Regulatory Story
Go to market news section View chart   Print
RNS
Sophos Group Plc   -  SOPH   

Sophos Group Plc - FY19 Annual Financial Report

Released 07:00 16-May-2019

RNS Number : 1825Z
Sophos Group Plc
16 May 2019
 

Sophos Group plc

Results for the year-ended 31 March 2019

 

Group revenue growth of 12% at constant currency
Adjusted operating profit(1) up 87% to $109 million

Rapid transition to next-generation products(2), now representing 47% of business
 

Oxford, 16 May 2019.  Sophos Group plc (the "Group" / LSE: SOPH), a leading provider of next-generation cloud-enabled enduser and network cybersecurity solutions, today issues its audited results for the year-ended 31 March 2019 ("FY19").

 

Financial highlights

·      Total group revenue up 11% to $711 million (an increase of 12% at constant currency)

-      Strong growth in subscription revenue,(3) up 16% year-on-year (an increase of 17% at constant currency)

·      Billings(4) flat YOY at constant currency, reflecting a challenging YOY compare

-      Group net renewal rate of 124%, compared to 140% in FY18 which reflected elevated levels of cross-sell

-      Total billings were affected by a mix shift, with stronger growth in smaller customers particularly driven by managed service provider ("MSP") monthly billings, and a modest reduction in the number of larger transactions compared to the prior-year period

-      Weaker Network hardware billings as customers extended refresh cycles

-      Total subscription renewal base now exceeds $1.2 billion, with the renewal base for FY20 up by 14% at actual rates (19% at constant currency), representing an increase of $55 million to $436 million

-      Strong growth in net new term customer additions to over 335,000 total customers, from 300,000 in FY18; now in excess of 382,000 when including MSP customers

-      119% growth in MSP billings(5) to $19 million, with ARR(6) now at $27 million

·      Continued strong demand for our next generation ("next-gen") solutions

-      Next-gen business, including Sophos Central and XG Firewall, grew 30% at constant currency to $340 million, and now represents 47% of billings

-      Within next-gen business, Sophos Central billings up 23% to $228 million, off a strong compare

·      Step change improvement in adjusted operating profit(3)

-      Adjusted operating profit increased by 87% to $109 million, from $58 million in FY18; driven by revenue growth and operating leverage, as well as a one-off benefit from the reduction in variable performance-related pay in the period

-      Cash EBITDA(7) declined by 16% from $199 million to $168 million as we continue to invest for growth

·      Profit before taxation increased to $54 million, from a loss before taxation of $(41) million in FY18

·      Net cash flow from operating activities of $143 million broadly unchanged year-on-year with close management of working capital and after lower exceptional items

·      Final dividend of 3.7 cents per share, an increase of 6% over the prior year

-      Total dividend for the year of 5.2 cents, an increase of 6%

 

Financial summary

 

FY19

FY18

Growth

 

$M

$M

%

Statutory measures

 

 

 

Revenue

710.6

639.0

11.2

Profit / (Loss) before taxation

53.6

(41.0)

nm

Net cash flow from operating activities

142.9

147.7

(3.2)

Alternative performance measures

 

 

 

Billings

760.3

768.6

(1.1)

Cash EBITDA

167.9

199.2

(15.7)

Adjusted operating profit

109.0

58.3

87.0

Unlevered free cash flow(8)

123.8

139.6

(11.3)

 

 

Outlook

We believe the drivers are in place for continued future revenue growth, principally driven by growth in our subscription business, especially in our next-generation products.  We intend to continue to invest to support this growth, with a return to operating profit margin leverage after FY20.

 

 

Note:  Our guidance is now focused on revenue and adjusted operating profit, as we view the billings metric as becoming less indicative of the medium-term growth in our business; this will increasingly be the case as MSP revenues expand, as more of our products are delivered as a service, and due to the short-term variations in the renewal rate that can occur due to external factors and the timing of product releases.

 

Chief Executive Officer, Kris Hagerman, commented:

"Despite the challenges we faced in FY19, we are pleased with the strategic progress we made during the year.  The demand environment for cybersecurity solutions continues to be robust, and we are confident that we are well positioned competitively, especially as more organisations move to adopt next-generation cybersecurity offerings.   Increasingly, organisations of all sizes are looking for cloud-native solutions, centralised administration, integrated products, AI-powered protection, openness, and a service-oriented approach to security.  Our next-gen solution set and strategy align well with these demands and have helped Sophos deliver strong growth in subscription revenue and customer count.  We have become a leader in the next-gen cybersecurity market, and we are excited about the road ahead."

 

About

The Sophos Group is a leading global provider of next-generation cloud-enabled enduser and network security solutions, offering organisations end-to-end protection against known and unknown IT security threats through products that are easy to install, configure, update and maintain.  For further information please visit: www.sophos.com.  The Group has over 30 years' experience in enterprise security and has built a portfolio of products that protects over 382,000 organisations and over 100 million endusers in 150 countries, across a variety of industries.

Forward-looking statements

Certain statements in this announcement constitute "forward-looking statements".  These forward-looking statements involve risks, uncertainties and other factors that may cause the Group's actual results, performance or achievements, or industry results, to be materially different from those projected in the forward-looking statements.  These factors include general economic and business conditions; changes in technology; timing or delay in signing, commencement, implementation and performance or programmes, or the delivery of products or services under them; structural change in the security industry; relationships with customers; competition; and ability to attract personnel.  You are cautioned not to rely on these forward-looking statements, which speak only as of the date of this announcement.  The Group undertakes no obligation to update or revise any forward-looking statement to reflect any change in expectations or any change in events, conditions or circumstances.
 

Contact

Sophos Group plc

Tel: +44 (0) 1235 559 933

Kris Hagerman, Chief Executive Officer

Nick Bray, Chief Financial Officer

Derek Brown, Vice President Investor Relations

Financial Public Relations

James Macey White / Mat Low

Tulchan Communications
Tel: +44 (0) 20 7353 4200

 

 

 

 

 

Conference call and webcast

Sophos management will be hosting an analyst and investor meeting to discuss the FY19 results at 09:30 BST today.  Please register your attendance at YBalman@tulchangroup.com.

 

This event is also accessible via conference call and audio-webcast, for registered participants.  A replay of the audio-webcast will be also accessible via the Sophos investor website following the presentation.  To register for the webcast and access the presentation materials please visit:

 

https://investors.sophos.com/events-and-presentations

 

Please dial into the conference call 5-10 minutes prior to the start time using the number/conference ID below:

 

Telephone:

+44 (0) 20 7192 8000 (UK) / 0800 376 7922 (toll free)

+1 631 510 7495 (US) / +1 866 966 1396 (toll free)

Conference call confirmation code: 3795428

 

Participants are advised to visit the website at least 15 minutes prior to the commencement of the call, to register and, for those accessing the webcast, to download and install any audio software that may be required.

 

NB: Conference call participants will be able to ask questions during the Q&A session, but those on the webcast will be in a listen-only mode.

 

 

End Notes

1.        Adjusted Operating Profit represents the Group's operating profit / (loss) adjusted for amortisation charges, share option charges and exceptional items.

2.        The next-gen product portfolio consists of the Group's most advanced products, managed in Sophos Central, notably including Sophos Intercept X for endpoint protection and the Sophos XG Firewall.

3.        Restated for the adoption of IFRS 15 and change in accounting policy in respect of research and development expenditure tax credit scheme and provision for interest on uncertain tax positions, as explained in note 3 of the Financial Statements

4.        Billings represents the value of products and services invoiced to customers after receiving a purchase order from the customer and delivering products and services to them, or for which there is no right to a refund.  Billings does not equate to statutory revenue.

5.        MSP Billings exclude Reflexion.

6.        Annual Recurring Revenue is defined as the annualised equivalent of term licenses, subscription agreements and maintenance contracts including OEM and MSP but excluding perpetual licenses.

7.        Cash earnings before interest, taxation, depreciation and amortisation ("Cash EBITDA") is defined as the Group's operating profit/ (loss) adjusted for depreciation and amortisation charges, any gain or loss on the sale of tangible and intangible assets, share option charges, unrealised foreign exchange differences and exceptional items, with billings replacing recognised revenue.

8.        Unlevered free cash flow represents Cash EBITDA less purchases of property, plant and equipment and intangibles, plus cash flows in relation to changes in working capital and taxation.

 

 

 

Chief Executive Officer's Review

FY19 was a challenging year, primarily due to a difficult compare.  However, we are pleased with the strategic progress we made during the year as we drive Sophos' transition to be a market leader in next-generation cybersecurity. 

 

For the fiscal year 2019 ("FY19"), Sophos delivered an 11.2 per cent increase in total revenue (12.0 per cent at constant currency), driven by a 15.9 per cent (16.7 per cent at constant currency) increase in subscription revenue.  Profitability improved significantly, with 87 per cent growth in adjusted operating profit.  The Group also reported a profit before taxation of $54 million and operating cash conversion remained strong.

 

We continued to see healthy growth in our customer base, and closed the year with over 335,000 term customers, having added more than 35,000 net new term customers in FY19.  Growth in MSP was particularly strong, with 119 per cent growth and ARR now at $27 million. When including our MSP program, our customer base now exceeds 382,000. Importantly, we saw continued strong demand for our next-generation security solutions, consisting of our most advanced products, managed in our Sophos Central integrated cloud management platform, including Intercept X for endpoint security, and XG Firewall for network security.  Our next-gen business grew 30 per cent at constant currency to $340 million and represented 47 per cent of FY19 billings. 

 

Billings were broadly unchanged year-over-year, principally reflecting a return to more traditional levels of cross-sell activity in our Enduser security business that had seen unusually elevated levels of demand and growth in the comparative period, due to a new product release and high-profile global ransomware outbreaks.  This is reflected in the headwind we saw to the renewal rate, which declined to 124 per cent in FY19, compared to 140 per cent in the prior-year.  We saw lower hardware sales in the year in our Network business, as customers extended refresh cycles; however, Network customer subscription renewal rates remained healthy.  During the year we experienced a shift in the billings mix, with somewhat fewer large multi-year deals combined with stronger growth in smaller customers particularly driven by our MSP business, which typically generates monthly billings, as opposed to traditional term contracts with an average duration of 26 months.

 

The world of cybersecurity is changing rapidly, driven by more attackers, using more sophisticated approaches, in an overall technology landscape that itself is undergoing radical change:  public cloud infrastructure, SaaS, AI, zero-trust networks, 5G, IoT, security delivered as a service, etc.  If cybersecurity solutions are to be effective today and looking forward, they must continue to evolve - and rapidly.  Sophos has fully embraced this challenge, and we are proactively driving an exciting transition to next-generation security across our product line, and across our customer and partner base. 

 

Transition to Next-Generation Cybersecurity

We started our next-generation business roughly 5 years ago literally from zero.  At the close of FY19, our next-gen business generated over $340M in billings from over 175,000 customers, 47,000 of which were through MSPs.  Today Sophos is one of the clear industry leaders in next-gen cybersecurity, and in Q4, FY19 we added more than 11,000 net new customers to our next-gen security portfolio.  And it didn't happen overnight.  During the past 5+ years, we have steadily made next-gen cybersecurity a strategic and operational priority: 

·      We shifted our entire company to fully embrace the cloud

·      We took all our most advanced, flagship products and enabled them to be managed in a single, integrated cloud-based management console called Sophos Central

·      We pioneered a concept called "synchronized security", where different cybersecurity products, especially across endpoint and network, actively communicate with each other to deliver both better security and better manageability

·      We committed to be a world leader in applying AI, and especially deep learning neural networks, to the discipline of cybersecurity

 

We are now seeing the impact of those investments in the scale, growth, and robust product roadmap associated with our next-gen offerings.  Our next-gen portfolio is the future of Sophos, and as our business fully transitions to next-gen over time, we believe there will be multiple and significant benefits to Sophos, our customers, and our partners: 

·      Advanced capabilities.  Our next-gen products leverage cutting-edge capabilities, including artificial intelligence and synchronized security, to deliver enhanced security that is at the same time easier to manage. 

·      Robust platform for innovation.  Our next-gen products feature modern architectures that are more modular, scalable, and open - which means we can innovate faster.  And as we focus more of our product development resources on our next-gen portfolio, we can advance them faster vs. competitors.

·      Improved metrics.  Our business metrics for our next-gen products managed in Sophos Central are consistently stronger than their traditional counterparts:  higher customer satisfaction, higher retention rates, higher levels of upsell and cross-sell, lower operating costs for our partners, etc.

·      Opportunity for margin leverage.  Our next-gen portfolio is rapidly increasing its share of our total Sophos business.  As it does so, over time we can streamline our product development, go-to-market, support, and back office investments to focus on fewer products.

