annual report 2006
unlocking the 
value of legacy
™ contents
2 group at a glance
4 chairman’s statement
5 chief executive officer’s business review
6 a view of our market
8 chief financial officer’s review
10 board of directors 
12 directors’ report
14 corporate governance
19 corporate and social responsibility
20 remuneration report
26 statement of directors’ responsibilities
27 independent auditors’ report to the members
of micro focus international plc  group
28 consolidated income statement
29 consolidated balance sheet
30 consolidated statement of changes in
shareholders’ equity
31 consolidated cash flow statement
32 summary of significant accounting policies
37 critical accounting estimates and judgements
38 risk factors
39 notes to the financial statements
59 independent auditors’ report to the 
members of micro focus international plc
company
60 company balance sheet
61 notes to the company financial statements
67 directors secretary registered office 
and advisers
68 offices
69 glossary
71 historical summary 1
micro focus founded in 1976 is a leading provider 
of legacy development and deployment software 
our solutions enable our customers which include 
over 90 of the fortune “global 100” companies 
to continue to gain value from their legacy of
investment in business applications
we serve more than 5000 companies and one million licensed
users our corporate customers provide service to hundreds of
millions of consumers and business users in all the major
economies of the world especially north america japan and
europe 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 costeffective solutions is
sustained by our commitment to remaining at the forefront of
technology and product development group at a glance
2
key financial highlights
l turnover 1437 million 2005 1506 million
l operating profit before exceptional items 369 million 2005 479 million
l ebitda
†
before exceptional items 388 million 2005 500 million
l profit before tax 226 million 2005 326 million 
l basic earnings per share before exceptional items 144 cents 2005 186 cents
l net cash balance as at 30 april 2006 559 million 2005 net debt of 786 million
l final proposed dividend of 4 cents per share total dividend for the year of 6 cents per share
l operating profit 227 million 2005 409 million
l ebitda
†
245 million 2005 430 million 
l basic earnings per share of 83 cents 2005 143 cents
key operational highlights
l new management team in place
– stephen kelly joined as chief executive officer on 1 may 2006
– nick bray joined as chief financial officer on 3 january 2006
l cost reduction programme to reduce fixed costs by approximately 100 million announced 
6 april 2006 progressing well
 exceptional items are detailed in note 3
 earnings per share are detailed in note 8
†
ebitda is reconciled to operating profit in note 4
turnover
million
operating profit before 
exceptional items
million
net cash balance
million
ebitda before 
exceptional items
million
06 05 0406 05 04
0
10
20
30
40
50
60
70
60
80
50
40
30
20
10
06 05 04 06 05 04
0
20
40
60
80
100
120
140
160
0
10
20
30
40
50
0
10
20
30
40
50 3
whilst the fullyear results reflected a disappointing year 
for the business the company is financially strong and
generated strong cash flow from its operating activities”
kevin loosemore chairman
revenue by geographic sector
million
689
540
208
north america
europe and middle east
rest of the world
r revenue by type
million
719
680
38
licence fees
maintenance fees
consultancy fees
employees by fun
number
19
147
162
sales and distribut
research and d
general and adm
revenue by geograp
48
38
14
north america
europe and mid
rest of the world
r employees by function
number
193
147
162
sales and distribution
research and development
general and administration    
cost breakdown preexceptionals
million
485
29 1
17 1
12 1
cost of sales
selling and distribution
research and development
other administration costs
revenue by geographic sector
million
689
540
208
north america
europe and middle east
rest of the world
r revenue by type
million
719
680
38
licence fees
maintenance fees
consultancy fees
employees by function
number
193
147
162
sales and distribution
research and developme
general and administrat
revenue by geographic se
48
38
14
north america
europe and middle east
rest of the world
r employees by function
number
193
147
162
sales and distribution
research and development
general and administration    
cost breakdown preexceptionals
million
485
29 1
17 1
12 1
cost of sales
selling and distribution
research and development
other administration costs chairman’s statement
4
the past year has been very disappointing for the business 
in september 2005 and february 2006 we revised downwards
our expectations for growth for the year ahead  we have 
since made solid progress in addressing the operational issues
that lay behind our performance restructured the company 
to reduce fixed costs and put a strong new management 
team in place as we reached the end of the financial year
it was encouraging that we marginally exceeded our revised 
fourthquarter revenue expectations
at the beginning of the second quarter we reported that
trading for august had been weaker than usual for two
principal reasons firstly the rate of revenue contribution from
our larger global systems integrator si partners had been
slower than anticipated and secondly disruptions within the
sales force had delayed a planned expansion of the sales team
as announced at the interim results significant incremental
revenue from our global si partners was not anticipated in 
the second half of the year to 30 april 2006 given the size 
and nature of these organisations however we continue 
to focus on strengthening and expanding these relationships
we have also maintained a strong focus on strengthening our
sales force as a priority for the business there is still some work
to do but we are pleased to say we are making progress
a further update on trading was announced at the beginning 
of the fourth quarter due to a number of changes in trading
which had occurred since the halfyear end these included
delays in customer decisions and failure to close larger
opportunities the knockon impact on maintenance revenues
due to lower licence sales and a reduction in the rate of
closure of smaller deals 
since then we have successfully completed a small number 
of larger deals while this portion of our revenues remains
inherently lumpy we continue to focus on it as an important
element in improving our overall sales performance
on 6 april 2006 the company announced a cost reduction
programme to improve overall returns while maintaining 
the fabric of the business and the company’s sales capability
we have made solid progress in this respect
the board is delighted to welcome stephen kelly as chief
executive officer and nick bray as chief financial officer
stephen joined micro focus on 1 may 2006 he has over 
20 years experience in the software sector and was previously
ceo of nasdaqlisted chordiant software inc nick joined
micro focus on 3 january 2006 he has broad experience in
the it sector both in the us and europe and was previously
group finance director of londonlisted fibernet group plc 
the board would like to thank all of micro focus’ employees
for their continued hard work and commitment throughout
the last year  the board would also like to thank investors
during a difficult trading year for their continued support
in 2006 the business underperformed however the board
took decisive action to recruit a new experienced management
team which has implemented a rapid restructuring of the
business in q4 it was encouraging to see that we exceeded
our revised fourthquarter expectations micro focus is
focused on growth and i remain confident that the company
will deliver good value to all its stakeholders 
kevin loosemore chairman chief executive officer’s business review
5
initial thoughts from the chief executive officer 
in the short time since joining micro focus i have been
impressed by the quality of our employees and our technical
expertise as well as our very strong customer and partner base 
while the full year results were disappointing and below
those of the previous year the company is financially strong
and has generated strong cash flow from operating activities
the cash balance at 30 april 2006 stood at 561 million
the company has an enviable customer base with 50 
of turnover being derived from secure and predictable
maintenance revenues a significant proportion of licence fee
revenues are from our channel partners during the year we
continued to successfully conduct direct sales business with
many of the worlds leading companies
the primary focus of the new management team is to
continue to restore the business to achieve significant
sustainable profitable growth and to enhance shareholder
confidence over time
the fundamentals of the business are strong – great
customers benefiting from strong returns on investment 
highquality products and committed and talented people 
we have broadly arrested the decline and have the foundations
for a future of profitable growth fy2007 will be a transition
year and driving the initial recovery of the licence business 
to deliver revenue growth will be a key focus
in a short space of time tough action has been taken in
regard to costs and we have made many changes to drive
alignment and operational excellence as well as initiating 
a broader review of the market and opportunities for growth
markets
a view of our market is set out on pages 6 and 7
outlook 
our business model dictates that revenue growth will be
largely dependent on achieving increased licence sales 
while we anticipate that a proportion of these will be 
larger deals this revenue stream is inherently lumpy 
the smallest proportion of our revenues is derived from
consultancy and it is anticipated that these revenues will
remain a minor proportion of total revenues for the year
ahead given the lower licence fee sales in the year to april
2006 as compared to those achieved in the prior year we
anticipate that maintenance revenues for the current year will
be about the same as those reported in the year to 30 april
2006 assuming that the retention rate of existing customers
remains constant
returning to sustainable revenue growth is the key factor
that will determine the long term success of the company
thus management’s emphasis will be on licence fee sales 
to drive growth in the year to 30 april 2007 whilst our
foundations are solid and we have made good progress 
in addressing the operational issues identified in the last
financial year our revenue outlook remains cautious as 
we stabilise and focus the business
licence revenues in the second half of the year to 30 april
2006 were 328 million and our run rate currently reflects a
similar level for the first half of 2007 our ability to return to
revenue growth will depend primarily on the development
and execution of larger licence deals in the pipeline as we
move through the year we will provide a further update on
progress at the half year
expenses are expected to reduce following the restructuring
the benefits of which we expect to flow through to operating
profits in fy2007 interest income is expected to increase as 
a result of increasing the company’s cash reserves
summary
the fundamentals of the business are strong with committed
customers leading products and our talented people we have
taken tough actions quickly and we have broadly arrested the
decline we are focused on building the platform for growth
and increasing shareholder value
stephen kelly chief executive officer legacy applications run the world
it is more than 40 years since the ibm mainframe was first
introduced and claimed its place at the heart of the data
centre despite enormous advances in the technological
landscape ever since it remains for many the cornerstone of
the corporate world responsible for approximately 70 of
all business operations and carrying some 200 billion lines of
cobol code 
analysts estimate there are currently some 16000 ibm
mainframes throughout the world and agree this number
will fall steadily by as much as a third over the course of 
the next five years as lowend users turn toward more
contemporary platforms which run windows unix or linux
despite this move away from mainframes at the low end 
it is expected that in the same period overall mainframe
workload will rise by up to 20 through an increase in 
the number of highend user sites and the size of
deployments at each of these locations
both these trends represent a beneficial market dynamic for
micro focus driving a growing demand for greater agility 
and reduced costs in mainframe development and testing 
as larger mainframe organisations look to modernise and
serviceenable their legacy applications
at a time when it innovation is driving change at a tremendous pace through every aspect
of modern life it is sometimes easy to forget that the majority of large businesses still rely
on computer systems first developed more than 20 years ago journey through an average
business day you’ll find that these systems which support your business represent a
collective investment running into trillions of dollars 
micro focus operates globally with north america
continuing to represent our largest market 
internally we are organised around our principal
markets of north america europe and middle east
and the rest of the world
our markets
1
our global business model
2
6
revenue by geographic sector
48
38
14
north america
europe and middle east
rest of the world
r
a view of our market our products and solutions
3
for 30 years micro focus’ products and solutions have been
consistent in delivering technical excellence for the cobol
community helping organisations realise the full value of their
it assets and ensuring their continued relevance to the
businesses they serve through core technology and partnerships
micro focus has set about delivering on the promise of easing
the process of application modernisation through innovation in
areas of application understanding development and
deployment specifically we are able to
‰ improve development infrastructure for current applications
and platforms by increasing developer productivity and
reducing developer costs
‰ extend critical legacy applications and services in current
platforms to new internal and external users by using the
internet and contemporary architectures
‰ transfer legacy applications from highcost or endoflife
platforms to more open and flexible platforms such as
windows unix and linux and
‰ replace legacy applications on mainframes with new
packages or custombuilt applications which run on platforms
such as windows unix and linux
with the industry united in its scepticism over the wisdom of
rewriting legacy applications three decades of experience in
supporting the evolution and ongoing development of cobol
applications has resulted in sales to more than 90 of the
fortune 100 and continues to ensure our customers’ ability to
support and enhance the applications that have shaped their
businesses and helped define their competitive edge
“micro focus has modernised our cobol time and time again
and turned it into a hightech solution giving us the right tools
to face the future”
roger engel vice president and head of it development deutsche bank luxembourg
“because of micro focus mainframe
express we can deliver more system
capability to our clients because we
have saved money and improved 
our own productivity we estimate 
our overall cost savings from improved
productivity to be 40”
jay white director csc financial services group 
life services division
7 chief financial officer’s review
8
at the point of listing on the london stock exchange on 17 may
2005 the company acquired the entire issued share capital of
micro focus international limited by way of a shareforshare
exchange pursuant to which the previous shareholders of micro
focus international limited were issued and allotted three
ordinary shares in the capital of the company for every one
ordinary share they previously held in micro focus international
limited the results presented in the financial information
therefore represent those of the micro focus international
limited group up to 17 may 2005 and the micro focus
international plc group from that date onwards
turnover for the year ended 30 april 2006 was 1437 million
2005 1506 million whilst the yearonyear reduction was
disappointing we achieved a solid fourth quarter to end the
year marginally above our revised expectations 
turnover for the year by geographic region was as follows
2006 2005
’000 ’000
north america 68847 73173
europe and the middle east 54038 57365
rest of the world 20803 20107
total turnover 143688 150645
although the group experienced declines in europe and 
the middle east and in north america our strong overall
performance in japan despite a difficult third quarter
contributed to a positive result for the rest of the world of the
decrease in revenues of 70 million 43 million was from our
north american operation 
the directors use turnover by category to assess the future
revenue flows from the current portfolio of products turnover
for the year by category was as follows
year ended 30 april
2006 2005 2004
’000  ’000  ’000 
licence fees 67985 473 79860 530 64211 509
maintenance fees 71860 500 66705 443 57980 459
consultancy fees 3843 27 4080 27 4077 32
total turnover 143688 1000 150645 1000 126268 1000
it can be seen that the reduction in total revenues for the year
related primarily to the fall in licence fees of 119 million or
149 to 680 million for the year ended 30 april 2006 2005
799 million this reduction was in part offset by a 52 million
yearonyear increase in maintenance fees to 719 million for
the year ended 30 april 2006 2005 667 million consulting
revenues showed a modest decline but represent only a minor
proportion of total revenues
in the year ended 30 april 2005 the company signed a number
of highvalue licence fee deals principally in north america this
success was not however replicated in the year to 30 april 2006
and the flow of smaller deals did not increase to compensate for
this while licence fee revenues decreased year on year they
remain above the level achieved for the year ended 30 april
2004 of 642 million and of prior years maintenance revenues
are recognised evenly over the life of each contract which is
typically 12 months as such the profit and loss recognition 
of maintenance revenue lags the initial licence fee sale
assuming a constant retention rate of existing customers 
thus maintenance revenues of 719 million for the year to 
30 april 2006 2005 667 million were ahead of the prior year
in part due to improved licence fee performance in the year to
30 april 2005 compared to the year to 30 april 2004  
costs
cost of sales for the year ended 30 april 2006 increased by 
109 to 121 million 2005 109 million the increase
principally reflected higher temporary staff costs in our
consulting organisation costs have been reduced and the
performance of the consulting organisation is under review
selling and distribution costs for the year remained relatively 
