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A transformational year A transformational 2015 Accounts and Report Annual Micro Focus International plc Annual Report and Accounts 2015 Overview IFC Key highlights Key highlights Strategic report 04 Executive Chairman’s statement Revenue ($m) Adjusted Operating Profit ($m) 16 Operational and financial review $834.5m $347.8m 24 Key performance indicators 26 Principal risks and uncertainties 11 436.1 11 153.0 29 Corporate social responsibility 12 434.1 12 174.7 13 412.2 13 182.2 Corporate governance 14 433.1 14 187.5 35 Executive Chairman’s introduction 15 834.5 15 347.8 36 Board of directors 38 Corporate governance report 42 Audit committee report Adjusted EBITDA ($m) Adjusted profit before tax ($m) 47 Nomination committee report $357.6m $294.4m 48 Directors’ Remuneration report 70 Directors’ report 11 158.7 11 117.9 12 179.1 12 173.5 Consolidated financial statements 13 186.3 13 176.1 and notes 14 192.0 14 179.6 78 Independent auditors’ report to the 15 357.6 15 294.4 members of Micro Focus International plc 84 Financial statements and notes Profit before tax ($m) Cash generated from Company financial statements $91.4m continuing operations ($m) and notes 132 Independent auditors’ report to the $288.7m members of Micro Focus International plc 11 114.5 11 182.3 134 Financial statements and notes 12 148.6 12 196.7 13 151.5 13 192.4 Additional information 14 147.8 14 206.8 144 Offices worldwide 15 91.4 15 288.7 146 Historical summary 147 Key dates and share management 148 Company information Diluted Adjusted earnings Diluted earnings per share (c) per share (c) 56.71c 129.43c 11 53.81 11 46.15 12 70.93 12 63.81 13 84.87 13 75.23 14 97.48 14 82.35 15 129.43 15 56.71 Total dividend per share (c) 48.4c 11 23.4 12 31.6 13 40.0 14 44.0 15 48.4 Who we are Overview Micro Focus specializes in managing mature infrastructure software assets which have been delivering value to significant numbers of customers over long periods of time. A global infrastructure software business with revenues of c. $1.3bn and EBITDA of c. $500m. Strategic report What we do We help our customers bridge the old and the new enabling them to leverage additional value from their investments in critical IT infrastructure and business applications. By enabling our customers to link their investments Corporate governance in established technology with the latest innovation, Micro Focus helps customers gain incremental returns on investments they have already made and to preserve and protect their data and business logic. Progress against our four phase plan statements and notes financial Consolidated FY15: Assessment FY16: Integration FY17: Stabilization FY18: Growth statements and notes financial Company Additional information Additional Micro Focus International plc Annual Report and Accounts 2015 01 Micro Focus International plc Annual Report and Accounts 2015 02 Overview Strategic reportStrategic 03 Corporate governance statements and notes financial Consolidated statements and notes financial Company Strategic report Strategic Additional information Additional Annual Report and Accounts 2015 Micro FocusMicro International plc Executive Chairman’s statement 2015 was a significant year for Micro Focus has not changed in any significant way from integration review and reiterated the in the execution of its long-term strategy. the plan laid out three and a half years ago. remaining three stage plan that will During the year we completed the acquisition Micro Focus sets out to deliver consistent consolidate and strengthen the combined of The Attachmate Group (‘TAG’). The long-term shareholder returns of between business, with the goal of delivering modest acquisition, which was completed on 15% and 20% per annum. The board is revenue growth in the medium-term. 20 November 2014, means that we have confident that medium-term low single digit We are building a strong platform with created a global infrastructure software revenue growth, industry leading margins and anticipated operating cash flows in excess business with revenues of c. $1.3bn and strong cash conversion will ensure that Micro of $500m per annum from which we EBITDA of c. $500m which we estimate places Focus can deliver on that strategy. can achieve significant returns of value the Group in the top 15 by size worldwide of to our shareholders and/or further highly similar businesses. The acquisition was well The Company has an industrial strategy; accretive acquisitions. received by the market with the share price up a financial strategy; an operating plan over 60% since the day before announcement and an incentive strategy that are all linked Integration Review of the transaction up to the date these and focused on our objective to achieve The objective of the review was to build financial statements were signed. 