surfcontrol plc annual report  accounts 2004
principal offices
surfcontrol inc
united states – massachusetts
1900 west park drive suite 180 
westborough ma 01581 usa
tel 1 508 621 3900
fax 1 508 621 3921
email salesussurfcontrolcom
united states – california
5550 scotts valley drive
scotts valley ca 95066 usa 
tel 1 831 431 1400
fax 1 831 431 1800
email infosurfcontrolcom 
surfcontrol plc
united kingdom – congleton
riverside mountbatten way congleton
cheshire cw12 1dy united kingdom
tel 44 01260 296 200
fax 44 01260 296 201
email surfinfosurfcontrolcom
surfcontrol plc – singapore
level 58 republic plaza
9 raffles place singapore 048619
tel 65 6823 1312
fax 65 6823 1481
email supportsgsurfcontrolcom
surfcontrol plc – france
le challenge 92 124 bd françois arago
nanterre france
surfcontrol gmbh 
austria 
dorotheergasse 7 a1010 vienna austria
tel 43 1 513 44 15
fax 43 1 513 44 02
email salesatsurfcontrolcom 
surfcontrol gmbh 
germany
rüsterstraße 13
d60325 frankfurt am main germany
tel 49 69 70 79 86 0 
fax 49 69 70 79 86 20
email salesdesurfcontrolcom
surfcontrol bv
netherlands
schouwburgplein 3034 3012 cl rotterdam 
the netherlands 
tel 31 0 10 402 0000 
fax 31 0 10 402 0099
email salesnlsurfcontrolcom
surfcontrol pty ltd
australia
level 1 19 havilah street chatswood
nsw 2067 australia 
tel 61 02 9414 0000 
fax 61 02 9414 0099
email salesausurfcontrolcom
beijing messagesoft technology co ltd
office tower c2 3rd floor
oriental place beijing 100 738 china
tel 86 10 8518 8860
fax 86 10 8518 0067
email infomessagesoftnet
wwwsurfcontrolcom
the world’s 1 web and email filtering company
annual report  accounts 2004
contents
01 chairman’s statement
02 chief executive’s strategic review
12 surfcontrol at a glance
14 finance director’s review
20 board of directors
22 advisers
23 directors’ report
27 corporate governance report
33 directors’ remuneration report
40 independent auditors’ report
41 group profit and loss account
41 group statement of total recognised
gains and losses
42 group balance sheet
43 company balance sheet
44 group statement of cash flow
45 reconciliation of net cash flow to
movement in net funds
46 notes to the financial statements
68 unaudited group profit and loss account  back cover   front cover   flap outer 
surfcontrol plc annual report  accounts 2004
principal offices
surfcontrol inc
united states – massachusetts
1900 west park drive suite 180 
westborough ma 01581 usa
tel 1 508 621 3900
fax 1 508 621 3921
email salesussurfcontrolcom
united states – california
5550 scotts valley drive
scotts valley ca 95066 usa 
tel 1 831 431 1400
fax 1 831 431 1800
email infosurfcontrolcom 
surfcontrol plc
united kingdom – congleton
riverside mountbatten way congleton
cheshire cw12 1dy united kingdom
tel 44 01260 296 200
fax 44 01260 296 201
email surfinfosurfcontrolcom
surfcontrol plc – singapore
level 58 republic plaza
9 raffles place singapore 048619
tel 65 6823 1312
fax 65 6823 1481
email supportsgsurfcontrolcom
surfcontrol plc – france
le challenge 92 124 bd françois arago
nanterre france
surfcontrol gmbh 
austria 
dorotheergasse 7 a1010 vienna austria
tel 43 1 513 44 15
fax 43 1 513 44 02
email salesatsurfcontrolcom 
surfcontrol gmbh 
germany
rüsterstraße 13
d60325 frankfurt am main germany
tel 49 69 70 79 86 0 
fax 49 69 70 79 86 20
email salesdesurfcontrolcom
surfcontrol bv
netherlands
schouwburgplein 3034 3012 cl rotterdam 
the netherlands 
tel 31 0 10 402 0000 
fax 31 0 10 402 0099
email salesnlsurfcontrolcom
surfcontrol pty ltd
australia
level 1 19 havilah street chatswood
nsw 2067 australia 
tel 61 02 9414 0000 
fax 61 02 9414 0099
email salesausurfcontrolcom
beijing messagesoft technology co ltd
office tower c2 3rd floor
oriental place beijing 100 738 china
tel 86 10 8518 8860
fax 86 10 8518 0067
email infomessagesoftnet
wwwsurfcontrolcom
the world’s 1 web and email filtering company
annual report  accounts 2004
contents
01 chairman’s statement
02 chief executive’s strategic review
12 surfcontrol at a glance
14 finance director’s review
20 board of directors
22 advisers
23 directors’ report
27 corporate governance report
33 directors’ remuneration report
40 independent auditors’ report
41 group profit and loss account
41 group statement of total recognised
gains and losses
42 group balance sheet
43 company balance sheet
44 group statement of cash flow
45 reconciliation of net cash flow to
movement in net funds
46 notes to the financial statements
68 unaudited group profit and loss account
4569 surfcontrol cover  92304  103 pm  page 1  inside front cover   inside back cover   flap inner 
highlights
■ pretax profit increased by 62 to 144m
2003 89m 
■ group turnover increased by 19 to 873m
2003 732m 
■ group invoicing increased by 16 to 1066m
2003 921m
■ cash balances as at 30 june 2004 increased 
to 875m 2003 617m 
■ gross profit margin of 98
■ increased contribution of indirect channel
sales from 49 to 58 for the year
422
01 02 03
year
04
542
732
873
turnover m
87 3m
turnover up 19 from
732m in 2003
87 5m
cash balance 617m in 2003
surfcontrol the world leader in
enterprise web and email filtering
surfcontrol plc the world leader in
enterprise web and email filtering
delivers on its promise to help companies
‘stop unwanted content’ in the workplace
by continuous innovation invention and
expansion of its filtering products to
address new content risks as they emerge 
surfcontrol is the industry’s only
complete solution to managing internet
risk surfcontrol technology protects all
points of entry and every way employees
use the internet for business – instant
messaging web email and peertopeer
it also works on every platform they work
on – blue coat cisco check point
microsoft exchange and isa 2004
and many more 
the company’s products and technology
are used by more than 20000 customers
worldwide including many of the world’s
largest corporations surfcontrol employs
more than 500 people in offices across
the united states europe and asiapacific
for further information and news
on surfcontrol please visit
httpwwwsurfcontrolcom
 vision
 leadership
 innovation
 evolution
4569 surfcontrol cover  92304  103 pm  page 2  inside front cover   inside back cover   flap inner 
highlights
■ pretax profit increased by 62 to 144m
2003 89m 
■ group turnover increased by 19 to 873m
2003 732m 
■ group invoicing increased by 16 to 1066m
2003 921m
■ cash balances as at 30 june 2004 increased 
to 875m 2003 617m 
■ gross profit margin of 98
■ increased contribution of indirect channel
sales from 49 to 58 for the year
422
01 02 03
year
04
542
732
873
turnover m
87 3m
turnover up 19 from
732m in 2003
87 5m
cash balance 617m in 2003
surfcontrol the world leader in
enterprise web and email filtering
surfcontrol plc the world leader in
enterprise web and email filtering
delivers on its promise to help companies
‘stop unwanted content’ in the workplace
by continuous innovation invention and
expansion of its filtering products to
address new content risks as they emerge 
surfcontrol is the industry’s only
complete solution to managing internet
risk surfcontrol technology protects all
points of entry and every way employees
use the internet for business – instant
messaging web email and peertopeer
it also works on every platform they work
on – blue coat cisco check point
microsoft exchange and isa 2004
and many more 
the company’s products and technology
are used by more than 20000 customers
worldwide including many of the world’s
largest corporations surfcontrol employs
more than 500 people in offices across
the united states europe and asiapacific
for further information and news
on surfcontrol please visit
httpwwwsurfcontrolcom
 vision
 leadership
 innovation
 evolution
4569 surfcontrol cover  92304  103 pm  page 2 surfcontrol plc chairman’s statement 01
invoicing for the year reached 1066m
turnover grew 19 to 873m this
resulted in pretax profit of 144m 
and at the year end a cash balance of
875m the last five years have seen a
tremendous level of commitment and
drive from all our employees led in an
exemplary fashion by the executive
management at the end of this fiscal
year the group had 522 employees
and i take this opportunity to thank
every one of them for all that they have
achieved for surfcontrol during my first
year as your chairman i have had the
chance to meet our teams in the uk
usa europe and in australia and i 
have found them facing the future with
confidence and determination our
results also reflect the strong and loyal
support of our business partners and
i thank them for it most of all i thank
our customers for choosing our web
email and instant messaging products
and services
the vision set out by rob barrow and
steve purdham some six years ago has
borne great fruit and today we can fairly
claim to be a world class software
company the group’s success has
been built upon the enthusiasm and
dedication shown by all the people at
surfcontrol it is their skill and expertise
which has allowed us to compete on
the world stage
any more than a few moments spent
on self congratulation would be foolish
the world is not static – and in a
growing market such as ours the
competition only ever gets stronger
during this past year we have put in
place a future strategy based on our
core capabilities and upon a thorough
analysis of our chosen markets and our
competition we have created a platform
for future growth you will see details of
our future roadmap in steve’s chief
executive strategic review but already
we have made significant moves in
technology geography and markets
with the acquisition of a linuxbased
filtering appliance and the establishment
of a sales and distribution operation in
the people’s republic of china
your board has changed in composition
to reflect our size and ambition rob
barrow decided a year ago that the
time was right for him to step down as
chairman we thank and applaud rob
for his tremendous contribution to our
company over many years two new
nonexecutive directors have joined 
us jane tozer and rene schuster
strengthening our corporate governance
expertise and adding further breadth to
our international software and services
industry knowledge we are now a
significant company and your board
has also spent considerable time and
effort on ensuring we have appropriate
governance procedures in place
throughout this report you will see
examples of where we added new
and enhanced information about the
group’s corporate governance position
and the requirements of the revised
combined code
i thank you our shareholders for your
confidence in our future and i hope
you find this report informative and
encouraging i look forward to the
opportunity of personally meeting
with you our shareholders in the
coming year
greg lock
chairman of the board
6 september 2004
in this my first report to shareholders as the chairman
of surfcontrol it gives me pleasure to report on a year
of strong results and continued growth
today we can fairly claim to be a
world class software company 
fact 3040 of internet use
in the workplace is not
related to business
source idc august 2004
greg lock chairman surfcontrol plc chief executive’s strategic review 02
this together with the desire to
produce the best technology available
on the market at that time gave us the
ability to capture mindshare and market
share to become leaders in our field
and create a growing cash generative
profitable business
by 2000 the adoption of the internet as
the main business communication tool
highlighted that the need to ‘stop
unwanted content’ was about to go
beyond the boundaries of web filtering
this gained further momentum as the
issues of content became universal
across internet delivery mechanisms
such as email and then instant
messaging furthermore the content
challenges subtly widened to include
pornography sport entertainment
gambling and eventually the scourge
of spam this led to the evolution and
strengthening of our software family to
include the surfcontrol email filter in
2001 followed closely by our instant
message filter
but it wasn’t just technology that was
driving change increased use of 
the internet beyond the us was also 
a key point of flux and accordingly 
we expanded our reach into other
geographical regions giving us the
global presence that we have today
since conception we have experienced
a full range of emotions excitement
frustration fear and pride as we have
achieved all the objectives that we set
ourselves at the beginning many long
term goals were ‘set in stone’ to drive
our vision and actions the most
important ones were building a
business which had sustainable
growth was both profitable and cash
generative and in particular generated
100m of annual sales 
with our increasing geographical
reach and continued technological
advancement to further increase
revenues cash generation and profits
it is with great pride that we can
announce that we have achieved all of
our original goals mostly ahead of the
original plan produced back in 19978
with invoicing for the year ending
30 june 2004 reaching over 106m
turnover of 873m cash of 875m
and pretax profits of 144m over
520 people and 13 offices around
the world together with ‘best of breed’
products our 20034 year has been
another record year
building on
