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SOPH Sophos Group Plc

580.40
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28 Mar 2024 - Closed
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Sophos Group Plc LSE:SOPH London Ordinary Share GB00BYZFZ918 ORD 3P
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  0.00 0.00% 580.40 579.40 580.60 0.00 00:00:00
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Sophos Group Plc Sophos Group Plc FY19 Half-year Report (5499G)

07/11/2018 7:00am

UK Regulatory


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TIDMSOPH

RNS Number : 5499G

Sophos Group Plc

07 November 2018

Sophos Group plc

Interim results for the six-month period-ended 30 September 2018

Billings in line with expectations; strong revenue, profit, and cash performance

Oxford, 7 November 2018. Sophos Group plc (the "Group" / LSE: SOPH), a leading provider of cloud enabled enduser and network security solutions, today issues its interim results for the six-months to 30 September 2018 ("H1 FY19").

Financial and operational highlights

-- In line with the expectations outlined at the time of the Q1 update in July, H1 FY19 billings(1) increased by 3% to $353 million, a rise of 2% at constant currency to $361 million

- The renewal rate at 118% in the H1 FY19 period (or 121% in Q2 FY19), compared to 142% a year ago, as cross-sell activity in our Enduser business returned to more sustainable levels following elevated growth in the comparative period

- Continued robust growth in Sophos Central; now accounting for around one third of subscription billings with 77,000 customers on the integrated cloud management platform

- Further expansion in the partner channel and customer base, with over 43,000 channel partners and 317,000 customers

-- Revenue(2) for H1 FY19 grew by 18%, or 16% at constant currency, to $350 million, with 20% growth in subscription revenue at constant currency, reflecting the strength of our subscription model and billings growth in prior years

-- Profit before tax of $26 million, reflecting strong revenue contribution, a foreign exchange benefit, and fair value adjustments, compared to a loss before tax of $36 million in the comparative period

-- Modest improvement in operating cash flow and unlevered free cash flow(3) against the comparative period

-- Strong product and innovation pipeline during FY19: successful H1 release of Intercept X for Server, already gaining good traction with customers; in H2 the Group plans to release significant new versions of its flagship endpoint and firewall products: Intercept X Advanced with Endpoint Detection and Response ("EDR"), and XG Firewall v17.5 with Sophos Central cloud management and significant new synchronized security features

Outlook

We are confident that we are well positioned to deliver future growth. We have a strong innovation pipeline and are making a significant investment in our strategic Sophos Central cloud platform. We now expect a modest improvement in constant currency billings growth in H2 FY19 compared to the first half, as we continue to work through challenging year-on-year comparatives. For FY20, we enter the year with strong growth in our subscription renewals base, and hence, assuming a stable renewal rate, we would anticipate a significant improvement in the rate of overall constant currency year-on-year billings growth.

Financial highlights

 
                                   H1 FY19    H1 FY18(2)    Growth 
                                 ---------  ------------  -------- 
                                        $M            $M         % 
 GAAP 
 Revenue                             349.5         296.8      17.8 
 Profit/(loss) before taxation        26.0        (35.5)        NM 
 Net cash flow from operating 
  activities                          81.5          80.7       1.0 
 Non-GAAP 
 Billings                            352.7         341.5       3.3 
 Cash EBITDA(4)                       54.0          66.6    (18.9) 
 Unlevered free cash flow             71.6          71.4       0.3 
 

Kris Hagerman, Chief Executive Officer, commented:

"Sophos continues to make solid progress in advancing our strategy of delivering advanced and highly effective cybersecurity solutions to IT professionals at organizations of all sizes. We saw continued growth and momentum in Sophos Central, our strategic cloud management platform, with now over 77,000 customers. And we are well on track to deliver two significant new releases in our flagship products - Intercept X with EDR, and XG Firewall v17.5 - which we believe will further deliver on the promise of synchronized security, and position us well in the market for next-generation security solutions, for H2 and beyond."

About

The Sophos Group is a leading global provider of 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 visit: www.sophos.com. The Group has over 30 years of experience in enterprise security and has built a portfolio of products that protects over 317,000 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                          Financial Public Relations 
  Tel: +44 (0) 1235 559 933                 James Macey White / Matt Low 
  Kris Hagerman, Chief Executive Officer    Tulchan Communications 
  Nick Bray, Chief Financial Officer        Tel: +44 (0) 20 7353 4200 
  Derek Brown, Vice President Investor 
  Relations 
 

Conference call and webcast

Sophos management will be hosting an analyst meeting to discuss the H1 results at the offices of UBS, 5 Broadgate, London EC2M 2QS at 09:30 GMT today. Please register your attendance by contacting tulchan_sophos@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. Participants are advised to visit the website at least 15 minutes prior to the commencement of the call, in order to register and, for those accessing the webcast, download and install any audio software that may be required.

Conference call dial in details:

+44 (0) 330 336 9127 (UK) / 0800 358 6377 (toll free)

+1 929 477 0324 (US) / 800 458 4121 (toll free)

Confirmation code: 4928445

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.

1. 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.

2. Restated for the adoption of IFRS 15 "Revenue from Contracts with Customers"; see note 2 of the Financial Statements for further details

3. 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.

4. 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, the net deferral of sales related costs, unrealised foreign exchange differences and exceptional items, with billings replacing recognised revenue.

Chief Executive Officer's Review

Operational and strategic progress

In the first half of the financial year, billings increased by 3% to $352.7 million, a rise of 2% at constant currency, in line with the expectations we outlined at the time of the Q1 trading update in July. Group revenue for H1 FY19 increased by 18%, or 16% at constant currency, to $349.5 million, reflecting the strength of our subscription model and billings growth in prior years.

As a result of strong revenue growth, we are reporting a profit before tax of $26.0 million. Our Cash EBITDA margin fell to 15%, from 20% a year ago reflecting lower than expected billings, and continued investment in research and development and sales and marketing to drive future growth. Cash flow remained strong, with operating cash flow and unlevered free cash flow modestly up on the comparative period.

As discussed at the time of the Q1 trading update in July, the year on year growth rate was impacted by a challenging comparable in our Enduser business, given the dramatic acceleration in demand we witnessed in the comparative period as customers urgently invested in protection against high-profile, global ransomware outbreaks.

The effect of this extraordinary boost to demand was most evident in the elevated renewal rates we saw a year ago, at 142%, reflecting heightened levels of cross-selling activity to existing customers. This activity has returned to more sustainable levels in H1 FY19, with a renewal rate of 118% for the six-month period.

Sophos delivers innovative, simple and highly-effective cybersecurity solutions spanning both the endpoint and the network, which synchronize and work together as a system. Our solutions are managed through Sophos Central, our single, integrated cloud management platform, all sold 100% through the channel. This remains a highly differentiated strategy, which continues to resonate well with our partners and customers.

Sophos Central is fundamental to our long-term strategy and success, hence we are encouraged to see continued good growth in billings in the period. Sophos Central now accounts for around a third of subscription billings, and more than 77,000 customers are now managing their Sophos cybersecurity solutions via the platform. We also saw further solid growth from Intercept X, with more than 34,000 customers now benefiting from its industry-leading next-gen endpoint protection. We are achieving this growth both from attracting new customers to Sophos Central and as existing on-premise customers make the transition to the platform.

Sophos Central drives cross-sell and improves average customer spend over time. Indeed, in our target market, i.e. businesses with fewer than 5,000 employees, the average spend per customer on Sophos Central now exceeds the average for an on premise customer by around 15%. This reflects the fact that more than 55% of Sophos Central customers now have more than one product.

In the first half of the year, we grew our customer base to over 317,000 customers and over 43,000 partners, of whom 7,300 are now 'blue-chip' partners, the most productive group within our partner channel.

Technology and innovation

At a recent customer event in London we announced the imminent launch of Endpoint Detection and Response ("EDR"), a significant addition to our Intercept X endpoint protection capabilities. With all the benefits of the Sophos deep learning, neural network-based advanced detection, backed by on-demand access to intelligence curated by SophosLabs, Intercept X Advanced with EDR enables businesses of all sizes, including those with limited resources, to identify and prevent cyberattacks in real time with threat-tracking and first-responder forensics at their fingertips. The early access program has proved very encouraging, with several hundred customers already participating and the Intercept X Advanced with EDR product is now deployed on around twenty thousand endpoints.

In addition, we also delivered Intercept X for Server during the first half, significantly advancing our existing server protection offering 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 targeted by cybercriminals, delivering a major benefit to organisations of all sizes, and especially small and medium-sized businesses ("SMBs") who are potentially more at risk than larger, well-resourced enterprises.

