Are you banging your head trying to figure out how to convert a seemingly invalid UTF-8 value into a valid one? You might be surprised to know that the problem isn’t how PHP interprets the characters, but rather a database connection issue. If the UTF-8 value in question looks valid in the database but does not look right when displayed on a web page, that could mean your database connection settings are not set correctly.
In PHP’s sqlsrv_connect page, the function lists connectionInfo as being an optional parameter. One of the connectionInfo option is the CharacterSet, which is set to value SQLSRV_ENC_CHAR by default. What you want to do is set the CharacterSet value to UTF-8. See how easy that was? Your UTF-8 problems should be solved.
$result = sqlsrv_connect($hostname, array(
'UID' => $username,
'PWD' => $password,
'Database' => $database,
'ConnectionPooling' => ($pooling) ? 1 : 0,
"CharacterSet" => "UTF-8" // <---- voila
For more SQLSRV Connection options, go here.