our success
in 1998 when we launched our first web filtering
software we recognised that the market was due to
change from ‘protecting children from pornography’ 
into ‘protecting businesses from unwanted content’ 
that would affect productivity resources legal liability
and security this ‘change’ in mindset from porn
blockers to rich content web filters was the driving
force in our adoption by corporations across the globe
 vision
 leadership
 innovation
 evolution
steve purdham chief executive
stop unwanted content
productivity
security
legal liability
network resources
internet
content
risks
04 05
20 billion emails nonspam 2007
07 06
email boxes
business
699m
754m
806m
648m
source idc antispam survey 2004 annual report  accounts 2004 03 surfcontrol plc chief executive’s strategic review continued 04
so after taking a few moments to reflect
and enjoy surfcontrol’s significant
achievements we must now focus all
our attention on the future
we have succeeded we aim to
continue winning tomorrow and
beyond is the focus
in the last 12 months surfcontrol has
looked further into the future and defined
the direction objectives and technology
that we need to evolve this work
culminated in the announcement in may
2004 of our t echnology roadmap
our future continues with an aggressive
focus on our core strength of content
filtering however the dynamics of our
market are changing at an accelerated
pace presenting both a significantly
bigger opportunity and increased
challenges
our roadmap has three key components
– technology geography and market
to fully appreciate our direction we
need to examine the dynamics of
change in our market
winning tomorrow and
beyond is the focus
 vision
 leadership
 innovation
 evolution
98 99 00 01 02 03 04 05 06 07
maintaining momentum
19982007  beyond
revenues
873m 873m
144m 144m
net profit before taxation
integrated technology roadmap
service internet appliance software
global
threats
inbound
perimeter
threats
inbound 
outbound
departmental
control
inbound 
outbound
at surfcontrol we are developing technologies that will enable us to offer a completely integrated
content filtering solution annual report  accounts 2004 05
charles darwin stated that “it’s not the strongest of
the species that survives nor the most intelligent
it is the one that is the most adaptable to change ”
and surfcontrol’s ability to adapt to change during
its early growth is one of the keys to its success
this ability to adapt to change is also one of the key
strengths as we move towards our next exciting
level of growth and expansion
we project we deliver surfcontrol plc chief executive’s strategic review continued 06
the use of email and the web at work
has been the most important business
development in recent times it has
brought with it fundamental risks and
challenges to the business community
such as legal liability risks to productivity
network capacity pressures and
increased security threats there was an
opportunity the market demanded a
solution and we provided it we provided
software that gave our customers the
power to choose the type of content
they received and the type of content
they sent we provided it on a multitude
of platforms to fit within differing
technological environments we enabled
companies to stop unwanted content 
this market which also includes anti
virus solutions has become known as
the secure content market in 2003
it generated combined sales of 32
billion in 2008 it is predicted to
generate 7 2 billion idc growing at a
compound annual growth rate cagr
of 17 the secure content market
contains three major segments web
filtering message security and antivirus
it has driven our success to date and
the opportunity is continuing to expand
however within this expansion in 
opportunity and market size the
challenges and competition are also
expanding in particular they are
evolving in terms of technology 
delivery and geography
at a technology level our focus to date
has been on high quality software
delivery but as the market has evolved
so have the ways in which filtering is
delivered filtering software is run on a
company’s server within the corporate
network however in recent times we
have seen an emerging market trend
towards putting in place two other
filtering solutions firstly a hardware
solution with the installation of a task
specific filtering appliance and secondly
a managed service solution with
content filtering being provided as 
a service by a third party
the market dynamics
– a great opportunity
in 1996 when the decision was taken to target this
market it hardly existed – but we knew then it would
be big eight years on the true implications of internet
access in the work place are only just being realised
 vision
 leadership
 innovation
 evolution
lyndon b johnson stated ‘tomorrow is ours to win or lose’ 
we succeeded by never resting on our laurels we have
succeeded by doing things better tomorrow that we did
well today we have succeeded by both driving and
reacting to a dynamic and evolving market we have
succeeded because every step we have taken has put us
in a position to take the next steps
32
03 04 05
bn
year
06 08 07
39
47
54
63
72
secure content market
20032008
bn
the secure content market is set to show
consistent growth for years to come 
source idc 2004 annual report  accounts 2004 07
the market opportunity for the secure
content appliance is expected to exhibit
70 cagr between now and 2007
and will be worth 16bn
beyond appliances there is also the
emerging opportunity from managed
services which is set to show significant
growth in the future
we listen we respond
this is particularly the case with regard
to the control of email today software
remains the most favoured email
filtering tool accounting for 44 of
the market however the appliance
approach now represents 28 as
does the managed service solution 
the following factors have encouraged the
growth of demand for the security appliance
 reduced complexity the allinone
approach simplifies product selection
product integration and ongoing support
 an alternative to software installation
with incremental servers customers or
more often valueadded resellers vars
valueadded dealers vads or managed
service providers msps can easily install
and maintain the products increasingly
this process is handled remotely
 install and forget the appliances are
generally “plug and play” with very little
installation required 
 synergy with highend software
solutions appliances are used in remote
sites at which an enterprise does not have
security professionals on the ground a
plugandplay appliance can be installed
and then managed remotely this
management is synergistic with large
centralized softwarebased firewalls and
content security solutions 
 less end user interaction the black box
approach limits the “damage” users can
do this reduces support calls and
improves security
 troubleshooting ease when a box fails it
is easier to swap it out than to troubleshoot
the process gets the node back online more
quickly and it can be done by a non
technical person this feature is especially
important for remote offices without
dedicated technical staff on site 
delivery segmentation
■ software ferris antispam
■ appliance report 2004
■ service
44
28
28
scm appliance market
prime function is content filtering
02 03 04
year
cagr 70
05 07 06
205m
390m
630m
1bn
16bn
109m
today content filtering is based on three
delivery mechanisms source ferris 2004
of the three content filtering delivery
mechanisms the appliance market is 
set to grow at the fastest rate 
source idc 2003 surfcontrol plc chief executive’s strategic review continued 08
software
currently we provide web and email
software and we will continue to offer
this solution to new customers and our
global customer base alike during the
year we announced several upgrades
and enhancements to our software
solution and added functionality and
performance these included the launch
of surfcontrol web filter for cisco ce
and blue coat platforms and upgrades
to our web filtering software for
microsoft windows proxy server and
isa server check point firewall 1 linux
and nokia ipso offerings for many
organisations software remains the
solution of choice and our software is
consistently viewed by the market as
being the best of breed in its class
appliance
this year will mark the launch of the
surfcontrol filtering appliance and is
the result of a year of planning and
assessment of the market surfcontrol
examined several ways in which to
address the market and concluded that
the acquisition of an existing appliance
vendor would be the best way forward
accordingly on 19 april 2004 we
announced the acquisition of the
principle assets of securem a provider
of email appliance technology by
combining our core filtering expertise
with securem’s specific linux based
appliance technology we will launch an
email filtering appliance in the second
half of calendar year 2004 that is
superior to existing competitive offerings 
this is a major new advance in the
development of surfcontrol but of
course this is just the beginning and
as part of our technology roadmap
we will build our web filtering into
new generations of surfcontrol
fully integrated appliances offering
both web and email filtering
managed services
in conjunction with the development
of our appliance offering we are
designing a managed service offering
enabling the remote filtering of email
and web content this is a natural step
for surfcontrol in fact we have already
built up a working knowledge of this
area with the provision of our content
portal authority solution for oems this
technology enables isps to provide a
centrally managed content filtering
service based on our own core
technology the managed services
approach completely removes the
delivery of content filtering from within
the corporate network and is becoming
increasingly popular by providing a
managed service we will provide
customers with a third option for
content filtering
technology – our
three year roadmap 
to success
going forward we are going to build upon our software
heritage and our core focus of rich content filtering
and extend our offerings into appliances and managed
services to provide customers with the ability to manage
content using one or a combination of methods that
best suit their needs
 vision
 leadership
 innovation
 evolution
technology roadmap
sw
appliance
functionality
enterprise
scalability
performance
compliance
confidentiality
others
web
email
web app integrated
appliance
email app
antivirus
service extended service
av as porn cpa
integrated
base service annual report  accounts 2004 09
integrated offering
having developed the various delivery
mechanisms for enabling organisations
to filter content we will be positioned to
offer a complete integrated offering no
matter which mechanism our customer
wishes to employ we will provide them
with the solution based on our trusted
core filtering technology
“surfcontrol has always focused on providing its
customers with the “total filtering solution ” as we
embark on our next stage of development we
will provide the market with the ultimate choice
– multiple delivery on multiple platforms
according to the customer’s needs ”
we understand we go beyond surfcontrol plc chief executive’s strategic review continued 10
this means that in order to access
the larger market opportunity and to
provide a balanced risk for future
growth it is important to invest in global
infrastructure and expansion with that
in mind we will be increasingly investing
in further geographical regions and in
particular mainland europe and china
the world is changing our market is
changing and we are changing to meet
the challenge and the opportunity 
our current success together with
the investment in technological and
geographical expansion will continue
to drive our longterm growth and
profitability
steve purdham
chief executive
6 september 2004
geography –
beyond the usa
historically the usa has been the single dominant
market for filtering however the importance of
the rest of the world is starting to emerge with the
market opportunity being as much as 57 outside
the us by 2008 
 vision
 leadership
 innovation
 evolution
522 people 13 offices worldwide annual report  accounts 2004 11
we perform we are the difference
scm software market
72 billion 2008
■ usa 43
■ europe 36
■ asia 17
■ rest of world 4
03 04 05
global content security market
20032007  314 cagr
07 06
global content security 
market forecast 20032007
197bn
161bn
130bn
108bn
728m
source idc 2003
source idc 2003 surfcontrol plc surfcontrol at a glance 12
surfcontrol at a glance the market facts  figures
fact the amount of spam
messages being sent on
an average day worldwide
will reach 17bn in 2004
source idc august 2004
fact spam represents
6080 of todays email
source gartner 2004
“some form of im is now used in 85 percent of enterprises
according to surfcontrol’s research yet the it staff are
only managing the im systems being used about ten
percent of the time ”
32
03 04 05
bn
year
06 08 07
39
47
54
63
72
secure content market
20032008
bn
03 04 05
global content security market
20032007  314 cagr
07 06
global content security 
market forecast 20032007