We expect to deliver a new version of our next-gen firewall, Sophos XG Firewall v.17.5, later this year, which will include, among its many new features, Sophos Central management and additional synchronized security features, including lateral movement detection, to prevent threats from spreading on the same network segment, and synchronized user ID.

Industry and channel recognition

In a recent protection test report, SE Labs rated Intercept X Advanced number one for both enterprise endpoint protection and small business endpoint protection. This was the first public test of Intercept X Advanced, which combines Intercept X and Cloud Endpoint Advanced, in which Sophos was able to block all public and targeted attacks, minimizing false positives and handling legitimate applications correctly. These impressive results followed Sophos being awarded a number one ranking for malware and exploit protection by MRG Effitas, another leading independent IT security-testing organisation.

Once again, Sophos was positioned in the "Leaders" quadrant of Gartner, Inc.'s 2018 "Magic Quadrant for Unified Threat Management (SMB Multifunction Firewalls)". Sophos is the only vendor to be consistently recognised as a Leader by Gartner in both the Magic Quadrant for Endpoint Protection Platforms and the Magic Quadrant for Unified Threat Management.

We were also delighted 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 is in a unique position to offer an intelligent synchronized security system, which is recognised by partners and reflected in the ARC survey results. Sophos ranked highest in all sub-categories and topped the new sub-category for managed and cloud services.

Outlook

The market opportunity remains significant, and we have continued to add new customers, whilst expanding and supporting our channel. We continue to invest in innovation, with the successful launch of Intercept X for Server in the first half, and we have already begun delivering on a strong product release cycle in the second half of the year, including Intercept X Advanced with EDR, and Sophos XG Firewall v17.5.

We are confident that we are well positioned to deliver future growth. We now expect a modest improvement in constant currency billings growth in H2 FY19 compared to the first half, as we continue to work through challenging year-on-year comparatives. For FY20, we enter the year with strong growth in our subscription renewals base, and hence, assuming a stable renewal rate, we would anticipate a significant improvement in the rate of overall constant currency year-on-year billings growth.

Kris Hagerman

Chief Executive Officer

Financial Review

Billings at reported exchange rates increased by 3.3 per cent to $352.7 million. As flagged with the Q1 trading statement in July, this performance reflects a challenging prior-year comparison, where Enduser product demand had been significantly boosted by the high-profile ransomware attacks in 2017. In addition to this, albeit of lesser extent, the Group experienced a headwind to Network billings as a result of a legacy product transition in the first half.

Revenue growth was strong in the half-year ended 30 September 2018 as prior-period subscription billings converted into revenue with reported growth of 17.8 per cent, or 15.7 per cent at constant currency. Deferred revenue at the end of the period increased to $701.8 million from $627.3 million a year ago; this represents a decline from $728.6 million at 31 March 2018, principally due to foreign exchange variances from the weakening of euro and sterling against the US Dollar. The deferred revenue balance gives the Group good visibility of future revenue, with $401.5 million of the deferred revenue due for recognition in less than one year, an increase of 12.6 per cent over the prior-year.

The Group made an operating profit of $27.0 million in the period and adjusted operating profit increased by $34.2 million to $49.9 million, primarily as a result of strong revenue growth and the benefit of a foreign exchange gain of $6.0 million, compared to a foreign exchange loss of $5.0 million in the comparative period.

Cash flow from operating activities and unlevered free cash flow both modestly increased over the prior-year, benefiting from timing of investing activity and the careful management of working capital in the current period.

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

 
                                   H1 FY19    H1 FY18(1)    Growth 
                                 ---------  ------------  -------- 
                                        $M            $M         % 
 GAAP 
 Revenue                             349.5         296.8      17.8 
 Profit/(loss) before taxation        26.0        (35.5)        NM 
 Net cash flow from operating 
  activities                          81.5          80.7       1.0 
 Non-GAAP 
 Billings                            352.7         341.5       3.3 
 Cash EBITDA                          54.0          66.6    (18.9) 
 Unlevered free cash flow             71.6          71.4       0.3 
 

1. Restated for the adoption of IFRS 15, see note 2 of the Financial Statements for further details

Billings

Group reported billings increased by $11.2 million to $352.7 million in the half-year ended 30 September 2018, from $341.5 million in the comparative period. This represented a 3.3 per cent reported growth or 1.6 per cent on a constant currency ("CC") basis.

 
                                      H1 FY19       H1 FY18        Growth    Growth 
                                 ------------  ------------  ------------  -------- 
                                           $M            $M             %         % 
                                   (Reported)    (Reported)    (Reported)      (CC) 
          Billings by Region: 
          - Americas                    121.5         116.6           4.2       4.3 
          - EMEA                        186.2         175.1           6.3       2.4 
          - APJ                          45.0          49.8         (9.6)     (7.8) 
                                 ------------  ------------  ------------  -------- 
                                        352.7         341.5           3.3       1.6 
                                 ------------  ------------  ------------  -------- 
          Billings by Product: 
          - Network                     168.4         160.0           5.3       3.3 
          - Enduser                     166.5         167.4         (0.5)     (2.0) 
          - Other                        17.8          14.1          26.2      26.1 
                                 ------------  ------------  ------------  -------- 
                                        352.7         341.5           3.3       1.6 
                                 ------------  ------------  ------------  -------- 
          Billings by Type: 
          - Subscription                294.5         285.3           3.2       1.6 
          - Hardware                     52.6          51.9           1.3     (0.4) 
          - Other                         5.6           4.3          30.2      26.7 
                                 ------------  ------------  ------------  -------- 
                                        352.7         341.5           3.3       1.6 
                                 ------------  ------------  ------------  -------- 
 

Billings by region

Americas

Billings attributable to the Americas increased by $4.9 million to $121.5 million in the period, representing 4.2 per cent growth on a reported and 4.3 per cent on a constant currency basis; this increase was driven by UTM and OEM growth.

EMEA

Billings attributable to EMEA increased by $11.1 million to $186.2 million in the period, representing 6.3 per cent growth on a reported basis and 2.4 per cent growth on a constant currency basis. This increase was spread across Enduser and Network products, with a more challenging prior-year comparison for Enduser.

APJ

Billings attributable to APJ decreased by $4.8 million to $45.0 million in the period, representing 9.6 per cent on a reported basis and 7.8 per cent on a constant currency basis. The decrease in the region being driven by both Enduser and Network products.

Billings by product

Network products

The Group's billings attributable to Network products increased by $8.4 million to $168.4 million in the period, representing 5.3 per cent growth on a reported basis and 3.3 per cent on a constant currency basis. Growth was in part negatively impacted by a legacy product transition flagged at the time of the Q1 trading update in July.

Enduser products

The Group's billings attributable to Enduser products decreased by $0.9 million to $166.5 million in the period. Cross-selling activity to existing customers returned to more sustainable levels in the second quarter, following a period of accelerated demand in the comparative period, significantly boosted at that time by high-profile ransomware attacks.

Billings by type

Subscription billings increased by $9.2 million to $294.5 million in the period, representing 3.2 per cent growth on a reported basis and 1.6 per cent growth on a constant currency basis. Hardware billings increased by 1.3 per cent to $52.6 million.

Key billings metrics

Billings from new customers

Billings from new customers, including all MSP billings and excluding OEM and consumer, remained consistent at 25 per cent of total billings compared to 24 per cent in the period-ended 30 September 2017 with a growth of 7.8 per cent on a reported basis.

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 trailing twelve-month retention rate decreased from 108.1 per cent at 30 September 2017 to 106.7 per cent at 30 September 2018. The Group's trailing twelve-month renewal rate decreased to 128.5 per cent from 139.4 per cent, principally affected by lower levels of cross-selling activity to existing customers against the comparative period, as well as a smaller headwind from a legacy product transition in Network.

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 87 per cent in the period.

Billings by length of contract

Subscription agreements are of differing durations and are generally between one and three years in length. The last twelve months weighted average contract length at 30 September 2018 was 27.2 months, a small decrease on the 27.6 months in the comparative period, due in part to the growth in monthly billings from the Group's MSP business.

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 30 September 2018, approximately 11.7 per cent of customers had both a UTM product and an Endpoint product compared to 10.5 per cent of customers at 30 September 2017.

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.

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 2 of the Financial Statements for further details.

The Group's revenue increased by $52.7 million, or 17.8 per cent, to $349.5 million in the half-year ended 30 September 2018. Subscription revenue was notably strong in the period, with growth of 21.7 per cent, as a consequence of strong prior-period billings growth now being released from deferred revenue.

