Unaudited Interim Results for the Six Months Ended 31 October 2017 Chris Hsu Mike Phillips 8 January, 2018
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 conte nts. 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 subs idiary 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 str ategy, 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 oper ate 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 Micro Focus Update Financial Review Questions and Answers 3
Micro Focus Update Chris Hsu CEO, Micro Focus 8 January, 2018
Micro Focus Key Messages ▪ 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 returns on 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
Financial Highlights – 6 months ended Oct. 31, 2017 Pro-Forma Performance Overall Reported Performance ▪ $4,226.7M pro-forma revenue ▪ $1,234.5M total revenue, +80.7% y/y CCY basis ▪ $1,401.1M pro-forma Adjusted EBITDA, at a margin of 33.1% ▪ $530.1M Adjusted EBITDA; +67.7% y/y CCY basis ▪ Adjusted Net Debt of $4,409.7M ▪ 103.87 cents Adjusted Diluted earnings per share; +16.4% ▪ 16.4% increase in interim dividend to 34.60 cents per share ▪ 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) Heritage HPE Software Existing Micro Focus International ▪ $ 569.8M revenue, $226.9M Adjusted EBITDA reported for the 2 ▪ $664.7M revenue; - 2.7% y/y CCY basis versus “broadly flat” months post acquisition guidance ▪ For the 12 months ended Oct. 31, 2017 Micro Focus Product Portfolio SUSE ▪ $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 ▪ $500.3M revenue, -7.0% y/y CCY • $164.4M revenue; deferred revenue haircut) basis +13.1% y/y CCY basis ▪ $841.7M Adjusted EBITDA, +16.6% compared to 12 months ended Oct. ▪ Revenue weakness due to Host • Continues with its 31, 2016 (prior to impact of deferred revenue haircut, bad debt Connectivity, particularly in North provision policy alignment and cost recharge) growth mandate America ▪ 29.1% Adjusted EBITDA margin compared with 23.1% in 12 months ended Oct. 31, 2016. 600 bps margin increase with margin ▪ Operational improvements put on improvement programme on track hold in anticipation of the close of the transaction with HPE Software 6
Pro-forma Group Product Portfolios Pro-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) 14% of FY17 revenue 27% of FY17 23% of FY17 18% of FY17 revenue revenue revenue Application IT Operations Security Delivery Management Management 8% of FY17 12% of FY17 12% of FY17 revenue revenue revenue SUSE Information Application Software Defined Management & Modernization & Infrastructure and Governance Connectivity Application Delivery 7
6 Focused Strategic Priorities Integrate Strengthen Drive Capture Build Execute the companies the go-to- customer- value from the a combined value creating seamlessly market engine centered deal ($600M company that mergers and innovation in EBITDA employees want acquisitions everything improvement) to be part of we do and that customers value as a strategic partner 8
Integrate Our high level strategic plan delivers in four the companies seamlessly distinct phases FY17 FY18 FY19 FY20 Phase IV: Growth Day 1 Day 2 Day 3 Phase III: Stabilisation Actions Phase II: Integration • Top line growth • Click and repeat! • Stabilise top line • Standardise systems Phase I: Assessment • Improve GTM productivity • Rationalise Properties Actions • Growth from new areas • Rationalise Legal entities Actions • Deliver plans for FY17 • Improved profitability • New Go to Market (GTM) Actions • Detailed review of model • Standardise systems combined businesses • Maintain/improve cash • Rationalise Legal entities • Invigorate Product conversion Management • Rationalise underperforming elements • New market initiatives FAST1 delivery, stand up new Go FAST2 & new infrastructure To Market and Product Group orgs 9 & launch Value Capture Plan
Integration Progress Integration Management Office managing 15 work streams with >7500 individual tasks completed to date 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 10
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