Annual report 2005
Unlocking the Value of Legacy
TM
Micro Focus International Plc Annual report 2005 Contents
1 Micro Focus
2 Group at a glance
4 Chairman’s statement
5 Technology review
7 Chief Executive Officer’s review of operations
12 Chief Financial Officer’s review
14 Board of directors 
16 Directors’ report
18 Corporate governance
23 Corporate social responsibility
24 Remuneration report
28 Directors’ responsibilities
29 Micro Focus International Plc
29 Independent auditors’ report to the 
members of Micro Focus International Plc
30 Balance sheet
31 Cash flow statement
32 Notes to the financial statements
35 Micro Focus International Limited
35 Independent auditors’ report to the
members of Micro Focus International
Limited
36 Consolidated profit and loss account
37 Statement of Group total recognised
gains and losses
37 Reconciliation of movement in Group
shareholders’ funds
38 Consolidated balance sheet
39 Consolidated cash flow statement
40 Notes to the financial statements
63 Historical summary
64 Directors, Secretary, registered office 
and advisers
65 Offices
66 Glossary
Agile solutions
Our Leverage and Extend 
and Lift and Shift™ solutions
make it possible to protect
investment in legacy 
applications by migrating 
them to more open and
flexible contemporary
platforms. Micro Focus, founded in 1976, is a leading provider of legacy development and
deployment software. Our Leverage and Extend and Lift and Shift™ solutions
enable our customers, which include more than 70 of the 2004 Fortune 
“Global 100” companies, to continue to gain value from their legacy of investment
in business applications.
We enable more than 5,000 customers and one million licensed users, across the financial services,
government, healthcare, retail, manufacturing and software industries, worldwide, to improve their
efficiency, to take advantage of Web Services and to migrate legacy applications to modern environments.
We also work with a variety of partners, including systems integrators, platform providers, resellers and
other technology companies, to extend our capabilities.
Our ability to deliver evolutionary and cost-effective solutions is sustained by our commitment to
remaining at the forefront of technology and product development. 
Because technology platforms are constantly moving
there will always be a need to unlock strategically
important business applications from the constraints 
of older hardware and software platforms. This enables
our customers to reduce the cost of their IT operations,
whilst at the same time increasing their agility to meet
the demands of their businesses with minimal risk.
Micro Focus calls this simply… 
Unlocking the Value of Legacy™
Micro Focus International Plc Annual report 2005 1 2 Micro Focus International Plc Annual report 2005
Group at a glance
 Turnover increased 19.3% to $150.6 million 
(2004: $126.3 million).
 Turnover increased 15% at constant currency.
 EBITDA increased 35.0% to $41.7 million (2004: $30.9 million)
and adjusted EBTIDA increased 45.7% to $48.7 million
(2004: $33.5 million).
 Profit on ordinary activities before tax increased 25.6% 
to $27.7 million (2004: $22.0 million).
 Basic earnings per share increased 21.8% to 11.91c 
(2004: 9.78c).
 Successful IPO in May 2005.
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Turnover
$million
Adjusted EBITDA
$million
Operating profit
$million
R&D expenditure
$million
8 April 2004
Microsoft and Micro Focus form the MMA
New product release to Lift and Shift legacy
applications to Windows platforms.
2 June 2004
Opening of new offices in St Albans, UK.
17 August 2004
New product releases to Lift and
Shift legacy applications to HP and
IBM eServer platforms.
30 Sept 2004
Awarded the status of Microsoft
Gold Certified Partner.
4 Dec 2004
Opening of new offices in Durham,
North Carolina.
8 June 2004
New product release to Leverage
and Extend IBM mainframe
applications. Micro Focus International Plc Annual report 2005 3
Revenues by type
$million
Licence fees
Maintenance fees
Consulting fees
79.9
66.7
4.1
Number of employees
by region
North America
Europe and Middle East
Rest of the world
210
253
23
Number of employees 
by function
General and administration
Sales and distribution
Research and development
159
183
144
Revenues by region
$million
North America
Europe and Middle East
Rest of the world
73.2
57.4
20.1
Cost breakdown
$million
Cost of sales
R&D costs
Selling and distribution costs
Other admin costs
48.1
6.3
23.4
36.9
Number of offices
North America
Europe and Middle East
Rest of the world
13
06
03
7 Feb 2005
Single development environment
based on Microsoft Visual Studio
announced.
3 March 2005
New product release to Leverage and
Extend legacy applications running on
Intel® Itanium 2 processor-based platforms.
14 March 2005
Won a global award recognising
exemplary customer service standards
for the fourth consecutive year.
17 May 2005 
Micro Focus International Plc acquired
the entire share capital of Micro Focus
International Limited.
17 May 2005
The ordinary shares of Micro Focus
International Plc are admitted to the
Official List and to the main market of the
London Stock Exchange for listed securities.
6 June 2005
Dr Anthony Hill wins “Technology CEO
of the Year” award. I am delighted to welcome shareholders to this, the first annual
report of Micro Focus International Plc. 
On 17 May 2005, the share capital of Micro Focus International
Limited (“Operating Company”) was acquired by Micro Focus
International Plc (“Company”) in a share-for-share exchange with
the previous shareholders of the Operating Company. On 17 May
2005, the ordinary shares of the Company were admitted to the
Official List and to the London Stock Exchange to be traded on 
its main market for listed securities. This annual report concentrates
on providing shareholders with consolidated information on the
Operating Company and its subsidiaries.
Whilst the Operating Company traces its origins back to 1976 
the current strategy has evolved since 2001, when the business
was acquired by Golden Gate Capital, a US-based private equity
fund. Since that time we have refocused the business on legacy
development and deployment, a strategy which has formed the
basis of our success over the past four years. We have increased
revenues from $79 million for the nine months ended April 2002,
to $110 million for the comparable nine months ended January
2005, and further to $151 million for the full year ended 
30 April 2005.
Our strategy
Our strategy is to help our customers leverage their legacy
assets. We do this by expanding the market for mainframe
migration, strengthening existing customer relationships,
extending leveraged sales channels, continuing to develop
innovative technology and by pursuing selected opportunities for
acquisition. This is covered in more detail in the Chief Executive
Officer’s review of operations on pages 7 to 11.
The IPO
The Company raised $122 million in the IPO, the net proceeds
being used to repay the full balance of the debt outstanding
under facilities with Wells Fargo Foothill, Inc. and DB Zwirn
Special Opportunities Fund (including early payment fees). 
This has left the Company with a strong balance sheet to 
pursue its strategy.
Our people
Our board comprises two executive and five non-executive directors.
Dr Anthony Hill, who has been with the Operating Company or
one of its antecedents since 1987, became Chief Executive Officer
and President of the Operating Group in August 2001. Richard Lloyd,
who has been with the Operating Company or one of its
antecedents since 1991, became Chief Financial Officer of the
Operating Group in August 2001. I was pleased to accept the role
of non-executive Chairman on 4 April 2005. Our other non-
executive directors are David Dominik and Prescott Ashe, who are
founders and Managing Directors of Golden Gate Capital, David
Maloney, who has extensive experience in finance at a number of
leading companies, and John Browett who was appointed as a non-
executive director on 1 July 2005 (biographies of the board members
are shown on page 15).
We are fortunate to have a highly skilled, experienced and loyal
family of employees, including a senior management team four
of whom have been with the Company for more than 20 years.
I thank my fellow directors, the members of the management
team and, indeed, all employees for their energy, commitment
and contribution during the past year, which has been a time 
of immense change and demanding deadlines.
The future
Our business model is continuing to prove its value. Over the past
year we have achieved greater penetration of our target markets
and, following the IPO and the repayment of loans, we are
financially well positioned to maintain profitable growth and 
to generate cash. I am confident that Micro Focus will continue 
to prosper and will deliver good value to all its stakeholders.
Kevin Loosemore Chairman
3 August 2005
4 Micro Focus International Plc Annual report 2005
Chairman’s statement By April 2005, there were approximately 16,000 IBM mainframes
in use around the world. Many operations supported by 
legacy applications are based on COBOL. It is estimated that
more than 200 billion lines of COBOL code are in use today 
and that COBOL applications continue to process 85% of all
computer transactions.
Over time, IT organisations are deploying more business
applications on Windows, UNIX and Linux operating
environments. We estimate that the compound annual growth
rate (CAGR) for Windows, UNIX and Linux deployment software
will be approximately 7.2% from 2003 to 2008, and that much of
this new workload will be based on legacy applications. The Web
Services market, which is fuelling growth in the reuse of legacy
applications on contemporary platforms, is expected to grow at
a rate of 42.4% CAGR over the same period.
Our Leverage and Extend and Lift and Shift™ solutions 
enable our customers to modernise their legacy using
contemporary platforms.
Leverage and Extend 
This solution enables our customers to: 
l Leverage existing information technology assets by allowing
developers to use existing skills and code within a productive
Windows-based environment and to manage all aspects of
legacy application development. This significantly improves
developer productivity, as well as reducing risks relating to
quality and unavailability; and 
l Extend legacy applications which deliver core business
services into new business processes using service-oriented
architectures and Web Services frameworks quickly and easily.
Leverage and Extend is used by many large organisations, 
such as those in the financial, insurance and government 
sectors, which have invested heavily in legacy IT and which 
have a strategic commitment to an existing platform – often 
a mainframe. Leverage and Extend is also used by many
packaged application providers, such as Lawson and Misys, 
who embed our software in their applications on a wide 
range of contemporary platforms.
Lift and Shift™
This solution, introduced in 2004, enables organisations to
reduce their dependence on IBM mainframes when there are
compelling business reasons to exploit alternative, lower-cost
platforms. Lift and Shift™ makes it possible to migrate legacy
applications to lower-cost, more open and flexible contemporary
platforms, such as Windows, UNIX or Linux, and to reuse existing
skills and code. Migration can be implemented more quickly,
more successfully and more economically than writing new
applications or implementing commercial application packages.
Combining Leverage and Extend and Lift and Shift™
The intrinsic strength of these solutions is that they can be
implemented across a wide range of technologies – individually
or in combination. When used together, they can transform an 
IT cost base, increase its scalability and turn legacy applications
into strategic assets.
Micro Focus International Plc Annual report 2005 5
Technology review
In the 40 years since the IBM mainframe was introduced, more than 
$1 trillion has been invested in building information technology (IT)
infrastructures. In those years, technology has developed radically, from
mainframes to distributed and internet-enabled computing, and from
programming languages, such as Assembler, COBOL and PL/I, to C, C++ 
and Java. A significant proportion of the world’s IT infrastructure is still,
however, based on mainframe or “legacy” technologies and applications,
and around 70% of business operations are still supported by them.
WEB SERVICES ARE THE BRIDGE
FROM THE OLD TO THE NEW.
$3.6 BILLION MARKET
OPPORTUNITY FORECAST BY 2008.
2003-2008 CAGR OF 42%. Our products provide customers with a broad range of rapid
legacy application development and deployment tools,
collectively known as Micro Focus Studio and Micro Focus Server.
These give customers the power to maximise their investments 
in legacy applications using contemporary architectures and 
Web Services frameworks, such as .NET, J2EE and XML.
Micro Focus Studio
Micro Focus Studio is a collection of development software
products which are used in a highly-productive, Microsoft
Windows development environment to Leverage and Extend
legacy applications, regardless of the platform which is used to
deploy them. Micro Focus Studio development software is also
used to Lift and Shift™ legacy applications from mainframes 
to contemporary platforms. 
Micro Focus Studio software includes the following products:
Mainframe Express
®
Enterprise Edition is a complete mainframe
application development and extension environment which provides
automated code generation, analysis, compilation, debugging and unit
testing of mainframe applications on a desktop while facilitating the
flexibility to extend existing transactions to contemporary application
architectures, such as .NET, J2EE and Web Services.
Net Express
®
with .NET is an integrated development environment
based on Microsoft Visual Studio, which is used to modernise
and extend legacy applications for the Microsoft Windows
platform and the .NET framework. It can be used in conjunction
with Micro Focus Server Express to deploy applications to UNIX
and Linux platforms.
Server Express™ is a development environment based on 
UNIX and Linux, which is used to modernise and extend legacy 
applications that are to be deployed on platforms, such as
RedHat and Novell Linux, HP-UX, IBM AIX and SUN Solaris, 
with J2EE environments and Web Services framework.
Revolve
®
Enterprise Edition helps developers adapt legacy
applications more quickly by enabling them to analyse the
impact of change and to manage large inventories of code.
Micro Focus Server
Micro Focus Server is deployment software which customers 
use to integrate their legacy applications with contemporary
architectures and Web Services frameworks, and deploy them 
on all leading contemporary platforms.
Micro Focus Server software includes the following products:
Application Server™ is a high-performance execution
environment which incorporates powerful facilities that enable
COBOL applications to run on all leading Windows, UNIX 
and Linux platforms, including support for the latest 64-bit
technologies.
Enterprise Server™ is a high-performance transaction processing
environment. Fully compatible with IBM mainframe technology,
Enterprise Server enables the deployment of mainframe legacy
applications and provides seamless integration with .NET and
J2EE architectures and Web Services frameworks to facilitate 
the implementation of service-oriented architectures.
Additional development and deployment tools
Micro Focus also offers additional legacy development and
deployment tools. These include Micro Focus APS, Micro Focus
AppMaster Builder, Micro Focus Enterprise Link
®
, Micro Focus
Object COBOL Developer Suite
TM
and Micro Focus Eurosmart.
6 Micro Focus International Plc Annual report 2005
Expertise
We have developed a deep technical
understanding of legacy technologies
and contemporary platforms which we
deliver to our customers in Micro Focus
Studio and Server products, which,
amongst other things, provide a complete
environment for developing IBM mainframe
applications on a laptop computer.
Technology review
  The 12 months to April 2005 have been excellent for Micro Focus
with revenues up 19.3% to over $150 million. At the same time
we have substantially improved both profit margins and the cash
flows from our operations.
We believe that our success is driven by the need for companies 
to increase their agility while, at the same time, reducing costs 
and minimising risk. This imperative has led many to look for ways
to capitalise on their investment in legacy technology. As much 
as 80% of an organisation’s software budget may be used to
maintain and operate legacy applications which have traditionally
been too inflexible to integrate with one another or with newer
technologies. The lower cost of contemporary platforms combined
with technical advances, such as security, flexibility and scalability,
and the emergence of enabling technologies, such as Web Services
and service-oriented architectures, has driven many organisations
to look for ways to re-use their legacy investments.
Organisations seeking to modernise their IT infrastructure
broadly have the following alternatives:
l Improve the development infrastructure for their current
applications and platforms by increasing developer productivity
and lowering development costs. We refer to this as Leverage
and Extend;
l Extend critical legacy applications and services on current
platforms to new internal and external user communities by
using the Internet and contemporary architectures, also part 
of Leverage and Extend;
l Move legacy applications from current high-cost or end-of-
life platforms, such as the mainframe, to more contemporary,
open and flexible platforms, such as Windows, UNIX and Linux.
We refer to this as Lift and Shift™; and
l Replace legacy applications on mainframes with new
packages or new custom-built applications which run on more
contemporary, open and flexible platforms, such as Windows,
UNIX and Linux, often referred to in the industry as Rip 
and Replace.
Our legacy application development and deployment software,
described in the technology review on pages 5 to 6, enables 
our customers to improve their development infrastructure, 
to extend legacy applications to new users and to move them 
to contemporary platforms. We believe that the high costs and
risks associated with large-scale replacement projects are rarely 
viable in today’s climate of tight cost and risk management 
and are, in most instances, unnecessary.
Customers
We sell our software through three channels:
l Direct customers buy our software to maintain and 
operate core legacy business applications and pay licence 
and maintenance fees direct to us;
l Indirect customers buy our software and pay licence and
maintenance fees through packaged application providers 
and systems integrators; and
l Resellers sell Micro Focus software in geographic areas
where Micro Focus does not have a presence.
Micro Focus International Plc Annual report 2005 7
Chief Executive Officer’s review of operations
Micro Focus in education
“We were able to preserve our investment 
in COBOL at low cost and risk because our
programmers were able to become productive
so quickly. Leveraging and extending our 
legacy system was the best option for us, 
and Micro Focus helped us preserve the 
value of our legacy investment.”
John Elliott, Director of Information Technology, Campus Partners Strengths
Our technology and resources enable businesses to extract 
value from legacy applications, platforms and architectures 
in a continually, and rapidly changing, IT environment. Below 
I highlight the key strengths of the Company which I believe
place Micro Focus in a unique position to help IT organisations
across the globe to reduce costs, increase agility and minimise
risk by leveraging their legacy assets.
We have deep technical understanding of legacy technologies
(for example, CICS, IMS, PL/I, Assembler, COBOL, DB2, Rexx, 
JCL and TSO) combined with that of contemporary platforms,
(Windows, UNIX and Linux) and architectures (.NET, J2EE and
Web Services). Our collaboration with specialist technology
partners supplements this knowledge, giving us and our
customers access to expertise in legacy technologies, such 
as Natural, Adabas, IDMS and RPG.
Our expertise, developed over 30 years, with a strong record of
technology innovation in legacy development and deployment
solutions, has resulted in more than one million licensed users 
of our software around the world. Our customers include more 
than 70 of the Fortune Global 100 companies. They include
companies who operate in a wide range of industry sectors,
including financial services, insurance and government, of
varying sizes and over a wide geographic area. Approximately
49% of our turnover is derived from North America, 38% from 
Europe and the Middle East, and 13% from the rest of the
world. No single customer dominates. Because our products 
are deeply integrated into our customers’ core IT systems, 
we have been able to create and maintain long-term
relationships with them. 
We have developed a strong platform, technology, service and
application partner ecosystem to expand our ability to develop,
market and distribute our products, and to further support our
customers’ legacy modernisation initiatives. For example: 
l Micro Focus is a member of the IBM Partnerworld
programme. We are a Microsoft Gold Certified Partner and 
a premier member of Microsoft’s Visual Studio Industry Partner
programme. In 2004, we jointly announced the formation of 
the MMA with Microsoft;
l We founded the Migration and Transformation Consortium,
a global network of companies which specialises in modernising
legacy systems with a combination of our software, specialist
technology and legacy expertise;
l Systems integrators such as Accenture, CSC and EDS work
with us to provide migration and deployment services which 
use our Lift and Shift™ software to minimise the risk of moving
customers’ applications to a contemporary platform; and
l Our application partners offer a range of packaged
applications which feature the latest technology innovations and
which can be implemented across a wide range of mainframe
and contemporary platforms.
