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Unaudited Preliminary Results
For Year Ended 30 April 2017
Kevin Loosemore, Mike Phillips,
Stephen Murdoch, Nils Brauckmann
12 July 2017
Safe Harbour Statement
• 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 variat ions 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
Agenda
Overview
Financial Review
Micro Focus Product Portfolio Update
SUSE Product Portfolio Update
Questions and Answers
3
Overview
Kevin Loosemore
Executive Chairman
5
Strategy
Infrastructure Software Market is mature and consolidating
Key to performance is operational efficiency and scale
Micro Focus is well positioned to be a leader
• Financial discipline
• Target returns of 15% - 20% per annum (29.3% compound since 2005)
• Efficient Balance Sheet – 2.5x net debt to Facility EBITDA
• Return cash
• Value enhancing acquisitions
• Customer centered innovation
• Solve real problems today
• Deliver incremental and sustainable value
Solid performance given all that we are doing
• Revenues in middle of guidance range driven by overall portfolio approach
• Continued progress on SUSE growth charter, revenue up 21.7% YoY
• Adjusted Diluted EPS increased 19.7% to 175.65 cents (2016: 146.70 cents)
• Dividend per share increased by 32.1% to 88.06 cents (2016: 66.68 cents)
Underlying Adjusted EBITDA increased by 20.4% to $640.9m (2016: $532.5m)
• Pro-forma CCY growth of 4.2% YoY, growth of 4.5% YoY excluding the impact of in year
acquisitions
• YoY growth impacted by decisions to slow down change while planning
HPE Software integration
Net debt better than expected
• $1.4 billion
• Net debt to Facility EBITDA at 2.1 times
Business Performance
6
Key Milestones completed
• Formal legal and shareholder approval process on track
• All Competition clearances received
• Micro Focus shareholder approval obtained with 99.999% in favour
• UK Prospectus and US F-4 filing on track for issue by end of July
• Financing completed on more favourable terms
On track to complete 1st Sept 17
“New” financial year to operate from 1st Nov 17 – 31st Oct 18
HPE Software Transaction
7
Investment in product development
• Targeted at delivering innovation that matters to customers
Autonomy
• Former Autonomy products less than 10% of HPE Software revenues,
mainly SaaS
COBOL
• Continued innovation; in part being driven by ‘Cloud’
• Survey consistency
• External Consultants’ view in 2001
Miscellaneous Questions Submitted in Advance
8
Two Product Portfolios – Micro Focus and SUSE
Capital Markets Day on 7th September 2017 in London
• Focus will be on the new Micro Focus Portfolio products not numbers
SUSECON, 25th - 29th September 2017 in Prague
Jan 18 Interim Results Announcement for 1st May – 31st October 2017
• 6 months Micro Focus and SUSE
• 2 months HPE Software
Chris Hsu’s Management team
Going Forward
9
Jane Smithard
Group General Counsel & Company Secretary
Chris Hsu
Chief Executive Officer
Stephen Murdoch
Chief Operating Officer
Mike Phillips
Chief Financial Officer
Karen Geary
Chief Human Resources Officer (Interim)
Sue Barsamian
Sales & Marketing
Michael Steinmetz
Support, Customer Services, Professional Services
Colin Mahony
Big Data
Mike Sullivan
SaaS, IDOL & Information Management Product Group
Tom Goguen
IT Operations Management Product Group
Raffi Margaliot Application Delivery Management Product Group
Chris Livesey
CDMS, HC, CORBA Product Group
John Delk
Chief Product Officer & Security Product Group
Lalit Singh
FAST
Jerome Labat
Chief Technology Officer
Kevin Loosemore
Executive Chairman
Paul Rodgers
Business Operations & Integration
Martin Taylor
CIO
Robert Makheja Micro Focus Government Solutions
Swavek Bialkiewicz
Strategy, Operations & Pricing
10
Key: Micro FocusHPE
Chris Hsu’s Management team
Micro Focus business in 6 months to 31st October 2017
• Revenue broadly flat
No unnecessary changes given significant change on
1st November 2017
No outlook for HPE Software in period to 31st October 2017
Interim Results in January 2018
• Guidance will be given for FY 1st November 2017 – 31st October 2018
11
Outlook
Mike PhillipsCFO
Financial Review
Year ended
30 April 2017
$m
Year ended
30 April 2016
$m
Change
Total Revenue – Pro-forma Constant Currency 1,380.7 1,392.7 (0.9%)
- Licence 308.4 333.0 (7.4%)
