1 NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN OR INTO OR FROM THE UNITED STATES, AUSTRALIA, CANADA, JAPAN OR ANY OTHER JURISDICTION WHERE IT IS UNLAWFUL TO DISTRIBUTE THIS ANNOUNCEMENT This announcement is an advertisement for the purposes of the Prospectus Rules of the UK Financial Conduct Authority ("FCA") and not a prospectus and not an offer of securities for sale in any jurisdiction, including in or into or from the United States, Australia, Canada or Japan. Neither this announcement nor anything contained herein shall form the basis of, or be relied upon in connection with any offer or commitment whatsoever in any jurisdiction. Investors should not purchase any shares referred to in this announcement except on the basis of information in the prospectus (the "Prospectus") expected to be published by Sophos Group Limited (to be re-registered as Sophos Group plc and together with the other members of the group, the "Group") in due course in connection with the proposed admission of its ordinary shares ("Shares") to the premium listing segment of the Official List of the FCA and to trading on the main market for listed securities of London Stock Exchange plc (the "London Stock Exchange") (together, "Admission"). A copy of the Prospectus will, following its publication, be available at the Group's registered office at The Pentagon, Abingdon, OX14 3YP, United Kingdom. 3 June 2015 Sophos Group plc Intention to Float on the London Stock Exchange Sophos Group plc ("Sophos", or the "Group") today announces its intention to proceed with an initial public offering (the "IPO" or the "Offer"). The Group intends to apply for admission of its Shares to the premium listing segment of the Official List of the FCA (the Official List ) and to trading on the main market of the London Stock Exchange ("LSE") (together "Admission"). It is expected that Admission will occur in early July Sophos is a global provider of cloud-enabled enduser and network security solutions, offering organisations integrated end-to-end protection against known and unknown IT security threats through products that are easy to install, configure, update and maintain. Sophos has over 30 years of experience in enterprise security. The Group has built a portfolio of products protecting over 200,000 organisations and over 100 million endusers in 150 countries across a variety of industries. 1 The Group sells its products to enterprises of all sizes but its development, sales and marketing efforts are primarily focused on the mid-market, defined as comprising enterprises with between 100 and 5,000 employees. Sophos believes that this market, worth US$ billion in 2014 and representing approximately 72 per cent. of total IT security spending, has historically been underserved by IT security vendors due to their focus on either large enterprises or consumers. Midmarket enterprises face the same IT security threats as larger enterprises but have less resources, capacity and fewer personnel to address these threats. In the year-ended 31 March 2015, the Group generated billings of US$476.0 million, an increase of 22.6 per cent. as compared to billings of US$388.1 million in the year-ended 31 March 2014, and generated strong Cash EBITDA of US$101.4 million in the year-ended 31 March 2015 with an average Cash EBITDA margin of 23.7 per cent. for the years-ended 31 March 2013, 2014 and As at 31 March Source: Canalys
2 Furthermore the Group s unlevered free cash flow generated from operations was US$65.3 million in the year-ended 31 March To protect organisations from the evolving landscape of IT security threats, the Group offers an integrated end-to-end security solution across an organisation s IT infrastructure from network protection products such as Unified Threat Management/Next-Generation Firewall ( UTM/NGFW ), web and security and secure Wi-Fi, as well as enduser protection products such as endpoint protection, encryption, mobile security, and server protection. The Group s IT security solutions are underpinned by SophosLabs, a 24-hour threat analysis centre, which provides real-time cloud-enabled security intelligence and global cross-threat expertise. SophosLabs has locations placed strategically around the world, allowing the Group to continuously update its security products with the latest threat information. The Group operates a channel first sales model where products and services are sold to end customers principally through a network of over 15,000 channel partners as at 31 March The Directors believe that its strategic channel sales model allows the Group to benefit from the significant end customer reach, industry and product knowledge, and strong customer relationships of its channel partners, enabling the Group to scale its end customer base without the delay and expense of expanding its own direct sales teams. The Group s Sophos Cloud platform, introduced in 2013, allows end customers to manage all of their security needs via an easy-to-use, cloud-based management console that provides a unified view across an organisation s IT security environment, including the network, individual devices and each enduser. The Sophos Cloud platform also allows the Group s channel partners to become dedicated IT service providers offering tailored IT security for each of their customers and managing their security installations remotely. Sophos Cloud currently provides a single management console for several of the Group s products (including endpoint, mobile and server security) and the Directors intend that, over time, all of the Group s key security offerings will be managed through Sophos Cloud. Peter Gyenes, Non-Executive Chairman of Sophos said: Sophos is a global leader in the large and high-growth IT security market for mid-market enterprises. Led by an experienced management team with a clear understanding of the market and its trajectory, Sophos has delivered strong returns and has built a solid foundation for the next stage of its development and growth in the public markets. I believe Sophos is strongly positioned for continued market growth and impact. Kris Hagerman, Chief Executive of Sophos said: Protecting against IT security threats is a pressing and urgent global need, and nowhere is that more evident than in mid-market enterprises. They face the same kinds of threats as large enterprises, but lack the resources and staff to address those threats. At Sophos our mission is to be the best in the world at delivering complete, enterprise-grade IT security protection for the largely underserved midmarket. We are guided by three core product principles: that security must be comprehensive, that security can be made simple, and that security is more effective as a system. Sophos offers a complete IT security offering spanning from the endpoint to the network meaning we protect devices, data and servers alike. Our products are designed to be simple to use, with a single unified cloud-based management console, a full complement of cloud-enabled offerings, and a strategy to drive deep and meaningful integration between the historically separate worlds of endpoint and network security to protect against advanced, next-generation threats. Sophos has an enviable 30 year track record of innovation and growth, an installed base of over 200,000 customers, a global network of over 15,000 partners, an experienced leadership team and a
