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
• Standardise systems
Ac
tio
ns
Phase IV: Growth
• Top line growth
• Standardise systems
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
Constant Currency 263.8 90.9 190.2% 338.2
Reported 263.8 98.3 168.4% 348.3
STATUTORY MEASURES
Pre-tax profit
Constant Currency 98.8 51.6 91.5% 82.3
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 ($m)
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
H1 14 H2 14 H1 15 H2 15 H1 16
Maintenance Licence Services
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
H1 14 H2 14 H1 15 H2 15 H1 16
Maintenance Licence Services
Host Connectivity
31
26m 32s
Identity and Access Security
Group Pro-forma revenue at CCY by type ($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
Maintenance Licence Services
Development and IT Operations
Management Tools
32
27m 37s
SUSE
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
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 ($m)
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0
H1 14 H2 14 H1 15 H2 15 H1 16
North America International Asia Pacific & Japan
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0
H1 14 H2 14 H1 15 H2 15 H1 16
Maintenance Licence Services
43
Pro-forma Revenue at Constant Currency by Half YearSUSE
Revenue by region ($m) Revenue by type ($m)
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
H1 14 H2 14 H1 15 H2 15 H1 16
North America International Asia Pacific & Japan
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
H1 14 H2 14 H1 15 H2 15 H1 16
Subscription Services
44
North America International Asia Pacific
0.0
50.0
100.0
150.0
200.0
250.0
300.0
H1 14 H2 14 H1 15 H2 15 H1 16
Maintenance Licence Services
0.0
50.0
100.0
150.0
200.0
250.0
300.0
H1 14 H2 14 H1 15 H2 15 H1 16
Maintenance Licence Services
0.0
50.0
100.0
150.0
200.0
250.0
300.0
H1 14 H2 14 H1 15 H2 15 H1 16
Maintenance Licence Services
45
Pro-forma Revenue at Constant Currency by Half Year
Region Revenue by type ($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
Subscription Services
0.0
10.0
20.0
30.0
40.0
50.0
60.0
H1 14 H2 14 H1 15 H2 15 H1 16
Subscription Services
0.0
10.0
20.0
30.0
40.0
50.0
60.0
H1 14 H2 14 H1 15 H2 15 H1 16
Subscription Services
46
Pro-forma Revenue at Constant Currency by Half Year
Region Revenue by type ($m)
SUSE
0.0
50.0
100.0
150.0
200.0
250.0
300.0
H1 14 H2 14 H1 15 H2 15 H1 16
CDMS Host Connectivity
IAS Development & ITOM
Collaboration & Network
0.0
50.0
100.0
150.0
200.0
250.0
300.0
H1 14 H2 14 H1 15 H2 15 H1 16
Maintenance Licence Services
47
Pro-forma Revenue at Constant Currency by Half Year
North America
Micro Focus
Revenue by product ($m) Revenue by type ($m)
Pro-forma Revenue at Constant Currency by Half Year
International
Revenue by product ($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
Maintenance Licence Services
48
Revenue by type ($m)
Pro-forma Revenue at Constant Currency by Half Year
Asia Pacific and Japan
0.0
50.0
100.0
150.0
200.0
250.0
300.0
H1 14 H2 14 H1 15 H2 15 H1 16
CDMS Host ConnectivityIAS Development & ITOMCollaboration & Network
0.0
50.0
100.0
150.0
200.0
250.0
300.0
H1 14 H2 14 H1 15 H2 15 H1 16
Maintenance Licence Services
49
Micro Focus
Revenue by product ($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)
• Decline in Licence (24.7%), Maintenance (11.0%) and Consultancy (6.3%)
– Collaboration & Networking declined by 20.6% to $83.2m (2014: $104.8m)
• Decline in Licence (33.0%), Maintenance (17.1%) and Consultancy (34.8%)
• 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
Period ended 31 October 2014
(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)
Operating profit 150,403 63,661 147,236
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)
Period ended 31 October 2015
(unaudited) $’000
Period ended 31 October 2014
(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
As at 31 October 2014
(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)
As at 31 October 2015
(unaudited) $’000
As at 31 October 2014
(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)
Operating profit 150,403 63,661 147,236
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
Operating profit 150,403 63,661 147,236
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
Operating profit 150,403 63,661 147,236
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
Asia Pacific & Japan 14.1 15.0 (6.0%) 28.8
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
Asia Pacific & Japan 56.5 61.7 (8.4%) 127.4
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