 

Strategic Innovation Priorities

We are excited about the opportunity to continue to drive Sophos' evolution into a fully next-gen cybersecurity company - which is already well underway - and to lead the industry in applying next-gen technologies and business models to deliver better protection for customers that stays ahead of the ever-changing threat landscape, and at the same time is easier to manage and administer.  We are making strategic investments in a variety of areas:

 

1.     Synchronized security.  Several years ago, we introduced the concept of synchronized security - in which multiple Sophos products, including endpoint, firewall, server, mobile, email, and others - could share information in real-time, with unmatched levels of speed, detection, and automation.  We now plan to take the concept of synchronized security to a whole new level, through our Darwin project - which will allow multiple security sensors, whether from Sophos or other vendors, to operate as a system to deliver unparalleled protection, with greater visibility, automation, and manageability.

2.     Artificial Intelligence (AI).  The scale and sophistication of the threat landscape is outpacing the ability of humans alone to respond.  Sophos is already a leader in applying artificial intelligence and deep learning to improve cybersecurity.  Going forward, we will continue to advance our AI capabilities, and broaden and deepen our use of AI across our entire next-gen portfolio.

3.     Openness.  Sophos Central is a powerful integrated management platform for Sophos' next-gen products.  This year we will be opening up Sophos Central through a rich set of APIs available to customers, our reseller partners, and other security vendors.  We believe opening up Sophos Central will make it more attractive, flexible, and useful to customers and partners, and extend the vision and value proposition of synchronized security.  Just as Sophos has committed to be a leader in cybersecurity innovation, we are committing to also be a leader in openness.

4.     Public cloud.  Public cloud represents a sea change in computing.  Our endpoint, network, and server products - in both physical and virtual form - already help protect public cloud environments.  With the recent launch of our Cloud Optix product, based on technology from our acquisition of Avid Secure, we are meaningfully enhancing and extending our security value proposition in cloud environments.

5.     Zero-trust networks.  We are architecting our solutions to enable more effective security in a "zero-trust" world where over time the traditional network perimeter and the concept of a "safe" internal network will be less common.  Instead, "zero trust" will become the norm, with ubiquitous high-bandwidth connectivity driven by new platforms like 5G encouraging many organizations to operate in a mode of "never trust, always verify", based on user identity, data, location, and context.

6.     Everything as a service.  "As a service" is taking over virtually all areas of technology and technology-driven businesses, and cybersecurity is no different.  Over time, we expect to make all our solutions available as a service:  endpoint as a service, firewall as a service, public cloud security as a service, and more.  In addition, the shift to "as a service" is driving a dramatic transformation in the channel, where cybersecurity value-added resellers of all sizes are rapidly transitioning their businesses to become service providers for their customers, which enables them to move up the value chain to become more strategic and also enhances the predictability of their business model and customer "stickiness".  Just over two years ago we introduced a new MSP program explicitly designed to enable and support our partners as they embrace this multi-billion dollar new opportunity, and we believe our product portfolio, integrated cloud management console, and channel focus are an ideal fit for MSP partners.  In the relatively short time since launch, we have seen rapid growth in MSP and we closed FY19 with annual recurring revenue of $27 million from more than 47,000 customers, growing over 100 per cent year-over-year.

 

FY19 Product Innovation

During the year we made significant advances in our product portfolio, particularly in our next-generation products:

·      We enhanced the Sophos Central platform, especially in its management and administration capabilities for larger environments and features designed for MSPs to adopt Sophos Central and deploy and manage multiple Sophos products for their customers.

 

·      Intercept X Advanced with Endpoint Detection and Response ("EDR") represented a key advance in our endpoint offering, designed to protect against active hacking and advanced threats that may already exist on customer networks.  Backed by on-demand access to intelligence curated by SophosLabs and built on the foundation of our industry-leading deep-learning neural network technology, we have achieved best-in-class detection rates, combined with leading (low) false-positive rates, and unmatched levels of automation.  Through this innovative use of advanced AI, we are now enabling enterprises of any size, even the most resource-constrained, to identify and prevent cyber-attacks in real time with threat-tracking and first-responder forensics at their fingertips.

 

·      XG Firewall v17.5 was an important new release in our flagship next-generation firewall product that enables customers for the first time to seamlessly manage their firewall within the Sophos Central integrated cloud platform. In addition, v17.5 offers powerful new synchronized security features, including lateral movement detection, to prevent threats from spreading on the same network segment, and synchronized user ID.  The ability to manage the firewall within Sophos Central is an important strategic step and one that we believe will aid future cross-selling activities between the firewall and the rest of our product set.

 

·      We delivered Intercept X for Server, enhancing our existing server protection through the addition of deep learning and anti-exploit capabilities.  Intercept X for Server protects the high-value information that is typically stored on servers and often targeted by cybercriminals.

 

·      We supplemented our own organic product enhancement efforts via targeted acquisitions of two companies:  Avid Secure and DarkBytes:

Avid Secure has accelerated our roadmap for cloud security and lies at the heart of our new Sophos Cloud Optix product.  Cloud Optix provides unmatched visibility into cloud environments, and leverages AI and automation to simplify compliance, governance, and security monitoring in the cloud.  Public cloud providers like AWS and Azure offer customers extraordinary flexibility and power in how they build and operate their cloud infrastructure environments, but they don't provide for full security.  Instead they run a Shared Responsibility model - they ensure security of the Cloud, while customers are responsible for anything they place in the Cloud.  This is where our new Cloud Optix product comes in, which starts with the premise that you can't secure what you can't see.  Cloud Optix represents an important new strategic opportunity for Sophos and allows us to extend our protection to span across endpoint, network, and public cloud environments.

DarkBytes brings to Sophos a highly talented team with significant experience in managed detection and response ("MDR") and Security Orchestration Automation Response ("SOAR").  We are using the DarkBytes technology to enhance our internal efforts to develop a new MDR service offering, which we expect to release in FY20, and we believe represents a natural complement to our EDR product and an exciting cross-sell opportunity for our Intercept X installed base.

 

'Channel First' and 'Channel Best'

Our extensive global partner channel is a key strategic asset for Sophos and remains a key differentiator, compared to other IT security vendors that often operate conflicting routes to market.  Our total partner network expanded to appx. 47,000 during the year and, encouragingly, the number of our most active and productive 'blue-chip' partners rose to 8,000, up from 7,000 a year ago.

 

We were pleased to be recognised once more as the "overall winner" for both Network Security and Endpoint Security in CRN's 2018 Annual Report Card (ARC) Awards, in recognition of the high quality and innovative product and program offerings we deliver to our partner channel.  Sophos ranked highest in all sub-categories and topped the new sub-category for managed and cloud services.

 

Outlook

The demand environment for cybersecurity solutions continues to be robust, and we are confident that we are well positioned competitively, especially as more organisations move to adopt next-generation cybersecurity offerings.   Increasingly, organisations of all sizes are looking for cloud-native solutions, centralised administration, integrated products, AI-powered protection, openness, and a service-oriented approach to security.  Our next-gen solution set and strategy align well with these demands and have helped Sophos deliver strong growth in subscription revenue and customer count.  We have become a leader in the next-gen cybersecurity market, and we are excited about the road ahead.

 

We believe the drivers are in place for continued future revenue growth, principally driven by growth in our subscription business, especially in our next-generation products.  We also expect a return to operating profit margin leverage, following a reduction in the current year as the one-off benefit seen in FY19 from reduced variable performance-related pay unwinds.

 

Finally, I want to thank our entire Sophos team, and our extensive network of channel partners around the world, whose talent and passionate commitment enable us to protect and support over 382,000 organisations (and growing!), every single day.  We sincerely appreciate all you do to make the world a safer place.

 

Kris Hagerman

Chief Executive Officer

16 May 2019
 

Financial Review

 

Revenue growth was strong in the year-ended 31 March 2019 ("FY19") as prior-period subscription billings converted into revenue and as the recently established MSP channel increased in scaleFor FY19, in constant currency Sophos delivered a 12.0 per cent increase in total revenue, driven by a 16.7 per cent increase in subscription revenue.  With the impact of the change to IFRS 15, Revenue from Contracts with Customers reflected in both periods, this growth reflects a true underlying rate.  Reported subscription revenue grew 15.9 per cent, whilst total reported revenue grew 11.2 per cent.  Deferred revenue at the end of the period increased to $742.1 million from $728.6 million a year ago representing a reported growth of 1.9 per cent; lower than revenue growth due to $36.2 million of foreign exchange revaluation principally arising from the weakening of euro and sterling against the US dollar.  The deferred revenue balance gives the Group good visibility of future revenue, with $428.6 million of the deferred revenue due for recognition in less than one year, an increase of 5.1 per cent over the prior-year, or 10.7 per cent at constant currency

 

Billings at reported exchange rates decreased by one per cent to $760.3 million, within which subscription billings were flat year-on-year at $644.6 million.  This performance reflects a challenging prior-year comparison, where Enduser product demand had been significantly boosted by the high-profile ransomware attacks in 2017 and the launch of the Group's next-gen endpoint product.  In addition to this, albeit of lesser extent, the Group experienced a headwind to Network billings as a result of a legacy product transition, principally in the first half, a slow-down in hardware sales as customers extend refresh cycles; and, the increasing significance of the MSP channel with monthly billings.

 

The Group made an operating profit of $60.9 million in the year and adjusted operating profit increased by $50.7 million to $109.0 million, primarily as a result of strong revenue growth.  This year's result benefited from  a foreign exchange gain of $1.5 million, compared to a foreign exchange loss of $6.9 million in the prior-year.

 

The Group's profit before taxation increased by $94.6 million to $53.6 million, from a loss of $41.0 million in the prior-year, primarily as a consequence of the $80.6 million improvement in operating profit supported by a $13.4 million reduction in finance expenses.  Finance expenses benefited from foreign exchange gains in the current year resulting from the strengthening of both sterling and the euro against the US dollar, compared to foreign exchange losses in the prior-year.  The Group's profit for the year increased by $87.8 million to $26.9 million in the year-ended 31 March 2019, which given only a small increase in the year-on-year income tax charge was primarily attributable to the improvement in the profit before taxation.

 

Cash flow from operating activities remained strong at $142.9 million, reduced by $4.8 million from $147.7 million in the prior-year.  The small overall decrease was due to an increase in overheads, partially offset by a reduction in the cashflow outflow on exceptional items and an improved use of working capital.  Unlevered free cashflow decreased by $15.8 million to $123.8 million representing the reduction in net cash flow from operating activities adjusted for the cashflow impact of exceptional items.  

 

The table below presents the Group's financial highlights on a reported basis:

 

FY19

FY181

Change

 

$M

$M

%

Statutory measures

 

 

 

Revenue

710.6

639.0

11.2

Profit / (Loss) before taxation

53.6

(41.0)

nm

Net cash flow from operating activities

142.9

147.7

(3.2)

Alternative performance measures2

 

 

 

Billings

760.3

768.6

(1.1)

Cash EBITDA

167.9

199.2

(15.7)

Adjusted operating profit

109.0

58.3

87.0

Unlevered free cash flow4

123.8

139.6

(11.3)

 

 

1.     Restated for the adoption of IFRS 15 and change in accounting policy in respect of research and development expenditure tax credit scheme and provision for interest on uncertain tax positions, as explained in note 3

2.     Definitions and reconciliations of non-GAAP measures are included in note 4

 

 

 

Revenue and deferred revenue

The Group adopted IFRS 15 Revenue from Contracts with Customers in the current year and has therefore restated the results for the prior-year on a consistent basis, see note 3 for further details.

 

The Group's revenue increased by $71.6 million, or 11.2 per cent, to $710.6 million in the year-ended 31 March 2019.  Subscription revenue was notably strong in the period, with reported growth of 15.9 per cent, or 16.7 per cent on a constant currency basis, because of strong prior-period billings and incremental growth of the MSP channel in the current period. 

 

 

FY19

FY181

Growth

Growth

 

$M (Reported)

$M (Reported)

% (Reported)

%
(CC)

Revenue by Region:

 

 

 

 

- Americas

253.3

223.6

13.3

13.4

- EMEA

363.6

324.5

12.0

12.7

- APJ

93.7

90.9

3.1

6.2

 

710.6

639.0

11.2

12.0

Revenue by Product:

 

 

 

 

- Network

328.5

316.5

3.8

4.7

- Enduser

348.4

291.8

19.4

20.2

- Other

33.7

30.7

9.8

10.0

 

710.6

639.0

11.2

12.0

Revenue by Type:

 

 

 

 

- Subscription

593.9

512.4

15.9

16.7

- Hardware

106.8

115.1

(7.2)

(6.3)

- Other

9.9

11.5

(13.9)

(12.8)

 

710.6

639.0

11.2

12.0

                 

 

1.     Restated for the adoption of IFRS 15 as explained in note 3

 

Revenue in the period of $710.6 million comprised $394.1 million from the recognition of prior-period deferred revenues and $316.5 million from in-period billings.  The majority of the Group's billings, which are recognised over the life of the contract, relate to subscription products (FY19: 84.8 per cent; FY18: 83.8 per cent), with the benefit from increased billings being spread over a number of years on the subsequent recognition of deferred revenue.  The deferred revenue balance at the end of the period of $742.1 million increased $13.5 million year-on-year, an increase of 1.9 per cent.  This was mainly due to a net deferral of billings amounting to $49.7 million partially offset by a net currency revaluation of $36.2 million, a consequence of the weakening of the euro and sterling against the US Dollar during the year.  Deferred revenue due within one year at the balance sheet date of $428.6M increased by 5.1 per cent at actual rates or by 10.7 per cent in constant currency.

