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Micro FocusLender Presentation
April 2017
Private & confidential
Disclaimer
2
This presentation has been prepared solely to provide a basis for potential providers of finance to consider whether to assist Micro Focus International PLC (“Micro Focus”) and the software business segment of
Hewlett Packard Enterprise Company and their respective subsidiaries (each a “Company” and together, the “Companies”) with their evaluation of raising new debt facilities in connection with a potential
transaction, or a series of potential transactions, involving the Companies (the “Transaction”). The existence of this presentation, the information contained within it and any information otherwise made available,
whether orally or in writing, in connection herewith is confidential and is being made on the basis that the recipients keep such information confidential and use such information solely for the purposes
contemplated hereby. This presentation must not be copied, reproduced, published, distributed, disclosed or passed to any other person at any time except in accordance with the confidentiality agreement entered
into by you with Micro Focus in relation to the Transaction.
This presentation is being communicated in the United Kingdom only to persons who have professional experience in matters relating to investments, i.e. investment professionals falling within the meaning of
Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended and to persons to whom it is otherwise lawful to distribute it. This presentation is not for publication,
distribution or release, directly or indirectly, in or into or from Australia, Canada, New Zealand, Japan, South Africa, or any other state or jurisdiction in which the same would be restricted, unlawful or unauthorised.
This presentation is for information purposes only and shall not constitute an offer to buy, sell, issue, or acquire, or the solicitation of an offer to buy, sell, issue, or acquire any securities.
This presentation may include inside information under Regulation (EU) No 596/2014 (Market Abuse Regulation) and accordingly, recipients agree not to use all or any of the information contained in this
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This presentation may include management projections and certain other matters that may be considered “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding the intent, belief or current expectations of the Companies and their management with respect to,
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The information contained in this presentation is for information purposes only. The material and information herein is not to be shared with any other parties. The information contained in this presentation is not
investment or financial product advice and is not intended to be used as the basis for making an investment decision. This presentation has been prepared without taking into account the investment objectives,
financial situation or particular needs of any particular person.
Certain market data information in this presentation is based on management’s estimate. Each Company obtained the industry, market and competitive position data used throughout this presentation from internal
estimates and research as well as from industry publications and research, surveys and studies conducted by third parties. However, this information may prove to be inaccurate because of the method by which
each Company obtained some of the data for its estimates or because this information cannot always be verified due to the limits on the availability and reliability of raw data, the voluntary nature of the data
gathering process and other limitations and uncertainties.
Today’s Presenters
3
• Kevin Loosemore
• Executive Chairman
• Mike Phillips
• Chief Financial Officer
Agenda
• Transaction Overview
• Micro Focus Philosophy
• Key Credit Highlights
• Syndication Overview
• Q&A
• Appendix
4
Transaction Overview
Transaction OverviewMicro Focus Combination with HPE Software
Transaction
• On 7 September 2016 Micro Focus International plc (“Micro Focus”) entered into a merger agreement (the “Merger or “Transaction”)
to combine with the software business segment (“HPE Software”) of Hewlett Packard Enterprise Company (“HPE”)
• The Transaction is structured as a Reverse Morris Trust (“RMT”)
• The Transaction implies a current enterprise value for HPE Software of $8.6bn, an effective multiple of 11.7x1 As-Acquired
Underlying Adjusted EBITDA2 of $741m for the twelve months to 31 October 2016
6
Note: HPE Software financials prepared under US GAAP, Micro Focus financials prepared under IFRS;1 Multiple calculated based on Enterprise Value of $8.6bn, accounting for assumed $500m RoV to existing Micro Focus shareholders prior to Completion, divided by HPE Software’s LTM 31-Oct-16 As-Acquired Underlying Adjusted
EBITDA of $741m;2 As-Acquired Underlying Adjusted EBITDA excludes overhead costs of c.$92m that are expected to not transfer to Micro Focus as part of the Transaction; Underlying Adjusted EBITDA removes the impact of net
capitalisation/amortisation of development costs and foreign currency gains/losses from Adjusted EBITDA; Adjusted EBITDA is Adjusted Operating Profit before depreciation and amortisation; Adjusted Operating Profit and Adjusted
Operating Costs being the relevant statutory measures, prior to exceptional items, amortisation of purchased intangibles and share based compensation; 3 US$6.1bn issuance of Micro Focus shares is based on 50.1% of the fully diluted
share count of the Enlarged Group as at 29-Mar-17, adjusted for an assumed RoV to Micro Focus existing shareholders prior to Completion of US$500m in cash. The RoV is expected to be implemented by way of a B Share Scheme
and a subsequent share consolidation; 4 Calculated using the Treasury Share Method and excluding any Micro Focus shares to be issued pursuant to a de minimis number of replacement awards to be granted to HPE Software
employees at Completion under their existing employee incentive arrangements
Consideration
and Sources of
Financing
• Consideration to HPE shareholders in the Merger comprises the issuance of US$6.1bn3 of Micro Focus shares representing 50.1% of
the fully diluted issued share capital4 of the combined group (the “Enlarged Group”) on completion of the Merger (“Completion”)
– Micro Focus shareholders will own 49.9% of the fully diluted share capital of the Enlarged Group following Completion, with HPE
shareholders owning the remaining 50.1%4
• In addition, prior to Completion, Seattle SpinCo, Inc. will make a cash payment of US$2.5bn (subject to certain adjustments in limited
circumstances) to HPE which will be financed through newly incurred indebtedness of Seattle SpinCo, Inc.
• The proceeds from the $5.0bn Term Loans will be used to fund the cash payment by Seattle SpinCo, Inc. to HPE, a Return of Value
(“RoV”) to Micro Focus existing shareholders of no more than $500m, refinance existing facilities and transaction costs. The balance
will be used for general corporate and working capital purposes
– Pro forma for the Transaction and at Completion, net debt to Facility EBITDA multiple will be approximately 3.3x
Approval
Process
• Approval by Micro Focus shareholders required, with shareholder vote expected late May 2017
• Approval by HPE shareholders not required
• Completion is subject amongst other things to regulatory clearances, SEC filings and receipt of certain tax opinions
Other
Considerations
• Completion target of 1 September 2017
• Merger integration plan in place
• Micro Focus will run a long period of 18 months to October 2018 as part of changing its financial year end date from the end of April to
the end of October
Extension Opportunity
Significant Efficiency
Opportunities
Available
• Create significantly greater scale and breadth of product portfolio covering largely adjacent areas of the software
infrastructure market
• Expected to become a global leader in infrastructure software by revenue and the seventh largest software business overall
• Add substantial recurring revenue base to existing portfolio, together with accessing new growth drivers and revenue models
• Accelerate operational effectiveness over the medium term, through alignment of best practices in areas such as product
development, support, product management, account management and sales force productivity
• Address areas of revenue decline and accelerate revenue growth where achievable, while enhancing operating margins
• Micro Focus believes it will be possible to improve the margin delivered by HPE Software's mature software assets
(approximately 80% of HPE Software revenue) to Micro Focus' level3 of c.46% by April 2021
Deal Consistent with
Strategy
• Continues successful strategy of buying companies or assets that fit Micro Focus’ business profile:
› Infrastructure software; and
› “Sticky” assets
• Proven track record of delivering value from operational improvements
› Total shareholder returns of >700% since 25 March 2011; Top 5 performing stock in the FTSE 3501
› Third “reverse takeover” since 2009
• Continued commitment to conservative financial policy, with a leverage target of 2.5x Facility EBITDA2 within two years
following Completion; Micro Focus do not intend, outside of regular dividend payments, to consider further RoVs or buybacks
until the 2.5x Facility EBITDA2 target leverage is achieved
7
Transaction Rationale
Source: Company,announcements and presentations;
Note: HPE Software financials prepared under US GAAP, Micro Focus financials prepared under IFRS; 1 25-Mar-11 represents business day immediately prior to commencement of Micro Focus’ share buyback programme; Excludes
companies not listed over entire period from 25-Mar-11 – 29-Mar-17; 2 “Facility EBITDA” is Adjusted EBITDA before Amortisation and impairment of capitalised development costs; 3 Twelve months to 30-Apr-16, excluding the SUSE division of
Micro Focus
Micro Focus Revenue
(FYE April)
HPE Software Revenue
(FYE October)
• As-Acquired basis (i.e. adjusted for a number of
divestments at various points during the last two
fiscal years and the transfer of the Marketing
Optimisation Business Unit (“MOBU”) in the fourth
quarter of FYE 2015), unadjusted for currency
• FYE 31-October
• Pro forma basis, unadjusted for currency
• FYE 30-April
$1,500$1,408 $1,410
367 336 335
849 763 741
216 249 275
67 60 58
Apr-15 Apr-16 LTM Oct-16
Licence Maintenance
Subscriptions Consulting
$3,188 $3,172 $3,126
896 896 853
1,628 1,596 1,583
265 277 294
399 403 396
Oct-15 LTM Apr-16 Oct-16
Professional Services SaaS
Maintenance Licence
8
The Combined Company Will Produce Revenues in Excess of $4.5bn…
Source: Company filings, announcements and presentations1 Pro forma numbers for Apr-16 and LTM Oct-16 periods calculated as sum of standalone respective periods for Micro Focus and HPE Software
Combined Revenues1
$4,581 $4,536
1,232 1,189
2,358 2,324
526 569
464 454
Apr-16 LTM Oct-16
Licence Maintenance
Subscription Consulting
…With a Diversified and Complementary Product Set…
9
~140 Product
Lines
IAS CDMS Host Con. Dev & ITOM C&N SUSE
~310 product
lines
• Minimal product overlap
• Broadest portfolio of infrastructure solutions in the industry
80% mature
20% growth
~170 product
lines
Software
80% mature
20% growth
80% mature
20% growth
Identity manager
Sentinel
COBOL
Enterprise
Rumba
Reflection
Silk
AccuRev
GroupWise
CORBA
Linux & Open
Source
ITOM AT&DM Big DataSIG
OpsBridge
Hybrid Cloud
Management
ALMAppPulse
ArcSight
Fortify
Voltage
IDOL
Vertica
APM
UFT LR
Note: IAS = Identity Access and Security, CDMS = COBOL Development & Mainframe Solutions, C&N = Collaboration and Networking Solutions, ITOM = IT Operations Management; AT&DM = Applications Testing & Delivery
Management; SIG = Security & Information Governance; Big Data = Big Data Platform Analytics
Source: Company filings, announcements and presentations
1 Pro forma numbers for Apr-16 and LTM Oct-16 periods calculated as sum of standalone respective periods for Micro Focus and HPE Software
666 650 649
123 102 92
789 752 741
Oct-15 LTM Apr-16 Oct-16
• Pro forma basis, unadjusted for currency
• FYE 30-April
10
…and Considerable Scope to Improve Profitability
• As-Acquired basis (i.e. adjusted for a number of
divestments at various points during the last two
fiscal years and the transfer of the Marketing
Optimisation Business Unit (“MOBU”) in the fourth
quarter of FYE 2015), unadjusted for currency
• FYE 31-October
Micro Focus Pro Forma UAEBITDA
(FYE April)
HPE Software Pro Forma UAEBITDA
(FYE October)
Pro forma Underlying Adjusted
EBITDA1
1
592 613 634
Apr-15 Apr-16 LTM Oct-16
1,365 1,375
Apr-16 LTM Oct-16
39.5% 43.5% 24.8% 23.7%45.0% 23.7% 29.8% 30.3%
x.x% Margin (%)
Horizontal costs expected to not transfer
UAEBITDA
Micro Focus Philosophy
We Are a Software CompanyWe make software, we sell software and we support software
Everything is organised to help us do this:
• Our systems
• The way we interact with customers and
partners
• How we deliver consulting services
• We are building the company with sustainable
prospects for the ‘long’ term
• We have a relentless focus on delivering
sustainably high free cash flow
12
13
Internet
of
Things
(IoT)z / OSPL / I
COBOL
CICS
IMS
Public Cloud Private
Cloud
IT has been an Evolutionary Journey Resulting in Great Complexity - All in the Last 40 Years!