197bn
161bn
130bn
108bn
728m
delivery
market
source ferris 2004 source idc 2003
source idc 2004 source idc 2003
source idc 2003
source idc antispam survey 2004
delivery segmentation
■ software ferris antispam
■ appliance report 2004
■ service
44
28
28
scm appliance market
prime function is content filtering
02 03 04
year
cagr 70
05 07 06
205m
390m
630m
1bn
16bn
109m
04 05
20 billion emails nonspam 2007
07 06
email boxes
business
699m
754m
806m
648m
the market explosion
worldwide  2007
av
44
billion
web 
email
19
billion
■ antivirus 15 cagr
■ web filtering 27 cagr
■ email filtering 36 cagr annual report  accounts 2004 13
fact 39 of workers have
received confidential
information via email that
was not intended for them
source surfcontrol september 2004
fact 3040 of internet use
in the workplace is not
related to business
source idc august 2004
522 people 13 offices worldwide
beijing
chertsey
congleton
frankfurt
milan
paris
rotterdam
scotts valley
shanghai
singapore
sydney
vienna
westborough
geography
technology roadmap
the next 3 years
■ enhance core
 competency of filtering
■ enhance software
 functionality
  ■ increased exploitation
   of ms platforms
  ■ linux
■ appliance delivery
■ managed service
integrated technology roadmap
service internet appliance software
global
threats
inbound
perimeter
threats
inbound 
outbound
departmental
control
inbound 
outbound
technology surfcontrol plc financial director’s review 14
general
the financial results for 2004 reflect
success at every level for the group sales
profits and cash flow all exhibited strong
growth as a direct consequence the
group’s balance sheet has benefited 
from higher cash balances and higher
levels of deferred income in turn providing
a stronger platform for future investment
and growth
the group has strengthened its position
in the enterprise market and continued 
to achieve high rates of growth in its
business outside of the americas – both
key success factors in securing future
increases in market share in the secure
content market 87 of the group’s
business in 2004 was generated from
corporate customers and 35 from
customers outside of the americas
this growth has allowed the group to
make investments for the future in 2004
the group laid the foundation for the
launch of both appliance and managed
service versions of our filtering solutions 
all under the single global brand of
surfcontrol at the same time the group
has established offices in the people’s
republic of china and in paris expanding
its presence in the nonamericas regions
to better serve the high market growth rates
in demand for secure content solutions 
acquisitions
in april 2004 the group acquired linux
based email filtering appliance technology
from securem together with their china
based sales and marketing operations
the key terms and the accounting for the
acquisition are set out in note 9 on pages
54 and 55 the operational results relating
to the acquired assets were consolidated
from the effective date of the acquisition
but were not significant to the turnover
costs or net assets of the group intangible
assets arising on consolidation will be
amortized over a 24 month period starting
in the fourth quarter of the year under
review the purchase consideration was
cash and the impact on the group’s
liquidity position is set the group cash
flow statement on page 44
exchange rate fluctuations
the reporting currency of the group is the
us dollar reflecting the principal trading 
currency of the group in addition sterling
the euro and the australian dollar are also
trading currencies for the majority of the
trading areas outside of the americas it is
the group’s policy to conduct and settle
the majority of trading transactions in the
relevant currency of the geographic region
and therefore the group’s profit and loss
account is not exposed to significant
realised exchange gains of losses arising
from day to day transactions the group is
however exposed to exchange differences
arising from the translation of the
underlying regional financial statements to
the group’s reporting currency of the us
dollar the group’s sales and operations
over the last three years have expanded
significantly in nonus denominated
currency regions and at the same time the
us dollar has experienced an increased
level of volatility against other major trading
currencies the combination of these two
factors has increased the group’s exposure
to such translation differences the recent
weakness in the us dollar through
translation differences has had a number
of impacts on our financial statements in
2004 in the profit and loss statement
both the group’s nonus dollar
denominated revenues and costs have
increased resulting in an immaterial net
effect on reported profitability in the
balance sheet all nonus dollar
denominated asset and liability balances
have increased the principal accounts
affected in 2004 were the group’s 
cash holdings and deferred income 
finance director’s
review
the financial results for 2004 reflect success 
at every level for the group 
in 2004 the group laid the
foundation for the launch of
both appliance and managed
service versions of our filtering
solutions all under the single
global brand of surfcontrol turnover
group turnover increased by 19 to
8734m 2003 7323m 2002
5417m all turnover in the financial
year was organic other than a minor
contribution in the fourth quarter of the
fiscal year from the china operations
acquired from securem details of trading
from the acquisition are provided in note 3
on page 50 all group turnover arose
from sales of the group’s internet filtering
product set being web filtering email
filtering and instant messaging filtering
the rate of growth in group turnover in
2004 was less than in previous years
primarily because of the slower new
business growth rates in the americas and
challenging market conditions in the us
education market growth rates across all
areas of our business outside the americas
have been very strong in 2004
invoicing and to a lesser degree turnover
continued to exhibit patterns of seasonality
within the year with q2 and q4 typically
producing stronger sequential rates of
growth than q1 and q3 the corporate
market is the key target market of the
group and its turnover grew by 23 
to 7559 2003 6166m 2002
4418m this market includes the
licensing of technology via software
developer kits “sdks” to original
equipment manufacturers “oems” oem
turnover was 404m 2003 401m
2002 319m oem turnover growth
has slowed in 2004 as the group has
moved from an annual fee in advance 
to a royalty arrangement
the education market exhibits its own
seasonality due to the timing of the school
year compared to the prior year education
market turnover fell slightly to 1058m
2003 1083m 2002 906m due 
to the difficult budgetary environment
experienced by the majority of us state
schools over the last two years
home turnover comprises sales of the
cyberpatrol web filter product into the
home market compared to the prior 
year home market turnover has
increased 57 to 117m 2003
074m 2002 093m reversing 
the prior year decline of 20
the chart below shows the group’s
turnover profile by customer segment 
for the last three years
the chart below shows the percentage of
turnover by destination for the americas
and nonamericas geographic areas for
the last three years the americas remains
the group’s principal market and generated
5740m or 66 of the overall group
turnover of 8734m however the
market outside of the americas exhibited
a higher annual growth rate of 44
compared to 10 for the americas this
reflects both our investment in sales and
marketing in the various regions around
the world as well as the emerging and
rapid rate of adoption by corporations of
content filtering in these regions 
invoicing and deferred income
the group invoiced 10663m in the
year a 16 increase on invoicing of
9210m for the financial year 2003
2002 6519m
annual report  accounts 2004 15
group turnover profile 
02 03 04
0
20
40
60
80
100
home     education     corporate
regional split – americas  
 outside americas 
02 03
outside americas
americas
04
0
20
40
60
80
100
fact 39 of workers have
received confidential
information via email that
was not intended for them
source surfcontrol september 2004 surfcontrol plc financial director’s review continued 16
a proportion of the group’s invoicing is not
immediately recognised as turnover and
is instead deferred over the period of the
contract to which it relates such deferred
income typically relates to content list
subscriptions and maintenance contracts
full details of the group’s accounting
policies including those relating to turnover
and deferred income are given in note 1
to the financial statements as at 30 june
2004 deferred income increased by 38
to 7502m 2003 5425m 2002
339m of the carrying balance
4904m or 65 2003 3754 or
69 2002 2685m or 79 is due
to be released to turnover over the year 
to 30 june 2005 
the volume and proportion of the group’s
business generated via its indirect channel
partners continued to increase in the year
the company views this progress as a 
key success factor in achieving scaleable
and profitable growth the chart below
shows the group’s invoicing profile by
channel segment for each of the financial
years under review
selling and distribution costs
the group’s main area of expenditure is
that of selling and distribution costs in
this section of the business amounted 
to 4403m 2003 3974m 2002
3285m as a percentage of turnover
these costs declined to 504 2003
543 2002 607 the relative cost
decline is a result of improving economies
of scale as well as effective management
of expenditure examples of the economies
of scale include utilisation of common
global marketing messages for all of the
group’s products the use of existing 
sales skills and sales channels to sell
incremental products and increasing
market recognition of the surfcontrol
brand it is management’s intention to
continue to seek economies of scale
combined with effective management of
expenditure in the selling and distribution
cost category the main areas of increased
spend compared to prior years have 
been sales commissions reflecting the 
16 increase in invoicing marketing
communication activities and salary and
benefit related costs associated with an
expanded workforce headcount has
increased by 19 to 309 at 30 june
2004 2003 259 2002 231
research and development
research and development expenditure
was 968m 2003 753m 2002
636m as a percentage of turnover
these costs increased to 111 2003
103 2002 117 while cost
efficiencies continue to be achieved
through location of staff in lowercost
employment areas within the group and
outsourcing of certain noncore activities
rd investment has been increased and
targeted at key growth areas such as
appliances linux and next generation
products headcount increased by 20
to 136 employees at 30 june 2004
2003113 2002101 the associated
increases in salary and benefit costs is
the principal area of increased spend
compared to prior years
other administrative expenditure 
and amortisation of intangible assets
other administrative expenses were
1681m 2003 1458m 2002
1287m as a percentage of turnover
these costs declined to 193 2003
199 2002 238 the group
continues to concentrate on effective
cost management and the attainment of
economies of scale from this function 
in order to offset the necessary increases
in infrastructure to support a global
organisation with a growing portfolio of
products headcount increased 8 to 77
2003 71 2002 73 the main areas
of increased spend compared to prior
years have been outside services including
it services legal tax and other professional
advice together with office related costs
and increased salary and benefits
associated with the increased headcount
the acquisition of  the email filtering
appliance technology from securem 
together with their chinese based
subsidiary in april 2004 gave rise to an
amortization charge of 135m in the
fourth quarter of the year the unamortized
balance of these intangible assets as at
june 30 2004 was 1255m the
historical acquisitions completed prior to
2004 gave rise to a goodwill amortisation
charge in 2003 of 115m 2002
703m all such goodwill has now 
been fully amortised
indirect channel   
direct channel split 
02 03
direct sales
channel partner sales
04
0
20
40
60
80
100
fact the amount of spam
messages being sent on
an average day worldwide
will reach 17bn in 2004
source idc august 2004 share option tax provision
the share option tax provision relates to
the potential employer tax liability that
may crystallise on the exercise of all
outstanding options held by directors and
employees at 30 june 2004 based on
the then closing middle market share
price of £610 2003 £6375 2002
£3975 the balance sheet provision 
of 045m 2003 054m 2002
007m declined slightly over the year 
in line with the slight reduction in the
company’s share price 
proceeds from disposal of business
the group sold its multiview business
unit in february 2001 and has received
deferred payment of sale proceeds on 
a retrospective quarterly basis since that
date net proceeds recognised in the
profit and loss account were 031m in
2004 2003 038m 2002 025m