 
                                        H1 FY19       H1 FY18(1)          Growth    Growth 
                                ---------------  ---------------  --------------  -------- 
                                                                                         % 
                                  $M (Reported)    $M (Reported)    % (Reported)      (CC) 
          Revenue by Region: 
          - Americas                      123.1            105.4            16.8      16.7 
          - EMEA                          180.6            148.0            22.0      17.3 
          - APJ                            45.8             43.4             5.5       7.3 
                                ---------------  ---------------  --------------  -------- 
                                          349.5            296.8            17.8      15.7 
                                ---------------  ---------------  --------------  -------- 
          Revenue by Product: 
          - Network                       163.2            148.7             9.8       7.6 
          - Enduser                       170.2            134.7            26.4      24.3 
          - Other                          16.1             13.4            20.1      19.1 
                                ---------------  ---------------  --------------  -------- 
                                          349.5            296.8            17.8      15.7 
                                ---------------  ---------------  --------------  -------- 
          Revenue by Type: 
          - Subscription                  290.9            239.0            21.7      19.6 
          - Hardware                       52.9             52.7             0.4     (1.4) 
          - Other                           5.7              5.1            11.8       9.4 
                                ---------------  ---------------  --------------  -------- 
                                          349.5            296.8            17.8      15.7 
                                ---------------  ---------------  --------------  -------- 
 
 

1. Restated for the adoption of IFRS 15, see note 2 of the Financial Statements for further details

The majority of the Group's billings, which are recognised over the life of the contract, relate to subscription products (H1 FY19: 83.5 per cent; H1 FY18: 83.5 per cent), with the benefit from increased billings being spread over a number of years on the subsequent recognition of deferred revenue. Revenue in the period of $349.5 million comprised $231.4 million from the recognition of prior-period deferred revenues and $118.1 million from in-period billings. The deferred revenue balance at the end of the period of $701.8 million increased $74.5 million year-on-year, an increase of 11.9 per cent. This was mainly due to a net deferral of billings over that trailing twelve-month period amounting to $88.1M partially offset by a net currency revaluation of $13.6 million, because of the weakening of the euro and sterling against the US Dollar.

Revenue in the Americas increased by 16.8 per cent to $123.1 million in the half-year ended 30 September 2018, supported by the recognition of prior-period Enduser billings from the Sophos Central platform.

EMEA revenue increased by 22.0 per cent to $180.6 million in the half-year ended 30 September 2018 with growth in particular in Enduser but also aided by Network sales.

APJ revenue increased by 5.5 per cent to $45.8 million in the half-year ended 30 September 2018, growth being due to Enduser products.

Cost of sales

Cost of sales increased by $6.7 million to $72.9 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 and the impact of a change in mix of the hardware sold.

Sales and marketing

Sales and marketing expenses increased by $13.4 million or 11.4 per cent, to $131.0 million in the period, albeit this increase was tempered by lower levels of commissions. Sales and marketing expenses are targeted to increase below the rate of billings growth to enable them to continue to support the business and channel whilst also being leveraged as the Group grows.

Research and development

Research and development expenses increased by $5.9 million, or 8.7 per cent, to $74.0 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 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, increased by $5.9 million, or 13.9 per cent, to $48.3 million in the period. The increase was due to a higher share-based payment expense, which increased by $2.4 million to $23.1 million, due to both business growth and an increase in the share price at the point RSUs were issued, and underlying general finance and administration expenses which increased by 16.1 per cent to $25.2 million, reflecting the annualised increase resulting from prior-period investments as well as certain ongoing compliance costs that have increased over the prior-year.

Exceptional items, included within general finance and administration expenses, were a net credit of $5.5 million in the period, compared to a net expense of $6.9 million in the prior-year. The current period credit arose on fair value changes in acquisition contingent consideration, partially offset by restructuring costs.

Amortisation of intangible assets

Amortisation of intangible assets decreased by $6.0 million, or 43.5 per cent, to $7.8 million in the period. The decrease was due to the Group's reducing balance amortisation policy and the absence of acquisitions in the current period.

Currency movements and impact

The Group recorded a foreign exchange gain of $6.0 million in the period, compared with a loss of $5.0 million in the comparative period, which resulted from a weakening of the euro and sterling against the US Dollar.

Cash EBITDA

Cash EBITDA decreased by 18.9 per cent to $54.0 million in the period. Cash EBITDA margins decreased to 15.3 per cent from 19.5 per cent in the prior-period, due to costs growing at a faster rate than billings; billings growing more slowly due to the difficult compare in the first half. The reconciliation of Cash EBITDA to operating loss is included in note 3 of the Financial Statements.

Adjusted operating profit

Adjusted operating profit increased by $34.2 million to $49.9 million in the period, resulting from strong revenue growth and also benefiting from a foreign exchange gain following the weakening in the period of sterling and the euro versus the US Dollar. The reconciliation of adjusted operating profit to operating loss is included in note 3 of the Financial Statements.

Operating profit

Operating profit was $27.0 million in the period, compared to a loss of $23.2 million in the comparative period. This was principally driven by strong growth in revenue, a foreign exchange gain from a loss in the prior-period, a decrease in the amortisation charge and an exceptional credit. Underlying costs are managed in line with business performance.

Net finance costs

Net finance costs decreased by $11.3 million to $1.0 million in the period, due mainly to foreign exchange gains on euro denominated debt following the strengthening of the US Dollar. Underlying interest expense was flat compared to the comparative period.

Income tax

The Group's tax charge for the half year was $15.0 million (H1 FY18: $2.8 million) with an effective tax rate of

57.7 per cent (H1 FY18: -7.9 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

Profit for the period increased by $49.3 million to a profit of $11.0 million in the period, from a loss of $38.3 million in the comparative period. This principally reflected the improved operating result and a decrease in net finance costs resulting from foreign exchange differences, which were partly offset by an increase in the tax charge.

Cash flow

Net cash flow from operating activities increased to $81.5 million from $80.7 million in the prior period. The small increase was due to a decrease in exceptional items and continued management of working capital.

 
                                             H1 FY19   H1 FY18(1) 
                                            --------  ----------- 
                                                  $M           $M 
 Cash EBITDA(2)                                 54.0         66.6 
 Net deferral of revenue                       (3.2)       (44.7) 
 Net deferral of expenses                      (0.8)          1.9 
 Foreign exchange                                5.7        (2.7) 
 Depreciation                                  (5.8)        (5.4) 
                                            --------  ----------- 
 Adjusted operating profit                      49.9         15.7 
                                            --------  ----------- 
 Net deferral of revenue                         3.2         44.7 
 Net deferral of expenses                        0.8        (1.9) 
 Exceptional items(3)                          (1.4)        (6.9) 
 Depreciation                                    5.8          5.4 
 Foreign exchange                              (5.7)          2.7 
 Change in working capital(2)                   36.4         29.0 
 Corporation tax paid(2)                       (7.5)        (8.0) 
                                            --------  ----------- 
 Net cash flow from operating activities        81.5         80.7 
                                            --------  ----------- 
 Exceptional items(3)                            1.4          6.9 
 Net capital expenditure(2)                   (11.3)       (16.2) 
                                            --------  ----------- 
 Unlevered free cash flow                       71.6         71.4 
                                            --------  ----------- 
 

1. Restated for the adoption of IFRS 15, see note 2 of the Financial Statements for further details

2. Unlevered free cash flow 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

The change in working capital remained positive with the variance year-on-year due to continued close control of receivables and payables; with debtors' days outstanding consistent at 42 days.

Capital expenditure

Capital expenditure primarily comprises property, plant and equipment as well as intangible assets. Net capital expenditure decreased by $4.9 million in the period, mainly a result of the phasing of planned expenditure being more equally phased between the first and second-half of the current financial year compared to a first-half weighting in the prior-year.

Cash taxation

Corporation tax paid in the period is broadly in line with the prior-period.

Financing

There were no changes in the financing of the Group in the half-year with net debt decreasing to $131.4 million from $221.8 million in the comparative period and $186.3 million at 31 March 2018 as a result of continued strong net cash flows and the absence of any merger and acquisition activity in the period.

Dividends

The Directors recommend that the half-year and final dividends be paid in the approximate proportions of one third and two thirds respectively of the total expected annual dividend. Accordingly, the Directors have recommended that the Company will pay an interim dividend in respect of the year-ending 31 March 2019 amounting to 1.5 US Cents per share, a seven per cent increase over the prior half-year dividend of 1.4 US Cents per share. The interim dividend would be paid on 14 December 2018 to all shareholders on the register on 16 November 2018.