Portfolio Positioning and Approach
Micro Focus is a software company focusing on operational efficiency and
scale to lead consolidation in the mature infrastructure software market
Product lifecycle
Introduction Growth Maturity Decline
Micro Focus area of primary focus –
Customer Focused Innovation
New tech models
“Me too” models
Potential change in
trajectory (return to growth)
Reduce rates of
decline
14
Nature of software
• Innovative and often disruptive technologies
• High capex and R&D
• User base rapidly expanding, products repeatedly enhanced
Investment strategy and valuation
• Investing in growth = valuation and returns
• Rich valuations
Nature of software
• Infrastructure software: embedded products with high switching costs
• Limited growth capex
• Margin expansion and efficiency opportunities
Investment strategy and valuation
• Returns driven by maximising cash flow
• Lower valuations
Example of How Micro Focus Extends the Life of a Product Through Customer Focused InnovationVisual COBOL case study
15
COBOL has been delivering strategic advantages for decades…
Heritage:
240bn
lines of code
Portable:
500 Platforms
and rising
Fit for purpose:
4 times cheaper to
maintain than Java
Easy to read:
Cross-train
in hours
Future Proofed:
Over $1.5bn annual
investment by customer
• COBOL powers ~85% of all daily business transactions
• COBOL supports 90% of Fortune 500 companies
• 240+ billion lines of COBOL code today, and growing (77% of total)
• 95% of all ATM transactions use COBOL
• 200x more COBOL transactions than Google and YouTube searches
…with business facing increasing challenges…
…Visual COBOL enables businesses to continue to re-use
and extend life of existing code
• Increasing demand from users for applications which:
– Are easy to use
– Have flexibility to be integrated with other business systems
• IT organisations being asked to:
– Deliver modern user interfaces and integrate multiple business
systems
– Whilst striving to reduce operational costs and risk by
standardizing on common platforms
• To deliver new innovation may have meant re-writing business
applications in new languages
• Visual COBOL provides IT organisations with the ability to create new
customer value from existing application investments
• Removes the risk associated with re-write or replacement strategies
which expose the business to uncertain cost and extended delivery
time frames
• Allows organisations to quickly respond to new business
requirements and modern IT user needs with predictable and highly
cost-effective results
• Customer-focused development of Visual COBOL has enabled
Micro Focus to extend COBOL lifecycle
13%
13%
Portfolio Positioning and ApproachIndustry comparison
16
Revenue growth3 (%)
Micro Focus
Group
Selected Mature
Software1
Source: Company filings, announcements and presentations
Note: Peer financials based on latest full financial year per public filings; Selected Mature Software and Selected High-Growth Software sectors show median data points; Micro Focus financials based on the twelve months to 31-Oct-16; 1 Selected Mature Software peers include CA Inc, Progress Software, Citrix, Software AG, OpenText;2 Selected High-Growth Software peers include Callidus Software, Fortinet, GoDaddy, Inovalon, LogMeIn, Match Group and Red Hat; 3 Respective revenue growth rates adjusted for impact of currency and acquisitions;4 Micro Focus R&D costs pre-exceptionals, SBC and amortisation of acquired intangibles; Peers adjusted for SBC, exceptionals and amortisation of acquired intangibles; 5 Margins for Micro Focus and its corresponding Product Portfolios based on Underlying Adjusted EBITDA and adjusted for impact of currency and acquisitions6 Micro Focus – Underlying Adjusted EBITDA basis; All peers based on adjusted EBITDA metrics7 Recurring revenue defined as aggregate of Maintenance and Subscription revenues
(1%)
(5%)
23%
3%
21%
EBITDA-Capex6 (% EBITDA)EBITDA5 margin (% Sales)R&D4 (% Sales)
Selected High-
Growth Software2
45%
48%
32%
37%
25%
14%Micro Focus
Product Portfolio
SUSE
Product Portfolio
Mix of revenue and
mature assets
Focused R&D
investment
Evidence of
operational efficiency
High EBITDA-Capex
conversion
Recurring revenue7 (%)
72%
66%
98%
69%
100%
Recurring
revenue stream
94%
80%
98%
17
Micro Focus Acquired A Highly Valuable Portfolio of Assets…All of Whom Lost Value Chasing Revenue Growth
Micro Focus
Attachmate2014 @ $2.35bn
Serena2016 @ $540m
HPE Software2017 @ $8.6bn
NetIQ2006 @ $495m
Novell2010 @ $2.2bn
SUSE Linux2003 @ $210m
iConclude2007 @ $57m
Compuware ASQ2009 @ $80m
Borland Software2009 @ $113m
Visigenic Software2009 @ $80m
TogetherSoft2002 @ $185m
Segue Software2006 @ $100m
UNIX SYSTEMLABORITORIES
1992 @ $322m
WordPerfect1994 @ $1.4bn
CambridgeTechnology Partners
2001 @ $266m
SilverstreamSoftware
2002 @ $212m
e-Security1994 @ $1.4bn
PlateSpin1994 @ $1.4bn
Tower SoftwareEngineering
2008 @ $109m
Peregrine2005 @ $425m
Mercury2006 @ $4.5bn
Opsware2007 @ $1.6bn
ArcSight2010 @ $1.5bn
Autonomy2011 @ $11bn
Vertica2011 @ $350m
StorageApp2001 @ $350m
BluestoneSoftware
2000 @ $468m
FreshwaterSoftware
2001 @ $147m
Kintana2003 @ $225m
Systinet2006 @ $105m
Interwoven2009 @ $775m
Verity2005 @ $500m
e-Talk2005 @ $72m
Zantaz2007 @ $375m
Microlink2010 @ $55m
Iron Mountain2011 @ $380m
MetacodeTechnologies2003 @ $210m
iManage2003 @ $171m
Optimost2007 @ $52m
Innovative TechSystems
1998 @ $77m
Tivoli’s ServiceDesk
2000 @ $105m
Telco Research2000 @ $105m
Remedy2001 @ $1.08bn
Source: Equity research. Blue box denotes a key acquisition, dashed line denotes a subsequently-disposed-of business
Key Credit Highlights
19
Significant scale in infrastructure software21
Portfolio and Model driving visibility and stability of earnings22
Significant potential for operational efficiencies25
Strong track record of acquisitions24
Key Credit Highlights
Proven history of predictable performance23
History of sustained cash flow generation26
Management team with a strong M&A track record27
Combination Creates a Global Leader in Software…
Source: FactSet, Micro Focus and HPE Software company filings.; LTM as of Mar-2017; HPE Software and Micro Focus LTM revenues as at 31 October 201620
21
$95.3
$37.3
$24.2
$8.7
$6.3
$5.0$4.5
$4.0
$3.4 $3.3$3.1
$2.8 $2.7$2.5
$2.2 $2.1 $2.0 $2.0 $2.0 $1.9 $1.8 $1.8 $1.6$1.4
Mic
rosoft
Ora
cle
SA
P
Sale
sfo
rce
Adob
e
Sym
ante
c
Mic
ro F
ocus +
HP
ES
oftw
are C
A In
c
DassaultS
yste
me
s
Gem
alto
HP
E S
oft
ware
Citrix
Red
Hat
Synopsys
Con
ste
llation S
oftw
are
CD
K G
lobal
Auto
Desk
Nua
nce
Com
mun
ications
Asseco
Open T
ext
Cad
ence D
esig
n S
yste
ms
Che
ck P
oin
t S
oftw
are
Work
day
Mic
ro F
ocus
#7
#23
…Broadening the Blue Chip Customer Base and Increasing Penetration Within Existing Customers