- Maintenance 720.7 754.5 (4.5%)
- Subscriptions 298.7 245.5 21.7%
- Consultancy 52.9 59.7 (11.4%)
Total Reported Revenue 1,380.7 1,245.0 10.9%
NON GAAP MEASURES
Adjusted EBITDA
- Pro-forma Constant Currency 651.1 629.9 3.4%
- Reported 651.1 546.8 19.1%
Underlying Adjusted EBITDA
- Pro-forma Constant Currency 640.9 615.3 4.2%
- Reported 640.9 532.5 20.4%
STATUTORY MEASURES
Pre-tax profit
- Pro-forma Constant Currency 196.3 278.1 (29.4)%
- Reported 196.3 195.4 0.5%
Net debt 1,410.6 1,078.0 30.9%
Earnings per share (cents) Cents Cents
Diluted 66.51 71.61 (7.1)%
Adjusted diluted 175.65 146.70 19.7%
Dividend per share (cents) 88.06 66.68 32.1%
Results at a Glance
13
On a pro-forma CCY basis to provide a better comparison of performance
• Total revenues of $1,380.7m (2016: pro-forma CCY $1,392.7m), a reduction of 0.9%, middle of
management’s guidance
• Growth in SUSE revenues
• Offset by anticipated declines in Micro Focus revenues
• Adjusted EBITDA of $651.1m (2016: pro-forma CCY $629.9m), an increase of 3.4%
• Underlying Adjusted EBITDA of $640.9m (2016: pro-forma CCY $615.3m), an increase of 4.2%
Growth in Adjusted diluted earnings per share of 19.7% to 175.65 cents (2016: 146.70 cents)
Growth in Dividend per share of 32.1% to 88.06 cents (2016: 66.68 cents)
Completion of the acquisition of Serena Software Inc. (“Serena”) took place on 2 May 2016
• Purchase price of $540.0m on a cash and debt free basis
• Funded by existing and extended revolving credit facility of $375m and a placing of 10.9m shares at a price of
1,455 pence raising £158.2m ($225.7m) gross and £156.1m ($222.7m) net
14
Key Highlights
Profitability by Portfolio
Year ended 30 April 2017
Reported
$m
Year ended 30 April 2016
Pro-forma CCY
$m
Year ended 30 April 2016
Reported
$m
Micro
Focus SUSE Group
Micro
Focus SUSE Group
Micro
Focus SUSE Group
Segment revenue 1,077.3 303.4 1,380.7 1,142.3 250.4 1,392.7 991.2 253.8 1,245.0
Directly managed costs (564.1) (178.5) (742.6) (633.0) (143.2) (776.2) (566.4) (145.1) (711.5)
Allocation of centrally managed costs 26.2 (26.2) - 27.3 (27.3) - 28.9 (28.9) -
Total Adjusted Operating Costs (537.9) (204.7) (742.6) (605.7) (170.5) (776.2) (537.5) (174.0) (711.5)
Adjusted Operating Profit 539.4 98.7 638.1 536.6 79.9 616.5 453.7 79.8 533.5
Margin 50.1% 32.5% 46.2% 47.0% 31.9% 44.3% 45.8% 31.4% 42.9%
Adjusted Operating Profit 539.4 98.7 638.1 536.6 79.9 616.5 453.7 79.8 533.5
Depreciation of property, plant and equipment 9.7 2.1 11.8 10.0 1.7 11.7 9.7 1.7 11.4
Amortization of software intangibles 1.1 0.1 1.2 1.6 0.1 1.7 1.7 0.2 1.9
Adjusted EBITDA 550.2 100.9 651.1 548.2 81.7 629.9 465.1 81.7 546.8
Foreign exchange credit (2.9) (2.0) (4.9) (3.0) (0.3) (3.3) (2.6) (0.3) (2.9)
Net capitalization of development costs (5.3) - (5.3) (11.3) - (11.3) (11.4) - (11.4)
Underlying Adjusted EBITDA 542.0 98.9 640.9 533.9 81.4 615.3 451.1 81.4 532.5
Margin 50.3% 32.6% 46.4% 46.7% 32.5% 44.2% 45.5% 32.1% 42.8%
15
Adjusted Operating Costs and Adjusted Operating Profit
16
Actual - Year ended 30 April 2017 Pro-forma CCY - Year ended 30 April 2016
ReportedAmortisationof Purchased Intangibles
Share Based Compensation
Exceptional Items
Adjusted Operating
CostsReported
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 237.2 (69.1) (3.0) 165.1 252.5 (75.2) (2.8) 174.5
Selling and distribution 467.1 (143.8) (5.5) 317.8 440.9 (106.7) (3.8) 330.4
Research and development 180.1 (6.8) 173.3 181.2 (5.8) 175.4
Administrative expenses 202.9 (34.5) (82.0) 86.4 140.3 (1.7) (30.2) (12.5) 95.9
Total operating costs 1,087.3 (212.9) (34.5) (97.3) 742.6 1,014.9 (183.6) (30.2) (24.9) 776.2
Revenue 1,380.7 1,380.7 1,392.7 1,392.7
Cost of goods sold 17.2% 12.0% 18.1% 12.5%
Selling and distribution 33.8% 23.0% 31.7% 23.7%
Research and development 13.0% 12.6% 13.0% 12.6%
Administrative expenses 14.7% 6.3% 10.1% 6.9%
Operating Profit/Adjusted Operating Profit
293.4 638.1 377.8 616.5
Margin 21.3% 46.2% 27.1% 44.3%
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:
17
Average exchange rate movements from in H217 vs H117 and H217 vs H216:
In H217 average exchange rate for EUR:USD is weaker by 4.6% compared with H117 and 3.1% weaker compared to H216.
In H217 average exchange rate for GBP:USD is weaker by 7.2% compared with H117 and 14.6% weaker compared to H216.
