Adjusted Operating Profit 257.2 213.2 470.4 49.8 520.2 271.9 50.4 322.3 272.7 53.5 326.2

Margin 51.4% 37.4% 44.0% 30.3% 42.1% 50.6% 34.7% 47.2% 50.8% 36.3% 47.6%

Adjusted Operating Profit 257.2 213.2 470.4 49.8 520.2 271.9 50.4 322.3 272.7 53.5 326.2

Depreciation of property, plant and equipment 4.6 10.4 15.0 1.3 16.3 4.8 0.9 5.7 4.7 1.0 5.7

Amortization of software intangibles 1.0 1.0 2.0 0.8 2.8 0.4 - 0.4 0.5 0.1 0.6

Foreign exchange credit (9.5) 2.3 (7.2) 2.5 (4.7) (7.8) (1.3) (9.1) (8.0) (1.3) (9.3)

Net capitalization of development costs (4.5) - (4.5) - (4.5) (3.2) - (3.2) (2.9) - (2.9)

Adjusted EBITDA 248.8 226.9 475.7 54.4 530.1 266.1 50.0 316.1 267.0 53.3 320.3

Margin 49.7% 39.8% 44.5% 33.1% 42.9% 49.5% 34.4% 46.3% 49.7% 36.2% 46.8%

19

Profitability by Segment

20

Adjusted Operating Costs and Adjusted Operating ProfitActual – Six months ended 31 October 2017 CCY – Six months ended 31 October 2016

ReportedAmortisationof Purchased Intangibles

Share Based Compensation

Exceptional Items

Adjusted Operating

CostsCCY

Amortisationof Purchased Intangibles

Share Based Compensation

Exceptional Items

Adjusted Operating

Costs

$m $m $m $m $m $m $m $m $m $m

Cost of goods sold 273.9 (63.1) (3.1) 207.7 123.8 (37.0) (1.3) 85.5

Selling and distribution 398.6 (119.9) (8.5) 270.2 219.3 (69.5) (2.0) 147.8

Research and development

173.6 (7.4) 166.2 87.4 (2.2) 85.2

Administrative expenses 168.4 (0.5) (18.3) (79.4) 70.2 93.3 (15.6) (35.5) 42.2

Total operating costs 1,014.5 (183.5) (18.3) (98.4) 714.3 523.8 (106.5) (15.6) (41.0) 360.7

Revenue 1,234.5 1,234.5 683.0 683.0

Cost of goods sold 22.2% 16.8% 18.1% 12.5%

Selling and distribution 32.3% 21.9% 32.1% 21.6%

Research and development

14.1% 13.4% 12.8% 12.5%

Administrative expenses 13.6% 5.7% 13.7% 6.2%

Operating Profit/Adjusted Operating Profit 220.0 520.2 159.2 322.3

Margin/Adjusted margin 17.8% 42.1% 23.3% 47.2%

Income Statement cost classification presentation changed to provide consistency between US and UK markets

Currency ImpactThe revenue and cost profiles of the main currencies are:

Average exchange rate movements for the above currencies in H2 17 vs H1 17 and H2 17 vs H2 16 based on the Enlarged Group Financial years shows the following:

H2 17 compared to H1 17, average exchange rates:

• EUR : USD is stronger by 8.8% • GBP : USD is stronger by 4.4% • CAD : USD is stronger by 4.2%

H2 17 compared to H2 16, average exchange rates:

• EUR : USD is stronger by 4.4%• GBP : USD is weaker by 1.4% • CAD : USD is stronger by 2.4%