 

Revenue in the Americas increased by $29.7 million or 13.3 per cent to $253.3 million in the year-ended 31 March 2019, supported by the recognition of prior-period Enduser billings from the Sophos Central platform and the growth of the MSP channel in the current period.

 

EMEA revenue increased by $39.1 million or 12.0 per cent to $363.6 million in the year-ended 31 March 2019, with growth in Enduser in particular, but also aided by Network sales.

 

APJ revenue increased by $2.8 million, or 3.1 per cent to $93.7 million in the year-ended 31 March 2019, with good growth in Enduser products partially offset by a decline in Network sales following the legacy product transition.

 

 

 

Billings

Group reported billings decreased by $8.3 million or 1.1 per cent to $760.3 million in the year-ended 31 March 2019.  This represented a 0.1 per cent decrease on a constant currency ("CC") basis.

 

 

FY19

FY18

Growth

Growth

 

$M

$M

%

%

 

(Reported)

(Reported)

(Reported)

(CC)

Billings by Region:

 

 

 

 

- Americas

267.8

270.0

(0.8)

(0.7)

- EMEA

395.3

395.1

0.1

0.9

- APJ

97.2

103.5

(6.1)

(2.8)

 

760.3

768.6

(1.1)

(0.1)

Billings by Product:

 

 

 

 

- Network

345.9

353.4

(2.1)

(1.1)

- Enduser

377.1

383.2

(1.6)

(0.7)

- Other

37.3

32.0

16.6

17.1

 

760.3

768.6

(1.1)

(0.1)

Billings by Type:

 

 

 

 

- Subscription

644.6

644.2

0.1

1.0

- Hardware

105.7

113.7

(7.0)

(6.1)

- Other

10.0

10.7

(6.5)

(4.6)

 

760.3

768.6

(1.1)

(0.1)

 

Billings by region

 

Americas

Billings attributable to the Americas decreased by $2.2 million to $267.8 million in the period, representing a 0.8 per cent reduction on a reported basis and 0.7 per cent on a constant currency basis; this decrease largely driven by a decline in Enduser products due to the stronger performance in the prior-year compare as a consequence of the impact of the WannaCry ransomware outbreak and the launch of Intercept X, the Group's next-gen endpoint product, partially offset by an improved performance in UTM sales. 

 

EMEA

Billings attributable to EMEA increased by $0.2 million to $395.3 million in the period, representing 0.1 per cent growth on a reported basis and 0.9 per cent growth on a constant currency basis.  An increase in sales of Server products being partially offset by a reduction in endpoint and email products.

 

APJ

Billings attributable to APJ decreased by $6.3 million to $97.2 million in the period, representing 6.1 per cent on a reported basis and 2.8 per cent on a constant currency basis.  As in the Americas, growth was negatively impacted by the stronger performance in the prior-year compare compounded by a legacy Network product transition in the first-half of the year partially offset by an improvement in sales of Server products.

 

Billings by product

 

Network products

The Group's billings attributable to Network products decreased by $7.5 million to $345.9 million in the period, representing 2.1 per cent reduction on a reported basis and 1.1 per cent on a constant currency basis.  This was mainly a consequence of the previously reported legacy product transition and lower hardware sales to existing customers, who extended their refresh cycles. 

 

Enduser products

The Group's billings attributable to Enduser products decreased by $6.1 million to $377.1 million in the period representing 1.6 per cent reduction on a reported basis and 0.7 per cent on a constant currency basis.  The comparative period benefitted from increased demand driven by high-profile ransomware attacks and the launch of Intercept X, the Group's next-gen endpoint product, whilst the current period saw an increasing significance of the MSP channel which delivers monthly billings.

 

 

Billings by type

 

Subscription billings 

The Group's billings attributable to subscriptions increased by $0.4 million to $644.6 million in the period, representing 0.1 per cent growth on a reported basis and 1.0 per cent growth on a constant currency basis.  The lower year-on-year growth rate was due to the stronger performance in the prior-year compare as a consequence of the impact of the WannaCry ransomware outbreak and the launch of Intercept X, the Group's next-gen endpoint product, which also resulted in the prior-year in abnormal cross-sell and renewal rates.  Within subscription billings, amounts invoiced to managed service providers ("MSPs") increased year-on-year which, combined with a reduction in the number of larger deals in FY18, lowered the overall average deal size.

 

Hardware billings 

The Group's billings for hardware decreased by $8.0 million to $105.7 million, representing 7.0 per cent fall on a reported basis and 6.1 per cent fall on a constant currency basis.  This was mainly a consequence of the previously reported legacy product transition and lower hardware sales to existing customers, who extended their refresh cycles.  However, hardware sales to existing customers is being partially offset by improved hardware sales to new customers.

 

Key billings metrics

 

Billings from new customers

Billings from new customers, including all MSP billings and excluding OEM and consumer, remained consistent at 24.7 per cent of total billings compared to 24.2 per cent in the year-ended 31 March 2018.
 

Retention and renewal rates

The Group's net retention and renewal rates include the impact of cross-selling and upselling, which helps the Group evaluate the success of its strategy to broaden the sales of its product portfolio to existing customers.  The Group's net retention rate decreased from 109.2 per cent at 31 March 2018 to 105.6 per cent at 31 March 2019.  The Group's renewal rate decreased to 124.2 per cent from 139.7 per cent.  Both measures were impacted by the significant increase in cross-sell and upsell during the prior period arising from the impact of the WannaCry ransomware outbreak and the launch of Intercept X, the Group's next-gen endpoint product.

 

Billings by size

Sophos' products are suitable for organisations of any size but are specifically tailored for the Group's target market of mid-market enterprises, typically with fewer than 5,000 employees.  The proportion of billings to this target market remained stable at 86 per cent in the period compared to 85 per cent in the year-ended 31 March 2018.

 

Billings by length of contract

Subscription agreements sold by the Group are of differing durations and are generally between one and three years in duration.  The last twelve months' weighted average contract duration, which provides an indication of the period over which future revenue will be recognised, was 26.4 months for the year-ended 31 March 2019, a small decrease on the 27.6 months for the year-ended 31 March 2018, due primarily to fewer larger deals in the current year which tend to be longer in length and the growth in monthly billings to new customers from the Group's MSP business which increased from 1.1 per cent of total billings in the prior-year to 2.5 per cent in the current year. 

 

The billings analysis of contracts by subscription length for each year was as follows:

 

 

FY19

FY18

Constant currency

 

%

%

Under one year

 

37.7

34.5

One to two years

 

6.9

7.0

Two to three years

 

46.1

48.0

Greater than three years

 

9.3

10.5

 

Cross-sell and upsell opportunities

As the threat landscape evolves and Sophos continues to innovate, there is an opportunity to cross-sell additional products and services, or to upsell enhanced versions of products or additional licences to existing customers.

 

The percentage of customers who own both a Sophos Endpoint and UTM product has continued to improve.  At 31 March 2019, approximately 12.1 per cent of customers had both a UTM product and an Endpoint product compared to 11.2 per cent of customers at 31 March 2018. 

 

Across the entire installed base, customers currently have on average 1.4 products, leaving significant room for future cross-selling activity.  Sophos Central is a fundamental driver of the cross-sell strategy.  As customers move onto the cloud platform and take additional products, the Group's cross-sell metrics have improved, in particular, the average customer spend and the average number of products per Sophos Central customer, the latter higher than the group average at 1.7.
 

Cost of sales

Cost of sales increased by $2.4 million to $146.4 million in the period.  This was due to increased hosting costs as more of the Group's customers move to cloud managed products, costs associated with supporting the Group's products and services that naturally increase as the Group grows, partially offset by a reduction in the volume of appliances sold.

 

Sales and marketing

Sales and marketing expenses increased by $20.0 million or 8.3 per cent, to $259.9 million in the period.  Sales and marketing expenses increased at a rate that exceeded billings growth to facilitate continued support of the business with the reduction in sales productivity largely being a consequence of an increase in the volume of transactions at a slightly reduced average deal size year-on-year.  Going forward, sales and marketing expenses are targeted to grow at slightly less than the rate of billings growth in order to provide margin leverage.

 

Research and development

Research and development expenses increased by $3.6 million, or 2.6 per cent, to $143.9 million in the period.  The Group has a strong focus on new and enhanced products to address the significant market opportunity that it believes exists and allocates resources accordingly.  Research and development expenditure, which in both current and prior period was expensed to the consolidated statement of profit or loss in full, is broadly targeted to grow at the rate of billings.

 

General finance and administration

General finance and administration expenses, excluding exceptional items, foreign exchange and the amortisation of intangible assets, decreased by $1.3 million, or 1.5 per cent, to $87.9 million in the period.  The decrease was due to a lower share-based payment expense partially offset by an increase in underlying general finance and administration expenses. The share-based payment expense decreased by $5.4 million to $36.9 million, due to a revision of the expected vesting for performance awards granted and as a consequence of a lower share price applied to cash-settled schemes.  Underlying general finance and administration expenses increased by 8.7 per cent to $51.0 million, reflecting the annualised increase resulting from prior-period investments in people as well as an increase of certain ongoing compliance costs.

 

Exceptional items, included within general finance and administration expenses, were a net credit of $3.8 million in the period, compared to a net expense of $13.2 million in the prior-year.  The current period credit arose on fair value changes in acquisition contingent consideration, partially offset by some restructuring and legal costs.

 

Amortisation of intangible assets

Amortisation of intangible assets decreased by $8.3 million, or 32.9 per cent, to $16.9 million in the period.  The decrease was due to the Group's reducing balance amortisation policy being greater than the increase arising from acquisitions in the current period.

 

Currency movements and impact

The Group recorded a foreign exchange gain of $1.5 million in the period resulting from a weakening of the euro and sterling against the US Dollar; compared with a loss of $6.9 million in the comparative period.

 

Cash EBITDA

Cash EBITDA decreased by $31.3 million or 15.7 per cent to $167.9 million in the period.  Cash EBITDA margins decreased to 22.1 per cent from 25.9 per cent in the prior-period, as overheads, particularly sales and marketing expenditure, increased year-on-year whilst billings decreased slightly.  The reconciliation of Cash EBITDA to operating loss is included in note 4.

 

Adjusted operating profit

Adjusted operating profit increased by $50.7 million to $109.0 million in the period, resulting from strong revenue growth and benefiting from a small foreign exchange gain partially offset by increased sales and marketing expenditure.  The reconciliation of adjusted operating profit to operating loss is included in note 4.

 

Operating profit

Operating profit was $60.9 million in the period, compared to a loss of $19.7 million in the comparative period which represents an improvement of $80.6 million.  This was principally driven by strong growth in revenue, a foreign exchange gain in the period, compared to a loss in the comparative period, a decrease in the amortisation charge, and an exceptional credit compared to an exceptional loss in the comparative period.  These gains were partially offset by an increase in overheads including Sales and Marketing costs.

 

Net finance costs

Net finance costs decreased by $14.0 million to $7.3 million in the period, due mainly to foreign exchange gains on euro denominated debt following the strengthening of the US Dollar in the period, resulting in a $6.4 million gain compared to a $9.6 million loss in the prior-year.  Interest on uncertain tax positions increased by $2.6 million to $3.5 million due to the switch in the period of the overall tax balance from deferred tax to current tax, interest only being accrued on the latter balance.

 

Income tax

The Group's tax charge for the year was $26.7 million (FY18: $19.9 million) with an effective tax rate of
49.8 per cent (FY18: 48.5 per cent).  The tax charge is higher than the prior-period primarily due to the Group generating a profit, compared with a loss in the comparative period.

 

Profit before tax and profit for the period

The profit before tax increased by $94.6 million to $53.6 million from a loss of $41.0 million in the prior-year, whilst the Group's profit for the year-ended 31 March 2019 increased by $87.8 million to $26.9 million from a loss of $60.9 million in the prior-year.  This is as a result of strong revenue growth supported by increased Sales and Marketing spend and the benefit of a foreign exchange gain of $1.5 million, compared to a foreign exchange loss of $6.9 million in the prior-year combined with a slightly higher tax charge as explained above.