In H217 average exchange rate for JPY:USD is weaker by 7.5% compared with H117 and 3.5% stronger compared to H216.
FY17 FY16 (Pro-forma) FY16
Revenue Cost Revenue Cost Revenue Cost
USD 62.4% 50.7% 62.8% 53.4% 61.6% 51.9%
EUR 21.2% 19.6% 20.4% 18.4% 20.9% 18.9%
GBP 4.5% 12.2% 5.0% 12.8% 5.0% 12.7%
YEN 3.6% 1.7% 3.4% 1.6% 3.6% 1.6%
1.000
1.050
1.100
1.150
1.200
1.250
1.300
1.350
1.400
H1 15 H2 15 H1 16 H2 16 H1 17 H2 17
USD to EUR
1.000
1.100
1.200
1.300
1.400
1.500
1.600
1.700
H1 15 H2 15 H1 16 H2 16 H1 17 H2 17
USD to GBP
0.0070
0.0075
0.0080
0.0085
0.0090
0.0095
0.0100
H1 15 H2 15 H1 16 H2 16 H1 17 H2 17
USD to JPY
Exceptional Costs
18
6m ended
31-Oct-16
Reported
$m
6m ended
30-Apr-17
Reported
$m
Year ended
30-Apr-17
Reported
$m
Year ended
30-Apr-16
Reported
$m
Reported within Operating profit:
Integration costs 13.4 14.3 27.7 23.6
Acquisition costs 1.3 1.3 2.6 0.5
Pre-acquisition costs 19.8 38.2 58.0 5.6
Property costs 2.5 3.0 5.5 6.0
Severance and legal costs 4.0 (0.5) 3.5 (4.8)
Royalty provision release - (3.0)
Total 41.0 56.3 97.3 27.9
• $56.3m of exceptional costs incurred in H2 17 against an estimate of $80m given at the interims.
• This would leave $83.7m of original estimate of exceptional costs to completion of the HPE Software transaction to be incurred.
• Revised estimate for exceptional costs is $65.0m for the period from 30 April to 1 September 2017
• Post completion exceptional costs have not yet been quantified.
Improved cash generation in the period
• Cash generated from operations was $564.8m (2016: $456.1m) representing 102.0% (2016: 87.9%) of Adjusted
EBITDA less exceptional costs. Full Year target of 90% to 95% with weighting to six months ended 30 April due
to seasonal working capital factors
• Net debt at 30 April 2017 increased in the period to $1,410.6m (30 April 2016: $1,078.0m).
• Underlying in year reduction of $214.4m taking account of completion of Serena acquisition on 2 May 2016
• $202.0m of this reduction in six months ended 30 April 2017. Proposed change in Year end to 31 October will give more balance
to debt reduction due to shift in bonus and dividend payments
• Free cash flow in the period of $409.2m (2016: $238.5m)
• Net debt to Facility EBITDA at 2.1 times
New debt facilities raised and existing debt re-priced and rescheduled
• Total facilities of $5 billion in term loans and $0.5 billion revolving credit facility raised from existing and new
lenders on better than expected terms utilising the US and EUR term loan markets
• Existing term loans of $1.5 billion (included in $5 billion) saw 125 bps margin improvement with 2 year extension
on tenor and reduced amortisation on $0.4 billion of these loans
19
Key Highlights (continued)
Cash Conversion
20
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
110%
120%
130%
140%
(150)
(100)
(50)
0
50
100
150
200
250
300
350
400
450
500
550
600
6m-Apr 15 6m-Oct 15 6m-Apr 16 6m-Oct 16 6m-Apr 17$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 %
32
34
36
38
40
42
44
46
48
50
52
54
56
58
60
(160)
(140)
(120)
(100)
(80)
(60)
(40)
(20)
0
20
40
60
80
100
120
6m-Apr 15 6m-Oct 15 6m-Apr 16 6m-Oct 16 6m-Apr 17
Days
Sa
les
Ou
tsta
nd
ing
Trade Debtors Deferred Income Provision (cash element)Creditors TAG Acq Costs OthersDSO
$(110.8)m$(17.0)m $(106.4)m $28.5m $59.5m
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%.
FY2017 metric of 102.0% and cumulative metric over 12 years as a listed company of 101.1%. Specific issues impacted FY2016 cashconversion metric related to TAG acquisition with FY2016 metric of 87.9%.