3 unique and differentiated security proposition. Our team has delivered a consistent record of returns and we see further potential for strong growth both in the UK and internationally. Bringing Sophos to the public markets will enable us to access capital, improve our global brand and enhance our ability to enable enterprises around the world, of any size, to deploy a simple and effective security solution. This is a very exciting time for Sophos and UK technology. We are proud of all that Sophos has accomplished over its 30-year history, but we are even more excited about the road ahead as we embark on the next stage of our growth as a public company. Key Highlights Compelling industry fundamentals in IT security and leading position in the large and underserved mid-market IT security market US$32.6 billion for the year-ended 31 December 2014 and forecasted to grow 7.0 per cent. per annum, from 2014 to ; markets for enduser and network security products are each multi-billion dollar markets and forecasted to grow at 6.4 per cent. and 7.2 per cent. per annum, respectively, from 2014 to Group primarily focuses on the mid-market 5, which the Directors believe is one of the largest and most underserved segments within the overall IT security market The mid-market represented US$18.0 billion or approximately 72 per cent. of the total spend in the enterprise IT security market in the year-ended 31 December The mid-market is vulnerable to the same kinds of threats and attacks facing large enterprises, with at least 51 per cent. of data breaches affecting organisations with fewer than 10,000 employees 7 According to PricewaterhouseCoopers ( PwC ), information security was a high or very high priority for the top management of 76 per cent. of large organisations and 82 per cent. of small businesses surveyed in Compared to large enterprises, mid-market enterprises often do not have adequate resources, capacity or personnel to address security threats, and thus are highly interested in security solutions that are simple, comprehensive, and cost-effective to protect against the ever-evolving landscape of security threats Significant global installed base and scale in customers, partners, and billings Over 200,000 enterprise customers, with over 100 million endusers, in 150 countries across a variety of industries Global network of over 15,000 channel partners and distributors US$476.0 million in billings in the year-ended 31 March 2015, with 53.7 per cent. in EMEA, 32.1 per cent. in the Americas, and 14.2 per cent. in APJ Providing integrated, enterprise-grade enduser and network solutions specifically designed for midmarket enterprises 3 IDC WW IT Security Products Forecast and 2013 Vendor Shares: Comprehensive Security Product Review, December 2014, IDC# Enduser: Worldwide Endpoint Security Forecast and 2013 Vendor Shares, December 2014, IDC #250210, Network: IDC Worldwide Network Security Forecast and 2013 Vendor Shares, July 2014, IDC # Businesses comprised of enterprises with between 100 and 5,000 employees 6 Canalys 7 Verizon 2013 Data Breach Investigations Report 8 PWC Information Security Breaches Survey 2014
4 The directors believe the Group is one of the leading IT security vendors offering an integrated end-to-end security solution specifically designed for the mid-market In the year-ended 31 March 2015, 81 per cent. of the Group s billings were generated from organisations with less than 5,000 people The Group s products and services are designed to provide advanced cloud-enabled protection capabilities typically available only to large enterprises, but without the complexity in deployment or maintenance and cost normally associated with such functionality According to the Directors, the key principles of Sophos product strategy are that security must be comprehensive, that security can be made simple, and that security is more effective as a system The Directors believe combining the two disciplines of endpoint security and network security, which have largely been treated by the IT security industry as separate silos for many years, offers a dramatic potential to improve security, especially against advanced next-generation threats The Group is the only IT security vendor in the world to be in the Leader quadrant of the Gartner Magic Quadrant analysis for Endpoint Protection Platforms and Unified Threat Management, spanning both endpoint and network security The Group has built a balanced business at scale across both its Enduser and Network security segments, which the Directors believe is, at present, unique among major IT security vendors; with 47.1 per cent. of total billings attributable to Enduser products, and 47.0 per cent. attributable to Network products for the year-ended 31 March 2015 Comprehensive product suite that can be managed and delivered via the cloud The cloud is central to the Group s product, sales, and marketing strategy The Directors believe that the Group has a key competitive advantage due to Sophos Cloud, its single, integrated cloud-based management and reporting platform that encompasses several of its key security products and which the Group ultimately intends to extend to all its key security offerings The Group offers a suite of cloud-enabled solutions such as web security via the cloud, products to secure cloud infrastructure, encryption technology to protect data shared and stored in the cloud and real-time threat intelligence from SophosLabs delivered through the cloud The Directors believe Sophos Cloud and its range of other cloud-enabled security solutions are effective in attracting new end customers and driving improved renewal rates with existing customers by offering easy deployment, simple management and faster and more effective delivery of security The Group s channel partner dashboard for its cloud-based solutions provides channel partners with an effective customer contract and security management tool while simultaneously providing end customers with improved IT security World-class threat intelligence through SophosLabs SophosLabs is the Group s 24-hour threat analysis centre, providing real-time cloud-enabled security intelligence and global cross-threat expertise, with locations placed strategically around the world The Group has a global network of highly skilled and trained analysts who conduct active research and investigations, respond to threats and analyse end customer submissions on a 24-hour basis