flat at 485 million for the year ended 30 april 2006 2005
481 million reduced commission payments were offset 
by higher marketing travel and other employee costs 9
research and development expenses for the year reduced by
29 to 171 million 2005 176 million driven primarily 
by the fact that no significant bonus amounts were paid to 
nonsales staff in the current year  
underlying administrative expenses increased to 291 million
2005 £261 million in part this was driven by the costs of
being a public company however a number of expense items
had been allowed to increase above expected levels and
measures have been taken to bring these costs back to an
appropriate level total administrative expenses for the year
increased by 306 to 433 million 2005 331 million one
off ipo related costs of 69 million were paid during the year 
on 6 april 2006 the company announced a cost reduction
programme a number of potential savings have been 
identified which are expected to reduce group fixed costs by
approximately 100 million in the financial year to 30 april
2007 the benefits of which we expect to flow through to
operating profits in fy2007 some of those saving have already
been achieved in q4 2006 the programme was designed to
improve overall returns while maintaining the fabric of the
business and the company’s sales capability and is progressing
well the oneoff charge for this cost reduction programme is
74 million falling in the second half of the financial year to 
30 april 2006 
operating profit 
operating profit before exceptional items was 369 million
2005 479 million operating profit for the year ended 
30 april 2006 reduced by 444 to 227 million 2005 
409 million as a result of the lower revenues and higher 
costs as detailed above
ebitda
ebitda before exceptional items reduced by 225 to 
388 million for the year ended 30 april 2006 ebitda reduced
by 429 to 245 million for the year ended 30 april 2006 from
430 million for the year ended 30 april 2005 
net interest income
the ipo proceeds allowed the company to repay all its
outstanding loan balances since this time interest has been
generated on the available cash balance as a result interest
expenses reduced to 11 million 2005 87 million of which
07 million relates to early payment penalties which the
company deemed appropriate to avoid higher interest charges
tax on profit on ordinary activities
tax on profit on ordinary activities for the year ended 30 april
2006 reduced to 63 million 2005 116 million the company
has an effective tax rate of 281 2005 355 the reduction
in the effective tax rate reflects changes to the group’s structure
resulting from the ipo in may 2005
profit for the financial year
the net profit after tax for the year ended 30 april 2006
reduced by 229 to 162 million 2005 210 million
cash flow
for the financial year ended 30 april 2006 the company
generated a net cash inflow from operating activities of 
350 million 2005 445 million at 30 april 2006 the
company’s net cash balance was 559 million 2005 net debt 
of 786 million
dividend
the board has adopted a progressive dividend policy reflecting
the longterm earnings and cash flow potential of micro focus
whilst targeting a level of dividend cover for the financial year
ended 30 april 2006 of approximately 25 times on a pre
exceptional earnings basis in line with the above policy
announced at the time of the ipo the directors recommend
payment of a final dividend in respect of 2006 of 4 cents per
share which taken together with the interim dividend of 
2 cents per share paid in january 2006 gives a total dividend
in respect of 2006 of 6 cents per share subject to shareholder
approval the final dividend will be paid on 2 october 2006 
to shareholders on the register on 8 september 2006
dividends will be paid in sterling based on an exchange rate 
of 182 us£ equivalent to approximately 22 pence per share
being the rate applicable on 28 june 2006 the date of
recommendation of the dividend by the board
nick bray chief financial officer board of directors
10
kevin loosemore stephen kelly nick bray david dominik
prescott ashe david maloney john browett kevin loosemore 47 nonexecutive 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
stephen kelly 44 executive director and 
chief executive officer
stephen kelly was named chief executive officer of micro
focus in may 2006 prior to his appointment he served as
chief executive officer of chordiant software inc from
january 2002 until february 2006 he served as chordiant’s
president and chief operating officer from october 2000
through january 2002 and as senior vice president of
international operations from october 1998 through october
2000 stephen joined chordiant in 1997 setting up
international operations from startup prior to this he spent
almost ten years in a number of senior management positions
with oracle in its vertical markets operations in financial
services telecommunications and retail in its european
alliances organisation and in its government sales operation
stephen received his bachelor of sciences degree with honours
in business administration and accounting from bath university
nick bray 41 executive director and chief financial officer 
nick became chief financial officer in january 2006 he was
previously group finance director of fibernet group plc the
bespoke network service provider having joined that
company in february 2001 prior to that he held the positions
of group chief financial officer of gentia software plc and
chief accounting officer of comshare inc he started his
career at price waterhouse where he qualified as a chartered
accountant nick has a first class honours degree in civil
engineering from aston university
david dominik 50 nonexecutive 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 capitals 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 39 nonexecutive 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
acquisitionsrecapitalisations with aggregate transaction
values in excess of 50 billion prescott has a juris doctor
degree from stanford law school and a bachelor of sciences
degree in business administration from the university of
california at berkeley
david maloney 50 nonexecutive director †‡ 
david is a nonexecutive director of carillion plc ludorum plc
and cineworld group plc and until recently a nonexecutive
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 heriotwatt university edinburgh
john browett 42 nonexecutive director † 
john browett is the operations development and it director
for tesco he has had numerous roles at tesco including chief
executive officer of tescocom 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
11 directors’ report
12
the directors of micro focus international plc “the company”
present their report and the audited financial statements of the
company for the year ended 30 april 2006 
on 17 may 2005 immediately prior to the ipo the company
became the holding company of the group by acquiring the
entire share capital of micro focus international limited the
“operating company” in a shareforshare 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 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 consolidated financial statements and information in the
directors’ report and remuneration report therefore represent
the performance of the group previously headed by the
operating company the “operating group” for the period 
up to 17 may 2005 and for the group from this date to 30 april
2006 on admission the company adopted the policies and
procedures of the operating group 
principal activities
the principal activities of the group during the year were the
provision of legacy application development and deployment
software for contemporary platforms
the company is limited by shares and is domiciled and
incorporated in the united kingdom the operating company
was incorporated and domiciled in the cayman islands 
the registered office of the company is
the lawn 22–30 old bath road newbury berkshire rg14 1qn
review of business and future developments
for details regarding the group’s activity and the future
developments of the group please refer to the chief executive
officer’s business review on page 5 and the chief financial
officers’ review on pages 8 and 9
dividends
the board has adopted a progressive dividend policy reflecting
the longterm earnings and cash flow potential of micro focus
whilst targeting a level of dividend cover for the financial year
ended 30 april 2006 of approximately 25 times on a pre
exceptional earnings basis in line with the above policy
announced at the time of the ipo the directors recommend
payment of a final dividend in respect of 2006 of 4 cents per
share which taken together with the interim dividend of 
2 cents per share paid in january 2006 gives a total dividend 
in respect of 2006 of 6 cents per share subject to shareholder
approval the final dividend will be paid on 2 october 2006 
to shareholders on the register on 8 september 2006
dividends will be paid in sterling based on an exchange rate 
of 182 us£ equivalent to approximately 22 pence per share
being the rate applicable on 28 june 2006 the date of
recommendation of the dividend by the board
research and development
for information on the activities of the development team
please refer to a view of our market on pages 6 and 7
donations
the company’s policy is to make no donations to political
parties the group made no charitable or political donations
during the year 2005 nil
post balance sheet events
there are no significant post balance sheet events
directors and their interests
the directors of the company who served during the year are 
as follows
executive
stephen kelly appointed 1 may 2006
nick bray appointed 3 january 2006
dr anthony hill resigned 23 february 2006
richard lloyd resigned 3 january 2006
nonexecutive
kevin loosemore chairman
prescott ashe
david dominik
david maloney
john browett appointed 1 july 2005
 kevin loosemore also served as interim acting chief executive officer from 
22 february 2006 to 21 may 2006
details of the interests of the directors and their families in the
ordinary shares of the company as disclosed in the register of
directors’ interests are given in the remuneration report on
pages 20 to 25
none of the directors has a material interest in any contract 
of significance to which the parent company or a subsidiary was
a party during the financial year except as disclosed in note 28
related party transactions
the company maintains insurance cover for all directors and
officers of group companies against liabilities which may be
incurred by them whilst acting as directors and officers
as at the date of this report indemnities are in force under
which the company has agreed to indemnify the directors to the
extent permitted by law and by the articles of association
against liabilities they may incur in the execution of their duties
as directors of the company
  13
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
discrimination 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 them 
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 
twoway flow of information
further education and training
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 option schemes 
the directors remain committed to the principle that selected
employees should be able to participate in the group’s progress
through sharebased compensation schemes details of the group’s
sharebased compensation schemes are given in note 24
payment of creditors
the company seeks the best possible terms from suppliers
appropriate to their business and in placing orders gives
consideration to quality delivery price and terms of payment
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 2006 for the group was 
30 days 2005 31 days 
substantial shareholding
as at 31 july 2006 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 114026157 5714
the goldman sachs group inc 9983284 500
morgan stanley securities ltd 7480349 375
lansdowne partners ltd 5985000 300
annual general meeting
the notice convening the annual general meeting of the
company together with the explanatory notes on the proposed
resolutions accompanies this report the meeting will be held at
the lawn 2230 old bath road newbury berkshire rg14 1qn
on 27 september 2006 at 1pm
auditors and disclosure of information to auditors
so far as they are aware the directors at the date of this report
confirm that there is no relevant audit information that is
information needed by the companys auditors in connection
with preparing their report of which the companys auditors are
unaware and that the directors have taken all the steps that they
ought to have taken as a director in order to make themselves
aware of any relevant audit information and to establish that
the companys auditors are aware of that information
pricewaterhousecoopers llp have indicated their willingness to
continue in office and a resolution that they be reappointed will
be proposed at the annual general meeting
going concern
the directors having made enquiries consider that the company
and the group have adequate resources to continue in
operational existence for the foreseeable future and therefore
it is appropriate to maintain the going concern basis in
preparing the financial statements
by order of the board
jane smithard company secretary
31 july 2006 corporate governance
introduction
the principal corporate governance guidance that applies to
companies listed with the uk listing authority is contained in
the 2003 financial reporting council’s combined code “the
combined code” the combined code which operates on 
a “comply or explain” basis incorporates amongst others
recommendations by the higgs review regarding the role 
of nonexecutive directors and the smith review which refers
to audit committees through their commitment to the highest
standards of corporate governance the board endorses and
supports the essential elements of the combined code and apart
from a few limited exceptions as described below believes the
group has fully complied with the combined code during the year
reported on where it has not an explanation has been provided
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 until it became a
listed company on admission on 17 may 2005 the provisions of
the combined code did not apply and the company did not
seek to comply with the provisions of the combined code 
following admission the board has assessed 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 from admission the company has been in
compliance with the code provisions set out in section 1 of the
2003 frc combined code on corporate governance except for
the following
l upon the resignation of dr anthony hill on 23 february 2006
the chairman kevin loosemore assumed the roles of both
nonexecutive chairman and acting interim chief executive
officer until a replacement chief executive officer was
recruited following the appointment of stephen kelly as
chief executive officer on 1 may 2006 kevin loosemore
reverted back to the role solely of nonexecutive chairman
on 21 may 2006 after a handover period
l 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 relinquish the chairmanship of 
the remuneration committee and membership of the audit
committee in due course at such time as additional
independent nonexecutive directors are appointed
the company reviewed the need for an internal audit function
during the year and also considered the requirement to
maintain a risk register the board concluded that an internal
audit function should be established and on 5 april 2006 
kpmg llp were appointed by the audit committee to undertake
this role since their appointment on 5 april 2006 kpmg llp
have worked with the board executive team and senior
management to comply with the combined code requirements
with regard to maintaining a risk register this work was concluded
post year end and approved by the board on 28 june 2006
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 20 to 25 the following section sets out how the board has
since admission applied these 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 2006
the board comprised six directors
kevin loosemore nonexecutive chairman and 
interim acting chief executive officer
nick bray chief financial officer
david maloney nonexecutive director
prescott ashe nonexecutive director
david dominik nonexecutive director
john browett nonexecutive director
 kevin loosemore served as interim acting chief executive officer from 
22 february 2006 to 21 may 2006
stephen kelly was appointed chief executive officer on 1 may 2006
the role of the nonexecutive directors is to ensure that
independent judgement is brought to board deliberations and
decisions the nonexecutive 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 ordinarily operates in a nonexecutive 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 nonexecutive director
and john browett a nonexecutive director are 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 with the company’s major shareholder golden
gate capital
14 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 thereafter at least every three years accordingly nick bray
and stephen kelly will be subject to election at the company’s
annual general meeting to be held on 27 september 2006 as
the nonexecutive directors were all elected to the board at the
last annual general meeting of the company the directors have
agreed to offer themselves for reelection on a rotation basis
and accordingly kevin loosemore will be retiring voluntarily 
and submitting himself for reelection by the shareholders at the
annual general meeting of the company on 27 september 2006
the nonexecutive 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 nonexecutive 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 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 exceptionally 
on 22 february 2006 the chairman was additionally appointed
interim acting chief executive officer on the resignation of 
dr anthony hill following the appointment of stephen kelly as
chief executive officer the chairman relinquished this additional
appointment and remains solely the chairman of the company
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 and monitors financial
progress against budget
in the year to 30 april 2007 the board will meet on a regular
basis approximately every two months with additional meetings
when circumstances and business dictate in months in which the
board does not meet update calls are scheduled to review
progress 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 nonexecutive 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 daytoday 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 legal and
research and development who meet weekly
the board receives papers on key subjects in advance of each
board meeting these typically cover
l strategy and budgets
l business and financial performance
l corporate activities
l human resources
l shareholders and city matters
the board has 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 a61 this process takes the form of
questionnaires and personal interviews with the chairman the
performance of the chairman is reviewed by the nonexecutives