6 Months to 31 October 2017Enlarged Group - Pro-forma

6 Months to 31 October 2016As Reported

12 Months to 30 April 2017

Revenue Cost Revenue Cost Revenue Cost

USD 63.0% 51.5% 62.9% 50.4% 62.4% 50.7%

EUR 18.0% 14.2% 20.8% 19.2% 21.2% 19.6%

GBP 4.7% 7.8% 4.7% 13.0% 4.5% 12.2%

CAD 3.1% 2.0% { JPY 3.5% } { JPY 1.8% } { JPY 3.6% } { JPY 1.7% }

ILS 0.2% 4.6%

1.000

1.050

1.100

1.150

1.200

Oct-15 Apr-16 Oct-16 Apr-17 Oct-17

USD to EUR

1.00

1.10

1.20

1.30

1.40

1.50

1.60

1.70


USD to GBP

0.700

0.725

0.750

0.775

0.800


USD to CAD

21

Exceptional Costs


As reported$m


As reported$m

Year ended 30 April 2017

As reported$m

Reported within operating profit

Integration costs 20.0 13.4 27.7

Acquisition and pre-acquisition costs 68.8 21.1 60.6

Property costs (0.1) 2.5 5.5

Severance and legal costs 9.8 4.0 3.5

Sub-total 98.5 41.0 97.3

Reported within finance costs/income

Finance costs incurred in escrow period 6.3 - -

Finance income earned in escrow period (0.5) - -

Sub-total 5.8 - -

Total 104.3 41.0 97.3

22

▪ Cash generated from operations was $267.2m (2016: $201.9m) representing a cash conversion ratio of 61.9% (2016: 72.3%) of Adjusted EBITDA less exceptional costs.

▪ Impacted by the expected seasonal year-end increase in working capital balances ($253.0m versus $110.8m) due to timing of completion of HPE Software transaction

▪ Free cash flow in the period of $28.5m (2016: $111.0m)

▪ After bank loan costs of $90.3m versus $6.7m

▪ Net debt at 31 October 2017 was $4,151.7m (30 April 2017: $1,410.6m) increasing due to the acquisition of HPE Software with acquired bank borrowings of $2,600.0m, finance lease obligations and external debt drawn down.

▪ Adjusted net debt taking account of closing balance sheet related items is $4,409.7m

▪ Adjusted Net debt to pro-forma Adjusted EBITDA for the 12 month period to 31 October 2017 is a multiple of 3.1 times; medium term target remains 2.7 times

23

Net Debt and Cash Generation

Cash Conversion

0%10%20%30%40%50%60%70%80%90%100%110%120%130%140%150%160%170%180%

(350)(300)(250)(200)(150)(100)

(50)0

50100150200250300350400450500550600

6m-Oct 15 6m-Apr 16 6m-Oct 16 6m-Apr 17 6m-Oct 17$m

Provisions Movement (non Cash)

Changes in Working Capital (including cash movements on Provisions)

Cash generated from operations before changes in working capital and provisions

Cash Conversion %

3638404244464850525456586062646668707274

(350)(300)(250)(200)(150)(100)

(50)0

50100150200250300350400450500550600

6m-Oct 15 6m-Apr 16 6m-Oct 16 6m-Apr 17 6m-Oct 17

Day

s sa

les

ou

tsta

nd

ing

Trade and other receivables Deferred Income Provision (cash element)

Payables and other liabilities Others DSO

$59.5m$(106.4)m $28.5m $(110.8)m $(253.0)m

Changes in Working Capital

“Cash Flow generated from operations ” (CFFO) divided by “(Adjusted EBITDA less exceptional costs)” has been used consistently by the Company as its cash conversion metric with a target range of 90% to 95%.

Adjusted EBITDA has been redefined in the period. The cash conversion ratio comparatives have been restated accordingly.

Alternative metrics are available using a combination of Adjusted EBIT, Adjusted Net Income, Net CFFO and Total Capex.

Company also tracking Free Cash Flow being CFFO less Interest, bank loan costs, taxation and Capex (intangible and tangible)

Significant increase in DSO due to inclusion of HPE Software with 75 DSO, Existing Micro Focus at 46 DSO.24

25

Net Debt Leverage Target

EBITDA Measures 2011 2012 2013 2014 2015 2016 2017

$'000 $'000 $'000 $'000 $'000 $'000 $'000

Underlying Adjusted EBITDA 160,931 173,025 184,121 196,402 348,290 532,520 640,881

- Foreign Exchange Credit (5,436) 3,572 543 (4,400) 9,445 2,915 4,890

- Net capitalisation/(amortisation) of internal product development costs 3,241 3,241 1,662 (36) (99) 11,362 5,266

Adjusted EBITDA 158,736 179,838 186,326 191,966 357,636 546,797 651,037

- Amortisation and impairment of product development costs 12,507 16,217 18,356 18,484 19,589 19,515 22,398