21
21
• 30,000+ HPE Software customers with 98 of the
Fortune 100 run on HPE Software products
• Top 20 customers make up only ~14% of total
revenues1
• 20,000+ customers including 91 of Fortune 100
companies
• Top 20 customers make up only ~10% of total
revenues
Micro Focus
TM
TF
inan
cia
l
serv
ices
Ind
ustr
ials
Co
nsu
mer
Reta
ilH
ealt
hcare
HPE Software
1 LTM revenues to 31 October 2016 excluding revenues with HPE’s Enterprise Services Group.
Highly Diversified Revenue Streams…
22
22
Source: Company presentations, filings and announcements
Note: Financials shown for the twelve months ended Oct-16; Micro Focus revenue breakdown adjusted for impact of currency and acquisitions; HPE Software revenue split by geography on As-
Managed basis and shown under Micro Focus split of regions (FY Oct-16 revenue of $3,195m), HPE Software revenue split by product on As-Acquired basis, excluding $4m of unallocated revenue
(FY Oct-16 revenue of $3,126m); Support = Maintenance; SaaS = Subscriptions; Professional services = Consultancy; ITOM = IT Operations Management; AT&DM = Applications Testing & Delivery
Management; SIG = Security & Information Governance; Big Data = Big Data Platform Analytics
52%38%
10%
CDMS20%
SUSE20%
IAS15%
Host con.13%
C&N10%
Dev. and ITOM22%
53%36%
11%
ITOM38%
AT&DM24%
SIG33%
Big Data5%
Micro Focus (LTM Oct-16A) HPE Software (FYE Oct-16A)
53% 37%
11%
Pro Forma (LTM Oct-16A)
Geo
gra
ph
yB
usin
ess
North America
$735m
International
$539m
APAC & Japan
$136m
North America
$1,688m
International
$1,149m
APAC & Japan
$358m
ITOM33%
AT&DM 16%SIG 23%
CDMS 6%
SUSE 6%
IAS 5%
Host Con. 4%
Big Data 4% C&N 3%
North America
International
APAC & Japan
…and Sticky Revenue Streams Driving Visibility and Stability of Earnings Base
23
22
Source: Company presentations, filings and announcements
Note: Recurring revenue consists of Maintenance and Subscriptions (Micro Focus) or Support and SaaS (HPE Software); Micro Focus revenue breakdown adjusted for impact of currency and acquisitions
HPE Software revenue breakdown on an As-Acquired basis
Breadth of product portfolio and revenue sources means that idiosyncratic risks are diversified away, providing highly predictable results at the group level
HPE Software
Recurring revenue (FY Oct-16A)
Micro Focus
Recurring revenue (LTM Oct-16A)
Maintenance53%
Subscription19%
Licence24%
Consultancy4%
72% recurring revenues
Maintenance51%
Subscription9%
Licence27%
Consulting13%
60% recurring revenues
Pro forma
Recurring revenue (LTM Oct-16A)
Maintenance51%
Subscription13%
Licence26%
Consulting10%
64% recurring revenues
Total revenue: $1.4bn Total revenue: $3.1bn
Total revenue: $4.5bn
Micro Focus Has Continually Delivered on Guidance
24
23
Historical Full Year Guidance FY2012-FY2017
Year Guidance at FY results Hit/Miss Guidance at Interim results Hit/Miss
FY 2012 • Overall sales expected to decline • Guidance on target margin for underlying adjusted EBITDA of
37% to 42%
FY 2013
• Overall revenue growth expected to be in the range of +1% to
(3)% on a constant currency basis for the full year
• Underlying adjusted EBITDA margin guidance remained at
previous range of 37% to 42%
• Overall revenues expected to be in the range of (2)% to (4)% on
a CCY basis for the full year
• Underlying adjusted EBITDA target margin range of 40% to 45%
FY 2014• Revenue guidance of 0% to 5% growth on a constant currency
basis
• Full year revenue guidance of 3% to 6% on a constant currency
basis
• Underlying Adjusted EBITDA expected to be in line with current
market expectations
FY 2015 • Low single digit revenue growth expected in the medium term On Track
• Provided guidance of combined pro-forma full year revenues of
c. $1,330 million and combined pro-forma full year underlying
adjusted EBITDA of c. $500 million post Attachmate acquisition
FY 2016• Anticipated revenues in the year declining between 2% and 4%
on a constant currency basis • Full year revenue guidance of (2)% to (4)% on a pro forma
constant currency basis post Serena acquisition
FY 2017 • (2)% to 0% revenue growth pro forma, constant currency On Track• Revenue guidance of (2)% to 0%, providing base for modest
growth in FY18On Track
Source: Company filings, announcements and presentations
A Strong Track Record of Acquiring Businesses…
25
Summary
Size ($m) 113
Funding Reverse takeover under Listing Rules.
Cash consideration financed from
funds drawn down under loan facility
agreement up to a total of $108m
Summary
Size ($m) 2,350
Funding Acquired TAG for $1.5bn in stock
from a consortium of private equity
investors. Refinanced debt using
newly agreed loan facility
Summary
Size ($m) 540
Funding Acquired in cash for $288m with $252m
in assumed liabilities. Funded through a
mix of debt, existing cash and an equity
placing (c.£158m)
2009 20162010 2011 2012 2013 2014 2015
Announced: 06 May 2009 Announced: 15 Sep 2014 Announced: 22 Mar 2016
• Micro Focus has been operating for 40 years and has a strong track record of acquisitions
• Since 2009, the company has undertaken two reverse takeover transactions (Borland and the Attachmate Group)
• In both instances Micro Focus has been able to expand margins to in excess of 40% within a short period of time and rapidly de-lever
• Micro Focus also has significant backing from equity investors regarding its ability to execute on smaller bolt-on acquisitions as evidenced by the multiple re-rating it has seen on
announcements
Commentary
Summary
Serena transaction multiple (FY1) 7.4x
Micro Focus transaction multiple (FY1) 10.6x
Blended multiple at announcement 10.2x
Blended multiple at transaction close 10.7x
17 Jul 2015 – Acquisition of
Authasas for c.€9m
10 Dec 2013 – Acquisition
of certain assets from
PrismTech
29 Nov 2013 – Micro Focus
acquires AccuRev for $17m in
cash
24 Dec 2012 – Acquisition of
Progress Software for $15m in
cash
Source: FactSet, Company filings, announcements and presentations
Note: Pro forma financials for Borland calendarised to April FYE, pro forma financials for Attachmate as reported per Micro Focus merger announcement; FY16 financials not adjusted for Serena1 Micro Focus EBITDA adjusted for SBC, amortisation of purchased intangibles and exceptional items2 Micro Focus EBITDA reported on an underlying, adjusted basis
2
PF FY14 FY16
Combined
Revenue 1,390 1,245
EBITDA 509 533
% margin 36.6% 42.8%
1
PF FY08 FY10
Combined
Revenue 427 433
EBITDA 78 173
% margin 18.2% 40.1%
24
04 Oct 2016 – Acquisition of
GWAVA
Micro Focus EBITDA evolution ($m)
Source: Company filings, announcements and presentations
Note: Does not include acquisitions smaller than $10M: Authasas (’15), Openfusion (’13), Soforte (’13), Relativity (’09) and Liant (’08); Gwava (’16)
Values for Borland, NetManage, Acucorp and Accurev are operating profit, not EBITDA
39 3 (2) 19 (11) 8 (2)
313
166532
80 613
'06 EBITDA Acucorp ('07) NetManage('08)
Compuware('09)
Borland ('09) Orbix assetsfrom Progresss
SW ('12)
Accurev ('13) TAG ('14) Opimprovement
Apr-16 EBITDA Serena ('16) Apr-16 EBITDA(PF Serena)
~34% of ~$490M total
EBITDA growth driven by real
net operational improvement
Serena
acquisition
closed 2 May
2016
24 …Driving Operational Improvements Across the PortfolioNet operational improvement accounts for ~34% of Micro Focus’s EBITDA growth over last 10 years
26
27
Significant Scope For Operational Improvements and Cost Savings
1
• Micro Focus believes it is possible to improve the margin delivered by
HPE Software's mature software assets to Micro Focus’ level by Apr-
2021
• In conjunction with achieving the above, Micro Focus expects to incur
certain costs throughout the same time period
• Historically Micro Focus has achieved operational efficiencies with
integration costs equivalent to c.70% of the total annual savings; and
in addition up to $150m of costs to be incurred to implement certain
IT system upgrades and migrate the Enlarged Group onto a single
system
• Operational efficiencies expected to be achieved throughout SG&A,
COGS and R&D cost segments with headcount representing one of
such opportunities, as evidenced by Revenue / Headcount of $273k2
at Micro Focus vs $185k2 at HPE Software
25
Commentary
Source: Company filings, announcements and presentations1 As-Acquired Underlying Adjusted EBITDA for the twelve months to 30-Apr-16 including horizontal costs of $102m expected to not transfer as part of the Transaction2 HPE Software’s total headcount comprises all full time employees, contractors, a headcount transfer from the HPE Global Marketing Team and estimates for staff transferring from central corporate functions. Micro
Focus total number of employees comprises the Full Time Equivalent (“FTE”) of both permanent and temporary staff as well as estimates for revenue generating contractors
21%
46%43%
HPE Software Micro Focus(Product Port.)