8 Micro Focus International Plc Annual report 2005
Chief Executive Officer’s review of operations
Innovative
We have a strong record, based on
30 years’ experience, of developing
legacy and deployment solutions to
enable customers to evolve, rather
than replace, their technology.
Micro Focus in financial services
“With Net Express, CNB has shown that they
can easily exchange data across legacy and
new systems, minimising the disruption of
acquisitions while gaining agility to meet 
new business requirements as they emerge.”
Ed Proud, Vice President Information Systems, County National Bank Long-term customer relationships have resulted in a relatively
stable stream of revenue from recurring maintenance fees, as
well as from licence fees from packaged application providers. 
Around 44% of our revenue is derived from maintenance
contracts and, in the year ended 30 April 2005, around 90% of
our customers in the US, the UK and Germany (which together
accounted for approximately 75% of our total maintenance 
fee revenue) renewed their contracts with us. 
Our senior management team has more than 110 years’
combined experience in the software industry. Our technical
teams, who come from diverse backgrounds, are application,
platform and software engineering experts, and often choose 
to stay with us for many years. This stability, combined with our
expertise, gives us a strong basis on which to execute our strategy.
Strategy
Our objective is to be the leading global provider of legacy
development and deployment software. We believe we will
achieve this with the strategies outlined below.
We will endeavour to strengthen relationships with existing
customers by promoting our complementary Leverage and 
Micro Focus International Plc Annual report 2005 9
Micro Focus in energy 
“As we move proprietary credit card
programmes to a services-based
technology environment, Valero needed
a solution that would allow for a phased
low-risk approach. One that took
advantage of existing COBOL assets.”
Steve DiPaola, Vice President of Administrative Systems
and Production Support, Valero Energy Corporation
Global diversity
More than one million users
around the world are 
licensed to use our software: 
our customers include more 
than 70 of the Fortune
Global 100 companies.
85% OF ALL TRANSACTIONS
ARE PROCESSED BY LEGACY
APPLICATIONS. Extend and Lift and Shift™ solutions. We believe that
opportunities also exist to help systems integrators develop 
and deploy their own legacy applications.
The market for mainframe migration is expanding rapidly. 
We have been involved in more than 20 Lift and Shift™ projects
since we launched the software in April 2004. We aim to 
increase awareness of this solution through marketing and 
by establishing alliances with large systems integrators, and
software and hardware vendors, including members of the
MMA. The increasing level of interest from customers and the
growth in the average size of projects is, we believe, evidence
that the market for mainframe migration continues to grow.
We aim to increase indirect sales through packaged application
providers, systems integrators and resellers by strengthening
existing relationships with key industry players, such as
Accenture, EDS and CSC, and by developing new relationships
with other industry leaders. We intend to continue to 
10 Micro Focus International Plc Annual report 2005
Focused
Our objective is to become
the leading global provider
of legacy and deployment
software. Our common-
sense approach to upgrading
customers’ IT drives the
realisation of this ambition.
Micro Focus in retail
“The migration to a Micro Focus environment
under Windows has enabled us to re-allocate
the $150,000 we saved by slashing our IT
budget into business development.
We expect to experience a dramatic rise 
in productivity due to the enhanced
capabilities and increased efficiencies of 
the system, which has already enabled 
us to boost customer service and create 
better methods to market our products.”
Léo Théberge, CIO, Québec Loisirs
$1 TRILLION INVESTMENT IN 
LEGACY OVER LAST 30 YEARS. focus on selling software licences, and the associated
maintenance, and to rely on our systems integrator partners 
for professional services. 
We endeavour to continue to develop innovative technology
and we will further invest in expanding the features and
functionality of our technology and products. We intend to
maintain a leading position in our market for legacy application
development and deployment software by co-operating with 
our partners to expand the coverage of our technologies 
and products.
We intend to pursue selected technology-based acquisitions 
to take advantage of the growing mainframe migration market.
This will enable us to ensure that our technologies cover all the
necessary legacy and contemporary architectures, platforms and
applications. Any acquisition will be incremental and will be
selected to supplement existing products and to expand our
customer base.
Helping customers compete in a global economy
We help customers meet new industry regulations (such as 
Basel II and Sarbanes-Oxley) and add value to their businesses 
by enabling them to re-use and extend their legacy investments
to new internal and external user communities. Our software
increases the agility of their systems and the effectiveness of
their employees with minimum risk.
Micro Focus Leverage and Extend reduces development costs 
by using available skills and platforms efficiently, and increases
agility through the use of development tools, based on Windows,
to extend legacy applications to J2EE, .NET or Web Services.
Micro Focus Lift and Shift™ lowers hardware and software 
costs by migrating legacy applications to modern, open and
extensible platforms. Lift and Shift™ is underpinned by 
extensive support for mainframe applications on contemporary
Windows, UNIX and Linux platforms. Because of this, many
applications can be migrated in a fraction of the time it would
take to build a new application or to implement a new
commercial package.
We are committed to helping organisations protect their
investment in legacy applications. With the help of our
technology and over 50 active partners, more than 5,000
customers have already leveraged their legacy assets.
Dr Anthony Hill Chief Executive Officer
3 August 2005
Micro Focus International Plc Annual report 2005 11
Chief Executive Officer’s review of operations
Partnerships
We have developed an application
partner system to expand 
our ability to develop, market 
and distribute our products and 
to support our customers’ legacy
modernisation.
Micro Focus in partnership
“Micro Focus and Microsoft have helped
us position INGENIUM to a wider 
range of customers without sacrificing 
the security or scalability we enjoy on the
mainframe version, which many of our
customers continue to use. It truly is the
best of both worlds.”
Blair Goulet, Senior Vice President, Strategy and Global Initiatives,
SOLCORP Results of operations
Overall our results were in line with market expectations. This is an
excellent set of results reflecting the hard work of all our people.
On 17 May 2005, the share capital of Micro Focus International 
Limited (“Operating Company”) was acquired by Micro Focus
International Plc (“Company”) in a share-for-share exchange with the
previous shareholders of the Operating Company. On 17 May 2005, 
the ordinary shares of the Company were admitted to the Official List
and to the London Stock Exchange to be traded on its main market 
for listed securities. 
Turnover
Turnover for the year ended 30 April 2005 increased by 19.3% 
to $150.6 million from $126.3 million for the year ended 30 April
2004. Even after removing the impact of currency fluctuations on
turnover during the year, turnover increased by 15%. This was an
excellent performance against the backdrop of the IPO.
Year ended 30 April
2005 2004
$’000 % $’000 %
Licence fees
1
79,860 53.0 64,211 50.9
Maintenance fees
1
66,705 44.3 57,980 45.9
Consultancy fees
1
4,080 2.7 4,077 3.2
Total turnover 150,645 100.0 126,268 100.0
Note:
1 The directors use the split of turnover between licence fees, maintenance fees
and consultancy fees in order to assess the future revenue flows from the current
portfolio of customers.
The increase of 19.3% over the year was principally driven 
by a 24.4% increase in licence fees and a 15% increase in
maintenance fees. The increase in licensing turnover was
principally attributable to increased volumes of licence sales,
12 Micro Focus International Plc Annual report 2005
Chief Financial Officer’s review
particularly in North America, as a result of Micro Focus’ efforts
to leverage its partners’ distribution networks. Within licence
sales, the proportion of turnover generated from sales of
deployment software, particularly with respect to the UNIX
platform, continued to increase, partially driven by the overall
industry trend towards the use of service-oriented architectures
and Web Services frameworks. Contributing to these gains were
licence fees generated by a new PeopleSoft contract as of 1 May
2004 and additional sales activities of resellers. However, these
gains were partially offset by the impact of reduced prices with
respect to Micro Focus’ development software. 
The increase in maintenance fees was driven by increasing
licence sales during the year ended 30 April 2005, as well as
maintenance renewal fees for licences sold during the prior
financial year. Consultancy fees during the year continued to
decrease on an absolute basis and as a percentage of total
turnover, in line with the Company’s overall strategy with respect
to the provision of consultancy and training services in the future.
Cost of sales
Cost of sales for the year ended 30 April 2005 decreased by
23.6% to $6.3 million from $8.3 million for the year ended 
30 April 2004. The decrease in cost of sales was principally 
driven by a reduction in headcount as a result of the Group’s
implementation of its partner-centric approach towards
customer support and a reduction in the level of consulting 
and training services provided during the year. This has been 
a significant focus for the board and Micro Focus’ continued
focus on being a nearly pure software business.
Costs 
Selling and distribution costs for the year increased by 21% to
$48.1 million from $39.7 million for the year ended 30 April 2004.
The principal driver of the increase was the hiring of additional
members of the sales force, particularly relationship managers
for the accounts of systems integrators, in order to capitalise on
Lift and Shift™ growth opportunities. In addition to initial hiring
costs, we also paid more commissions to sales personnel during
the year, principally driven by the growth in the volume of
development and deployment software sold.  
Research and development for the year increased by 4.7% to
$23.4 million from $22.4 million for the year ended 30 April 2004,
primarily the release of version updates for existing products as
well as ongoing development of new products and technologies.
  The absolute cost level of research and development is expected
to rise, but at a substantially lower rate than turnover.  
Administrative expenses for the year increased by 20% to 
$36.9 million from $30.7 million for the year ended 30 April
2004. The increased costs related primarily to the Global Offer
and recognition costs, and share-based compensation costs. 
Operating profit
Operating profit for the year ended 30 April 2005 increased 
by 42.3% to $35.9 million from $25.2 million for the year 
ended 30 April 2004. This is an excellent result and reflects the
significant economies of scale in our cost structure against
substantial growth in revenues.
EBITDA and adjusted EBITDA
The board, in common with most software companies, pays
particular attention to EBITDA and adjusted EBITDA as two key
measures of performance. These are calculated as follows:
Year ended Year ended
April 30 2005 April 30 2004
$’000 $’000
Operating profit 35,924 25,239
Depreciation 1,962 1,849
Amortisation 3,769 3,769
Earnings before interest tax depreciation 
and amortisation (EBITDA) 41,655 30,857
Share-based compensation 3,581 840
Non-recurring costs
Management charges 1,200 1,200
Reorganisation costs 2,302 –
Redundancy costs – 562
Adjusted EBITDA 48,738 33,459
EBITDA increased by 35% and adjusted EBITDA increased by 46%
over the previous year.  
Net interest payable
The increase in net interest payable was attributable to a $1.9 million
increase in interest charges as a result of higher average outstanding
loan balances during the year ended 30 April 2005 as compared 
to the prior year and a $3.4 million charge representing accelerated
amortisation of issue costs based on the planned early repayment 
of a portion of the Company’s long-term debt arrangements with
Wells Fargo Foothill, Inc., and DB Zwirn Special Opportunities Fund. 
Micro Focus International Plc Annual report 2005 13
Tax on profit on ordinary activities
Tax on profit on ordinary activities for the year ended 30 April
2005 increased to $10.1 million from $7.8 million for the year
ended 30 April 2004. The increase is principally attributable to
increased taxes due to increased profitability, both in the United
Kingdom and abroad, during the year, partially offset by 
a decrease in deferred taxes.
Profit for the financial year
Profit for the year ended 30 April 2005 increased by 23.3% 
to $17.5 million from $14.2 million for the year ended 
30 April 2004.
Dividends
Dividends paid by Micro Focus during the year ended 30 April
2005 increased to $78.8 million from $28.5 million for the year
ended 30 April 2004. Under Cayman law the unrealised profit 
on the revaluation of an asset may be used to fund a dividend.
As such the directors obtained an independent valuation of the
intellectual property held in the Operating Company and its
subsidiaries; which confirmed the adequacy of the distributable
reserves under Cayman laws.
The board intends to adopt a progressive dividend policy
reflecting the long-term earnings and cash flow potential of
Micro Focus whilst targetting an initial level of dividend cover
for the full financial year ended 30 April 2006 of approximately
2.5 times on a pre-exceptional earnings basis.
Cash flow
For the financial year ended 30 April 2005, the Operating
Company generated a net cash inflow from operating activities
of $46.4 million (2004: $31.7 million). The increase in net cash
inflow was driven by the improved operating performance,
specifically through increased sales of software and the effective
management of our working capital.  
Going forward, the Company anticipates that its principal source
of cash from operating activities will continue to be generated
by software licence and maintenance fees.  
The strong cash flow, together with the funds generated from the
IPO ($122 million), enabled us to pay off the outstanding loans.
Richard Lloyd Chief Financial Officer
3 August 2005 14 Micro Focus International Plc Annual report 2005
Board of directors
Kevin Loosemore Dr Anthony Hill Richard Lloyd David Dominik
Prescott Ashe David Maloney John Browett Kevin Loosemore, 46 (Non-executive Chairman)*†‡ Kevin was
the Chief Operating Officer of Cable & Wireless plc from April
2003  until 31 March 2005. He was previously President of
Motorola Europe, Middle East and Africa and, before that, was
Chief Executive of IBM UK and a member of the IBM Worldwide
Management Committee. From 1997 to 1999 he was Managing
Director of De La Rue Card Systems. He has a degree in politics
and economics from Oxford University.
Dr Anthony Hill, 55 (Executive director and Chief Executive
Officer) Anthony became Chief Executive Officer and President
of the Group in August 2001. He previously filled a number 
of roles, including UK Country Manager, European Marketing
Head, Vice President of European Sales and, most recently,
Senior Vice President and General Manager. Before joining the
Group in 1987, he was European Manager for software products
at Scientific Software Intercomp. Anthony has an undergraduate
degree in mathematics from Oxford University, a masters degree
in pure mathematics from Newcastle-upon-Tyne University, and 
a doctorate in applied mathematics from Newcastle-upon-Tyne
Polytechnic.
Richard Lloyd, 48 (Executive director and Chief Financial Officer)
Richard became the Group’s Chief Financial Officer in August
2001. He previously worked in a variety of finance positions,
including as European Controller and International Controller
directing business planning and financial strategies. Before
joining the Group in 1991, he was Controller at Cullinet Software
where he managed finance operations for the company’s Europe
and Middle East division. Richard is a Chartered Secretary.
David Dominik, 49 (Non-executive director)‡ David has been 
a Managing Director of Golden Gate Capital since its inception 
in 2000. He previously spent ten years as a Managing Director 
at Bain Capital, where he focused on making operationally-
intensive growth investments, with a particular emphasis on the
information, software, semiconductor and electronic hardware
industries. He managed Information Partners, a specialised fund
within Bain Capital, that focused on opportunities in the
information services and software markets and also served on
the investment committee of Brookside, Bain Capital’s public
equity hedge fund. David has a juris doctor degree from Harvard
Law School (cum laude) and an AB in social studies (economics
and history) from Harvard College (magna cum laude; Phi Beta
Kappa). 
Prescott Ashe, 38 (Non-executive director) Prescott has been a
Managing Director of Golden Gate Capital since its inception 
in 2000. He was previously a principal at Bain, which he joined 
in 1991 and, before that, was a consultant at the global strategy
consultancy, Bain & Company. He has more than 14 years’
experience of private equity investing. He has participated 
in more than 50 acquisitions/recapitalisations with aggregate
transaction values in excess of US$5.0 billion. Prescott has a juris
doctor degree from Stanford Law School and a bachelor of
science degree in business administration from the University 
of California at Berkeley.
David Maloney, 49 (Non-executive director)*†‡ David is a non-
executive director of Virgin Mobile Holdings (UK) plc. His most
recent executive role was as Chief Financial Officer of the global
hotel group Le Meridien Hotels and Resorts. Prior to that he was
Chief Financial Officer of Thomson Travel Group and Preussag
Airlines, and Group Finance Director of Avis Europe plc. David is
a fellow of the Chartered Institute of Management Accountants
and has a degree in economics from Heriot-Watt University,
Edinburgh.
John Browett, 41 (Non-executive director)*† John was appointed 
to the Micro Focus board on 1 July 2005. He has been Operations
Director – UK for Tesco since January 2004 and was previously
responsible, as Chief Executive Officer of Tesco.com, for Tesco’s
internet business and for Tesco Telecoms. Before joining Tesco 
in 1998, he worked for The Boston Consulting Group. John has 
a degree in Natural Sciences from Cambridge and an MBA from
Wharton Business School.
* Audit committee
† Remuneration committee
‡ Nomination committee
Micro Focus International Plc Annual report 2005 15
  The directors of the Company present their report and the
audited financial statements of the Company for the period
from incorporation on 21 May 2004 to 30 April 2005 and of 
the Operating Group for the year ended 30 April 2005. 
On 17 May 2005 (immediately prior to the IPO), the Company
became the holding company of the Group by acquiring the
Operating Company in a share-for-share exchange, pursuant 
to which the previous shareholders of the Operating Company
were issued and allotted three ordinary shares in the capital of
the Company for every one ordinary share they previously held
in the Operating Company (“Share Exchange”). On 17 May 2005,
all the ordinary shares of the Company were admitted to the
Official List and to the London Stock Exchange to be traded 
on its main market for listed securities.
The separate financial statements have been presented to
provide shareholders with information on the performance 
of the Operating Group.
On Admission, the Company adopted the policies and procedures
of the Operating Group. In addition the directors have reviewed
these policies and procedures in light of the requirements of 
a listed company. Unless otherwise indicated the policies and
procedures described are those of the Operating Group.
The information in the directors’ report and the remuneration
report relate primarily to the Operating Group.
Principal activities
The Company did not trade during the period from the date of
incorporation to 30 April 2005. 
The principal activities of the Operating Group during the year
were the provision of legacy application development and
deployment software for contemporary platforms.
Review of business and future developments
For details regarding the Operating Group’s activity and the
future developments of the Company, please refer to the Chief
Financial Officer’s review on pages 12 and 13.
Dividends
During the year ended 30 April 2005 the directors of the
Operating Company recommended and paid dividends amounting
to $78,800,000 (2004: $28,450,000). 
Research and development
For information on the activities of the development team
please refer to the technology review on pages 5 and 6.
Donations
The Company and the Operating Group made no charitable 
or political donations during the year (2004: nil). 
Post balance sheet events
Pursuant to the Share Exchange, the entire ordinary share 
capital of the Operating Company was acquired by the Company.
