investor & analyst day - micro focus · – delivering customer value as a result of relevant...

INVESTOR &ANALYST DAY29 September 2010

AGENDA

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8.30am Coffee9.00am Welcome and introduction Tim Brill9.10am Overview – areas of progress, areas of focus – and the new team Nigel Clifford9.30am The market, the customer and Micro Focus Stuart McGill10.00am How the portfolio works together Neil Fowler

10.30am Coffee break & Demos11.00am Application migration in the field Andrew Wickett 11.20am Connecting our products with customers Malcolm Collins11.50am Q&As Management team 12.15pm Summary Nigel Clifford12.30pm Lunch & Demos

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 within the Micro Focus Group.

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 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 Services 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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OVERVIEW

Nigel Clifford, CEO

5 TAKEAWAYS FROM TODAY

5

Micro Focus has a strong:

1. Market opportunity

2. Customer offer

3. Product set

4. Focus on operational excellence

5. Team

OUR STRATEGY

Modernisation

Migration

AMQCobol Development

6

Customers Investors

GROWTH POTENTIAL: $6.4 BILLION MARKET OPPORTUNITY

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$4B Test/AMQ

Modernisation & Migration$1.7B

COBOL Development$0.7B

Market Opportunity$6.4B

Growth Potential

24 JUNE PRELIMS PERSPECTIVE; FIRST 60 DAYS – IMPRESSIONS ON IMPROVEMENT AREAS

“To Move from Good to Great” Aligning the company around the expanded market opportunity

Improvements in:– High volume, low value transactions– Lead generation process– Consulting and professional services– Maintenance renewals in AMQ– Continued focus on cost deployment

Investments in:– Organic growth, eg improved product management and development– Acquisition strategy for growth markets

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Caliber RDMSilk Test

Silk Central Test ManagerSilk Performer Cloudburst

Analyser ExpressStudio & Server Enterprise Edition

Visual Cobol

CONNECTING PRODUCT TO MARKET

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CONNECTING PRODUCT TO MARKET

9

Product A

B

D E

C

F

IHG

Products Channels Customers

Leadership team

CONNECTING PRODUCT TO MARKET

$ licence$ consulting$ maintenance

Partners

CONNECTING PRODUCT TO MARKET

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Product A

B

D E

C

F

IHG

Products Channels Customers

L

M

S

Field sales force

Telesales

Web

Marketing -

Awareness& Lead

Generation

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A NEW TEAM, BLENDING MICRO FOCUS AND LARGER COMPANY EXPERIENCE

Nigel Clifford, CEO – Symbian, Nokia, BT, C&W, Tertio, NHS

Mike Phillips, CFO – Morse, Microgen

Malcolm Collins, President Sales – Nortel, NCR

Julian Critchfield, EVP Product Development – Oracle, Microsoft

Jim Cassidy, CMO – IBM, BEA

Stuart McGill, CTO – more than 10 years Micro Focus

Jane Smithard, Group General Counsel & Company Secretary

– more than 10 years Micro Focus

Paul Rodgers, Group HR Director – four years Micro Focus, plus IBM

Tim Brill, Group Communications Director – three years Micro Focus, plus AT&T

24 JUNE PRELIMS PERSPECTIVE; FIRST 60 DAYS – IMPRESSIONS

“Good” Exciting $6.4B market opportunity

– Delivering customer value as a result of relevant Micro Focus propositions– Leading COBOL market position – extensive technology expertise and experience– Challenger in AMQ, leader in Modernisation and Migration– Growing number of large deals

Strong, sustainable margins; robust cash generation

‘Assets’– Broad geographic reach– Multiple partnerships– Valued technology and consulting expertise– Ambitious company - proven acquisition and integration capability

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5 TAKEAWAYS FROM TODAY

Micro Focus has a strong:

1. Market opportunity – Stuart McGill

2. Customer offer – Stuart McGill, Andrew Wickett

3. Product set – Neil Fowler

4. Focus on operational excellence – Malcolm Collins

5. Team – Q&As

delivering outstanding shareholder value

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GLOBAL LEADERS IN MODERNISATIONStuart McGill, CTO

GROWTH POTENTIAL: $6.4 BILLION MARKET OPPORTUNITY

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Revenue stabilisationbefore resuming growth

Market challenger

Migration to Micro Focus platform on open systems & cloud

Displacement strategy Strengthen leadership

position

Market leader Resilient business model High maintenance

renewals

Source: Growth rates averaged from Gartner, Forrester, IDC Market Analysis 2008-13 – Updated 2010