in line with the terms of the transaction
no further sale proceeds will be received
after the 20034 financial year
profit before taxation
the achievement of a profit before taxation
for the first time in 2003 was an important
milestone for the group in 2004 this
position was consolidated and pretax
profit increased by 62 to 1440m
2003 888m 2002 loss of 6939m 
taxation
a net tax charge of 286m was recorded
for the year 2002 252m 2002
credit of 098m and represents an
effective rate of 20 of pretax profits
note 8 to the financial statements on
page 53 gives details of matters affecting
the current tax charge and how it
reconciles to the charge predicted by
applying the uk standard corporation tax
rate to the group profit on ordinary
activities before taxation
a deferred tax asset of 668m 2003
418m 2002 081m has been
recognised in the group balance sheet
the increase in the value of the deferred
tax asset in 2004 primarily reflects the
extent of us tax losses which are expected
to be utilised in the next 18 months
in accordance with the tax authority
requirements around the world and oecd
guidelines the group implements arm’s
length transfer pricing methodologies
to reflect the domicile of its intellectual
property and the various functions
performed within the group the group
expects to pay corporation tax in the uk
and australia and certain us state taxes
in 2005
liquidity capital resources and
treasury management
the group has been cash positive at the
operational level throughout the year
under review this has been achieved by 
a combination of rises in invoicing and
pretax profitability combined with steady
working capital management the move
to becoming selffinancing during 2002
has been strongly maintained with net
cash inflow from operating activities at
3264m 2003 2409m 2002
1169m net cash inflow from returns
on investments and servicing of finance
was 179m 2003 074m 2002
063m the net inflow from returns on
investments in all years came primarily
from bank interest amounting to 181m
2003 078m 2002 066m the
group funded the purchase of all tangible
fixed assets in the year from its own cash
resources and as in previous years has
minimal finance lease commitments 
the scale of cash outflow from capital
expenditure is increasing in line with the
size of the group and was 227m
2003 163m 2002 106m 
net cash inflow from financing was 287m
2003 123m 2002 038m
principally in relation to 375m of proceeds
from exercise of share options 2003
127m 2002 052m this was
partially offset by a cash outlay of 084m
2003 and 2002 nil for the purchase of
own shares further such cash outlays of
027m occurred after the year end in july
2004 due to settlement timing differences
on share purchases in june 2004
at 30 june 2004 the group had total
cash holdings of 8748m 2003
6171m 2002 3545m earning a
current weighted average rate of return on
closing cash of 225 pa 2003 235
2002 271 net interest receivable
and similar items primarily bank interest
was 186m 2003 111m 2002
065m the increase in net interest
receivable directly reflects the group’s
growing cash balances driven by strong
operational cash flow 
annual report  accounts 2004 17
the move to becoming self
financing during 2002 has been
strongly maintained with net
cash inflow from operating
activities at 3264m surfcontrol plc financial director’s review continued 18
the group will continue to apply its
cash resource to fund its working capital
requirement capital expenditure tax
obligations corporate investment
acquisition opportunities and purchases
of own shares 
employee share option schemes
full details of the group’s employee share
option schemes can be found on pages
61 to 63 the potential employer tax
liability that may crystallise on the future
exercise of options is estimated and
charged to the profit and loss account
over the vesting period of the option grant 
the potential dilution of equity from granted
options varies to the extent that they are
“inthemoney” or “underwater” as at
june 30 2004 there were 1090815
options with an exercise price below
£610 which was the closing middle
market price on that day these options
represented 35 of the issued share
capital as at june 30 2004 in addition
there are a further 2390679 outstanding
options with a grant price above £610
which will further dilute equity if the 
share price rises
in addition to share options employees
participated in a variety of incentive
compensation schemes in the year the
total value of which is disclosed in note 5
on page 51
transition to international 
accounting standards
the group is preparing to fully adopt
international accounting standards “ias”
which have an effective date for accounting
periods beginning on or after january 1
2005 the first annual ias financial
statements for the group will be prepared
for the year ending june 30 2006 with
comparatives for fiscal years 2004 and
2005 thereby maintaining the group’s
current voluntary practice of providing a
three year financial profile quarterly
comparative restated financial statements
will also be prepared for fiscal year 2005
to maintain our current quarterly reporting
profile for investors and analysts the
board considers that it is on schedule 
to adopt ias in the prescribed time
having reviewed all relevant accounting
standards the potential areas of impact
arising from ias on the group’s financial
statements will be accounting for share
based compensation ifrs 2 business
combinations and goodwill ifrs 3 and
intangible assets ias 38 ifrs 2 applies
to sharebased payments including
options granted on or after 7th november
2002 which have not fully vested on
january 1 2005 since november 2002
the group has issued 726000 options
and therefore the majority of total options
which have been granted by the company
predate 7th november 2002 and will not
contribute to the charge to the profit and
loss account the resultant charge to the
group profit and loss account for the fair
value of options when ias is adopted is
not expected to be significant
ifrs 3 applies to all combinations arising
on or after march 2004 and therefore the
group’s recent acquisition of assets from
securem will fall under the new standard
the restatement of the accounting for this
acquisition is not expected to be
significant when ias is adopted 
the third area of potential impact is
accounting for research and development
expenditure under ias 38 like the
majority of software companies in the uk
and us the group currently expenses all
such costs as they are incurred as the
board believes that it would not be a
prudent accounting policy to capitalise
such costs given the short life and volatile
market conditions surrounding software
products under ias the group may be
required to capitalise a portion of its
current development expenditure
the presentation terminology and the
nature and extent of disclosure of the
group’s financial statements will also
change under ias
this assessment is based upon the
group’s current range of trading activities
and current publications from the
international accounting standards board
and therefore the actual impact of ias on
the group’s results may differ from that
outlined above in anticipation of the
adoption of ias in 2006 the group will
include estimates of the financial impact
in its 2005 annual report
the board considers that it is 
on schedule to adopt ias in 
the prescribed time
fact spam represents
6080 of todays email
source gartner 2004 summary
the financial results for 2004 reflect
success at every level for the group solid
turnover growth of 19 leveraged cost
efficiencies resulting in 65 growth in
operating profit and a 81 increase in
net profit after taxation 79 increase in
basic earnings per share operating cash
flow grew 36 and represented 27
times operating profit the group balance
sheet gained further strength with no
debt over 87m of cash and over 75m
of deferred income giving the group high
levels of turnover visibility into 2005 and
beyond this was a record year by many
measures but the group must always
look beyond – to new opportunity to
challenge and to change
the group’s three year product roadmap
published in may 2004 and presents
further opportunities in the areas of
appliance and managed servicebased
deliveries of our content filtering solutions 
this will also present new financial and
working capital challenges for the group
for example in managing hardware related
logistics with third party vendors and
providing ‘software as a service’ as the
global market for content filtering continues
to grow and evolve so will our customer
base grow in different regions around the
world as we enter fiscal 2005 the group
is also making final preparation for the
change from uk gaap to international
accounting standards for financial year
2006 and comparative periods clearly
2005 will be filled with new opportunity
challenge and change
simon wilson
chief financial officer
6 september 2004
annual report  accounts 2004 19
cleary 2005 will be filled with
new opportunity challenge
and change surfcontrol plc board of directors 20
1 greg lock 
nonexecutive chairman
greg lock was appointed to nonexecutive
chairman on 9 september 2003 after
serving on the board as nonexecutive
director since 17 october 2000 until
april 2000 greg lived and worked in the
united states france germany and the
united kingdom as ibm’s global general
manager industrial sector in this position
he had worldwide responsibility for ibm’s
business with companies in the
automotive aerospace electronics
chemical petroleum and other
manufacturing industries representing
approximately 15 of the company’s
revenues he served as a member of the
ibm worldwide management council 
and as a governor of the ibm academy 
of technology in addition to surfcontrol
greg serves as director of target
computer group ltd chairman of
nexagent ltd and director of liberata ltd
he holds an ma in natural sciences from
churchill college cambridge and is a
fellow of the royal society of arts
manufacturers and commerce 
2 stephen purdham 
chief executive officer
steve purdham cofounded the vision
architecture and development of
surfcontrol in 1996 it was this vision 
and opportunity that enabled the
company to enter the public arena in
1998 and experience rapid growth 
his early experience was as a technical
strategist for a major european computer
oem with specific focus on the financial
sector during the early 80’s he was
intimately involved with the emergence 
of the open systems market
since mid 90’s he has strategically 
worked with major worldwide software
organizations to understand analyse and
define the exploding internet marketplace
he has been a frequent conference speaker
on the subject of the internet and has
contributed to several books and papers
on the subject 
3 2 1
6 5 4
8 7
board of directors as president and then ceo of surfcontrol
he has been specifically responsible for
building the operation driving the
planning development marketing and
execution of the significant growth of the
business from its first appearance on the
lse aim market then easdaq to its
current techmark status
surfcontrol has rapidly grown to a leading
global operation with over 520 people in
fifteen separate locations across the united
states europe and asiapacific the
company delivers on its promise to help
‘stop unwanted content’ in the enterprise
and has established itself as the world’s
number one web and email filtering
company in the content security market 
3 simon wilson
chief financial officer 
simon wilson joined surfcontrol in 2000
and was appointed as chief financial
officer in september 2001 he has served
on the board of surfcontrol since july 2001 
simon joined surfcontrol from kpmg’s
us corporate finance practice where he
specialised in advising software and it
services companies on all aspects of
domestic and crossborder acquisitions
sales divestitures and financings from
1989 to 1994 simon held a variety of
finance director roles at subsidiaries 
of misys plc after having spent five years
with ernst  young
simon is a member of the institute of
chartered accountants in england  wales
a member of the chartered institute of
marketing and holds a bcomm honours
from birmingham university england 
4 patrick jolly 
president europe middle east 
asia and worldwide operations 
outside america
patrick jolly was appointed to the board 
in july 2001 patrick is responsible for
overall operations in uk emea and rest 
of the world outside america and is also
responsible for corporate finance and 
uk legal matters including the structuring
and implementation of transactions 
prior to joining surfcontrol he was a
partner specialising in corporate finance
in hammond suddards edge a leading
ukbased law firm where he had a
particular focus on advising technology
companies in relation to fundraisings
and mergers and acquisitions 
5 george hayter 
senior nonexecutive director
george hayter was previously managing
director of the trading markets division of
the london stock exchange where he was
earlier responsible for the information and
trading systems including implementation
of topic seaq and seaq international
since 1990 he has acted as an
independent consultant to a number of