The consideration for this acquisition was three ordinary shares 
in the Company for every ordinary share previously owned by
shareholders in the Operating Company.
On Admission, the Company issued and allotted 51,069,602 
new ordinary shares. On 20 May 2005, the net proceeds of the
offering, together with existing funds, were used to enable the
repayment of all of the outstanding debt of the Operating
Group, which stood at $110,625,000 at that date. 
International Financial Reporting Standards
In June 2002, the Council of the European Union adopted a
regulation requiring listed companies in its member states to
prepare their consolidated financial statements in accordance
with International Financial Reporting Standards (“IFRS”). 
Under this regulation the Group will prepare its first financial
statements under IFRS in respect of the year ending 30 April
2006. A project to implement the conversion from UK GAAP to
IFRS has been completed and the Company will be in a position
to report its interim statement for the six-month period to 
31 October 2005 in accordance with IFRS.
Directors and their interests
The directors of the Company who served during the year are 
as follows:
Executive
Dr Anthony Hill (Chief Executive Officer, appointed 12 April 2005)
Richard Lloyd (Chief Financial Officer, appointed 12 April 2005)
Non-executive
Kevin Loosemore (Chairman, appointed 4 April 2005)
Prescott Ashe (appointed 12 April 2005)
David Dominik (appointed 12 April 2005)
David Maloney (appointed 4 April 2005)
16 Micro Focus International Plc Annual report 2005
Directors’ report
  Additionally, John Browett was appointed as a non-executive
director on 1 July 2005. 
Details of the interests of the directors and their families in the
ordinary shares of the Company and the Operating Company, 
as disclosed in the register of directors’ interests, are given in 
the remuneration report on pages 24 to 27. 
Employment policy
Equal opportunities
The Group operates an equal opportunities policy. Full
consideration is given to all job applicants, irrespective of
gender, age, marital status, disability, sexuality, race, colour,
religion, ethnic or national origin or any other conditions not
relevant to the performance of the job, who can demonstrate
that they have the necessary skills and abilities. 
Disabled employees 
With regard to existing employees and those who may become
disabled, the Group’s policy is to examine ways and means to
provide continuing employment under its existing terms and
conditions and to provide training, and career development,
including promotion, wherever appropriate. All employees
accept the commitment within this policy that the Group will not
allow pressure to discriminate or harassment by employees or
others acting on the Group’s behalf, in respect of sex, age, marital
status, race, nationality, disability or religious or political beliefs. 
Employee involvement 
The Group believes it is important that employees are aware of
the Group’s business strategy and objectives, to assist employees
to focus on working towards these goals. Communications at the
time of key announcements, including presentations by directors
to all employees, together with briefings throughout the year,
are part of the communication and consultation programme. 
In addition, regular meetings are held with staff and managers,
both to raise issues and to assist with the two-way flow of
information. 
Further education, training and development
Continuing education, training and development are important
to ensure the future success of the Group. The Group supports
individuals who wish to obtain appropriate further education
qualifications and reimburses tuition fees, up to a specified level.
Training needs of all employees are also analysed during the
annual appraisal process, at which time a training plan is agreed
as part of each individual’s ongoing development.
Share incentive schemes 
The directors remain committed to the principle that selected
employees should be able to participate in the Group’s progress
through share-based incentive schemes. Details of the Operating
Group’s share-based incentive schemes are given in the
remuneration report on pages 24 to 27.
Payment of creditors
The Group does not follow a specific payment code but has 
a policy to pay its suppliers in accordance with the specific 
terms agreed with each supplier. The average number of days’
purchases outstanding at 30 April 2005 for the Group was 
31 days (2004: 34 days). 
Substantial shareholding
As at 3 August 2005, the latest practicable date before publication
of this annual report, the Company had been notified in
accordance with Sections 198 to 208 of the Companies Act 1985,
of the following interests of more than 3% in the ordinary share
capital of the Company:
Ordinary shares Percentage of
Name of holder of 10 pence each issued capital 
Golden Gate Capital 120,140,733 60.51
The Goldman Sachs Group, Inc. 13,232,079 6.66
Parallax Capital Partners LLC 11,634,000 5.86
Dr Anthony Hill 7,524,000 3.79
Annual General Meeting
The notice convening the Annual General Meeting of the
Company together with the explanatory notes on the proposed
resolutions accompanies this annual report. The meeting will be
held at The Lawn, 22-30 Old Bath Road, Newbury, Berkshire,
RG14 1QN, UK at 2.00pm on 28 September 2005.
Auditor
PricewaterhouseCoopers LLP have indicated their willingness to
continue in office and a resolution that they be re-appointed
will be proposed at the Annual General Meeting.
By order of the board
Jane Smithard Company Secretary
3 August 2005
Micro Focus International Plc Annual report 2005 17 The Combined Code
The ordinary shares of the Company were admitted to the
Official List and to the London Stock Exchange to be traded 
on its main market for listed securities, on 17 May 2005. The
Company is committed to practising good corporate governance
of its affairs as part of its management of relationships with its
shareholders and other stakeholders. 
Compliance statement
The directors are committed to ensuring that the Company will
work towards compliance with the provisions set out in Section 
1 of the Combined Code. As a private company for the whole 
of the year ended 30 April 2005, the provisions of the Combined
Code did not apply to the Operating Group. Furthermore, the
Company did not form part of the Group until after the Share
Exchange had taken place on 17 May 2005 and did not seek 
to comply with the provisions of the Combined Code until it
became a listed company on Admission. During the current
financial year the board will assess its practices to ensure the
Company works towards compliance with the Combined Code
and will continue to monitor any changes required to be made
to further develop and enhance its governance policies. 
The principles set out in the Combined Code cover four areas:
the board, directors’ remuneration, accountability and audit 
and shareholder relations. With the exception of directors’
remuneration (which is dealt with separately in the remuneration
report on pages 24 to 27) the following section sets out how the
board has (since Admission) applied such principles.
The board 
The Group is controlled by the board, which is responsible for
the Group’s system of corporate governance. As at 30 April 2005,
the board comprised six directors:
Kevin Loosemore Non-executive Chairman
Dr Anthony Hill Chief Executive Officer
Richard Lloyd Chief Financial Officer
David Maloney Non-executive director
Prescott Ashe Non-executive director
David Dominik Non-executive director
Additionally, John Browett was appointed as a non-executive
director on 1 July 2005.
The role of the non-executive directors is to ensure that
independent judgement is brought to board deliberations 
and decisions. The non-executive directors possess a wide range
of skills and experience, relevant to the development of the
Company, which complement those of the executive directors. 
The Chairman operates in a non-executive capacity and is
considered by the board to be independent of management 
and free from any business or other relationship which could
materially interfere with the exercise of his independent
judgement. David Maloney, the senior independent non-
executive director, and John Browett, the recently appointed 
non-executive director, are also considered by the board to be
independent. Prescott Ashe and David Dominik are not considered
by the board to be independent by virtue of their positions
within Golden Gate Capital.
All directors are required to retire and submit themselves 
for re-election at the Annual General Meeting within three 
years of their appointment and, thereafter, at least every 
three years. However, in accordance with the Combined Code, 
all directors will be subject to election by the shareholders at 
the first Annual General Meeting of the Company after their
appointment and accordingly the directors will be subject to 
re-election at the Company’s Annual General Meeting to be 
held on 28 September 2005. Subject to their re-election and
Companies Act provisions, the non-executive directors are
appointed for specified terms. 
The board has agreed procedures for directors to follow if they
believe they require independent professional advice in the
furtherance of their duties and these procedures allow the directors
to take such advice at the Company’s expense. In addition, all
the directors have direct access to the advice and services of the
Company Secretary. The Company Secretary is accountable to the
board through the Chairman on governance matters. It is the
responsibility of the Company Secretary to ensure that board
procedures are followed and all rules and regulations are complied
with. Under the direction of the Chairman, the Company Secretary’s
responsibilities include facilitating induction and professional
development and ensuring the smooth flow of information within
the board and its committees, and between non-executive directors
and senior management. Any new director receives a comprehensive,
formal and tailored induction into the Company’s operations.
Appropriate training is provided to new directors and is also
available to other directors as required. The Company has
arranged directors’ and officers’ insurance on behalf of all 
the directors. 
18 Micro Focus International Plc Annual report 2005
Corporate governance The terms of reference of the Chairman and Chief Executive
Officer have been agreed with the board and, in accordance
with best practice, their roles remain separate. 
As part of its leadership and control of the Company, the board
has agreed a list of items that are specifically reserved for its
consideration. These include business strategy, financing
arrangements, material acquisitions and divestments, approval 
of the annual budget, major capital expenditure projects, risk
management, treasury policies and establishing and monitoring
internal controls. At each meeting, the board reviews progress 
of the Group towards its objectives, particularly in respect of
research and development projects, and monitors financial
progress against budget.
In the year to 30 April 2006, the board will meet on a regular
basis approximately every two months, with additional meetings
when circumstances and business dictate. A schedule of meetings
has been established. All directors receive an agenda and board
papers in advance of meetings to help them make an effective
contribution at the meetings. 
In addition, the executive directors ensure regular informal contact
is maintained with non-executive directors. The board makes full
use of appropriate technology as a means of updating and
informing all its members. 
While the board retains overall responsibility for, and control of,
the Company, day-to-day management of the business is conducted
by the executive directors. Review of the Group’s principal business
activities is the responsibility of the senior management (comprising
the executive directors, together with executives responsible for
marketing, sales, HR and research) who meet fortnightly.
Due to the short period of time since Admission, the board has
not undertaken a formal and rigorous process for the evaluation
of its own performance and that of its committees and individual
directors (including the Chairman), as required by Combined
Code provision A6.1. However, this process is being established
and, during the course of the current year, will take the form of
questionnaires and personal interviews with the Chairman.
It is intended that the Chairman will hold meetings with non-
executive directors without the presence of executive directors 
as appropriate. 
Board committees
In accordance with best practice, the Company has established
audit, nomination and remuneration committees, with written
terms of reference for each, that deal with their respective
authorities and duties. The full terms of reference of all the
committees are available from the Company Secretary. The
Company is aware that the Chairman is not regarded as
independent for purposes of the Combined Code. It is planned
that Kevin Loosemore will step down from the remuneration
and audit committees when other independent non-executives
are appointed to such committees.
Audit committee
The audit committee is comprised entirely of non-executive
directors of the Company. It is chaired by David Maloney, who 
the board considers has recent and relevant financial experience.
The other members are Kevin Loosemore and John Browett. 
The audit committee has met twice since Admission. The audit
committee is responsible for reviewing the Group’s annual accounts
and interim reports prior to their submission for approval to the
full board. This committee will also monitor the Group’s accounting
policies, internal financial control systems and financial reporting
procedures. The audit committee provides a forum through which
the Group’s external auditor reports to the board. The auditor will
be invited to attend meetings of the committee on a regular basis
and will have the opportunity to meet privately with committee
members in the absence of executive management. The audit
committee oversees the relationship with the auditor, including
the independence and objectivity of the auditor (taking into
account UK professional and regulatory requirements and the
relationship with the audit firm as a whole) and the consideration
of audit fees and fees for other non-audit work. In addition, 
the audit committee develops and recommends to the board 
a policy designed to ensure that the auditor’s objectivity 
and independence is not compromised by its undertaking
inappropriate non-audit work. All significant non-audit work
commissioned from the external auditor requires audit
committee approval. 
As at 30 April 2005 there was no internal audit function. The
audit committee will discuss the ongoing need for an internal
audit function and, if established, will be responsible for
agreeing the annual internal audit plan. 
Micro Focus International Plc Annual report 2005 19 It is intended that the audit committee will meet at least 
four times during the forthcoming year (and, additionally 
as appropriate), and a schedule of meetings for the year has 
been established. 
The audit committee’s terms of reference includes a process for
employees of the Company to raise in confidence concerns about
possible impropriety in matters of financial reporting or other
matters.
The terms of reference of the audit committee include, among
other things, the following responsibilities:
l To ensure that the interests of shareholders are properly
protected in relation to financial reporting and internal control;
l To monitor the integrity of the financial statements of the
Company, including its annual and interim reports, preliminary
results announcements and any other announcement relating 
to its financial performance;
l To review the consistency of, and changes to, accounting
policies;
l To keep under review the effectiveness of the Company’s
internal controls and risk management systems;
l To review the Company’s arrangements for its employees 
to raise concerns, in confidence, about possible wrongdoing 
in financial reporting or other matters;
l To monitor and review the need for, and the effectiveness 
of, the Company’s internal audit function in the context of the
Company’s overall risk management system; and
l To consider and make recommendations to the board in
relation to the appointment, re-appointment and removal of 
the Company’s external auditor.
Nomination committee 
The nomination committee is comprised entirely of non-executive
directors of the Company and has met once since Admission. 
It is chaired by Kevin Loosemore and the other members are
David Maloney and David Dominik. The nomination committee
will be responsible to the full board for proposing candidates 
to the board, having regard to the balance and structure of 
the board. In appropriate cases, recruitment consultants will 
also assist in the process. The nomination committee will meet 
at least twice during the forthcoming year. 
The terms of reference of the nomination committee include,
among other things, the following responsibilities:
l To review the structure, size and composition of the board
and make recommendations to the board with regard to any
changes;
l To identify and nominate, for the approval of the board,
candidates to fill board vacancies as and when they arise;
l To give full consideration to succession planning for
directors and other senior executives; and
l To keep under review the leadership needs of the Group,
both executive and non-executive, with a view to ensuring the
continued ability of the organisation to compete effectively in
the market place.
Remuneration committee
The remuneration committee is comprised entirely of non-
executive directors of the Company. It is chaired by Kevin
Loosemore and the other members are David Maloney and 
John Browett. The remuneration committee has met once since
Admission. The remuneration committee is responsible for
reviewing remuneration arrangements for members of 
the board and for providing general guidance on aspects of
remuneration policy throughout the Group. The remuneration
committee will meet at least twice during the forthcoming year. 
The terms of reference of the remuneration committee include,
among other things, the following responsibilities:
l To determine and agree with the board the framework or
broad policy for the remuneration of the Company’s Chief Executive
Officer, Chairman, the executive directors, the Company Secretary
and other members of the executive management (as appointed
from time to time);
l To approve the design of salaries for senior managers, and
determine targets for any performance-related pay schemes
operated by the Company, and approve the total annual
payments;
20 Micro Focus International Plc Annual report 2005
Corporate governance l To review the ongoing appropriateness and relevance 
of the remuneration policy;
l To review the design of all share incentive plans for
approval by the board and shareholders;
l To determine the policy for, and scope of, pension
arrangements for each executive director and other senior
executives;
l To determine the total individual remuneration package 
of each executive director and other senior executives including
bonuses, incentive payments and share options or other share
awards; and
l To oversee any major changes in employee benefits
structures throughout the Company or Group.
Accountability and audit
The board is responsible for the preparation of financial statements
that present a balanced assessment of the Group’s financial position
and prospects. This responsibility is administered primarily by the
audit committee, the terms of reference for which are referred
to above. 
Internal controls
The board is ultimately responsible for establishing and monitoring
internal control systems throughout the Group and reviewing
their effectiveness. It recognises that rigorous systems of internal
control are critical to the Group’s achievement of its business
objectives, that those systems are designed to manage rather
than eliminate risk and that they can only provide reasonable and
not absolute assurance against material misstatement or loss. 
An ongoing process for identifying, evaluating and managing the
significant risks faced by the Group is currently being implemented.
The effectiveness of the Group’s internal control systems will also
be reviewed by the board during the year. The audit committee’s
terms of reference include the review of the Group’s internal
financial control systems. The audit committee will be required
to report and make recommendations to the board in this area. 
Human resources
The Group endeavours to appoint employees with appropriate
skills, knowledge and experience for the roles they undertake.
The Group has a range of policies which are aimed at retaining
and providing incentives for key staff. Objectives are set for
departments and employees that are derived from the Group’s
business objectives. The Group has a clear and well-understood
organisational structure and each employee knows his or her line
of accountability.
Announcements
All major announcements are approved by the Chairman, the
executive directors and a panel of senior executive management
and then circulated to the board prior to issue. The Group also
has internal and external checks to guard against unauthorised
release of information.
Financial
A comprehensive budgeting system allows managers to submit
detailed budgets which are reviewed and amended by executive
directors prior to submission to the board for approval. 
Insurance
The Group has reviewed its portfolio of insurance policies with
its insurance broker to ensure that the policies are appropriate
to the Group’s activities and exposures. 
Attendance at meetings
The number of board meetings and committee meetings
attended by each director in the period following Admission was
as follows:
Audit Remuneration Nomination
Board committee committee committee
Held Attended Held Attended Held Attended Held Attended
Kevin Loosemore 4 4 221111
Dr Anthony Hill 4 4––––––
Richard Lloyd 4 4 – – – – – –
David Maloney 4 3 2 2 1 1 1 1
Prescott Ashe 4 2 – – – – – –
David Dominik 4 3 – – – – 1 1
John Browett* 4 1 2 1 1 – – –
*John Browett was appointed on 1 July 2005 and was therefore
only available to attend two board meetings and one meeting of
the audit committee.
Micro Focus International Plc Annual report 2005 21 Shareholder relations 
The Company values the views of shareholders and recognises
their interests in the Group’s strategy and performance. The
Company will report formally to shareholders twice a year,
around July (preliminary announcement of annual results) and
December (interim statement). The annual report will usually be
mailed to shareholders in August. Separate announcements of
all material events will be made as necessary. 
Regular communications will be maintained with institutional
shareholders and presentations will be given to shareholders
when the half-year and full-year financial results are announced.
In addition to the Chief Executive Officer and Chief Financial
Officer, who have regular contact with investors, Kevin
Loosemore, Chairman, and David Maloney, Senior Independent
Director, are available to meet with shareholders as and when
required. The whole board is kept up to date at its regular
meetings with the views of shareholders and analysts. External
analysts’ reports are also circulated to directors.
The Company’s website (www.microfocus.com) provides an overview
of the business including its strategy, products and objectives. 
All Group announcements will be available on the website, and
new announcements will be published without delay. The terms
of reference of each of the board’s three committees and other
important corporate governance documents will be available
from the Company Secretary. Additionally, the Group’s corporate
communications department and Chief Financial Officer provide 
a focal point for shareholders’ enquiries and dialogue
throughout the year.