Nick Bray

Chief Financial Officer

Principal risks and uncertainties

The principal risks and uncertainties which could have a material impact on the Group's long-term performance set out in the last annual report and financial statements, dated 16 May 2018, remain valid at the date of this report. These risks and uncertainties (in no specific order) are:

   --      Recruitment and retention of key personnel 
   --      Defects or vulnerabilities in products or services 
   --      False detection of threats 
   --      IT security and cyber risk 
   --      Product portfolio management 
   --      Disruption to day-to-day Group operations 

Following the decision by the UK population to exit, in due course, from the European Union ("Brexit"), the Directors have continued to keep under consideration the expected impact of Brexit on the Group. 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. Whilst the fluctuations in the sterling exchange rate impacts on those UK revenues these 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 currently remains uncertain and consequently 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'.

Directors' responsibility statement

We confirm that to the best of our knowledge:

-- The condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting

   --      The interim management report includes a fair review of the information required by: 

(a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

By order of the Board

Kris Hagerman, Chief Executive Officer Nick Bray, Chief Financial Officer

6 November 2018 6 November 2018

CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS

FOR THE SIX-MONTHSED 30 SEPTEMBER 2018

 
                                                 Six-months     Six-months 
                                                      ended          ended   Year-ended 
                                               30 September   30 September     31 March 
                                                       2018           2017         2018 
                                                                Restated -     Restated 
                                                  Unaudited         note 2     - note 2 
                                        Note             $M             $M           $M 
-------------------------------------  -----  -------------  -------------  ----------- 
 Revenue                                 4            349.5          296.8        639.0 
 Cost of sales                                       (72.9)         (66.2)      (144.0) 
-------------------------------------  -----  -------------  -------------  ----------- 
 Gross profit                                         276.6          230.6        495.0 
 
 Sales and marketing                                (131.0)        (117.6)      (239.9) 
 Research and development                            (74.0)         (68.1)      (145.8) 
 
 General finance and administration:                 (44.6)         (68.1)      (134.5) 
-------------------------------------  -----  -------------  -------------  ----------- 
  - Underlying                                       (25.2)         (21.7)       (46.9) 
  - Share-based payments                 5           (23.1)         (20.7)       (42.3) 
  - Exceptional items                    6              5.5          (6.9)       (13.2) 
  - Amortisation of intangible 
   assets                                             (7.8)         (13.8)       (25.2) 
  - Foreign exchange gain / 
   (loss)                                               6.0          (5.0)        (6.9) 
-------------------------------------  -----  -------------  -------------  ----------- 
 Operating profit / (loss)                             27.0         (23.2)       (25.2) 
 
 Finance income                                         0.4            0.3          0.3 
 Finance expense                         7            (1.4)         (12.6)       (20.7) 
-------------------------------------  -----  -------------  -------------  ----------- 
 Profit / (loss) before taxation                       26.0         (35.5)       (45.6) 
 
 Income tax charge                       8           (15.0)          (2.8)       (15.3) 
-------------------------------------  -----  -------------  -------------  ----------- 
 Profit / (loss) for the period                        11.0         (38.3)       (60.9) 
-------------------------------------  -----  -------------  -------------  ----------- 
 
 Earnings per share (US Cents)           9 
 Basic EPS                                              2.3          (8.3)       (13.2) 
 Diluted EPS                                            2.2          (8.3)       (13.2) 
 Adjusted operating EPS                                10.6            3.5         11.5 
 Diluted adjusted operating 
  EPS                                                  10.1            3.3         10.8 
-------------------------------------  -----  -------------  -------------  ----------- 
 

The accompanying notes form an integral part of these financial statements.

CONDENSED CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME

FOR THE SIX-MONTHSED 30 SEPTEMBER 2018

 
                                             Six-months     Six-months 
                                                  ended          ended   Year-ended 
                                           30 September   30 September     31 March 
                                                   2018           2017         2018 
                                                            Restated -     Restated 
                                              Unaudited         note 2     - note 2 
                                                     $M             $M           $M 
---------------------------------------   -------------  -------------  ----------- 
 Profit / (loss) for the period                    11.0         (38.3)       (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 operations            (1.6)          (0.3)        (2.6) 
----------------------------------------  -------------  -------------  ----------- 
 Total other comprehensive 
  losses                                          (1.6)          (0.3)        (2.6) 
 Comprehensive profit / (loss) 
  for the period                                    9.4         (38.6)       (63.5) 
----------------------------------------  -------------  -------------  ----------- 
 

The accompanying notes form an integral part of these financial statements.

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AT 30 SEPTEMBER 2018

Company registered number: 09608658

 
                                         30 September      30 September    31 March 
                                                 2018              2017        2018 
                                                        Restated - note    Restated 
                                            Unaudited                 2    - note 2 
                                  Note             $M                $M          $M 
-------------------------------  -----  -------------  ----------------  ---------- 
 Non-current assets 
 Intangible assets                 11           851.5             874.3       869.9 
 Property, plant and equipment     12            22.0              26.6        25.4 
 Deferred tax asset                             120.7             135.8       120.7 
 Other receivables                                0.6               1.0         1.3 
-------------------------------  -----  -------------  ----------------  ---------- 
                                                994.8           1,037.7     1,017.3 
 Current assets 
 Tax assets                                       5.9               9.4         8.2 
 Inventories                                     18.1              21.3        16.0 
 Trade and other receivables                    162.0             160.6       222.5 
 Cash and cash equivalents                      171.4              81.1       120.0 
-------------------------------  -----  -------------  ----------------  ---------- 
                                                357.4             272.4       366.7 
-------------------------------  -----  -------------  ----------------  ---------- 
 Total assets                                 1,352.2           1,310.1     1,384.0 
-------------------------------  -----  -------------  ----------------  ---------- 
 
 Current liabilities 
 Trade and other payables                       124.5             135.2       134.1 
 Deferred revenue                  13           401.5             356.7       407.9 
 Income tax payable                              29.7              25.2        23.0 
 Financial liabilities             14             0.6              18.4        17.4 
 Provisions                                         -               0.4           - 
-------------------------------  -----  -------------  ----------------  ---------- 
                                                556.3             535.9       582.4 
 Non-current liabilities 
 Trade and other payables                         7.6               9.3         8.2 
 Deferred revenue                  13           300.3             270.6       320.7 
 Financial liabilities             14           303.2             303.7       306.8 
 Provisions                                       1.3               1.3         1.4 
 Deferred tax liabilities                        12.8              18.3        14.5 
-------------------------------  -----  -------------  ----------------  ---------- 
                                                625.2             603.2       651.6 
-------------------------------  -----  -------------  ----------------  ---------- 
 Total liabilities                            1,181.5           1,139.1     1,234.0 
-------------------------------  -----  -------------  ----------------  ---------- 
 
 Net assets                                     170.7             171.0       150.0 
-------------------------------  -----  -------------  ----------------  ---------- 
 
 Represented by: 
 Share capital                                   22.3              21.8        22.0 
 Share premium                                  125.1             120.3       122.3 
 Merger reserve                               (200.9)           (200.9)     (200.9) 
 Retained earnings                              111.1             145.9       116.8 
 Share-based payment reserve                    146.7             113.6       121.8 
 Translation reserve                           (33.6)            (29.7)      (32.0) 
-------------------------------  -----  -------------  ----------------  ---------- 
 Total equity                                   170.7             171.0       150.0 
-------------------------------  -----  -------------  ----------------  ---------- 
 

The accompanying notes form an integral part of these financial statements.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX-MONTHSED 30 SEPTEMBER 2018

 
                                                                          Share-based 
                                Share      Share     Merger    Retained       Payment   Translation 
                              Capital    Premium    Reserve    Earnings       Reserve       Reserve    Total 
                                   $M         $M         $M          $M            $M            $M       $M 
--------------------------  ---------  ---------  ---------  ----------  ------------  ------------  ------- 
 At 1 April 2017 restated 
  - note 2                       21.6      118.4    (200.9)       199.5          68.9        (29.4)    178.1 
 Loss for the period:               -          -          -      (38.3)             -             -   (38.3) 
 Other comprehensive 
  profit or loss:                   -          -          -           -             -         (0.3)    (0.3) 
--------------------------  ---------  ---------  ---------  ----------  ------------  ------------  ------- 
 Total comprehensive 
  loss                              -          -          -      (38.3)             -         (0.3)   (38.6) 
 Share options exercised          0.2        1.9          -           -             -             -      2.1 
 Share-based payments 
  expense                           -          -          -           -          18.2             -     18.2 
 Share-based payments 
  tax                               -          -          -           -          26.5             -     26.5 
 Cash dividend                      -          -          -      (15.3)             -             -   (15.3) 
--------------------------  ---------  ---------  ---------  ----------  ------------  ------------  ------- 
 At 30 September 2017            21.8      120.3    (200.9)       145.9         113.6        (29.7)    171.0 
--------------------------  ---------  ---------  ---------  ----------  ------------  ------------  ------- 
 