overseas stock exchanges and other uk
and overseas organizations
george was nonexecutive deputy
chairman of unipalm group plc from
1993 until its acquisition by uunet
technologies inc in 1995 george is
currently a nonexecutive chairman of
etrade group inc a nasdaq quoted
internet stockbroker and of several
other private and public companies
having been nonexecutive chairman
george stood down from this position
due to other commitments to take a
senior nonexecutive director position
on the board in june 2000 
6 kevin blakeman
president the americas
kevin blakeman was appointed to the
board in july 2001 kevin is responsible
for overall us operations kevin joined the
company in 1993 as a product manager
in the uk office he moved to the us in
1995 taking on the role of marketing
director in august 1998 he was named
vp of strategic partners for the surfcontrol
division where he was responsible for
working with key partners such as
microsoft ibm hp and tivoli he was
named president of surfcontrol usa in
august 2000 
7 rene schuster
nonexecutive director
rene schuster was appointed to the board
as nonexecutive director in november
2003 rene is currently global marketing
director for the vodafone group 
previously rene was senior vice president
of hewlettpackard company and provided
services for it technologies including
missioncritical infrastructure application
services and extended enterprise services 
formerly rene joined compaq in july
2000 as the chief executive of compaq
uk and ireland the secondlargest
compaq subsidiary after north america
and vice president of compaq computer
corporation rene joined compaq from
kpmg management consulting where 
he served as senior partnerchief
operating officer in the europe middle
east and africa region 
8 jane tozer
nonexecutive director
jane tozer was appointed to the board 
as nonexecutive director in november
2003 jane’s current appointments
include directorships of retail decisions
plc 3i european technology trust plc and
jp morgan fleming income  growth unit
trust plc jane has a number of other
appointments including a nonexecutive
position at the pensions service and she
is a founder on the information and tmt
non executive’s association itnea 
jane began her career at ibm spending
13 years there before moving to fi group
now xansa plc as business development
manager she then moved to softwright
ltd where she held the position of chief
executive until 1997 – taking the company
from startup through to a successful trade
sale to a nasdaq quoted company 
annual report  accounts 2004 21 surfcontrol plc 22
registrars
capita irg plc
bourne house
34 beckenham road
beckenham
kent br3 4tu
depository for ads
bankers trust company
4 albany street
new york
new york 10006
united states
registered office
riverside
mountbatten way
congleton
cheshire cw12 1dy
bankers
royal bank of scotland plc
2 st philip’s place
birmingham b3 2rb
solicitors
hammonds solicitors
trinity court
16 john dalton street
manchester m60 8hs 
brokers
ubs limited
1 finsbury avenue
london ec2m 2pp
advisers directors’ report
annual report  accounts 2004 23
the directors present their annual report for the year ended 30 june 2004
principal activities and offices
the group’s principal activity is the development and sale of internet web and email filtering solutions the group’s products enable customers to
manage unwanted internet content that enters and leaves the business so as to significantly reduce the risks to productivity network resources legal
liability and security during the financial year the group had two product brands “surfcontrol” and “cyber patrol” “surfcontrol” is the group’s brand 
for server based web email instant messaging and bundled filtering products and is sold into the corporate and education sectors “cyber patrol” is
designed for clientbased products sold into the home market software development kits are also incorporated into product offerings provided by
original equipment manufacturer “oem” partners
in the fourth quarter of the year the group acquired linux based email filter appliance technology from securem inc together with its chinese based
distributor at an estimated cost of 13194000 in cash including earnout based consideration of 3123000 at 30 june 2004 this acquisition will
strengthen the group’s filtering product portfolio and global distribution network the group has also announced its intention to offer filtering as a
managed service in the future
the group’s products are currently sold in four different ways
1 by direct sales after a potential customer downloads a trial copy from the company’s web site wwwsurfcontrolcom
2 indirectly through a reseller or partner who may incorporate the products into a broader secure content management solution
3 indirectly through strategic alliances and oem partners and 
4 direct ecommerce sales without interaction of sales personnel
financial results and review of developments
the results for the year are set out in the attached audited financial statements on pages 41to 67 the directors do not recommend the payment of
a dividend and the retained profit for the year of 1154m is transferred to reserves
a full review of the operations of the group during the year together with an indication of current and future developments can be found in the
chairman’s and chief executive’s statements on pages1 to10 and the finance director’s review on pages14 to19 
share purchases
during the final quarter of the financial year the company acquired a total of 106000 of its own 10p ordinary shares for treasury at an aggregate cost
of 1112000 the purchases were completed at an average price of £583 1041 per share and represented 034 of issued share capital at
30 june 2004 at this date the company has remaining authorisation up to the conclusion of the forthcoming annual general meeting to purchase
2984000 ordinary shares the shares were repurchased as the board believes that it is a good use of shareholder funds given the share price and
the group’s future market opportunities 
research and development
the group’s activities in research and development are discussed in the chairman and chief executive’s review on pages1 to10 a charge of 968m
has been recorded in the group profit and loss account during the period for research and development board structure
the directors who have held office during the year and their positions on the board are as follows
greg lock
23
age 56 group chairman and chairman of the nominations committee 
george hayter
123
age 65 nonexecutive director and senior nonexecutive director
rene schuster
123
age 42 nonexecutive director and chairman of the remuneration committee 
appointed 1 november 2003
jane e tozer mbe
123
age 56 nonexecutive director and chairman of the audit committee 
appointed 1 november 2003
simon acland age 46 nonexecutive director resigned 1 november 2003
rob barrow age 54 nonexecutive director resigned 1 november 2003 
steve purdham age 47 group chief executive
simon wilson age 42 group chief financial officer and company secretary 
patrick jolly age 38 president emea europe middle east asia and world wide operations outside of america 
kevin blakeman age 49 president americas operations
1
member of the remuneration committee
2
member of the audit committee
3
member of the nominations committee
the directors retiring by rotation are simon wilson and patrick jolly who being eligible offer themselves for reelection in addition jane tozer and
rene schuster who were appointed in the year offer themselves for reelection at the forthcoming annual general meeting
a brief description of the recent business experience of directors serving during the period is given on page 20
directors’ interests
details of directors’ interests in the ordinary share capital of the company and details of their option holdings is given in the remuneration committee
report on page 33 to 39
none of the directors had a material financial interest in any contract of significance other than a service contract with the company or any of its direct
and indirect subsidiaries at any time during the financial year
substantial shareholders
as at 6 september 2004 the company had been notified under sections 198202 companies act 1985 that the following shareholders had notifiable
interests in the current issued ordinary share capital of the company 
ordinary
shares held  of total
on date of ordinary
shareholder notification shares 
fidelity international limited including interests of fidelity management research corporation 4261608 1371
deutsche bank ag 3110534 1001
tiger technology performance llc 2021108 650
herald investment trust plc 1094200 352
wellington management company llp 1034522 333
legal and general investment management limited 957526 308
goldman sachs group inc 951541 306
1
based on 31086737 ordinary shares in issue at 6 september 2004
directors’ report
surfcontrol plc 24 directors’ report
annual report  accounts 2004 25
employment policy and involvement
the group believes in developing and maintaining a diverse multitalented and highly motivated workforce the group is therefore committed to
providing equal employment opportunities by establishing discriminationfree recruitment and employment practices and maintaining an environment
that is free from any form of discrimination the group companies give full consideration to all employment applications from disabled persons
disabled employees and employees who may become disabled during the course of their employment with the company or group are eligible to
participate in all appropriate training and career development generally available to staff
the directors acknowledge their responsibilities to consult staff and communicate relevant information to them all employees have access to the
internal corporate web site the company also uses other methods of communication such as staff meetings web casts video conferencing instant
messaging and email such that the views of employees can be taken into account in making decisions which are likely to affect their interests
creditor payment policy
it is group policy to pay suppliers in accordance with agreed terms and conditions of purchase provided that the supplier complies with all relevant
terms and conditions the policy developed is specific to the group’s businesses and consequently adoption of an external code of payment to
suppliers is considered unnecessary the average time taken to pay purchase invoices by the group is 28 days company 35 days
political and charitable contributions
the group made no political contributions during the year donations to uk charities amounted to 97879 2003 172249 2002 10239
in addition to these charitable donations the group donated 10173 to charities outside of the uk 20034147 2002127800
corporate responsibility
the group conducts its business having regard to its various stakeholders and the wider community the directors are committed to a management
culture that promotes the health safety and general welfare of employees as mentioned above full and timely communication is maintained with
employees the group aims to foster fair and transparent relations with all its customers whilst maintaining a clear commercial basis to its business
transactions the group ensures payment is made promptly to suppliers irrespective of their size unless there are sound business reasons to withhold
payment group companies support their communities with involvement in local initiatives and through charitable contributions the board recognises
its responsibility to consider social and environmental issues as these arise and to ensure compliance with relevant local statutory regulations the
board believes it has adequate information systems in place to assess any environmental and social concerns that may arise from time to time these
matters will where relevant form part of the group’s risk management strategy although as a software developer the group has no manufacturing
facilities that pose environmental issues waste products are recycled in all offices and management aim to ensure responsible use of energy as far as
it is economic and practical to so
the group’s website includes a section dedicated to corporate ethical employment and environmental issues wwwsurfcontrolcomcompanycsr
going concern 
the directors have reviewed budgets and have a reasonable expectation that the group has adequate resources to continue as an operational
business for the foreseeable future the financial statements have therefore been prepared on a going concern basis
auditors
an ordinary resolution to reappoint kpmg audit plc as auditors of the company is to be submitted to the forthcoming annual general meeting
statement of directors’ responsibilities
company law requires the directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the
company and of the group and of the profit or loss for that period in preparing those financial statements the directors are required to
 select suitable accounting policies and then apply them consistently
 make judgements and estimates that are reasonable and prudent
 state whether applicable accounting standards have been followed subject to any material departures disclosed and explained in the 