Annual General Meeting
The Company’s first Annual General Meeting, which will be 
held on 28 September 2005, will provide an opportunity for 
the board to meet with all shareholders, and their participation 
is encouraged. At the meeting, in addition to the statutory business,
the board will adopt a policy of holding business presentations
to ensure that an up-to-date picture of the Group’s activities is
given, following which the board is available for questions from
shareholders.
In accordance with the Combined Code recommendations, 
the Company will count all proxy votes and on each resolution,
which is voted on a show of hands, the Company will indicate 
the level of proxies lodged, and number of proxy votes for 
and against such resolution and the number of abstentions. 
A resolution will be proposed for each substantive issue and 
the Chairs of the audit, remuneration, and nomination
committees will attend to answer questions.
22 Micro Focus International Plc Annual report 2005
Corporate governance The board is committed to running the Company in accordance
with best practice in corporate governance. This commitment
includes recognition by the Company of the importance of
taking into account its corporate social responsibilities (“CSR”) 
in operating the business. In this context, Micro Focus seeks 
to integrate CSR considerations relating particularly to social,
ethical and health, safety and environment (“HS&E”) issues 
in its day-to-day operations. The board acknowledges its duty 
to ensure the Company conducts its activities responsibly and
with proper regard for all its stakeholders including employees,
shareholders, business partners, suppliers and the local
communities.
In exercising its corporate social responsibility, Micro Focus seeks
to ensure that:
l The board takes account of the significance of social, ethical
and HS&E issues;
l Business practices are managed ethically;
l The business is focused on delivering value to stakeholders;
l Existing legislation, regulations and guidelines are adhered
to as a minimum;
l Employees are recognised as key to the business with
individual skills and experience being valued and developed; and
l Health, safety and environmental issues are treated as
critical areas of concern for the business.
Social
The health, welfare and development of the Company’s
employees remain a priority. With the intent of attracting,
recruiting, developing and retaining key employees, Micro Focus
maintains a number of policies and procedures for the benefit 
of its employees, for example an equal opportunities policy
approved by Acas. Employee development is encouraged
through appropriate training.
Regular and open communication between management and
employees is viewed as essential for motivating a highly
educated workforce. Briefings are held regularly to provide
updates on Company business and to provide opportunity for
questions and feedback. Review meetings are also held regularly
within each department. The Company maintains both an
Internet website which is freely accessible and an intranet site
accessible to all employees.
Ethical
The Company manages its resources prudently to ensure
appropriate investment is made in its research and development
programmes and its commercialisation activities. Up-to-date
security systems are utilised to protect the Company’s IT systems.
The Company’s intellectual property is protected through an
appropriate patenting programme. Close attention is paid to
maintaining relationships with key stakeholders including
business partners, suppliers and shareholders.  
Environment
Micro Focus complies with all local environmental legislation.
Health safety and environment
The Company has well-developed health and safety policies and
procedures, safeguarding staff, contractors and visitors, and it
complies with current legislation and best practice.
Micro Focus International Plc Annual report 2005 23
Corporate social responsibility On 17 May 2005, the Company became the holding company 
of the Group by acquiring the Operating Company in a share-
for-share exchange, pursuant to which the previous shareholders
of the Operating Company were issued and allotted three
ordinary shares in the capital of the Company for every one
share held in the Operating Company (“Share Exchange”).
On 17 May 2005 all the ordinary shares of the Company were
admitted on to the Official List and to the London Stock
Exchange to be traded on its main market for listed securities.
This remuneration report provides information on the
remuneration of the directors for their services provided to 
the Operating Group for the year ended 30 April 2005 with
comparative figures provided for the year ended 30 April 2004.
As a private entity the Operating Group did not seek to comply
with the Listing Rules, Schedule 7A of the Companies Act 1985,
or the Combined Code. This remuneration report provides
information on the steps already taken and proposed actions, 
to ensure that the Company complies as a listed company with
such requirements.
In accordance with the Companies Act 1985, a resolution to
approve the remuneration report will be proposed at the
Company’s Annual General Meeting on 28 September 2005.
Details of the resolution may be found in the notice of meeting
accompanying this annual report. The vote will be advisory and
will be considered carefully by the members of the remuneration
committee in the formulation and approval of the Company’s
future remuneration policies.
The remuneration committee
Prior to Admission the Company formed the remuneration
committee (“committee”), which is made up entirely of 
non-executive directors of the Company. It will meet at least 
twice during the coming financial year. Kevin Loosemore 
is the Chairman of the committee, with David Maloney and 
John Browett its other members. The Company is aware that the
Chairman is not regarded as independent for the purposes of the
Combined Code. It is planned that Kevin Loosemore, the Chairman,
will step down from the committee when other independent non-
executive directors are appointed to it. Where appropriate the
committee will invite the views of the Chief Executive Officer
and the Director of Human Resources, as well as of external
remuneration consultants.
Following Admission the committee has been materially assisted
by New Bridge Street Consultants in providing remuneration
advice, by Mr Simon Steen of Steen and Co in providing legal
advice with respect to directors’ service agreements, by Ms Jane
Smithard, Company Secretary and Legal Counsel, and by
Linklaters, solicitors, who are external advisers, in providing
general legal advice and who were already in place as advisers
when the remuneration committee was formed.
Remuneration policy
Previously the remuneration of executive directors was established
by the non-executive directors of the Operating Company; the
management team set the policy for employees, including senior
employees; and the board of the Operating Company approved
this remuneration as part of the annual budget exercise. The
Company’s policy on the remuneration of executive directors and
their direct reports will now be established by the committee and
approved by the board. The individual remuneration packages 
of each executive director will be determined by the committee.
No executive director or employee will participate in discussions
relating to the setting of their own remuneration.
The overall budget for the remuneration of employees will
continue to be approved by the board as part of the annual
budget-setting exercise.
The objective of the Group’s remuneration policies is that all
employees, including executive directors, should receive appropriate
remuneration for their performance, responsibility, skills and
experience. Remuneration packages enable the Group to attract
and retain key employees by ensuring they are remunerated
appropriately and competitively and that they are motivated to
achieve the highest level of Group performance in line with the
best interests of shareholders. 
It is intended that an appropriate and significant proportion of
remuneration will be performance related (see details below).
Performance conditions for performance-related bonuses and
long-term incentives will represent challenging growth targets
which are designed to increase shareholder value. The committee
will review the performance conditions used to ensure that the
performance conditions are demanding and appropriate.
24 Micro Focus International Plc Annual report 2005
Remuneration report It is the board’s intention to award share incentives to executive
directors and selected employees as appropriate to reward and
encourage performance. These share incentives will be granted
at the discretion of the committee. Share options granted under
pre-IPO share option plans will be fully vested by September
2007. There are no options currently held by executive directors.
Non-executive directors do not participate in the Group’s share
incentives.
Policies on remuneration take account of the pay structure and
employment conditions within the Group and also the industry
sector. To determine the elements and level of remuneration
appropriate to each executive director the committee considered
benchmark remuneration data for selected comparable
technology companies
Directors’ service contracts
The Group’s policy in entering into service contracts with executive
directors is to enable the recruitment of high-quality executives
and to obtain protection from their sudden departure whether or
not to competitor companies. In addition, service contracts are an
important element in maintaining maximum protection for the
Group’s intellectual property rights and other commercially
sensitive information.
The executive directors are employed subject to service contracts.
The service contracts of executive directors Dr Anthony Hill and
Richard Lloyd, with the Company, were agreed on 3 August 2005
and came into immediate effect. The service contract with 
Dr Anthony Hill provides for a base annual salary of £220,000
and requires the Company to give 12 months’ notice of
termination. The service contract with Richard Lloyd provides 
for a base annual salary of £125,000 and requires six months’
notice of termination from the Company. The executive directors
are required to give six months’ notice of the termination of their
employment should they wish to leave. If an executive director is
guilty of a material breach of his service contract or commits any
crime or act of gross misconduct or dishonesty, the Company is
entitled summarily to terminate the service contract without
notice and without payment in lieu of notice or other
compensation. Such a contract term cannot, however, as a rule
of law, affect the executive director’s statutory rights such as
rights in respect of unfair dismissal.
Should an executive director be dismissed other than as
described above, the Company may pay him, in lieu of notice, 
a sum equal to his basic pay over his notice period. 
At the discretion of the committee having regard to the
Company’s performance at the time of dismissal, the committee
may in addition pay all or a proportion of the bonus which
would, but for the dismissal, have become payable during the
notice period. The Company’s policy on the duration of such
contracts with executive directors is explained above. The
executive directors do not currently serve as non-executive
directors elsewhere and cannot do so without the consent of 
the board.
Non-executive directors
Non-executive directors are appointed by letter of appointment
for periods not exceeding three years. They receive fees for
services as members of the board and its committees. The level
of fees is determined by the board after taking into account
appropriate advice.
The fees payable to non-executive directors for 2005-06 are as
follows:
Kevin Loosemore £125,000 pa
David Maloney £60,000 pa
John Browett £30,000 pa
David Dominik nil
Prescott Ashe nil
Kevin Loosemore and David Maloney signed appointment letters
with the Company which became effective on 4 April 2005.
Prescott Ashe and David Dominik are non-independent directors
of the Operating Company and signed appointment letters 
with the Company on 29 April 2005 which became effective
immediately. John Browett signed an appointment letter with
effect from 1 July 2005. All non-executive directors have
appointments for a fixed term of three years.
All of these appointments are subject to the directors being re-
elected under the rotation provisions in the Company’s Articles
of Association, and subject to Companies Act provisions. Each
non-executive director still serving at the end of his term will
have his appointment reviewed by the board and a further term
of office may be agreed. Where a non-executive director does
not serve until the end of his term, the policy is to pay the fees
due pro rata to the date of cessation.
Micro Focus International Plc Annual report 2005 25 Remuneration package (audited)
Executive directors’ remuneration currently comprises annual
salary, a performance-related bonus, a long-term incentive in 
the form of share incentives, pension contributions and other
benefits.
Annual salary
The board will approve the overall budget for employee salary
increases and the committee will agree the specific increases 
for executive directors and certain other senior members of 
the management team. In determining appropriate salary levels 
for each executive director and senior employee, the committee
will consider both the nature and the status of the Company’s
operations and the responsibilities, skills, experience and
performance of the executive director or employee. The
committee will compare the Group’s remuneration packages 
for its directors and employees with those for directors and
employees of similar seniority in companies whose activities 
are comparable with the Group and with which it competes 
for staff. The committee has used New Bridge Street Consultants
in making these comparisons.
Performance-related bonus
The executive directors and all other employees, except for sales
staff, participate in a performance-related bonus scheme. The
level of commission for sales staff is based on a percentage of
revenue generated, with the percentages increasing as revenue
exceeds target levels. The level of bonus for eligible employees 
is based on overall Group performance in meeting its primary
financial objectives in worldwide earnings before interest, tax,
depreciation and amortisation (“EBITDA”) and revenue goals.
The percentages increase as revenue and profit exceed target.
Going forward, the remuneration committee will place a
significant proportion of executive pay “at risk”, so that it is closely
linked to the interests of shareholders. The committee will ensure
that challenging and clearly assessable targets are set for executive
directors. Details of bonuses paid to executive directors by the
Operating Group in the year to 30 April 2005 are detailed in 
the remuneration tables below. Bonus levels range between 5%
and 40% for all other employees based on their role and market
need. Bonuses are awarded wholly in cash. 
In respect of the year 2005-06 there will be a cap on bonuses
payable to executive directors of 150% of base salary.
Long-term incentives
The board believes that long-term incentive schemes are
important in retaining and recruiting high-calibre individuals
and ensuring that the performance of executives is focused on
creating long-term shareholder value whilst allowing the Group’s
cash reserves to be conserved. Further awards of options or free
shares will be considered by the committee on an ongoing basis. 
Therefore the Company adopted the Micro Focus International
Plc Incentive Plan 2005 (the “Plan”) prior to Admission. This is
intended to provide a flexible framework to allow the Company
to make awards of free shares in the form of nil-cost options,
conditional awards or forfeitable shares, or to grant market
value options (“Awards”). It is intended that the Plan will be
operated this year.
The Awards to be granted this year will be subject to an
earnings per share performance condition designed to drive
growth over three financial years. The targets for Awards to be
made during this financial year have not yet been set by the
remuneration committee but will be challenging and stretching.
The maximum aggregate value of Awards that can be granted 
to any individual in any financial year will not exceed two times
his or her basic salary. For these purposes, the value of the
Awards is equal to the market value of free shares at the time of
award or, in the case of market value options, 50% of the
market value of the shares under option at the time of award.
This limit may be exceeded only where the committee
determines that there are exceptional circumstances. 
Pension contributions
All employees including executive directors are invited to
participate in a Group Personal Pension Plan. All major schemes
are money purchase in nature and, aside from Japan, have 
no defined benefits. The level of the Group’s contribution varies 
by country. The Group has no obligation to the pension scheme
beyond the payment of contributions.
Pension benefits include death in service. There is no pension for
a spouse.
Other benefits
Benefits in kind for executive directors can include the provision
of a company car, fuel, life insurance and medical benefits.
26 Micro Focus International Plc Annual report 2005
Remuneration report Detailed emoluments of the directors of the Operating Group
(audited)
Directors include Richard Lloyd who, whilst not a director of 
the Operating Company during the year, will be disclosed as 
a director of the Company in future periods. The aggregate
remuneration paid to directors was as follows: 
2005
Base Benefits 2004
salary Bonus in kind Pensions Total Total
£’000 £’000 £’000 £’000 £’000 £’000
Executive directors
Dr Anthony Hill 196 209 11 9 425 372
Richard Lloyd 102 43 9 5 159 148
298 252 20 14 584 520
Neither of the non-independent non-executive directors of the
Operating Company (David Dominik and Prescott Ashe) received
any emoluments during the year ended 30 April 2005 (2004: nil).
David Dominik and Prescott Ashe are directors of Golden Gate
Capital. Details of transactions with related parties are set out in
note 26 of the financial statements of the Operating Company.
Gains made by directors of the Operating Group on shares (audited)
On 28 October 2004 Dr Anthony Hill was given the opportunity 
to purchase 200,000 class A ordinary shares in the Operating
Company at a price of $1.67 per share. These shares vested
immediately and became immediately beneficially held. The
value (as calculated under FRS 20) on 28 October 2004 was $8.98,
representing an aggregate gain of $1,407,000. There were no
other shares or share options issued to directors in the year
ended 30 April 2005 (2004: nil).
Directors’ interests in share capital of the Operating Company
(audited)
The directors owned the following shares in the Operating
Company as at 30 April 2005. These interests were all beneficially
held. On 17 May 2005, prior to the Admission, each ordinary
share in the Operating Company was exchanged for three shares
in the Company pursuant to the Share Exchange.
Dr Anthony Hill Richard Lloyd
Class of shares A B C A B
At 1 May 2004 and 
30 April 2005 1,800,000 400,000 308,000 160,000 40,000
As at 3 August 2005 the directors owned the following ordinary
shares in the Company:
Director Number of ordinary shares
Kevin Loosemore 76,923
David Maloney 7,692
Dr Anthony Hill 7,524,000
Richard Lloyd 600,000
David Dominik 0
Prescott Ashe 0
John Browett 5,000
No director was granted, owned or exercised any options during
the year ended 30 April 2005 (2004: nil) and have not been
granted any options up to the date of this report.
There have been no changes in the directors’ interests between 
1 May 2005 and 3 August 2005 except for the purchase of 5,000
ordinary shares by John Browett.
Performance graph
In accordance with the Company’s aim of complying with
Schedule 7A of the Companies Act 1985, the Company notes 
the requirement for the remuneration report to contain a
performance graph. For the reasons set out in the introduction
to this report, such a graph is not relevant at this stage. 
A performance graph will be included within remuneration
reports for the following years.
Share option schemes (audited)
Details of share option schemes are given in note 24 of the
financial statements of the Operating Company. 
On behalf of the board
Kevin Loosemore
Chairman of the remuneration committee
3 August 2005
Micro Focus International Plc Annual report 2005 27 The directors are required by the Companies Act 1985 to prepare
financial statements for each financial year which give a true and
fair view of the state of affairs of the Company and the Group 
and of the profit or loss of the Group for that period. 
The directors confirm that in preparing the financial statements
the Company and the Group have used appropriate accounting
policies, consistently applied and supported by reasonable and
prudent judgements and estimates, and that all accounting
standards which they consider to be applicable have been
followed subject to any explanations and material departures
disclosed in the notes to the financial statements. 
The directors further confirm that they consider the Group to 
be a going concern and the financial statements have been 
prepared on that basis. 
The directors have responsibility for ensuring that the Company
and the Group keep proper accounting records which disclose,
with reasonable accuracy at any time, the financial position of 
the Company and the Group and which enable them to ensure
that the financial statements comply with the Companies Act
1985. The directors have responsibility for taking such steps as 
are reasonably open to them to safeguard the assets of the
Company and the Group and to prevent and detect fraud 
and other irregularities. 
The directors are responsible for the maintenance and integrity 
of the Group’s website and acknowledge that information
published on the Internet is accessible in countries with different
legal requirements relating to the preparation and dissemination
of financial statements. 
Going concern
After reviewing the Company’s and the Group’s budget for 
the next financial year and other longer-term plans, the 
directors are satisfied that, at the time of approving the financial
statements, the Group has adequate resources to continue in
operational existence for the foreseeable future and for a period
of not less than 12 months from the date of this annual report.
Therefore, the financial statements have been prepared on 
a going concern basis.
By order of the board
Jane Smithard Company Secretary
3 August 2005
28 Micro Focus International Plc Annual report 2005
Directors’ responsibilities We have audited the financial statements which comprise the
balance sheet, the cash flow statement and the related notes
which have been prepared under the historical cost convention
and the accounting policies set out in the statement of accounting
policies. We have also audited the disclosures required by part 3
of Schedule 7A to the Companies Act 1985 contained in the
remuneration report (“auditable part”).
Respective responsibilities of directors and auditors
The directors’ responsibilities for preparing the annual report
and the financial statements in accordance with applicable
United Kingdom law and accounting standards are set out in 
the statement of directors’ responsibilities. The directors are 
also responsible for preparing the remuneration report.
Our responsibility is to audit the financial statements and the
auditable part of the remuneration report in accordance with
relevant legal and regulatory requirements and United Kingdom
Auditing Standards issued by the Auditing Practices Board. 
