Unaudited Interim Results for the Six Months Ended 31 October 2017
Chris Hsu Mike Phillips 8 January, 2018
Unaudited Interim Results for the Six Months Ended 31 October 2017 - - PowerPoint PPT Presentation
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
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
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.
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Micro Focus Update Financial Review Questions and Answers
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Chris 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 returns
▪ HPE Software transaction thesis is intact and strong ▪ Committed to delivering the value creation outlined at the announcement of this
transaction
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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
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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
+13.1% y/y CCY basis
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)
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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)
Information Management & Governance IT Operations Management Application Delivery Management Security
18% of FY17 revenue
14% of FY17 revenue
12% of FY17 revenue 27% of FY17 revenue 23% of FY17 revenue
Application Modernization & Connectivity
12% of FY17 revenue
SUSE
Software Defined Infrastructure and Application Delivery 8% of FY17 revenue
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Integrate
the companies seamlessly
Drive
customer- centered innovation in everything we do
Strengthen
the go-to- market engine
Capture
value from the deal ($600M EBITDA improvement)
Build
a combined company that employees want to be part of and that customers value as a strategic partner
Execute
value creating mergers and acquisitions
Phase I: Assessment
combined businesses
Management Actions
Phase II: Integration
Actions
model
conversion
elements
Phase III: Stabilisation
Actions
Phase IV: Growth
Actions
FY17 FY18 FY19 FY20
Day 2 Day 1 Day 3
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FAST1 delivery, stand up new Go To Market and Product Group orgs & launch Value Capture Plan FAST2 & new infrastructure
Integrate
the companies seamlessly
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Systems and Infrastructure
Simplification & Business Structure
delivery of products to market, and leveraging shared technology
Communication
Integration Management Office managing 15 work streams with >7500 individual tasks completed to date
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Governance structure
Regulatory Key value delivery Infrastructure Required Enablers
Project Categories Assessment
Expected benefits Budget alignment Change capacity
Enterprise 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 Phillips
Director of M&A
Jane Smithard
Group General Counsel & Board Secretary
Swavek Bialkiewicz
Strategy, Operations & Pricing 12
Chris Livesey
Application Modernization and Connectivity Product Group
John Delk
Chief Product Officer & Security and Information Management Product Groups
Colin Mahony
Big Data
Tom Goguen
IT Operations Management Product Group
Raffi Margaliot
Application Delivery Management Product Group
Stephen Murdoch
Chief Operating Officer
Chris Kennedy
Chief Financial Officer
Ian Fraser
Chief Human Resources Officer
Michael Steinmetz
Support, Professional Services & License Verification
Sue Barsamian
Sales & Marketing
Robert Makheja
Micro Focus Government Solutions
Chris Hsu
Chief Executive Officer
Kevin Loosemore
Executive Chairman
Nils Brauckmann
CEO, 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 rigour across UK and US listed companies
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▪
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 Kennedy
Chief Financial Officer
Ian Fraser
Chief 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.
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Mike Phillips CFO, Micro Focus 8 January, 2018
Six months ended 31 October 2017 $m Six months ended 31 October 2016 $m (Decline)/ Growth % Year ended 30 April 2017 $m
Total Constant Currency Revenue 1,234.5 683.0 80.7% 1,387.6
327.7 148.1 121.3% 314.0
611.5 363.2 68.4% 723.8
162.6 142.7 13.9% 295.7
80.3 29.0 176.9% 54.1
52.4
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
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.
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▪ 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
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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
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
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 2017 Reported $m Six months ended 31 October 2016 CCY $m Six months ended 31 October 2016 Reported $m Existing Micro Focus HPE Software Micro Focus SUSE Group Micro Focus SUSE Group 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)
(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
0.5 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)
(3.2)
(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%
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Actual – Six months ended 31 October 2017 CCY – Six months ended 31 October 2016 Reported Amortisation
Intangibles Share Based Compensation Exceptional Items Adjusted Operating Costs CCY Amortisation
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
The 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:
H2 17 compared to H2 16, average exchange rates:
6 Months to 31 October 2017
Enlarged Group - Pro-forma
6 Months to 31 October 2016
As 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 Oct-15 Apr-16 Oct-16 Apr-17 Oct-17
USD to GBP
0.700 0.725 0.750 0.775 0.800 Oct-15 Apr-16 Oct-16 Apr-17 Oct-17
USD to CAD
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Six months ended 31 October 2017 As reported $m Six months ended 31 October 2016 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
(0.5)
5.8
104.3 41.0 97.3
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▪ 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
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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) 50 100 150 200 250 300 350 400 450 500 550 600
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 % 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 (350) (300) (250) (200) (150) (100) (50) 50 100 150 200 250 300 350 400 450 500 550 600
6m-Oct 15 6m-Apr 16 6m-Oct 16 6m-Apr 17 6m-Oct 17 Days sales outstanding
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
“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.