financial statements
 prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company and the group 
will continue in business
the directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the
company and to enable them to ensure that the financial statements comply with the companies act 1985 they have general responsibility for taking
such steps as are reasonably open to them to safeguard the assets of the group and to prevent and detect fraud and other irregularities directors’ report
surfcontrol plc 26
annual general meeting
at the annual general meeting of the company in addition to the ordinary business of the meeting resolutions will be proposed to renew for 
a further year the authority to allot unissued shares in the company to allot shares for cash free from the preemption rights set out in the
companies act 1985 to give the company authority to make market purchases of it shares and to put into place a longterm incentive
programme for executive directors
resolution 8 will renew the directors’ authority to allot unissued shares in the company in accordance with section 80 of the companies act 1985
the resolution authorises the directors to allot shares up to an aggregate nominal amount of £1657959 being onethird of the issued ordinary share
capital of the company at the date of this notice plus the maximum current options the authority will expire at the conclusion of the next annual
general meeting of the company or on the day 15 months from the date of the passing of this resolution whichever is the earlier the directors
have no immediate intention to exercise this authority other than in connection with the group’s employee share schemes
under section 89 of the companies act 1985 equity securities in the company may not be allotted for cash otherwise than in respect of an
employee share scheme without first being offered pro rata to existing shareholders unless the prior approval of the shareholders is given in a general
meeting the directors consider that it is in the best interests of the company to renew the relevant authority given at the annual general meeting in
2003 accordingly a special resolution to this effect is proposed as resolution 9 in the notice of the annual general meeting the proposed authority
will expire at the conclusion of the next annual general meeting of the company or on the day 15 months from the date of the passing of this
resolution whichever is the earlier and permits the directors during this period to issue up to an aggregate nominal amount of £155434
representing 5 of the issued share capital at 30th june 2004 without first offering them to existing shareholders
under the terms of the companies act 1985 and its articles of association the company has power to purchase its own shares provided that this
power has first been sanctioned by shareholders resolution 10 authorises the company to make purchases of up to 3108674 shares representing
10 of the issued ordinary share capital of the company as at the date of this notice at a minimum price of 10p and a maximum price exclusive of
expenses of not more than 5 per cent above the average of the middle market quotations for the ordinary shares of the company as derived from
the london stock exchange daily official list for the 5 business days prior to the purchase the authority will expire at the conclusion of the next
annual general meeting of the company or on the day 15 months from the date of the passing of this resolution whichever is the earlier as at 
september 2004 being the last practicable date prior to publication of this report 3481494 options to subscribe for ordinary shares in the
company pursuant to the surfcontrol executive share option schemes were outstanding if exercised as at the date of this document those options
would represent 1007 of the total issued share capital of the company inclusive of shares issued under option if the full authority to buy back
shares being sought is used the same options would represent 1107 of the total issued share capital of the company inclusive of shares issued
under option the fact that the directors are seeking this authority should not be taken as an indication that the company will purchase its own shares
at any particular price or indeed at all and the directors would only consider making purchases if they believed that such purchases would be in the
best interests of shareholders generally having regard to the effect on earnings per share
full details of the resolution in respect to a proposed longterm incentive programme for executive directors will be given in the notice of annual
general meeting
by order of the board
simon wilson
company secretary
6 september 2004 corporate governance report
annual report  accounts 2004 27
introduction
the board supports the principles of the june 1998 combined code on corporate governance “the combined code” and has broadly complied
with it throughout the year 
reports by sir derek higgs and sir robert smith have prompted recent changes to the combined code the revised code applies to reporting periods
commencing on or after 1 november 2003 and therefore the company has no obligation to report on “the revised code” this year however the board
takes the matter of corporate governance very seriously and so this report also sets out the group’s compliance in relation to the revised code and our
plans to develop our corporate governance practices and procedures in the future as a result new or expanded areas addressed in this year’s report
include board performance evaluation details of the operation of board committees nonexecutive directors’ board attendance records whistleblowing
procedures and shareholder communications
details of non compliance with the combined code and the revised code are given on page 32
1 the board of directors
the group is controlled by a board of directors that currently comprise four executive and four nonexecutive directors the nonexecutive directors
are george hayter greg lock rene schuster and jane tozer 
the board has adopted a schedule of matters reserved for its approval the board’s responsibilities extend to setting overall business and market
strategy for the group as a whole this involves approving significant strategic decisions such as acquisitions product and market diversification and
capital structure it also involves approving annual operating budgets and monitoring performance against budget establishing a risk framework and
setting tolerances for a risk profile and monitoring executive and management performance all operational decisions within this business and market
framework are delegated to executive management 
george hayter greg lock and rene schuster are shareholders in the company all the nonexecutive directors are considered by the board to be
independent of the company and group as defined in section a31 of the combined code as each nonexecutive director possesses considerable
outside expertise and is able to exercise detached judgement in dealing with matters before the board the senior independent nonexecutive director
is george hayter who was appointed to the board on 15 june 1998 although the senior nonexecutive director holds stock options in the company
which were granted in 2001 subject to performance criteria the board does not consider that this affects his ability to exercise independent judgement
board meetings were held on eight separate occasions during the year in advance of each meeting the board is furnished with timely information
to enable it to discharge its duties including interalia reports covering local operating performance and activities a group operational summary
management accounts with budget variance analysis most recent forecasts and status reports on taxation working capital management human
resources information systems internal control reviews and changes treasury and strategic matters the nonexecutive directors also meet from
time to time outside of board and committee meetings without the presence of executive directors
directors have access to the advice of the company secretary at all times and may seek independent professional and legal advice although there is
no formal training programme training is provided to directors on induction and from time to time on request
all board directors are subject to reelection in accordance with the company’s articles of association which require up to one third of directors to be
eligible for reelection in each calendar year a director is also subject to reelection at the annual general meeting following their initial appointment to
the board
professional commitments of the chairman of the board
the chairman of the board is greg lock who is also chairman of nexagent limited and held directorships in target group limited and liberata
limited throughout the year
the biographies of all of the board’s directors and their continuing outside directorships if any are set out on page 20 of this annual report corporate governance report
surfcontrol plc 28
board committees
there are three committees of the board which are
a remuneration committee 
the remuneration committee consists of three nonexecutive directors rene schuster chairman george hayter and jane tozer simon acland
was chairman of the committee prior to rene schuster’s appointment on 1 november 2003 in accordance with the recommendations of the higgs
report greg lock resigned from his position on the committee on 29 january 2004 other board directors and senior human resource managers
are from time to time invited to attend remuneration committee meetings at the request of the chairman the committee’s responsibilities are to set
the remuneration for the executive directors and to set the remuneration policy for the group so as to enable the recruitment and retention of high
calibre executives and senior management the board’s remuneration report on pages 33 to 39 provides further details of the committee’s
responsibilities and work the committee meets no less than twice each year and it has met five times in the year under review the full text of the
committee’s terms of reference may be found on the company’s website at wwwsurfcontrolcomcompanycg
b audit committee
the audit committee consists of four nonexecutive directors jane tozer chairman george hayter greg lock and rene schuster in the board’s
opinion jane tozer has relevant up to date financial experience and is suitably qualified to chair this committee greg lock acted as chairman prior to
jane tozer’s appointment on 1 november 2003 other board directors and senior accounting managers are from time to time invited to attend audit
committee meetings at the request of the chairman
the committee is responsible for monitoring all accounting reporting control and financial aspects of the executive management’s activities and for
ensuring that an appropriate risk management framework is in place for the group it is also responsible for ensuring that the financial performance of
the company and group is properly reported with regard to compliance with uk company law accounting standards and best practice requirements
of the combined code
the committee meets no less than four times a year and meets with the external auditors each quarter to review their reports in relation to the
group’s accounts and internal controls the committee also reviews significant areas of business and financial risk and assumptions or judgements
made by management in assessing these risks in addition the committee andor the chairman meet periodically with the external auditors without
the presence of the finance director or other executive directors in the year under review the committee met four times
the board reviews the need for an internal audit function annually at present an internal audit function is not considered necessary for a number 
of reasons the small size of the group the relative simplicity of the nature and type of transactions entered into by the group significant executive
involvement in the group’s day to day business the ongoing improvement of internal controls and the operation of key financial controls via peer
review as the group increases in size global reach and complexity of business mix the possible need for an internal audit function will continue 
to be reviewed at least annually
the company has not historically adopted a formal ‘whistleblowing’ procedure although it has always encouraged open communication between staff
hr senior management and executive directors the audit committee is working to include the formality of written guidelines and to encourage any
employee or executive director to communicate matters of concern directly to the nonexecutive directors if they wish the written guidelines will upon
completion be published on the company’s website these reporting procedures will be reviewed annually to measure their effectiveness and details
will be disclosed in the 2005 annual report
the committee is responsible for making recommendations to the board on the appointment reappointment and removal of the external auditors
the committee keeps under review the cost effectiveness independence and objectivity of the external auditors as well as maintaining a policy on the use