action has been taken during the year to strengthen the board
through new appointments
the chairman holds meetings with nonexecutive directors
without the presence of executive directors
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 or can be
located on the company’s website 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
relinquish the chairmanship of the remuneration committee 
and membership of the audit committee in due course at 
such time as additional independent nonexecutive directors 
are appointed
15 corporate governance
audit committee
the audit committee is comprised entirely of nonexecutive
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 six times during the financial year
since admission the audit committee is responsible for reviewing
the group’s annual accounts and interim reports prior to
submission for approval to the full board this committee also
monitors 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
and internal auditors reports to the board the auditors are
invited to attend meetings of the committee on a regular basis
and 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 nonaudit 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 nonaudit
work all significant nonaudit work commissioned from the
external auditor requires audit committee approval
on 5 april 2006 an outsourced internal audit function was
established through the appointment of kpmg llp
the audit committee will meet at least four times during the
coming financial year and additionally as appropriate and 
a schedule of meetings for the year has been established
the audit committee’s terms of reference include a process 
for employees of the company to raise in confidence concerns
about possible impropriety in matters of financial reporting 
or other matters
the written terms of reference of the audit committee include
among other things the following responsibilities
l to report to the board identifying any matters in respect of
which it considers that action or improvement is needed and
making recommendations as to the steps to be taken
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 reappointment 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 five times
during the financial year since admission the nomination
committee will meet at least twice during the coming financial
year it is chaired by kevin loosemore and the other members
are david maloney and david dominik 
the nomination committee is responsible to the full board for
proposing candidates to the board having regard to the balance
and structure of the board the nomination committee uses
consultants to identify suitable candidates where a position is
identified
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
16 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 nonexecutive with a view to ensuring
the continued ability of the organisation to compete
effectively in the market place
remuneration committee
details of the remuneration committee are described in the
remuneration report on pages 20 to 25
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 of 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 
the key elements of the control system are
l the group operates a structured objectivesdriven approach
to fulfil its core purpose and goals in respect of sustained
profitability and growth
l research and development and capital expenditure
programmes are subject to formal review and monitoring
procedures
l all contracts are reviewed the level of review depends on 
the size and complexity of the contracts and associated risks
there are formal limits above which the review level is escalated
l reconciliations are performed on a timely basis for all major
accounts
l systems and procedures are in place for all major transaction
types with appropriate authorisation controls
a review of the effectiveness of the group’s internal control
systems has been initiated 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 is required
to report and make recommendations to the board in this area 
the external auditors provide a supplementary independent and
autonomous perspective on those areas of the internal control
system which they assess in the course of their work their
findings are regularly reported to both the audit committee and
the board to ensure auditor objectivity and independence there
is a stringent process in place to approve nonaudit work
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 wellunderstood
organisational structure and each employee knows his or her
line of accountability
announcements
all major announcements are approved by the chairman and
the executive directors and 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
17 corporate governance
insurance
the group keeps under review 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 to 30 april
2006 was as follows
audit remuneration nomination
board committee committee committee
held attended held attended held attended held attended
kevin loosemore 12 12 6 6 5 4 5 5
nick bray 4 4 – – – – – –
david maloney 12 11 6 6 5 5 5 5
david dominik 12 11 – – – – 5 5
john browett 10 8 5 5 4 4 – –
prescott ashe 12 9 – – – – – –
dr anthony hill 10 8 – – – – – –
richard lloyd 8 8––––––
 during period of appointment
note
john browett was appointed 1 july 2005
richard lloyd resigned 3 january 2006
nick bray was appointed 3 january 2006
dr anthony hill resigned 23 february 2006 
shareholder relations 
the company values the views of shareholders and recognises
their interests in the group’s strategy and performance 
the company reports formally to shareholders twice a year
around july preliminary announcement of annual results and
december interim statement the annual report is expected to
be mailed to shareholders in august separate announcements
of all material events are made as necessary 
regular communications are maintained with institutional
shareholders and presentations are given to shareholders when 
the halfyear and fullyear 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 wwwmicrofocuscom provides an
overview of the business including its strategy products and
objectives 
all group announcements are available on the website and 
new announcements are published without delay the terms 
of reference of each of the board’s three committees and other
important corporate governance documents are available on 
the website and 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 annual general meeting which will be held 
on 27 september 2006 will provide an opportunity for the
board to meet with all shareholders and participation of
shareholders is encouraged at the meeting in addition to 
the statutory business the board will be available for questions 
from shareholders
in accordance with the combined code recommendations 
the company will count all proxy votes and will indicate 
the level of proxies lodged the 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
18 corporate and social responsibility
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 “hse” issues 
in its daytoday 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 hse 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 uptodate
security systems are utilised to protect the company’s it systems
the company’s intellectual property is protected through an
appropriate trademark registration and patenting programme
close attention is paid to maintaining relationships with key
stakeholders including business partners suppliers and
shareholders
subsequent to the end of the financial year the company has
adopted a code of business conduct and ethics policy with
which all company staff are required to comply 
health safety and enironment
micro focus complies with all local environmental legislation
the company has welldeveloped health and safety policies and
procedures safeguarding staff contractors and visitors and it
complies with current legislation and best practice
19 remuneration report 
introduction
this is the company’s remuneration report in respect of the year to 30 april 2006 and subject to ongoing review by the remuneration
committee the “committee” as to its appropriateness sets out the ongoing policy in respect of the following and subsequent years
the company seeks to comply with the relevant conditions of the 2003 combined code on corporate governance relating to
directors’ remuneration as published by the london stock exchange and the directors’ remuneration report regulations 2002
the regulations require the auditors to report to the company’s members on the “auditable part” of the directors’ remuneration
report and to state whether in their opinion that part of the report has been properly prepared in accordance with the companies
act 1985 as amended by the regulations the report has therefore been divided into separate sections for audited and unaudited
information
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 27 september 2006 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 committee in the formulation and
approval of the company’s future remuneration policies
unaudited information
the remuneration committee
the committee has met five times during the financial year since admission the 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 committee will meet at least twice during the coming financial year
the terms of reference of the 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 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
l to determine the policy for and scope of pension arrangements for each executive director and other senior executives
l to approve the design of salaries for senior managers and determine targets for any performancerelated pay schemes operated
by the company and approve the total annual payments
l to review the design of all share incentive plans for approval by the board and shareholders
l to oversee any major changes in employee benefits structures throughout the company or group and
l to review the ongoing appropriateness and relevance of the remuneration policy
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 relinquish the chairmanship of the committee in due course when other independent nonexecutive directors are
appointed to it where appropriate the committee invites the views of the chief executive officer the chief financial officer and the
director of human resources as well as that of external remuneration consultants
the committee has been materially assisted by new bridge street consultants in providing remuneration advice by steen and co 
in providing legal advice with respect to directors’ service agreements by the company secretary and by linklaters solicitors 
new bridge street consultants were appointed by the committee and provided no other services to the group during the year the
chief executive officer attended some of the meetings by invitation of the committee on specific items however he did not participate
in discussions relating to his own remuneration
20 remuneration policy
the company’s policy on the remuneration of executive directors and their direct reports is established by the committee and
approved by the board the individual remuneration packages of each executive director is determined by the committee 
no executive director or employee participates 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 
budgetsetting 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 are designed to 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 continue to be performance related see details
below performance conditions for performancerelated bonuses and longterm incentives will represent challenging growth targets
which are designed to increase shareholder value the committee will review the performance conditions used to ensure that they
remain demanding and appropriate as an exception the committee determined that it was appropriate when making awards 
to stephen kelly nick bray and the chief operating officer on joining the company that they be entitled to a conditional amount 
of matching shares in the event of purchasing shares in the company during the first year of employment of up to 100 of salary 
for stephen kelly and the chief operating officer and 50 of salary for nick bray subject to them remaining with the company 
for a period of three years
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 
preipo share option plans will be fully vested by september 2007 nonexecutive directors do not participate in the group’s share
incentives or otherwise receive performance related pay
policies on remuneration take account of the pay structure employment conditions and relativities 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 and seeks to ensure that fixed costs are 
no higher than market median that an appropriately significant proportion of potential pay is performance related and that total
pay is consistent with appropriately competitive levels of pay for superior performance
directors’ service contracts
executive directors
the group’s policy in entering into service contracts with executive directors is to enable the recruitment of highquality 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 contract dated 1 may 2006 with stephen kelly provides
for a base annual salary of £300000 and requires the company to give 12 months’ notice of termination stephen kelly is required to
give six months’ notice of the termination of his employment should he wish to leave the service contract dated 30 november 2005
with nick bray provides for a base annual salary of £170000 subsequently increased to £180000 with effect from 1 may 2006 and
requires the company to give 12 months’ notice of termination nick bray is required to give six months’ notice of the termination 
of his employment should he wish to leave
with respect to executive directors who have resigned during the year the service contract dated 3 august 2005 with dr anthony hill
provided for a base annual salary of £220000 and required the company to give six months’ notice of termination dr anthony hill
was required to give six months’ notice of termination of his employment the service contract dated 3 august 2005 with richard lloyd
provided for a base annual salary of £125000 and required the company to give six months’ notice of termination richard lloyd was
required to give six months’ notice of termination of his employment
21 remuneration report
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
stephen kelly acts in the capacity of a nonexecutive director elsewhere for which he receives remuneration of £40000 per annum
nick bray does not serve as a nonexecutive director for any company neither stephen kelly nor nick bray may accept nonexecutive
appointments without the consent of the board
nonexecutive directors
nonexecutive directors are appointed by letter of appointment for a fixed term of three years subject to earlier termination by either
the director or the company on 90 days notice 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
kevin loosemore and david maloney signed appointment letters with the company which became effective on 4 april 2005 prescott
ashe and david dominik are nonindependent directors of the 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 appointments are subject to the directors being reelected under the rotation provisions in the company’s articles of association
and subject to companies act provisions as the nonexecutive directors were all elected to the board at the last annual general
meeting of the company the directors have agreed to offer themselves for reelection on a rotation basis and accordingly kevin
loosemore will be retiring voluntarily and submitting himself for reelection by the shareholders at the annual general meeting of
the company on 27 september 2006 each nonexecutive 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 nonexecutive 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
remuneration package
executive directors’ remuneration currently comprises annual salary a performancerelated bonus a longterm incentive in the form
of share incentives pension contributions and other benefits
annual salary
the board approves the overall budget for employee salary increases and the committee agrees 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 considers 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 compares 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
performancerelated bonus
the executive directors and all other employees except for sales staff participate in a performancerelated 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 nonsales staff 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
the remuneration committee will continue to 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 clearlyassessable targets are set for executive directors
22 details of bonuses paid to executive directors in the year to 30 april 2006 are detailed in the remuneration tables below bonuses are
awarded wholly in cash
in respect of the year 200607 there will be a cap on bonuses payable to executive directors of 150 of base salary
longterm incentives
the board believes that longterm incentive schemes are important in retaining and recruiting highcalibre individuals and ensuring
that the performance of executives is focused on creating longterm 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
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 nilcost options conditional 
awards or forfeitable shares or to grant market value options “awards”
except for conditional awards over 200000 shares granted to staff on 29 june 2005 in respect of additional duties undertaken during
the ipo and for which no performance conditions were set the awards granted in the year ending 30 april 2006 are subject to an
earnings per share “eps” performance condition designed to drive growth over three financial years such awards comprised both
market value options and nil cost options at par value the targets for awards to be made during the year ended 30 april 2007 have
been set by the remuneration committee and comprise challenging and stretching targets for earnings per share and revenue growth
such awards are in the form of market value options and will only vest at the end of the three year performance period if the annual
compound eps growth has achieved at least 15 such awards will then only vest as to a percentage of the shares subject to a
minimum of 6 annual compound revenue growth over the performance period and a maximum of 15 annual compound revenue
growth over such period
the maximum aggregate value of awards that can be granted to any individual in any financial year will not exceed twotimes 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 the committee determined that it was appropriate 
to exceed these limits when making awards to stephen kelly and the new chief operating officer coo on joining the company
stephen kelly was awarded options equivalent to four times annual basic salary and the coo was awarded options equivalent to
three times annual basic salary in addition both stephen kelly and the new coo are entitled to a conditional amount of matching
shares in the event of purchasing shares in the company during the first year of employment of up to 100 of salary