 

Cash flow

Net cash flow from operating activities decreased by $4.8 million to $142.9 million from $147.7 million in the prior period.  The small overall decrease was due to a $9.9 million reduction in the cashflow outflow on exceptional items, a $7.0 million improved use of working capital within the business, both being offset by an increase in overheads, primarily in relation to Sales and Marketing expenses. 

Unlevered free cashflow decreased by $15.8 million to $123.8 million from $139.6 million in the prior-period representing the reduction in net cash flow from operating activities adjusted for the cashflow impact of exceptional items.  

 

 

 

FY19

FY181

 

 

$M

$M

Cash EBITDA2

 

167.9

199.2

Net deferral of revenue

 

(49.7)

(129.6)

Net deferral of expenses

 

0.9

8.4

Foreign exchange

 

1.5

(8.1)

Depreciation

 

(11.6)

(11.6)

Adjusted operating profit

 

109.0

58.3

Net deferral of revenue

 

49.7

129.6

Net deferral of expenses

 

(0.9)

(8.4)

Exceptional items3

 

(3.1)

(13.0)

Depreciation

 

11.6

11.6

Foreign exchange

 

(1.5)

8.1

Change in working capital2

 

(5.2)

(12.2)

Corporation tax paid2

 

(16.7)

(26.3)

Net cash flow from operating activities

 

142.9

147.7

Exceptional items3

 

3.1

13.0

Net capital expenditure2

 

(22.2)

(21.1)

Unlevered free cash flow

 

123.8

139.6

 

1.        Restated for the adoption of IFRS 15 and change in accounting policy in respect of research and development expenditure tax credit scheme ("RDEC") and provision for interest on uncertain tax positions, as explained in note 3

2.        Unlevered free cash flow is also represented by the sum of the marked rows and has been presented to enhance understanding of the Group's cash generation capability

3.        Excludes non-cash movements on exceptional items

Changes in working capital

Working capital is closely monitored by the Group.  The change in working capital continues to reflect growth in the business albeit with a slightly lower outflow in the current year in part due to continued close control of receivables and payables with debtors' days outstanding of 42 days (FY18: 41 days).
 

Capital expenditure

Capital expenditure primarily comprises the acquisition of intangible assets as well as property, plant and equipment.  Net capital expenditure was largely flat year-on-year, with a small increase in tangible assets being offset by a decrease in intangible assets.

 

Cash tax

Cash tax remains payable because of profits arising in local subsidiaries.  Corporation tax paid of $16.7 million is lower than in the prior-year (FY18: $26.3 million) due to lower taxable profits in subsidiaries outside of the UK.  The US paid less tax due to a cut in the rate of federal income tax and a tax overpayment in the prior year. Royalties paid to higher tax jurisdictions also declined as acquisitions were integrated.

 

Financing

There were no changes in the financing of the Group in the year with net debt decreasing to $127.7 million from $186.2 million in the comparative period.  As a result of continued strong net cash flows, cash retained within the business increased to $172.1 million from $120.1 million and is the key driver for the reduction in net debt.  Further analysis of movements on a cash basis is provided in note 16

 

Dividends

The Directors propose that the Company will pay a final dividend in respect of the year-ended 31 March 2019 amounting to 3.7 US Cents per share (FY18: 3.5 US Cents).  Combined with the interim dividend of 1.5 US Cents per share gives a total dividend for the financial year of 5.2 US Cents (FY18: 4.9 US Cents).  Subject to shareholder approval the final dividend will be paid on 11th October 2019 to all shareholders on the register on 20th September 2019. 

 

 

Nick Bray

Chief Financial Officer

16 May 2019

 

 

 

CONSOLIDATED STATEMENT OF PROFIT OR LOSS

For the year-ended 31 March 2019

 

 

 

 

Year-ended

Year-ended

 

 

31 March

31 March

 

 

2019

2018

 

 

 

Restated See note 3

 

Note

$M

$M

 

 

 

 

Revenue

 

710.6

639.0

Cost of sales

 

(146.4)

(144.0)

Gross profit

 

564.2

495.0

 

 

 

 

Sales and marketing

 

(259.9)

(239.9)

Research and development

 

(143.9)

(140.3)

 

 

 

 

General finance and administration:

 

(99.5)

(134.5)

 - Underlying

 

(51.0)

(46.9)

 - Share-based payments

6

(36.9)

(42.3)

 - Exceptional items

7

3.8

(13.2)

 - Amortisation of intangible assets

 

(16.9)

(25.2)

 - Foreign exchange gain / (loss)

 

1.5

(6.9)

Operating profit / (loss)

 

60.9

(19.7)

 

 

 

 

Finance income

8

0.9

0.3

Finance expense

8

(8.2)

(21.6)

Profit / (loss) before taxation

 

53.6

(41.0)

 

 

 

 

Income tax charge

9

(26.7)

(19.9)

Profit / (loss) for the year

 

26.9

(60.9)

 

 

 

 

Earnings per share ($ cents)

 

 

 

Basic and diluted EPS

10

5.6

(13.2)

Diluted EPS

10

 5.4

n/a  

Adjusted operating EPS

10

14.4

3.6

Diluted adjusted operating EPS

10

13.9

3.4

 

All of the loss for the year is attributable to equity holders of the parent company.

 

 

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year-ended 31 March 2019

 

 

 

 

Year-ended

Year-ended

 

 

31 March

31 March

 

 

2019

2018

 

 

  

Restated See note 3

 

 

$M

$M

 

 

 

 

Profit / (loss) for the year

 

26.9

(60.9)

 

 

 

 

Other comprehensive losses:

 

 

 

Items that will not be reclassified subsequently to profit or loss:

 

-  

-  

Items that may be reclassified subsequently to profit or loss:

 

 

 

- Exchange differences arising on translation of foreign operations1

 

(33.7)

(2.6)

Total other comprehensive losses

 

(33.7)

(2.6)

Comprehensive loss for the year

 

(6.8)

(63.5)

 

 

1Exchange differences arising on translation of foreign operations for the year-ended 31 March 2019 of $33.7M include a loss of $39.5M in respect of a re-denomination of goodwill as set out in note 12.

 

 

 

 

 

All of the comprehensive loss for the year is attributable to equity holders of the parent company.

 

 

 

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

At 31 March 2019

Company registered number: 09608658

 

 

 

31 March

31 March

31 March

 

 

2019

2018

2017

 

 

 

Restated
See note 3

Restated
See note 3

 

Note

$M

$M

$M

Non-current assets

 

 

 

 

Intangible assets

12

837.0

869.9

856.0

Property, plant and equipment

13

23.9

25.4

23.4

Deferred tax asset

 

115.0

120.7

100.1

Other receivables

 

16.4

17.5

28.8

 

 

992.3

1,033.5

1,008.3

Current assets

 

 

 

 

Tax assets

 

 5.6

3.7

3.9

Inventories

 

10.6

16.0

16.2

Trade and other receivables

 

195.3

210.8

157.8

Cash and cash equivalents

 

172.1

120.0

68.1

 

 

383.6

350.5

246.0

Total assets

 

1,375.9

1,384.0

1,254.3

 

 

 

 

 

Current liabilities

 

 

 

 

Trade and other payables

 

102.2

134.1

107.3

Deferred revenue

14

428.6

407.9

315.0

Tax liabilities

 

36.3

21.1

20.0

Financial liabilities

15

4.5

17.4

71.1

Provisions

 

0.1

-  

0.4

 

 

571.7

580.5

513.8

Non-current liabilities

 

 

 

 

Trade and other payables

 

10.1

8.2

3.9

Deferred revenue

14

313.5

320.7

238.8

Financial liabilities

15

302.8

306.8

296.3

Provisions

 

7.5

3.3

2.1

Deferred tax liabilities

 

14.6

14.5

21.3

 

 

648.5

653.5

562.4

Total liabilities

 

1,220.2

1,234.0

1,076.2

 

 

 

 

 

Net assets

 

155.7

150.0

178.1

 

 

 

 

 

Represented by:

 

 

 

 

Share capital

 

22.5

22.0

21.6

Share premium

 

126.6

122.3

118.4

Merger reserve

 

(200.9)

(200.9)

(200.9)

Retained earnings

 

119.8

116.8

199.5

Share-based payment reserve

 

153.4

121.8

68.9

Translation reserve

 

(65.7)

(32.0)

(29.4)

Total equity

 

155.7

150.0

178.1

 

These Consolidated Financial Statements were approved by the Board of Directors on 15 May 2019.
 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year-ended 31 March 2019

 

 

 

Share
Capital

Share
Premium

Merger Reserve

Retained
Earnings

Share-
Based
Payment
Reserve

Translation
Reserve

Total

 

$M

$M

$M

$M

$M

$M

$M

As previously reported

21.6

118.4

(200.9)

148.1

68.9

(29.4)

126.7

Adjustments (see note 3)

 

 

 

51.4

 

 

 

At 31 March 2017 restated

21.6

118.4

(200.9)

199.5

68.9

(29.4)

178.1

Loss for the period:

-  

-  

-  

(60.9)

-  

-  

(60.9)

Other comprehensive loss

-  

-  

-  

-  

-  

(2.6)

(2.6)

Total comprehensive loss

-  

-  

-  

(60.9)

-  

(2.6)

(63.5)

Share options exercised

0.4

3.9

-  

-  

-  

-  

4.3

Share-based payments expense

-  

-  

-  

-  

39.6

-  

39.6

Share-based payments deferred tax

-  

-  

-  

-  

13.3

-  

13.3

Cash dividends
(see note 11)

-  

-  

-  

(21.8)

-  

-  

(21.8)

At 31 March 2018

22.0

122.3

(200.9)

116.8

121.8

(32.0)

150.0

Profit for the period:

-  

-  

-  

26.9

-  

-  

26.9

Other comprehensive loss

-  

-  

-  

-  

-  

(33.7)

(33.7)

Total comprehensive loss

-  

-  

-  

26.9

-  

(33.7)

(6.8)

Share options exercised

0.5

4.3

-  

-  

-  

-  

4.8

Share-based payments expense

-  

-  

-  

-  

35.0

-  

35.0

Share-based payments taxation

-  

-  

-  

-  

(3.4)

-  

(3.4)

Cash dividends
(see note 11)

-  

-  

-  

(23.9)

-  

-  

(23.9)

At 31 March 2019

22.5

126.6

(200.9)

119.8

153.4

(65.7)

155.7

 

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year-ended 31 March 2019

 

 

 

 

Year-ended

Year-ended

 

 

31 March

31 March

 

 

2019

2018

 

 

 

Restated See note 3

 

Note

$M

$M

 

 

 

 

Profit / (loss for the year)

 

26.9

(60.9)

Adjusted for:

 

 

 

Depreciation

 

11.8

11.6

Amortisation of intangible assets

 

16.9

25.2

Amortisation of fair value adjustment on deferred income

 

(0.1)

1.0

Fair value adjustment on contingent consideration

 

(6.9)

0.2

Foreign exchange expense

 

(1.5)

8.1

Share-based payments expense

 

35.0

39.6

Finance income

 

(0.9)

(0.3)

Finance expense

 

8.2

21.6

Profit on disposal of assets

 

(0.2)

-  

Income tax charge

 

26.7

19.9

 

 

115.9

66.0

 

 

 

 

Decrease in inventories

 

4.7

1.7

Decrease / (increase) in trade and other receivables

 

8.3

(32.6)

(Decrease) / increase in trade and other payables

 

(20.1)

10.4

Increase in deferred revenue

 

49.9

128.7

Increase / (decrease) in provisions

 

0.9

(0.2)

Cash generated from continuing operations

 

159.6

174.0

 

 

 

 

Income taxes paid

 

(16.7)

(26.3)

Net cash flow from operating activities

 

142.9

147.7

 

 

 

 

Investing activities

 

 

 

Purchase of property, plant and equipment

 

(12.8)

(10.0)

Acquisition of subsidiaries net of cash acquired

16

(30.9)

(4.9)

Purchase of intangible assets - software

 

(9.7)

(11.1)

Proceeds on sale of assets

 

0.3

-  

Finance income

 

0.9

0.3

Net cash flow from investing activities

 

(52.2)

(25.7)

 

 

 

 

Financing activities

 

 

 

Proceeds from issue of shares

 

4.8

4.2

Dividends paid

 

(23.9)

(21.8)

Repayment of borrowings

16

-  

(50.0)

Transaction costs related to borrowings

16

-  

(0.1)

Finance lease payments

 

 -

(0.1)

Finance costs

 

(10.9)

(9.1)

Net cash flow from financing activities

 

(30.0)

(76.9)

 

 

 

 

Increase in cash and cash equivalents

 

60.7

45.1

Net foreign exchange differences

 

(8.6)

6.8

Cash and cash equivalents at the start of the period

 

120.0

68.1

Cash and cash equivalents at the end of the period

16

172.1

120.0

 

 

1. General information

 

Sophos Group plc ("the Company") is a company domiciled in the United Kingdom.  The Company's registered office is Sophos Group plc, The Pentagon, Abingdon Science Park, Abingdon, Oxfordshire, OX14 3YP, United Kingdom.  The Consolidated Financial Statements of the Company as at and for the year-ended 31 March 2019 comprise the Company and its subsidiaries (together referred to as "the Group").  The Group is a leading provider of next generation cloud-enabled enduser and network security solutions.