 At 1 April 2018 restated 
  - note 2                       22.0      122.3    (200.9)       116.8         121.8        (32.0)    150.0 
 Profit for the period:             -          -          -        11.0             -             -     11.0 
 Other comprehensive 
  profit or loss:                   -          -          -           -             -         (1.6)    (1.6) 
--------------------------  ---------  ---------  ---------  ----------  ------------  ------------  ------- 
 Total comprehensive 
  profit                            -          -          -        11.0             -         (1.6)      9.4 
 Share options exercised          0.3        2.8          -           -             -             -      3.1 
 Share-based payments 
  expense                           -          -          -           -          20.6             -     20.6 
 Share-based payments 
  tax                               -          -          -           -           4.3             -      4.3 
 Cash dividend                      -          -          -      (16.7)             -             -   (16.7) 
--------------------------  ---------  ---------  ---------  ----------  ------------  ------------  ------- 
 At 30 September 2018            22.3      125.1    (200.9)       111.1         146.7        (33.6)    170.7 
--------------------------  ---------  ---------  ---------  ----------  ------------  ------------  ------- 
 

The accompanying notes form an integral part of these financial statements.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX-MONTHSED 30 SEPTEMBER 2018

 
                                                  Six-months     Six-months 
                                                       ended          ended   Year-ended 
                                                30 September   30 September     31 March 
                                                        2018           2017         2018 
                                                                 Restated -     Restated 
                                                   Unaudited         note 2     - note 2 
                                         Note             $M             $M           $M 
--------------------------------------  -----  -------------  -------------  ----------- 
 Profit / (loss) for the period                         11.0         (38.3)       (60.9) 
 Adjusted for: 
 Depreciation                                            5.8            5.4         11.6 
 Amortisation of intangible 
  assets                                                 7.8           13.8         25.2 
 Amortisation of fair value adjustment 
  on deferred income                                   (0.1)          (0.1)          1.0 
 Fair value adjustment to contingent 
  consideration                                        (6.9)              -          0.2 
 Foreign exchange                                      (5.7)            2.7          8.1 
 Share-based payments                     5             20.6           18.2         39.6 
 Finance income                                        (0.4)          (0.3)        (0.3) 
 Finance costs                            7              1.4           12.6         20.7 
 Income tax charge                                      15.0            2.8         15.3 
--------------------------------------  -----  -------------  -------------  ----------- 
                                                        48.5           16.8         60.5 
 (Increase) / decrease in inventories                  (2.8)          (4.3)          1.7 
 Decrease / (increase) in trade 
  and other receivables                                 54.4           27.0       (31.3) 
 (Decrease) / increase in trade 
  and other payables                                  (14.4)            4.0         10.4 
 Increase in deferred revenue                            3.3           45.1        128.7 
 Increase / (decrease) in provisions                       -            0.1        (0.2) 
--------------------------------------  -----  -------------  -------------  ----------- 
 Cash generated from operations                         89.0           88.7        169.8 
 Income taxes paid                                     (7.5)          (8.0)       (22.1) 
--------------------------------------  -----  -------------  -------------  ----------- 
 Net cash flow from operating activities                81.5           80.7        147.7 
---------------------------------------------  -------------  -------------  ----------- 
 
 Investing activities 
 Purchase of property, plant 
  and equipment                                        (4.8)          (6.8)       (10.0) 
 Acquisition of subsidiary 
  net of cash acquired                    15          (10.0)          (3.1)        (4.9) 
 Purchase of intangible assets                         (6.5)          (9.4)       (11.1) 
 Finance income                                          0.4            0.3          0.3 
--------------------------------------  -----  -------------  -------------  ----------- 
 Net cash flow from investing activities              (20.9)         (19.0)       (25.7) 
---------------------------------------------  -------------  -------------  ----------- 
 
 Financing activities 
 Proceeds from issue of shares                           3.1            2.1          4.2 
 Dividends paid                                            -              -       (21.8) 
 Repayment of borrowings                  15               -         (50.0)       (50.0) 
 Transaction costs related 
  to borrowings                                            -          (0.1)        (0.1) 
 Finance lease payments                                    -              -        (0.1) 
 Finance costs                                         (4.8)          (4.8)        (9.1) 
--------------------------------------  -----  -------------  -------------  ----------- 
 Net cash flow from financing activities               (1.7)         (52.8)       (76.9) 
---------------------------------------------  -------------  -------------  ----------- 
 
 Increase in cash and cash equivalents                  58.9            8.9         45.1 
 Net foreign exchange differences                      (7.5)            4.1          6.8 
 Cash and cash equivalents 
  at the start of period                               120.0           68.1         68.1 
--------------------------------------  -----  -------------  -------------  ----------- 
 Cash and cash equivalents at the 
  end of period                                        171.4           81.1        120.0 
---------------------------------------------  -------------  -------------  ----------- 
 

The accompanying notes form an integral part of these financial statements.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX-MONTH PERIODED 30 SEPTEMBER 2018

   1              GENERAL INFORMATION 

Sophos Group plc is incorporated and domiciled in the UK. The Company's registered address is:

Sophos Group plc, The Pentagon, Abingdon Science Park, Abingdon, Oxfordshire, OX14 3YP, United Kingdom.

The Interim Financial Statements were approved by the Board on 6 November 2018 for issue on 7 November 2018.

These Interim Financial Statements do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year-ended 31 March 2018 were approved by the Board of Directors on 16 May 2018 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unmodified, did not contain an emphasis of matter paragraph and did not contain any statement on other matters prescribed by the Companies Act 2006.

These Interim Financial Statements have been reviewed by the auditor, but not audited.

   2              BASIS OF PREPARATION 

The Interim Financial Statements have been prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by the European Union and as issued by the International Accounting Standards Board, and the Disclosure and Transparency Rules of the Financial Conduct Authority. The Interim Financial Statements should be read in conjunction with the Annual Report and Consolidated Financial Statements for the year-ended 31 March 2018, which have been prepared in accordance with international financial reporting standards as adopted by the European Union and IFRSs as issued by the International Accounting Standards Board, collectively "IFRS".

The Interim Financial Statements have been prepared under the historical cost convention and are presented in US dollars. All values are rounded to the nearest 0.1 million ($M) unless otherwise indicated. The Directors are satisfied that, at the time of approving the condensed consolidated financial statements, it is appropriate to continue to adopt a going concern basis of accounting.

ACCOUNTING POLICIES

The accounting policies adopted in preparation of the Interim Financial Statements are consistent with those used to prepare the Group's consolidated financial statements for the year-ended 31 March 2018, with the exception of the adoption of IFRS 15 "Revenue from contracts with customers" the impact of which is detailed below. The expected impact of the application of other new and revised international financial reporting standards, IFRS 16 "Leases" in particular, are discussed in note 2 of the Groups consolidated financial statements for the year-ended 31 March 2018.

Adoption of IFRS 15

The Group has adopted IFRS 15 Revenue from Contracts with Customers ("IFRS 15") in the year-ending 31 March 2019 and in doing so has applied the retrospective transition approach. Consequently, the results for the half-year ended 30 September 2017 and the full-year ended 31 March 2018 have 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; and,

- the deferral of commissions and other incremental costs incurred to obtain a contract with a customer in-line with the recognition of revenue.

   2              BASIS OF PREPARATION CONTINUED 

The impact of the adoption of IFRS 15 on the previously reported results is as follows:

 
                                      Six-months ended 30                      Year-ended 31 March 2018 
                                         September 2017 
                            ---------------------------------------  ------------------------------------------- 
                                                    IFRS 
                             As previously            15                  As previously       IFRS 15 
                                  reported    adjustment   Restated            reported    adjustment   Restated 
                                        $M            $M         $M                  $M            $M         $M 
                            --------------  ------------  ---------  ------------------  ------------  --------- 
 Revenue                             298.1         (1.3)      296.8               640.7         (1.7)      639.0 
 Cost of sales                      (65.8)         (0.4)     (66.2)             (143.3)         (0.7)    (144.0) 
 Sales and marketing 
  expense                          (119.9)           2.3    (117.6)             (249.0)           9.1    (239.9) 
 Operating loss                     (23.8)           0.6     (23.2)              (31.9)           6.7     (25.2) 
 Income tax                          (2.7)         (0.1)      (2.8)              (14.0)         (1.3)     (15.3) 
 Loss for the period                (38.8)           0.5     (38.3)              (66.3)           5.4     (60.9) 
 
 Deferred tax asset                  140.8         (5.0)      135.8               125.8         (5.1)      120.7 
 Trade and other 
  receivables                        122.4          38.2      160.6               177.8          44.7      222.5 
 Total assets                      1,276.9          33.2    1,310.1             1,344.4          39.6    1,384.0 
 
 Deferred revenue                    654.4        (27.1)      627.3               755.7        (27.1)      728.6 
 Deferred tax liabilities             11.1           7.2       18.3                 6.0           8.5       14.5 
 Total liabilities                 1,159.0        (19.9)    1,139.1             1,252.6        (18.6)    1,234.0 
 
 Net assets                          117.9          53.1      171.0                91.8          58.2      150.0 
                            --------------  ------------  ---------  ------------------  ------------  --------- 
 
 Earnings per share 
  (US cents) 
 Basic and diluted 
  EPS                                (8.4)           0.1      (8.3)              (14.4)           1.2     (13.2) 
 Adjusted operating 
  EPS                                  3.3           0.2        3.5                10.0           1.5       11.5 
 Diluted adjusted 
  operating EPS                        3.1           0.2        3.3                 9.5           1.3       10.8 
                            --------------  ------------  ---------  ------------------  ------------  --------- 
 
 
   3              ALTERNATIVE PERFORMANCE MEASURES ("APMs") 

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.