the board is proposing to introduce a sharesave scheme and an employee share purchase plan espp open respectively to all ukbased
and usbased employees including executive directors during the year ended 30 april 2007
performance chart
23
50
70
90
110
130
150
–––  micro focus      ––– ftse all share      –––  ftse all share technology  
may 05 aug 05 nov 05 feb 06 may 06
value of hypothetical £100 holding remuneration report
the preceding chart shows the performance of the company relative to the ftse all share index and the ftse all share technology
index which are the most relevant indices for the company
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 have no defined benefits a defined benefit scheme is operated in japan but given the number of members 
is insignificant for group purposes the group has no obligation to the pension scheme beyond the payment of contributions 
the company was not therefore impacted by the new pensions regime which came into force on 6 april 2006
pension benefits include death in service
other benefits
benefits in kind for executive directors can include the provision of a company car allowance or service fuel life insurance and
medical benefits
audited information
detailed emoluments of the directors of the group audited
the aggregate remuneration paid to directors during the year ending 30 april 2006 was as follows
compensation
base for loss of benefits
salary bonus office in kind pensions total total
2006 2006 2006 2006 2006 2006 2005
£’000 £’000 £’000 £’000 £’000 £’000 £’000
executive directors
anthony hill resigned 23 february 2006 220 5 – 15 11 251 425
richard lloyd resigned 3 january 2006 125 38 18† 11 7 199 159
nick bray 56 98 – 4 3 161 –
total 401 141 18 30 21 611 584
nonexecutive directors
kevin loosemore 179 – – – – 179 10
david maloney 60–––– 60 5
john browett 25–––– 25 –
total 264 – – – – 264 15
 includes £58000 that was paid in consideration of mr bray forfeiting benefits from his former employer and negotiated as part of the terms of his recruitment there are no
guarantees regarding bonus entitlement in respect of future years and performance related bonus of £40000
 includes £54000 additional remuneration paid in respect of the period when acting as interim chief executive officer
† ex gratia payment on termination of employment
neither of the nonindependent nonexecutive directors of the company david dominik and prescott ashe received any emoluments
during the year ended 30 april 2006 2005 nil david dominik and prescott ashe are directors of golden gate capital details of
transactions with related parties are set out in note 28 of the financial statements of the operating company
24 directors’ interests in share capital 
at the date of approval of the annual report the directors owned the following shares in the company these interests were all
beneficially held
director at 31 july 2006 at 30 april 2006
kevin loosemore 406640 406640
stephen kelly ––
nick bray 20000 20000
david maloney 30000 25000
david dominik ––
prescott ashe ––
john browett 18377 10000
dr anthony hill 5924000 7524000
richard lloyd 600000 600000
 resigned 23 february 2006
 resigned 3 january 2006
longterm incentive plan
number
number 30 april exercise dates of 
date of grant granted exercised waived 2006 price exercise
nick bray 11 january 2006 412955 – – 412955 1235p 11 january 2009 
to 10 january 2016
total 412955 – – 412955
during the period up to 30 april 2006 nick bray was granted 412955 market value options with a market price of 1235 pence 
per share no other director owned or was granted awards during this period the performance condition was based on growth in
eps over a threeyear performance period with a minimum average annual eps growth of rpi  3 and 100 vesting at an average
annual eps growth of rpi  7
during the period between 1 may 2006 and the date of approval of the annual report nick bray was granted 100000 market value
options with a market price of 104 pence per share and 20000 conditional matching shares the conditional award is subject to nick
bray retaining his original purchase of 20000 shares for a threeyear period stephen kelly joined the company on 1 may 2006
during the period up to the date of approval of the annual report stephen kelly was granted 1153846 market value options with 
a market price of 104 pence per share no other director owned or was granted awards during this period the market value options
will only vest at the end of the threeyear performance period if the annual compound eps growth has achieved at least 15 such
awards will then only vest as to a percentage of the shares subject to a minimum of 6 annual compound revenue growth over the
performance period and a maximum of 15 annual compound revenue growth over such period
share option schemes
details of share option schemes of the company are given in note 24 of the financial statements
the midmarket price of the shares at 30 april 2006 was 87 pence and during the period since admission the price varied between 
72 pence and 184 pence
on behalf of the board
kevin loosemore chairman of the remuneration committee
31 july 2006
25 statement of directors’ responsibilities
the directors are responsible for preparing the annual report and the group financial statements in accordance with applicable law
and international financial reporting standards “ifrs” as adopted by the european union and for preparing the parent company
financial statements and the directors’ remuneration report in accordance with applicable law and united kingdom accounting
standards united kingdom generally accepted accounting practice 
the directors are responsible for preparing financial statements for each financial year which give a true and fair view in accordance
with ifrs as adopted by the european union of the state of affairs of the group and of the profit or loss of the group and a true and
fair view in accordance with united kingdom generally accepted accounting practice of the state of affairs of the company for that
period in preparing those financial statements the directors are required to
l select suitable accounting policies and then apply them consistently
l make judgements and estimates that are reasonable and prudent
l state whether the group financial statements comply with ifrs as adopted by the european union and with regard to the parent
company financial statements whether applicable accounting standards have been followed subject to any material departures
disclosed and explained in the financial statements and
l prepare the financial statements on the goingconcern basis unless it is inappropriate to presume that the group will continue in
business 
the directors confirm that they have complied with the above requirements in preparing the financial statements
the directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial
position of the company and the group and to enable them to ensure that the group financial statements comply with the
companies act 1985 and article 4 of the ias regulation and that the parent company financial statements and the directors’
remuneration report comply with the companies act 1985 they are also responsible for safeguarding the assets of the company and
the group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities
the directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s
website legislation in the united kingdom governing the preparation and dissemination of financial statements may differ from
legislation in other jurisdictions
going concern
the directors having made enquiries consider that the company and the group have adequate resources to continue in operational
existence for the foreseeable future and therefore it is appropriate to maintain the going concern basis in preparing the financial
statements
by order of the board
jane smithard company secretary
31 july 2006
26 independent auditors’ report to the members of micro focus
international plc
we have audited the group financial statements of micro focus international plc for the year ended 30 april 2006 which comprise the
consolidated income statement the consolidated balance sheet the consolidated cash flow statement the consolidated statement of
change in shareholders’ equity and the related notes these group financial statements have been prepared under the accounting
policies set out therein
we have reported separately on the parent company financial statements of micro focus international plc for the year ended 30 april
2006 and on the information in the directors’ remuneration report that is described as having been audited
respective responsibilities of directors and auditors
the directors’ responsibilities for preparing the annual report and the group financial statements in accordance with applicable law
and international financial reporting standards “ifrss” as adopted by the european union are set out in the statement of directors’
responsibilities
our responsibility is to audit the group financial statements in accordance with relevant legal and regulatory requirements and
international standards on auditing uk and ireland 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 group financial statements give a true and fair view and whether the group financial
statements have been properly prepared in accordance with the companies act 1985 and article 4 of the ias regulation we report
to you whether in our opinion the information given in the directors’ report is consistent with the group financial statements we
also report to you if in our opinion we have not received all the information and explanations we require for our audit or if
information specified by law regarding director’s remuneration and other transactions is not disclosed
we 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 group’s corporate governance procedures or its risk and control procedures
we read other information contained in the annual report and consider whether it is consistent with the audited group financial
statements the other information comprises only the directors’ report the chairman’s statement and the corporate governance
statement we consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies
with the group financial statements our responsibilities do not extend to any other information
basis of audit opinion
we conducted our audit in accordance with international standards on auditing uk and ireland issued by the auditing practices
board an audit includes examination on a test basis of evidence relevant to the amounts and disclosures in the group financial
statements it also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the
group financial statements and of whether the accounting policies are appropriate to the group’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 group 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 group financial statements
opinion
in our opinion
l the group financial statements give a true and fair view in accordance with ifrss as adopted by the european union of the state
of the group’s affairs as at 30 april 2006 and of its profit and cash flows for the year then ended
l the group financial statements have been properly prepared in accordance with the companies act 1985 and article 4 of the ias
regulation and
l the information given in the directors’ report is consistent with the group financial statements
pricewaterhousecoopers llp chartered accountants and registered auditors
reading
31 july 2006
27 year ended 30 april
2006 2005
notes ’000 ’000
turnover 1 143688 150645
total cost of sales 12104 10914
gross profit 131584 139731
selling and distribution costs 48500 48105
research and development expense 17088 17598
administrative expenses 43263 33114
operating profit 22733 40914
analysed as
operating profit before exceptional items 36946 47889
exceptional items 3 14213 6975
operating profit 22733 40914
interest payable and similar charges 5 1137 8656
interest receivable and similar income 962 382
profit before tax 13 22558 32640
taxation 6 6332 11597
profit after tax 16226 21043
earnings per share expressed in cents per share
– basic 8 825 1428
– diluted 8 817 1398
earnings per share expressed in pence per share
– basic 8 468 767
– diluted 8 463 751
all results are from continuing operations
the notes on pages 32 to 58 are an integral part of these consolidated financial statements
28
consolidated income statement
for the year ended 30 april 2006
micro focus international plc
  micro focus international plc
29
consolidated balance sheet
at 30 april 2006
as at 30 april
2006 2005
notes ’000 ’000
assets
noncurrent assets
goodwill 9 42404 42404
other intangible assets 10 7637 8084
property plant and equipment 11 2386 2277
deferred tax assets 20 7718 8331
60145 61096
current assets
inventories 12 331 350
trade and other receivables 13 37629 50244
cash and cash equivalents 14 56066 32870
94026 83464
total assets 154171 144560
liabilities
current liabilities
trade and other payables 15 70516 71103
current tax liabilities 16 10777 11972
financial liabilities – borrowings 17 117 8099
81410 91174
noncurrent liabilities
noncurrent deferred income 18 6720 6932
deferred tax liabilities 20 8446 7748
financial liabilities – borrowings 17 94 103367
15260 118047
net assetsliabilities 57501 64661
shareholders’ equity
capital and reserves attributable to the company’s equity holders
share capital 21 36644 1
share premium 22 103641 3376
profit and loss reservedeficit 55267 67869
foreign currency translation reserve 432 169
other reserves 27085 –
total shareholders’ equitydeficit 57501 64661
the notes on pages 32 to 58 are an integral part of these consolidated financial statements
the financial statements on pages 28 to 58 were approved by the board of directors on 31 july 2006 and were signed on its behalf by
stephen kelly nick bray
chief executive officer chief financial officer foreign profit
currency and loss
share share translation other reserve
capital premium reserve reserves deficit total
’000 ’000 ’000 ’000 ’000 ’000
balance as at 1 may 2004 1 2871 118 – 13156 10166
currency translation differences – – 287 – – 287
profit for the year – – – – 21043 21043
total recognised profit for the period – – 287 – 21043 20756
dividends – – – – 78800 78800
issue of share capital – 505 – – – 505
value of share options issued under employee share option plans – – – – 3044 3044
total changes in shareholders’ equity – 505 287 – 54713 54495
balance as at 30 april 2005 1 3376 169 – 67869 64661
currency translation differences – – 263 – – 263
profit for the year – – – – 16226 16226
total recognised profit for the period – – 263 – 16226 15963
dividends – – – – 3987 3987
shareforshare exchange 27085 – – 27085 ––
issue of external share capital 9558 100265 – – – 109823
value of share options issued under 
employee share option plans – – – – 363 363
total changes in shareholders’ equity 36643 100265 263 27085 12602 122162
balance as at 30 april 2006 36644 103641 432 27085 55267 57501
the amount transferred to other reserves as part of the shareforshare exchange represents the excess of the nominal value of shares
issued in micro focus international plc over the nominal value of share capital of micro focus international limited
consolidated statement of changes in shareholders’ equity 
for the year ended 30 april 2006
micro focus international plc
30 micro focus international plc
consolidated cash flow statement
for the year ended 30 april 2006
31
year ended 30 april
2006 2005
notes ’000 ’000
cash flows from operating activities
cash generated from operations 23 41970 54461
interest received 666 379
interest paid 1551 7926
tax paid 6103 2368
net cash from operating activities 34982 44546
cash flows from investing activities
payments for intangible assets 4986 6176
purchase of property plant and equipment 1123 1329
proceeds on disposal of tangible fixed assets –23
net cash used in investing activities 6109 7482
cash flows from financing activities
proceeds from issue of ordinary share capital 21 109823 506
proceeds from issue of new bank loan – 50500
repayment of borrowings 17 111250 –
dividends paid to shareholders 7 3987 78800
net cash used in financing activities 5414 27794
effects of exchange rate changes 263 820
net increase in cash and cash equivalents 23196 8450
cash and cash equivalents at 1 may 2005 32870 24420
cash and cash equivalents at 30 april 2006 14 56066 32870
the notes on pages 32 to 58 are an integral part of these consolidated financial statements the basis of preparation and the principal accounting policies adopted in the preparation of the financial information are set out
below 
a basis of preparation
the financial statements have been prepared in accordance with the companies act 1985 article 4 of the ias regulation and
international accounting standards “ias” and international financial reporting standards “ifrs” and related interpretations 
as adopted for use in the european union
these financial statements have been prepared under the historical cost convention the preparation of financial statements in
conformity with the basis of preparation described above requires the use of certain critical accounting estimates it also requires
management to exercise its judgement in the process of applying the group’s accounting policies the areas involving a higher degree
of judgement or complexity or areas where assumptions and estimates are significant to the consolidated financial statements 
are disclosed in the critical accounting estimates and judgements section
this is the first year that the company has produced financial statements under ifrs the adoption of ifrs has resulted in a number
of significant adjustments to the previously reported results and equity shareholders’ funds presented under uk generally accepted
accounting principles “uk gaap”
ifrs 1 “firsttime adoption of international financial reporting standards” permits those companies adopting ifrs for the first time 
to take some exemptions from the full requirements of ifrs in the transition period exemptions adopted by the group are set 
out below and apply retrospectively in determining the ifrs opening balance sheet at its date of transition 1 may 2004
l the group has elected not to apply ifrs 3 “business combinations” to business combinations that occurred before the date of
transition in addition the group has elected to continue its treatment of the goodwill on acquisition of foreign entities before 
1 may 2004 as the company’s own asset
l the group has taken the exemption available under ifrs 1 to only apply ias 32 “financial instruments disclosure and
presentation” and ias 39 “financial instruments recognition and measurement” from 1 may 2005 
l the group has taken the exemption available under ifrs 2 “sharebased payments” to apply this standard only to equity
instruments that were granted after 7 november 2002 and that had not vested on or before 1 january 2005
reconciliations and descriptions of the effect of the transition from uk gaap to ifrs on the group’s equity and its net income are
given in note 29
b consolidation