 

Statutory accounts for the Company for the year-ended 31 March 2018 were approved by the Board of Directors on 16 May 2018 and were delivered to the Registrar of Companies.  The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498 of the Companies Act 2006.

 

These results do not comprise statutory accounts within the meaning of section 435 of the Companies Act 2006.  The consolidated financial statements for the year-ended 31 March 2019 have been audited with an unqualified report being issued.  The report of the auditors did not contain an emphasis of matter paragraph and did not contain any statement under Section 498 of the Companies Act 2006.

 

The consolidated financial statements of the Group for the year-ended 31 March 2019 were approved by the Board of Directors on 15 May 2019.

 

 

2. Basis of preparation

 

The Consolidated Financial Statements have been prepared using International Financial Reporting Standards as adopted by the European Union ("EU") as they apply to the Group.  In addition to complying with its legal obligation to apply IFRSs as adopted by the EU, the Group has also applied IFRSs as issued by the International Accounting Standards Board; collectively "IFRS".

 

Other than for the adoption of IFRS 15, Revenue from Contracts with Customers, and changes to the treatment of Research and Development Credits and interest on uncertain tax provisions, the accounting policies adopted in preparation of the consolidated financial statements are consistent with those used to prepare the Group's consolidated financial statements for the year-ended 31 March 2017.  The impact of the revised accounting policies is set out in note 3 below.

 

The Group has considerable financial resources together with contracts with a large number of customers and across different geographic areas and industries.  As a consequence, the Directors believe that the Group is well placed to manage its business risks successfully.

 

The Group has reported a net profit of $26.9 million for the year-ended 31 March 2019 (2018: Loss of $60.9 million), a net cash flow from operating activities of $142.9 million (2018: $147.7 million) and at 31 March 2019 has net current liabilities of $188.1 million (2018: $230.0 million). After excluding short-term deferred revenue from current liabilities, the Group has net current assets of $240.5 million including significant cash and cash equivalent balances of $172.1 million and, given the cash generative nature of the Group's operations and the visibility of future renewals, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. 

 

The Group meets its current funding requirements through a five-year facility which at 31 March 2019 amounted to $302.4 million that is repayable in July 2020.  The nature of the Group's subscription business is such that there is good visibility in the timing of cash inflows.  Based, in part, on the phasing of the renewal base, the Directors have prepared projected cash flow information for the three-year period from the date of their approval of these financial statements.  On the basis of this cash flow information and discussions with the Group's bankers, the Directors expect that the current loan facilities will be renewed on the majority of the Group's borrowings (which, based on the cash flow projections, will sufficient to cover cash flow requirements) on or before expiry and accordingly, this has been reflected in the cash flow forecast. 

 

Based on the above indications, the Directors believe that it remains appropriate to prepare the annual Consolidated Financial Statements on a going concern basis.  The financial statements do not include any adjustments that would result from the basis of preparation being inappropriate. 

 

 

3. Changes in significant accounting policies

 

Adoption of IFRS 15

The Group has adopted IFRS 15 Revenue from Contracts with Customers ("IFRS 15") in the year-ended 31 March 2019 and in doing so has applied the retrospective transition approach, without applying any of the practical expedients included in the standard.  Consequently, the year-ended 31 March 2018 comparative information has been restated on the same basis.

 

The adoption of IFRS 15 principally impacted the Group in three ways:

-       the earlier recognition of revenue on certain termed licence software products; where they are adjudged to have a distinct performance obligation element that transfers the benefit of ownership at the point of sale rather than over the life of the licence

-       the recognition of rebates in line with the recognition of revenue over the term of the licences sold, which were previously recognised at point of sale; and,

-       the deferral of commissions and other incremental costs incurred to obtain a contract with a customer in line with the recognition of revenue, which were also previously expensed as incurred.


 

RE-allocation of certain components of the income tax charge

The research and development expenditure tax credit scheme ("RDEC") is one which enables UK companies to reclaim a certain percentage of its research and development expenditure via the tax authorities.

Separately, where the Group has an uncertain tax position ("UTP") it may make a provision for any interest payable on final resolution of the open tax computation.

 

In accordance with best practice, the Group has reconsidered its accounting in respect of these two separate items and no longer recognises them as an integral part of the income tax charge.  Consequently, the year-ended 31 March 2018 comparative information has been restated to present it on a consistent basis.

 

The change in accounting principally impacted the Group as follows:

-       Expenditure on research and development now includes the RDEC credit;

-       The finance expense now reflects the provision for interest on uncertain tax positions; and,

-       The income tax charge no longer includes either of the above items.

 

The following tables summarises the impact of these changes for each line item of the Group's consolidated statement of profit or loss and the consolidated statement of financial position for the year-ended 31 March 2018 comparative information. There was no material impact on the Group's consolidated statement of cash flows.

 

 

Consolidated statement of profit or loss for the year-ended 31 March 2018

 

As

 

 

 

 

Previously

IFRS 15

RDEC /

 

 

reported

Adjustment

Interest on UTP

Restated

 

$M

$M

$M

$M

Revenue

640.7

(1.7)

-  

639.0

Cost of sales

(143.3)

(0.7)

-  

(144.0)

Gross profit

497.4

(2.4)

-  

495.0

Sales and marketing

(249.0)

9.1

-  

(239.9)

Research and development

(145.8)

-  

5.5

(140.3)

General finance and administration:

(134.5)

-  

-  

(134.5)

Operating loss

(31.9)

6.7

5.5

(19.7)

Finance income

0.3

-  

-  

0.3

Finance expense

(20.7)

-  

(0.9)

(21.6)

Loss before taxation

(52.3)

6.7

4.6

(41.0)

Income tax charge

(14.0)

(1.3)

(4.6)

(19.9)

Loss for the period

(66.3)

5.4

-  

(60.9)

 

 

 

 

 

Earnings per share (US Cents)

 

 

 

 

Basic and diluted EPS

(14.4)

1.2

-  

(13.2)

Adjusted operating EPS

10.0

1.5

1.2

12.7

Diluted Adjusted operating EPS

9.5

1.3

1.1

11.9

 

 

 

 

 

Consolidated statement of financial position as at 31 March 2018

Non-current assets

 

 

 

 

Deferred tax asset

125.8

(5.1)

-  

120.7

Other non-current assets

896.6

16.2

-  

912.8

 

1,022.4

11.1

-  

1,033.5

Current assets

 

 

 

 

Tax assets

8.2

-  

(4.5)

3.7

Trade and other receivables

177.8

28.5

4.5

210.8

Other current assets

136.0

-  

-  

136.0

 

322.0

28.5

-  

350.5

Current liabilities

 

 

 

 

Deferred revenue

423.9

(16.0)

-  

407.9

Income tax payable

23.0

-  

(1.9)

21.1

Other current liabilities

151.5

-  

-  

151.5

 

598.4

(16.0)

(1.9)

580.5

Non-current liabilities

 

 

 

 

Deferred revenue

331.8

(11.1)

-  

320.7

Provisions

1.4

-  

1.9

3.3

Deferred tax liabilities

6.0

8.5

-  

14.5

Other non-current liabilities

315.0

-  

-  

315.0

 

654.2

(2.6)

1.9

653.5

Net assets

91.8

58.2

-  

150.0

 

 

 

Consolidated statement of financial position as at 31 March 2017

 

As

 

 

 

 

Previously

IFRS 15

RDEC /

 

 

reported

Adjustment

Interest on UTP

Restated

 

$M

$M

$M

$M

Non-current assets

 

 

 

 

Deferred tax asset

105.3

(5.2)

-  

100.1

Other non-current assets

880.7

27.5

-  

908.2

 

986.0

22.3

-  

1,008.3

Current assets

 

 

 

 

Tax assets

7.7

-  

(3.8)

3.9

Trade and other receivables

145.2

8.8

3.8

157.8

Other current assets

84.3

-  

-  

84.3

 

237.2

8.8

-  

246.0

 

 

 

 

 

Current liabilities

 

 

 

 

Deferred revenue

330.6

(15.6)

-  

315.0

Income tax payable

21.0

-  

(1.0)

20.0

Other current liabilities

178.8

-  

-  

178.8

 

530.4

(15.6)

(1.0)

513.8

Non-current liabilities

 

 

 

 

Deferred revenue

250.4

(11.6)

-  

238.8

Provisions

1.1

-  

1.0

2.1

Deferred tax liabilities

14.4

6.9

-  

21.3

Other non-current liabilities

300.2

-  

-  

300.2

 

566.1

(4.7)

1.0

562.4

Net assets

126.7

51.4

-  

178.1

 

 

 

 

4             Alternative performance measures ("APM's")

 

The Group uses certain financial measures that are not defined or recognised under IFRS.  The Directors believe that these non-GAAP measures supplement GAAP measures to help in providing a further understanding of the results of the Group and are used as key performance indicators within the business to aid in evaluating its current business performance.  The measures can also aid in comparability with other companies, particularly in the cybersecurity industry, who use similar metrics.  However, as the measures are not defined by IFRS, other companies may calculate them differently or may use such measures for different purposes to the Group.

 

Constant currency measures have limitations, particularly as the currency effects that are eliminated may constitute a significant element of the Group's revenue and expenses and could materially impact the Group's performance.  The Directors do not evaluate the Group's results and performance on a constant currency basis without also evaluating the Group's financial information prepared at actual foreign exchange rates in accordance with IFRS.

 

Other than for the calculation of adjusted operating EPS (see note 10), the definition of non-GAAP measures in the year-ended 31 March 2019 is consistent with those presented for the year-ended 31 March 2018.  The reconciliation of non-GAAP measures to GAAP measures is set out below.

 

BILLINGS

 

Billings represent the value of products and services invoiced to customers after receiving a purchase order from the customer and delivering products and services to them, or for which there is no right to a refund.  Billings do not equate to statutory revenue.

 

 

Year-ended

Year-ended

 

31 March

31 March

 

2019

2018

 

 

Restated See note 3

 

$M

$M

Revenue

710.6

639.0

Net deferral of revenue (see note 14)

49.7

129.6

Billings

760.3

768.6

Currency revaluation

25.9

18.7

Constant currency billings

786.2

787.3

 

ADJUSTED OPERATING PROFIT AND CASH EBITDA

 

Adjusted operating profit ("AOP") provides a supplemental measure of earnings that facilitates review of operating performance on a period-to-period basis by excluding non-recurring and other items that are not indicative of the Group's underlying operating performance.

 

 

 

Adjusted operating profit is a key profit measure used by the Board to assess the underlying financial performance of the Group.  Adjusted operating profit is stated before the following items for the following reasons:

·      Exceptional items, as set out in note 7, are one of the items that in the judgment of the Directors should be disclosed separately by virtue of their size, nature or incidence, in order to show the underlying business performance of the Group.

·      Charges for the amortisation of acquired intangibles are excluded from the calculation of adjusted operating profit.  This is because these charges are based on judgments about their value and economic life, are the result of the application of acquisition accounting rather than core operations, and whilst revenue recognised in the income statement does benefit from the underlying technology that has been acquired, the amortisation costs bear no relation to the Group's underlying ongoing operational performance.  In addition, amortisation of acquired intangibles is not included in the analysis of segment performance used by the chief operating decision maker.

·      Share-based payment charges are similarly excluded from the calculation of adjusted operating profit because these represent a non-cash accounting charge for transactions that could otherwise have been settled in cash or not be limited to employee compensation. These charges also represent long-term incentives designed for long-term employee retention, rather than reflecting the short-term underlying operations of the Group's business.  The Directors acknowledge that there is an ongoing professional debate on the add-back of share-based payment charges but believe that as they are not included in the analysis of segment performance used by the chief operating decision maker and their add-back is consistent with metrics used by a number of other companies in the global cybersecurity industry, that this treatment remains appropriate. 