Micro Focus(Group)
Operational improvements potential ($m)
Micro Focus vs HPE Software UAEBITDA margins (Apr-16A)
$m Apr-16A
“As-Acquired” HPE Software revenue 3,172
Revenue that is considered mature (c.80%) 2,538
Micro Focus Product Portfolio UAEBITDA (Apr-16A) 46%
HPE Software UAEBITDA margin (%)¹ 21%
Margin improvement potential on HPES mature assets(%) 25%
28
25
776
3,535
477
SUSE Micro Focus
SUSE Micro Focus Serena + Gwava
470
4,177
SUSE Micro Focus
SUSE Micro Focus
Example of Efficiencies Generated Across Headcount Locations Historically
Pro Forma Average Number of Employees for FY Apr-14 Number of Employees as at Oct-16
• 147 locations in November 2014
• ~120 Product Lines
– 12-24 month release cadence (TAG)
– OEM dependencies in key products
• 97 locations in November 2016
• ~140 Product Lines
– 6-12 month release cadence (TAG)
– Customer driven innovation
– OEM dependencies removed
• Net reduction in Micro Focus of 642 (15%)
• Net increase in SUSE of 306 (65%)
HPE Software – Cash Conversion (%)
108% 111%88% 90%
Apr-14 Apr-15 Apr-16 LTM Oct-16
Average: 102%
Micro Focus – Cash Conversion (%)
History of Sustained Cash Flow Generation
29
26
Source: Company filings, announcements and presentations
Note: Conversion rate defined as Cash generated from operations divided by EBITDA post exceptionals; Micro Focus conversion rates on a reported basis, not historically adjusted for impact of acquisitions and currency; HPE Software on an
As-Acquired basis; Micro Focus cash conversion for FY Apr-14 and FY Apr-15 not historically adjusted to include ‘provision utilisation’ within changes in working capital1 Not adjusted for impact of Serena acquisition;
125%
68%90%
Oct-2014 Oct-2015 Oct-2016
90%
LTM Oct-16
Average: 94%
Pro Forma – Cash Conversion (%)
3.4x 2.7x
2.0x
PF FY14 PF FY15 FY16
Micro Focus - Net Debt / Facility EBITDA Progression
1
Source: Company announcements and presentations1 Underlying Adjusted EBITDA consists of $649m of Underlying Adjusted EBITDA , further adjusted for $92m of horizontal costs expected to not transfer as part of the Transaction2 Capital expenditure figure based on US GAAP Carve out accounting, for reference depreciation & amortisation for FY Oct-16 was $68m, excluding amortisation of intangibles of $153m3 Reported basis excludes the impact of acquisitions and currency
30
Historical Free Cash Flow Generation
Combined Free Cash Flow Generation ($m)
Micro Focus HPE Software Pro Forma Commentary
Licence 335 853 1,189
Maintenance 741 1,583 2,324
Consultancy 58 396 454
Subscription 275 294 569
Revenue $1,410 $3,126 $4,536
Underlying Adjusted EBITDA $634 $7411 $1,375 Assumes no operational efficiencies
Note (source, basis)LTM Oct-16, pro forma and
constant currency, IFRS basis
LTM Oct-16, “As acquired” basis,
US GAAP basis
Micro Focus HPE Software Pro Forma Commentary
Less: Change in NWC (91) (84) (175) Historic average change in NWC of 4% of
revenue for the enlarged group
Less: Capex (46) (28)2 (74) Historic limited capex needs as
customary for software
Unlevered free cash flow $1,126
Note (source, basis)LTM Oct-16 reported3,
IFRS basis
LTM Oct-16 “As reported” basis,
US GAAP basis
26
History of Disciplined Financial Practices and Uses of Cash
31
Rapid deleveraging
• Continued commitment to target a net reported leverage of 2.5x Facility EBITDA: leverage to return below 2.5x within two
years following Completion supported by EBITDA growth and strong free cash flow
• Voluntary Term Loan B repayment of $150m made in March 2015 due to conservative approach to cash generation and
strong cash generation capability
Strong liquidity
position
• Incremental $200m of cash to balance sheet and $500m revolving credit facility
• Balanced maturity profile with no significant upcoming maturities
Capital allocation
• Micro Focus intends to continue its stated dividend policy post the Transaction of distributions that are equal to
approximately half of adjusted net income
• Following Completion the Company does not intend, outside of normal dividends, to consider further ROVs or buyback
programmes until the target of 2.5x Facility EBITDA target leverage has been achieved
• Micro Focus management has a proven track record in execution of M&A transactions and delivering on subsequent
integration processes and will continue to evaluate opportunities to drive growth and expand capabilities
Conservative
leverage
• Estimated pro forma net leverage of c.3.3x Facility EBITDA at Completion of the Transaction, in line with leverage at the
time of TAG acquisition executed in 2014
• Moody’s and S&P have confirmed current ratings at B1/BB- and stable outlook
26
Name Role Experience
Kevin Loosemore Executive Chairman
(11 years)
• Appointed non-executive Chairman of the Company in 2005
• Appointed Executive Chairman in April 2011
• Previously non-executive Chairman of Morse plc
• Previously, Kevin has acted as Chief Operating Officer of Cable & Wireless plc, President of Motorola
EMEA. Prior to this he was Chief Executive of IBM UK Limited
Mike Phillips CFO (6 years) • Joined Micro Focus in September 2010
• Chief Executive Officer at Morse plc, following his initial role as Group Finance Director
• Left Morse plc in July 2010 following the turnaround and successful corporate sale to 2e2 in June 2010
Chris Hsu Executive VP, General
Manager, HPE
Software & Chief
Operating Officer, HPE
(joined in 2014)
• Joined HP in 2014 as Senior Vice President of Organisational Performance to drive operational
performance initiatives across the company. He also led the separation of HP into two companies
• Previously, was a Managing Director at the private equity firm Kohlberg Kravis Roberts (KKR). Drove
operational performance in KKR’s portfolio companies, supported operational diligence during the deal
process and provided overall leadership to the KKR Capstone team
• Incoming CEO of the Enlarged Group following Completion
Stephen Murdoch CEO, Micro Focus
division (4 years)
• Has held senior executive positions in general management, sales, and strategy with IBM and Dell
• Most recently, he was the General Manager of EMEA for Dell's Public Sector and Large Commercial
Enterprise business unit
Nils Brauckmann CEO, SUSE (5 years) • Previously served in cross-functional and international management positions at WRQ (acquired by
TAG in 2004), Novell and Siemens Nixdorf, where he started his technology career
Micro Focus Management Team post Completion
Source: Publicly available information, Company websites, BoardEx
32
27 Management Team With a Strong M&A Track Record
A Phased Approach to Delivery for HPE Software and Setting Market Expectations
33
Phase I: Assessment
• Deliver plans for FY17
• Detailed review of
combined
businesses
• Invigorate product
management
Ac
tio
ns
Phase II: Integration
Ac
tio
ns
• Standardise systems
• Rationalise properties
• Rationalise legal entities
• New Go to Market (GTM)
model
• Maintain/improve cash
conversion
• Rationalise
underperforming
elements
• New market initiatives
Phase III: Stabilisation
• Stabilise top line
• Improve GTM
productivity
• Growth from new areas
• Improved profitability
• Standardise systems
Ac
tio
ns
Phase IV: Growth
• Top line growth
• Click and repeat!
