Our Strategy and Business Model
Micro Focus sets out to deliver consistent long-term shareholder returns of between 15% and 20% per annum by generating high levels of cash as a result of a business model focused on maximizing operational effectiveness and achieving scale in the infrastructure software market.
The Micro Focus board is confident that medium-term low single digit revenue growth, industry leading margins and strong cash conversion will ensure that Micro Focus can deliver on that strategy. These returns can be further enhanced by the appropriate deployment of capital in value enhancing acquisitions.
The Company has a business strategy, a financial strategy, an operating plan and an incentive strategy that all support our objective to achieve 15% to 20% compound annual return for shareholders. Since IPO in 2005 until 30 April 2017, the annual compound shareholder return over 12 years has been 29.3%. Adjusted diluted earnings per share have grown from 14.23 cents in 2006 to 175.65 cents in 2017 and dividends per share have grown from 6 cents to 88.06 cents with respective compound annual growth rates of 25.7% and 27.7% respectively.
Adjusted diluted earnings per share and dividend per share in cents
Consistently strong and sustainable shareholder returns are delivered as a result of a robust business model and operational excellence.
Micro Focus specializes in managing mature infrastructure software assets which have been delivering value to significant numbers of customers over long periods of time. Our product portfolios have some or all of the following attributes:
- Broad based – covering all industrial sectors
- Significant numbers of customers
- Significant maintenance streams
- Relatively high switching costs
- Significant market positions
There is a clear customer requirement for a company that can innovate and extend the life of mature software assets. In any IT system the customers’ business logic and data remain critical to their competitive advantage. The key is unlocking this competitive advantage through exploitation of the latest technology innovation such as “OpenStack”, “Software-defined Distributed Storage”, “mobility”, “big data”, “virtualization” and “cloud”. All of this needs to be done with the appropriate security to ensure customer data, company data and intellectual property are protected at all times. Typically customers would be forced into costly, disruptive and risky change to make this possible but with Micro Focus, customers can take a different approach that we characterize as bridging the old and the new. We focus on Customer Centred Innovation that enables customers to exploit new technologies without undue disruption.
By enabling our customers to link their investments in established technology with the latest innovation, Micro Focus helps customers gain incremental returns on investments they have already made and to preserve and protect their data and business logic. The most striking example of this is that an application written in Micro Focus COBOL 40 years ago – before anyone had thought of Linux, Windows, virtualization, cloud or wireless communications – will work today in all of those environments. Micro Focus has made this a reality. By contrast, if a COBOL application had been rewritten in another language, to execute in Java or .NET the customer would have to undertake additional incremental re-writes and incur significant costs every time there was a major technology change.
As the Linux market and Open Source business have unique characteristics, we have a dedicated focus on the SUSE Product Portfolio. This focus is essential if we are to capitalize on the growth potential of these offerings and be responsive to the Open Source community and strong heritage of SUSE. We continue to increase the headcount dedicated to development, customer care and sales and marketing of the SUSE Portfolio and are making acquisitions in this product portfolio. This investment has delivered revenue growth ahead of the market.
Micro Focus has set out to be the most effective company at managing mature infrastructure software assets. This shows in our industry leading EBITDA margins and our strong cash conversion. We believe that our proven ability to execute not only delivers significant amounts of cash and consequently great flexibility, but also a competitive advantage in the acquisition of other similar assets as demonstrated this year.
The aims of our portfolio focus and operational strategy are:
- Revenue growth;
- Operating leverage; and
- Significant cash generation.
Our acquisitions broaden the range and depth of our core infrastructure software solutions and bring outstanding new capabilities in Linux, OpenStack Cloud Infrastructure and security, the combination of which enables us to further extend the philosophy of “bridging the old and the new” across much more of our customer’s I.T. “footprint”.
Our four phase plan