Market Forecast +6% CAGR 2011-2013

Market Forecast >10% CAGR 2011-2013

Market Forecast Low single digit CAGR

2011-2013

Market Data

$4B Test/AMQ

Modernisation & Migration$1.7B

COBOL Development$0.7B

Market Opportunity$6.4B

Growth Potential

HOW CUSTOMERS BOUGHT FROM US – 9 PRODUCT LINESE

nter

pris

e Vi

ew

iSig

nt(M

oder

nisa

tion

Wor

kben

ch)

Cal

iber

Dev

elop

er

Rum

ba

Silk

Ent

erpr

ise

Ser

ver

Visi

Bro

ker

Sta

r Tea

m

Product Lines

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HOW WE RUN OUR BUSINESSE

nter

pris

e Vi

ew

iSig

nt

Cal

iber

Dev

elop

er

Rum

ba

Silk

Ent

erpr

ise

Ser

ver

Visi

Bro

ker

Sta

r Tea

m

Test/AMQ

Migration

COBOL Developer

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Product Lines

HOW CUSTOMERS VIEW US – ONE SOLUTION

Modernisation

Micro Focus

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Ent

erpr

ise

View

iSig

nt

Cal

iber

Dev

elop

er

Rum

ba

Silk

Ent

erpr

ise

Ser

ver

Visi

Bro

ker

Sta

r Tea

m

Product Lines

OUR SOLUTION

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Micro Focus is the global leader in Modernisation.We provide the software

innovation and expertise to transform the Enterprise

Applications running your business today.

We identify the competitive advantage and business value to be enhanced, to take you into the future and to rapidly move your business to wherever you

want to be.

WebWebAjax, FlashAjax, Flash

IMS CICS

LinuxJava

z/OSPL/1

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COBOL

COBOL

THE ENTERPRISE APPLICATION LANDSCAPE

UNIX/LinuxC++/Java

WindowsC##

THE MICRO FOCUS MODERNISATION DIFFERENCE – PROTECTING AND ENHANCING IP

LP to digital

From mainframe to cloud

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Protect IP;Lower Costs;Reduce Risk

240+ billion lines; 50+ million

man years of investment in

COBOL

THE MODERNISATION JOURNEY FOR OUR CUSTOMERS

Cost

100

Where you are

Current (SDLC) development process

Enterprise Applications on current Operating

Platforms

Time

Agile

22

Where you want to be today

Agile, efficient managed (SDLC) development

process

Modernised Enterprise Applications on New Operating Platforms

Where you want to be in the future

Agile, efficient managed (SDLC) cloud based development process

Cloud based Enterprise Applications on New Operating Platforms

A MODERNISATION JOURNEY WITH MICRO FOCUS

1

2

100

Agile

Continuous Improvement

Tran

sfor

mat

iona

l Im

prov

emen

t

Cost

Time

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Step 2

Continuous Improvement –‘Modernise’Use the cost savings to Modernise the Enterprise Application on the new Micro Focus platform on a continuous basis to meet future business requirements.

Step 1

Transformation Improvement –‘Migrate’Move existing Enterprise Applications from the current Operating Platform to a new modern, cost effective and flexible platform from Micro Focus to deliver immediate operating cost savings of up to 85%.

THE TRADITIONAL APPROACH

1

2

Traditional ApproachesMost approaches integrate the incremental change to Enterprise Applications with a change in operating platform.

Cost savings are only achieved when a completed project is delivered.

Combined with the requirement to continuously improve applications this increases the risk of cost overruns and late delivery.

100

Agile

Continuous Improvement

Tran

sfor

mat

iona

l Im

prov

emen

t

Cost

Time

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THE MICRO FOCUS ADVANTAGE

1

2

Cost reductions delivered early,improvements accelerated and de-risked

100

Agile

Continuous Improvement

Tran

sfor

mat

iona

l Im

prov

emen

t

Cost

Time

25

THE MICRO FOCUS ADVANTAGE

1

2Continuous Improvement

Tran

sfor

mat

iona

l Im

prov

emen

t

100

Agile

Cost

Time

Value ($)

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MIGRATING FROM THE MAINFRAME STARTS THE JOURNEY

1 Mainframe deployment

UI/Data integration

Mainframe development &

deployment

Enterprise integration

Micro Focus Modernisation

options

Micro Focus development &

deployment

2

3 4

Step 1Bring mainframe skills to the workstation to increase productivity and double new development capacity for mainframe hosted applications.

Step 2 Deploy mainframe applications on Windows, Unix or Linux to reduce operating costs by up to 90%.

Step 3Enhance applications for new uses through user interface, integration and data solutions for deployment as web services in .Net and J2E.