This report, including the opinion, has been prepared for and
only for the Company’s members as a body in accordance with
Section 235 of the Companies Act 1985 and for no other
purpose. We do not, in giving this opinion, accept or assume
responsibility for any other purpose or to any other person to
whom this report is shown or into whose hands it may come
save where expressly agreed by our prior consent in writing.
We report to you our opinion as to whether the financial
statements give a true and fair view and whether the financial
statements and the auditable part of the remuneration report
have been properly prepared in accordance with the Companies
Act 1985. We also report to you if, in our opinion, the directors’
report is not consistent with the financial statements, if the
Company has not kept proper accounting records, if we have 
not received all the information and explanations we require for
our audit, or if information specified by law regarding directors’
remuneration and transactions is not disclosed.
We read the other information contained in the annual report
and consider the implications for our report if we become aware 
of any apparent misstatements or material inconsistencies with
the financial statements. The other information comprises only
the Chairman’s statement, Chief Financial Officer’s review, the
directors’ report and the corporate governance statement and
the unaudited parts of the remuneration report.
We also, at the request of the directors (because the Company
applies the Listing Rules as if it had been a listed company at 
the end of the year), review whether the corporate governance
statement reflects the Company’s compliance with the nine
provisions of the 2003 FRC Combined Code specified for our review
by the Listing Rules of the Financial Services Authority, and we
report if it does not. We are not required to consider whether the
board’s statements on internal control cover all risks and controls,
or form an opinion on the effectiveness of the Company’s corporate
governance procedures or its risk and control procedures.
Basis of audit opinion
We conducted our audit in accordance with auditing standards
issued by the Auditing Practices Board. An audit includes
examination, on a test basis, of evidence relevant to the amounts
and disclosures in the financial statements and the auditable
part of the remuneration report. It also includes an assessment
of the significant estimates and judgements made by the
directors in the preparation of the financial statements, and of
whether the accounting policies are appropriate to the Company’s
circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the
information and explanations which we considered necessary 
in order to provide us with sufficient evidence to give reasonable
assurance that the financial statements and the auditable part 
of the remuneration report are free from material misstatement,
whether caused by fraud or other irregularity or error. In
forming our opinion we also evaluated the overall adequacy 
of the presentation of information in the financial statements.
Opinion
In our opinion:
l the financial statements give a true and fair view of the
state of affairs of the Company at 30 April 2005 and of the cash
flows of the Company for the period then ended;
l the financial statements have been properly prepared in
accordance with the Companies Act 1985; and
l those parts of the remuneration report required by part 3
of Schedule 7A to the Companies Act 1985 have been properly
prepared in accordance with the Companies Act 1985.
PricewaterhouseCoopers LLP
Chartered Accountants and Registered Auditors
Reading
3 August 2005
Micro Focus International Plc Annual report 2005 29
Independent auditors’ report to the members of Micro Focus International Plc
Micro Focus International Plc 2005
Notes $
Current assets
Cash 2
Debtors 2 95,354
Net current assets 95,356
Total assets less current liabilities 95,356
Net assets 95,356
Capital and reserves
Called up share capital 3 95,356
Equity shareholder’s funds 4 95,356
The financial statements set out on pages 30 to 34 were approved by the board on 3 August 2005 and were signed on its behalf by:
Dr Anthony Hill Director Richard Lloyd Director
30 Micro Focus International Plc Annual report 2005
Balance sheet
as at 30 April 2005
Micro Focus International Plc Cash flow statement
for the period ended 30 April 2005
Micro Focus International Plc Annual report 2005 31
Period from
21 May 2004
to
30 April 2005
$
Financing
Issue of ordinary share capital 2
Net cash inflow from financing 2
Increase in net cash 2
Cash at 30 April 2005 2
Micro Focus International Plc Micro Focus International Plc
Notes to the financial statements
32 Micro Focus International Plc Annual report 2005
1 Principal accounting policies
The financial statements have been prepared under the historical cost convention, the accounting policies set out below and in
accordance with accounting principles generally accepted in the UK.
Micro Focus International Plc (“Company”) acquired the entire share capital of Micro Focus International Limited (“Operating
Company”) on 17 May 2005. The Operating Company has previously adopted US Dollars as its reporting currency. The Company has
accordingly also adopted US Dollars as its reporting currency.
The Company did not trade during the period.
Costs
The costs incurred by the Company in respect of the Admission to the Official List of the FSA will be charged to the share premium
account arising on the proposed issue of shares in connection therewith. Such costs were borne by the Operating Company and were
only charged to the Company upon Admission.  
2 Debtors
30 April
2005
$
Other debtors 95,354
Other debtors represent an undertaking to pay for redeemable preference shares, as is permitted under the provisions of the
Companies Act. Micro Focus International Plc
Micro Focus International Plc Annual report 2005 33
3 Called up share capital
30 April
2005
$
Authorised
2,499,500,000 ordinary shares of £0.10 each 476,674,646
50,000 redeemable preference shares of £1 each 95,354
Total 476,770,000
30 April
2005
$
Allotted, called up and fully paid
One ordinary share of £0.10 –
50,000 redeemable preference shares of £1 each 95,356
95,356
The Company was incorporated on 21 May 2004 with an authorised share capital of 100 ordinary shares of £1 each. On this date one
ordinary share was issued for a consideration of £1.  
On 4 April 2005, the Company sub-divided the share capital into 1,000 ordinary shares of £0.10 each. On this date, the Company also
authorised the creation of redeemable preference shares and authorised and allotted 50,000 redeemable preference shares of £1
each. The subscription took the form of an undertaking to pay the Company, which under Section 738(2) of the Companies Act is
deemed to be fully paid.
On 27 April 2005 the Company increased the authorised ordinary share capital from 1,000 ordinary shares to 2,499,500,000 ordinary
shares of £0.10 each.
On 17 May 2005, the Company acquired the entire issued share capital of the Operating Company by way of a share-for-share
exchange, pursuant to which the previous shareholders of the Operating Company were issued and allotted three ordinary shares in
the capital of the Company for every one ordinary share they previously held in the Operating Company. On 17 May 2005, 51,069,062
new ordinary shares in the capital of the Company were issued to institutional investors as part of the IPO and these shares, as well as
the Company’s existing ordinary shares, were admitted to the Official List and to the London Stock Exchange to be traded on its main
market for listed securities. The 50,000 redeemable preference shares in issue immediately before the IPO were redeemed and then
sub-divided and reclassified into ordinary shares of 10 pence each by the Company after the IPO. 4 Reconciliation of movements in shareholders’ funds
30 April
2005
$
At 21 May 2004
Issue of share capital 95,356
At 30 April 2005 95,356
5 Post balance sheet events
On 17 May 2005 (immediately prior to Admission), the Company acquired the entire issued share capital of the Operating Company
by way of a share-for-share exchange, pursuant to which the previous shareholders of the Operating Company were issued and
allotted three ordinary shares in the capital of the Company for every one ordinary share they previously held in the Operating
Company. On 17 May 2005, 51,069,062 new ordinary shares in the capital of the Company were issued to institutional investors as
part of the IPO and these shares, as well as the Company’s existing ordinary shares, were admitted to the Official List and to the
London Stock Exchange to be traded on its main market for listed securities. The 50,000 redeemable preference shares in issue
immediately before the IPO were redeemed and then sub-divided and reclassified into ordinary shares of 10 pence each by the
Company after the IPO.
34 Micro Focus International Plc Annual report 2005
Notes to the financial statements
Micro Focus International Plc We have audited the non-statutory consolidated financial statements which comprise the profit and loss account, the statement of
total recognised gains and losses, the balance sheet, the cash flow statement and the related notes which have been prepared under
the historical cost convention and the accounting policies set out on pages 41 to 43.
Respective responsibilities of directors and auditors
The directors’ responsibilities for preparing the non-statutory financial statements in accordance with applicable United Kingdom law
and accounting standards are set out in the statement of directors’ responsibilities. 
Our responsibility is to audit the non-statutory financial statements in accordance with relevant legal and regulatory requirements and United
Kingdom Auditing Standards issued by the Auditing Practices Board. This report, including the opinion, has been prepared for and only for
the Company’s members as a body. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other
person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
We report to you our opinion as to whether the non-statutory financial statements give a true and fair view. We also report to you if,
in our opinion, the directors’ report is not consistent with the non-statutory financial statements, if the Company has not kept proper
accounting records, if we have not received all the information and explanations we require for our audit, or if information specified
by law regarding directors’ remuneration and transactions is not disclosed.
We read the other information contained in the annual report and consider the implications for our report if we become aware 
of any apparent misstatements or material inconsistencies with the financial statements. The other information comprises only the
Chairman’s statement, Chief Executive Officer’s review of operations, Chief Financial Officer’s review, the directors’ report and the
corporate governance statement and the unaudited parts of the remuneration report.
We also, at the request of the directors (because the Company applies the Listing Rules as if it had been a listed company at the end 
of the year), review whether the corporate governance statement reflects the Company’s compliance with the nine provisions of the
Combined Code specified for our review by the Listing Rules, and we report if it does not. We are not required to consider whether
the board’s statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the Company’s or
Group’s corporate governance procedures or its risk and control procedures.
Basis of audit opinion
We conducted our audit in accordance with auditing standards issued by the Auditing Practices Board. An audit includes examination, on
a test basis, of evidence relevant to the amounts and disclosures in the non-statutory financial statements. It also includes an assessment
of the significant estimates and judgements made by the directors in the preparation of the non-statutory financial statements, and of
whether the accounting policies are appropriate to the Company’s circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order 
to provide us with sufficient evidence to give reasonable assurance that the non-statutory financial statements are free from material
misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy
of the presentation of information in the non-statutory financial statements.
Opinion
In our opinion the non-statutory financial statements give a true and fair view of the state of affairs of the Company and the Group
at 30 April 2005 and the loss and cash flows of the Group for the year then ended.
PricewaterhouseCoopers LLP
Chartered Accountants and Registered Auditors, Reading
3 August 2005
Micro Focus International Plc Annual report 2005 35
Independent auditors’ report to the members of Micro Focus International Limited
Micro Focus International Limited 2005 2004
Notes $’000 $’000
Turnover 3 150,645 126,268
Cost of sales (6,327) (8,279)
Gross profit 144,318 117,989
Selling and distribution costs (48,106) (39,697) 
Research and development (23,407) (22,350)
Amortisation of goodwill 8 (3,769) (3,769)
Share-based compensation payments 24 (3,581) (840)
Reorganisation costs 5 (2,302) –
Other administrative expenses (27,229) (26,094)
Total administrative expenses (36,881) (30,703)
Operating profit 35,924 25,239
Net interest payable 4 (8,274) (3,233)
Profit on ordinary activities before taxation 5 27,650 22,006
Tax on profit on ordinary activities 6 (10,101) (7,771)
Profit for the financial year 17,549 14,235
Dividends 7 (78,800) (28,450)
Accumulated loss for the financial year 20 (61,251) (14,215)
Earnings per ordinary share 30
Basic 11.91c 9.78c
Diluted 11.66c 9.49c
Earnings per ordinary share before goodwill amortisation 30
Basic 14.47c 12.37c
Diluted 14.16c 12.00c
All amounts relate to continuing operations.
There is no material difference between the profit on ordinary activities before taxation and the profit for the years stated above and
their historical cost equivalents. 
36 Micro Focus International Plc Annual report 2005
Consolidated profit and loss account
for the year ended 30 April 2005
Micro Focus International Limited 2005 2004
Notes $’000 $’000
Profit for the financial year 17,549 14,235
Exchange adjustments offset in reserves 21 (287) 304
Total recognised gains for the year 17,262 14,539
Reconciliation of movement in Group shareholders’ funds
for the year ended 30 April 2005
2005 2004
Notes $’000 $’000
Profit for the financial year 17,549 14,235
Dividends (78,800) (28,450)
20 (61,251) (14,215)
Exchange adjustments offset in reserves 21 (287) 304
Proceeds of ordinary shares issued for cash 19 505 7
Cancellation of treasury shares (1) –
Adjustment in respect of employee share option plans 3,048 449
Net change in shareholders’ funds (57,986) (13,455)
Shareholders’ deficit as at 1 May (13,997) (542)
Shareholders’ deficit as at 30 April (71,983) (13,997)
Micro Focus International Plc Annual report 2005 37
Statement of Group total recognised gains and losses
for the year ended 30 April 2005
Micro Focus International Limited 2005 2004
Notes $’000 $’000
Fixed assets
Intangible assets 8 38,635 42,404
Tangible assets 9 3,667 4,115
42,302 46,519
Current assets
Stock 10 350 312
Debtors 11 50,245 37,925
Deferred tax asset 17 3,722 5,998
Investments 12 8,313 7,166
Cash at bank and in hand 24,557 17,254
87,187 68,655
Creditors: Amounts falling due within one year 13 (91,174) (73,654)
Net current liabilities (3,987) (4,999)
Total assets less current liabilities 38,315 41,520
Creditors: Amounts falling due after more than one year 14 (110,298) (55,517)
Net liabilities (71,983) (13,997)
Capital and reserves
Called up share capital 18 – 1
Share premium account 19 3,376 2,946
Profit and loss reserve (deficit) 20 (75,190) (17,062)
Other reserves 21 (169) 118
Total shareholders’ deficit (71,983) (13,997)
The financial statements on pages 36 to 63 were approved by the board of directors on 3 August 2005 and were signed on its behalf by:
Dr Anthony Hill Director Richard Lloyd Director
38 Micro Focus International Plc Annual report 2005
Consolidated balance sheet
as at 30 April 2005
Micro Focus International Limited 2005 2004
Notes $’000 $’000
Net cash inflow from operating activities 22 46,380 31,726
Returns on investments and servicing of finance
Interest received 382 141
Interest paid (5,274) (3,160)
Issue costs of new bank loan (2,959) –
Interest element of finance lease payments (19) –
Net cash outflow from returns on investments and servicing of finance (7,870) (3,019)
Taxation (2,368) (2,417)
Capital expenditure and financial investment
Purchase of tangible fixed assets (1,360) (1,207)
Proceeds on disposal of tangible fixed assets 23 –
Net cash outflow for capital expenditure and financial investment (1,337) (1,207)
Equity dividends paid to shareholders (78,800) (28,450)
Net cash outflow before use of liquid resources and financing (43,995) (3,367)
Management of liquid resources
(Increase)/reduction in short-term deposits with banks (1,147) (6,440)
Net cash (outflow)/inflow from the management of liquid resources (1,147) (6,440)
Financing
Issue of ordinary share capital 19 505 7
Capital element of finance lease payments 23 (42) –
Increase in borrowings 23 50,500 15,550
Net cash inflow from financing 50,963 15,557
Increase in net cash 5,821 5,750
Micro Focus International Plc Annual report 2005 39
Consolidated cash flow statements
for the year ended 30 April 2005
Micro Focus International Limited 1 Basis of preparation 
These financial statements have been prepared under the historical cost convention and in accordance with accounting principles
generally accepted in the United Kingdom (“UK GAAP”), solely for the purpose of providing additional financial information
Consolidation
The consolidated financial statements comprise Micro Focus International Limited (“Operating Company”), a company incorporated 
in the Cayman Islands, and its wholly-owned subsidiaries (together “Operating Group”)  for the year to 30 April 2005 with
comparative information for the year up to 30 April 2004. All significant inter-company balances and transactions have been
eliminated upon consolidation.
On 17 May 2005, the share capital of the Operating Company was acquired by Micro Focus International Plc (“Company”) in a share-
for-share exchange with the previous shareholders of the Operating Company. On 17 May 2005 the ordinary shares of the Company
were admitted to the Official List, and to the London Stock Exchange to be traded on its main market for listed securities. The
financial statements of Micro Focus International Plc for the period to 30 April 2005 are shown separately in this annual report.
The following principal subsidiary undertakings, which are all wholly owned, have been included in the consolidated financial
statements:
Company name Country of incorporation Principal activities
Micro Focus Group Holdings Ireland Holding company
Micro Focus International Holdings Limited Ireland Sale and support of software
Micro Focus IP Limited Cayman Islands Sale and support of software
Micro Focus Limited UK Development, sale and support of software
Micro Focus GmbH Germany Sale and support of software
Micro Focus (Canada) Limited Canada Sale and support of software
Micro Focus NV (Holland) Netherlands Sale and support of software
Micro Focus (US) Inc USA Development, sale and support of software
Micro Focus KK Japan Sale and support of software
Micro Focus Srl Italy Sale and support of software
Micro Focus SAS France Sale and support of software
Micro Focus Pty Limited Australia Sale and support of software
Micro Focus AS Norway Sale and support of software
Micro Focus NV (Belgium) Belgium Sale and support of software
These companies operate principally in the country in which they are incorporated.
40 Micro Focus International Plc Annual report 2005
Notes to the financial statements
for the year ended 30 April 2005
Micro Focus International Limited
  2 Principal accounting policies
Turnover
The Operating Group recognises turnover from sales of software licences to end-users or resellers upon persuasive evidence of an
arrangement, delivery of the software, and determination that collection of a fixed or determinable fee is reasonably assured. When
the fees for software upgrades and enhancements, maintenance, consulting and training are bundled with the licence fee, they are
unbundled using the Operating Group’s objective evidence of the fair value of the elements represented by the Operating Group’s
customary pricing for each element in separate transactions. If such evidence of fair value exists for all undelivered elements and
there is no such evidence of fair value established for delivered elements, turnover is first allocated to the elements where evidence
of fair value has been established and the residual amount is allocated to the delivered elements. If evidence of fair value for any
undelivered element of the arrangements does not exist, all turnover from the arrangement is deferred until such time that evidence
of fair value exists for undelivered elements or until all elements of the arrangement are delivered.
If the arrangement includes acceptance criteria, turnover is not recognised until the Operating Group can objectively demonstrate
that the software or service can meet the acceptance criteria, or the acceptance period lapses, whichever is earlier.
The Operating Group recognises licence turnover derived from sales to resellers, upon delivery to the reseller provided that all other
turnover recognition criteria are met, otherwise turnover is deferred and recognised upon delivery of product to the ultimate end-user. 
Maintenance turnover is derived from providing technical support and software updates to customers. Maintenance turnover is
recognised rateably over the term of the contract, which in most cases is one year. Turnover from consulting and training services 
is recognised as the services are performed. 