 

Cash earnings before interest, taxation, depreciation and amortisation ("Cash EBITDA") is defined as the Group's operating profit / (loss) adjusted for depreciation and amortisation charges, any gain or loss on the sale of tangible and intangible assets, share option charges, unrealised foreign exchange differences (on the basis that they are non-cash income and expenses) and exceptional items, with billings replacing recognised revenue.  The unrealised foreign exchange differences are included within the foreign exchange gain of $1.5M (2018: loss of $6.9M) disclosed on the face of the Consolidated Statement of Profit or Loss.  The Directors consider this metric a useful supplemental measure of earnings that provides visibility on actual cash earned in the year. The replacement of revenue with billings adjusts for the net deferral of revenue, whereas the weighted average contract term is around 28 months, a more material adjustment is generated than for the short-term working capital variations derived from the application of the accruals concept.  Therefore, whilst Cash EBITDA is not a pure cash flow metric, it represents a closer approximation to cash earned in the period from the trading that has taken place.  Depreciation and unrealised foreign exchange differences are adjusted as they do not represent cash costs of the business.

 

 

Year-ended

Year-ended

 

31 March

31 March

 

2019

2018

 

 

Restated See note 3

 

$M

$M

Operating profit / (loss)

60.9

(19.7)

Amortisation of intangible purchased assets

16.9

25.2

Share-based payments expense

35.0

39.6

Exceptional items

(3.8)

13.2

Adjusted operating profit

109.0

58.3

Depreciation

11.6

11.6

Unrealised foreign exchange loss

(1.5)

8.1

Net deferral of revenue

49.7

129.6

Net deferral of related selling expenses

(0.9)

(8.4)

Cash EBITDA

167.9

199.2

 

 

 

Billings

760.3

768.6

Revenue

(710.6)

(639.0)

Net deferral of revenue

49.7

129.6

 

 

 

As set out in note 3, the company made changes in the period to its significant accounting policies in respect of IFRS 15 - Revenue and certain components of the income tax charge.  The following table summarises the impact of these changes for each line item of the Group's adjusted operating profit and Cash EBITDA for the year-ended 31 March 2018 comparative information.

 

 

As Previously reported

IFRS 15 Adjustment

RDEC / Interest on UTP

Restated 

 

$M

$M

$M

$M

Operating loss

(31.9)

5.5

(19.7)

Amortisation of intangible purchased assets

25.2

-  

25.2

Share-based payments expense

39.6

-  

-  

39.6

Exceptional items

13.2

-  

-  

13.2

Adjusted operating profit

46.1

6.7

5.5

58.3

Depreciation

11.6

-  

-  

11.6

Unrealised foreign exchange loss

8.1

-  

-  

8.1

Net deferral of revenue

127.9

1.7

-  

129.6

Net deferral of related selling expenses

-  

(8.4)

-  

(8.4)

Cash EBITDA

193.7

-  

5.5

199.2

 

 

 

 

 

Billings

768.6

-  

-  

768.6

Revenue

(640.7)

1.7

-  

(639.0)

Net deferral of revenue

127.9

1.7

-  

129.6

 

UNLEVERED FREE CASH FLOW

 

Unlevered free cash flow represents net cash flow from operating activities adjusted for exceptional items and net capital expenditure.  Unlevered free cash flow provides an understanding of the Group's cash generation and is a supplemental measure of liquidity in respect of the Group's operations without the distortions of exceptional and other non-operating items.

 

 

Year-ended

Year-ended

 

31 March

31 March

 

2019

2018

 

$M

$M

Net cash flow from operating activities

142.9

147.7

Exceptional items

3.1

13.0

Net capital expenditure

(22.2)

(21.1)

Unlevered free cash flow

123.8

139.6

 

 

 

 

 

 

 

Year-ended

Year-ended

 

31 March

31 March

 

2019

2018

 

$M

$M

Cash EBITDA

167.9

199.2

Net capital expenditure

(22.2)

(21.1)

Change in working capital

(5.2)

(12.2)

Corporation tax paid

(16.7)

(26.3)

Unlevered free cash flow

123.8

139.6

 

 

 

 

5              Segment information

 

For internal management reporting purposes, the operating segments are determined to be geographic segments as the Group's risks and rates of return are affected predominantly by the different economic environments.  This is consistent with the information provided to the Chief Operating Decision Maker.  The Group has only one operating segment based on product on the basis that the products and services offered to external customers are very similar and therefore do not result in different risks and rates of return for the Group.

The Group's geographical segments are based on the location of the Group's operations consisting of Europe, Middle East and Africa ("EMEA"), The Americas and Asia Pacific and Japan ("APJ").

Billings are the value of products and services invoiced to customers after receiving a purchase order from the customer and delivering products and services to them, or for which there is no right to a refund.  Billings does not equate to statutory revenue. 

Billings are classified by the geographic location of direct customers, OEMs and the distributors which purchase our products.  The geographic location of OEMs or distributors may be different from that of end customers.  A disclosure of billings and revenue by region is included in the Financial Review. 

The accounting policies of the reportable segments are the same as the Group's accounting policies.  Segment profits represent the profit earned by each segment without allocation of central administration costs including Directors' salaries, finance expenses and income tax expense.  This is the measure reported to the Chief Operating Decision Maker, the Chief Executive Officer, and Senior Management Team for the purposes of resource allocation and assessment of segment performance.

Transfer prices between geographical segments are set on an arm's length basis in a manner similar to transactions with third parties.

 

 

GEOGRAPHICAL SEGMENTS

 

The following tables present billings, expenditure and certain asset information regarding the Group's geographical segments for the year-ended 31 March 2019 and 31 March 2018. 

 

 

Americas

EMEA

APJ

Total

Year-ended 31 March 2019

$M

$M

$M

$M

Billings (see note 4)

267.9

395.2

97.2

760.3

Regional cost of sales

(12.8)

(36.2)

(12.9)

(61.9)

Regional gross margin

255.1

359.0

84.3

698.4

 

 

 

 

 

Regional sales and marketing expense

(77.8)

(85.9)

(31.4)

(195.1)

Regional operating profit

177.3

273.1

52.9

503.3

 

 

 

 

 

Revenue deferral

 

 

 

(49.7)

Central costs

 

 

 

(364.0)

Amortisation

 

 

 

(16.9)

Depreciation

 

 

 

(11.8)

Net finance expense

 

 

 

(7.3)

Profit before taxation

 

 

 

53.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year-ended 31 March 2018

Americas

EMEA

APJ

Total

Restated (see note 3)

$M

$M

$M

$M

Billings (see note 4)

270.0

395.1

103.5

768.6

Regional cost of sales

(14.7)

(38.1)

(16.2)

(69.0)

Regional gross margin

255.3

357.0

87.3

699.6

 

 

 

 

 

Regional sales and marketing expense

(76.7)

(79.0)

(32.0)

(187.7)

Regional operating profit

178.6

278.0

55.3

511.9

 

 

 

 

 

Revenue deferral

 

 

 

(129.6)

Central costs

 

 

 

(365.2)

Amortisation

 

 

 

(25.2)

Depreciation

 

 

 

(11.6)

Net finance expense

 

 

 

(21.3)

Loss before taxation

 

 

 

(41.0)

 

 

 

 

 

Year-ended

Year-ended

 

 

 

31 March

31 March

 

 

 

2019

2018

 

 

 

 

Restated
See note
3

Revenue from external customers by country

 

 

$M

$M

UK

 

 

83.2

73.5

USA

 

 

222.2

199.0

Germany

 

 

143.5

128.4

Other countries

 

 

261.7

238.1

Total revenue from external customers by country

 

 

710.6

639.0

 

The Group's revenue is diversified across its entire end customer base and no single end user accounted for greater than 10 per cent of the Group's revenue in either 2018 or 2019.  In 2019 two distributors accounted for 15 per cent, and one for 11 per cent of Group billings which were attributable to all segments of the Group (2018: three distributors accounted for 15 per cent, 14 per cent and 12 per cent each).

 

 

 

 

Year-ended

Year-ended

 

31 March

31 March

 

2109

2018

 

 

Restated
See note 3

Revenue by Type:

$M

$M

Subscription

593.9

512.4

Hardware

106.8

115.1

Other

9.9

11.5

Total

710.6

639.0

 

 

6              Share-based payments

The expense recognised for employee services received during the year is as follows: 

 

 

 

 

Year-ended

Year-ended

 

 

 

31 March

31 March

 

 

 

2019

2018

 

 

 

$M

$M

Cash-settled transactions

 

 

1.9

2.7

Equity-settled transactions

 

 

35.0

39.6

Total share-based payment expense

 

 

36.9

42.3

 

The cash-settled expense comprises cash-based awards together with certain social security taxes.  The carrying value of the liability as at 31 March 2019 was $1.6M (2018: $3.1M).

 

The Group has made awards under its share-based payment plans with a weighted average share price ("WASP") on grant date as follows:

 

 

Year-ended

 

Year-ended

 

 

31 March

 

31 March

 

 

2019

 

2018

 

Number

000's

WASP

£ pence

Number

000's

WASP

£ pence

RSU's

8,749

478.44

6,337

453.14

PSU's

1,721

506.74

1,719

440.50

SAYE - Options

1,258

377.8

1,667

317.2

 

 

7             Exceptional items

 

Exceptional items are those that in the judgment of the Directors need to be disclosed by virtue of their size, nature or incidence, in order to draw the attention of the reader and to show the underlying business performance of the Group.  Such items are included within the income statement caption to which they relate and are separately disclosed on the face of the Consolidated Statement of Profit or Loss.

 

During the year-ended 31 March 2019, the Group incurred restructuring and integration costs of $0.8M in the finalisation of a FY18 project (2018: $10.2M), litigation costs incurred in relation to the defence of certain intellectual property claims arising in previous years of $0.6M (2018: $3.0M), and legal fees of $1.7M (2018: Nil) in connection with a one off strategic review of sales policies and procedures pertaining to the use of some of the Group's products in certain overseas territories.  In addition, following the final settlement of contingent consideration in respect of the acquisition of Invincea, Inc., an excess financial liability of $6.9M has been released as an exceptional item.  This resulted in a total exceptional income of $3.8M (2018: Cost of $13.2M).  Tax relief on these exceptional items amounted to $0.5M (2018: $2.6M).

 

 

 

 

8             Finance income and expense

 

 

Year-ended

Year-ended

 

31 March

31 March

 

2019

2018

Finance income

$M

$M

Interest on bank deposits

0.9

0.3

 

 

 

 

 

 

 

Year-ended

Year-ended

 

31 March

31 March

 

2019

2018

 

 

Restated See note 3

Finance expense

$M

$M

Interest expense on loans and borrowings

9.3

8.7

Other interest and bank charges

0.5

0.3

 

9.8

9.0

Accretion on contingent consideration

0.1

0.9

Interest on uncertain tax positions (see note 3)

3.5

0.9

Foreign exchange (gain) / loss on borrowings

(6.4)

9.6

Amortisation of facility fees

1.2

1.2

Total finance expense

8.2

21.6

 

 

9             Taxation

 

UK corporation tax for the year-ended 31 March 2019 is calculated at 19% (2018: 19%) of the estimated assessable loss for the period.

 

Year-ended

Year-ended

 

31 March

31 March

 

2019

2018

 

 

Restated See note 3

 

$M

$M

 

 

 

Current income tax:

 

 

UK corporation tax

1.3

1.2

Adjustments in respect of previous years UK tax

0.3

0.3

Overseas tax before exceptional items

22.2

23.0

Adjustment in respect of previous years

13.1

10.2

Total current tax charge

36.9  

34.7

 

 

 

Deferred tax:

 

 

Origination and reversal of temporary differences

2.5

(16.7)

Impact of changes in US tax rate

-

5.4

Adjustment in respect of previous years

(12.7)

(3.5)

Total deferred tax credit

(10.2)  

(14.8)

 

 

 

Total income tax charge

26.7  

19.9

 

The following table reconciles the theoretical corporation tax expense to the reported tax expense using the UK corporation tax rate. The reconciling items represent the impact of rate differentials in tax jurisdictions and the impact of non-taxable benefits and non-deductible expenses arising from differences between the local tax base and the reported financial statements.

 

 

Year-ended

Year-ended

 

31 March

31 March

 

2019

2018

 

 

Restated See note 3

 

$M

$M

Profit / (loss) for the year before taxation

53.6

(41.0)

Loss for the year before taxation multiplied by the standard rate of

 

 

corporation tax in the UK of 19% (2018: 19%)

10.2

(7.7)

 

 

 

Effects of:

 

 

Adjustments in respect of previous years

0.8  

7.1

Change in tax rate during the year

1.4  

3.6

Expenses not deductible for tax purposes

11.8  

9.4

Losses not recognised

(0.9)  

-  

Higher tax rates on overseas earnings

7.7  

3.8

Research and development and other tax credits

(1.9)  

(0.6)

Impact of US tax reform on deferred tax

-  

5.4

Other movements

(2.4)  

(1.1)

Charge for taxation on profit / (loss) for the year

26.7  

19.9

 

 

10           Earnings per share

 

Basic earnings per share ("EPS") is calculated by dividing the profit for the period attributable to equity holders of the parent by the weighted average number of ordinary shares outstanding during the period. 