5 SophosLabs combines a significant threat database, big data automated analytics and human discovery and analysis to efficiently process the millions of threat data points that it encounters on a daily basis, and covers nearly every major area of IT security. The Directors believe that the Group s extensive threat database has generated, over time, a world-class threat intelligence capability For the three months ended 31 March 2015, SophosLabs processed approximately 300,000 new unique malware samples, 100,000 domains, one million URLs, three million spam messages and 70,000 deep sandbox analyses, per day High-quality and fast-growing global channel ecosystem The Group operates a channel first sales model where products and services are sold to end customers principally through a network of over 15,000 channel partners 9 This network provides access to over 47,000 sales engineers and over 130,000 sales representatives globally with added industry and geographic knowledge who understand the needs of end customers and the product proposition being offered by the Group The Group maintains a sales team of over 730 partner representatives and sales engineers who exclusively support the Group s channel sales strategy, and none of whom sell directly to end customers As of 31 March 2015, the Group had over 3,400 Blue Chip 10 channel partners; the number of such partners has increased significantly from just over 2,400 in the first quarter of the year-ended 31 March 2013 The Directors believe that the Group s distribution model provides a highly efficient and scalable distribution platform, lowering the cost of delivering the Group s products and services to a large addressable market of millions of small and mid-market enterprises, distributed across a broad geographic spectrum Attractive financial model with significant scale and revenue visibility underpinning accelerating growth, solid profitability and strong cash flow generation The Group s business model provides a high level of billings and revenue visibility, driven by a high proportion of subscription agreements, which are typically paid up front High and stable renewal rates with an enduser net renewal rate (including cross-sells and upsells) of 99.3 per cent for the year-ended 31 March 2015 Strong recent track record of accelerated sales growth, with billings increasing by 28.1 per cent. from US$371.6 million in the year-ended 31 March 2013 to US$476.0 million in the yearended 31 March 2015 In the year-ended 31 March 2015, the Group s Enduser and Network product segments grew more than 2x the market 11 Consistently high cash EBITDA margins with an average Cash EBITDA margin of 23.7 per cent. for the years-ended 31 March 2013, 2014 and Channel partner number as at 31 March Blue Chip partner defined as channel partners who transact five or more deals in a trailing six month period 11 Calculated based on the Group s adjusted billings growth for Enduser products (12.6 per cent.) and Network products (23.9 per cent.) in the year-ended 31 March 2015 and the growth of the enduser market (5.9 per cent., Worldwide Endpoint Security Forecast and 2013 Vendor Shares, December 2014, IDC #250210) and network market (7.4 per cent., Web and revenue information from IDC Worldwide Network Security Forecast and 2013 Vendor Shares, July 2014, IDC #249883, UTM/Next-Gen Firewall and Firewall information from Worldwide Network Security Forecast UTM and FW Breakout) in the year-ended 31 December 2014
6 Cash EBITDA of US$101.4 million for the year-ended 31 March 2015, up from US$97.0 million and US$92.0 million for the years-ended 31 March 2014 and 31 March 2013 respectively The business model s relatively low capital needs drive strong operating cashflow generation, with consistent cash conversion ratios of 51.9 per cent., 65.7 per cent. and 64.4 per cent. in the years ended 31 March 2013, 2014 and 2015 respectively. Unlevered free cash flow generated from operations was US$65.3 million in the year-ended 31 March 2015 Experienced management team, each with over 20 years of IT sector experience The management team has significant expertise in sales, technology, technology product development and marketing and each has over 20 years of experience in the IT industry In particular the management team has significant experience in serving mid-market enterprises across enduser, network and cloud-based security solutions The Directors believe that the management team s expertise, quality of operational execution, and track record of successfully executing and integrating acquisitions are important advantages in a rapidly growing and changing IT security market Clear strategy for growth The Directors believe that the following comprise key drivers of the Group s growth strategy in the medium term: Benefit from a large and rapidly growing addressable market The IT security market was $32.6 billion for the year-ended 31 December , and forecasted to grow 7.0 per cent. per year to over $42 billion in The enduser and network security markets reached US$4.2 billion and US$10.4 in 2014 respectively, and are projected to grow at over 6.4 per cent and 7.2 per cent CAGR ( ) 14 The mid-market represented US$18.0 billion or approximately 72 per cent. of the total spend in the enterprise security market in the year-ended 31 December The Directors believe the Group has a clear and sustainable strategy for growth in these markets: o Continued innovation and expansion of each standalone core product in both capability and ease of use o Continued focus on integration and information sharing between endpoint and network technologies to address next-generation threats via Project Galileo 16, which is planned to be released in the year-ended 31 December 2015 o Continued improvement of the cloud-based management console and cloud-enabled security solutions for end customers and channel partners 12 IDC WW IT Security Products Forecast and 2013 Vendor Shares: Comprehensive Security Product Review, December 2014, IDC# Worldwide Endpoint Security Forecast and 2013 Vendor Shares, December 2014, IDC # Enduser data from Worldwide Endpoint Security Forecast and 2013 Vendor Shares, December 2014, IDC #250210, network data from IDC Worldwide Network Security Forecast and 2013 Vendor Shares, July 2014, IDC # Canalys 16 Project to create integrated, context-aware security where Enduser and Network technology share meaningful information to deliver better protection
7 o Continued optimization of its channel first sales strategy to cost-effectively expand its reach to, and acquisition of, new end customers Leverage Channel First strategy to gain market share The Group has established a leading global network of over 15,000 channel partners and distributors, including over 3,400 Blue Chip channel partners The Group intends to continue to deepen its relationships with existing partners and to grow its channel partner base to benefit from the end customer, industry, product and geographic knowledge and trusted, long-standing end customer relationships of these channel partners The Directors believe that a larger and more active channel partner network will not only allow the Group to gain market share but will also help drive lower go-to-market costs, faster scalability and increased end customer satisfaction Continue to expand globally The Directors believe that the Group s strong history and reputation in the IT security market, innovative product roadmap, large installed base of end customers, global operational improvements and network of more than 15,000 channel partners, provide it with a significant opportunity to grow billings across all its key geographical regions The Group has continued to strengthen its international go-to-market capability over the last twelve months o The reorganisation of the Group s U.S. sales team in the year-ended 31 March 2014 to fully