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 shareforshare 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 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 consolidated financial statements and information in the directors’ report and remuneration report therefore represent the
performance of the operating group for the period up to 17 may 2005 and for the group from this date to 30 april 2006 inter
company transactions balances and unrealised gains on transactions between group companies are eliminated 
c turnover
the group recognises turnover from sales of software licences to endusers 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 group’s objective evidence of the fair value of the elements represented by the group’s customary pricing for each element
in separate transactions if 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 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 arrangement does not
exist all turnover from the arrangement is deferred until such time that evidence of fair value exists or undelivered elements of the
arrangement are delivered
summary of significant accounting policies
micro focus international plc
32
  c turnover continued
if the arrangement includes acceptance criteria turnover is not recognised until the group can objectively demonstrate that the
software or service can meet the acceptance criteria or the acceptance period lapses whichever is earlier
the group recognises licence turnover derived from sales to resellers upon delivery to resellers provided that all other turnover
recognition criteria are met otherwise turnover is deferred and recognised upon delivery of the product to the enduser 
maintenance turnover is derived from providing technical support and software updates to customers maintenance turnover 
is recognised on a straightline basis 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 revenue recognition criteria are included in deferred income 
d segmental reporting
a geographical segment is engaged in providing products or services within a particular economic environment that are subject to
risks and returns that are different from those of components operating in other economic environments
a business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns
that are different from those of other business segments the group considers there to be only one business segment being the
provision of legacy application development and deployment software for contemporary platforms 
e leases
leases of property plant and equipment where the group has substantially all the risks and rewards of ownership are classified 
as finance leases finance leases are capitalised at the lease’s commencement at the lower of the fair value of the leased property 
and the present value of the minimum lease payments each lease payment is allocated between the liability and finance charges 
so as to achieve a constant rate of interest on the liability outstanding the corresponding rental obligations net of finance charges
are included in financial liabilities – borrowings 
the property plant and equipment acquired under finance leases is depreciated over the shorter of the asset’s useful life and the
lease term
leases where the lessor retains a significant portion of the risks and rewards of ownership are classified as operating leases payments
made under operating leases net of any incentives received from the lessor are charged to the income statement on a straightline
basis over the period of the lease
f foreign currency translation
a functional and presentation currency
items included in the financial statements of each of the group’s entities are measured using the currency of the primary economic
environment in which the entity operates “the functional currency” the consolidated financial statements are presented in 
us dollars which is the group’s functional currency 
b transactions and balances
foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the
transactions foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year
end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement
micro focus international plc
33 f foreign currency translation continued
c group companies
the results and financial position of all the group entities that have a functional currency different from the presentation currency
are translated into the presentation currency as follows
i assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet
ii income and expenses for each income statement are translated at average exchange rates unless this average is not a reasonable
approximation of the cumulative effect of the rates prevailing on the transaction dates in which case income and expenses are
translated at the dates of the transactions and
iii all resulting exchange differences are recognised as a separate component of equity
on consolidation exchange differences arising from the translation of the net investment in foreign entities are taken to
shareholders’ equity when a foreign operation is sold such exchange differences are recognised in the income statement as part 
of the gain or loss on sale
goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign
entity and translated at the closing rate with exception for goodwill arising before 1 may 2004 which is treated as an asset of the
company and expressed in the company’s functional currency
g borrowings
borrowings are recognised initially at fair value net of transaction costs incurred transaction costs incurred in the arrangement 
of new borrowing facilities are capitalised and netted against the capital element of the outstanding borrowing these costs are 
then amortised over the life of the facility to which the costs relate on the effective interest basis
h property plant and equipment
all property plant and equipment are stated at historical cost less accumulated depreciation and impairment historical cost includes
expenditure that is directly attributable to the acquisition of the items subsequent costs are included in the asset’s carrying amount
or recognised as a separate asset as appropriate only when it is probable that future economic benefits associated with the item will
flow to the group and the cost of the item can be measured reliably all other repairs and maintenance expenditures are charged to
the income statement during the financial period in which they are incurred depreciation is calculated using the straightline method
to writeoff the cost of each asset to its residual value over its estimated useful life as follows
leasehold improvements over the lease term 
furniture and fixtures five to seven years 
computer equipment one to five years 
the assets’ residual values and useful lives are reviewed and adjusted if appropriate at each balance sheet date an asset’s carrying
amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable
amount gains and losses on disposals are determined by comparing the disposal proceeds with the carrying amount and are included
in the income statement 
summary of significant accounting policies continued
micro focus international plc
34 i intangible assets
i goodwill
goodwill represents the excess of the cost of an acquisition over the fair value of the net identifiable assets of the acquired subsidiary
at the date of acquisition goodwill on acquisitions of subsidiaries is included in intangible assets goodwill is tested annually for
impairment and carried at cost less accumulated impairment losses gains and losses on the disposal of an entity include the carrying
amount of goodwill relating to the entity sold goodwill is allocated to cashgenerating units for the purpose of impairment testing
each of those cashgenerating units represents the group’s investment in each area of operation by each primary reporting segment
ii computer software
acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific
software these costs are amortised using the straightline method over their estimated useful lives of three to five years
iii research and development
research expenditure is recognised as an expense as incurred costs incurred on development projects relating to the developing 
of new computer software programmes and significant enhancement of existing computer software programmes are recognised 
as intangible assets when it is probable that the project will be a success considering its commercial and technological feasibility 
and costs can be measured reliably only direct costs are capitalised which include the software development employee costs and 
an appropriate portion of relevant overheads development costs previously recognised as an expense are not recognised as an asset
in a subsequent period development costs are amortised from the commencement of the commercial production of the product on 
a straightline basis over the period of its expected benefit not exceeding three years
j impairment of tangible and intangible assets 
assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment assets that 
are subject to 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 cash
generating units
k inventories
inventories are stated at the lower of cost and net realisable value cost is determined using the weighted average method 
the cost of finished goods comprises software for resale and packaging materials net realisable value is the estimated selling 
price in the ordinary course of business less applicable variable selling expenses 
l trade receivables
trade receivables are recognised at fair value less provision for impairment a provision for impairment of trade receivables is
established when there is objective evidence that the group will not be able to collect all amounts due according to the original
terms of receivables the amount of the provision is the difference between the asset’s carrying amount and the present value 
of estimated future cash flows discounted at the effective interest rate the amount of the provision is recognised in the income
statement
m employee benefit costs 
a pension obligations
group companies operate various pension schemes all of the major schemes are defined contribution plans for which the group pays
contributions to publicly or privately administered pension insurance plans on a mandatory contractual or voluntary basis the group
has no further payment obligations once the contributions have been paid the contributions are recognised as an employee benefit
expense when they are due prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the
future payments is available
b sharebased compensation
the group operated four equitysettled sharebased compensation plans and one cashsettled sharebased compensation plan during
the year
no expense is recognised in respect of share options granted before 7 november 2002 or which have vested before 1 january 2005
micro focus international plc
35 m employee benefit costs continued
for shares or share options granted after 7 november 2002 and vested after 1 january 2005 the fair value of the employee services
received in exchange for the grant of the shares or options is recognised as an expense the total amount to be expensed over the
vesting period is determined by reference to the fair value of the shares or options granted nonmarket vesting conditions are
included in assumptions about the number of options that are expected to become exercisable at each balance sheet date the
group revises its estimates of the number of options that are expected to become exercisable it recognises the impact of the revision
of original estimates if any in the income statement and a corresponding adjustment to equity over the remaining vesting period
the shares are recognised when the options are exercised and the proceeds received allocated between share capital and share
premium
n share capital share premium and dividend distribution 
incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction net of tax from 
the proceeds 
dividend distributions to the company’s shareholders are recognised as a liability in the group’s financial statements in the period 
in which the dividends are approved by the company’s shareholders
o deferred income tax 
deferred income tax is provided in full using the liability method on temporary differences arising between the tax bases of assets
and liabilities and their carrying amounts in the consolidated financial statements however if the deferred income tax arises from
initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects
neither accounting nor taxable profit or loss it is not accounted for deferred income tax is determined using tax rates and laws that
have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income
tax asset is realised or the deferred income tax liability is settled deferred income tax assets are recognised to the extent that it is
probable that future taxable profit will be available against which the temporary differences can be utilised
deferred income tax is provided on temporary differences arising on investments in subsidiaries except where the timing of the
reversal of the temporary difference is controlled by the group and it is probable that the temporary difference will not reverse 
in the foreseeable future
p cash and cash equivalents
cash and cash equivalents includes cash in hand deposits held at call with banks other shortterm highly liquid investments with
original maturities of three months or less and bank overdrafts bank overdrafts are shown within borrowings in current liabilities 
on the balance sheet
q exceptional items
exceptional items are those significant items which are separately disclosed by virtue of their size or incidence to enable a full
understanding of the group’s financial performance 
summary of significant accounting policies continued
micro focus international plc
36 estimates and judgements are continually evaluated and are based on historical experience and other factors including expectations
of future events that are believed to be reasonable under the circumstances
critical accounting estimates and assumptions
the group makes estimates and assumptions concerning the future the resulting accounting estimates will by definition seldom
equal the related actual results the estimates and assumptions that have a significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities within the next financial year are summarised below
a impairment of goodwill
the group tests annually whether goodwill has suffered any impairment in accordance with the accounting policy stated in note j
the recoverable amounts of cashgenerating units have been determined based on valueinuse calculations these calculations
require the use of estimates
b income taxes
the group is subject to income taxes in numerous jurisdictions significant judgement is required in determining the worldwide
provision for income taxes there are many transactions and calculations for which the ultimate tax determination is uncertain 
during the ordinary course of business the group recognises liabilities for anticipated tax audit issues based on estimates of whether
additional taxes will be due where the final tax outcome of these matters is different from the amounts that were initially recorded
such differences will impact the income tax and deferred tax provisions in the period in which such determination is made
critical judgements in applying the group’s accounting policies 
the group makes judgements on specific items when applying its accounting policies the judgement that has a significant risk 
of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year is discussed below
development expenditure
the group invests in the development of future products in accordance with the accounting policy stated on page 35 the assessment 
as to whether this expenditure will achieve a complete product for which the technical feasibility is assured is a matter of judgement
as is the forecasting of how the product will generate future economic benefit finally the period of time over which the economic
benefit associated with the expenditure occurred will arise is also a matter of judgement these judgements are made by evaluating
the development plan prepared by the research and development department and approved by management regularly monitoring
progress by using an established set of criteria for assessing technical feasibility and benchmarking to other products
micro focus international plc
critical accounting estimates and judgements
37 the group’s multinational operations expose it to a variety of financial risks that include the effects of changes in credit risks 
foreign currency exchange rates liquidity and interest rates 
i credit risk 
financial instruments which potentially expose the group to a concentration of credit risk consist primarily of cash equivalents and
accounts receivable cash equivalents are deposited with highcredit quality financial institutions the 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 group maintains a provision for impairment based upon the expected collectibility
of accounts receivable the 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
ii foreign currency risk
the group operates internationally and is exposed to foreign exchange risk arising from various currency exposures primarily with
respect to the us dollar uk sterling the euro and the japanese yen foreign exchange risk arises from future commercial
transactions recognised assets and liabilities and net investments in foreign operations foreign exchange risk arises when future
commercial transactions recognised assets and liabilities are denominated in a currency that is not the entity’s functional currency
there were no hedging transactions in place at 30 april 2006
the group has certain investments in foreign operations whose net assets are exposed to foreign currency translation risk 
iii interest rate risk
the group’s income and operating cash flows are substantially independent of changes in market interest rates the interest rates 
of finance leases to which the group is lessee are fixed at inception of the lease these leases expose the group to fair value interest
rate risk
the group’s cash flow interest rate risk arises from cash deposits deposits placed at variable rates expose the group to cash flow
interest rate risk
risk factors
micro focus international plc
38 1 segmental reporting
primary reporting format – geographical segments
year ended 30 april 2006
europe 
and the rest of 
north america middle east the world total
’000 ’000 ’000 ’000
revenue 68847 54038 20803 143688
segment result operating profit before exceptional items 26474 1441 9031 36946
exceptional items 1683 12444 86 14213
segment result operating profit 24791 11003 8945 22733
finance costs – net 175
profit before tax 22558
taxation 6332
net profit attributable to equity shareholders 16226
segment assets 36812 51427 8173 96412
unallocated assets
intangible assets notes 9 and 10 50041
deferred tax assets note 20 7718
total assets 154171
segment liabilities 31241 40720 5275 77236
unallocated liabilities
current and deferred tax liabilities 19223
corporate borrowings note 17 211
total liabilities 96670
other segment items
capital expenditure 78 519 61 658
depreciation note 11 494 459 53 1006
amortisation of intangible assets note 10 2608 2065 760 5433
micro focus international plc
notes to the financial statements