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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
(5,436) 3,572 543 (4,400) 9,445 2,915 4,890
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
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.
Six months ended 31 October 2017 $m Six months ended 31 October 2016 $m Year ended 30 April 2017 $m
Non-current assets 15,625.3 4,301.7 4,203.8 Inventories 0.5 0.1 0.1 Trade and other receivables 1,251.6 277.9 289.5 Current tax receivables
1.6 Cash and cash equivalents 730.4 123.0 151.0 Assets classified as held for sale
17,607.7 4,707.0 4,646.0 Liabilities Current Liabilities Trade and other payables 934.7 151.2 170.0 Borrowings 17.7 294.2 71.2 Finance Leases < 1 year 14.5
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
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
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Six months ended 31 October 2017 $m
ETR
Six months ended 31 October 2016 $m
ETR
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
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Micro Focus Product Portfolio
Security IT Operations Management Application Delivery Management Information Management & Governance Application Modernization & Connectivity SUSE
Micro Focus International
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 Networking Collaboration and Networking (excluding CORBA) CORBA SUSE Open source software defined infrastructure, application delivery and Linux platform
HPE Software
IT Operation Management IT Operations Management Application Delivery Management SiteScope, BPM, APM Platform All ADM (minus SiteScope, BPM, APM Platform) Enterprise Security Product Security Platform IDOL , Vertica Information Management Business Data Protector VM Explorer All IMB (except DP and VM Exp)
Chris 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 returns
▪ HPE Software transaction thesis is intact and strong ▪ Committed to delivering the value creation outlined at the announcement of this
transaction
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Pro-forma is 12 months to 31 October 2017 $2,866.0M (HPE Software) + $1,040.3M (Micro Focus PP) + $320.4M (SUSE) = $4,226.7M (Pro-Forma Group)
Information Management & Governance IT Operations Management Application Delivery Management Security
18% of FY17 revenue
14% of FY17 revenue
12% of FY17 revenue 27% of FY17 revenue 23% of FY17 revenue
Application Modernization & Connectivity
12% of FY17 revenue
SUSE
Software Defined Infrastructure and Application Delivery 8% of H1 18 revenue
35
Pro-forma Enlarged Group Revenue : 6 months to 31 October , 30 April
200 300 400 500 600 700 800
31/10/2015 30/04/2016 31/10/2016 30/04/2017 31/10/2017
REVENUE BY TYPE ($M)
Maintenance Licence SaaS Consultancy
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 ($M)
Micro Focus HPE Software
27%
FY17 Enlarged Group Pro-forma Revenue %
36
Pro-forma Enlarged Group Revenue : 6 months to 31 October , 30 April
200 300 400 500 600 700 800
31/10/2015 30/04/2016 31/10/2016 30/04/2017 31/10/2017
REVENUE BY TYPE ($M)
Maintenance Licence SaaS Consultancy
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 ($M)
Micro Focus
HPE Software
23%
FY17 Enlarged Group Pro-forma Revenue %
37
Pro-forma Enlarged Group Revenue : 6 months to 31 October , 30 April
200 300 400 500 600 700 800
31/10/2015 30/04/2016 31/10/2016 30/04/2017 31/10/2017
REVENUE BY TYPE ($M)
Maintenance Licence SaaS Consultancy
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 ($M)
Micro Focus HPE Software
18%
FY17 Enlarged Group Pro-forma Revenue %
38
Pro-forma Enlarged Group Revenue : 6 months to 31 October , 30 April
200 300 400 500 600 700 800
31/10/2015 30/04/2016 31/10/2016 30/04/2017 31/10/2017
REVENUE BY TYPE ($M)
Maintenance Licence SaaS Consultancy
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 ($M)
Micro Focus HPE Software
12%
FY17 Enlarged Group Pro-forma Revenue %
39
Pro-forma Enlarged Group Revenue : 6 months to 31 October , 30 April
200 300 400 500 600 700 800
31/10/2015 30/04/2016 31/10/2016 30/04/2017 31/10/2017
REVENUE BY TYPE ($M)
Maintenance Licence SaaS Consultancy
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
12%
FY17 Enlarged Group Pro-forma Revenue %