adopt the two-tiered channel first sales model has significantly improved the Americas operational capability as demonstrated by billings growth of 22.6 per cent. in the year-ended 31 March 2015 o The acquisition of Cyberoam in February 2014 significantly increased the Group s presence in EMEA (especially in Middle East and Africa) and APJ (especially in India) o During the last 12 months, the Group expanded its channel first strategy to Japan The Directors expect the Group to continue to grow billings across its global platform, with the highest regional growth anticipated in the Americas and APJ, where it is under-represented vs. the regional distribution of IT security spending Continue to invest in product innovation The Group has a long history of innovation and the industry experience of the Group s leadership and design teams enables the Group to continue to effectively assess and rapidly implement new functionalities and product enhancements The Group s future product innovation will focus on the integration of enduser and network security, cloud-managed and cloud-enabled security products, and the continued improvement and refinement of existing core products, especially to address next-generation threats The Directors believe that the Group s continued investment in its end customer offerings will further enhance and broaden the Group s product suite to attract new end customers and at the same time increase the potential to sell additional products to its existing end customer base
8 Drive cross-sell and up-sell opportunities The Directors believe that the Group has a strong opportunity to further cross-sell and up-sell products and services to its existing installed base of over 200,000 end customers The percentage of end customers licensing or purchasing more than one type of any product increased to 17.0 per cent. as at March 2015 (from 14.4 per cent. as at 30 April 2013); the cross-sell levels between Enduser and UTM/NGFW were only 9.0 per cent. and 19.5 per cent 17, respectively (excluding Cyberoam), as of 31 March 2015 The Directors believe that the Group can enhance its cross sell and up-sell levels through launching Project Galileo, which offers deep, meaningful and intelligent integration between the Group s Enduser and Network offerings; continuing to expand Sophos Cloud, the Group s single, integrated cloud-based management console which dramatically simplifies the ability for a customer or partner to purchase and deploy additional products; and by further educating and incentivising its channel partners to effectively promote the Group s complete, integrated product portfolio Overview of the Offer Intention to list on the premium segment of the Official List and to trade on the main market for listed securities of the London Stock Exchange The Group expects to raise net primary proceeds of approximately US$100 million 18. The net proceeds from the issuance of new shares will be used to reduce overall indebtedness and provide the company with greater financial flexibility to drive the future growth of the business At the end of April 2015, the Group had net debt of US$318.8 million 19, that represented approximately 3.1x Cash EBITDA for the year to 31 March 2015; following receipt of the net primary proceeds from the offering, net debt is anticipated to reduce to approximately 2.2x Cash EBITDA The Global Offer will also provide existing shareholders of the Group, including funds advised by Apax Partners LLP (the Apax Funds ), Investcorp Technology Partners III LP ( Investcorp ), the Group s founders, the Group's senior management, current and former employees and other investors, the opportunity for a partial realisation of their investment in Sophos Each of the Group, the Apax Funds, Investcorp, senior management and other shareholders will agree to customary lock-up arrangements with respect to their shareholdings for specific periods of time following Admission. It is currently expected that the Apax Funds, Investcorp and the Group s founders will enter into 180 day lock-up arrangements and senior management will enter into 360 day lock-up arrangements, each subject to customary exceptions It is expected that Admission will take place in early July 2015 and that, following Admission, Sophos will become eligible for inclusion in the FTSE UK Index Series (in the FTSE 250) It is intended that an over-allotment option of up to 15 per cent. of the total offer size will be made available 17 As of 31 March 2015 and excluding Cyberoam, 9.0 per cent. of the Group s Enduser end customers also owned at least one of the Group s UTM/NGFW products and 19.5 per cent. of the Group s UTM/NGFW end customers owned one of the Group s Enduser products 18 Net primary proceeds calculated after deducting transaction costs and exit fees payable to all existing shareholders from total gross primary proceeds of approximately US$125m 19 Net debt of US$318.8m excludes capitalised debt issue costs of US$5.9 million and shareholder loan of US$477.0 million which will be settled as part of the IPO process
9 Immediately following Admission, the Group expects to have a free float of at least 25 per cent. The Global Offer will comprise an offer of shares to (i) institutional investors in the UK and other qualifying jurisdictions outside the United States under Regulation S under the U.S. Securities Act of 1933, as amended (the "U.S. Securities Act") and (ii) to qualified institutional buyers in the United States in reliance on Rule 144A under the U.S. Securities Act Full details of the Global Offer will be included in the Prospectus expected to be published in the coming weeks In relation to the Offer and Admission, J.P. Morgan Securities plc, which conducts its UK investment banking activities as J.P. Morgan Cazenove ("J.P. Morgan Cazenove"), and Morgan Stanley & Co. International plc ( Morgan Stanley ) are acting as Joint Global Coordinators and Joint Bookrunners (with J.P. Morgan Cazenove acting as Sole Sponsor and Morgan Stanley as Stabilisation Manager), with Deutsche Bank AG, London Branch ( Deutsche Bank ) and UBS Limited ( UBS ) acting as Joint Bookrunners and Numis Securities Limited ( Numis ) and Pacific Crest Securities, a division of KeyBanc Capital Markets Inc. ( Pacific Crest ) acting as Co-Lead Managers. Moelis & Company UK LLP ( Moelis & Company ) is acting as Financial Adviser to the Group Enquiries: Financial Adviser to Sophos: +44 (0) Moelis & Company: Mark Aedy Robert Sorrell Alexander Hageman Joint Global Co-ordinator, Joint Bookrunner and Sole Sponsor J.P. Morgan Cazenove: +44 (0) Nicholas Hall Markus Boser James Taylor Joint Global Co-ordinator, Joint Bookrunner and Stabilisation Manager Morgan Stanley: +44 (0) Henrik Gobel Enrique Perez-Hernandez Bill Hutchings
10 Joint Bookrunners Deutsche Bank: +44 (0) Brian Truesdale Lorcan O Shea Matthew Gehl UBS: +44 (0) Thomas Koehrer Christopher Smith Co-Lead Managers Numis Securities: +44 (0) Alex Ham Simon Willis Pacific Crest: +1 (800) Rodd Langenhagen David Spitz Terry Schallich Media Enquiries Brunswick Group (Public Relations Advisor to Sophos): +44 (0) Sarah West Katie Ioanilli