for the year ended 30 april 2006
39 1 segmental reporting continued
year ended 30 april 2005
europe 
and the rest of 
north america middle east the world total
’000 ’000 ’000 ’000
revenue 73173 57365 20107 150645
segment result operating profit before exceptional items 27796 10183 9910 47889
exceptional items 4180 2157 638 6975
segment result operating profit 23616 8026 9272 40914
finance costs – net 8274
profit before tax 32640
taxation 11597
net profit attributable to equity shareholders 21043
segment assets 34141 45181 6419 85741
unallocated assets
intangible assets notes 9 and 10 50488
deferred tax assets note 20 8331
total assets 144560
segment liabilities 38396 34960 4679 78035
unallocated liabilities
current and deferred tax liabilities 19720
corporate borrowings note 17 111466
total liabilities 209221
other segment items
capital expenditure 65 461 2 528
depreciation 574 370 61 1005
amortisation of intangible assets 2762 2166 759 5687
the group is organised on a worldwide basis into three main geographical segments 
l north america 
l europe and the middle east 
l rest of the world 
there are immaterial sales between the geographical segments 
the revenue analysis in the table above is based on the location of the customers where the order is received which is not materially
different from the location of the assets
segment assets include property plant and equipment stocks debtors and operating cash and exclude other intangible assets and
deferred tax assets segment liabilities comprise operating liabilities and finance leases and exclude tax liabilities and corporate
borrowings capital expenditure comprises additions to property plant and equipment and other intangible assets
secondary reporting format – business segment
the group considers there is only one business segment being the provision of legacy application development and deployment
software for contemporary platforms
notes to the financial statements
for the year ended 30 april 2006
micro focus international plc
40 2 supplementary information
set out below is an analysis of turnover recognised between the principal product categories which the directors use to assess the
future revenue flows from the current portfolio of customers
30 april 30 april 
2006 2005
’000 ’000
licence 67985 79860
maintenance 71860 66705
consulting 3843 4080
total 143688 150645
3 profit before tax
profit before tax is stated after charging
year ended 30 april
2006 2005
note ’000 ’000
employee benefit expense 24 63221 70340
depreciation of property plant and equipment 
– owned assets 11 880 1024
– assets under finance lease 11 126 35
amortisation of intangibles 10 5433 5687
changes in inventories of finished goods 19 38
operating lease rentals payable
– plant and machinery 252 116
– other 337 4092
exceptional items
year ended 30 april
2006 2005
’000 ’000
iporelated costs 6909 –
management fees 125 1200
reorganisation costs 7403 2194
sharebased compensation creditcharge 224 3581
exceptional items 14213 6975
the iporelated costs include termination fees of 4683000 in respect of management charges previously paid by the group 
to its shareholders prior to the ipo they also include fees incurred during the process that did not directly relate to the raising 
of share capital
reorganisation costs relate to the cost reduction programme announced by the board of directors on 6 april 2006 these costs include
those associated with the redundancy of employees and the onerous lease cost of a building vacated as part of the programme
a credit has arisen for sharebased compensation as a result of the actual payout under the equity bonus plan being lower than the
estimate made at 30 april 2005
all exceptional items relate to administrative expenses
micro focus international plc
41 3 profit before tax continued
services provided by the group’s auditors and network of firms
during the year the group including its overseas subsidiaries obtained the following services from the groups auditor at costs 
as detailed below
year ended 30 april
2006 2005
’000 ’000
audit services
– statutory audit 459 530
– further assurance services – 670
tax services
– compliance services 45 161
– advisory services 210 1278
other services not covered above 212 1962
total 926 4601
the group’s auditors pricewaterhousecoopers llp provide nonaudit services for the group over and above the external audit
principally tax advice and due diligence work the board of directors reviews the level of nonaudit fees and believes that the group
receives particular benefit from tax advice provided by its auditors given their wide and detailed knowledge of the group the board
is confident that the objectivity and independence of the auditors is not impaired in any way by reason of its nonaudit work
other services include reporting accountants work and due diligence
4 reconciliation of operating profit to ebitda
30 april 30 april 
2006 2005
’000 ’000
operating profit 22733 40914
depreciation 1006 1005
amortisation of software 806 1099
ebitda 24545 43018
exceptional items
iporelated costs 6909 –
reorganisation costs 7403 2194
sharebased compensation 224 3581
management charges 125 1200
ebitda before exceptional items 38758 49993
the directors use ebitda and ebitda before exceptional items as key performance measures of the business
notes to the financial statements
for the year ended 30 april 2006
micro focus international plc
42 5 interest payable and similar charges
year ended 30 april
2006 2005
’000 ’000
interest expense on bank borrowings 1126 5062
interest expense on finance leases 11 19
interest payable 1137 5081
amortisation of issue costs – 224
accelerated amortisation of issue costs – 3351
1137 8656
the accelerated amortisation of issue costs relates to the prioryear borrowings described in note 17 the amortisation of issue costs
was accelerated during the prior year as a result of the facilities being initially replaced by a new facility and then being repaid from
the proceeds of the listing of the company
6 taxation
year ended 30 april
2006 2005
’000 ’000
current tax
current year 5159 7825
adjustments to tax in respect of previous years 138 –
5021 7825
deferred tax
current year 1500 3983
adjustments to tax in respect of previous years 189 211
1311 3772
total 6332 11597
deferred tax of 109000 2005 nil has been recognised in relation to the share options charged against equity in the year
the taxation for the period differs from the theoretical amount that would arise using the weighted average tax rate applicable to
profits of the consolidated companies as explained below
year ended 30 april
2006 2005
’000 ’000
profit before taxation 22558 32640
tax calculated at domestic tax rates applicable to profits in the respective countries 7182 11152
effects of
adjustments to tax in respect of previous years – current tax 138 –
adjustments to tax in respect of previous years – deferred tax 189 211
expenses not deductible for tax purposes 2746 84
losses not recognised 247 –
other 3516 572
total taxation 6332 11597
the movement in deferred tax assets and liabilities during the period without taking into consideration the offsetting of balances
within the same tax jurisdiction is provided in note 20
micro focus international plc
43 7 dividends
year ended 30 april
2006 2005
equity – ordinary ’000 ’000
2006 interim paid 002 per ordinary share 3987 –
2005 final paid 028 per ordinary share – 10000
2005 interim paid 136 per ordinary share – 68800
3987 78800
under cayman law the unrealised profit on the revaluation of an asset may be used to fund a dividend as such the directors of
micro focus international limited obtained independent valuations of the intellectual property held by that company in 2003 and
2005 subsequently the directors considered the valuations of the intellectual property which confirmed the adequacy of
distributable reserves under cayman law in proposing dividends in the year ended 30 april 2005
whilst the group as a whole has a deficit in its profit and loss reserve the directors of micro focus international plc have concluded that
the company has sufficient reserves to enable the payment of the interim and final dividends relating to the year ended 30 april 2006
8 earnings per share
the calculation of the basic earnings per share has been based on the earnings attributable to ordinary shareholders and the
weighted average number of shares for each year this is after taking into account the restructuring of the share capital of previous
shareholders of the operating company receiving three ordinary shares in the company for every one share they previously held in
the operating company
year ended 30 april 2006 year ended 30 april 2005
weighted weighted 
average average
number per share number per share 
earnings of shares amount earnings of shares amount
’000 ‘000 cents ’000 ‘000 cents
basic eps
earnings attributable to ordinary shareholders 16226 196709 825 21043 147375 1428
effect of dilutive securities
options 2002 3162
diluted eps
earnings attributable to ordinary shareholders 16226 198711 817 21043 150537 1398
supplementary eps to exclude exceptional items
basic eps 16226 196709 825 21043 147375 1428
exceptional items 14213 6975
tax relating to exceptional items 2154 658
basic eps excluding exceptional items 28285 196709 1438 27360 147375 1856
diluted eps 16226 198711 817 21043 150537 1398
exceptional items 14213 6975
tax relating to exceptional items 2154 658
diluted eps excluding exceptional items 28285 198711 1423 27360 150537 1817
notes to the financial statements
for the year ended 30 april 2006
micro focus international plc
44 9 goodwill
’000
cost and net book amount
at 1 may 2004 30 april 2005 and 30 april 2006 42404
a segmentlevel summary of the goodwill allocation is presented below
’000
north america 24200
europe and the middle east 14765
rest of the world 3439
total 42404
the recoverable amount of a cashgenerating unit “cgu” is determined based on valueinuse calculations these calculations use
cash flow projections based on financial budgets approved by management covering a fiveyear period cash flows beyond the five
year period are extrapolated using the estimated growth rates stated below the growth rate does not exceed the longterm average
growth rate for the geography in which the cgu operates
for the purpose of the analysis of each cgu within the business segment it has been assumed that the levels of turnover operating
profit and cash flows for the year ended 30 april 2006 will be maintained
the cash flows were discounted using a pretax discount rate of 89 and reflect specific risks relating to the relevant segments
10  other intangible assets
development 
software costs total
’000 ’000 ’000
cost
at 1 may 2005 4052 16017 20069
exchange adjustments 247 – 247
additions 88 5095 5183
at 30 april 2006 3893 21112 25005
aggregate amortisation and impairment 
at 1 may 2005 2664 9321 11985
exchange adjustments 40 – 40
charge for the year 798 4626 5424
at 30 april 2006 3422 13947 17369
net book amount at 30 april 2006 471 7165 7636
net book amount at 1 may 2005 1388 6696 8084
micro focus international plc
45 11  property plant and equipment
fixtures 
leasehold computer and 
improvements equipment fittings total
’000 ’000 ’000 ’000
cost
at 1 may 2005 867 4883 1064 6814
exchange adjustments 19 111 36 166
additions at cost 384 627 183 1194
disposals – 164 1 165
at 30 april 2006 1232 5235 1210 7677
depreciation
at 1 may 2005 265 3524 748 4537
exchange adjustments 3 83 24 104
charge for the year 203 699 104 1006
disposals – 148 – 148
at 30 april 2006 471 3992 828 5291
net book amount at 30 april 2006 761 1243 382 2386
net book amount at 1 may 2005 602 1359 316 2277
assets held under finance leases capitalised and included in computer equipment
2006 2005
’000 ’000
cost 368 251
aggregate depreciation 161 35
net book amount 207 216
12  inventories
2006 2005
’000 ’000
finished goods 331 350
13  trade and other receivables
2006 2005
’000 ’000
trade debtors 29377 37128
other debtors – 3575
prepayments 3959 3837
accrued income 4293 5704
total 37629 50244
concentrations of credit risk with respect to trade receivables are limited due to the groups customer base being large and
unrelated due to this management believe there is no further credit risk provision required in excess of the normal provision 
for doubtful receivables
notes to the financial statements
for the year ended 30 april 2006
micro focus international plc
46 14  cash and cash equivalents
2006 2005
’000 ’000
cash at bank and in hand 15182 24557
shortterm bank deposits 40884 8313
total 56066 32870
the effective interest rate on shortterm deposits was 38 2005 24 and these deposits have an average maturity of 13 days 
2005 11 days 
15  trade and other payables – current
2006 2005
’000 ’000
trade payables 1944 3860
other tax and social security payable 2468 3241
accruals 20511 17585
deferred income 45593 46417
total 70516 71103
accruals include amounts in respect of reorganisation and redundancy costs the amount provided for redundancy costs is based 
on legal advice provided to the directors
16  current tax liabilities
2006 2005
’000 ’000
corporation tax 10777 11972
micro focus international plc
47 17  financial liabilities – borrowings 
2006 2005
’000 ’000
due within one year
secured bank loans – 8010
finance lease obligations 117 89
total 117 8099
2006 2005
’000 ’000
due after more than one year
secured bank loans – 103240
finance lease obligations 94 127
total 94 103367
on 20 may 2005 the outstanding debt of 111250000 owed by the company to wells fargo foothill inc and db zwirn special
opportunities fund was repaid in full 
lease liabilities are effectively secured as the rights to the leased assets revert to the lessor in the event of default
2006 2005
’000 ’000
finance lease liabilities – minimum lease payments
not later than one year 134 107
more than one year but not more than two years 109 154
243 261
future finance charges on finance leases 32 45
present value of finance lease liabilities 211 216
18  other noncurrent liabilities
2006 2005
’000 ’000
deferred income 6720 6932
notes to the financial statements
for the year ended 30 april 2006
micro focus international plc
48 19 financial instruments 
fair value of noncurrent borrowings
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 group’s financial liabilities at 30 april 2006
are deemed to be equal to their fair value at that date 
maturity of noncurrent borrowings
the maturity profile of noncurrent borrowings is as follows
2006 2005
’000 ’000
between one and two years 94 10109
between two and five years – 93258
94 103367
on 20 may 2005 the loan was repaid in full from the proceeds of the admission of the company on to the official list of the london
stock exchange
the effective interest rates at the balance sheet date were as follows
us dollar 2006 2005
bank borrowings – 115
finance lease obligations 85 85
20  deferred tax 
2006 2005
’000 ’000
net deferred tax assetliability
beginning of the year 583 984
income statement charge 1311 1567
end of the year 728 583
accelerated 
tax 
depreciation total
’000 ’000
deferred tax liabilities
at 1 may 2005 7748 7748
charged to profit and loss account 698 698
at 30 april 2006 8446 8446
other timing 
tax losses differences total
’000 ’000 ’000
deferred tax assets
at 1 may 2005 6203 2128 8331
charged to profit and loss account 169 782 613
at 30 april 2006 6372 1346 7718
deferred income tax assets are recognised for tax loss carryforwards to the extent that the realisation of the related tax benefit
through the utilisation of future taxable profits is probable
micro focus international plc
49 21 called up share capital 
2006 2005
 
authorised
2499500000 ordinary shares of £010 0183 each 476674646 –
50000 redeemable preference shares of £100 183 each 95354 –
class a ordinary shares of 000001 each – 86428000
class b ordinary shares of 000001 each – 2800000
class c ordinary shares of 000001 each – 1386000
class d ordinary shares of 000001 each – 1386000
class l ordinary shares of 000001 each – 8000000
total authorised share capital 476770000 100000000
30 april 2006 30 april 2005
number  number 
issued and fully paid
ordinary shares of £010 0183 each 199402745 36644393 ––
class a ordinary shares of 000001 each – – 41426245 1
class b ordinary shares of 000001 each –– 2169375 –
class c ordinary shares of 000001 each –– 1386000 –
class d ordinary shares of 000001 each – – – –
class l ordinary shares of 000001 each – – 4143291 –
total allotted called up and fully paid share capital 199402745 36644393 49124911 1
the share capital at 30 april 2005 represents the share capital of micro focus international limited a company incorporated in the
cayman islands on 9 may 2005 425 class a ordinary shares in that company were issued in that company under the share option
programme in note 24 leaving a total of 49125336 shares issued in the company on 16 april 2005 
on 17 may 2005 the company acquired the entire issued share capital of micro focus international limited by way of a sharefor
share exchange pursuant to which the previous shareholders of micro focus international limited were issued and allotted three
ordinary shares in the capital of the company for every one ordinary share they previously held in micro focus international limited
this increased the share capital of the group to 147376009 shares of £010 each this increase in share capital created a merger
reserve of 27085000 on 17 may 2005 51069602 new ordinary shares in the capital of the company were issued to institutional
investors for a price of £130 224 per share 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 expenses 
of 4769000 directly attributable to the issue of share capital were offset against the share premium account
following the ipo 957134 ordinary shares have been issued in the company of this 872519 have been issued to employees under
share option schemes at prices ranging from £0003 0005 and £017 036 per share and 84615 have been issued to directors 
for a price of £130 224 per share
potential issues of ordinary shares
certain employees hold options to subscribe for shares in the company at prices ranging from 002 to 162 under the share option
schemes approved by shareholders in 2001 and the longterm incentive plan the number of shares subject to options at 30 april
2006 was 3552845 further information on these options is disclosed in note 24
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
notes to the financial statements
for the year ended 30 april 2006
micro focus international plc
50 22  share premium account 
’000
at 1 may 2005 3376
premium on shares issued during the year 100265
at 30 april 2006 103641
23  cash generated from operations
2006 2005
note ’000 ’000
continuing operations
net profit 16226 21043
adjustments for
net interest 175 8274
taxation 6 6332 11597
depreciation 11 1006 1005
loss on disposal of property plant and equipment 17 19
amortisation of intangibles 10 5433 5687
sharebased compensation 224 3581
changes in working capital
inventories 19 38
trade and other receivables 12615 12317
payables and other noncurrent liabilities 371 15610
cash generated from continuing operations 41970 54461
micro focus international plc
51 24  employees and directors
2006 2005
’000 ’000