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)
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
160.0%
180.0%
0
50
100
150
200
250
300
350
400
450
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Free
Cas
h F
low
$m
Cash Conversion and Free Cash Flow Metrics
Free Cash Flow Alternative Methodology 1 (Net CFFO less CAPEX)/(Adjusted EBIT)
Alternative Methodology 2 (Net CFFO less CAPEX)/(Adjusted Net Income) Company Methodology Cash Conversion - CFFO/(AEBITDA - Exceptionals)
21
30 April 2017$m
30 April 2016$m
Non-current assets 4,203.8 3,681.3
Inventories 0.1 0.1
Trade and other receivables 289.5 268.2
Current tax receivables 1.6 18.0
Cash and cash equivalents 151.0 667.2
Assets classified as held for sale - 0.9
Total assets 4,646.0 4,635.7
Liabilities
Current liabilities
Trade and other payables 170.0 188.1
Borrowings 71.2 275.3
Provisions 20.1 10.5
Current tax liabilities 42.7 22.4
Deferred income 640.7 565.5
Non-current liabilities
Deferred income 223.8 196.5
Borrowings 1,490.4 1,470.0
Retirement benefit obligations 30.8 31.7
Long-term provisions 11.9 14.3
Other non-current liabilities 4.2 3.7
Deferred tax liabilities 326.7 264.0
Total liabilities 3,032.5 3,042.0
Net assets 1,613.5 1,593.7
Summary Balance Sheet
22
Taxation
23
Year ended30 April 2017
$mETR
Year ended30 April 2016
$mETR
Profit before tax (PBT) 196.3 195.4
Share based compensation 34.5 28.8
Amortization of purchased intangibles 212.9 181.9
Exceptional costs 97.3 27.9
Adjusted PBT 541.0 434.0
Tax charge as reported (38.5) 19.6% (32.4) 16.6%
Tax on adjusted items (85.5) (67.8)
Adjusted tax charge (124.0) 22.9% (100.2) 23.1%
Reported effective tax rate (“ETR”) in the period is 19.6% (2016: 16.6%)
• Increase due to allocation of profits to higher tax territories in response to OECD transfer pricing developments and disallowable exceptional costs in the current year relating to HPE Software transaction
Adjusted ETR in the period is 22.9% (2016: 23.1%) in line with guidance range of 23% to 27%
Cash tax payments in period were $24.6m (2016: $79.3m)
• Overpayments in the US in prior year have reduced payments required in current year; prior year also included one-off payment re historic UK tax issue
Post completion of HPE Software transaction, guidance for Adjusted ETR is 33% and Cash tax is forecast (on average over medium term) at 30% of “Cash Profits” (Underlying Adjusted EBITDA less exceptionals, capex and interest)
24
Taxation
• UK Prospectus and US F-4 documents targeted to be finalised by 31 July 2017
• F-4 filings expected to become public when HPE file their Form 10
• UK Prospectus not public until “stamped” by UKLA
• Cost classifications changed to provide consistency between US and UK markets
• Target completion date remains 1 September 2017
• Consideration shares listed on LSE and ADS listed on NYSE
• Return of Value of $500m together with share consolidation to be effective the day before completion
• Consideration shares will represent 50.1% of fully diluted shares on completion
• Based on 2198 pence share price, £1:$1.29 exchange rate and 229.68m issued shares today, consolidation ratio is 92.32%, so issued shares becomes 212.04m
• Add 8.70m options to get 220.74 representing 49.9% of enlarged group share capital. Consideration Shares representing 50.1% would be 221.62 giving 442.36m fully diluted share at completion
25
HPE Software Transaction
Micro Focus Product Portfolio Update
Stephen Murdoch
CEO, Micro Focus
Micro Focus Product Portfolio
Positives
• CDMS revenue growth
• Maintenance ahead of expectations
• Customer centred innovation
approach continues to build
momentum
• Serena & GWAVA integration
Challenges
• Host Connectivity revenue impacted
by loss of team
• Identity Access and Security product
transition
• Managing impact of delay to change
agenda required to better deliver the
long term opportunity with HPE
Software 27
Overall: Continued progress in challenging circumstances
HPE Software Integration Planning Update
New Operating Model design well advanced
• Go To Market broadly complete
• Product Portfolios well advanced
• Support Functions underway
Systems work advanced but a significant
undertaking
• Overall plan in place with milestones for full
integration established
• New systems stack (“FAST”) scheduled for
November 2017 implementation
Comprehensive launch & communications plan
• Senior leadership team announced
• Kick off engagement sessions scheduled
• Customer communication plans, Websites and other
key customer engagement vehicles on track
• Capital Markets Day in September will provide deeper
dive on products
28
On track for 1st Sept 17 completion and 1st Nov 17 combination
Joint working groups with single governance structure to manage execution across
32 work streams with more than 10,000 individual tasks being tracked
FY 17 SUSE Portfolio Update
Nils Brauckmann
CEO, SUSE
30
FY17 – A Successful Year For SUSE
The SUSE growth charter:
“Sustainable, Profitable Revenue Growth Above Market Rate”
All relevant KPIs showed growth
• Revenue of $303.4m with YoY growth of 21.2%
• Deferred revenue balance of $372.1m with YoY growth of 15.4%
• TCV of $339.1m with YoY growth of 11.6%
• ACV of $220.1m with YoY growth of 15.7%
Open source business with market leading profitability
• Underlying Adjusted EBITDA of $98.9m
• YoY increase of 21.7%
• Profit margin of 32.5% with y/y improvement of 0.4%
31
FY17 Progress and Expansion
• Completed two technology led acquisitions during the year
• OpenStack Infrastructure as a Service (“IaaS”) and Cloud Foundry Platform as a
Service (“PaaS”) technology and talent from HPE
• Distributed storage management technology and talent from openATTIC
• Continued focus on bringing to market and increasing market share of new
technologies – Distributed Storage, Open Stack Cloud, Application Container
Platform as a Service
• Continued expansion of headcount across different business functions and
geographies – net increase of 325 heads in the year
• Ongoing strengthening of SUSE business through alignment of critical
supporting organizations within the direct control of the SUSE business.