11 Financial highlights For the year-ended 31 March (US$ millions) 2013 Billings Revenue Cost of sales (59.6) (65.6) (89.3) Gross profit Operating (loss)/profit (52.6) (9.7) 22.2 Net cash flow from operating activities continuing operations 44.1 Adjusted EBITDA 82.0 Cash EBITDA Unlevered Free Cash Flow Dividend policy As a public company, the Directors intend to adopt a progressive dividend policy, reflecting the cash generative nature and long term earnings potential of the Group. Assuming that there are sufficient distributable reserves available at the time, the Directors intend to target a dividend of 20 per cent. of free cash flow for the financial year. The Group may revise its dividend policy from time to time. Board of directors Chaired by Peter Gyenes, the Board of Directors has been further strengthened ahead of the proposed IPO by the appointment of Paul Walker as Senior Independent Non-Executive Director: Non-Executive Chairman Chief Executive Officer Chief Financial Officer Non-Executive Director Senior Independent Director Peter Gyenes Kris Hagerman Nick Bray Steve Munford Paul Walker Independent Non-Executive Director Sandra E. Bergeron Independent Non-Executive Director Edwin J. Gillis Non-Executive Director Non-Executive Director Salim Nathoo Roy Mackenzie Director biographies Peter Gyenes, Chairman Peter Gyenes joined the Group as a Non-Executive Director in 2006 and will be Chairman of the Group at Admission. Peter was the Chairman and Chief Executive Officer of Ascential Software Corporation until its acquisition by IBM in April He had previously held executive management
12 positions at Prime Computer, Encore Computer and Data General Corporation. He has four decades of experience in technical, sales, marketing and general management positions within the computer systems and software industry in the Americas, Europe and Asia/Pacific. He serves on the boards of Epicor Software Corporation, Carbonite Inc., Intralinks, Inc., Pegasystems Inc., RealPage Inc., Cimpress N.V. and the Massachusetts Technology Leadership Council (Trustee Emeritus).He has previously served on the boards EnerNoc and Talend SA, and on the boards of Applix, Authoria, BladeLogic, Concerto Software, Invention Machine, Lawson Software, Marathon Technologies, Netezza, webmethods and 170 Systems, until their acquisitions. Peter has a bachelor's degree in mathematics and an MBA from Columbia University in New York. Kris Hagerman, Chief Executive Officer Kris Hagerman joined the Group as CEO in He is responsible for all aspects of the Group s strategic direction and business operations. Prior to joining the Group, Kris was CEO of Corel Corporation, served as group president of data centre management at Symantec and was executive vice president and General Manager of storage and server management at Veritas Software. Earlier in his career, Kris was founder and CEO of BigBook, an online yellow pages service and founder and CEO of Affinia, an online contextual advertising network. Kris also held positions at Silicon Graphics and McKinsey & Company. Kris has a bachelor s degree in Russian and economics from Dartmouth College, an M.Phil. in international relations from Cambridge University and an MBA from the Stanford Graduate School of Business. Nick Bray, Chief Financial Officer Nick Bray joined the Group as CFO in He has worked in the technology sector for more than 20 years. Before joining the Group, Nick was Group CFO at Micro Focus International plc, at Fibernet Group plc and at Gentia Software plc. He also held senior financial positions at Comshare Inc. and Lotus Software. Nick has a 1st class bachelor's degree in civil engineering from Aston University, UK, and is a qualified chartered accountant, having trained with PWC. Paul Walker, Senior Independent Director Paul Walker joined the Board as an Independent Non-Executive Director in March 2015 and will be Senior Independent Director of the Group at Admission. Paul brings more than 30 years of technology and senior leadership experience to the Group, having served for 16 years as chief executive officer of Sage Group plc., a leader in business solutions for small and medium businesses. Paul is currently non-executive chairman of Perform Group Ltd. and non-executive chairman of Halma plc. He is also a non-executive director for WANdisco plc. and Experian plc. Paul has previously served on the boards of Diageo plc., My Travel Group plc. and Ernst & Young. Paul qualified as a Chartered Accountant with Ernst & Young, having graduated from York University with a degree in economics. Steve Munford, Non-Executive Director Steve Munford is currently the Non-Executive Chairman at the Group and will be a Non-Executive Director of the Group at Admission. He served as the Group s CEO from 2005 to 2012 and, during that time, led the Group through a period of dramatic growth, more than tripling billings. Prior to his role as CEO, Steve served as President of the Group for North America and then became Chief Operating Officer, responsible for the day-to-day running of the company and its senior management team. Previously, he was President of ActiveState before its acquisition by the Group in Steve has a bachelor's degree in economics from the University of Western Ontario and an MBA from Queen's University, Ontario. Sandra E. Bergeron, Independent Non-Executive Director
13 Sandra Bergeron joined the Board as an Independent Non-Executive Director in Sandra is a director of F5 Networks, Inc. and Qualys, Inc. She previously was a venture partner at Trident Capital and previously served as a director of TraceSecurity, Inc. and Tipping Point. Sandra was also a director of Netegrity, Nuance Communications, TriCipher, and ArcSight until their acquisitions. In her ten-year career at McAfee, Inc., Sandra held a number of key executive positions, including head of research and development, president of the PGP Security business unit, and head of corporate strategy and M&A. Sandra served on the Silicon Valley Blue Ribbon Task Force on Aviation Security after selection by U.S. Congressman Mike Honda and San Jose, California Mayor Ron Gonzales. Through her chairmanship of the Bergeron Women in Technology Mentorship program at Georgia State University and the University of California at Berkeley, Sandra actively promotes women in technology. Sandra holds an MBA from Xavier University in Cincinnati, Ohio and a Bachelors in business administration (Cum Laude) from Georgia State University, where she has been named to the Hall of Fame at the J. Mack Robinson College of Business. Edwin J. Gillis, Independent Non-Executive Director Edwin Gillis joined the Group as an Independent Non-Executive Director in He is currently a member of the board of directors and chairman of the audit committees of Teradyne Corporation (NYSE), LogMeIn (NASDAQ) and AppNexus. He was a director and member of the audit committee at BladeLogic, Endeca, Equalogic Inc., Plex Systems, Responsys (NASDAQ) and Trizetto until their acquisitions. Edwin has been a business consultant since 2006, including interim leadership roles at Skype and Avaya. From July 2005 through January 2006, he was Senior Vice President of Administration and Integration at Symantec Corporation, which he joined as a result of Symantec s merger with Veritas Software. At Veritas Software, Edwin was