staff costs
wages and salaries 56026 59257
social security costs 5538 5769
other pension costs note 25 1881 1733
cost of employee share schemes 224 3581
total 63221 70340
2006 2005
average monthly number of people including executive directors employed
by business group
sales and distribution 193 182
research and development 147 143
general and administration 162 158
total 502 483
sharebased payments
the group has four equitysettled sharebased compensation plans and one cashsettled sharebased compensation plan details 
of which are provided below 
2001 share purchase and option plan
the group had a sharebased compensation plan “the plan” under which employees and directors could be granted options to
purchase the company’s ordinary shares on the full listing of the company to the london stock exchange the options were treated
as having vested and were exchanged for three options in the ordinary shares of the newly listed entity at this date the plan was
closed for new issues no options were granted under the plan during the year
options over ordinary shares held by employees under the plan all of which were exercisable were as follows
weighted average remaining
life years
weighted
range of average
exercise prices exercise price 2006 2005
options   expected contractual
at 1 may 2005 1054160 002 – 162 024 01 38
exercised 425 002
forfeited 32200 002
at 16 may 2005 pre split 1021535 024
31 stock split 2043070
at 17 may 2005 3064605 001 – 054 008
exercised 866369 006
forfeited 107739 008
at 30 april 2006 2090497 001 – 054 009 00 28
notes to the financial statements
for the year ended 30 april 2006
micro focus international plc
52 24  employees and directors continued
the weighted average share price for options exercised during the period was 127
of the 2090497 options over ordinary shares outstanding at 30 april 2006 1956660 had an exercise price in the range of 001 
and 013 per share and 133837 had an exercise price in the range of 031 and 054 per share
no amount was charged through the income statement 2005 £1504000
restricted share agreement
the group also operated a sharebased compensation plan “the agreement” under which senior management could be granted
options to purchase the company’s ordinary shares there were no options over ordinary shares held by employees under the
restricted share agreement at any time during the year ended 30 april 2006 and no amount was charged through the income
statement 2005 137000
share issue
the group also operated a sharebased compensation plan under which senior management was granted ordinary shares in the
company on the full listing of the company to the london stock exchange the plan was closed for new issues during the year
ended 30 april 2006 no options to subscribe for shares were issued under this arrangement and no amount was charged through 
the income statement 2005 1407000
equity bonus plan
the group also operated the equity bonus plan a cashsettled sharebased compensation plan under the rules of the equity bonus
plan eligible employees were awarded equity bonus units at the discretion of the board of directors on the full listing of the company
to the london stock exchange units were paid out under the plan the amount of any realisation payment for each unit was dependent
on the market value of one of the company’s ordinary shares “the sale price” compared to the unit’s base price which was calculated
at the time of award of the unit with reference to the market value of the company’s shares the bonus awarded was the difference
between the sale price and base price subject to an overall limit on the sale price of ten times the base price
the amount credited through the income statement in relation to the equity bonus plan for the period ended 30 april 2006 was
587000 2005 charge 533000 the credit has arisen due to the fact that the estimates of the cash payments made in the prior
year have proven to be in excess of the actual payouts on the closure of the scheme
micro focus international plc
53 24  employees and directors continued
incentive plan 2005
on 27 april 2005 the remuneration committee approved the rules of the incentive plan 2005 under the terms of the first grant 
of options under the plan on 29 june 2005 five employees were granted options over a total of 200000 shares under the plan for
their part in the ipo these options will vest after a threeyear period under the terms of the second grant of options under the 
plan on 11 january 2006 directors and senior management were eligible the total number of options they will receive is determined
by the company’s aggregate earnings per share eps growth exceeding inflation rpi over a threeyear period commencing 1 may
2005 the total number of potential options as a result of the second grant under the plan assuming the maximum performance
target is attained was 1462348
options issued under the agreement have been valued using the blackscholes optionpricing 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 29 june 2005 11 january 2006
share price at grant date £155 280 £123 225
exercise price £010 018 £010 018
expected volatility 80 80
expected option life years 33
expected dividend yield 1 27
riskfree interest rate 4 4
fair value per option 174 192
the amount charged to the income statement in the year in respect of the scheme is 363000
25  pension commitments
the group has established a number of pension schemes around the world covering many of its employees the principal funds are
those in the us the uk and germany these are funded schemes of the defined contribution type outside of these territories the
schemes are also of the defined contribution type except for japan which is a defined benefit scheme but which has few members
and therefore is not significant to the group
pension costs for defined contributions schemes are as follows
2006 2005
’000 ’000
defined contribution schemes 1881 1733
notes to the financial statements
for the year ended 30 april 2006
micro focus international plc
54 26  operating lease commitments – minimum lease payments
at 30 april 2006 the group has total lease agreements in respect of properties vehicles plant and equipment for which the
payments extend over a number of years
2006 2005
’000 ’000
commitments under noncancellable operating leases expiring
within one year 526 398
later than one year and less than five years 4060 8166
after five years 16582 2094
total 21168 10658
the group leases various offices under noncancellable operating lease agreements that are included in the table the leases have
various terms escalation clauses and renewal rights
27  capital commitments and contingent liabilities
the group had no capital commitments at 30 april 2006 the group had no contingent liabilities at 30 april 2006 
28  related party transactions
during the period to 30 april 2006 management charges of 125000 and termination charges of 4026046 were paid to a related
party golden gate capital which is the fund manager for ccg investments bvi lp the ultimate parent company 
the interests of golden gate capital through ccg investments bvi lp and other funds under its management in the company’s
ordinary shares are as follows
shares in micro focus
international limited
ordinary shares 
of micro focus
international plc a shares l shares
at 1 may 2005 – 35903620 4143291
shareforshare exchange prior to ipo 120140733 35903620 4143291
disposals 6114576 – –
at 30 april 2006 114026157 – –
termination charges of 656959 were also paid to another related party parallax capital partners llc which is a minority shareholder
micro focus international plc
55 29  reconciliation of net assets and profit under uk gaap to ifrs
the analysis below shows a reconciliation of net assets and profit as reported under uk gaap as at 30 april 2005 to the revised net
assets and profit under ifrs as reported in these financial statements in addition there is a reconciliation of net assets under uk
gaap to ifrs at the transition date for the group being 1 may 2004
reconciliation of equity at 1 may 2004 date of transition to ifrs
effect of 
transition 
uk gaap to ifrs ifrs
note ’000 ’000 ’000
assets
noncurrent assets
goodwill 42404 – 42404
intangible assets bc – 7628 7628
property plant and equipment c 4115 2155 1960
deferred tax assets ab – 8837 8837
46519 14310 60829
current assets
inventories 312 – 312
trade and other receivables 37925 – 37925
investments d 7166 7166 –
cash and cash equivalents d 17254 7166 24420
deferred tax asset ab 5998 5998 –
68655 5998 62657
total assets 115174 8312 123486
liabilities
current liabilities
trade and other payables 53736 – 53736
current tax liabilities 9821 – 9821
financial liabilities – borrowings 10097 – 10097
73654 – 73654
noncurrent liabilities
financial liabilities – borrowings 50037 – 50037
deferred tax liability ab – 4481 4481
noncurrent deferred income 5480 – 5480
55517 4481 59998
net liabilities 13997 3831 10166
shareholders’ equity
share capital 1– 1
share premium 2946 – 2946
other reserves e 118 75 43
profit and loss reserve deficit abe 17062 3906 13156
total shareholders’ equity deficit 13997 3831 10166
notes to the financial statements
for the year ended 30 april 2006
micro focus international plc
56 29  reconciliation of net assets and profit under uk gaap to ifrs continued
reconciliation of equity at 30 april 2005 and 1 may 2005
effect of
transition
uk gaap to ifrs ifrs
note ’000 ’000 ’000
assets
noncurrent assets
goodwill a 38636 3768 42404
intangible assets bc – 8084 8084
property plant and equipment c 3667 1390 2277
deferred tax assets ab – 8331 8331
42303 18793 61096
current assets
inventories 350 – 350
trade and other receivables 50244 – 50244
cash and cash equivalents d 32870 – 32870
deferred tax asset ab 3722 3722 –
87186 3722 83464
total assets 129489 15071 144560
liabilities
current liabilities
trade and other payables f 71192 89 71103
current tax liabilities 11972 – 11972
financial liabilities – borrowings f 8010 89 8099
91174 – 91174
noncurrent liabilities
financial liabilities – borrowings f 103240 127 103367
deferred tax liability ab – 7748 7748
noncurrent deferred income f 7059 127 6932
110299 7748 118047
net liabilities 71984 7323 64661
shareholders’ equity
capital and reserves attributable to the company’s equity holders
share capital 1 – 1
share premium 3376 – 3376
profit and loss reserve deficit e 75192 7323 67869
other reserves abe 169 – 169
total shareholders’ equity deficit 71984 7323 64661
micro focus international plc
57 29  reconciliation of net assets and profit under uk gaap to ifrs continued
reconciliation of profit for the period ended 30 april 2005
effect of 
transition 
uk gaap to ifrs ifrs
note ’000 ’000 ’000
turnover 150645 – 150645
cost of sales b 6327 4587 10914
gross profit 144318 4587 139731
selling and distribution costs 48105 – 48105
research and development b 23407 5809 17598
administrative expenses a 36882 3768 33114
operating profit 35924 4990 40914
interest payable and similar charges 8656 – 8656
interest receivable and similar income 382 – 382
taxation ab 10101 1496 11597
profit for the financial period 17549 3494 21043
explanation of reconciling differences between uk gaap and ifrs
a the goodwill arising from the acquisition of the group from merant plc was previously amortised under uk gaap on a straight
line basis over its estimated useful economic life of 14 years as at 1 may 2004 the net book amount under uk gaap was adopted
as the opening cost under ifrs this goodwill is no longer amortised but is subject to reviews for impairment there is also a
corresponding deferred tax movement as a result 
b development costs were previously expensed through the profit and loss account as permitted by uk gaap in accordance with
ias 38 development costs that meet certain criteria must be capitalised and amortised over the useful economic life to which they
relate the creation of this intangible represents a temporary difference under ifrs that leads to a corresponding deferred tax
liability
c purchased computer software costs were previously recorded as property plant and equipment as permitted by uk gaap 
in accordance with ias 38 all purchased computer software is recorded as an intangible asset 
d under uk gaap deposits held with financial institutions that cannot be withdrawn without penalty are categorised as current
asset investments provided they can be withdrawn within one year under ifrs cash and cash equivalents includes all deposits
with up to three months’ notice
e under uk gaap treasury shares are shown as a movement in the profit and loss reserve under ifrs treasury shares are shown 
in other reserves
f under uk gaap finance lease liabilities are shown under trade and other payables and other noncurrent liabilities under ifrs
these are shown as borrowings 
explanation of material adjustments to the cash flow statement 
a amounts paid for capitalised development costs during the period ended 30 april 2006 are classified as part of cash flows from
investing activities under ifrs but were included as part of operating cash flows under uk gaap
b under ifrs cash and cash equivalents includes shortterm deposits under uk gaap the same has been included in the
management of liquid resources category 
there are no other material differences between the cash flow statement presented under ifrs and the cash flow statement
presented under uk gaap
notes to the financial statements
for the year ended 30 april 2006
micro focus international plc
58 we have audited the parent company financial statements of micro focus international plc for the year ended 30 april 2006 which
comprise the balance sheet and the related notes these parent company financial statements have been prepared under the
accounting policies set out therein we have also audited the information in the directors’ remuneration report that is described 
as having been audited we have reported separately on the group financial statements of micro focus international plc for the year
ended 30 april 2006
respective responsibilities of directors and auditors
the directors’ responsibilities for preparing the annual report the directors’ remuneration report and the parent company financial
statements in accordance with applicable law and united kingdom accounting standards united kingdom generally accepted
accounting practice are set out in the statement of directors’ responsibilities
our responsibility is to audit the parent company financial statements and the part of the directors’ remuneration report to be
audited in accordance with relevant legal and regulatory requirements and international standards on auditing uk and ireland 
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 parent company financial statements give a true and fair view and whether the
parent company financial statements and the part of the directors’ remuneration report to be audited have been properly prepared
in accordance with the companies act 1985 we report to you whether in our opinion the information given in the directors’ report 
is consistent with the parent company financial statements we also report to you if in our opinion 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 other transactions is not disclosed
we read other information contained in the annual report and consider whether it is consistent with the audited parent company
financial statements the other information comprises only the directors’ report the unaudited part of the directors’ remuneration
report the chairman’s statement and the operating and financial review we consider the implications for our report if we become
aware of any apparent misstatements or material inconsistencies with the parent company financial statements our responsibilities
do not extend to any other information
basis of audit opinion
we conducted our audit in accordance with international standards on auditing uk and ireland issued by the auditing practices
board an audit includes examination on a test basis of evidence relevant to the amounts and disclosures in the parent company
financial statements and the part of the directors’ remuneration report to be audited it also includes an assessment of the significant
estimates and judgements made by the directors in the preparation of the parent company 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 parent company financial statements and the part of the
directors’ remuneration report to be audited 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 parent company
financial statements and the part of the directors’ remuneration report to be audited
opinion
in our opinion the parent company financial statements give a true and fair view in accordance with united kingdom generally
accepted accounting practice of the state of the company’s affairs as at 30 april 2006 the parent company financial statements and
the part of the directors’ remuneration report to be audited have been properly prepared in accordance with the companies act
1985 and the information given in the directors’ report is consistent with the parent company financial statements
pricewaterhousecoopers llp chartered accountants and registered auditors
reading
31 july 2006
micro focus international plc
independent auditors’ report to the members of micro focus
international plc
59 2006 2005
note ’000 ’000
fixed assets
investments in subsidiary undertakings v 27086 –
27086 –
current assets
debtors vi 114177 95
cash 10652 –
124829 95
creditors amounts falling due within one year vii 6173 –
net current assets 118656 95
net assets 145742 95
shareholders’ equity
capital and reserves attributable to the company’s equity holders
share capital viii 36644 95
share premium x 100265 –
profit and loss account 8833 –
equity shareholders’ funds 145742 95
the company financial statements on pages 60 to 66 were approved by the board of directors on 31 july 2006 and were signed 
on its behalf by
stephen kelly nick bray
chief executive officer chief financial officer
company balance sheet 
as at 30 april 2006
micro focus international plc
60 i summary of significant accounting policies
the basis of preparation and the principal accounting policies adopted in the preparation of the financial information are set out
below 
a basis of preparation
the company financial statements have been prepared under the historical cost convention and in accordance with the companies
act 1985 and all applicable uk accounting standards 
b foreign currency translation
the functional currency of the company is united states dollars foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the transactions foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at yearend exchange rates of monetary assets and liabilities denominated 
in foreign currencies are recognised in the income statement
c investments in subsidiaries
investments in subsidiaries are held at cost less any accumulated impairment losses 
d share capital share premium and dividend distribution 
ordinary shares are classified as equity incremental costs directly attributable to the issue of new shares or options are shown 
in equity as a deduction net of tax from the proceeds 
dividend distribution to the company’s shareholders is recognised as a liability in the group’s financial statements in the period 