Step 4Improve software development processes from requirements through testing and delivery to optimise Application Management.

Agility

Cost100

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Micro Focus AMQ Value

Profiling

Micro Focus development

COST DIFFERENCES ACROSS MODERN PLATFORMS

1 UNIX/Linux deployment

UI/Data integration

UNIX/Linux Operating Platform

Enterprise integration

Micro Focus Windows

Integration

Micro Focus Windows

development & deployment

2

3

Micro FocusWindows

development

Step 1Use the most advanced development skills on Windows to increase productivity and capacity for UNIX/Linux deployed hosted applications.

Step 2Deploy applications on the Windows platform integrated with SQLServer and Systems Management.

Step 3 Enhance applications for new uses through platformprovided analytics and Office integration.

Agility

Cost100

4

Step 4Improve software development processes from requirements through testing and delivery to optimise Application Management.

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Micro Focus AMQ Value

Profiling

Agility

CLOUD DEPLOYMENT IS THE NEXT STRATEGIC OPTION

1 Clouddeployment

UI/Data integration

Current Operating Platform

Enterprise integration

Micro Focus Enterprise

Cloud Services

Micro Focus Cloud

development & deployment

2

3

Micro Focus development

Cost100

4

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Micro Focus AMQ Value

Profiling

Step 1Bring existing development skills to the Cloud to increase productivity and capacity for web hosted applications.

Step 2Deploy existing applications on Cloud platforms including Azure, Google and Amazon with supporting development practices.

Step 3Enhance applications for new uses through Application mash-ups integrating Enterprise Applications with external sources and networks.

Step 4Improve software development processes from requirements through testing and delivery to optimise Application Management.

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MOVING TO THE MICRO FOCUS PLATFORM

Efficient, modern platformUnderstand

portfolioreality

Validatequality

Validateperformance

Capturebusiness

intent

Aligned with business goals

Enterprise / Developer

Enterprise / Developer

CONTINUOUS IMPROVEMENT OF THE SOFTWARE DEVELOPMENT LIFECYCLE

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i.Sighti.Sight SCTMSCTM

SilkPerformerSilkPerformerCaliberCaliber

Additional Modernisation

C/C++ Developer

Data Migration

RPG Application Server

Business Process Integration

C/C++ Corba server

(Visibroker)

COBOL (application)

server

Transaction Processing Server

Event Management/

Scheduling

Enterprise Server

Java Application Server

C/C++ Developer

Java Developer

AMQ for SLDC

RPG Developer

COBOL and PL/I Developer

Legend

POTENTIAL TO EXTEND THE PLATFORM WITH ACQUISITIONS

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POTENTIAL TO EXTEND THE PLATFORM WITH ACQUISITIONS

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Potential expansionCurrent MF solutions Opportunity +c.$6bnOpportunity $6.4bn

THE MICRO FOCUS OPPORTUNITY

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Unique focus on the value of Enterprise Applications

30 years of technology expertise

Delivering customer choice

Transforming business

Delivering value early

Industry partnerships

Cloud

Web services

Client server

PC

Mainframe

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HOW THE PORTFOLIO WORKS TOGETHERNeil Fowler

Efficient, modern platformUnderstand

portfolioreality

Validatequality

Validateperformance

Capturebusiness

intent

Aligned with business goals

Enterprise / Developer

Enterprise / Developer

CONTINUOUS IMPROVEMENT OF THE SOFTWARE DEVELOPMENT LIFECYCLE

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i.Sighti.Sight SCTMSCTM

SilkPerformerSilkPerformerCaliberCaliber

Additional Modernisation

INVESTOR &ANALYST DAY29 September 2010

CUSTOMER DELIVERYAndrew Wickett

CUSTOMER IMPERATIVES

Business challenges for the CIO:– Save Money– Reduce “Technology Stack” (standardize)– Reduce Time on System Support– React to Business Faster – Reduce “Backlog”

CIO constraints:– High Cost of Mainframe– Limited Resources / Team “too busy”– Shorter ROI / Payback periods– Limited Capital (Investment Funds) – Too Many Platforms– Don’t believe that Migration will work for them

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OUR APPROACH TO THE CUSTOMER

Understanding the customer

Tailoring the Micro Focus solution to the customer’s needs:– Reduce Production costs by 50+%– With MINIMAL change– NO impact to Business– Business Case & ROI

Why it’s better than other options– Partner validation – Microsoft, Accenture– Industry analysts’ validation – Gartner, Forrester, IDC– Value Chart (save money faster, less investment)– Case Studies

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Detailed Statement of Work (SOW)– Customer, Partner(s) & Micro Focus Roles/Responsibilities– Timeline & Deliverables – NOT just the “Migration tasks”