Ac
tio
ns
FY17 FY18 FY19 FY20
27
Syndication Overview
Overview of Financing Structure
• Merger consideration will be funded through the issuance of c. $6.1bn1 of equity to HPE shareholders
• Debt financing includes $500m Revolving Credit Facility and $5.0bn Term Loans
• The Enlarged Micro Focus group expects net leverage of c.3.4x based on Oct-16 LTM Underlying Adj. EBITDA of $1,375m
‒ Consistent with Micro Focus leverage at the TAG transaction and overall financial policy
• The $5.0bn Term Loans consist of:
‒ Amendment & Repricing (A&R) of $1,515m existing Micro Focus Term Loans:
• $412m TLC due Nov-19 and $1,103m TLB-2 due Nov-21
• A&R is not conditional upon the Completion and will be effective immediately
‒ New $3,485m equivalent aggregate amount of Term Loans B’s maturing 7 years from funding
• Conditional upon Completion2 with proceeds placed into escrow subject to Completion
• The debt will be issued out of 2 separate borrowing entities
‒ $2.6bn will be incurred by Seattle SpinCo, Inc. and $2.4bn will be incurred by a subsidiary of Micro Focus
‒ Separate credit agreements are structured to be completely pari passu due to cross guarantees and identical collateral package
following Completion
• Corporate and facility rating of B1/BB-
• Completion of the transaction is expected on 1 September 2017
35
1 US$6.1bn issuance of Micro Focus shares is based on 50.1% of the fully diluted share count of the Enlarged Group, adjusted for an assumed RoV to Micro Focus existing shareholders prior to Completion of
US$500m in cash. The RoV is expected to be implemented by way of a B Share Scheme and a subsequent share consolidation2 Subject to certain exceptions referred in the full form documentation
$mx Oct-16A
UAEBITDA3Maturity
Current margin bps,
floor %
Expected pricing
bps, floor %
Cash (323)2 (0.3x)
RCF (PF $500m) - - 5 years (2022) L+350, 0.75% L+350, 0%
Existing TLC (MA Finance Co, $) 412 Nov-19 L+375, 0.75% L+225, 0%
Existing TLB-2 (MA Finance Co, $) 1,103 Nov-21 L+375, 0.75% L+250, 0%
New TLB (MA Finance Co, $)885 ($/€)
7 years (2024) -L/E+300-325, 0%
New TLB (MA Finance Co, €) 7 years (2024) -
New TLB (Seattle Spinco, $) 2,600 7 years (2024) - L+300-325, 0%
Gross 1st Lien and total debt 5,000 3.6x
Net total debt 4,677 3.4x
Micro Focus market cap1 (49.9%) 6,123
HPE shareholders equity stake1 (50.1%) 6,147
Pro forma equity value 12,270
Enterprise value 16,947 12.3x
Micro Focus UAEBITDA 634
HPES UAEBITDA 741
Pro forma LTM UAEBITDA 1,375
Sources and Uses and Pro Forma Capitalisation
36
Sources ($m) Uses ($m)
Equity issued to HPE shareholders 6,1471 Equity issued to HPE shareholders 6,1471
A&R of existing Term Loans (B-2 & C) 1,515 Cash payment to HPE by Seattle SpinCo, Inc. 2,500
New Term Loans B’s ($/€) 3,485 A&R of existing Term Loans (B-2 & C) 1,515
Est. RoV to Micro Focus shareholders 500
Est. transaction and financing costs 285
Incremental cash to balance sheet 200
Total Sources 11,147 Total Uses 11,147
Source: Company announcements and presentations1 US$6.1bn issuance of Micro Focus shares is based on 50.1% of the fully diluted share count of the Enlarged Group as at 29-Mar-17, adjusted for an assumed RoV to Micro Focus existing shareholders
prior to Completion of US$500m in cash. The RoV is expected to be implemented by way of a B Share Scheme and a subsequent share consolidation; 2 Based on reported Micro Focus cash $123m as of
Oct-16 and incremental cash to balance sheet of $200m; 3 Micro Focus LTM Oct-16 UAEBITDA of $634m (PF, constant currency), HPE Software Underlying Adjusted EBITDA of $741m, further adjusted for
horizontal costs of $92m that are expected to not transfer to as part of Transaction
Sources and Uses
Pro Forma Capitalisation
3,485
Pro Forma Organisational Structure
37
Due to cross guarantee and identical collateral package, credit facilities will be pari passu following
Completion of the transaction
Tranches ($m)
RCF ($500m) -
Existing TLC (A&R) 412
Existing TLB-2 (A&R) 1,103
New TLB (€)885
New TLB ($)
Total 2,400
Tranches ($m)
New TLB ($) 2,600
Total 2,600
$2.6bn
drawn debt
$2.4bn
drawn debt
Micro FocusShareholders
HPEShareholders
Seattle SpinCo,
Inc US
(Borrower)inc. escrow borrower2
MA Finance Co,
LLC US
(Borrower)inc. escrow borrower2
50.1%149.9%1
Note: The structure is reflected pro forma for Completion of the Transaction1 Percentages shown are approximate and indicative only, and the actual percentages will be determined in accordance with the merger agreement among Micro Focus, HPE and the other parties thereto. Prior to the Merger,
HPE will distribute on a pro rata basis all outstanding shares of Class A common stock of Seattle SpinCo, Inc. to HPE stockholders as of the close of business on the record date for the distribution. Immediately thereafter, a
wholly owned subsidiary of Micro Focus will merge with and into Seattle SpinCo, Inc., and all shares of Seattle SpinCo, Inc. distributed to HPE stockholders will be converted into the right to receive a number of Micro Focus
ADSs representing, in the aggregate, 50.1% of the fully diluted share capital of Micro Focus as of immediately following the Merger (excluding any Micro Focus shares to be issued pursuant to a de minimis number of
replacement awards to be granted to HPE Software employees at Completion under their existing employee incentive arrangements). Pre‐Completion Micro Focus shareholders will own the balance of the outstanding Micro
Focus ordinary shares at that time. 2 Escrow borrower established for the new money tranche, to be automatically merged into Borrower / incorporated into respective borrowers
Micro Focus International
plc U.K.
Summary of Proposed Terms
38
Facilities Revolver Term Loan
Borrower MA FinanceCo LLC Seattle Spinco, Inc
SecurityFirst lien on substantially all assets and capital stock owned by the Borrower and the Guarantors in the US and the UK, with certain exceptions and
limitations to be set forth in documentation1
GuaranteesMicro Focus International plc and each material, wholly-owned restricted subsidiary in the US and the UK, with certain exceptions and limitations to
be set forth in documentation2
Tenor 5 yrs from Completion (2022) Nov-19 Nov-21 7 yrs from escrow funding (2024)
Amount ($m) $500m $412m $1,103m $885m equiv. ($/€) $2,600m
Margin L+350bps L+225bps L+250bps L/E+300-325bps
OID - - - 99.5
Floor 0% 0% 0% 0%
Amortization - 10% p.a. + bullet 1% p.a.+ bullet
Call protection - 101 soft call for 6 months
Ticking fee and
escrow- -
• Ticking fee from allocation 0-30d 0% margin, 31-60d
50% margin, 61d onwards full interest • Funded into escrow with mandatory redemption at
OID if Completion does not occur by Mar 14, 2018
Financial
covenant
• Springing (tested when 35% drawn)
set at first lien net leverage of 4.85x
with 2 step downs
• None
Incremental
facilities3
• $750m plus an amount equal to voluntary prepayments, plus unlimited up to 3.5x first lien net leverage• 50bps MFN with 12 months sunset, applicable to pari passu term loans except for $350m carve-out of $750m basket
Negative
covenants
• Usual and customary and broadly consistent with existing deal, including:• General debt basket $300m / 20% EBITDA, incremental equivalent debt and unlimited up to 3.5x first lien net leverage• Unlimited investments subject to 3.5x first lien net leverage + general investment basket of $225m / 15% EBITDA + Available Amount ($100m
starter basket)• Unlimited RPs subject to 3.0x first lien net leverage + $250m general RP basket + Available Amount ($100m starter basket)
Affirmative
covenants• Customary for facilities of this type
Mandatory
prepayment
• 100% of proceeds from debt issuances, 50% of ECF with step downs to 25% and 0% at first lien net leverage ratios of 3.30x and 3.00x, respectively• 100% of proceeds from asset sales, with step-downs to 50% and 0% if first lien net leverage ratio is <3.00x and <2.50x, respectively
Governing law New York
Note: the enlarged Micro Focus group will have c. 52% of revenue and c. 52% of UAEBITDA generated by the guarantor subsidiaries (US, UK) calculated on the basis of twelve months ended Apr-161 Liens on Seattle SpinCo, Inc. assets are effective post Completion; 2 Guarantees from Micro Focus (and its relevant subsidiaries) of Seattle SpinCo., Inc. debt and guarantees from Seattle SpinCo., Inc
(and its relevant subsidiaries) of Micro Focus debt, in each case, are effective only post Completion; 3 Could be raised on secured or unsecured basis, if unsecured subject to same freebie size, other
requirements and unlimited up to 3.5x net total leverage
Syndication Timeline
Key Debt Transaction Dates
39
Date Event
4 April 2017 • New York Lender Meeting
6 April 2017 • London Lender Meeting
18 April 2017 • Commitments due from Lenders (5PM ET)
Date Event
Late May 2017 • Micro Focus shareholder meeting
1 September 2017 • Targeted Merger Completion
Key Anticipated Merger Transaction Dates
Note: The Transaction dates set out above are indicative and subject to change
Q&A
Appendix
Micro Focus At a Glance
42
Source: Company filings, announcements and presentations;
Note: Financials shown on a pro forma basis, adjusting for impact of Attachmate and Serena Software acquisitions;1 Restated to H1 17 exchange rates2 Historical Revenue and Underlying Adjusted EBITDA on a pro forma basis, unadjusted for currency; 3 Micro Focus cash conversion on an as-reported basis; LTM Oct-16 not pro forma for impact of Serena acquisition. Defined as Cash generated from operations divided by Adjusted EBITDA post exceptionals4 Recurring Micro Focus revenue comprises Maintenance and Subscription revenue types
Overview
• Product and service offerings
• Micro Focus includes the mature businesses and has five sub-portfolios
delivered via a traditional perpetual licence model. SUSE delivered via a
subscription model