Questions and Answers
Appendix
Group Pro-forma Revenue by Product Portfolios at CCY
34
($m)
105.0 107.2 119.5 130.9 147.4 156.0
588.6623.0
557.3585.0 537.3 540.0
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0
800.0
H1 15 H2 15 H1 16 H2 16 H1 17 H2 17
SUSE Micro Focus
Revenue by Portfolio Group
Year ended
30 April 2017
Reported
$m
Year ended
30 April 2016
Pro-forma
CCY
$m
Growth/
(Decline)
$m
Year ended
30 April 2016
Reported
$m
Micro Focus Product Portfolio
Licence 308.4 333.0 (7.4%) 304.8
Maintenance 720.7 754.5 (4.5%) 644.5
Consultancy 48.2 54.8 (12.0%) 41.9
1,077.3 1,142.3 (5.7%) 991.2
SUSE Product Portfolio
Licence - - - -
Maintenance - - - -
Subscription 298.7 245.5 21.7% 248.9
Consultancy 4.7 4.9 (4.1%) 4.9
303.4 250.4 21.2% 253.8
Total Revenue
Licence 308.4 333.0 (7.4%) 304.8
Maintenance 720.7 754.5 (4.5%) 644.5
Subscription 298.7 245.5 21.7% 248.9
Consultancy 52.9 59.7 (11.4%) 46.8
Revenue 1,380.7 1,392.7 (0.9%) 1,245.0
35
Revenue by product portfolio ($m) Revenue by type ($m)
36
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0
800.0
H1 15 H2 15 H1 16 H2 16 H1 17 H2 17
CDMS Host Connectivity IAS Development & ITOM Collaboration & Network SUSE
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0
800.0
H1 15 H2 15 H1 16 H2 16 H1 17 H2 17
Maintenance Subscription Licence Services
Group Pro-forma Revenue at CCY by Half Year
Group Pro-forma Revenue by Portfolio at CCY
37
17.7% 18.1% 17.2% 19.7% 19.5% 19.0%
11.8%16.3% 15.3% 13.1% 13.5% 11.9%
15.7%14.5% 15.0% 15.8% 14.6% 15.3%
24.7%24.0%
22.8% 22.6%20.6% 20.7%
14.9% 12.4%12.1% 10.6%
10.2% 10.7%
15.1% 14.7% 17.7% 18.3% 21.5% 22.4%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
H1 15 H2 15 H1 16 H2 16 H1 17 H2 17CDMS Host Connectivity IAS Development and ITOM Collaboration and Network SUSE
Group Pro-forma Revenue at CCY by Type($m)
38
COBOL Development & Mainframe Solutions Host Connectivity
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
180.0
H1 15 H2 15 H1 16 H2 16 H1 17 H2 17Maintenance Licence Services
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
180.0
H1 15 H2 15 H1 16 H2 16 H1 17 H2 17
Maintenance Licence Services
Group Pro-forma Revenue at CCY by Type($m)
39
Identity & Access Security Development & IT Operations Management Tools
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
180.0
H1 15 H2 15 H1 16 H2 16 H1 17 H2 17
Maintenance Licence Services
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
180.0
H1 15 H2 15 H1 16 H2 16 H1 17 H2 17
Maintenance Licence Services
Group Pro-forma Revenue at CCY by Type($m)
40
Collaboration & Networking SUSE
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
180.0
H1 15 H2 15 H1 16 H2 16 H1 17 H2 17
Maintenance Licence Services
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
180.0
H1 15 H2 15 H1 16 H2 16 H1 17 H2 17
Subscription Services
Year ended 30 April 2017
As reported
Year ended 30April 2016
Pro-forma CCY
(Decline)/Growth
Year ended 30 April 2016
As reported
$m $m % $m
CDMS
Licence 106.0 104.2 1.7% 104.7
Maintenance 149.7 145.0 3.2% 145.2
Consultancy 9.5 8.8 8.0% 8.9
265.2 258.0 2.8% 258.8Host Connectivity
Licence 69.2 89.0 (22.2%) 89.9
Maintenance 104.4 105.2 (0.8%) 105.4
Consultancy 1.8 2.8 (35.7%) 2.9
175.4 197.0 (11.0%) 198.2Identity, Access & Security
Licence 48.6 51.7 (6.0%) 52.4
Maintenance 140.0 140.6 (0.4%) 142.2
Consultancy 18.4 22.0 (16.4%) 22.1
207.0 214.3 (3.4%) 216.7
Development & IT Operations Management Tools
Licence 55.4 64.4 (14.0%) 33.9
Maintenance 215.9 235.9 (8.5%) 121.3
Consultancy 13.9 15.5 (10.3%) 2.2
285.2 315.8 (9.7%) 157.4Collaboration & Networking
Licence 29.2 23.7 23.2% 23.9
Maintenance 110.7 127.8 (13.4%) 130.4
Consultancy 4.6 5.7 (19.3%) 5.8
144.5 157.2 (8.1%) 160.1Micro Focus Product Portfolio
Licence 308.4 333.0 (7.4%) 304.8
Maintenance 720.7 754.5 (4.5%) 644.5
Consultancy 48.2 54.8 (12.0%) 41.9
1,077.3 1,142.3 (5.7%) 991.2
Micro Focus Product Portfolio
Pro-forma Revenue at CCY
41
Micro Focus – Regional Revenue Performance
42
Micro Focus Product Portfolio
Year ended 30 April 2017
As reported
$m
Year ended 30 April 2016
Pro-forma CCY
$m
(Decline)/Growth
%