Facility EBITDA 171,243 196,055 204,682 210,450 377,225 566,312 673,435

Net Debt to Facility EBITDA of 2.5 times 428,108 490,138 511,705 526,125 943,063 1,415,780 1,683,588

Represents the following Underlying Adjusted EBITDA multiple 2.66 2.83 2.78 2.68 2.71 2.66 2.63

Average 2.71

Following completion of the transaction we have reviewed the Alternative Performance Measures (“APM”) we use to track the business and

upon which we will provide guidance to the market. Historically, Micro Focus has used several measures of EBITDA which have held

consistency with measures used over time, however, at times this may have caused confusion with investors and analysts. Micro Focus has

used Underlying Adjusted EBITDA as the key performance metric since 2011 for annual corporate bonus calculation on a constant currency

basis. It makes sense for this to be the measure that is used going forward and is now renamed “Adjusted EBITDA”. We use this term

throughout the document. Our net leverage target has been a multiple of Facility EBITDA during this period. With the move to a single APM

this target is equivalent to a multiple of 2.7 times Adjusted EBITDA.


$m


$m

Year ended 30 April 2017

$mNon-current assets 15,625.3 4,301.7 4,203.8Inventories 0.5 0.1 0.1Trade and other receivables 1,251.6 277.9 289.5Current tax receivables - 3.4 1.6Cash and cash equivalents 730.4 123.0 151.0Assets classified as held for sale - 0.9 -Total Assets 17,607.7 4,707.0 4,646.0

Liabilities

Current Liabilities

Trade and other payables 934.7 151.2 170.0Borrowings 17.7 294.2 71.2

Finance Leases < 1 year 14.5 - -

Provisions 55.7 15.4 20.1

Current tax liabilities 102.7 29.6 42.7

Deferred income 1,312.6 582.4 640.7

Non-current liabilities

Deferred income 335.5 204.3 223.8

Borrowings 4,831.5 1,441.3 1,490.4

Finance Leases > 1 year 18.4 - -

Retirement benefit obligations 97.6 34.6 30.8

Provisions 26.7 11.7 11.9

Other non-current liabilities 67.6 11.0 4.2

Deferred tax liabilities 2,166.6 349.5 326.7

Total liabilities 9,981.8 3,125.2 3,032.5

Net assets 7,625.9 1,581.8 1,613.5

Summary Balance Sheet

26

27

Taxation

Six months ended31 October 2017

$mETR

Six months ended31 October 2016

$mETR

Profit before tax (PBT) 145.7 113.2

Share based compensation 18.3 15.5

Amortization of purchased intangibles 183.5 106.4

Exceptional costs 104.2 41.0

Adjusted PBT 451.7 276.1

Tax charge as reported 39.1 26.8% 22.6 20.0%

Tax on adjusted items 94.1 41.5

Adjusted tax charge 132.7 29.4% 64.1 23.2%

▪ Tax Cuts and Jobs Act enacted in the USA on 22 December 2017

▪ Federal rate reduced from 35% to 21%

▪ Tax base broadened including restrictions on interest deductibility

▪ Introduction of exemption on foreign dividends, with a one-off transition tax (spread over 8 years)

▪ Initial assessment is that

▪ Medium-term Adjusted ETR forecast to be c.25% from c.33% per previous guidance

▪ Cash tax rate forecast to be lower (c.15 %) in FY18 and FY19 due to utilisation of US tax attributes within HPE Software and broadly aligned with Adjusted ETR (c.25%) from FY20.

▪ The transition tax and re-measurement of deferred tax balances estimated to give rise to a one off credit to income statement of $600m to $700m in 6 months to 30 April 2018

▪ Impact will continue to be assessed over the coming months

28

Taxation (continued)

29

Mapping of the Heritage to the New Product PortfoliosMicro Focus Product Portfolio

SecurityIT Operations Management



Application Modernization& Connectivity

SUSE

Mic

ro F

ocu

s In

tern

atio

nal

CDMS CDMS

Identity Access Security Identity Access Security

Host Connectivity Host Connectivity

Development and IT Operations Management Tools

Endpoint Management

Data Center,Workload Management,

SBM (from Serena Distributed)