• Scale and profitability
• LTM Oct-16A revenue $1.4bn1, Underlying Adjusted EBITDA $634m1
• LTM Oct-16A constant currency, pro forma growth rate of c.(1)%
• Diversified GTM strategy – via direct and indirect channels
• Diverse, loyal customer base
• > 20,000 customers, with significant blue-chip customer base
• Top 20 customers represent c.10% of revenue
• International reach and footprint
• FY16 revenue split1 USD 63%; EUR 20%; GBP 5%; JPY 3%; other 8%
• Over 4,500 employees across more than 39 countries
Key financials – FYE Apr ($m)
1,5001,408 1,410
2015A 2016A LTM Oct-16A
592 613 634
2015A 2016A LTM Oct-16A
111%
88% 90%
2015A 2016A LTM Oct-16A
North America
52%International
38%
APAC & Japan10%
Revenue2 Underlying Adjusted
EBITDA2 Cash conversion (%)3
Revenue breakdown1 - LTM Oct-16A (%)
Licence24%
Maint.53%
Subsc.19%
Cons.4%
72% recurring
revenue
Geography Type4 Product
CDMS20%
SUSE20%
IAS15%
Host con.13%
C&N10%
Dev. and ITOM22%
Micro Focus Product Portfolio
43
Linux and Open Source
20%COBOL Development and MainframeSolutions
20%
COBOLEnterprise
Identity, Access and Security Solutions
15%
Identity Manager
Sentinel
Development and IT OperationsManagementTools
13%
Development and IT Operations ManagementTools
22%
SilkAccuRev
PlateSpin
10%
OES GroupWise
CORBA
Collaborationand NetworkingSolutions
Host Connectivity Solutions
13%
MSS
ReflectionRumba
Note: Percentages represent proportion of Micro Focus group revenue on a pro forma, restated to H1 17 Exchange rates for the twelve months to October 2016A
Micro Focus Structured Approach to Managing its Product Portfolio
Micro Focus approach
‘Fund of funds’ approach to product
portfolio
Investment and focus driven by four-
box model
Objective: modest growth over
medium-term, high levels of
profitability, strong cash flow
Delivered through efficient and
focused investment across portfolio
44
Four box model
New models
Products that are relatively new and
unproven in the market but
expected to be growth drivers
Growth Drivers
Products that have shown
consistent potential for sales growth
Optimise
Products with declining sales over a
period of time, and the strategy is to
move back to core OR manage
decline and optimise returns in the
long run
Core
Products that have maintained ‘flat
sales’ over time with limited growth,
but are central to the company’s
revenues
OptimiseCore
Four Box Model In ActionLTM October 2016
45
Revenue profile (% growth) (0.5%) High Growth Growth Stable Decline
R&D expenditure1 (% revenue) 14.5% =
Sales & Marketing1 (% revenue) 23.1%
General & Admin1 (% revenue) 6.2% = = = =
UAEBITDA margin (%) 45.0%
Cash conversion2 (%) 90.0%
Efficient and
focused
investment across
portfolio
Focus on product
development and
growth rather than
margin
Begin to focus on
margin and
profitability rather
than growth
Maximise renewal
rates with heavy
focus on cost
control
Arrest revenue
decline where
practical but
primary focus on
margins and cash
flows
New models Growth Drivers
Cri
teri
aA
cti
on
sC
on
seq
uen
-
ces
Micro Focus
Source: Company announcements and presentations
Note: Financials on a pro forma, constant currency basis for the twelve months ended 31 October 2016; UAEBITDA – Underlying Adjusted EBITDA;1 Operating expenditure items excluding exceptionals, stock based compensation and amortisation of acquired intangibles2 Cash conversion defined as cash generated from operations over Adjusted EBITDA post exceptionals; not pro forma for acquisition of Serena Software or adjusted for currency impact
Fo
cu
s
ITOM38%
AT&DM24%
SIG33%
Big Data5%
North America
53%International
36%
APAC & Japan11%
Product and service offerings
• Provides enterprise software solutions for IT Operations Management,
Application Testing & Delivery Management, Security & Information
Governance and Big Data Platform Analytics
• Products offered via term and perpetual licences (followed by
maintenance payments), SaaS model, professional services
Scale and profitability
• October 2016A Revenue $3,126m1, Underlying Adjusted EBITDA
$649m1 (implied margin of 20.8%)
Diverse, loyal customer base
• Engaging with over 30,000 customers across the world
• The company currently works with 98 of the Fortune 100 companies
International reach and footprint
• Revenue split2 USD 62%; EUR 15%; GBP 6%; Other 17%
Overview
3,3913,188 3,126 3,172
2014A 2015A 2016A LTM Apr-16
Revenue1 Underlying Adjusted EBITDA1,3
Source: Company filings, announcements and presentations1 As-Acquired basis; adjusting for a number of divestitures and the transfer of HPPA and the MOBU division to the HPE parent2 FY Oct-16 Revenue split by currency and Geography on an As-Managed basis; geographic breakdown based on Micro Focus regions3 As-Acquired Underlying Adjusted EBITDA including horizontal costs that are expected to not transfer as part of the Transaction4 Recurring HPE revenue comprises Support and SaaS revenue types5 Revenue split by product on As-Acquired basis, excluding $4m of unallocated revenue
46
HPE Software At a Glance
Key Financials – FYE Oct ($m)
Revenue breakdown – FYE Oct-16A (%)
Geography2 Type4 Product5
Licence27%
Support51%
SaaS13%
Consulting9%
60% recurring
revenue
694 666 649 650
2014A 2015A 2016A LTM Apr-16
Margin %
20.5% 20.9% 20.8% 20.5%
HPE Software Product Portfolio
47
Linux and Open Source
Application Testing & Delivery Management
24%
IT Operations Management
38%
Linux and Open Source
Big Data Platform Analytics
5%
Security and Information Governance
33%
Vertica IDOL
VoltageArcSightALM
AppPulseOpsBridgeHybrid Cloud
Management
UFT
APMLR
Fortify
Note: Revenue split by product for the twelve months ended 31 October 2016
48
Highly Complementary Nature of Two Businesses…
Revenue
growth (%)
Micro Focus
Source: Public filings, announcements and investor presentations;
Note: Financials shown for the twelve months to 31-Oct-16; Micro Focus on a constant currency, pro forma basis; HPE Software on an As-Acquired basis unless otherwise stated1 Micro Focus R&D costs pre-amortisation of acquired intangibles; HPE Software adjusted for Corporate Global Functions, Corporate investments, stock based compensation, and other items (As-Managed basis);2 HPE Software unadjusted for horizontal costs that are expected to not transfer as part of the Transaction3 Defined as cash generated from operations divided by Adjusted EBITDA post exceptionals; Micro Focus on an as-reported basis; 4 Defined as aggregate of Maintenance and Subscription (Micro Focus), Support and SaaS (HPE Software)
(1%)
1%
Gross margin
(%)Cash conversion (%)3 Recurring
revenue4 %
Underlying
Adjusted EBITDA2
margin (%)
R&D1 (% Sales)
45%
21%
90%
90%
72%
60%
14%
19%HPE Software
89%
73%
Micro Focus Product Portfolio Details
49
Identity, Access and
Security Solutions
(IAS)
COBOL Development
and Mainframe
solutions (CDMS)
Host Connectivity
Solutions
Development and IT
Operations Mgmt
(Dev & ITOM1)
Collaboration and
Networking Solutions SUSE
$214m
(15% of total)
• Facilitate secure access
by using identity
information (identity
management, access
management, single-
sign-on etc)
• Increased compliance /
regulation, expansion
and diversity of cyber
threats and resultant
financial impact and
virtualisation and cloud
deployment are key
trends driving industry
growth
$278m
(20% of total)
• CD products enable
programmers to
develop applications
written in COBOL
across multiple
platforms including
Windows, UNIX, Linux
and the cloud
• MS products let
customers maximise
value out of their
mainframe. These
technologies allow
customers flexibility in
deciding the platform
choice for development,
testing and deployment
of their business
applications
$187m
(13% of total)
• Enable use of
centralised applications
(especially mainframes)
to end-users across
different environments
and devices
• Enable use of mainframe
applications and data
with modern
development
environments and
business analytics
• Core products deliver
graphical user interfaces
(GUI) for legacy
applications
$304m
(22% of total)
• Includes tools
(applications) that
enable IT departments
to better manage their
datacenters, software
development and
testing as well as
system monitor and
support tools
• Source Code Change
Management,
Application Lifecycle
Management and
Business Process
Management software
from the Serena
acquisition
$147m
(10% of total)
• Core products include
email, calendaring,
contact management,
solutions for file & print /
storage of enterprise
files
• Brings people, projects
and processes together
in a secure environment
$280m
(20% of total)
• Operating system built
on top of the open
source Linux kernel that
allows a computer and
its various hardware
and software
components to interact
• Enterprise grade Linux
server, open stack,
cloud and storage
solutions
Descri
pti
on
Reven
ue
Source: Micro Focus annual report and filings; company data
Note: Revenue of $1,410m based on twelve months to 31 October 2016 on a pro forma basis, restated to H1 17 exchange rates
COBOL
Enterprise
Identity Manager
Sentinel
Rumba
MSS
Reflection
Silk
AccuRev
PlateSpin
OES
GroupWise
CORBA
Sele
ct
pro
du
cts Linux &
Open Stack
21 22 23 24 25 26
50
HPE Software Product Portfolio Details
Application Testing & Delivery
Management (AT&DM)
IT Operations
Management (ITOM)
Big Data Platform Analytics
(Big Data)
Descri
pti
on
Reven
ue
Sele
ct
pro
du
cts
• Provides software that
enables organizations to
deliver high-performance
applications, accelerating the
application delivery life cycle
and automating the testing
processes to ensure the
quality and scalability of
desktop, web, mobile and
cloud-based applications
• IT Operations Management
product group provides the
software required to automate
routine IT tasks and to
pinpoint IT problems as they
occur, helping enterprises to
reduce operational costs and
improve the reliability of
applications running in a