15% to 20% compound annual return a strong plan and foundation on which for shareholders. Since IPO in 2005 until to deliver the Group’s potential. The acquisition has clear industrial logic 30 April 2015 the annual compound to extend market presence in mature and shareholder return has been 26.8%. The key deliverables from the review were: growing segments; to increase the operational efficiency of the combined Group; and to When we announced the acquisition on — The design of a combined organization deliver effective product management and 15 September 2014 we set out a four phase to be implemented with effect from improve sales productivity. Furthermore, it is plan for the combination of the businesses 1 May 2015; 100% consistent with the Company’s strategy whilst continuing to deliver sustainable which, as you will see in the following pages, shareholder returns. — A restructuring plan for the next 24 months; Implementation: Four Phase Plan whilst delivering sustainable — A combined budget for FY16; shareholder returns — Decisions on Company and Product FY15 FY16 FY17 FY18 Branding; Phase 4: — Decisions on product priorities and Growth required execution plans; Phase 3: Stabilization Actions: — A systems design and implementation plan Phase 2: — Top line growth for the Company’s IT infrastructure; and Integration Actions: Phase 1: — Stabilize — Confirmation of the Company’s cash Assessment Actions: top line flow profile. — Standardize — Improve GTM Actions: systems productivity Prior to the acquisition of TAG, Micro — Deliver plans — Rationalize — Growth from Focus managed its portfolio of mature for FY15 properties new areas infrastructure products through a global — Detailed — Rationalize — Improved product management and development review of legal entities profitability organization and with a geographic Go to combined — New Go to Market (‘GTM’) organization. Fundamental businesses Market (GTM) to this approach was a detailed analysis of the — Invigorate model individual products, their markets, customers product — Maintain/ and growth potential. This approach has management improve cash served us well and as part of the Integration conversion Review has been applied to the portfolio of — Rationalize products in the Enlarged Group. underperforming elements As the Linux market and Open Source — New market business have unique characteristics, we initiatives now have a dedicated focus on the SUSE product portfolio headed by Nils Brauckmann as President and General Manager, SUSE. This focus is essential if we are to capitalize We kept Base Micro Focus and TAG on the growth potential of these offerings operating separately during their respective and be responsive to the Open Source financial year ends whilst the assessment community and strong heritage of SUSE. of the acquired business and planning for We are increasing the headcount dedicated the integration was done. On 6 April 2015 to development, customer care and sales we announced the conclusion of our and marketing of the SUSE Portfolio. Micro Focus International plc Annual Report and Accounts 2015 04 Overview The rest of our products will be managed These actions will make integration of By enabling our customers to link their as a portfolio led by Stephen Murdoch, future acquisitions easier to achieve and investments in established technology Chief Operating Officer of Micro Focus. deliver a faster time to value. with the latest innovation, Micro Focus This portfolio will comprise products that were helps customers gain incremental returns in Micro Focus, NetIQ, Attachmate and Novell. At completion of the acquisition on on investments they have already made This approach is consistent with how we have 20 November 2014 the total employee and to preserve and protect their data and managed Micro Focus successfully over the headcount was 4,641. As a result of business logic. The most striking example reportStrategic last four years and we believe that by adopting implementing the actions outlined on of this is that an application written in this model we can serve our customers and 6 April 2015 there will be a gross reduction Micro Focus COBOL 38 years ago – partners better. Within this portfolio, each in employee headcount of approximately before anyone had thought of Linux, product will have a defined strategy, target 500 and an increase, compared to Windows, virtualization, cloud or wireless market and growth profile and we will make 20 November 2014, of headcount in communications – will work today in all investments accordingly. We will retain a other areas of approximately 150, resulting of those environments. Micro Focus has geographic GTM organization with dedicated in a net reduction of employee headcount made this a reality. By contrast, if a COBOL sales teams by portfolio but with management of approximately 7.5% compared with application had been rewritten in another targeted on the sales of both the Micro Focus 20 November 2014. language, to execute in Java or .NET the and SUSE Portfolios. customer would have to do additional As a result of the acquisition of TAG incremental re-writes and incur significant A consequence of this decision is that we and the actions resulting from the costs every time there was a major Corporate governance are simplifying the branding and packaging integration review, we have an exceptional technology change.