Amounts collected prior to satisfying the above turnover recognition criteria are included in deferred revenue. 
Foreign currencies
For the purposes of preparing the consolidated financial statements, the Operating Group has adopted the US Dollar as its reporting
currency as the majority of its turnover and all of its borrowings are designated in that currency. The Operating Group has
determined that the functional currency of each subsidiary operation is its respective local currency. The exchange rate of UK Sterling
to US Dollars at 30 April 2005 was $1.8952 (30 April 2004: $1.8072). Transactions in a foreign currency are recorded by each subsidiary
at the rate of exchange on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the year
end are translated at the prevailing exchange rate on that date and the exchange gain or loss is recorded in the profit and loss
account. On consolidation, the results of operations of non-US Dollar operations are translated into the reporting currency at the
average rate of exchange for each period. Differences arising on the re-translation are taken directly to the foreign currency
translation reserve. 
Share options
The Operating Group has applied the requirements of FRS 20, Share-based payments. In accordance with the transition provisions, 
FRS 20 has been applied to all grants after 7 November 2002 that were unvested as of 1 January 2005. Grants prior to this date were
made under the provisions of UITF 17, Employee share schemes. The adoption of FRS 20 represents a change in accounting policy.
Had UITF 17 have been applied to all periods there would have been an additional charge to the profit and loss account of $37,000 
in the year to 30 April 2005 (2004: $24,000). There would have been no other impact on the financial statements.
The Operating Group issues equity-settled and cash-settled share-based payments to certain employees. Equity-settled share-based
payments are measured at fair value at the date of grant.  
The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the
vesting period, based on the Operating Group’s estimate of shares that will eventually vest. A liability equal to the portion of the
goods or services received is recognised at the current fair value determined at each balance sheet date for cash-settled share-based 
Micro Focus International Plc Annual report 2005 41
Micro Focus International Limited 2 Principal accounting policies (continued)
payments. Fair value is measured by using the Black-Scholes pricing model. The expected life used in the model has been adjusted,
based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.
Pension costs
The Operating Group makes contributions to employees’ personal defined-contribution schemes. Payments are charged to the profit
and loss account in the period to which they relate.
Financial instruments 
The Operating Group does not enter into derivative financial instruments and has no financial liabilities other than loans, trade and
other creditors. 
The carrying value of the Operating Group’s financial instruments, including cash and cash equivalents, accounts receivable, accounts
payable and debt accrued liabilities approximate their fair values due to their short maturities. The carrying value of long-term debt
and other debt approximates fair value and is based on borrowing rates currently available with similar terms and average maturities.  
Financial instruments that potentially subject the Operating Group to a concentration of credit risk consist primarily of cash equivalents
and accounts receivable. Cash and cash equivalents are deposited with high-credit quality financial institutions and are regularly
monitored by management. The Operating Group provides credit to customers in the normal course of business. Collateral is not
required for those receivables, but ongoing credit evaluations of customers’ financial conditions are performed. The Operating Group
maintains an allowance for doubtful accounts based upon the expected collectibility of accounts receivable. The Operating Group sells
products and services to a wide range of customers around the world and, therefore, believes there is no material concentration of 
credit risk.
Financial assets
Financial assets are shown at cost less provision for any impairment in value.
Cash and current asset investments
Cash consists of cash in hand and deposits repayable upon demand without penalty. Investments in bank deposits and other interest
bearing instruments with initial maturities of one year or less are categorised as current asset investments. Such investments are
carried at cost which approximates fair value. 
Borrowings
All borrowings are initially stated at the fair value of the consideration received after deduction of issue costs. Issue costs together
with finance costs are charged to the profit and loss account over the expected term of the borrowings and represent a constant
proportion of the balance of capital repayments outstanding.
Tangible fixed assets
The cost of tangible fixed assets is purchase cost together with any incidental costs of acquisition. Depreciation is calculated as to
write-off the cost of tangible fixed assets, less their estimated residual values, on a straight-line basis over the expected useful
economic life of the assets concerned. The principal annual rates used for this purpose are:
Leasehold improvements Remainder of the lease term 
Furniture and fixtures 5 – 7 years 
Computer equipment 1 – 5 years 
The Operating Group does not have a policy of revaluing tangible fixed assets.
42 Micro Focus International Plc Annual report 2005
Notes to the financial statements
for the year ended 30 April 2005
Micro Focus International Limited 2 Principal accounting policies (continued)
Leases
Assets held under finance leases are capitalised at their fair value on the commencement of the leases and depreciated over the
shorter of the period of the lease and the estimated useful economic lives of the assets. The finance charges are allocated over the
period of the lease in proportion to the capital amount outstanding and are charged to the profit and loss account. Costs in respect
of operating leases are charged to the profit and loss account on a straight-line basis over the lease term.
Goodwill
Goodwill represents the excess of the fair value of the purchase consideration for businesses and shares in subsidiary undertakings
over the fair value of the net assets acquired. Goodwill is capitalised and amortised on a straight-line basis over its useful life, which
the directors estimate to be 14 years.
Impairment of fixed tangible assets and intangible assets 
Assets that are subject to depreciation or amortisation are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s
carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and
value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately
identifiable cash flows.
Research and development 
Research and development costs are written-off to the profit and loss account as they are incurred.
Stock
Stock consists of packaging materials and is stated at the lower of cost and net realisable value. Cost is determined on an average 
cost basis. Net realisable value is the price at which stocks can be sold in the normal course of business after allowing for the costs 
of realisation. Provision is made where necessary for obsolete, slow-moving and defective stocks.
Taxation including deferred tax
Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date. Where
transactions or events that result in an obligation to pay more tax in the future, or a right to pay less tax in the future, have occurred
at the balance sheet date, deferred tax is recognised.
A net deferred tax asset is recognised as recoverable and therefore recognised only when, on the basis of all available evidence, it can
be regarded as more likely than not that there will be suitable taxable profits against which to recover carried forward tax losses and
from which the future reversal of underlying timing differences can be deducted.
Deferred tax is recognised in respect of the retained earnings of overseas subsidiaries only to the extent that, at the balance sheet
date, dividends have been accrued as receivable or a binding agreement to distribute past earnings in future periods has been
entered into by the subsidiary.
Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the timing differences are
expected to reverse, based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. 
Deferred tax is measured on an undiscounted basis.
Micro Focus International Plc Annual report 2005 43
Micro Focus International Limited 3 Segmental reporting
The directors consider there to be only one class of business being the provision of legacy application development and deployment
software for contemporary platforms. Therefore, only geographical information is given below.
Turnover
2005 2004
$’000 $’000
Geographical analysis
North America 73,173 61,357
Europe and the Middle East 57,365 47,537
Rest of the world 20,107 17,374
Total 150,645 126,268
There is no material difference between turnover by origin above and turnover by destination. All turnover is derived from external
customers.
Profit on ordinary activities before taxation
2005 2004
$’000 $’000
Geographical analysis
North America 22,532 17,138
Europe and the Middle East 3,838 4,353
Rest of the world 9,554 3,748
35,924 25,239
Net interest payable (8,274) (3,233)
Total 27,650 22,006
Net assets/(liabilities)
2005 2004
$’000 $’000
Geographical analysis
North America (2,879) (2,955)
Europe and the Middle East 1,368 5,352
Rest of the world 2,143 1,336
632 3,733
Goodwill 38,635 42,404
39,267 46,137
Bank loans (111,250) (60,134)
Net assets/(liabilities) (71,983) (13,997)
44 Micro Focus International Plc Annual report 2005
Notes to the financial statements
for the year ended 30 April 2005
Micro Focus International Limited 4 Net interest payable
2005 2004
$’000 $’000
Interest receivable and similar income
Bank interest 382 141
Interest payable and similar charges
Interest payable on bank loans and overdrafts (5,062) (3,160)
Finance charges on finance leases (19) –
Amortisation of loan issue costs (224) (214)
Accelerated amortisation of loan issue costs (3,351) –
(8,656) (3,374)
Net interest payable (8,274) (3,233)
5 Profit on ordinary activities before taxation
2005 2004
$’000 $’000
Profit before taxation is stated after charging/(crediting)
Staff costs (see note 24) 70,340 61,399
Depreciation of tangible fixed assets
Owned assets 1,927 1,849
Under finance lease 35 –
Amortisation of goodwill 3,769 3,769
Loss on disposal of fixed assets 19 –
Hire of plant and machinery 116 125
Other operating lease rentals 4,092 3,929
Foreign exchange differences (149) (50)
Management charges (see note 26) 1,200 1,200
Redundancy costs – 562
Reorganisation costs 2,302 –
Reorganisation costs
During the year, the Operating Group incurred expenses of $5,150,000 in relation to the proposed Admission to the London Stock
Exchange. Those expenses directly related to the issue of ordinary share capital by Micro Focus International Plc were recharged to
that Company as part of the agreement with the Operating Group. As such an amount of $3,575,000 is recorded in other debtors in
note 11. Other expenses incurred in preparation for the Admission that do not relate directly to the issue of share capital have been
borne by the Operating Group. These expenses amount to $1,575,000 in the year ended 30 April 2005.  
During the year, the Operating Group incurred expenses of $727,000 in relation to the restructuring of the Operating Group in
preparation for the new loan facility. As these amounts were not directly related to the issuance of the new loan facility they 
were unable to be amortised over the life of the loan.
Micro Focus International Plc Annual report 2005 45
Micro Focus International Limited 5 Profit on ordinary activities before taxation (continued)
Auditor’s remuneration 
During the year the Operating Group (including its overseas subsidiaries) obtained the following services from the Operating Group’s
auditor at costs as detailed below:
2005 2004
$’000 $’000
Audit services – statutory audit 530 519
Further assurance services  670 194
Taxation services
Compliance services 161 151
Advisory services 1,278 20
Auditors’ remuneration: other services  1,962 55
Total 4,601 939
The Operating Group’s auditors, PricewaterhouseCoopers LLP, provide non-audit services for the Operating Group over and above 
the external audit (principally tax advice and reporting accountants and due diligence work in connection with the listing of the
Company). Further assurance services include the additional audits of the nine months ending 31 January 2005 and 2004, the audit 
of quarterly revenues for the periods from August 2001 to 31 January 2005 and the audit under UK GAAP of the Operating Group 
for the periods ending 30 April 2002, 30 April 2003 and 30 April 2004. It also included the audit under IFRS of the nine months ending 
31 January 2005. Other services comprises reporting accountants work and due diligence. Tax advisory services include restructuring
and reorganisation advice in connection with the listing.
The board of directors reviews the level of non-audit fees and believes that the Operating Group receives particular benefit from tax
advice provided by its auditors given their wide and detailed knowledge of the Operating Group. The board is confident that the
objectivity and independence of the auditors is not impaired in any way by reason of its non-audit work. There were no fees paid 
in respect of management consultancy.
46 Micro Focus International Plc Annual report 2005
Notes to the financial statements
for the year ended 30 April 2005
Micro Focus International Limited 6 Tax on profit on ordinary activities
2005 2004
$’000 $’000
Analysis of charge in year
United Kingdom
Corporation tax at 30% (2004: 30%) 5,483 1,957
Double tax relief – (271)
Foreign tax 2,342 2,577
Total current tax 7,825 4,263
Deferred tax
Origination and reversal of timing differences – United Kingdom 2,276 3,508
Total deferred tax 2,276 3,508
Tax on profit on ordinary activities 10,101 7,771
The tax for the year is different than the standard rate of corporation tax in the UK (30%). The differences are explained below:
2005 2004
$’000 $’000
Profit on ordinary activities before tax 27,650 22,006
Profit on ordinary activities multiplied by standard rate of corporation tax in the UK of 30% (2004: 30%) 8,295 6,602
Effects of:
Expenses not deductible for tax purposes 85 (553)
Capital allowances in excess of depreciation (2,250) (2,694)
Other timing differences
Temporary 240 796
Permanent – (1,730)
Tax losses arising – 120
Tax losses utilised (477) –
Excess overseas taxation 572 719
Adjustment in respect of foreign tax rates 1,360 1,003
Total current tax 7,825 4,263
Permanent other timing differences relate primarily to the tax effect of deferred revenue acquired within the Operating Group’s
North American businesses. Tax losses arising relate primarily to the Operating Group’s North American businesses.
2005 2004
$’000 $’000
Equity – ordinary
Final paid: $0.20 (2004: $1.34) per $0.00001 share 10,000 28,450
Interim paid: $1.40 (2004: nil) per $0.00001 share 68,800 –
Total 78,800 28,450
Micro Focus International Plc Annual report 2005 47
Micro Focus International Limited 7 Dividends
Under Cayman Law the unrealised profit on the revaluation of an asset may be used to fund a dividend. As such the directors of the
Operating Company obtained an independent valuation of the intellectual property held by the Operating Company as at 7 October
2003. This valuation was then used as the basis of the transfer of the intellectual property by the Operating Company to Micro Focus
IP Limited, a wholly-owned subsidiary, during the year ended 30 April 2004. Subsequently, the directors have considered the valuation
of the intellectual property in proposing further dividends, including dividends of $68,800,000 and $10,000,000 in the year ended 
30 April 2005. A further independent valuation of the intellectual property was performed in April 2005, which further confirmed 
the adequacy of distributable reserves under Cayman Law. 
8 Intangible fixed assets 
Goodwill
Cost $’000
At 1 May 2004 and 30 April 2005 52,768
Accumulated amortisation
At 1 May 2004 10,364
Charge for the year 3,769
At 30 April 2005 14,133
Net book amount at 30 April 2005 38,635
Net book amount at 30 April 2004 42,404
The goodwill arising as a result of the acquisition of the Operating Group from MERANT is being amortised on a straight-line basis
over the useful economic life, which the directors estimate to be 14 years.
48 Micro Focus International Plc Annual report 2005
Notes to the financial statements
for the year ended 30 April 2005
Micro Focus International Limited 9 Tangible fixed assets 
Leasehold Computer Fixtures
improvements equipment and fittings Total
Cost $’000 $’000 $’000 $’000
At 1 May 2004 557 7,882 1,054 9,493
Exchange adjustments 18 424 55 497
Additions 291 936 133 1,360
Disposals – (306) (178) (484)
At 30 April 2005 866 8,936 1,064 10,866
Aggregate depreciation
At 1 May 2004 147 4,536 695 5,378
Exchange adjustments 5 261 35 301
Charge for the year 113 1,665 184 1,962
Disposals – (276) (166) (442)
At 30 April 2005 265 6,186 748 7,199
Net book amount at 30 April 2005 601 2,750 316 3,667
Net book amount at 30 April 2004 410 3,346 359 4,115
The amounts included within computer equipment include finance leases with a cost of $251,000 (30 April 2004: nil) and a net book
amount of $216,000 (30 April 2004: nil).  
10  Stocks
2005 2004
$’000 $’000
Finished goods 350 312
11  Debtors
2005 2004
$’000 $’000
Amounts falling due within one year:
Trade debtors 37,128 28,758
Other debtors 9,280 6,330
Prepayments and accrued income 3,837 2,837
Total 50,245 37,925
Other debtors includes $3,575,000 (2004: nil) incurred in relation to the Admission of Micro Focus International Limited to the Official
List and the London Stock Exchange. Under an agreement between the Company and the Operating Group these costs were
recharged to the Company upon Admission.
Micro Focus International Plc Annual report 2005 49
Micro Focus International Limited 12  Investments
2005 2004
$’000 $’000
Current asset investments
Short-term deposits 8,218 7,166
Other investments 95 –
8,313 7,166
Other investments represent a shareholding in 50,000 £1 redeemable preference shares in Micro Focus International Plc. Subsequent
to the Admission of the Company’s ordinary shares to the Official List and to the London Stock Exchange to be traded on its main
market for listed securities, the redeemable preference shares were redeemed and then sub-divided and reclassified into ordinary
shares of 10 pence each.
13  Creditors: Amounts falling due within one year
2005 2004
$’000 $’000
Bank loans (note 15) 8,010 10,097
Trade creditors 3,860 1,822
Corporation tax 11,972 6,321
Other tax and social security payable 3,241 2,417
Obligations under finance leases 89 –
Accruals and deferred income 64,002 52,967
Total 91,174 73,654
The bank loans due within one year or on demand are secured. For further details of the loans and the security see note 15.
14  Creditors: Amounts falling due after more than one year
2005 2004
$’000 $’000
Bank and other borrowings (note 15) 103,240 50,037
Obligations under finance leases 127 –
Deferred income 6,931 5,480
Total 110,298 55,517
50 Micro Focus International Plc Annual report 2005
Notes to the financial statements
for the year ended 30 April 2005
Micro Focus International Limited 15  Bank and other borrowings 
2005 2004
$’000 $’000
Bank loans:
Secured 111,250 60,134
Unsecured – –
Total 111,250 60,134
Secured loan
On 10 August 2001 the Operating Group entered into a term loan facility for $25 million (“facility 1”) to provide working capital and
to fund the acquisition from MERANT. The term loan was secured by substantially all the assets of the Operating Group and was
repayable over three years in equal monthly instalments. The loan bore an effective interest rate of base rate plus 3.25%, limited 
to a floor of 7% per annum. 
On 19 August 2002, the Operating Group borrowed an additional $7,638,884. Under the amended agreement, a fixed monthly
amount of $800,000 was payable from 1 September 2002 through to 31 August 2003. Subsequent to this date, monthly repayments
were made based on the outstanding principal amount of the term loan as at 31 August 2003 over three years in equal monthly
instalments paid from 1 September 2003 with the last payment being due on 1 August 2006. The effective interest rate remained 
at the base rate plus 3.25%, limited to a floor of 7% per annum.
On 4 November 2003, the Operating Group modified this term loan facility, borrowing an additional $24,416,667, bringing the total
term loan balance outstanding at this date to $40,000,000. The total amount bore interest at the bank base rate plus 0.5%. Principal
payments were due on the first day of each month at a fixed rate of $850,000 through and including 1 July 2006, at which time all
outstanding interest and principal would have been due. 
On 28 March 2003, the Operating Group entered into a further term loan facility for $25 million (“facility 2”) which was due in full 
on 28 March 2007. The loan was secured by a guarantee from CCG Investments (BVI), LP (Golden Gate Capital Management, LLC) and
bore interest at a rate equal to the sum of the alternate base rate plus 2.5% per annum. The alternate base rate being the rate per
annum equal to the higher of (i) the base rate in effect on the day and (ii) the Federal Funds rate in effect on the day plus 0.5%.   
