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April 13, 2005

“Dark secret” revealed as Micro Focus plans IPO

Micro Focus International said it plans to seek a listing on the London Stock Exchange in the first half of 2005, proving - if proof were needed - that so-called "legacy" Cobol code is alive and well.

By CBR Staff Writer

In a recent interview with ComputerWire, the company’s CEO Tony Hill said that, One of the dark secrets of IT is that people are still using 200 billion lines of production Cobol code, and it’s actually growing at a billion lines a year.

We try to help people unlock the value of those assets, Hill continued, and reuse them in the new world, whatever that new world may happen to be. For some it’s .Net, for others it might be J2EE or Linux.

Micro Focus specializes in tools that enable its customers to reuse and extend their legacy IT assets, particularly the Cobol based applications that are common on mainframes and other older generation servers. Legacy is a misnomer, however, as analyst house Gartner Group believes 75% of all business data is still processed in Cobol, that there are between 180 and 200 billion lines of Cobol code in use worldwide, and for the last three years 15% of all new applications were built in Cobol.

Micro Focus said its software is used by over 70 of the 2004 Fortune Global 100 companies, and by more than 5,000 customers in total. The company was taken private in a leveraged buy-out in August 2001, and its main equity investor is Golden Gate Capital. For the nine months ended January 31 2005, Micro Focus said it had sales of $110.5m, up 20.4% over the same period in the previous year.

In a statement it offered only EBITDA earnings figures: $35.7m for the same period, up 54.8% year on year. In a statement the company said EBITDA represents earnings before interest, taxes, depreciation and amortization and excludes management charges paid to Golden Gate Capital, stock based compensation, redundancy costs and restructuring costs. The company was not available for further comment by the time we went to press.

It said the IPO is expected to be by way of a placing to institutions. UBS Investment Bank and Goldman Sachs have been appointed joint global co-ordinators of the offer, and in preparation for the listing the company appointed non-executive chairman and an additional non-executive director.

The new non-executive chairman is Kevin Loosemore, formerly COO of Cable & Wireless. The new non-executive director is David Maloney, a non-executive director of Virgin Mobile Holdings and previously CFO of Le Meridien Hotels and Resorts, Thomson Travel Group and Preussag Airlines, as well as group finance director of Avis Europe. The company said it would add one more independent director prior to its listing.

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Micro Focus’ Hill said in a statement yesterday: We believe that Micro Focus’ value proposition to its customers has never been more relevant. As companies around the world seek to reduce operational cost and become more agile, so they are increasingly looking to exploit their investment in legacy IT assets. By helping our customers manage legacy more effectively and drive reuse within contemporary contexts, Micro Focus unlocks sustainable business value. Moreover, our evolutionary approach comes with much less risk than alternative strategies based on wholesale system replacement.

Hill added that the company might make selective small scale technology based acquisitions with the money it expects to raise from an IPO. He said the listing would also give the company a more conventional capital structure and a higher profile.

In the mainframe integration and extension market, the company competes with companies including Neon Systems, Software AG, Relativity Technologies, Jacada, NetManage, WRQ, and Hummingbird. But none are quite so focused on Cobol code as Micro Focus.

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