Year ended 30 April 2016
As reported
$m
North America 591.4 627.1 (5.7%) 525.2
Licence 157.1 171.5 (8.4%) 157.5
Maintenance 409.2 429.6 (4.7%) 349.5
Consultancy 25.1 26.0 (3.5%) 18.2
International 389.7 415.0 (6.1%) 377.0
Licence 114.2 125.1 (8.7%) 115.0
Maintenance 255.0 265.9 (4.1%) 241.5
Consultancy 20.5 24.0 (14.6%) 20.5
Asia Pacific & Japan 96.2 100.2 (4.0%) 89.0
Licence 37.1 36.4 1.9% 32.3
Maintenance 56.5 59.0 (4.2%) 53.5
Consultancy 2.6 4.8 (45.8%) 3.2
Total 1,077.3 1,142.3 (5.7%) 991.2
Licence 308.4 333.0 (7.4%) 304.8
Maintenance 720.7 754.5 (4.5%) 644.5
Consultancy 48.2 54.8 (12.0%) 41.9
Micro Focus – P&L vs pro-forma CCY
43
Micro Focus Product Portfolio
Year ended 30 April 2017
Reported
$m
Year ended 30 April 2016
Pro-forma CCY
$m
Year ended 30 April 2016
Reported
$m
Segment revenue 1,077.3 1,142.3 991.2
Directly managed costs (564.1) (633.0) (566.4)
Allocation of centrally managed costs 26.2 27.3 28.9
Adjusted Operating Costs (537.9) (605.7) (537.5)
Adjusted Operating Profit 539.4 536.6 453.7
Depreciation of property, plant & equipment 9.7 10.0 9.7
Amortization of software intangibles 1.1 1.6 1.7
Adjusted EBITDA 550.2 548.2 465.1
Foreign exchange credit (2.9) (3.0) (2.6)
Net capitalization of development costs (5.3) (11.3) (11.4)
Underlying Adjusted EBITDA 542.0 533.9 451.1
Underlying Adjusted EBITDA margin 50.3% 46.7% 45.5%
Year ended 30 April 2017 Year ended 30 April 2016
Before
Exceptional
items
Exceptional
items Total
Before
Exceptional
items
Exceptional
items Total
$’000
Revenue 1,380,702 - 1,380,702 1,245,049 - 1,245,049
Cost of sales (234,220) (2,949) (237,169) (228,002) (2,172) (230,174)
Gross profit 1,146,482 (2,949) 1,143,533 1,017,047 (2,172) 1,014,875
Selling and distribution costs (461,605) (5,479) (467,084) (411,961) (4,372) (416,333)
Research and development expenses (173,312) (6,792) (180,104) (163,388) (1,258) (164,646)
Administrative expenses (120,864) (82,038) (202,902) (118,911) (20,051) (138,962)
Operating profit 390,701 (97,258) 293,443 322,787 (27,853) 294,934
Analyzed as:
Adjusted Operating profit 638,068 - 638,068 533,514 - 533,514
Share based compensation (34,506) - (34,506) (28,793) - (28,793)
Amortization of purchased intangibles (212,861) - (212,861) (181,934) - (181,934)
Exceptional items - (97,258) (97,258) - (27,853) (27,853)
Operating profit 390,701 (97,258) 293,443 322,787 (27,853) 294,934
Share of results of associates (1,254) - (1,254) (2,190) - (2,190)
Net finance costs (95,845) - (95,845) (97,348) - (97,348)
Profit before tax 293,602 (97,258) 196,344 223,249 (27,853) 195,396
Taxation (50,174) 11,633 (38,541) (39,259) 6,835 (32,424)
Profit for the year 243,428 (85,625) 157,803 183,990 (21,018) 162,972
ConsolidatedIncome Statement
44
Year ended 30 April 2017 Year ended 30 April 2016
Before
Exceptional
items
Exceptional
items Total
Before
Exceptional
items
Exceptional
items Total
$’000
Profit for the year 243,428 (85,625) 157,803 183,990 (21,018) 162,972
Other comprehensive income
Actuarial gain on pension
liabilities schemes402 - 402 2,697 - 2,697
Actuarial gain on non-plan
Pension assets130 - 130 3,104 - 3,104
Deferred tax movement on pensions (325) - (325) (1,745) - (1,745)
Currency translation differences (5,953) - (5,953) (3,458) (3,458)
Other comprehensive (expense)/
income for the year(5,746) - (5,746) 598 - 598
Total comprehensive
income for the year237,682 (85,625) 152,057 184,588 (21,018) 163,570
Attributable to:
Equity shareholders of the parent 237,785 (85,625) 152,160 184,510 (21,018) 163,492
Non-controlling interests (103) (103) 78 - 78
Total comprehensive
income for the year237,682 (85,625) 152,057 184,588 (21,018) 163,570
Earnings per share expressed
In cents per share
-basic 68.88 74.50
-diluted 66.51 71.61
Earnings per share expressed
In pence per share
-basic 53.25 49.59
-diluted 51.42 47.66
Consolidated Income Statement (continued)
45
As at 30 April 2017
$’000
As at 30 April 2016
$’000
ASSETS
Non-current assets
Goodwill 2,828,604 2,436,168
Other intangible assets 1,089,370 966,555
Property, plant and equipment 40,956 40,867
Investments in associates 11,457 12,711
Long-term pension assets 22,031 22,272