On 21 October 2004, the Operating Group repaid the amounts outstanding under facility 1 and facility 2 and entered into a new term
loan agreement for $115 million with Wells Fargo Foothill Capital Corporation. The term loan was secured by substantially all the
assets of the Operating Group, including the all of the tangible and intangible assets and all inventory balances. Of the cash and 
cash equivalents held by the Operating Group $10,000,000 was pledged as security and therefore was not available for use by the
Operating Group. The loan was split into term loan A ($75 million) and term loan B ($40 million). Monthly repayments for term loan 
A were fixed at $625,000 until 1 October 2005, $710,000 until 1 October 2006 and then $960,000 until maturity. Term loan B was
repayable in full on 21 October 2008. Term loan A bore interest at LIBOR plus 3%, limited to a floor of 4% and term loan B bore
interest at LIBOR plus 5%, limited to a floor of 7%. On 20 May 2005 the loan was repaid in full from the proceeds of the Admission 
of Micro Focus International Plc on to the Official List of the Financial Services Authority. Under the terms of the facility, as a result 
of an early termination due to the offering of the shares of the Company for public sale, term loan A was subject to a termination
payment of $306,500 and term loan B was subject to a termination payment of $400,000 (if the loan is repaid prior to 31 July 2005)
and term loan A is subject to a termination payment of $153,250 and term loan B is subject to a termination payment of $400,000.
The loan was subject to certain covenants with which the Operating Group had to comply. The Operating Group had to maintain 
a level of consolidated EBITDA, which, when multiplied by the specified multiples, had to always be above the level of outstanding
debt. The Operating Group had to also maintain qualified cash of $10 million and was only permitted to make capital expenditures 
in any one fiscal year of $3 million. The Operating Group did not breach these covenants at any stage of the year to 30 April 2005.
Micro Focus International Plc Annual report 2005 51
Micro Focus International Limited 16  Financial instruments
The Operating Group’s financial instruments comprise cash, liquid resources, loans, and various debtors and creditors, such as trade
debtors and trade and other creditors that arise directly from its operations. The Operating Group has not entered into any
significant derivatives transactions.
The main risks arising from the Operating Group’s financial instruments are credit risk, foreign currency risk and interest rate risk. 
The board reviews and agrees policies for managing each of these risks and they are summarised below. These policies have been 
in place since inception on 10 August 2001.
Credit risk 
Financial instruments which potentially expose the Operating Group to a concentration of credit risk consist primarily of cash
equivalents and accounts receivable. Cash equivalents are deposited with high-credit quality financial institutions. The Operating
Group provides credit to customers in the normal course of business. Collateral is not required for those receivables, but ongoing
credit evaluations of customers’ financial conditions are performed. The Operating Group maintains an allowance for doubtful debts
based upon the expected collectibility of accounts receivable. The Operating Group sells products and services to a wide range of
customers around the world and, therefore, believes there is no material concentration of credit risk.
Foreign currency risk
The Operating Group’s reporting currency is the US Dollar. The Operating Group has transactional currency exposures. Such exposures 
arise from sales or purchases in currencies other than the Operating Group’s functional currency. In addition, the Operating Group 
has currency exposures to balances in currencies other than the Operating Group’s functional currency. There were no hedging
transactions in place at the years ended 30 April 2005 and 30 April 2004. 
Short-term debtors and creditors
All of the Operating Group’s debtors falling due within one year (other than bank deposits) and creditors falling due within one year
(other than bank and other borrowings) are excluded from the tables below either due to the exclusion of short-term items or
because they do not meet the definition of a financial liability, such as tax balances.
Interest rate risk and maturity profile of financial liabilities
The interest rate risk profile of the Operating Group’s financial liabilities for the year covered by the consolidated financial statements
was as follows:
Total at floating rates Total at fixed rates Total book value
2005 2004 2005 2004 2005 2004
$’000 $’000 $’000 $’000 $’000 $’000
Bank loans and overdraft 111,250 60,134 – – 111,250 60,134
Finance lease obligations – – 216 – 216 –
Total 111,250 60,134 216 – 111,466 60,134
52 Micro Focus International Plc Annual report 2005
Notes to the financial statements
for the year ended 30 April 2005
Micro Focus International Limited 16  Financial instruments (continued)
Maturity of financial liabilities
The maturity profile of the carrying amount of the Operating Group’s financial liabilities, other than short-term trade creditors and
accruals during the period of consolidated financial statements was as follows:
2005
Finance lease 2004
Debt obligations Total Total
$’000 $’000 $’000 $’000
In one year or less, or on demand 8,010 89 8,099 10,097
In more than one year but not more than two years 10,020 89 10,109 10,097
In more than two years but not more than five years 93,220 38 93,258 39,940
Total 111,250 216 111,466 60,134
The weighted average interest rate for the finance lease obligations above was 8.5% and the weighted average period for which the
interest rate was fixed was 24 months. There were no other financial liabilities with a fixed rate of interest in 2005 or 2004.
Floating-rate financial liabilities bear interest at rates based on relevant national LIBOR equivalents, which are fixed in advance.
Interest rate risk and currency profile of financial assets
Total at floating rates Total book value
2005 2004 2005 2004
$’000 $’000 $’000 $’000
Cash at bank and in hand:
US Dollars 12,987 9,162 12,987 9,162
Sterling 1,255 1,704 1,255 1,704
Euro 7,865 5,918 7,865 5,918
Other 2,450 470 2,450 470
24,557 17,254 24,557 17,254
Current asset investments
Euro 4,670 6,731 4,670 6,731
Other 3,643 435 3,643 435
8,313 7,166 8,313 7,166
Total 32,870 24,420 32,870 24,420
Micro Focus International Plc Annual report 2005 53
Micro Focus International Limited 16  Financial instruments (continued)
Borrowing facilities
The Operating Group has the following undrawn but committed revolver credit line available during the period covered by the
consolidated financial statements in respect of which all conditions precedent had been met at that date:
2005 2004
Floating rate Floating rate
$’000 $’000
Expiring within one year 750 1,250
Total 750 1,250
Fair values of financial assets and financial liabilities
Fair value is the amount at which a financial instrument could be exchanged in an arm’s length transaction between informed and
willing parties, other than a forced or liquidation sale and excludes accrued interest. The Operating Group’s financial assets and
financial liabilities at 30 April 2005 and 30 April 2004 are deemed to be equal to their fair value at those dates.  
Currency exposures
The tables below show the extent to which Group companies have monetary assets in currencies other than their local currency.  
Net foreign currency monetary assets
Other
US Dollars Euros currencies Total
$’000 $’000 $’000 $’000
30 April  2004
Functional currency of Group operation:
US Dollars ––––
Euro 2,382 – – 2,382
Sterling 79 116 – 195
Other 4,180 – – 4,180
Total 6,641 116 – 6,757
30 April 2005
Functional currency of Group operation:
US Dollars ––––
Euro 4,371 – – 4,371
Sterling 20 221 – 241
Other 1,122 77 115 1,314
Total 5,513 298 115 5,926
54 Micro Focus International Plc Annual report 2005
Notes to the financial statements
for the year ended 30 April 2005
Micro Focus International Limited 17 Provisions for liabilities and charges
Deferred tax asset
2005 2004
$’000 $’000
Deferred tax asset comprises:
Accelerated capital allowances (6,126) (4,009)
Tax losses 6,203 6,680
Other timing differences
Temporary 3,645 3,278
Permanent – 49
Deferred tax asset 3,722 5,998
At beginning of year 5,998 9,506
Amount charged to profit and loss (2,276) (3,508)
At end of year 3,722 5,998
Permanent other timing differences relate to the tax effect of deferred revenue acquired within the North American businesses.
Tax losses carried forward at 30 April 2005 relate to the Operating Group’s North American businesses and amount to approximately
$19 million. Such losses can be carried forward without restriction for 20 years from the year of creation.
18  Called up share capital
2005 2004
number number
Authorised 
Class A ordinary shares of $0.00001 each 86,428,000 86,428,000
Class B ordinary shares at $0.00001 each 2,800,000 2,800,000
Class C ordinary shares at $0.00001 each 1,386,000 1,386,000
Class D ordinary shares at $0.00001 each 1,386,000 1,386,000
Class L ordinary shares at $0.00001 each 8,000,000 8,000,000
Total 100,000,000 100,000,000
2005 2004
number number
Allotted, called up and fully paid shares of  $0.0001 each
Class A ordinary shares of $0.00001 each 41,426,245 42,446,720
Class B ordinary shares at $0.00001 each 2,169,375 1,985,205
Class C ordinary shares at $0.00001 each 1,386,000 1,386,000
Class D ordinary shares at $0.00001 each – 1,386,000
Class L ordinary shares at $0.00001 each 4,143,291 4,143,291
Total allotted, called up and fully paid share capital 49,124,911 51,347,216
Micro Focus International Plc Annual report 2005 55
Micro Focus International Limited 18  Called up share capital (continued)
2005 2004
$ $
Allotted, called up and fully paid
Total allotted, called up and fully paid share capital 491 513
During the year ended 30 April 2005 the Operating Company issued 165,525 class A shares at a price of $0.05411 and 184,170 class B
shares at prices ranging from $0.02 to $0.33 per share as a result of the exercise of options held under the Operating Group’s
Employee Share Option Plan. 200,000 class A shares at a price of $1.676 per share were also issued directly as part of another share-
based compensation plan. On 18 April 2005 the Operating Company repurchased and cancelled 1,386,000 class D ordinary shares.
1,386,000 class A ordinary shares which were previously held as treasury shares were also cancelled at that date.
Each holder of an ordinary share is entitled to one vote for each share held at all meetings of shareholders and will be entitled to any
dividends declared by the board of directors. On a return of capital in a winding up (or otherwise in liquidation) (but not in respect 
of any redemption, commission or purchase by the Operating Company) the holders of class L shares receive a preferential
distribution equal to firstly the unpaid yield (at 12.5% per annum) and secondly the aggregate unreturned original cost of class L
shares. After the distribution to class L shareholders, the holders of class A and class D shares are entitled to receive a preferential
distribution up to three times their aggregate investment. After the distribution to class A and D shareholders, any remaining balance
is distributable rateably to class L, A, B and D shares up to five times their aggregate investment. Thereafter any remaining balance is
distributable rateably to class L, A, B and C shareholders. A distribution will only be made upon a liquidation event, or a winding up;
no distribution will be made in the event of a change in control.
19 Share premium account
2005 2004
$’000 $’000
At start of year 2,946 2,939
Premium on shares issued to equity shareholders 505 7
Cancellation of treasury shares (75) –
At end of year 3,376 2,946
20  Profit and loss reserve
2005 2004
$’000 $’000
At start of year (deficit) (17,062) (3,296)
Retained loss for the year (61,251) (14,215)
Cancellation of treasury shares 75 –
Adjustment in respect of employee share option plans 3,048 449
At year end (deficit) (75,190) (17,062)
56 Micro Focus International Plc Annual report 2005
Notes to the financial statements
for the year ended 30 April 2005
Micro Focus International Limited 21  Other reserves
2005 2004
$’000 $’000
Foreign currency translation reserve
At start of year 118 (186)
Exchange adjustments offset in the year (287) 304
(Deficit)/surplus at end of year (169) 118
The foreign currency translation reserve arises upon the translation of wholly-owned foreign operations into US Dollars.
22  Cash flow from operating activities
Reconciliation of operating profit to net cash inflow from operating activities:
2005 2004
$’000 $’000
Continuing operations
Operating profit 35,924 25,239
Depreciation charge (net of loss on disposals) 1,981 1,849
Goodwill amortisation 3,769 3,769
Compensation share-option charge 3,581 840
(Increase) in stocks (38) (122)
(Increase) in debtors (12,320) (4,300)
Increase in creditors 13,483 4,451
Total net cash inflow from operating activities 46,380 31,726
23  Reconciliation of movements in net debt
Finance lease Finance lease
Debt due Debt due creditor due creditor due
Cash in hand Current asset after more within one after more within one
and at bank investment than one year year than one year year Total
$’000 $’000 $’000 $’000 $’000 $’000 $’000
At 1 May 2004 17,254 7,166 (50,037) (10,097) – – (35,714)
Cash flows 5,821 1,147 (49,885) 2,344 42 – (40,531)
Non-cash movements – – (3,318) (257) (169) (89) (3,833)
Exchange movements 1,482 – – – – – 1,482
At 30 April 2005 24,557 8,313 (103,240) (8,010) (127) (89) (78,596)
Micro Focus International Plc Annual report 2005 57
Micro Focus International Limited 23  Reconciliation of movements in net debt (continued)
2005 2004
$’000 $’000
Movement in borrowings
Debt due within one year:
Repayment of part of bank loan (8,000) (8,866)
Debt due after one year:
New secured bank loan 115,000 24,416
Repayment of part of bank loan (56,500) –
Increase in borrowings 50,500 15,550
Issue costs of new bank loan (2,959) (244)
Cash inflow 47,541 15,306
24  Employees and directors
Employee costs
2005 2004
$’000 $’000
Staff costs for the Group during the year
Wages and salaries 59,257 53,856
Social security costs 5,769 5,029
Other pension costs 1,733 1,674
Cost of employee share schemes 3,581 840
Total 70,340 61,399
Average monthly number of people (including executive directors) employed
Sales and distribution 183 183
Research and development 144 141
General and administration 159 159
Total 486 483
Details of directors’ emoluments are set out in the remuneration report.
Share-based compensation
The Operating Group has three equity-settled share-based compensation plans and one cash-settled share-based compensation plan,
details of which are provided below. 
2001 Share Purchase and Option Plan
The Operating Group has a share-based compensation plan (“plan”) under which employees and directors may be granted options 
to purchase the Operating Company’s ordinary shares (A and B shares). Under the terms of the plan the options have a maximum
term of seven years. Whilst options can be exercised at any time, the expected date of a termination event is determined as the
vesting date and the expected life of the options because no participant is able to transfer any interest in shares obtained under the
plan until a termination event (described as a sale of over 50% of the assets of the Operating Group or an Initial Public Offering) has
occurred. As of 30 April 2005, 15,532,000 (2004: 15,532,000) ordinary shares have been authorised for issuance under the plan and
13,966,840 (2004: 13,907,740) are available for future grant or re-grant.
58 Micro Focus International Plc Annual report 2005
Notes to the financial statements
for the year ended 30 April 2005
Micro Focus International Limited 24  Employees and directors (continued)
Options over ordinary shares held by employees under the plan, all of which were exercisable, were as follows:
Weighted average
Weighted remaining life (years)
Range of average 2005 2004
Options exercise prices exercise price Expected Contractual
At 1 May 2004 1,462,955 $0.02 – $0.93 $0.17 2.3 5.0
Granted 51,700 $1.46
Exercised (349,695) $0.10
Forfeited (110,800) $0.24
At 30 April 2005 1,054,160 $0.02 – $1.62 $0.24 0.0 3.8
The weighted average share price for options exercised during the year was $6.91. Of the 1,054,160 options over ordinary shares
outstanding at 30 April 2005, 994,860 had an exercise price in the range of $0.02 and $0.39 per share and 59,300 had an exercise price
in the range of $0.93 and $1.62 per share.
Options issued under the plan have been valued using the Black-Scholes option-pricing model. No performance conditions were
included in the fair value calculations. The fair value per option granted and the assumptions used in the calculation are as follows:
Grant date 18/11/02 18/11/02 27/02/03 04/09/03 19/11/03 04/03/04 18/05/04 04/09/04 18/11/04
Class of share A B B B B B B B B
Share price at grant date $2.22 $2.22 $2.63 $3.15 $3.29 $2.94 $3.10 $3.80 $8.98
Exercise price $0.05 $0.02 $0.02 $0.33 $0.39 $0.93 $1.04 $1.62 $1.40
Expected volatility 80% 80% 80% 80% 80% 80% 80% 80% 80%
Expected option life (years) 4 4 3 3 3 2 2 2 1
Expected dividend yield 0% 0% 0% 0% 0% 0% 0% 0% 0%
Risk-free interest rate 4% 4% 4% 4% 4% 4% 4% 4% 4%
Fair value per option $2.17 $2.20 $2.61 $2.87 $2.96 $2.23 $2.30 $2.57 $7.72
The expected volatility is based on historical volatility of comparable companies over the last three years. The expected life is the
average expected period to exercise. The risk-free rate is the yield on zero-coupon UK government bonds of a term consistent with
the expected option life.
The amount charged through the income statement in relation to the plan for the year ended 30 April 2005 was $1,504,000 
(2004: $383,000).
Restricted Share Agreement
The Operating Group also operates a share-based compensation plan (“agreement”) under which senior management may be granted
options to purchase the Operating Company’s ordinary shares (A, B and C shares). Under the terms of the agreement the options have 
a maximum term of ten years.
Micro Focus International Plc Annual report 2005 59
Micro Focus International Limited 24  Employees and directors (continued)
Whilst options can be exercised at various times, the expected date of a termination event is determined as the vesting date and the
expected life of the options because no participant is able to transfer any interest in shares obtained under the agreement until a
termination event (as described under the 2001 Share Option Plan) has occurred. As at 30 April 2005 4,388,000 have been authorised
for issue under the agreement.
Options issued under the agreement have been valued using the Black-Scholes option-pricing model. No performance conditions were
included in the fair value calculations. The fair value per option granted and the assumptions used in the calculation are as follows:
Grant date 18/11/02 18/11/02
Class of share AB
Share price at grant date $2.22 $2.22
Exercise price $0.05 $0.02
Expected volatility 80% 80%
Expected option life (years) 44
Expected dividend yield 0% 0%
Risk-free interest rate 4% 4%
Fair value per option $2.17 $2.20
There were no options over ordinary shares held by employees under the Restricted Share Agreement at any time during the year
ended 30 April 2005. The amount charged through the income statement in relation to the agreement for the year ended 30 April
2005 was $137,000 (2004: $67,000).
Share issue
The Operating Group also operates a share-based compensation plan under which senior management are granted ordinary shares 
in the Operating Company. During the year ended 30 April 2005 the Operating Company issued 200,000 class A shares at a price of
$1.67. This interest became immediately beneficially held. The share price at the date of issue was $8.70, based upon the valuation of
the Operating Company prepared on a discounted cash flow basis, and therefore the fair value of the services received was $7.03 per
share. No expected dividends were incorporated in the measurement of the fair value of the shares. The amount charged through 
the income statement in relation to the share issue for the year ended 30 April 2005 was $1,407,000 (2004: nil).