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.

 
                                  Six-months     Six-months 
                                       ended          ended   Year-ended 
                                30 September   30 September     31 March 
                                        2018           2017         2018 
                                          $M             $M           $M 
----------------------------   -------------  -------------  ----------- 
 Revenue                               349.5          296.8        639.0 
 Net deferral of revenue                 3.2           44.7        129.6 
-----------------------------  -------------  -------------  ----------- 
 Billings                              352.7          341.5        768.6 
-----------------------------  -------------  -------------  ----------- 
 Currency revaluation                    8.3           13.8         18.7 
-----------------------------  -------------  -------------  ----------- 
 Constant currency billings            361.0          355.3        787.3 
-----------------------------  -------------  -------------  ----------- 
 
   3              ALTERNATIVE PERFORMANCE MEASURES ("APMs") CONTINUED 

ADJUSTED OPERATING PROFIT AND CASH EBITDA

Adjusted operating profit 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.

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, the net deferral of sales related costs, unrealised foreign exchange differences (on the basis that they are non-cash income and expenses) and exceptional items, with billings replacing recognised revenue.

 
                                       Six-months     Six-months 
                                            ended          ended   Year-ended 
                                     30 September   30 September     31 March 
                                             2018           2017         2018 
                                               $M             $M           $M 
---------------------------------   -------------  -------------  ----------- 
 Operating profit / (loss)                   27.0         (23.2)       (25.2) 
 Amortisation of intangible 
  purchased assets                            7.8           13.8         25.2 
 Share-based payment expense                 20.6           18.2         39.6 
 Exceptional items                          (5.5)            6.9         13.2 
----------------------------------  -------------  -------------  ----------- 
 Adjusted operating profit                   49.9           15.7         52.8 
----------------------------------  -------------  -------------  ----------- 
 Depreciation                                 5.8            5.4         11.6 
 Foreign exchange (gain) / 
  loss - unrealised                         (5.7)            2.7          8.1 
 Net deferral of revenue                      3.2           44.7        129.6 
 Net deferral of related selling 
  expenses                                    0.8          (1.9)        (8.4) 
----------------------------------  -------------  -------------  ----------- 
 Cash EBITDA                                 54.0           66.6        193.7 
----------------------------------  -------------  -------------  ----------- 
 

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.

 
                                        Six-months     Six-months 
                                             ended          ended   Year-ended 
                                      30 September   30 September     31 March 
                                              2018           2017         2018 
                                                $M             $M           $M 
----------------------------------   -------------  -------------  ----------- 
 Net cash flow from operating 
  activities                                  81.5           80.7        147.7 
 Exceptional items - cash settled              1.4            6.9         13.0 
 Net capital expenditure                    (11.3)         (16.2)       (21.1) 
-----------------------------------  -------------  -------------  ----------- 
 Unlevered free cash flow                     71.6           71.4        139.6 
-----------------------------------  -------------  -------------  ----------- 
 
 
                                 Six-months     Six-months 
                                      ended          ended   Year-ended 
                               30 September   30 September     31 March 
                                       2018           2017         2018 
                                         $M             $M           $M 
---------------------------   -------------  -------------  ----------- 
 Cash EBITDA                           54.0           66.6        193.7 
 Net capital expenditure             (11.3)         (16.2)       (21.1) 
 Change in working capital             36.4           29.0       (10.9) 
 Corporation tax paid                 (7.5)          (8.0)       (22.1) 
----------------------------  -------------  -------------  ----------- 
 Unlevered free cash flow              71.6           71.4        139.6 
----------------------------  -------------  -------------  ----------- 
 
   4              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 classified by the geographic location of the direct customers, OEMs and distributors that purchase our products. The geographic location of OEMs or distributors may be different from that of end customers.

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 costs 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.

The following tables present billings and expenditure regarding the Group's geographical segments for the six-months ended 30 September 2018 and 30 September 2017.

 
                                         Americas     EMEA      APJ     Total 
 Six-months ended 30 September 2018            $M       $M       $M        $M 
--------------------------------------  ---------  -------  -------  -------- 
 Billings                                   121.5    186.2     45.0     352.7 
 Regional cost of sales                     (6.4)   (17.5)    (5.7)    (29.6) 
--------------------------------------  ---------  -------  -------  -------- 
 Regional gross margin                      115.1    168.7     39.3     323.1 
--------------------------------------  ---------  -------  -------  -------- 
 
 Regional sales and marketing expense      (38.6)   (43.0)   (16.0)    (97.6) 
--------------------------------------  ---------  -------  -------  -------- 
 Regional operating profit                   76.5    125.7     23.3     225.5 
--------------------------------------  ---------  -------  ------- 
 
 Revenue deferral                                                       (3.2) 
 Central costs                                                        (181.7) 
 Amortisation                                                           (7.8) 
 Depreciation                                                           (5.8) 
--------------------------------------  ---------  -------  -------  -------- 
 Operating profit                                                        27.0 
--------------------------------------  ---------  -------  -------  -------- 
 
 
                                         Americas     EMEA      APJ     Total 
 Six-months ended 30 September 2017            $M       $M       $M        $M 
--------------------------------------  ---------  -------  -------  -------- 
 Billings                                   116.6    175.1     49.8     341.5 
 Regional cost of sales                     (7.0)   (17.1)    (7.7)    (31.8) 
--------------------------------------  ---------  -------  -------  -------- 
 Regional gross margin                      109.6    158.0     42.1     309.7 
--------------------------------------  ---------  -------  -------  -------- 
 
 Regional sales and marketing expense      (37.8)   (36.7)   (16.2)    (90.7) 
--------------------------------------  ---------  -------  -------  -------- 
 Regional operating profit                   71.8    121.3     25.9     219.0 
--------------------------------------  ---------  -------  ------- 
 
 Revenue deferral                                                      (44.7) 
 Central costs                                                        (178.3) 
 Amortisation                                                          (13.8) 
 Depreciation                                                           (5.4) 
--------------------------------------  ---------  -------  -------  -------- 
 Operating loss                                                        (23.2) 
--------------------------------------  ---------  -------  -------  -------- 
 
   4              SEGMENT INFORMATION CONTINUED 
 
                                                  Six-months     Six-months 
                                                       ended          ended 
                                                30 September   30 September 
                                                        2018           2017 
                                                   Unaudited       Restated 
 Revenue from external customers by country               $M             $M 
--------------------------------------------   -------------  ------------- 
 UK                                                     41.2           33.2 
 USA                                                   109.0           94.4 
 Germany                                                72.0           59.0 
 Other countries                                       127.3          110.2 
---------------------------------------------  -------------  ------------- 
 Total revenue                                         349.5          296.8 
---------------------------------------------  -------------  ------------- 
 
 
                                               Six-months     Six-months 
                                                    ended          ended 
                                             30 September   30 September 
                                                     2018           2017 
                                                Unaudited       Restated 
 Revenue from external customers by type               $M             $M 
-----------------------------------------   -------------  ------------- 
 Subscription                                       290.9          239.0 
 Hardware                                            52.9           52.7 
 Other                                                5.7            5.1 
------------------------------------------  -------------  ------------- 
 Total revenue                                      349.5          296.8 
------------------------------------------  -------------  ------------- 
 
   5              SHARE-BASED PAYMENT EXPENSE 

For the six-months ended 30 September 2018, the Group has recognised equity and cash-settled share-based payment expenses as follows:

 
                                         Six-months     Six-months 
                                              ended          ended   Year-ended 
                                       30 September   30 September     31 March 
                                               2018           2017         2018 
                                                 $M             $M           $M 
 -----------------------------------  -------------  -------------  ----------- 
 Equity-settled transactions                   20.6           18.2         39.6 
 Cash-settled transactions                      2.5            2.5          2.7 
------------------------------------  -------------  -------------  ----------- 
 Total share-based payment expense             23.1           20.7         42.3 
------------------------------------  -------------  -------------  ----------- 
 

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

 
                    Six-months ended      Six-months ended         Year-ended 
                    30 September 2018     30 September 2017      31 March 2018 
                    Number        WASP    Number        WASP   Number        WASP 
                     000's   GBP pence     000's   GBP pence    000's   GBP pence 
----------------  --------  ----------  --------  ----------  -------  ---------- 
 RSUs                4,736      592.56     5,977      448.27    6,337      453.14 
 PSUs                1,224      595.75     1,719      440.50    1,719      440.50 
 SAYE - Options        817      594.07       917      463.68    1,667      317.20 
----------------  --------  ----------  --------  ----------  -------  ---------- 
 Total awards        6,777      593.32     8,613      448.36    9,723      427.60 
----------------  --------  ----------  --------  ----------  -------  ---------- 
 
   6              EXCEPTIONAL ITEMS 

Exceptional items are those that in the judgement 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 six-months to 30 September 2018, restructuring and integration costs of $1.2M (H1, FY18: $5.7M) and legal costs of $0.3M (H1, FY18: $1.2M) in relation to the defence of certain intellectual property litigation were incurred. Additionally, a $6.9M non-cash fair value adjustment to the contingent consideration due to the former owners of Invincea, Inc. was credited to exceptional items on agreement and payment of the final settlement. The reduction in the Group's tax charge in respect of these items amounted to $0.3M (H1, FY18: $1.2M).

   7              FINANCE EXPENSE 
 
 
                                             Six-months     Six-months 
                                                  ended          ended   Year-ended 
                                           30 September   30 September     31 March 
                                                   2018           2017         2018 
                                                     $M             $M           $M 
---------------------------------------   -------------  -------------  ----------- 
 Interest expense on loans 
  and borrowings                                    4.7            4.6          8.7 
 Other interest and bank charges                    0.2            0.1          0.3 
----------------------------------------  -------------  -------------  ----------- 
                                                    4.9            4.7          9.0 
 Accretion on contingent consideration              0.1            0.6          0.9 
 Foreign exchange (gain) / 
  loss on borrowings                              (4.1)            6.8          9.6 
 Amortisation of facility fees                      0.5            0.5          1.2 
----------------------------------------  -------------  -------------  ----------- 
 Total finance expense                              1.4           12.6         20.7 
----------------------------------------  -------------  -------------  ----------- 
 
   8              TAXATION 

The Group calculates the period income tax expense using the tax rate that would be applicable to the expected total annual earnings. The income tax expense for the six-month period ended 30 September 2018 was $15.0M (H1, FY18: $2.8M) representing an effective tax rate of 57.7% (H1, FY18: -7.9%).

   9              EARNINGS PER SHARE 

Basic earnings per share ("EPS") is calculated by dividing the profit for the period attributable to equity holders of the parent company 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 company 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, attributable to equity holders of the parent company 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 table sets out the income and share data used in calculating EPS:

 
 
                                      Six-months     Six-months 
                                           ended          ended   Year-ended 
                                    30 September   30 September     31 March 
                                            2018           2017         2018 
                                              $M             $M           $M 
--------------------------------   -------------  -------------  ----------- 
 Profit / (loss) for the period 
  attributable to the equity 
  holders of the Company                    11.0         (38.3)       (60.9) 
---------------------------------  -------------  -------------  ----------- 
 Adjusted operating profit 
  for the period attributable 
  to the equity holders of the 
  Company - (see note 3)                    49.9           15.7         52.8 
---------------------------------  -------------  -------------  ----------- 
 
                                      Six-months     Six-months 
                                           ended          ended   Year-ended 
                                    30 September   30 September     31 March 
                                            2018           2017         2018 
 Weighted average number of 
  shares (000's):                        472,924        457,988      459,969 
---------------------------------  -------------  -------------  ----------- 
 Effects of dilution from: 
 Share options                            10,073         12,384       11,475 
 Restricted stock units                   13,737         15,327       17,125 
---------------------------------  -------------  -------------  ----------- 
 Diluted                                 496,734        485,699      488,569 
---------------------------------  -------------  -------------  ----------- 
 
 
                                      Six-months     Six-months 
                                           ended          ended   Year-ended 
                                    30 September   30 September     31 March 
                                            2018           2017         2018 
                                       Unaudited       Restated     Restated 
                                        US Cents       US Cents     US Cents 
--------------------------------   -------------  -------------  ----------- 
 Basic EPS                                   2.3          (8.3)       (13.2) 
 Diluted EPS                                 2.2          (8.3)       (13.2) 
 Adjusted operating EPS                     10.6            3.5         11.5 
 Diluted adjusted operating 
  EPS                                       10.1            3.3         10.8 
---------------------------------  -------------  -------------  ----------- 
 
   10           DISTRIBUTIONS MADE AND PROPOSED 

The Directors recommended a final dividend for the year-ended 31 March 2018 of 3.5 US Cents. This was approved at the Annual General Meeting held on 30 August 2018. Accordingly a final dividend of 3.5 US Cents per ordinary share (FY18: 3.3 US Cents) was paid on 12 October 2018 (FY18: 13 October 2017) to those members whose names were on the register of members on 12 September 2018 (FY18: 15 September 2017).

The Directors approved an interim dividend for the year-ending 31 March 2019 of 1.5 US Cents (H1, FY18: 1.4 US Cents) per ordinary share on 6 November 2018. Accordingly an interim dividend of 1.5 US Cents will be paid on 14 December 2018 (FY18: 15 December 2017) to those members whose name is on the register on 16 November 2018 (FY18: 17 November 2017). The interim dividend is not recognised as a liability at the reporting period-end.

   11           INTANGIBLE ASSETS 

The Group spent $1.5M on intangible assets in the six-months ended 30 September 2018. The net book value of the Group's intangible assets at the end of the period are analysed as follows:

 
 
                                    Intellectual 
                         Goodwill       property   Software   Others    Total 
 Net book value                $M             $M         $M       $M       $M 
----------------------  ---------  -------------  ---------  -------  ------- 
 At 1 April 2018            826.1           28.0       10.8      5.0    869.9 
 Additions                      -              -        1.5        -      1.5 
 Amortisation                   -          (3.8)      (2.8)    (1.2)    (7.8) 
 Exchange movement         (11.3)              -      (0.8)        -   (12.1) 
----------------------  ---------  -------------  ---------  -------  ------- 
 At 30 September 2018       814.8           24.2        8.7      3.8    851.5 
----------------------  ---------  -------------  ---------  -------  ------- 
 
                                    Intellectual 
                         Goodwill       property   Software   Others    Total 
 Net book value                $M             $M         $M       $M       $M 
----------------------  ---------  -------------  ---------  -------  ------- 
 At 1 April 2017            809.3           26.7       11.8      8.2    856.0 
 Additions                      -           14.8        4.6        -     19.4 
 Amortisation                   -          (7.8)      (3.8)    (2.2)   (13.8) 
 Exchange movement           11.7          (0.1)        0.7      0.4     12.7 
----------------------  ---------  -------------  ---------  -------  ------- 
 At 30 September 2017       821.0           33.6       13.3      6.4    874.3 
----------------------  ---------  -------------  ---------  -------  ------- 
 
   12           PROPERTY, PLANT AND EQUIPMENT 

The Group spent $4.8M on property, plant and equipment in the six-months ended 30 September 2018 (FY18: $6.8M). The net book value of the Group's assets at the end of the period are analysed as follows:

 
                           Land and    Plant and        Fixtures 
                          Buildings    Machinery    and Fittings   Total 
 Net book value                  $M           $M              $M      $M 
----------------------  -----------  -----------  --------------  ------ 
 At 1 April 2018                7.3         14.8             3.3    25.4 
 Additions                      1.1          3.2             0.5     4.8 
 Depreciation                 (1.3)        (4.1)           (0.4)   (5.8) 
 Exchange movement            (1.5)        (0.7)           (0.2)   (2.4) 
----------------------  -----------  -----------  --------------  ------ 
 At 30 September 2018           5.6         13.2             3.2    22.0 
----------------------  -----------  -----------  --------------  ------ 
 