of external auditors for nonaudit services the policy’s objective is to avoid potential conflicts of interest or circumstances where the external auditor’s
judgement or independence may be compromised and only to retain the external auditors where their knowledge and expertise provides service over
and above other professional service providers of similar standing in the year under review the majority of nonaudit services provided by the external
auditors related to tax compliance and planning details of the nonaudit services together with their cost are set out in note 6 on page 52
the full text of the committee’s terms of reference and its policy on the use of external auditors for nonaudit services may be found on the
company’s website at wwwsurfcontrolcomcompanycg
c nominations committee
the nominations committee consists of four nonexecutive directors greg lock chairman george hayter rene schuster and jane tozer the
committee’s responsibilities are to identify evaluate and select candidates for board positions and to review annually the composition and size of 
the board it makes recommendations on appointments and changes to the composition to the board during the year under review the committee at the time consisting of greg lock chairman george hayter simon acland and rob barrow
recommended two nonexecutive appointments to the board the chairman of the audit committee and the chairman of the remuneration
committee these recommendations were accepted in making these appointments the board considered but did not utilise the services of an
external search firm instead a list of twenty qualified candidates was drawn up from a variety of sources ten of these were interviewed and
considered for the positions the prime qualities sought for the chairman of the audit committee were recent and relevant financial experience 
and a passionate commitment to the principles of strong corporate governance for the chairman of the remuneration committee the qualities 
were high levels of knowledge experience and understanding of a global software and services business at a senior level
the full text of the committee’s terms of reference may be found on the company’s website at wwwsurfcontrolcomcompanycg
the attendance record at board and committee meetings for nonexecutive directors was as follows
board audit remuneration nominations 
board director held attended held attended held attended held attended
greg lock
1
87441111
george hayter 86435411
rene schuster
2
652244 na na
jane tozer
2
662244 na na
simon acland
3
22221111
rob barrow
3
21211111
1
greg lock resigned from the remuneration committee 29 january 2004
2
rene schuster and jane tozer were appointed to the board 1 november 2003 
3
simon acland and rob barrow resigned from the board 1 november 2003
reasons for nonattendance were telephone system failure at a remote location illness and unavoidable travel delays
the attendance record at board meetings for the executive directors was 100 for each individual
annual performance evaluations
previously the board has not conducted formal annual performance evaluations of the board as a whole the individual nonexecutive directors the
chairman or the board committees such evaluation to date has been informal and ad hoc in response to the recommendations of the revised
combined code the board conducted an evaluation of its effectiveness in a separate meeting with all members present attendance at board and
committee meetings was reviewed and each board member provided his or her assessment of the board’s collective performance the review
considered committee terms of reference and the timeliness and efficacy of each committee’s performance and output input was obtained from 
the auditors on the performance of the audit committee 
whilst the assessment results were very encouraging there were nevertheless clear areas for improvement and an agenda for implementation has
been put in place the group is committed to continuous improvement in its business operations and this same ethos applies to the board
separately the senior independent director conducted an assessment of the performance of the chairman with input from each member of the
board the chairman was absent from the discussions this assessment was shared with the chairman and suggestions made for improvement were
accepted by him
the processes and improvement agenda described above will form an integral part of the board’s work and the formal assessment of performance 
will be conducted annually
for the year under review as in prior years the executive directors’ performance is appraised by the chairman who also obtains feedback from the
nonexecutive directors in conjunction with the chief executive this follows the chief executive’s own evaluation of their performance and
contribution to the company the chairman also evaluates the performance against objectives of the chief executive having obtained input from the
non executive directors the remuneration committee considers these evaluations in their decisions on bonus awards for the year and in the setting
of future compensation for the executive directors
corporate governance report
annual report  accounts 2004 29 corporate governance report
surfcontrol plc 30
2 shareholder relations
the group keeps in contact with investors through a regular communication programme involving a variety of analyst and institutional meetings
recorded telephone conference calls and technology bank conference presentations on a preset schedule the group publishes unaudited results
each quarter via reuters news service the group’s annual and interim reports are circulated to shareholders all known interested parties and through
the financial timesdaily telegraph subscription service the preset publication schedule together with downloadable copies of all financial results is
also published on the group’s web site the group also publishes on the company’s web site downloadable copies of all presentations made to
investors or analysts these activities are an integral part of the company’s policy of maintaining a high level of transparency with investors and
complying with its obligations as a fully listed company the company also hosts an annual analyst day where nonfinancial aspects of the group’s
operations and products are discussed the ceo and finance director are the primary points of contact for shareholder relations the chairman of the
board is available on an ongoing basis to meet with major shareholders and promptly responds to any ad hoc requests for meetings in addition the
chairman extends an offer to meet with all of the company’s top 10 major shareholders each year together with the ceo
3 internal control
the directors acknowledge their responsibility for the group’s system of internal control internal control systems are designed to meet the particular
needs of the group and the risks to which it is exposed and by their nature can provide only reasonable and not absolute assurance against material
misstatement of financial information or safeguarding of assets
guidance for directors “internal control guidance for directors on the combined code” was published in september 1999 the group considers that
it complied with this guidance for the year ending 30 june 2004 and through to the date of the approval of the financial statements
a review of the business risks faced by the group and the effectiveness of existing internal controls takes place at least annually discussed below are
the four major business risks currently faced by the group together with the systems and initiatives in place to address these risks
a quality assured product development
bringing products to market that meet and anticipate customer demand is critical in the software industry as life cycles are short and competition is
fierce if not successful new business growth will slow and customer retention will suffer 
to address the risks associated with product development the group operates a formal product development life cycle process and the functions of
product management and engineering are separately managed and staffed this ensures that product development is ‘marketled’ rather than
‘engineeringpushed’ close relationships are maintained with our resellers the major security platform and secure content management vendors and
of course our customers in order to ensure timely market feedback within the overall development process quality assurance qa extends beyond
assuring featurerich products and upgrades to ease of installation interoperability with all the popular operating and network environments and
scalability for example the group recently announced key interoperability relationships for its web filtering solution with cisco and bluecoat – two
leading vendors of content caching engines to complement the formal qa process the qa and technical support teams have a formalised escalation
process that explicitly evaluates the potential risk to the wider customer base represented by each reported problem or bug a global qa database
tracks and evaluates problems captured by the support teams and weekly ‘bug’ meetings are held to ensure that problem resolution is timely the
group’s global resources support efficient qa and product development by having highly skilled teams in costeffective regions of the world such as
china australia and the uk
to complement inhouse development and to reduce time to market the group outsources certain noncore projects the group also evaluates
partnering investment and acquisition opportunities as a means to costeffectively reduce time to market for example in the year under review the
group outsourced a number of product translation projects and acquired the intellectual property of an email filtering appliance
b acquisitions and new business areas
historically and in the year under review the company has acquired businesses and technology to accelerate time to market in executing its strategic
plans with respect to technology markets and geographic reach acquisitions present a high riskhigh reward profile to any company and this is
particularly true in the field of software and technology due to the highly competitive nature of the market and rapidly changing market conditions
risks arise in three broad categories candidate selection valuation and integration the group seeks to manage these risks in relation to the potential
rewards of accelerated time to market for high quality and competitive product offerings and the acquisition of teams and channels to deliver such
products if the rewards outweigh the costs and managed risks a positive return to investors can be achieved if the costs and risks outweigh the
rewards the group’s financial position could be harmed the group seeks to manage these risks by using multidisciplinary teams to evaluate a wide
range of acquisition candidates before completing any acquisition disciplines within the teams include product management engineering finance and
legal each team is led by two executive directors being the finance director and the president of the region in which the candidate is located outside
advisors are used where appropriate to assist in due diligence the ceo has oversight of the due diligence and the board reviews due diligence corporate governance report
annual report  accounts 2004 31
findings approving valuation and the actual decision to acquire a company or technology integration risk is managed by involving company
management from hr is and other support functions in the latter stages of due diligence to develop a detailed integration plan integration
commences immediately upon completion of an acquisition and involves the same multidisciplinary team that conducted the due diligence in
conjunction with the acquired entity’s management
in may 2004 the company announced a three year product and technology roadmap which included delivering its filtering solutions via appliance 
and managed service platforms in addition to the current server software basis of delivery the acquisition of linux based email filtering appliance
technology in april 2004 has accelerated the group’s ability to execute against this product roadmap appliances and managed services represent new
business areas of opportunity for the group in which the group has little prior experience and therefore present new areas of risk the group will seek
to manage these new risks by outsourcing noncore activities such as manufacturing logistics and hosting additional skills will be hired into the group
as appropriate
in april 2004 as a result of the acquisition of the principal assets of securem inc the group acquired sales offices in china for the first time directly
penetrating this large and culturally different marketplace new markets afford new opportunities for the group lack of experience in new markets and
cultures also present new areas of risk the group will seek to manage these new risks by retaining and hiring locally experienced employees and
managers utilising external expert advice with regard to local trading and regulatory conditions and applying additional internal control procedures