Other non-current assets 3,093 4,002
Deferred tax assets 208,253 198,757
4,203,764 3,681,332
Current assets
Inventories 64 93
Trade and other receivables 289,509 268,186
Current tax receivables 1,637 18,016
Cash and cash equivalents 150,983 667,178
Assets classified as held for sale - 888
442,193 954,361
TOTAL ASSETS 4,645,957 4,635,693
LIABILITIES
Current liabilities
Trade and other payables 170,042 188,090
Borrowings 71,184 275,256
Provisions 20,142 10,545
Current tax liabilities 42,679 22,426
Deferred income 640,650 565,480
944,697 1,061,797
Non-current liabilities
Deferred income 223,786 196,483
Borrowings 1,490,352 1,469,953
Retirement benefit obligations 30,773 31,669
Long-term provisions 11,937 14,354
Other non-current liabilities 4,191 3,671
Deferred tax liabilities 326,731 264,038
2,087,770 1,980,168
TOTAL LIABILITIES 3,032,467 3,041,965
NET ASSETS 1,613,490 1,593,728
Consolidated Statementof Financial Position
46
Consolidated Statement of Financial Position (continued)
47
As at 30 April 2017
$’000
As at 30 April 2016
$’000
EQUITY
Share capital 39,700 39,573
Share premium account 192,145 190,293
Merger reserve 338,104 988,104
Capital redemption reserve 163,363 163,363
Retained earnings 902,183 228,344
Foreign currency translation deficit (22,959) (17,006)
TOTAL EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT 1,612,536 1,592,671
Non-controlling interests 954 1,057
TOTAL EQUITY 1,613,490 1,593,728
Cash Generated from OperationsYear ended 30 April 2017
$’000
Year ended 30 April 2016
$’000
Cash flows from operating activities
Profit after tax 157,803 162,972
Adjustments for:
Net interest 95,845 97,348
Taxation 38,541 32,424
Share of results of associates 1,254 2,190
Operating profit 293,443 294,934
Research and development tax credits (2,998) (2,041)
Depreciation 11,794 11,419
Loss on disposal of property, plant and equipment 520 109
Amortization of intangibles 236,434 203,313
Share-based compensation 34,506 28,793
Exchange movements (4,890) (2,915)
Provisions movements 47,266 12,985
Changes in working capital:
Inventories 29 28
Trade and other receivables 10,224 (49,175)
Payables and other liabilities (33,252) 30,923
Provision utilization (43,476) (55,639)
Deferred income 15,375 (16,603)
Pension funding in excess of charge to operating profit (183) (18)
Cash generated from operations 564,792 456,113
48
Consolidated Cash Flowand Net Debt Position Year ended 30 April 2017
$’000
Year ended 30 April 2016
$’000
Cash generated from operations 564,792 456,113
Interest paid (81,115) (91,807)
Bank loan costs (6,654) (1,805)
Tax paid (24,644) (79,282)
Net cash generated from operating activities 452,379 283,219
Cash flows from investing activities
Payments of intangible assets (31,438) (34,488)
Purchase of property, plant and equipment (11,727) (10,281)
Interest received 979 1,009
Payment for acquisition of business (299,061) (9,960)
Repayment of bank borrowings on acquisition of businesses (316,650)
Net cash acquired with acquisitions 68,173 106
Net cash used in investing activities (589,724) (53,614)
Cash flows from financing activities
Investment in non-controlling interest (2) -
Proceeds from issue of ordinary share capital 1,979 968
Purchase of own shares by the Employee Benefit Trust (7,678) -
Proceeds from share capital placement - 225,720
Costs associated with share placement - (2,979)
Repayment of bank borrowings (372,062) (157,750)
Proceeds from bank borrowings 180,000 245,000
Dividends paid to owners (177,535) (105,159)
Net cash (used in)/generated from financing activities (375,298) 205,800
Effects of exchange rate changes (3,552) (9,551)
Net (decrease)/increase in cash and cash equivalents (516,195) 425,854
Cash and cash equivalents at beginning of year 667,178 241,324
Cash and cash equivalents at end of year 150,983 667,178
Debt outstanding at end of year (1,561,536) (1,745,209)
Net debt at end of year (1,410,553) (1,078,031)49
FY16 CCY Revenue and Underlying Adjusted EBITDA
50
Revenue
$m
Costs
$m
Underlying Adjusted
EBITDA
$m
Micro Focus Group – Year Ended 30 April 2016 1,245.0 712.5 532.5
