Micro Focus Strategy Day

Micro Focus Strategy Day

30 November 2021

Micro Focus International Safe Harbour statement

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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 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.

01. Chairman Introduction

02.

03.

Strategy Update

Financial Update

Agenda

04. Q&A

Chairman Introduction

Greg Lock

Strategy Update

Stephen Murdoch

Progress against our transformation objectives The foundations are now in place, and we are at an inflection point

Progress so far ...

One single enterprise wide platform

Improved product positions across portfolio

One single go-to-market organisation


Progress so far ...

✓ Single set of systems and standardised processes

✓ Enabling organisation simplification

✓ Driving efficiency and productivity improvements

Details ...





Progress so far ...




✓ Making us more competitive and delivering on what customers want

✓ Introducing new SaaS offerings in every product portfolio

✓ Improvements to product roadmaps –fundamental to improving maintenance renewal rates

Details ...


Progress so far ...




✓ Moving from 3 geographically distinct models to a common global model with specialist skillsets that are targeted by product portfolio

✓ Consistent processes and single management system

✓ Foundations for execution improvements

Details ...


Progress so far ...

Focussing the energy of the entire organisation externally onto customersand capturing the significant opportunities for value creation

What’s next ...




How we approach the Digital Transformation opportunity Customers need to balance the competing pressures of running and transforming at the same time

Run&

Transform

Accelerate Application

Delivery

Simplify Your IT Transformation

Strengthen Your Cyber Resilience

Analyze in Time to Act

Enabling comprehensive CYBER security across applications, identities and data

Helping customers build better and more secure software that they deliver faster

Helping customers run, manage and secure complex hybrid IT infrastructures

“Deliver at high speed with low risk” “Cut complexity and build agility”

“Adapt with intelligence”

Providing analytics capability that delivers insights that can be acted upon in real-time

“Increase prediction accuracy”

How we approach the Digital Transformation opportunity

We help customers balance the often-conflicting challenges of both RUNNING and TRANSFORMING their businesses simultaneously

• Helping customers find this balance is at the core of our approach to innovation

• We bridge existing and emerging technologies, so customers can both leverage investments made to run their businesses, while modernising for the future

• Our go-forward focus is on re-energising our long-standing customer relationships to drive adoption of our latest innovation

Our focus

Our markets and what this means for our portfolios We operate in attractive and growing markets and our products are being re-positioned for success

We have well positioned offerings with very strong roadmaps that are delivering as expected e.g. COBOL

Large customer bases where we are re-shaping and re-positioning solutions to capture growth opportunities e.g. ArcSight

We have strong, well-positioned offerings where we are already participating in this high growth market e.g. Fortify

Others we have had to re-architect and re-position the product to be able to capture this growth e.g. Vertica

Low growth 0-5% Growth

High growth 10-20% Growth

Very high growth>20% Growth

Stable/Declining0% or less

Proactive focus on the Installed Base and Renewals

Proactive CustomerEngagement

Get customers on the latest versions, enable adoption of new innovation to deliver

increased value from existing investments & have confidence in new investment

Product Innovation & Adoption

Help customers blend new offerings with existing

investments to realise value quickly and further future proof

their solutions

SaaS & SubscriptionActive management of renewals pipeline at detailed level by sub-portfolio, tailored to customer

size and renewal risk profile across multiple periods

Sweat the details!