traditional, cloud or hybrid
environment
• HPE Software’s Big Data
Platform Analytics product
group provides a full suite of
software designed to help
organizations capture, store,
explore, analyze, protect and
share information and insights
within and outside their
organizations to improve
business outcomes
$1,190m
(38% of total)
OpsBridge
Hybrid Cloud Management
ALMIDOL
AppPulse
$734m
(24% of total)
$166m
(5% of total)
Security & Information
Governance (SIG)
• Provides comprehensive
solutions that span security
and risk management, with a
focus on protecting users,
applications and data, while
also enabling customers to
manage risks and meet legal
obligations
$1,032m
(33% of total)
Source: Company filings, announcements and presentations
Note: HPE Software revenue split by product on As-Acquired basis, excluding $4m of unallocated revenue (FY Oct-16 revenue of $3,126m)
21 22 23 24
UFT
APM
LR
($m) FY1 FY2 ($m) FY1 FY2 ($m) FY1 FY2
Licence 50.0 50.0 Licence 33.3 33.3 Licence 20.0 20.0
New maintenance 10.0 New maintenance 6.7 New maintenance 4.0
Maintenance renewal 45.0 Maintenance renewal 60.0 Maintenance renewal 72.0
Maintenance Total 50.0 55.0 Maintenance Total 66.7 66.7 Maintenance Total 80.0 76.0
Revenue total 100.0 105.0 Revenue total 100.0 100.0 Revenue total 100.0 96.0
Revenue growth (%) 5.0% Revenue growth (%) 0.0% Revenue growth (%) (4.0%)
Highly Visible Revenue Streams – Worked Example
51
Licence : Maintenance revenue split
of 50/50
Licence : Maintenance revenue split
of 20/80
x20%
Attach rate
x90% Renewal
rate
0% growth rate
Micro Focus currently operates a Licence : Maintenance revenue split of approximately 30/701
1 Based on LTM October-16A revenue; excludes revenues from Consulting and Subscription services
x20%
Attach rate
x90% Renewal
rate
0% growth rate
x20%
Attach rate
x90% Renewal
rate
0% growth rate
Licence : Maintenance revenue split
of 33/67
Micro Focus – Profitability by PortfolioPro Forma, Constant Currency Basis
Source: Company announcements and presentations;1 On a pro forma, constant currency basis; restated to H1 2017 exchange rates
52
Twelve months ended 31-Oct-16
FYE Apr ($m) Micro Focus SUSE Total
Licence 335 0 335
Maintenance 741 0 741
Consultancy 53 5 58
Subscription 0 275 275
Total revenue 1,130 280 1,410
Adjusted operating profit 550 91 641
Adjusted EBITDA 563 92 654
Underlying Adjusted EBITDA 544 91 634
margin % 48.1% 32.4% 45.0%
Key Financials – LTM 31-Oct-16
Twelve months ended 30-Apr-161
FYE Apr ($m) Micro Focus SUSE Total
Licence 335 0 335
Maintenance 760 0 760
Consultancy 55 5 60
Subscription 0 247 247
Total revenue 1,150 252 1,402
Adjusted operating profit 537 79 616
Adjusted EBITDA 550 80 630
Underlying Adjusted EBITDA 536 80 615
margin % 47% 32% 44%
Key Financials – FYE 30-Apr-16
Source: Company announcements and presentations
Note: Financials prepared under US GAAP and SEC carve out accounting rules; LTM Q2 2016 refers to the trailing twelve months for the period 1 May 2015 through 30 April 2016
1 As-Acquired basis for financials relates to the disposals of Tipping Point, iManage, Live Vault, HPPA Teleform as well as the transfer of the MOBU division to the HPE parent. Amounts shown for these divestitures are management's best estimate of
the amount of revenue and EBITDA generated by these divested businesses during the periods presented, adjusted for HPE management's estimate of horizontal costs that did not exit HPE Software on divestment of these businesses
2 Separation costs represent the allocation to HPE Software of a portion of HPE’s costs incurred in connection with the separation of HPE from its former parent on 1 November, 2015 and all of HPE’s costs incurred in connection with the spin-merge
with Micro Focus
3 Horizontal costs relate to HPE Software central overhead and corporate costs that are expected to not transfer to Micro Focus as part of the Transaction
53
Reconciliation From As-Managed Non-GAAP Operating Profit to As-Acquired1 Underlying Adjusted EBITDA
Selected Financial Information on HPE Software
FYE Oct, $m Oct-16A Oct-15A Oct-14A LTM Apr-16A
HPE Software Non-GAAP Operating profit 749 788 871 800
Intangible asset amortization (153) (224) (248) (186)
Stock-based compensation (70) (58) (60) (62)
Restructuring charges (113) (35) (48) (74)
Separation costs2 (Adjusted for SBC) (101) (91) - (89)
Acquisition and other related charges (3) (5) (10) (3)
Other expenses, net (74) (57) (93) (64)
As-Managed Earnings before taxes $235 $318 $412 $322
Add back: net interest and other 3 3 3 2
Add back: depreciation and amortisation 221 336 363 277
As-Managed HPE Software EBITDA $459 $657 $778 $601
Add back: Separation costs2 101 91 0 89
Add back: Restructuring charges 113 35 48 74
Add back: Stock based compensation 70 58 60 62
Add back: Acquisition related charges 3 5 10 3
As-Managed HPE Software Underlying Adjusted EBITDA $746 $846 $896 $829
Less: MOBU transfer 0 (33) (48) (13)
Less: Disposals in the period (97) (147) (154) (166)
As-Acquired Underlying Adjusted EBITDA $649 $666 $694 $650
Add back: Horizontal costs3 expected to not transfer 92 123 141 102
As-Acquired Underlying Adjusted EBITDA excluding horizontal costs $741 $789 $835 $752
54
Combined Income Statement, Before Taxes on an As-Managed Basis
Selected Financial Information on HPE SoftwareUS GAAP Carve Out Accounting, As-Managed basis
FYE Oct, $m Oct-16A Oct-15A Oct-14A LTM Apr-16A
Licence 884 1,008 1,163 969
Support 1,621 1,878 1,980 1,734
Professional Services 396 424 465 412
SaaS 294 312 325 297
As-Managed total revenue $3,195 $3,622 $3,933 $3,412
Costs and expenses:
Cost of Sales (878) (971) (1,046) (926)
Research and development (603) (670) (673) (653)
Selling, general and administrative (1,101) (1,305) (1,493) (1,156)
Amortization of intangible assets (153) (224) (248) (186)
Restructuring charges (113) (35) (48) (75)
Acquisition and other related charges (3) (5) (10) (3)
Separation costs1 (106) (91) 0 (89)
Total costs and expenses (2,957) (3,301) (3,518) (3,088)
As-Managed Operating profit $238 $321 $415 $324
Interest and other (net) (3) (3) (3) (2)
As-Managed Earnings before taxes $235 $318 $412 $322
Source: Company announcements and presentations
Note: Financials prepared under US GAAP and SEC carve out accounting rules; LTM Q2 2016 refers to the trailing twelve months for the period 1 May 2015 through 30 April 20161 Separation costs represent the allocation to HPE Software of a portion of HPE’s costs incurred in connection with the separation of HPE from its former parent on 1 November, 2015 and all of HPE’s costs incurred in connection with the spin-merge
with Micro Focus
Source: Micro Focus RNS Announcements
Note: Financial information for HPE Software prepared on a US GAAP Carve Out Accounting, excluding taxes, As-Managed basis
55
Selected Financial Information on HPE Software
Unaudited Summary Cash Flow Information, Excluding Taxes
FYE Oct, $m Oct-16A Oct-15A Oct-14A
Depreciation and amortization 221 336 363
Net cash provided by operating activities $483 $542 $991
Investment in property, plant and equipment (28) (17) 0
Net cash provided by (used in) investing activities $211 $40 ($16)
Net cash provided by (used in) financing activities ($714) ($629) ($1,096)
Net increase / (decrease) in cash and cash equivalents (20) (47) (121)
Opening cash balance 150 197 318
Closing cash balance $130 $150 $197
56
Basis of Preparation of US GAAP and SEC Carve Out Accounting
Basis of preparation for US GAAP carve out accounting
The basis for US GAAP and SEC carve out accounting rules can be found below.
The Combined Income Statement, before Taxes, Combined Statement of Assets and Liabilities, excluding Taxes and Combined Summary Cash Flow Information, excluding Taxes of
HPE Software were derived from the Combined and Consolidated Financial Statements and accounting records of HPE as if HPE Software was operated on a standalone basis during
the periods presented and were prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”).
Combined Statements of Earnings, before Taxes
The Combined Statements of Earnings, before Taxes of HPE Software reflect allocations of general corporate expenses from HPE including, but not limited to, executive management,
finance, legal, information technology, employee benefits administration, treasury, risk management, procurement and other shared services.
These allocations were made on a direct usage basis when identifiable, with the remainder allocated on the basis of revenue, expenses, headcount or other relevant measures.
Management of HPE Software and HPE consider these allocations to be a reasonable reflection of the utilization of services by, or the benefits provided to, HPE Software.
These allocations may not, however, reflect the expenses HPE Software would have incurred as a standalone company for the periods presented. Actual costs that may have been
incurred if HPE Software had been a standalone company would depend on a number of factors, including the chosen organizational structure, what functions were outsourced or
performed by employees and strategic decisions made in areas such as information technology and infrastructure.
Combined Balance Sheets, excluding Taxes
The Combined Balance Sheets, excluding Taxes of HPE Software include HPE assets and liabilities that are specifically identifiable or otherwise attributable to HPE Software, including
subsidiaries and affiliates in which HPE has a controlling financial interest or is the primary beneficiary.
HPE’s cash has not been assigned to HPE Software for any of the periods presented because those cash balances are not directly attributable to HPE Software. HPE Software reflects
transfers of cash to and from HPE’s cash management system as a component of parent company investment in the Combined Balance Sheets, excluding Taxes.