 

Diluted EPS is calculated by dividing the profit for the period attributable to equity holders of the parent by the weighted average number of ordinary shares outstanding during the period plus the weighted average number of shares that would be issued if all dilutive potential ordinary shares were converted into ordinary shares.  In accordance with IAS 33, the dilutive earnings per share are without reference to adjustments in respect of outstanding shares when the impact would be anti-dilutive.

 

Adjusted operating EPS is calculated by dividing the adjusted operating profit for the period after adjusting for taxation attributable to equity holders of the parent by the weighted average number of ordinary shares outstanding during the period. 

 

In each case, the weighted average number of shares takes into account the weighted average number of own shares held during the period.

 

 

 

The following reflects the income and share data used in calculating EPS:

 

 

Year-ended

Year-ended

 

31 March

31 March

 

2019

2018

 

 

Restated See note 3

 

$M

$M

Profit / (loss) for the period attributable to the equity holders of the Company

26.9

(60.9)

 

 

 

Adjusted operating profit for the period attributable to the equity holders of the Company (see
note 4)

109.0

58.3

Total tax charge

(26.7)

(19.9)

Reverse tax impact of:

 

 

Finance income / expense

(2.5) 

(5.9)

Amortisation

(3.1)

(4.8)

Share-based payments

(7.4)

(8.5)

Exceptional items

(0.5)

(2.6)

Adjusted operating profit after tax

68.8

16.6

 

 

 

 

Year-ended

Year-ended

 

31 March

31 March

 

2019

2018

Weighted average number of shares (000's):

476,320

459,969

Effects of dilution from:

 

 

Share options

7,039

11,475

Restricted Share Units

10,397

17,125

Diluted

493,756

488,569

 

 

 

 

$ Cents

$ Cents

Basic and diluted EPS

56

(13.2)

Diluted EPS

5.4

n/a

Adjusted operating EPS

14.4

3.6

Diluted adjusted operating EPS

13.9

3.4

 

 

11           Distributions made and proposed

 

 

Year-ended

Year-ended

 

31 March

31 March

 

2019

2018

Cash dividends on ordinary shares declared and paid

$M

$M

Final dividend for the year-ended 31 March 2017 at $0.033 per share

-  

15.3

Interim dividend for the year-ended 31 March 2018 at $0.014 per share

-  

6.5

Final dividend for the year-ended 31 March 2018 at $0.035 per share

16.7

-  

Interim dividend for the year-ended 31 March 2019 at $0.015 per share

7.2

-  

Total cash dividends paid

23.9

21.8

 

The Directors have proposed that the Company will pay a full-year dividend for the year-ended 31 March 2019 amounting to 3.7 US Cents per share (2018: 3.5 US Cents per share).

 

Proposed final dividends on ordinary shares are subject to approval at the Annual General Meeting, to be held on 25 August 2019, and are consequently not recognised as a liability at 31 March 2019.

 

 

12           Intangible assets

 

 

Goodwill

Intellectual Property

Software

Others

Total

Cost

$M

$M

$M

$M

$M

At 31 March 2017

809.5

388.3

37.1

265.3

1,500.2

Additions

-  

14.8

6.1

-  

20.9

Effect of movements in exchange rates

16.7

5.1

4.4

7.6

33.8

At 31 March 2018

826.2

408.2

47.6

272.9

1,554.9

Additions

-  

-  

4.7

-  

4.7

Acquired through business combinations

12.2

20.8

-  

-  

33.0

Effect of movements in exchange rates

(52.9)

(3.7)

(3.2)

(6.0)

(65.8)

At 31 March 2019

785.5

425.3

49.1

266.9

1,526.8

 

 

 

 

 

 

 

 

 

 

 

 

Amortisation/Impairment loss

 

 

 

 

 

At 31 March 2017

0.2

361.6

25.3

257.1

644.2

Charge for the year

-  

13.4

8.1

3.7

25.2

Effect of movements in exchange rates

-  

5.0

3.1

7.5

15.6

At 31 March 2018

0.2

380.0

36.5

268.3

685.0

Charge for the period

-  

9.6

5.3

2.0

16.9

Effect of movements in exchange rates

-  

(3.7)

(2.5)

(5.9)

(12.1)

At 31 March 2019

0.2

385.9

39.3

264.4

689.8

 

 

 

 

 

 

 

 

 

 

 

 

Net book value

 

 

 

 

 

At 31 March 2018

826.0

28.2

11.1

4.6

869.9

At 31 March 2019

785.3

39.4

9.8

2.5

837.0

 

Goodwill

 

Following a review of the allocation of goodwill to foreign operations, the Directors have determined that goodwill of $543.1M which arose on the acquisition of the Group by APAX on 15 June 2010 should have been allocated differently.  This element of goodwill was previously denominated in US Dollars and has now been allocated into functional currencies of the underlying foreign operations.

 

The re-denomination has given rise to a total reduction in the carrying value of Goodwill of $39.3M, that has been recognised in the year-ended 31 March 2019.  Had this allocation taken place at acquisition, a $36.0M increase in the carrying value would have been recognised in the year-ended 31 March 2018 and a cumulative decrease of $50.0M in the carrying value would have been recognised as at 31 March 2017.  As this change has no impact on either the statement of profit or loss nor the statement of cash flows and as the net prior-period impact of $14.0M is not material in the context of the overall value of goodwill or net assets, it is, in the judgement of the Directors, appropriate to affect the change in allocation in the current period.

 

This change in the carrying value of $39.3M is a part of the $52.9M reflected in the line "effect of movements in exchange rates" in the table above.  An equal and opposite entry is a part of the $33.7M recognised as "exchange differences arising on translation of foreign operations" in other comprehensive income, and subsequently the translation reserve in equity.

This adjustment has had no impact on the conclusion of the Group's annual impairment review.

 

 

 

 

13           Property, plant and equipment

 

 

Land and Buildings

Plant and Machinery

Fixtures and Fittings

Total

Cost

$M

$M

$M

$M

As at 31 March 2017

15.0

36.9

4.9

56.8

Additions

0.9

7.8

1.3

10.0

Disposals

-  

(0.4)

-  

(0.4)

Effect of movements in exchange rates

5.4

4.0

0.6

10.0

As at 31 March 2018

21.3

48.3

6.8

76.4

Additions

2.6

8.6

1.6

12.8

Disposals

(0.1)

(0.3)

(0.1)

(0.5)

Effect of movements in exchange rates

(3.7)

(3.2)

(0.6)

(7.5)

As at 31 March 2019

20.1

53.4

7.7

81.2

 

 

 

 

 

 

 

 

 

 

Depreciation

 

 

 

 

As at 31 March 2017

8.2

23.0

2.2

33.4

Charge for the year

2.6

8.1

0.9

11.6

Disposals

-  

(0.3)

-  

(0.3)

Effect of movements in exchange rates

3.1

2.8

0.4

6.3

As at 31 March 2018

13.9

33.6

3.5

51.0

Charge for the year

2.7

8.2

0.9

11.8

Disposals

-  

(0.3)

-  

(0.3)

Effect of movements in exchange rates

(2.2)

(2.6)

(0.4)

(5.2)

As at 31 March 2019

14.4

38.9

4.0

57.3

 

 

 

 

 

 

 

 

 

 

Net book value

 

 

 

 

As at 31 March 2018

7.4

14.7

3.3

25.4

As at 31 March 2019

5.7

14.5

3.7

23.9

 

 

14           Deferred revenue

 

 

31 March

31 March

 

2019

2018

 

$M

$M

Restated

See note 3

Current

407.9

315.0

Non-current

320.7

238.8

At 1 April

728.6

553.8

 

 

 

Billings deferred during the year

760.3

768.6

Revenue released to the Consolidated Statement of Profit or Loss

(710.6)

(639.0)

Net deferral

49.7

129.6

Acquired through business combinations

0.2

-  

Translation and other adjustments

(36.4)

45.2

 

 

 

Current

428.6

407.9

Non-current

313.5

320.7

At 31 March

742.1

728.6

 

 

 

15           Financial liabilities

 

Total financial liabilities at the end of the reporting period were as follows:

 

 

 

31 March

31 March

 

 

 

2019

2018

 

 

 

$M

$M

Contingent consideration

 

 

4.5

17.4

Total current financial liabilities

 

 

4.5

17.4

Non-current instalments due on bank loans

 

 

302.4

308.8

Unamortised facility fees

 

 

(2.6)

(2.5)

Contingent consideration

 

 

3.0

0.5

Total non-current financial liabilities

 

 

302.8

306.8

Total financial liabilities

 

 

307.3

324.2

 

LOANS AND BORROWINGS

 

Included in borrowings are bank loans of $302.4M (2018: $308.8M) as analysed below.  This note provides information about the contractual terms of the Group's interest-bearing loans and borrowings, which are measured at amortised cost. 

 

 

 

 

31 March

31 March

 

 

 

2019

2018

 

 

 

$M

$M

Current instalments due on bank loans

 

 

-  

-  

Non-current instalments due on bank loans

 

 

302.4

308.8

Total bank loans

 

 

302.4

308.8

 

The bank loans are repayable as follows:

 

 

 

 

31 March

31 March

 

 

 

2019

2018

 

 

 

$M

$M

Due within one year

 

 

-  

-  

Due between two and five years

 

 

302.4

308.8

Total bank loans

 

 

302.4

308.8

 

 

The Group entered into an amended Senior Facilities agreement on 6 February 2017, whereby an additional Revolving Credit Facility was added to the existing agreement.  Following the amendment, the following terms apply to the bank loans outstanding at 31 March 2019: 

 

 

 

 

Principal

Principal

Facility

Interest

Margin

M

$ M

Facility - A

Libor

1.25%

$ 235.0

235.0

Facility - B

Euribor

1.25%

€ 60.0

67.4

Revolving Credit Facility 1

Libor

1.25%

-  

-  

Revolving Credit Facility 2

Libor

2.25%

-  

-  

 

 

 

 

302.4

 

 

 

REPAYMENT AND MATURITY

 

Facility A ($235.0M), Facility B (€60.0M), Revolving Credit Facility 1 (multicurrency up to $30.0M) are repayable in full on the termination date at the end of the 60-month term on 1 July 2020.  Revolving Credit Facility 2 (multicurrency up to $40.0M) is repayable in full on the termination date on 2 July 2020.

Any utilisation of a Revolving Credit facility is repayable on the last day of its interest period, any amount repaid may be re-borrowed. The margin payable on the facilities is dependent upon the ratio of the Group's net debt to Cash EBITDA as defined in the facility agreement.

 

The bank loans are secured by fixed and floating charges over the assets of certain Group companies including businesses, undertakings, securities, properties, revenues or rights of every description.

 

 

16           Notes to the consolidated statement of cash flows

 

 

 

 

 

Year-ended

Year-ended

 

 

 

 

31 March

31 March

 

 

 

 

2019

2018

Acquisition of subsidiaries net of cash acquired

 

 

$M

$M

 

 

 

 

 

 

Consideration paid, satisfied in cash:

 

 

 

 

 

 - Darkbytes, Inc.

 

 

 

7.5

-  

 - Avid Secure Inc.

 

 

 

13.9

-  

 - Invincea, Inc.

 

 

 

9.4

3.7

 - Intellectual Property - Silent Break Security

 

 

0.6

-  

- Reflexion Networks Inc.

 

 

 

-  

1.2

Net cash purchased

 

 

 

(0.5)

-  

Acquisition of subsidiaries net of cash

 

 

 

30.9

4.9

 

 

 

 

 

Effect of

 

 

 

 

 

movements

 

 

31 March

 

Non-cash

in exchange

31 March

 

2018

Cash flow

movements

rates

2019

Movement in net debt

$M

$M

$M

$M

$M

 

 

 

 

 

 

Cash and cash equivalents

(120.1)

(60.7)

-  

8.7

(172.1)

Obligations under finance leases

-  

-  

-  

-  

-  

Bank loans

306.3

-  

(0.1)

(6.4)

299.8

Gross debt

306.3

-  

(0.1)

(6.4)

299.8

Net debt

186.2

(60.7)

(0.1)

2.3

127.7

 

 

 

 

 

Effect of

 

 

 

 

 

movements

 

 

31 March

 

Non-cash

in exchange

31 March

 

2017

Cash flow

movements

rates

2018

Movement in net debt

$M

$M

$M

$M

$M

 

 

 

 

 

 

Cash and cash equivalents

(68.1)

(45.2)

-  

(6.8)

(120.1)

Obligations under finance leases

0.1

(0.1)

-  

-  

-  

Bank loans

345.6

(50.1)

1.1

9.7

306.3

Gross debt

345.7

(50.2)

1.1

9.7

306.3

Net debt

277.6

(95.4)

1.1

2.9

186.2

 

 

17           Events after the reporting period

 

There are no material events after the reporting period which require disclosure under IAS10.