                           Land and    Plant and        Fixtures 
                          Buildings    Machinery    and Fittings   Total 
 Net book value                  $M           $M              $M      $M 
----------------------  -----------  -----------  --------------  ------ 
 At 1 April 2017                6.8         13.9             2.7    23.4 
 Additions                      1.2          4.9             0.7     6.8 
 Depreciation                 (1.3)        (3.7)           (0.4)   (5.4) 
 Exchange movement              1.3          0.3             0.2     1.8 
----------------------  -----------  -----------  --------------  ------ 
 At 30 September 2017           8.0         15.4             3.2    26.6 
----------------------  -----------  -----------  --------------  ------ 
 
   13           DEFERRED REVENUE 

The movement in the Group's deferred revenue balance was as follows:

 
                                       30 September   30 September   31 March 
                                               2018           2017       2018 
                                                 $M             $M         $M 
-----------------------------------   -------------  -------------  --------- 
 Current                                      407.9          315.0      315.0 
 Non-current                                  320.7          238.8      238.8 
------------------------------------  -------------  -------------  --------- 
 At 1 April                                   728.6          553.8      553.8 
------------------------------------  -------------  -------------  --------- 
 
 Billings                                     352.7          341.5      768.6 
 Revenues                                   (349.5)        (296.8)    (639.0) 
------------------------------------  -------------  -------------  --------- 
 Net deferral                                   3.2           44.7      129.6 
------------------------------------  -------------  -------------  --------- 
 Translation and other adjustments           (30.0)           28.8       45.2 
------------------------------------  -------------  -------------  --------- 
 
 Current                                      401.5          356.7      407.9 
 Non-current                                  300.3          270.6      320.7 
------------------------------------  -------------  -------------  --------- 
 At end of period                             701.8          627.3      728.6 
------------------------------------  -------------  -------------  --------- 
 
   14           FINANCIAL LIABILITIES 

Total financial liabilities at the end of the reporting period, measured at amortised cost, are as follows:

 
                                    30 September   30 September   31 March 
                                            2018           2017       2018 
                                              $M             $M         $M 
--------------------------------   -------------  -------------  --------- 
 Contingent consideration                    0.6           18.4       17.4 
---------------------------------  -------------  -------------  --------- 
 Total current financial 
  liabilities                                0.6           18.4       17.4 
---------------------------------  -------------  -------------  --------- 
 Non-current instalments 
  due on bank loans due between 
  two and five years                       304.7          305.9      308.8 
 Contingent consideration                    0.4            0.9        0.5 
 Unamortised facility fees                 (1.9)          (3.1)      (2.5) 
---------------------------------  -------------  -------------  --------- 
 Total non-current financial 
  liabilities                              303.2          303.7      306.8 
---------------------------------  -------------  -------------  --------- 
 Total financial liabilities               303.8          322.1      324.2 
---------------------------------  -------------  -------------  --------- 
 

The following terms apply to the bank loans outstanding at 30 September 2018:

 
                                    Principal   Principal 
 Facility       Interest   Margin           M         $ M 
------------  ----------  -------  ----------  ---------- 
 Facility A      Libor      1.25%     $ 235.0       235.0 
 Facility B     Euribor     1.25%    EUR 60.0        69.7 
------------  ----------  -------  ----------  ---------- 
                                                    304.7 
                                               ---------- 
 

Both Facility A and Facility B are repayable in full at the end of the 60-month term on 1 July 2020. The margin payable on both 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 trade and assets of certain Group companies.

   15           NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS 

ACQUISITION OF SUBSIDIARIES NET OF CASH ACQUIRED

 
                                     Six-months     Six-months 
                                          ended          ended   Year-ended 
                                   30 September   30 September     31 March 
                                           2018           2017         2018 
                                             $M             $M           $M 
-------------------------------   -------------  -------------  ----------- 
 Consideration paid, satisfied 
  in cash 
  - Invincea, Inc.                          9.4            1.9          3.7 
  - Intellectual Property - 
   Silent Break Security LLC                0.6              -            - 
  - Reflexion Networks Inc.                   -            1.2          1.2 
 Acquisition of subsidiaries 
  net of cash                              10.0            3.1          4.9 
--------------------------------  -------------  -------------  ----------- 
 

During the six-months ended 30 September 2018, the Group paid $9.4M (H1, FY18: $1.9M) to the previous owners of Invincea, Inc. and $0.6M (H1, FY18: $nil) to the previous owners of the "PhishThreat" product range. The contingent consideration has been calculated based on the billings of the Invincea, Inc. product range for the quarter-ended 31 March 2018 and for the "PhishThreat" product range for the twelve months ended 28 February 2018.

RECONCILIATION OF MOVEMENT IN NET DEBT

 
                                                                      Effect of 
                                                                      movements 
                                                      Non-cash               in 
                              31 March                                            30 September 
                                  2018   Cash flow   movements   exchange rates           2018 
                                    $M          $M          $M               $M             $M 
---------------------------  ---------  ----------  ----------  ---------------  ------------- 
 Cash and cash equivalents     (120.0)      (58.9)           -              7.5        (171.4) 
---------------------------  ---------  ----------  ----------  ---------------  ------------- 
 Bank loans                      306.3           -         0.6            (4.1)          302.8 
---------------------------  ---------  ----------  ----------  ---------------  ------------- 
 Gross debt                      306.3           -         0.6            (4.1)          302.8 
---------------------------  ---------  ----------  ----------  ---------------  ------------- 
 Net debt                        186.3      (58.9)         0.6              3.4          131.4 
---------------------------  ---------  ----------  ----------  ---------------  ------------- 
 
                                                                      Effect of 
                                                                      movements 
                                                      Non-cash               in 
                              31 March                                            30 September 
                                  2017   Cash flow   movements   exchange rates           2017 
                                    $M          $M          $M               $M             $M 
---------------------------  ---------  ----------  ----------  ---------------  ------------- 
 Cash and cash equivalents      (68.1)       (8.9)           -            (4.1)         (81.1) 
---------------------------  ---------  ----------  ----------  ---------------  ------------- 
 Obligations under 
  finance leases                   0.1           -           -                -            0.1 
 Bank loans                      345.6      (50.1)         0.5              6.8          302.8 
---------------------------  ---------  ----------  ----------  ---------------  ------------- 
 Gross debt                      345.7      (50.1)         0.5              6.8          302.9 
---------------------------  ---------  ----------  ----------  ---------------  ------------- 
 Net debt                        277.6      (59.0)         0.5              2.7          221.8 
---------------------------  ---------  ----------  ----------  ---------------  ------------- 
 
   16           PRINCIPAL EXCHANGE RATES 
 
                                    Six-months     Six-months 
                                         ended          ended   Year-ended 
                                  30 September   30 September     31 March 
                                          2018           2017         2018 
 Translation of Sterling into 
  US Dollar ($:GBP1.00) 
 Average                                1.3405         1.2902       1.3264 
 Closing                                1.3041         1.3417       1.4028 
 
 Translation of Euro into US 
  Dollar ($:EUR1.00) 
 Average                                1.1844         1.1319       1.1664 
 Closing                                1.1616         1.1822       1.2299 
-------------------------------  -------------  -------------  ----------- 
 

When calculating performance measures on a constant currency basis the Group uses the closing balance sheet rate of the previous year.

   17           RELATED PARTY TRANSACTIONS 

There are no related party transactions that have materially affected the financial position or performance of the Group during the period which would require disclosure under rule DTR 4.2.8R of the Disclosure and Transparency Rules. Transactions with related parties are fully disclosed in note 30 to the 2018 Annual Accounts.

   18           EVENTS AFTER THE REPORTING PERIOD 

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

INDEPENDENT REVIEW REPORT TO SOPHOS GROUP PLC

FOR THE SIX-MONTH PERIOD ENDED 30 SEPTEMBER 2018

CONCLUSION

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2018 which comprises the Condensed Consolidated Statement of Profit or Loss, Condensed Consolidated Statement of Other Comprehensive Income, Condensed Consolidated Statement of Financial Position, Condensed Consolidated Statement of Changes in Equity, Condensed Consolidated Cash Flow Statement, and the related explanatory notes.

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2018 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted by the EU and issued by the International Accounting Standards Board ("IASB"), and the Disclosure Guidance and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").

SCOPE OF REVIEW

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

DIRECTORS' RESPONSIBILITIES

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.

As disclosed in note 2, the annual financial statements of the group are prepared in accordance with International Financial Reporting Standards as adopted by the EU and as issued by the IASB. The directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 as adopted by the EU and as issued by the IASB.

OUR RESPONSIBILITY

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

THE PURPOSE OF OUR REVIEW WORK AND TO WHOM WE OWE OUR RESPONSIBILITIES

This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the DTR of the UK FCA. Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached.

Robert Seale

For and on behalf of KPMG LLP

Chartered Accountants

15 Canada Square

London

E15 4GL

6 November 2018

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

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