HPE’s long-term debt has not been attributed to HPE Software for any of the periods presented because HPE’s borrowings are not the legal obligation of HPE Software.
HPE maintains various benefit and stock-based compensation plans. HPE Software’s employees participate in those programs and a portion of the cost of those plans is included in
HPE Software’s Combined Statements of Earnings, before Taxes, Combined Statement of Assets and Liabilities, excluding Taxes and Combined Summary Cash Flow Information,
excluding Taxes. However, HPE Software’s Combined Balance Sheets, Excluding Taxes do not include any net benefit plan obligations as no HPE benefit plan included only active,
retired and other former HPE Software employees.
HPE Software’s Combined Balance Sheets, Excluding Taxes also do not include any equity related to stock-based compensation plans.
57
Basis of Preparation of US GAAP and SEC Carve Out Accounting (Cont’d)
Intercompany transactions and accounts
All intercompany transactions and accounts within the combined businesses of HPE Software have been eliminated. Intercompany transactions between HPE Software and HPE other
than leases with HPE’s wholly-owned leasing subsidiary are considered to be effectively settled in the Combined Statements of Earnings, before Taxes, Combined Statement of Assets
and Liabilities, excluding Taxes and Combined Summary Cash Flow Information, excluding Taxes at the time the transaction is recorded. The total net effect of the settlement of these
intercompany transactions is reflected in the Combined Summary Cash Flow Information, excluding Taxes within financing activities and in the Combined Balance Sheets, Excluding
Taxes within parent company investment.
Basis for As-Managed and As-Acquired financials information
As part of the carve out process for HPE Software and the Transaction, unaudited historical financial information has been prepared under US GAAP and SEC carve out accounting
rules, representing the perimeter of the HPE Software business as it existed at the time of the statements. Financial information prepared on this basis has been defined as the “As-
Managed” basis.
Additionally, further historical financial information derived from the As-Managed financial information but adjusted for various changes in the business’ perimeter and certain other items
has also been prepared. The Micro Focus board believes these adjustments more accurately reflect the performance and business perimeter of HPE Software as it is being acquired.
Financial information prepared on this basis has been defined as the “As-Acquired” basis.
Since the announcement made on 7 September 2016, there have been certain amendments to the US GAAP financial information of HPE Software for the financial years ended 31
October 2014 and 31 October 2015. The independent audit of the 2016 carve out financial statements of Seattle SpinCo, Inc., for the Board of Directors and Stockholders of HPE is in
process and is expected to be completed in the near term.
58
Differences between Micro Focus and HPE Software accounting policies• Micro Focus prepares its consolidated financial statements in accordance with IFRS whereas HPE Software prepares its combined financial statements under US GAAP.
• As HPE Software is a reportable segment of HPE, Combined Statements of Earnings before Taxes, Combined Statements of Assets and Liabilities, Excluding Taxes and Combined
Summary Cash Flow Information, Excluding Taxes have been prepared for HPE Software for HPE's financial years ended October 31, 2014, 2015 and 2016 (collectively the "Carve
Out Accounts").
• The Carve Out Accounts have been prepared under US GAAP and the process to convert the unaudited Carve Out Accounts to IFRS is in progress. Material differences between
Micro Focus' IFRS accounting policies and the US GAAP policies used to present the Carve Out Accounts have been identified on a pre-tax basis. Material differences identified
include among others: (i) increase in the expense recognised for share based payments; (ii) recognition of a net defined benefit pension liability; and (iii) the presentation of certain
income statement and balance sheet financial statement items being realigned to conform to Micro Focus’ presentation. As the conversion exercise from HPE Software’s accounting
policies to Micro Focus’ accounting policies is not yet finalised, the quantification of these adjustments is not yet available. While the Company has identified what it believes to be
the material differences between Micro Focus’ accounting policies and the policies used to present the unaudited Carve Out Accounts of HPE Software, there may be additional
differences not noted below.
a) Income Statement and Balance Sheet Presentation
• The presentation of certain income statement and balance sheet financial statement items may be realigned to conform to Micro Focus’ presentation.
b) IFRS first-time adoption (IFRS 1)
• For first-time adopters of IFRS, full retrospective application is subject to certain optional exemptions, designed to reduce the burden where the cost of retrospective application
might exceed the benefits. Below are optional exemptions which are applicable and may be applied to the Carve Out Accounts under IFRS.
• i) Business combinations: For business combinations that occurred prior to the date of transition to IFRS, IFRS 1 allows the first-time adopter to elect not to restate those
prior business combinations to comply with IFRS 3R.
• ii) Set cumulative translation adjustment to zero: An entity may elect to set the cumulative translation adjustment differences for all foreign operations to zero at the date of
transition. The gain or loss on a subsequent disposal of any foreign operation would then include only translation differences that arose after the date of transition.
c) Revenue recognition
• HPE Software’s accounting policy for software revenue recognition follows the detailed and more prescriptive guidance under US GAAP, which could result in differences from the
policies applied by Micro Focus. Differences in timing and measurement of revenue recognition may occur between US GAAP and IFRS in allocating selling prices for multiple-
element arrangements or for the revenue recognition of term licenses, amongst others.
d) Share-based payments
• HPE issued stock awards to certain employees of HPE Software. As these awards are in substance for work performed for the benefit of HPE Software, stock-based compensation
expense and the related capital contribution is recorded for these awards. In accordance with HPE Software’s accounting policy, this expense is recognised over the vesting period
using the straight line method. Under IFRS, such payments are required to be recognised using a graded-vesting schedule. Accordingly, HPE Software’s stock-based compensation
expense may be required to be adjusted to reflect graded vesting.
59
Differences between Micro Focus and HPE Software accounting policiese) Impairment of assets
• The following differences in the impairment models under HPE Software’s accounting policies and IFRS may result in different impairment conclusions in HPE Software’s Carve Out
Accounts.
• i) Level of testing: Under HPE Software’s accounting policy for fixed assets and finite-lived intangible assets, asset groups to be tested for impairment are generally
determined based on independent cash flows. That is, both cash inflows and outflows are considered. Under IFRS, the level of testing is generally at the cash-generating
unit (“CGU”) which is determined solely based on cash inflows. This may result in different asset groups being tested for impairment.
• ii) Impairment model calculation: Under HPE Software’s accounting policy, the impairment analysis of long-lived assets is a two-step approach. First, impairment is
assessed on the basis of undiscounted cash flows. If less than carrying amount, the impairment loss is measured as the amount by which the carrying amount exceeds
fair value. HPE Software’s accounting policy further stipulates that the impairment test is a one-step approach for indefinite-lived intangible assets. If the carrying amount
exceeds the fair value, an impairment loss is recognised for the excess. Under IFRS, a single-step impairment testing approach is used for all non-financial assets. An
asset or (grouping of) CGU(s) is impaired when its carrying amount exceeds its recoverable amount.
• iii) Reversal of impairment: Under HPE Software’s accounting policy, impairments cannot be reversed. Under IFRS, impairments recognised on non-financial assets other
than goodwill must be reversed up to amortised cost (i.e. original carrying amount less amortisation as if the impairment had never occurred) if the circumstances and/or
estimates used to determine the recoverable amount have changed since impairment was recognised.
• iv) First-time adoption: Goodwill is tested for impairment at the date of transition to IFRS, and any resulting impairment at that date is recognised directly to retained
earnings.
f) Capitalisation of development costs
• Under HPE Software’s accounting policy, costs incurred in development are expensed unless within the scope of guidance relating to development of software for internal or
external use, or website development costs. Under IFRS, there are no scope considerations. Accordingly, all development activities must be assessed for capitalisation. This
difference may result in additional or different amounts of development costs being capitalised under IFRS.
g) Restructuring
• Under US GAAP HPE Software recognises a liability for severance costs once it is probable and reasonably capable of being estimated. Under IFRS, recognition is not permitted
until irrevocable communication has occurred to the impacted employees. This could lead companies to record restructuring provisions in different periods under IFRS than they
would under US GAAP.
h) Pensions
• HPE Software accounted for pension plans in which its employees participated as multi-employer plans. Accordingly, the plans expenses are attributed to HPE Software combined
statement of earnings whereas the pension plans assets and obligations are not recorded on HPE Software’s balance sheet. Under UK carve out rules, financial statements may
recognise the pension plan assets and liabilities attributed to its employees for plans in which they participate.
60
Differences between Micro Focus and HPE Software accounting policies
i) Discontinued Operations
• Under US GAAP, to qualify as a discontinued operation, a disposal must result in a strategic shift that has a major effect on its operations and financial results. IFRS does not
contain the concept of a strategic shift, rather, the significance of the line of business or geographical area of operations disposed will determine whether the disposal qualifies for
discontinued operations presentation.
j) Income taxes
• The Carve Out Accounts presented do not include a tax provision as it is still in the process of being prepared. Preparation of a tax provision prepared on a separate tax return basis
in accordance with IFRS for the Carve Out Accounts may reflect differences in comparison to HPE Software’s accounting policy related, but not limited, to the recognition and
presentation of deferred taxes, tax bases, foreign exchange on non-monetary assets where the local currency is not the functional currency, unrealised profits on intercompany
sales, deferred taxes on share-based payments and uncertain tax positions.
k) Sale and leaseback
• Following US GAAP guidance, HPE Software defers the gain on sales of real estate which involve a leaseback and amortises the gain over the life of the lease. IFRS differs from
US GAAP on the recognition of gains and losses on sale-leaseback transactions. Micro Focus’ accounting policy would normally result in recognition of the gain immediately on sale
of the asset where the lease is classified as an operating lease.
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