SD&T, MF Niche, Serena Distributed (minus SBM)

Serena Mainframe

Collaboration and NetworkingCollaboration and

Networking (excludingCORBA)

CORBA

SUSE

Open source software defined infrastructure,

application delivery and Linux platform

HP

E So

ftw

are

IT Operation ManagementIT OperationsManagement

Application Delivery ManagementSiteScope, BPM, APM

Platform

All ADM (minus SiteScope, BPM, APM

Platform)

Enterprise Security Product SecurityPlatform IDOL , Vertica

Information Management BusinessData Protector

VM ExplorerAll IMB (except DP and

VM Exp)

SummaryChris Hsu

CEO, Micro Focus

▪ Micro Focus strategy and business model remains consistent – to deliver 15-20% annual shareholder return

▪ Combined company is a strong platform with a proven operating model for managing a portfolio of scale assets and is well-positioned to benefit from consolidation

▪ Customers are at the center of everything we do - our broad and deep portfolio is uniquely positioned to help customers across Hybrid IT

▪ Our lean operating model preserves capital and maximizes total shareholder returnson a sustainable basis

▪ HPE Software transaction thesis is intact and strong

▪ Committed to delivering the value creation outlined at the announcement of this transaction

31

Micro Focus Key Messages

Questions and Answers

Appendix

34

Pro-forma Group Product PortfoliosPro-forma is 12 months to 31 October 2017

$2,866.0M (HPE Software) + $1,040.3M (Micro Focus PP) + $320.4M (SUSE) = $4,226.7M (Pro-Forma Group)


IT Operations Management


Security

18% of FY17 revenue

14% of FY17 revenue

12% of FY17revenue

27% of FY17revenue

23% of FY17 revenue

Application Modernization & Connectivity

12% of FY17 revenue

SUSESoftware Defined Infrastructure and

Application Delivery

8% of H1 18 revenue

35

IT Operations ManagementPro-forma Enlarged Group Revenue : 6 months to 31 October , 30 April

-

100

200

300

400

500

600

700

800

31/10/2015 30/04/2016 31/10/2016 30/04/2017 31/10/2017

REVENUE BY TYPE ($M)

Maintenance Licence SaaS Consultancy

-

100

200

300

400

500

600

700

800

31/10/2015 30/04/2016 31/10/2016 30/04/2017 31/10/2017

REVENUE BY HERITAGE ($M)

Micro Focus HPE Software

27%

FY17 Enlarged Group Pro-forma Revenue %

36

Application Delivery ManagementPro-forma Enlarged Group Revenue : 6 months to 31 October , 30 April

-

100

200

300

400

500

600

700

800

31/10/2015 30/04/2016 31/10/2016 30/04/2017 31/10/2017



-

100

200

300

400

500

600

700

800

31/10/2015 30/04/2016 31/10/2016 30/04/2017 31/10/2017



23%


37

Security Pro-forma Enlarged Group Revenue : 6 months to 31 October , 30 April

-

100

200

300

400

500

600

700

800

31/10/2015 30/04/2016 31/10/2016 30/04/2017 31/10/2017



-

100

200

300

400

500

600

700

800

31/10/2015 30/04/2016 31/10/2016 30/04/2017 31/10/2017



18%


38

Information Management & GovernancePro-forma Enlarged Group Revenue : 6 months to 31 October , 30 April

-

100

200

300

400

500

600

700

800

31/10/2015 30/04/2016 31/10/2016 30/04/2017 31/10/2017



-

100

200

300

400

500

600

700

800

31/10/2015 30/04/2016 31/10/2016 30/04/2017 31/10/2017



12%


39

Application Modernization & ConnectivityPro-forma Enlarged Group Revenue : 6 months to 31 October , 30 April

-

100

200

300

400

500

600

700

800

31/10/2015 30/04/2016 31/10/2016 30/04/2017 31/10/2017



-

100

200

300

400

500

600

700

800

31/10/2015 30/04/2016 31/10/2016 30/04/2017 31/10/2017



12%


Documents

Unaudited Interim Results for the Six Months Ended … · Unaudited Interim Results for the Six Months Ended 31 October 2017 Chris Hsu ... $1,234.5M total revenue, +80.7% y/y CCY