Executive Vice President and Chief Financial Officer. Before joining Veritas in November 2002, Edwin was Executive Vice President and Chief Financial Officer of Parametric Technology Corporation. Before joining Parametric Technology Corporation in 1995, Edwin was the Chief Financial Officer for Lotus Development Corporation and spent 15 years with Coopers & Lybrand as a certified public accountant and general practice partner. Edwin has a bachelor's degree in government from Clark University in Massachusetts, a master's degree in international relations from the University of Southern California and an MBA from Harvard Business School. Salim Nathoo, Non-Executive Director Salim Nathoo joined the Group as Non-Executive Director in He is a partner of Apax Partners LLP s' technology and telecom team. He joined Apax Partners LLP in 1999 and has been involved in a variety of investments including igate, a global IT services provider, Global Logic, an outsourced product development services provider, Evry, a Nordic IT services provider, Orange Switzerland, a Swiss telecoms operators, SMART Technologies, an interactive collaboration technology provider, Promethean World, an education technology provider, Weather Investments, a holding of Asian, African and European mobile and fixed telecom operators, Tim Hellas, a Greek mobile operator, Inmarsat, a mobile satellite services provider and Mobifon, a Romanian mobile operator. Before he joined Apax Partners LLP, Salim worked at McKinsey & Company, Inc., where he focused extensively on telecommunications. Salim also held sales, marketing and technical positions at NYNEX CableComms Ltd. and IBM. He earned a master's degree in mathematics from St. John's College, Cambridge University and an MBA from INSEAD. He has served as advisor and board member to a number of Apax Fund portfolio companies including EVRY, Global Logic, igate, Orange Switzerland, SMART Technologies, Weather Investments, Tim Hellas and Promethean. Roy Mackenzie, Non-Executive Director Roy Mackenzie joined the Group as a Non-Executive Director in He is a Partner at Apax Partners LP, where he focuses on investments in the technology and telecom sector. Prior to joining Apax Partners LP in 2003, Roy was a consultant at McKinsey & Company, Inc., where he focused on
14 serving technology industry clients. Roy currently serves as a member of the board of directors of Exact, Epicor Software Corporation and King Digital Entertainment. Roy previously served as a member of the board of directors of NXP BV. Roy holds an M.B.A. from the Stanford Graduate School of Business and a Masters of Engineering from Imperial College, London. Defined financial terms Billings and Billings Growth Billings represents the full value of products and services, the majority of which are delivered under a subscription agreement and include sales to new end customers plus renewals and additional sales to existing end customers. Under the subscription model, end customers pay the Group for the entire amount of the subscription in cash upfront upon initial delivery of the applicable products and services. Although the cash is paid up front, under IFRS, subscription revenue is deferred and recognised rateably over the life of the subscription agreement, whereas hardware revenue is typically recognised upfront. Billings is presented to enhance a prospective investor s understanding of the Group s current performance. The Directors use billings as a key performance indicator of the Group s business and as a supplemental tool to assist in evaluating current business performance. Billings is not defined under IFRS and other companies may calculate billings differently or may use such measure for different purposes than the Group does, limiting the usefulness of such measure as a comparative measure. Prospective investors should not consider billings in isolation, as an alternative to profit before tax, as an indication of operating performance, as an alternative to cash flows from operating activities or as a measure of the Company s profitability or liquidity. Adjusted Billings Adjusted billings represents the Group s billings (including Cyberoam from the point of its acquisition by the Group on 6 February 2014) on a constant currency basis and Cyberoam s billings on a reported basis for the pre-acquisition period from 1 April 2013 to 6 February Adjusted billings is unaudited and is presented to enhance comparability of the Group s results from period to period by excluding the impact of foreign exchange rate fluctuations. The Directors use adjusted billings as a key performance indicator of the Group s business and to provide a supplemental measure of billings performance. Adjusted and Cash EBITDA As used in this Announcement, adjusted earnings before interest, taxation, depreciation and amortisation ( Adjusted EBITDA ) is defined as the Group s operating (loss)/ profit adjusted for depreciation and amortisation charges, any gain or loss on the sale of tangible and intangible assets, stock option charges, both unrealised, and realised debt, foreign exchange differences and exceptional items and other adjustments. As used in this Announcement, cash earnings before interest, taxation, depreciation and amortisation ( Cash EBITDA ) is defined as Adjusted EBITDA with billings replacing recognised revenue. Information regarding Adjusted and Cash EBITDA or similar measures is sometimes used by investors to evaluate the efficiency of a company s operations and its ability to employ its earnings toward repayment of debt, capital expenditures and working capital requirements. There are no generally accepted principles governing the calculation of Adjusted and Cash EBITDA or similar measures and the criteria upon which Adjusted and Cash EBITDA or similar measures are based can vary from company to company. The Directors believe that Adjusted EBITDA is an appropriate supplemental measure of earnings as it facilitates operating performances on a period-to-period basis by excluding non-recurring and other items that the Directors do not consider indicative of the Group s core operating performance. The Directors believe that Cash EBITDA is an appropriate supplemental measure of earnings and cash flow due to the recognition of revenue from subscription billings rateably over subsequent periods,
