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INVESTOR &ANALYST DAY29 September 2010
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AGENDA
2
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
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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
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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
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OUR STRATEGY
Modernisation
Migration
AMQCobol Development
6
Customers Investors
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GROWTH POTENTIAL: $6.4 BILLION MARKET OPPORTUNITY
7
$4B Test/AMQ
Modernisation & Migration$1.7B
COBOL Development$0.7B
Market Opportunity$6.4B
Growth Potential
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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
9
CONNECTING PRODUCT TO MARKET
9
Product A
B
D E
C
F
IHG
Products Channels Customers
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Leadership team
CONNECTING PRODUCT TO MARKET
$ licence$ consulting$ maintenance
Partners
CONNECTING PRODUCT TO MARKET
10
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
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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
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GROWTH POTENTIAL: $6.4 BILLION MARKET OPPORTUNITY
15
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
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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
16
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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
17
Product Lines
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HOW CUSTOMERS VIEW US – ONE SOLUTION
Modernisation
Micro Focus
18
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
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OUR SOLUTION
19
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.
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WebWebAjax, FlashAjax, Flash
IMS CICS
LinuxJava
z/OSPL/1
20
COBOL
COBOL
THE ENTERPRISE APPLICATION LANDSCAPE
UNIX/LinuxC++/Java
WindowsC##
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THE MICRO FOCUS MODERNISATION DIFFERENCE – PROTECTING AND ENHANCING IP
LP to digital
From mainframe to cloud
21
Protect IP;Lower Costs;Reduce Risk
240+ billion lines; 50+ million
man years of investment in
COBOL
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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
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A MODERNISATION JOURNEY WITH MICRO FOCUS
1
2
100
Agile
Continuous Improvement
Tran
sfor
mat
iona
l Im
prov
emen
t
Cost
Time
23
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%.
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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
24
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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
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THE MICRO FOCUS ADVANTAGE
1
2Continuous Improvement
Tran
sfor
mat
iona
l Im
prov
emen
t
100
Agile
Cost
Time
Value ($)
26
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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
27
Micro Focus AMQ Value
Profiling
Micro Focus development
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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.
28
Micro Focus AMQ Value
Profiling
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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
29
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
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Efficient, modern platformUnderstand
portfolioreality
Validatequality
Validateperformance
Capturebusiness
intent
Aligned with business goals
Enterprise / Developer
Enterprise / Developer
CONTINUOUS IMPROVEMENT OF THE SOFTWARE DEVELOPMENT LIFECYCLE
31
i.Sighti.Sight SCTMSCTM
SilkPerformerSilkPerformerCaliberCaliber
Additional Modernisation
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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
32
POTENTIAL TO EXTEND THE PLATFORM WITH ACQUISITIONS
32
Potential expansionCurrent MF solutions Opportunity +c.$6bnOpportunity $6.4bn
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THE MICRO FOCUS OPPORTUNITY
33
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
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Efficient, modern platformUnderstand
portfolioreality
Validatequality
Validateperformance
Capturebusiness
intent
Aligned with business goals
Enterprise / Developer
Enterprise / Developer
CONTINUOUS IMPROVEMENT OF THE SOFTWARE DEVELOPMENT LIFECYCLE
35
i.Sighti.Sight SCTMSCTM
SilkPerformerSilkPerformerCaliberCaliber
Additional Modernisation
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INVESTOR &ANALYST DAY29 September 2010
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CUSTOMER DELIVERYAndrew Wickett
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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
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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
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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:
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CONNECTING OUR PRODUCTS WITH CUSTOMERSMalcolm Collins
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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.
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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
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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
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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
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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
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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
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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
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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
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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
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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
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SUMMARY
Nigel Clifford
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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