 

 

 

Principal risks and risk management

 

Principal risks are identified through a business wide risk assessment process, along with an evaluation of the strategy and operating environment of the Group. 

 

The risk review process encompasses the identification, management and monitoring of risks in each area of the business.  This process includes an assessment of the risks to determine the likelihood of occurrence, potential impact and the adequacy of the mitigation or controls already in place.  A review is then undertaken by the Risk & Compliance Committee, which evaluates the principal risks of the Group with reference to its strategy and the operating environment.

 

The Audit & Risk Committee monitors and challenges these processes, reviewing the Group's Consolidated Risk Register and reporting material risks to the Board.  There may be other risks or uncertainties that could emerge in the future, however the Group's ongoing commitment to risk management will seek to address and mitigate the future risks, as and when they become apparent.

 

The Directors consider the following matters to be the principal risks and uncertainties (in no specific order) affecting the Group;

Risk

How it impacts us

What we are doing

Risk movement

Recruitment

and retention of

key personnel

The ongoing success of Sophos is dependent on attracting and retaining global high-quality employees at all levels in the business who can effectively implement the Group's strategy.

 

Failure to attract, retain or develop high quality employees across the business could limit the Group's ability to deliver its business plan.

Making Sophos a great place to work is central to the Group's strategy.  

 

Sophos is increasing its commitment to diversity and inclusion by introducing new programs to attract and develop diversity of all types.

 

Additionally, Sophos has a commitment to all levels of training and development throughout the organisation.

 

Reward schemes are continuously evaluated to drive and reward performance and ensure retention of key talent.

 

Annual employee engagement surveys enable progress of the Group's people actions to be monitored, areas of improvement identified, and necessary actions performed.

 

The cybersecurity industry continues to be a competitive marketplace for talent. As such, Sophos is increasing our commitment to strong recruitment processes supported by robust remuneration programs, which are benchmarked appropriately.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increased

Defects or vulnerabilities in products or services

The Group's products and services are complex, and as such they have contained and may in the future contain, design or manufacturing defects or errors that are not detected until after their commercial release and deployment by end customers.   These defects could cause the Group's products or services to be vulnerable to security attacks, cause them to fail to help security networks, temporarily interrupt end customers' networking traffic, and fail to prevent or detect viruses or similar threats.  Further, due to the evolving nature of threats and the continual emergence of new threats, the Group may fail to identify and update its threat intelligence or other virus databases in time to protect its end customers' networks and devices.

 

As a result, actual or perceived defects or vulnerabilities in the Group's products or services, the failure of the Group's products or services to prevent a security threat could harm the Group's reputation and divert the Group's resources.

 

Sophos is committed to extensive test cycles and quality procedures which are subject to continuous improvement.

 

Sophos employs combinations of internal and external quality reviews and testing of products, including source code reviews, public and private 3rd party efficacy testing, automated code tests and various forms of penetration testing. The Group encourages a healthy collaboration with the security research community, as described in the Responsible Disclosure Policy: https://www.sophos.com/security.

 

Sophos continues to run a Bug Bounty program to leverage the skills of thousands of individuals to help make our products and web properties more secure.  The Group sees good activity from the research community, allowing us to resolve software defects before they can be exploited by attackers. This and other measures have allowed us to slightly reduce this risk.

 

Further, Sophos protects the privacy and security of its customers worldwide through our pledge to never engineer backdoors into our products as described here:  https://www.sophos.com/nobackdoors.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Same

False detection of threats

The Group's products may falsely detect threats or malware that do not actually exist in applications or content based on the Group's classification of application type, virus, malware, vulnerability exploits, data or URL categories (known as 'false positives').  These false positives, while inherent in the Group's industry, may impair the perceived reliability of the Group's products and may therefore adversely impact market acceptance of the Group's products.

 

If the Group's products restrict important files or applications based on falsely identifying them as malware or some other item that could be restricted, this could adversely affect end customers' systems and cause material system failures.  Any such false identification of important files or applications could result in negative publicity, damage to the Group's reputation, loss of end customer and sales, increased costs to remedy any problem and risk of litigation, any of which could materially adversely affect the Group's financial condition and operating results.

 

Sophos strives for continuous improvement in our world class SophosLabs threat research operation.  The Group invests in ongoing staff training and process optimisation, as well as enhancements to testing and quality systems and procedures.

 

In 2017, Sophos developed and launched a new reputation-based false positive suppression system to complement the introduction of "Deep Learning" artificial intelligence predictive modules in its products.  Additionally, there is proactive focus on improvement of processes to enable early detection of a false positive event, as well as applying a 'lessons learnt' approach through root cause analysis.

 

Product enhancements were introduced to the Intercept X product in late 2017 to allow our partners and customers to manage occurrences of false positives on their own, enabling us and them to deal with those rare or even unique files that might evade our reputation and prevalence suppression techniques.

 

Sophos acknowledges the inherent risk associated with a false positive incident within the industry and is committed to ensuring there are mitigating processes in place to manage any incident, large or small, in order to minimise the impact on the Group's customers.

 

Same

IT security and cyber risk

As a provider of IT security products, the Group is a higher profile cyber-attack target.  The Group's infrastructure, services and products may have vulnerabilities that have from time to time been, and may in the future be, targeted by attacks specifically designed to disrupt the Group's business and harm the Group's reputation.

 

If an actual or perceived breach of security occurs in the Group's internal systems, it could adversely affect the market perception of the Group's products.  In addition, a security breach could affect the Group's ability to operate its business, including the Group's ability to provide support services to end customers.

 

Sophos has a dedicated cybersecurity team focused on identifying risks related to cyber-attack and planning appropriate protection, detection, response and recovery mechanisms. The Group is focused on day-to-day active monitoring and hunting for threats, improving response processes and implementing continual improvements to governance, technology and education & awareness programs.

 

Sophos continues to increase its investment in cybersecurity and improve its cybersecurity capabilities on a quarterly basis.

 

Same

Product portfolio management

Sophos has an extensive number of products, enhanced further by acquired technologies.   The extent of investment in each product needs to be managed and prioritised taking into account the expected future prospects.   Additionally, consideration must be given to the ability to be able to adequately support the entire product range.

 

Failure to manage the product portfolio adequately could result in inappropriate investment focus in relation to research and product innovation.   This could result in products that do not meet the requirements of customers or partners and the risk they will look to alternative solutions, resulting in the potential loss of both new and existing revenue streams.

 

Failure to protect the Group's intellectual property could adversely affect the ability of the Group to operate in its markets.

 

Additionally, insufficient focus on key research and innovation projects may damage the long-term growth prospects of the Group.

Sophos continues to focus on and improve the interaction between Product Management, Product Development, Sales and Marketing and all Support functions in an integrated product development approach.

 

Internal processes are run to identify opportunities for standardisation and consistency across products lines. This helps eliminate redundancies, reduce development and support costs, and improve partner and customer experiences through a more predictable and coherent product portfolio.

 

Sophos is working to bring all products under a single cloud management platform to deliver a common management experience for the portfolio and a comprehensive solution that will encourage existing customers using on-premise products to migrate to cloud management.  The Group is also working on enabling instances of portability of the cloud infrastructure where required in order to address any privacy or data sovereignty issues that our customers/partners might face. 

 

The Group takes all appropriate opportunities to protect its intellectual property and brands.

 

Sophos customer and partner communities continue to be invaluable resources in guiding portfolio management decisions. They provide immediate and constant feedback on how well Sophos is meeting its requirements, improvements that Sophos can make to its current offerings and opportunities for portfolio consolidation or expansion.

 

Whilst Sophos continues to make significant investments in the technology and infrastructure of the Group, the risk has increased due to the growing demand and reliance on cloud delivery for the Group's products.

In addition, the migration to Next Gen products has some risk during the transition and end of life cycle.

 

 

 

 

 

 

 

 

 

 

Increased

Disruption to day-to-day Group operations

Sophos is at risk of disruption to its day-to-day operations from a disaster incident which may seriously impact IT systems or access to office space. A failure in the operation of the Group's key systems or infrastructure on which the Group relies could cause a failure of service to its customers and negatively impact the Sophos brand.

 

Incident management procedures and escalation processes are in place as well as maintaining security, business continuity and disaster recovery plans. Sophos continues to invest in cloud technology that provides resilient infrastructure for the company.

 

 

 

 

Same

Processes, controls and compliance

 

 

 

 

 

 

 

The Sophos Group operates across many geographies with differing legal and market requirements. There is a risk that without adequate controls, policies and procedures, Sophos might be unable to meet its strategic objectives.

 

Sophos continues to review its internal processes and control environment to assess and improve. Sophos has also centralised many financial functions, for example, accounts receivable/payable and purchasing, enabling consistent controls and a group wide process. The Group regularly reviews and updates its policies such as anti-bribery & corruption, modern slavery and data protection. The risk management process is overseen by the Risk & Compliance Committee, the Audit & Risk Committee and ultimately the Board.

 

Increased

 

In concluding on the risks and uncertainties that are considered to be significant for the Group the Directors assess a wide range of issues, which include the following that are not considered to be principal risks:

 

Brexit

Following the decision by the UK electorate to exit, in due course, from the European Union ("Brexit"), the Directors continue to keep under consideration the expected impact of Brexit on the Group.   A cross-functional Brexit working committee has been put in place during the financial year, and that committee continues to assess, respond to, and monitor developments, which may impact the Group's business. 

 

As the Group operates internationally with a diverse geographic spread which results in only 12 per cent of the Group's revenue being sourced from the UK, any fluctuations in the sterling exchange rate are, to a degree, balanced with sterling denominated costs which mitigates the impact on the US Dollar functional currency of the Group.

 

The exact nature of the trading arrangements between the UK and the EU subsequent to the UK's exit from the EU remains uncertain and as a consequence the Directors have considered a number of scenarios and the Group's potential responses to them.  This scenario planning has included anticipating changes to the operations of the Group and its supply chain, which are not considered to be significant or posing a heightened risk to the Group. The impact of Brexit on the current and future employees has also been considered and while there may be some disruption or changes in the UK, these are not currently anticipated to materially affect one of the Group's principal risks, the 'Recruitment and retention of key personnel'

 

Due to the uncertainty of the method by which Brexit will be achieved, the Group have put into place processes to handle a hard Brexit, should that be the route that the UK takes.

 

 

Patent Infringement

In addition, the Directors consider the risk of claims of patent infringement against the Group's products, which is considered to be a software industry-wide risk. The risk is not considered to be a standalone principal risk and is instead factored into the Directors' consideration of 'Product portfolio management', which is a principal risk.

 

 

Statement of Directors' Responsibilities in Respect of the Annual Report and the Financial Statements

The Directors are responsible for preparing the Annual Report and the Group and parent Company financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Group and parent Company financial statements for each financial year.  Under that law they are required to prepare the Group financial statements in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU) and applicable law.  As explained in note 2 to the Group financial statements, the Group, in addition to complying with its legal obligation to apply IFRSs as adopted by the EU, has also applied IFRSs as issued by the International Accounting Standards Board ("IASB").  Under company law the Directors have elected to prepare the parent company financial statements in accordance with UK accounting standards, including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland.

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and parent Company and of their profit or loss for that period.  In preparing each of the Group and parent Company financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and estimates that are reasonable, relevant, reliable and prudent;

• for the Group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU;

• for the parent Company financial statements, state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the parent Company financial statements;

• assess the Group and parent Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and,

• use the going concern basis of accounting unless they either intend to liquidate the Group or the parent Company or to cease operations or have no realistic alternative but to do so.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent Company's transactions and disclose with reasonable accuracy at any time the financial position of the parent Company and enable them to ensure that its financial statements comply with the Companies Act 2006.  They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report, and Corporate Governance Statement that complies with that law and those regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website.  Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

Responsibility Statement of the Directors in Respect of the Annual Financial Report

We confirm that to the best of our knowledge:

• the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position, and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and,

• the strategic report includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

We consider the annual report and accounts, taken as a whole, is fair, balanced and understandable, and provides the information necessary for shareholders to assess the Group's position and performance, business model, and strategy.

 

 

 

 

By order of the Board,

 

 

Eleanor Lacey

Company Secretary

16 May 2019


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
 
END
 
 
FR LLFVTERIELIA
Close


London Stock Exchange plc is not responsible for and does not check content on this Website. Website users are responsible for checking content. Any news item (including any prospectus) which is addressed solely to the persons and countries specified therein should not be relied upon other than by such persons and/or outside the specified countries. Terms and conditions, including restrictions on use and distribution apply.

 


Sophos Group Plc - FY19 Annual Financial Report - RNS