in which the dividends are approved by the company’s shareholders
e taxation
corporation tax is payable on taxable profits at amounts expected to be paid or recovered under the tax rates and laws that have
been enacted or substantively enacted at the balance sheet date
f employee benefit costs 
a pension obligations
the company operates a defined contribution plan for which it pays contributions to publicly or privately administered pension
insurance plans on a mandatory contractual or voluntary basis the company has no further payment obligations once the
contributions have been paid the contributions are recognised as employee benefit expense when they are due prepaid
contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available
b sharebased compensation
the company operated four equitysettled sharebased compensation plans and one cashsettled sharebased compensation plan
during the year
no expense is recognised in respect of share options granted before 7 november 2002 and vested before 1 january 2005 for shares
or share options granted after 7 november 2002 and vested after 1 january 2005 the fair value of the employee services received 
in exchange for the grant of the shares or options is recognised as an expense the total amount to be expensed over the vesting
period is determined by reference to the fair value of the shares or options granted nonmarket vesting conditions are included 
in assumptions about the number of options that are expected to become exercisable at each balance sheet date the entity revises
its estimates of the number of options that are expected to become exercisable it recognises the impact of the revision of original
estimates if any in the income statement and a corresponding adjustment to equity over the remaining vesting period
the shares are recognised when the options are exercised and the proceeds received allocated between share capital and share
premium
ii profit attributable to the company
as permitted by section 230 of the companies act 1985 no separate profit and loss account is presented in respect of the company
the profit for the financial year for the company was 8833000 2005 nil
micro focus international plc
notes to the company financial statements
61 iii  employees and directors
staff costs for the company during the year
2006 2005
’000 ’000
wages and salaries 725 –
social security costs 84 –
other pension costs 4 –
cost of employee share schemes 762 –
total salary costs 1575 –
the average monthly number of employees including remunerated directors during the year was five for further information on the
directors of the company please refer to the remuneration report
iv  dividends
an interim dividend in respect of the year ended 30 april 2006 of 2 cents per share 3987000 in total was proposed and paid
during the year
the directors are proposing a final dividend in respect of the year ended 30 april 2006 of 4 cents per share which would reduce
shareholders’ funds by 7976110 the proposed dividend is subject to approval at the annual general meeting on 27 september 2006
v investments in subsidiary undertakings
2006 2005
’000 ’000
investments in subsidiary undertakings 27086 –
the following principal subsidiary undertakings which are all wholly owned have been included in the company financial statements
only micro focus international limited is directly owned by the company with all other subsidiaries being indirectly owned 
company name country of incorporation principal activities
micro focus international limited cayman islands holding company
micro focus holdings limited uk holding company
micro focus group holdings unlimited 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 ip limited uk 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
notes to the company financial statements
micro focus international plc
62 vi  debtors
2006 2005
’000 ’000
amounts due from group companies 114155 –
other debtors – 95
prepayments 22 –
total 114177 95
the amounts due from group companies are unsecured interest free and repayable on demand
vii  creditors amounts falling due within one year
2006 2005
’000 ’000
trade payables 58 –
amounts payable to group undertakings 265 –
accruals 5850 –
total 6173 –
the amounts payable to group companies are unsecured interest free and repayable on demand
viii  called up share capital 
2006 2005
 
authorised
2499500000 ordinary shares of £010 each 476674646 476674646
50000 redeemable preference shares of £1 each 95354 95354
total authorised share capital 476770000 476770000
30 april 30 april
2006 2005
number  number 
issued and fully paid
ordinary shares at £010 each 199402745 36644393 1 –
50000 redeemable preference shares of £1 each –– 50000 95354
total allotted called up and fully paid share capital 199402745 36644393 50001 95354
on 17 may 2005 the company acquired the entire issued share capital of micro focus international limited by way of a sharefor
share exchange pursuant to which the previous shareholders of micro focus international limited were issued and allotted three
ordinary shares in the capital of the company for every one ordinary share they previously held in micro focus international limited
this resulted in the issue in the company of 147376009 ordinary shares of £010 each on 17 may 2005 51069602 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 at the same date the 50000 redeemable preference shares were redeemed at their nominal value
following the ipo 957134 ordinary shares have been issued in the company of this 872519 have been issued to employees under
share option schemes at prices ranging from £0003 0005 and £017 036 per share and 84615 have been issued to directors 
for a price of £130 224 per share
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 
micro focus international plc
63 ix  employees and directors
sharebased payments
the company has four equitysettled sharebased compensation plans and one cashsettled sharebased compensation plan details 
of which are provided below 
2001 share purchase and option plan
the group had a sharebased compensation plan “the plan” under which employees and directors could be granted options to
purchase the company’s ordinary shares on the full listing of the company to the london stock exchange the options were treated
as having vested and were exchanged for three options in the ordinary shares of the newly listed entity at this date the plan was
closed for new issues no options were granted under the plan during the year
options over ordinary shares held by employees under the plan all of which were exercisable were as follows
weighted average remaining
life years
weighted
range of average
exercise prices exercise price 2006 2005
options   expected contractual
at 1 may 2005 1054160 002 – 162 024 01 38
exercised 425 002
forfeited 32200 002
at 16 may 2005 pre split 1021535 024
31 stock split 2043070
at 17 may 2005 3064605 001 – 054 008
exercised 866369 006
forfeited 107739 008
at 30 april 2006 2090497 001 – 054 009 00 28
the weighted average share price for options exercised during the period was 127
of the 2090497 options over ordinary shares outstanding at 30 april 2006 1956660 had an exercise price in the range of 001 
and 013 per share and 133837 had an exercise price in the range of 031 and 054 per share
no amount was charged through the income statement 2005 £1504000
restricted share agreement
the group also operated a sharebased compensation plan “the agreement” under which senior management could be granted
options to purchase the company’s ordinary shares there were no options over ordinary shares held by employees under the
restricted share agreement at any time during the year ended 30 april 2006 and no amount was charged through the income
statement 2005 137000
share issue
the group also operated a sharebased compensation plan under which senior management was granted ordinary shares in the
company on the full listing of the company to the london stock exchange the plan was closed for new issues during the year
ended 30 april 2006 no options to subscribe for shares were issued under this arrangement and no amount was charged through the
income statement 2005 1407000
notes to the company financial statements
micro focus international plc
64 ix  employees and directors continued
equity bonus plan
the group also operated the equity bonus plan a cashsettled sharebased compensation plan under the rules of the equity bonus
plan eligible employees were awarded equity bonus units at the discretion of the board of directors on the full listing of the company
to the london stock exchange units were paid out under the plan the amount of any realisation payment for each unit was dependent
on the market value of one of the company’s ordinary shares “the sale price” compared to the unit’s base price which was
calculated at the time of award of the unit with reference to the market value of the company’s shares the bonus awarded was 
the difference between the sale price and base price subject to an overall limit on the sale price of ten times the base price
the amount credited through the income statement in relation to the equity bonus plan for the period ended 30 april 2006 was
587000 2005 charge 533000
incentive plan 2005
on 27 april 2005 the remuneration committee approved the rules of the incentive plan 2005 under the terms of the first grant 
of options under the plan on 29 june 2005 five employees were granted options over a total of 200000 shares under the plan for
their part in the ipo these options will vest after a threeyear period under the terms of the second grant of options under the 
plan on 11 january 2006 directors and senior management were eligible the total number of options they will receive is determined
by the company’s aggregate earnings per share eps growth exceeding inflation rpi over a threeyear period commencing 1 may
2005 the total number of potential options as a result of the second grant under the plan assuming the maximum performance
target is attained was 1462348
options issued under the agreement have been valued using the blackscholes optionpricing 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 29 june 2005 11 january 2006
share price at grant date £155 280 £123 225
exercise price £010 018 £010 018
expected volatility 80 80
expected option life years 33
expected dividend yield 1 27
riskfree interest rate 4 4
fair value per option 174 192
the charge to the income statement in the year is 363000 in respect of this plan
micro focus international plc
65 x share premium account 
’000
at 1 may 2005 –
premium on shares issued during the year 100265
at 30 april 2006 100265
xi  capital commitments and contingent liabilities
the company had no capital commitments and no contingent liabilities at 30 april 2006 
xii  related party transactions
the company has taken advantage of the exemption under frs 8 “related party transactions” from disclosing transactions with
other members of the group headed by micro focus international plc transactions with directors are disclosed in the remuneration
report on pages 20 to 25
notes to the company financial statements
micro focus international plc
66 directors
kevin loosemore nonexecutive chairman
stephen kelly chief executive officer
nick bray chief financial officer
david dominik nonexecutive director
prescott ashe nonexecutive director
david maloney nonexecutive director
john browett nonexecutive director
company secretary registered and head office
jane smithard
the lawn
2230 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
micro focus international plc
67
directors secretary registered office and advisers australia
melbourne
suite 109
566 st kilda road
melbourne
victoria 3004
t 6103953 32943
f 6103951 02822
sydney
level 1 845 pacific highway
chatswood sydney
new south wales 2067
t 6102990 46111
f 6102990 46007
belgium
antwerp
uitbreidingstraat 843
2600 berchem 
antwerp
t 3203218 2126
f 3203218 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 3301557 03013
f 3301557 03113
germany
dortmund
nl dortmund
emilfigge strasse 85
44227 dortmund
t 4902317 5850
f 4902317 585555
ismaning
carl zeiss ring 5
d85737 ismaning
t 4908942 0940
f 4908942 094444
ireland
dublin
office 104 
unit 3013 lake drive
citywest business campus
dublin 24
t 35301469 3100
f 353 01469 3115
italy
milan
via ugo bassi 8a
20159 milan
t 39 0269 43401
f 39 0269 434034
rome
via caterina troiani 7179
00144 rome
t 39 0652 62191
f 39 0652 621935
japan
tokyo
6th floor sumitomo fudsan
takanawa park tower
2014 higashi gotanda
shinagawaku
tokyo 1410022
t 8103579 38550
f 8103579 8548
the netherlands
amsterdam
regus schipol tetra 
suite 13
siriusdreef 1727 
wt hoofddorp 2132
amsterdam
t 3102356 89138
f 3102356 89444
norway
oslo
christiania kontorsenter
dronningens gate 6
n0152 oslo
t 4702291 0720
f 4702291 0721
uk
newbury
the lawn
2230 old bath road
newbury
berkshire
rg14 1qn
t 4401635 32646
f 4401635 33966
newbury
units 14 riverpark ind est
ampere road
riverpark ind est
newbury 
berkshire 
rg14 2dq
t 4401635 565399
f 4401635 528997
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
short hills
51 jfk parkway
suite 143
short hills
new jersey 07078
t 1973 218 2400 
f 1 973 218 2401
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
offices
micro focus international plc
68 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 lowlevel 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 endusers
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
enduser 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
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 largescale mission critical business
applications 
micro focus international plc
69
glossary 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
httpwwwmainframemigrationorg
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
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
serviceoriented 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 shareforshare 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 shareforshare 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
httpwwwwsiorg 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
glossary continued
micro focus international plc
70 uk gaap ifrs
nine
months
ended year to year to year to year to
30 april 30 april 30 april 30 april 30 april
2002 2003 2004 2005 2006
’000 ’000 ’000 ’000 ’000
results
revenue 78910 114913 126268 150645 143688
operating profit before exceptional items 19260 27760 31048 47889 36946
exceptional items 4789 1230 2040 6975 14213
operating profit 14471 26530 29008 40914 22733
profit before tax 5389 19926 25775 32640 22558
earnings per share
basic cents 024 984 1237 1428 825
diluted cents 024 963 1200 1398 817
 the amounts disclosed for the year ended 30 april 2004 and earlier periods are stated on the basis of uk gaap with the exception of the exclusion of goodwill amortisation
because it is not practicable to restate amounts for periods prior to the date of transition to ifrs the principal differences between uk gaap and ifrs are explained in 
note 29 to the financial statements
micro focus international plc
71
historical summary 72
forwardlooking statements
certain statements contained in this annual report including those under the captions group at a glance chairman’s statement a view of our market
chief executive officer’s business review chief financial officer’s review directors’ report corporate governance and remuneration report constitute
“forwardlooking 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 forwardlooking statements these forwardlooking statements
can be identified by the use of forwardlooking 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 forwardlooking 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 forwardlooking 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 deploymentrelated turnover expected by the company the degree to which
organisations adopt webenabled 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 forwardlooking statements speak
only as at the date of this annual report except as required by the fsa or by law the company does not undertake any obligation to update or revise
publicly any forwardlooking 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
2230 old bath road
newbury 
berkshire uk
rg14 1qn
tel  44 01635 32646
fax 44 01635 33966
registered no 5134647
wwwmicrofocuscom
 


Summary:
 group at a glance
2
key financial highlights
l turnover 1437 million 2005 1506 million
l operating profit before exceptional items 369 million 2005 479 million
l ebitda
†
before exceptional items 388 million 2005 500 million
l profit before tax 226 million 2005 326 million 
l basic earnings per share before exceptional items 144 cents 2005 186 cents
l net cash balance as at 30 april 2006 559 million 2005 net debt of 786 million
l final proposed dividend of 4 cents per share total dividend for the year of 6 cents per share
l operating profit 227 million 2005 409 million
l ebitda
†
245 million 2005 430 million 
l basic earnings per share of 83 cents 2005 143 cents
key operational highlights
l new management team in place
– stephen kelly joined as chief executive officer on 1 may 2006
– nick bray joined as chief financial officer on 3 january 2006
l cost reduction programme to reduce fixed costs by approximately 100 million announced 
6 april 2006 progressing well
 exceptional items are detailed in note 3
 earnings per share are detailed in note 8
†
ebitda is reconciled to operating profit in note 4
turnover
million
operating profit before 
exceptional items
million
net cash balance
million
ebitda before 
exceptional items
million
06 05 0406 05 04
0
10
20
30
40
50
60
70
60
80
50
40
30
20
10
06 05 04 06 05 04
0
20
40
60
80
100
120
140
160
0
10
20
30
40
50
0
10
20
30
40
50 3
whilst the fullyear results reflected a disappointing year 
for the business the company is financially strong and
generated strong cash flow from its operating activities”
kevin loosemore chairman
revenue by geographic sector
million
689
540
208
north america
europe and middle east
rest of the world
r revenue by type
million
719
680
38
licence fees
maintenance fees
consultancy fees
employees by fun
number
19
147
162
sales and distribut
research and d
general and adm
revenue by geograp
48
38
14
north america
europe and mid
rest of the world
r employees by function
number
193
147
162
sales and distribution
research and development
general and administration    
cost breakdown preexceptionals
million
485
29 1
17 1
12 1
cost of sales
selling and distribution
research and development
other administration costs
revenue by geographic sector
million
689
540
208
north america
europe and middle east
rest of the world
r revenue by type
million
719
680
38
licence fees
maintenance fees
consultancy fees
employees by function
number
193
147
162
sales and distribution
research and developme
general and administrat
revenue by geographic se
48
38
14
north america
europe and middle east
rest of the world
r employees by function
number
193
147
162
sales and distribution
research and development
general and administration    
cost breakdown preexceptionals
million
485
29 1
17 1
12 1
cost of sales
selling and distribution
research and development
other administration costs