15 and accordingly the Directors believe it provides visibility on actual cash at hand even if the associated revenue has not yet been recognised. Adjusted and Cash EBITDA by themselves, do not provide a sufficient basis to compare the Company s performance with that of other companies and should not be considered in isolation or as a substitute for operating (loss)/ profit or any other measure as an indicator of operating performance, or as an alternative to cash generated from operating activities as a measure of liquidity. Unlevered Free Cash Flow Unlevered Free Cash Flow, as used in this Announcement, represents Cash EBITDA less purchases of property, plant and equipment and intangibles, plus cash flows in relation to changes in working capital and taxation. Unlevered Free Cash Flow is unaudited and is presented to enhance a prospective investor s understanding of the Group s cash generation and provide prospective investors with a useful supplemental measure for comparing the Group s liquidity in respect of its operations from period to period without the distortions of exceptional and other non-operating items. The Directors use Unlevered Free Cash Flow as a key performance indicator of the Group s business and as an indicator of the Group s ability to make strategic investments, repay its debt and meet other payment obligations. Unlevered Free Cash Flow is not defined under IFRS and other companies may calculate Unlevered Free Cash Flow differently or may use such measure for different purposes than the Group does, limiting the usefulness of such measure as a comparative measure. Prospective investors should not consider Unlevered Free Cash Flow in isolation, as an alternative to profit before tax, as an indication of operating performance, as an alternative to cash flows from operating activities or as a measure of the Company s profitability or liquidity. Disclaimer / Forward looking statements Important notice The contents of this announcement, which has been prepared by and is the sole responsibility of the Group, have been approved by J.P. Morgan Securities plc and Morgan Stanley & Co. International plc for the purposes of section 21(2)(b) of the Financial Services and Markets Act 2000, as amended ( FSMA ). The information contained in this announcement is for background purposes only and does not purport to be full or complete. No reliance may be placed for any purpose on the information contained in this announcement or its accuracy, fairness or completeness. Neither this announcement nor the information contained herein is for publication, distribution or release, in whole or in part, directly or indirectly, in or into or from the United States (including its territories and possessions, any State of the United States and the District of Columbia), Australia, Canada, Japan or any other jurisdiction where to do so would constitute a violation of the relevant laws of such jurisdiction. The Offer and the distribution of this announcement may be restricted by law in certain jurisdictions and persons into whose possession any document or other information referred to herein comes should inform themselves about and observe any such restriction. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction. This announcement does not contain or constitute an offer of, or the solicitation of an offer to buy or subscribe for, the securities referred to herein to any person in any jurisdiction, including the United States, Australia, Canada or Japan or in any jurisdiction to whom or in which such offer or solicitation is unlawful.
16 The securities referred to herein may not be offered or sold, directly or indirectly, in the United States unless registered under the United States Securities Act of 1933, as amended (the "U.S. Securities Act") or offered in a transaction exempt from, or not subject to, the registration requirements of the U.S. Securities Act. The offer and sale of securities referred to herein has not been and will not be registered under the U.S. Securities Act or under the applicable securities laws of Australia, Canada or Japan. There will be no public offer of the Shares in the United States, Australia, Canada or Japan. Subject to certain exceptions, the Shares referred to herein may not be offered or sold in Australia, Canada or Japan or to, or for the account or benefit of, any national, resident or citizen of Australia, Canada or Japan. In any EEA Member State that has implemented Directive 2003/71/EC (together with any applicable implementing measures in any Member State, the Prospectus Directive ) other than the United Kingdom, this announcement is only addressed to and is only directed at qualified investors in that Member State within the meaning of the Prospectus Directive. In addition, in the United Kingdom, this announcement is addressed and directed only at Qualified Investors who (i) are persons who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the "Order"), (ii) are persons who are high net worth entities falling within Article 49(2)(a) to (d) of the Order and (iii) to persons to whom it may otherwise be lawful to communicate it to (all such persons being referred to as "relevant persons"). Any investment or investment activity to which this announcement relates is available only to relevant persons in the United Kingdom and Qualified Investors in any member state of the EEA other than the United Kingdom and will be engaged in only with such persons. Other persons should not rely or act upon this announcement or any of its contents. This announcement contains statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements may be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "plans", "projects", "anticipates", "expects", "intends", "may", "will" or "should" or, in each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. Forward-looking statements may and often do differ materially from actual results. The forward-looking statements reflect the Group's current view with respect to future events and are subject to risks relating to future events and other risks, uncertainties and assumptions relating to the Group's business, results of operations, financial position, liquidity, prospects, growth and strategies. The forward-looking statements speak only as of the date they are made and cannot be relied upon as a guide to future performance. Each of the Group and J.P. Morgan Securities plc, Morgan Stanley & Co. International plc, Deutsche Bank AG, London Branch, UBS Limited, Numis Securities Limited and Pacific Crest Securities, a division of KeyBanc Capital Markets Inc. (together, the "Banks"), Moelis & Company UK LLP (the Adviser ) and their respective affiliates expressly disclaim any obligation or undertaking to update, review or revise any of the forward-looking statements contained in this announcement whether as a result of new information, future developments or otherwise. This announcement is an advertisement and not a prospectus. Investors should not subscribe for or purchase any transferable securities referred to in this announcement except on the basis of information in the Prospectus intended to be published by Sophos in due course in connection with the proposed admission of its Shares to the premium listing segment of the Official List of the FCA and to trading on the main market of the London Stock Exchange. Copies of the Prospectus will, following publication, be available from the Group s website, subject to applicable securities laws, and at the Company s registered office. Any purchase of Ordinary Shares in the proposed Offer should be made solely on the basis of the information contained in the final Prospectus to be issued by the Company in connection with the Offer. Before purchasing any Ordinary Shares, persons viewing this announcement should ensure that they fully understand and accept the risks which will be set out in the Prospectus when published. The information in this announcement is for background purposes only and does not purport to be full or complete. No reliance may be placed for any purpose on the