1 2 3 4 5

Detailed understanding of customer concerns to enable highly focused response through more skilled and specialised resources earlier in, and

at every stage, of the cycle

Strengthened and increased leadership, re-aligned compensation & reduced handoffs across the

customer journey

Leadership & Alignment

Product portfolio objectives – some highlights

Objectives

Cyber Resilience (CyberRes) Sustain the growth momentum we have in applications, data and identity management and complete the re-positioning of ArcSight

Application Modernisation & Connectivity (AMC)

Continue to deliver for our existing customers and strengthen our leadership position in Application Modernisation both directly and through strategic partnerships such as AWS

Application Delivery Management (ADM)

Build on core strengths in modern quality and agile development solutions and drive new innovation in support of the move to Value Stream Management underpinned by acceleration in SaaS

IT Operations Management (ITOM)

Ensure our customer base can leverage the innovation already delivered, especially in Service Management, and accelerate the re-positioning of Service Assurance to AIOps and SaaS

Information Management & Governance (IM&G)

Keep executing the plan in Information Management and accelerate growth in Big Data driven by subscription and cloud revenues

Core principles that we know deliver success Our foundations to deliver our financial objectives

Customers Employees Shareholders

Delivering the innovation customers need to both run

and transform simultaneously

Creating a rewarding and inclusive environment so they can do their

best work, grow, and develop

Consistent returns built on sustainable foundations of FCF and efficient capital allocation

Finance Update

Matt Ashley

A platform to transform our business

From two stacks to a single Enterprise Platform

delivering data, system and business process simplification…

2,000 business applications to 500

A clear and

consistentprocess taxonomy

Reduced from 285 to 185

667 SOx process

maps to 256

Reduced SaaS Apps from 70to 20

Moved from 6quoting systems to 1

Simplifying our business to transform our business

Systems & Applications Processes & Policies

Quoting Systems

SaaS Applications

Business Applications

Single Process Taxonomy

Legal Entities

SOx Process Maps

Capturing efficiencies to improve margin Targeting between $400m and $500m of gross annual recurring cost reductions as we exit FY23

$1.9bn

($60m) 5% p.a. c.$200m c. $1.5bn- $1.6bn

Cost of delivering programme c.$200m over 2 years

($400m) – ($500m)

Improving transparency in our KPIs Closer alignment to statutory measures

Updated approach

Revenue / CCY Remains Constant Currency and adjusted for material acquisitions/disposals

Exceptional spend

No more HPE integration costs

Only related to incremental M&A and cost reduction programme such as severance

Adjusted EBITDA No longer adjusted to reverse out capitalised product development costs

More consistent with Bank Credit Agreements

Net Debt Remains the same

Free cash flow Remains the same

Leverage ratio Net debt / Adjusted EBITDA

FY21 FY23 Exit

Maintenance SaaS and other recurring Consulting Licence

Revenue outlookPath to exiting FY23 with flat year on year revenue trajectory

SaaS growth from new offerings and transition

Consulting growth with mainframe modernisation

Licence consolidation before further acceleration

(9%)

0%(8%)

6%

(5%)

(4%)-(6%)

10-20%0-10%

4-6%

0%

All numbers are pro-forma with DigitalSafe excluded from all periods

Maintenance stabilising through operational improvements

Revenue trend from FY21 to FY23 Exit will not be linear

Medium term revenue growth goals> 50% of the portfolio delivering growth

Growth goals

Application Modernisation & Connectivity (AMC)

5% plus

Cyber Resilience (CyberRes) 5% plus

Information Management & Governance (IM&G)

0% plus

IT Operations Management (ITOM)Better than

(5%)

Application Delivery Management (ADM)

Better than (5%)

Total Group 1-2%

Mainframe to cloud modernisation

Well positioned portfolio in growing Cyber Security market

Well positioned portfolio in growing Big Data market

Growth drivers

AIOps and Value Foundry

Value Stream Management

Free cash flow and capital allocation Revenue stabilisation supported by cost saving yields $500m cash generation by the time we are exiting FY23

Revenue $2.9bn Revenue

0% YoY

FY23 ExitFY21

AEBITDATarget

AEBITDA36%

Revenue stabilising

FinanceLeases

c.95%cash

conversion

Tax c.30%

CapexInterest

Adjusted FCF

($50m)($100m)

($200m)

$500m

DigitalSafe

($0.1bn)

($50m)

$200-300m net annual savings

Micro Focus Strategy Day

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Transcript of Micro Focus Strategy Day