Serena – Year Ended 31 January 2016 162.3 81.4 80.9
Micro Focus – Pro-forma at Actual Exchange Rates 1,407.3 793.9 613.4
Restated Pro-forma CCY at 2017 Exchange Rates 1,392.7 777.4 615.3
Currency Impact (1.0)% (2.1)% (0.3)%
SUSE
• Total Contract Value (“TCV”)
• The value of the invoiced amount on any contract (“Billings”)
• Weighted Average Contract Period
• For the contracts signed and/or invoiced in the period the weighted average invoice period in months
• Annual Contract Value (“ACV”)
• The first 12 months value of the TCV in the period. Billings less than 12 months are included in full
SUSE and Micro Focus
• Subscription and maintenance contract renewal rates are not being provided
• Our methodology is still being refined in order to accommodate data from our multiple systems
• Trending the maintenance revenues provides the best guidance for those revenue streams
51
Metrics Being Provided
EBITDA Reconciliation
52
Year ended
30 April 2017
‘$000
Year ended
30 April 2016
$’000
Operating profit 293,443 294,934
Exceptional items 97,258 27,853
Share-based compensation charge 34,506 28,793
Amortization of purchased intangibles 212,861 181,934
Adjusted Operating Profit 638,068 533,514
Depreciation of property, plant and equipment 11,794 11,419
Amortization of purchased software intangibles 1,175 1,864
Adjusted EBITDA 651,037 546,797
EBITDA 541,671 509,666
Amortization and impairment of development costs (22,398) (19,515)
Share-based compensation charge 34,506 28,793
Exceptional items 97,258 27,853
Adjusted EBITDA 651,037 546,797
Adjusted EBITDA less Exceptional items 553,779 518,944
Cash generated from continuing operations 564,792 456,113
Cash conversion ratio = Cash generated from continuing operations
Adjusted EBITDA less Exceptional items102.0% 87.9%
Group Pro-forma Revenue by Geography
at CCY Year ended 30 April 2017As reported
$m
Year ended 30 April 2016Pro-forma CCY
$m
Micro Focus
North America 591.4 627.1
International 389.7 415.0
Asia Pacific & Japan 96.2 100.2
Total 1,077.3 1,142.3
SUSE
North America 121.8 108.7
International 142.8 111.6
Asia Pacific & Japan 38.8 30.1
Total 303.4 250.4
Group
North America 713.2 735.8
International 532.5 526.6
Asia Pacific & Japan 135.0 130.3
Total revenue 1,380.7 1,392.7
53
Pro-forma Revenues by Geography at Constant Currency
Geographic Analysis Revenue
(at constant currency)
Year ended 30 April 2017 Year ended 30 April 2016 Pro-forma CCY
$m % $m %
CDMS
North America 119.9 45.2% 115.9 44.9%
International 107.3 40.5% 105.9 44.1%
Asia Pacific 38.0 14.3% 36.2 14.0%
Total 265.2 100.0% 258.0 100.0%
Host Connectivity
North America 127.7 72.8% 140.9 71.5%
International 38.3 21.8% 47.7 24.2%
Asia Pacific 9.4 5.4% 8.4 4.3%
Total 175.4 100.0% 197.0 100.0%
IAS
North America 104.4 50.4% 108.6 50.7%
International 85.9 41.5% 88.3 41.2%
Asia Pacific 16.7 8.1% 17.4 8.1%
Total 207.0 100.0% 214.3 100.0%
Development & ITOM
North America 168.7 59.1% 182.2 57.7%
International 96.1 33.7% 108.5 34.4%
Asia Pacific 20.4 7.2% 25.1 7.9%
Total 285.2 100.0% 315.8 100.0%
Collaboration & Network
North America 70.7 48.9% 79.5 50.6%
International 62.1 43.0% 64.6 41.1%
Asia Pacific 11.7 8.1% 13.1 8.3%
Total 144.5 100.0% 157.2 100.0%
Micro Focus
North America 591.4 54.9% 627.1 54.9%
International 389.7 36.2% 415.0 36.3%
Asia Pacific 96.2 8.9% 100.2 8.8%
Total 1,077.3 100.0% 1,142.3 100.0%
SUSE
North America 121.8 40.1% 108.7 43.4%
International 142.8 47.1% 111.6 44.6%
Asia Pacific 38.8 12.8% 30.1 12.0%
Total 303.4 100.0% 250.4 100.0%
TOTAL
North America 713.2 51.7% 735.8 52.8%
International 532.5 38.5% 526.6 37.8%
Asia Pacific 135.0 9.8% 130.3 9.4%
TOTAL 1,380.7 100.0% 1,392.7 100.0%
54
Proportion of Revenue by Portfolio
Year ended 30 April 2017As reported
$m
Year ended 30 April 2016Pro-forma CCY
$m
COBOL Development & Mainframe Solutions 19.2% 18.5%
Host Connectivity 12.7% 14.1%
Identity, Access & Security 15.0% 15.4%
Development & IT Operations Management Tools 20.6% 22.7%
Collaboration & Networking 10.5% 11.3%
Micro Focus Portfolio 78.0% 82.0%
SUSE Portfolio 22.0% 18.0%
Micro Focus Group 100.0% 100.0%
55
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