17 information contained in this announcement or its accuracy or completeness. This announcement does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for any Ordinary Shares or any other securities nor shall it (or any part of it) or the fact of its distribution, form the basis of, or be relied on in connection with, any contract therefor. The information in this announcement is subject to change. The Offer timetable, including the date of Admission, may be influenced by a range of circumstances such as market conditions. There is no guarantee that the Offer will proceed and that Admission will occur and you should not base your financial decisions on the Group's intentions in relation to the Offer and Admission at this stage. Acquiring investments to which this announcement relates may expose an investor to a significant risk of losing all or part of the amount invested. Persons considering making such an investment should consult an authorised person specialising in advising on such investments. This announcement does not constitute a recommendation concerning the Offer. The value of Shares can decrease as well as increase. Potential investors should consult a professional adviser as to the suitability of the IPO for the person concerned. Each of J.P. Morgan Securities plc, Morgan Stanley & Co. International plc and UBS Limited, who are each authorised by the Prudential Regulation Authority (the PRA ) and regulated by the FCA and the PRA in the United Kingdom, Deutsche Bank AG, London Branch, which is regulated by Germany s Federal Financial Supervisory Authority, BaFin and is also authorised by the PRA, but may only be subject to limited regulation by the FCA and the PRA, Numis Securities Limited and Moelis & Company UK LLP, who are each authorised and regulated by the FCA in the United Kingdom and Pacific Crest Securities, a division of KeyBanc Capital Markets Inc., which is regulated by the U.S. Securities and Exchange Commission and the Financial Industry Regulatory Authority, are acting exclusively for the Group and no-one else in connection with the Offer. None of the Banks or the Adviser will regard any other person (whether or not a recipient of this document) as a client in relation to the Offer and will not be responsible to anyone other than the Group for providing the protections afforded to their respective clients nor for giving advice in relation to the Offer or any transaction or arrangement referred to herein. In connection with the Offer, each of the Banks and any of their respective affiliates, acting as investors for their own accounts, may purchase Shares and in that capacity may retain, purchase, sell, offer to sell or otherwise deal for their own accounts in such Shares and other securities of the Group or related investments in connection with the Offer or otherwise. Accordingly, references in the final Prospectus, once published, to the Shares being offered, acquired, sold, placed or otherwise dealt in should be read as including any offer, sale, acquisition, placing or dealing in the Shares by any of the Banks and any of their affiliates acting as investors for their own accounts. In addition, certain of the Banks or their affiliates may enter into financing arrangements and swaps in connection with which they or their affiliates may from time to time acquire, hold or dispose of Shares. None of the Banks intends to disclose the extent of any such investment or transactions otherwise than in accordance with any legal or regulatory obligations to do so. Apart from the responsibilities and liabilities, if any, which may be imposed on any of the Banks or the Adviser by the FSMA or the regulatory regime established thereunder, or under the regulatory regime of any jurisdiction where exclusion of liability under the relevant regulatory regime would be illegal, void or unenforcable, none of Banks, the Adviser or any of their respective affiliates, directors, officers, employees, advisers or agents accepts any responsibility or liability whatsoever for/or makes any representation or warranty, express or implied, as to the truth, accuracy or completeness of the information in this announcement (or whether any information has been omitted from the announcement) or any other information relating to the Group, its subsidiaries or associated companies, whether written, oral or in a visual or electronic form, and howsoever transmitted or made available or for any loss howsoever arising from any use of this announcement or its contents or otherwise arising in connection therewith.
18 In connection with the Offer, Morgan Stanley (the Stabilisation Manager ), or any of its agents, may (but will be under no obligation to), to the extent permitted by applicable law, over-allot Shares or effect other transactions with a view to supporting the market price of the Shares at a higher level than that which might otherwise prevail in the open market. Morgan Stanley is not required to enter into such transactions and such transactions may be effected on any securities market, over-thecounter market, stock exchange or otherwise and may be undertaken at any time during the period commencing on the date of the commencement of conditional dealings in the Shares on the London Stock Exchange and ending no later than 30 calendar days thereafter. However, there will be no obligation on Morgan Stanley or any of its agents to effect stabilising transactions and there is no assurance that stabilising transactions will be undertaken. Such stabilising measures, if commenced, may be discontinued at any time without prior notice. In no event will measures be taken to stabilise the market price of the Shares above the offer price. Save as required by law or regulation, neither Morgan Stanley nor any of its agents intends to disclose the extent of any over-allotments made and/or stabilisation transactions conducted in relation to the Offer. In connection with the Offer, the Stabilisation Manager may, for stabilisation purposes, over-allot Shares up to a maximum of 15 per cent. of the total number of Shares comprised in the Offer. For the purposes of allowing it to cover short positions resulting from any such over-allotments and/or from sales of Shares effected by it during the stabilisation period, the Stabilisation Manager will enter into over-allotment arrangements pursuant to which the Stabilisation Manager may purchase or procure purchasers for additional Shares up to a maximum of 15 per cent. of the total number of Shares comprised in the Offer (the "Over-allotment Shares") at the offer price. The over-allotment arrangements will be exercisable in whole or in part, upon notice by the Stabilisation Manager, for 30 calendar days after the commencement of conditional dealings in the Shares on the London Stock Exchange. Any Over-allotment Shares sold by the Stabilisation Manager will be sold on the same terms and conditions as the Shares being sold in the Offer and will form a single class for all purposes with the other Shares. Certain figures contained in this document, including financial information, have been subject to rounding adjustments. Accordingly, in certain instances, the sum or percentage change of the numbers contained in this document may not conform exactly with the total figure given.