Engaged Customer Team; Engaged Partner Team

Steering Committee– Ability to escalate & get timely decision

Regular (Bi-Weekly) Status reports – Issues Review (solutions & impact) + Risk Management (plan & owners– Look Forward Review (what’s next & are we ready)

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HOW WE MANAGE THE PROJECT

THE BENEFITS TO THE CUSTOMER

Reduced Costs

Improve Productivity AND Quality

Ability to “take advantage” of distributed environment

Ability to reinvest the Savings in other Modernisation initiatives

Lower Current AND Future costs

Eliminate duplication of data (e.g. Mainframe data copied to distributed environment)

Staff Satisfaction

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OWENS & MINOR CUSTOMER CASE STUDY

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Corporate Profile: $8 billion revenue in FY2009 Founded in 1882, headquartered in Richmond, Virginia, US 4,800 employees Market leader in the sales & distribution of medical and surgical

supplies to hospitals 4,600 healthcare provider customers

Business challenge: Custom ERP system running on mainframe Decades of O&M’s business processes in applications containing

10 million lines of COBOL code Escalating annual operating costs Scarce capacity for technology R&D

OWENS & MINOR CUSTOMER CASE STUDY

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Migration Benefits: Preserve O&M custom systems and business rules Estimated $150 million cost estimate for alternative

package or rewrite options 10 million lines of COBOL code moved easily with

Micro Focus Significant, ongoing operating expense savings

from the new platform; savings fund modernisationof user interfaces and data 100% more capacity for technology R&D 4X faster processing of orders Significant increases in developer productivity and

data more available to all employees for quickerresponse times to customers Faster to market with new services and technology Support to O&M company growth without

additional IT operating expense

Craig Smith, CEO:

CONNECTING OUR PRODUCTS WITH CUSTOMERSMalcolm Collins

BIOGRAPHY

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Previous roles: NCR Corporation

– SVP Global Sales and Marketing ($5bn+)Responsible for driving growth of NCR’s assisted and self-service solutions across multiple industries in more than 100 countries

– SVP Financial Solutions Division ($2.3bn+)End-to-end responsibility of ATM and financial self-service business including payments and imaging solutions

Nortel Networks– President, Global Enterprise Division ($2.5bn+)

End-to-end responsibility for all elements of Nortel’s Enterprise business, including business development, products, marketing and sales

Malcolm CollinsPresident, Global Sales

Prior to joining Micro Focus, Malcolm Collins spent over 25 years in theHi-Tech industry in key leadership positions with NCR and Nortel Networks. He brings significant global sales management and execution expertise in core areas of Global and Enterprise Sales, Software and Professional Services and Maintenance.

Fundamentally a strong business

Q1 Important Lessons– AMQ post integration– Sales execution

Current Focus of Attention– AMQ drive to success– Pipeline analysis and growth– Sales discipline and accountability– Aligned management structure– Energised partner programme

IMPORTANT LESSONS

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This is now about execution

SALES FORCE EVOLUTION

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COBOL Development

Migration and Modernisation

Application Managementand Modernisation Solutions

• Direct Field Sales• ISV Channel

Sales force <100

Higher Value Deals

• Direct Field Sales• Technical Services• SI Partner Channel• ISV Channel• Resellers

Broader Portfolio

Higher Value Deals

• Direct Field Sales• Partner Programme• Professional Services• ISV Channel• Telesales• Reseller Programme• Maintenance Sales

Sales force 260

Valu

e &

Com

plex

ity

Aug 2009 May 2010

Acquisition - Staff Changes

(Planned & Unplanned)

Borland & Compuware acquisitions New GTM Model

CHALLENGES OF THE NEW GO-TO-MARKET MODEL

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NamedAccounts

SmallEnterprises

We have a clear understanding of our customer segmentsand how to grow our business...

Field Sales supported by

Telesales

Field Sales

TelesalesResellers

GTM Coverage FY 2010

Telesales

Field Sales(Greater Focus)

ResellersWeb

GTM Coverage FY 2011

Sale

s C

ycle

+

++

++++2,000

Accounts

more than 100,000

Organisations

MediumEnterprises

more than 10,000

AccountsImprove

Coverage

ORGANISATION MATURITY & STABILITY

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Partners

Inside Sales

Maintenance

Professional Services

AMQ

North America International Asia

Pacific

Regional Businesses

Glo

bal B

usin

esse

s

Executive Management Team (avg. tenure 1.5yr)– Stable, now aligned to new Go-to-Market Model and bring significant experience