Equity Bonus Plan
On 29 April 2002 the board of directors approved the rules of the Equity Bonus Plan, a cash-settled share-based compensation plan. 
Under the rules of the Equity Bonus Plan eligible employees are awarded equity bonus units at the discretion of the board of directors.
The earliest time that units issued under the plan can be realised is the completion of a termination event (described as a sale of over 
50% of the assets of the Operating Group or an Initial Public Offering). The total number of units issued at 30 April 2005 was 194,625. 
The amount of any realisation payment for each unit will depend on the market value of one of the Operating Company’s class A shares,
called the sale price at the time of the termination event. This is compared to the unit’s base price, which is calculated at the time of
award of the unit with reference to the market value of the Operating Company’s class A shares. The bonus awarded is the difference
between the sale price and base price, subject to an overall limit on the sale price of ten times the base price (which ranges from $0.05 
to $1.62).
The amount charged through the income statement in relation to the Equity Bonus Plan for the year ended 30 April 2005 was
$533,000 (2004: $390,000).
60 Micro Focus International Plc Annual report 2005
Notes to the financial statements
for the year ended 30 April 2005
Micro Focus International Limited 25  Operating lease commitments
The Operating Group had annual commitments under non-cancellable operating leases expiring as follows:
2005 2004
Land and Land and
buildings Other buildings Other
$’000 $’000 $’000 $’000
Annual commitments under non-cancellable operating leases expiring:
Within one year 266 132 1,155 228
Within two to five years 3,196 326 1,967 392
After five years 316 11 232 –
Total 3,778 469 3,354 620
26  Other related-party transactions
During the year to 30 April 2005, management charges of $600,000 (2004: $600,000), were paid to a related party, Golden Gate
Capital, which is the fund manager for CCG Investments (BVI), L.P., the ultimate parent company.
The interests of Golden Gate Capital, through CCG Investments (BVI), L.P. and other funds under its management, in the Operating
Company’s ordinary shares of $0.00001 are as follows:
Number
A Shares D Shares L Shares
At 1 May 2004 35,903,620 1,386,000 4,143,291
Shares cancelled – (1,386,000) –
At 30 April 2005 35,903,620 – 4,143,291
During the year to 30 April 2005, management charges of $600,000 (2004: $600,000) were paid to a related party, Parallax Capital,
which is a minority shareholder.
27 Post balance sheet events
On 17 May 2005, the Company acquired the entire issued share capital of the Operating Company by way of a share-for-share
exchange, pursuant to which the previous shareholders of the Operating Company were issued and allotted three ordinary shares 
in the capital of the Company for every one ordinary share the previously held in the Operating Company. On 17 May 2005, all the
ordinary shares of the Company were admitted to the Official List and to the London Stock Exchange to be traded on its main market
for listed securities.
On 20 May 2005 the outstanding debt of $110,625,000 was repaid in full.  
28  Capital commitments and contingencies
The Operating Group had no capital commitments at 30 April 2005 (30 April 2004: nil). The Operating Group had no contingent
liabilities, aside from the liability described in note 15, at 30 April 2005 (30 April 2004: nil).
Micro Focus International Plc Annual report 2005 61
Micro Focus International Limited 29  Supplementary Information
Set out below is an annual analysis of revenue recognised between the principal product categories, which the directors use to assess
the future revenue flows from the current portfolio of customers.
2005 2004
$’000 $’000
Licence 79,860 64,211
Maintenance 66,705 57,980
Consulting 4,080 4,077
Total revenue 150,645 126,268
30  Earnings per share
The calculation of basic earnings per share has been based on the earnings attributable to ordinary shareholders of the Operating
Company and the weighted average number of shares for each period. This is after taking account of the restructuring of the share
capital resulting in previous shareholders of the Operating Company receiving three ordinary shares in the Company for every one
share they previously held in the Operating Company. 
The diluted earnings per share has been calculated after taking account of the share options.
Supplementary basic and diluted EPS have been calculated to exclude the effect of amortisation of goodwill. The adjusted numbers
have been provided in order that the effect of the goodwill amortisation on reported earnings can be fully appreciated.
2005 2004
Weighted Weighted
average average
(Loss)/ number Per share (Loss)/ number Per share
earnings of shares amount earnings of shares amount
$’000 ‘000 cents $’000 ‘000 cents
Basic EPS
Earnings attributable to ordinary shareholders 17,549 147,375 11.91 14,235 145,574 9.78
Effect of dilutive securities
Options 3,162 4,388
Diluted EPS
Earnings attributable to ordinary shareholders 17,549 150,537 11.66 14,235 149,962 9.49
Supplementary EPS to exclude goodwill amortisation
Basic EPS 17,549 147,375 11.91 14,235 145,574 9.78
Effect of goodwill amortisation 3,769 3,769
Basic EPS excluding goodwill amortisation 21,318 147,375 14.47 18,004 145,574 12.37
Diluted EPS 17,549 150,537 11.66 14,235 149,962 9.49
Effect of goodwill amortisation 3,769 3,769
Diluted EPS excluding goodwill amortisation 21,318 150,537 14.16 18,004 149,962 12.00
62 Micro Focus International Plc Annual report 2005
Notes to the financial statements
for the year ended 30 April 2005
Micro Focus International Limited Nine months
ended Year to Year to Year to
30 April 2002 30 April 2003 30 April 2004 30 April 2005
$’000 $’000 $’000 $’000
Turnover 78,910 114,913 126,268 150,645
Cost of sales (5,981) (8,061) (8,279) (6,327)
Gross profit 72,929 106,852 117,989 144,318
Selling and distribution costs (26,175) (34,581) (39,697) (48,106)
Research and development (13,978) (20,214) (22,350) (23,407)
Amortisation of goodwill (2,826) (3,769) (3,769) (3,769)
Share-based compensation payments (61) (30) (840) (3,581)
Reorganisation costs (3,528) – – (2,302)
Other administrative expenses (14,716) (25,497) (26,094) (27,229)
Total administrative expenses (21,131) (29,296) (30,703) (36,881)
Operating profit 11,645 22,761 25,239 35,924
Net interest payable 9,082 (6,604) (3,233) (8,274)
Profit on ordinary activities before taxation 2,563 16,157 22,006 27,650
Tax on profit on ordinary activities (5,093) (5,650) (7,771) (10,101)
(Loss)/profit for the financial period (2,530) 10,507 14,235 17,549
Dividends
From share premium account – (17,500) – –
From realised and unrealised profit and loss reserves – (11,226) (28,450) (78,800)
Accumulated loss for the financial period (2,530) (18,219) (14,215) (61,251)
(Loss)/earnings per ordinary share
Basic (2.09)c 7.24c 9.78c 11.91c
Diluted (2.03)c 7.09c 9.49c 11.66c
Earnings per ordinary share before goodwill amortisation
Basic 0.24c 9.84c 12.37c 14.47c
Diluted 0.24c 9.63c 12.00c 14.16c
Notes
The Company did not trade before 30 April 2005. Therefore to provide shareholders with meaningful information the directors set
out above the trading performance of the Operating Company from the time of the acquisition of the assets, liabilities and relevant
trade from MERANT in August 2001.
Micro Focus International Plc Annual report 2005 63
Historical summary
Micro Focus International Limited Directors
Kevin Loosemore (Non-executive Chairman)
Dr Anthony Hill (Executive director and Chief Executive Officer)
Richard Lloyd (Executive director and Chief Financial Officer)
David Dominik (Non-executive director)
Prescott Ashe (Non-executive director)
David Maloney (Non-executive director)
John Browett (Non-executive director)
Company Secretary, registered and head office
Jane Smithard
The Lawn
22-30 Old Bath Road
Newbury
Berkshire RG14 lQN
United Kingdom
Legal advisers 
Linklaters
One Silk Street
London EC2Y 8HQ
United Kingdom
Auditors
PricewaterhouseCoopers LLP
9 Greyfriars Road
Reading
Berkshire RGl IJG
United Kingdom 
Registrars
Lloyds TSB Registrar
The Causeway
Worthing
West Sussex BN99 6DA
United Kingdom
Brokers
UBS
2 Finsbury Square
London EC2 2PP
United Kingdom
Goldman Sachs International
Peterborough Court
133 Fleet Street
London EC4A 2BB
United Kingdom
64 Micro Focus International Plc Annual report 2005
Directors, Secretary, registered office and advisers Australia
Melbourne
Suite 109
566 St Kilda Road
Melbourne
Victoria 3004
T: +61(0)3953 32943
F: +61(0)3951 02822
Sydney
Level 1, 845 Pacific Highway
Chatswood, Sydney
New South Wales 2067
T: +61(0)2990 46111
F: +61(0)2990 46007
Belgium
Antwerp
Uitbreidingstraat 84/3
2600 Berchem 
Antwerp
T: +32(0)3218 2126
F: +32(0)3218 2229
Canada
Montreal
Suite 228
750 Marcel Laurin Boulevard
Montreal 
Quebec H4M 2M4
T: +1 800 280 9487
F: +1 514 855 9853
France
Paris
Tour Atlantique 
La Defense 9
1 Place de la Pyramide
92911 La Defense Cedex
Paris
T: +33(0)1557 03013
F: +33(0)1557 03113
Germany
Dortmund
NL Dortmund
Emil-Figge Strasse 85
44227 Dortmund
T: +49(0)2317 5850
F: +49(0)2317 585555
Ismaning
Carl Zeiss Ring 5
D-85737 Ismaning
T: +49(0)8942 0940
F: +49(0)8942 094444
Ireland
Dublin
Office 104 
Unit 3013 Lake Drive
Citywest Business Campus
Dublin 24
T: +353(0)1469 3100
F: +353  (0)1469 3115
Italy
Milan
Via Cola Montana 21
20159 Milan
T: +39 0269 43401
F: +39 0269 434034
Rome
Via Caterina Troiani 71/79
00144 Rome
T: +39 0652 62191
F: +39 0652 621935
Japan
Tokyo
6th Floor Sumitomo Fudsan
Takanawa Park Tower
20-14 Higashi Gotanda
Shinagawa-Ku
Tokyo 141-0022
T: +81(0)3579 38550
F: +81(0)3579 8548
The Netherlands
Amsterdam
Regus Schipol Tetra 
Suite 1-3
Siriusdreef 17-27, 
WT, Hoofddorp 2132
Amsterdam
T: +31(0)2356 89138
F: +31(0)2356 89444
Norway
Oslo
Christiania Kontorsenter
Dronningens Gate 6
N-0152, Oslo
T: +47(0)2291 0720
F: +47(0)2291 0721
UK
Newbury
The Lawn
22-30 Old Bath Road
Newbury
Berkshire
RG14 1QN
T: +44(0)1635 32646
F: +44(0)1635 33966
Newbury
Units 1-4 Riverpark Ind Est.
Ampere Road
Riverpark Ind Est.
Newbury 
Berkshire 
RG14 2DQ
T: +44(0)1635 565399
F: +44(0)1635 528997
St Albans
Churchill House
26/30 Upper Marlborough
Road
St Albans 
Herts
AL1 3UU
T: +44(0)1635 32646
F: +44(0)1635 565525
US
Beaverton
15220 NW Greenbrier Parkway
Suite 340
Beaverton 
Oregon 97006
T: +1503 716 1100
F: +1503 614 1862
Durham
Suite 230
4825 Creekstone Drive
Durham
North Carolina 27703
T: +1919 998 5260
F: +1919 998 5261
Rockville
9420 Key West Avenue
Rockville
Maryland 20850
T: +1800 872 6265
+1301 838 5000
F: +1301 838 5314
Nashua
Suite 29A
76 North Eastern Boulevard
Nashua
New Hampshire 03062
T: +1603 589 2545
F: +1603 595 7932
Sunnyvale
1001 West Maude Avenue
Sunnyvale
California 94085
T: +1408 222 0300 
F: +1408 222 0303
Wayne
480 East Swedesford Road
Suite 100
Wayne
Pennsylvania 19087
T: +1610 263 3400
F: +1610 263 3700
Micro Focus International Plc Annual report 2005 65
Offices Admission or IPO The admission of the ordinary shares of the
Company to the Official List and to the London Stock Exchange
to be traded on its main market for listed securities
application (In an information technology context) computer
software designed for a specific business purpose such as a payroll
application. Micro Focus software products are specialised
computer applications which are used by IT staff to develop 
and deploy their own business applications.
architecture (In an information technology context) sets out
standard designs and engineering practices to achieve common
goals – such as the way applications interact with users, with
each other and with commercial packages. J2EE and Microsoft’s
.NET provide different architectural blueprints for commonly
required application services, such as Internet connectivity,
application security and data integrity.
Assembler (In an information technology context) a programming
language which allows direct control of the hardware resources
(such as the CPU and disks) in a computer system.
COBOL A programming language (COmmon Business Oriented
Language), devised by Grace Hopper in 1959 based on the
principles of simple English language instructions and syntax.
C and C++ Variants of a low-level programming language based
on the principles of mathematical operations and logical
abstractions to represent data being processed.
code (In an information technology context) computer
instructions which form the basis of application software written
using one of many programming languages and converted to 
a form suitable for execution by application development and
deployment tools such as those sold by Micro Focus.
Combined Code The Combined Code on Corporate Governance,
issued by the Financial Reporting Council in July 2003.
Company or Micro Focus Except as otherwise herein stated,
Micro Focus International Plc.
computer system The computer hardware and software which
together provide an operational environment for many
computer applications serving the needs of many end-users.
deployment (In an information technology context) installation
of a software application onto a computer system ready for
operational use in a production environment.
development (In an information technology context) project
work undertaken by the IT department of a business (or an
independent software vendor) to create new software applications
and to maintain and extend existing software applications.
end-user (In an information technology context) the person who
uses a software application. This term is used in this document 
to refer to the person licensed to use Micro Focus software.
environment (In an information technology context) describes
the specific hardware and operating system software that
provides the operational foundation for many different
computer applications.
FSA or Financial Services Authority The UK Financial Services
Authority.
Golden Gate Capital Golden Gate Capital and its associates 
(as that term is defined in the Listing Rules).
Group The Company and its subsidiaries after Admission.
Java A programming language which has become very popular
for new software applications, and in particular for Internet
applications.
J2EE An operating environment for Java applications (Java 2
Enterprise Edition) which provides a standard architecture 
for commonly required application services, such as Internet
connectivity, application security and data integrity.
legacy application Computer software designed for a specific
business purpose, such as a payroll application, which has been
in use (deployed) for some time and which forms part of the
current business environment.
66 Micro Focus International Plc Annual report 2005
Glossary Listing Rules The Listing Rules maintained by the FSA in
accordance with Section 74 of the Financial Services and Markets
Act 2000 (as amended from time to time).
Linux A computer operating system which provides a common
operating platform (environment) for software applications and
which is available from independent software vendors for use on
a wide range of contemporary servers such as those sold by SUN
Microsystems, Hewlett Packard, IBM, Dell and many others.
mainframe A proprietary computer system which is designed 
to provide very high levels of reliability, availability and security
suitable for deploying large-scale mission critical business
applications. 
MERANT MERANT plc.
migration (In an information technology context) a project to
move an application from one operating platform (environment)
to another.
MMA The Mainframe Migration Alliance, formed by Microsoft
and Micro Focus in April 2004 (see
http://www.mainframemigration.org).
.NET An operating environment for Microsoft Windows
applications (built into recent editions of Microsoft Windows
Server) which provides a standard architecture for commonly
required application services, such as Internet connectivity,
application security and data integrity.
Operating Company Micro Focus International Limited, a
company incorporated in the Cayman Islands which, prior to
Admission, was the holding company of the Operating Group.
Operating Group The Operating Company and its subsidiaries
(excluding the Company) prior to Admission.
Parallax Capital Parallax Capital Partners LLC.
platform (In an information technology context) describes the
specific hardware and operating system software that provides
the operational foundation for many different computer
applications.
run (In an information technology context) describes the act of
operating a computer application.
service-oriented architecture A software architecture that permits
the construction of applications in terms of aggregations of
standard (and thus reusable) business services which potentially
operate on a wide range and number of interconnected
computer systems.
Share Exchange or share-for-share exchange On 17 May 2005
(immediately prior to the IPO) the Company became the holding
company of the Group by acquiring the Operating Company in 
a share-for-share exchange, pursuant to which the previous
shareholders of the Operating Company were issued and allotted
three ordinary shares in the capital of the Company for every one
ordinary share they previously held in the Operating Company.
systems integrator An individual or company that specialises 
in building complete computer systems by putting together
components from different sources. Examples of systems
integrators include Accenture, CSC and EDS.
UNIX A computer operating system which provides a common
operating platform (environment) for software applications 
and which is available from hardware vendors such as SUN
Microsystems, Hewlett Packard, IBM, Dell and many others 
for use on their servers.
Web Services A collection of technology standards (see
http://www.ws-i.org) which together provide a common means 
for disparate IT groups to build computer systems which
exchange information, often over the Internet. J2EE, .NET and
Micro Focus tools support Web Services technology standards.
Windows (In an information technology context) a computer
operating system sold by Microsoft (and under OEM license
through many system vendors such as Dell) which provides 
a common operating platform (environment) for software
applications.
Micro Focus International Plc Annual report 2005 67 68 Micro Focus International Plc Annual report 2005
Forward-looking statements
Certain statements contained in this annual report, including those under the captions Group at a glance, Chairman’s statement, technology review,
Chief Executive’s review of operations, Chief Financial Officer’s review, directors’ report, corporate governance and remuneration report constitute
“forward-looking statements”. All statements other than statements of historical facts included in this annual report, 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 and the
development of the Lift and Shift market; the continued use and necessity of the mainframe for business critical applications; the degree of competition
faced by Micro Focus; 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 annual report. Except as required by the FSA, or bylaw, 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. Designed and produced by 
85
four.  Printed in England by Cousin, environmentally accredited printers, ISO 14001. Micro Focus International Plc 
The Lawn
22-30 Old Bath Road
Newbury 
Berkshire UK
RG14 1QN
Tel: + 44 (0)1635 32646
Fax: +44 (0)1635 33966
Registered No. 5134647
Micro Focus International Plc Annual report 2005