Country Managers (avg. tenure 4.5yr)– Stable

Sales (50% less than 1yr)– LOS impact of new inside sales recruitment – Planned and unplanned field sales churn

Partner organisation now in place

LFR (42%)

MFR (51%)

CFR (7%)

FY 2010

Revenue split as per FY10 group accounts

SALES EXECUTION

New Go-to-Market Implementation– Medium enterprise direct

and channel focus– Pipeline mix

Increased focus on partners and inside sales

Action

Refresh comp plans, stable leadership

On-boarding training Fill vacancies

Weekly forecast– Commit process– Bid review process– Comp review

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• Sales force stability & experience– New inside sales teams– Planned / unplanned attrition

– AMQ– Open headcount

Sales Process– Discipline– Forecast accuracy– Cadence– Management information systems

Issues

PARTNERS

Strategy: to be their modernisation partner of choice, working together to drive incremental revenues for us both

Global Strategic Partners (5)

System Integrator Partners (8)

Specialty Partners (8)

Resellers (11)CDW, Component Source, En Pointe, Insight (Software Spectrum), Wayside Technology (Lifeboat & Programmers), Software House International (SHI), Spectrum Systems, Softchoice, Tech Data

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PARTNERS

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Selling alongside partners is an important component of our growth strategy...

We have trained over 130 sales executives from our partners

Training and certification of partner delivery resources

Focus has created deeper, more strategic relationships

Measurable progress, results and growth

Partners have delivered – more than 100 net new opportunities – $ multi-million net new opportunities in FY11

Support and Execute

Levers Price increases Renewal rates

above budget Upsell

MAINTENANCE REVENUES – COMPOSITION

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Bank – Revenue from prior year contracts

RMFR – Revenue from current year maintenance renewals bookings

IMFR – Revenue from first year maintenance

BankRMFR

IMFR

MAINTENANCE RENEWALS

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Renewal best practices delivered by 40 reps worldwide....

Renewal Rates– Classic business remains stable– Inherited lower renewal rates with the acquired businesses, as expected

AMQ Initiatives– Highest priority was to re-establish contact with AMQ customers– Terminated outsourcing contract to increase renewal rate by bringing

acquired business in line with Micro Focus best practices– Results are that renewal rates are improving and customers

are renewing earlier

New programmes– Researching service and support offerings to identify potential

higher value support packages

Delivery of larger, more profitable, repeatable & longer term revenue flows...

To support the growth of profitable LFR:– c. 250 Micro Focus experts and partner professionals delivering projects in H1– Core capabilities in migration analysis, design, construction, test & implementation

Completely aligned with partner program:– Sell through / with model, enhanced by joint opportunity planning– Projects resourced by the most appropriate mix of partner and MF delivery experts

Moving up the value chain:– Constructing solutions based on repeatable services building blocks– PS as a differentiator – leading to long-term engagements and

richer business lead discussions– Valued by clients as experienced architects, reducing program risk

Target for Professional Services revenues remaining below 10% of Group revenues:– Enhances LFR without jeopardising Group margins– Ensures focus on core business

PROFESSIONAL SERVICES

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AMQ

Background

Acquired two underperforming businesses approximately one year ago– Borland Software and ASQ Division of Compuware

Current AMQ Division includes two distinct product lines:– Application Management & Testing solutions– Visibroker CORBA technology

Measures to drive performance:– Retaining and rebuilding sales delivery engine after M&A staff losses– New product launches– Creating new pipeline for new AMQ through new marketing campaigns

– Creating new processes to maximise impact of marketing campaignse.g. Lead process, Inside Sales

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AMQ

Current Status

Automated Testing Tools market affected by current IT budget cuts

R&D investment supporting customer retention and sustainable product differentiation going forward

Continuous Quality Assurance believed to be a compelling proposition

The Group remains positive about the AMQ market and the leverage we see with other parts of the business

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THE WAY FORWARD FOR MICRO FOCUS SALES

1. Drive AMQ business

2. Pipeline improvements through quality lead generation and qualification

3. Maximising partner revenues through plan execution

4. Reducing sales churn and attracting / retaining the best sales talent

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Creating a winning sales team & culture

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MANAGEMENT TEAM Q&As

SUMMARY

Nigel Clifford

5 TAKEAWAYS FROM TODAY

Micro Focus has a strong:

1. Market opportunity – vast legacy market, technology and cost transformation is catalyst for growth

2. Customer offer – modernisation is relevant and compelling

3. Product set – our excellent products can both stand alone and work together

4. Focus on operational excellence – progress made, more in train

5. Team – great blend of new and established DNA

delivering outstanding shareholder value

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INVESTOR &ANALYST DAY29 September 2010