examples of internal controls include more senior levels of expenditure authorization increased oversight by group management and more frequent
and detailed financial controls relative to the size of the local operation
c intellectual property
the group’s intellectual property rights are valuable and any inability to protect them could reduce the value of the group’s products services and
brand effective intellectual property protection may not be available in every country in which the group’s products and services are distributed
unauthorized use of the group’s intellectual property or third party intellectual property claims with or without merit could be expensive to litigate or
settle and could divert management resources and attention the group relies on a combination of patent trademark copyright and trade secret laws
as well as confidentiality procedures and contractual provisions to protect the group’s proprietary technology and intellectual property the group also
controls access to proprietary technology and enters into confidentiality and invention assignment agreements with the group’s employees and
consultants as well as other third parties
d internal communication and management information systems
the group operates out of thirteen offices in eight countries and has grown both organically and by acquisition rapid growth on a global basis
presents risks associated with communication while the use of various local information systems which are often legacy applications from past
acquisitions may have a detrimental impact on the production of accurate timely and relevant management information
to address the risks associated with communication and management information flows the information systems is team operates as a global
function to create and implement common systems that produce consistent data in standard reporting formats is has a formal management
information systems mis development plan covering a rolling two year period in addition challenges associated with communication across the
organisation are met through use of tools such as video telephone instant messaging and email management and executive meetings are also
frequently held examples of which are given in the nonfinancial reporting paragraph below
in addition to the four major business risks discussed above there are a number of monitoring reporting and control risks which are common to
many companies irrespective of market sector size or rate of growth the principal current control procedures operated by the group to address
such risks include 
i control environment
the group’s control environment is the responsibility of the board however senior management work hard to improve the level of risk awareness
throughout the group operational managers are delegated with the implementation and day to day monitoring of internal controls operational
matters are communicated to the board through operating unit or global function reports at each board meeting held eight times per year the
effectiveness of financial internal controls is reported to the board by the chief financial officer at each board meeting the board also receives a
quarterly review from the external auditors in addition to the year end review covering the scope of controls that they have sought to rely on in order
to form an opinion on the financial statements
ii risk assessment
as noted above the board has established a formal procedure to monitor the risk environment and reviews how controls are developed and adapted
to minimise the group’s exposure corporate governance report
surfcontrol plc 32
iii financial reporting
a comprehensive budget is produced once a year and is reviewed and approved by the board rolling quarterly operating forecasts are completed
monthly and are reported to the board monthly budgets are devolved to local and regional operational management who are responsible for
managing their operating units within budgetary constraints individual department managers are aware of and accountable for their authorisation 
limits with regard to expenditure and staff recruitment
the monthly results of the operating units are reported monthly to the board and compared to the current budget in addition key performance
indicators “kpis” relevant to the group are monitored more frequently on a daily and weekly basis by senior management for example invoicing
levels and sales mix cash flows and leads generated by marketing any trend in the kpis away from budget is brought to the attention of the board 
iv nonfinancial reporting
management in sales marketing product management engineering technical support human resources and legal meet at least monthly as teams to
monitor and assess progress against current operating plans as well as opportunities to improve interoperation these meetings occur separately in
each major office within the group 
senior management meets monthly via telephone or video link to review and discuss short term tactical and operational matters these meetings are
global in nature and bring all disciplines together at each meeting issues that affect multiple departments and communication are explicitly targeted as
important agenda items
the executive directors meet twice monthly to discuss operational and strategic matters once per quarter these meetings cover strategic matters with
a timeframe extending beyond the current operating plans and budgets
v treasury policy
the board has a formal policy governing its treasury function which is reviewed annually by the board the policy’s objective is to produce a
competitive yield on group funds without exposing the group to a significant level of risk such that sufficient cash is preserved for working capital 
and investment needs the following risks are explicitly addressed liquidity counterparty product interest and exchange 
4 provisions of the code
throughout the financial year ended 30 june 2004 and through to the date of approval of the financial statements the board consider that the group
has complied with section 1 of the 1998 combined code except to the extent described below
nonexecutive directors’ service contracts and share options
in accordance with the terms of their original appointments nonexecutives currently serve under service contracts without a specified fixed term but
with notice periods of three months 
the company has in the past granted options over ordinary shares to the senior nonexecutive director these grants occurred several years ago when
the company was a much smaller business than it is today reflecting the very significant growth in the business over a short period of time the senior
nonexecutive director is considered by the board to be independent
in addition throughout the financial year ended 30 june 2004 and through to the date of approval of the financial statements the board considered
that the group has complied with section1 of the revised combined code except to the extent described below
a audit and remuneration committee membership
the audit and remuneration committees did not wholly comprise independent nonexecutive directors throughout the financial year as required by
provisions b21 and c31 of the revised combined code following greg lock’s appointment as group chairman he resigned from his position on
the remuneration committee in janurary 2004 greg lock remains a member of the audit committee because the board believe him to be
independent and highly value his input to the committee’s work
b board performance evaluations
the company recently adopted a formal process for evaluating the performance of the board as a whole its committees the individual nonexecutive
directors and the chairman as required by provision a6 of the revised combined code as such this process has not been in place for the whole of
the year under review
c “whistleblowing” procedures
the company’s current informal and unwritten procedures for reporting matters of employee concern have always encouraged open communications
with all levels of staff including executive directors but have not historically included encouraging employees or executive directors to communicate
matters of concern to the nonexecutive directors these reporting procedures will be formalised and amended to encourage communication with any
and all board members from the second quarter of fiscal year 2005 directors’ remuneration report
annual report  accounts 2004 33
introduction
the purpose of this report is to inform shareholders of the group’s policy on directors’ remuneration as recommended by the remuneration committee
and adopted by the full board the report details how the board has complied with the directors’ remuneration report regulations 2002 from the
department of trade and industry and section b of the combined code 
members of the remuneration committee and advisers
the committee comprised of the following nonexecutive directors during the year
rene schuster chairman appointed 1 november 2003
george hayter
jane tozer
simon acland chairman resigned 1 november 2003
greg lock resigned 29 january 2004 
simon acland resigned from both the committee and the board greg lock resigned from the committee to comply with the revisions to the
combined code which state that the chairman of the board should not sit on the remuneration committee
the committee has received market data on competitive levels of compensation in the uk and us from new bridge street consultants and radford
us during the year the consulting firms provide information to the human resources department from time to time but are not retained to provide
any specific consulting services for the committee or the group generally
during the year the committee has also consulted steve purdham and greg lock about its proposals relating to the remuneration of other executive
directors the committee also consults with other senior members of staff on an occasional basis
terms of reference
the committee works within detailed terms of reference which are set by the board copies of the committee’s terms of reference are available from
the group’s web site wwwsurfcontrolcomcompanycg and are summarised below
 the scale and structure of all aspects of remuneration for the executive directors and the nonexecutive chairman 
 the group’s overall policy on executive and senior management remuneration
 the level and performance basis for share option or other sharebased awards to executive directors senior management and staff and 
 the maintenance of service agreements with the chairman and executive directors
the fees for nonexecutive directors are a matter reserved for a committee of the board which does not include any nonexecutive directors
remuneration policy
the committee believes remuneration levels should be competitive and based on individual contribution the aim of its policy is to provide 
incentive structures which support the achievement of the group’s growth and financial performance goals the current policy is to determine
executive and senior management remuneration by reference to comparisons in the global software technology sector whilst having regard to the
relative performance and growth prospects for the group and the current and expected future performance of the individuals concerned the
committee when setting remuneration for the executives and senior management also takes into account practice applicable to other employees
within the group
the committee is of the view that a significant proportion of executive remuneration should be linked to corporate performance so that the interests 
of the executives are aligned as far as possible with those of shareholders performance related payments for the executive directors for the financial
year ended june 2004 consisted of a combination of cash bonuses and share options
there were no significant changes in the structure of executive cashbased remuneration since the end of the financial year although the committee is
currently in the process of reviewing longterm incentive arrangements for the executive directors there were no ltip’s in operation during the year
under review it is intended that neither executive nor nonexecutive directors will receive share options for the foreseeable future but that executive
directors will participate in a new longterm incentive scheme paying due regard to corporate governance best practice details of the proposed
scheme will be presented to shareholders for approval as part of the notice of the 2004 annual general meeting other than the introduction of the
new ltip the current intention of the committee is to continue the same remuneration policy during the next and subsequent financial years directors’ remuneration report
surfcontrol plc 34
basic salary and benefits in kind
basic salaries are subject to annual review and are fully pensionable salaries are designed to be competitive in order to recruit and retain 
excellent people
benefits in kind include a company car or allowance where appropriate for uk based directors and access to group employee medical schemes
and life assurance cover for all directors these benefits are not pensionable
annual and monthly cash bonus scheme
annual bonus arrangements are intended to provide incentives to the executive directors to achieve the group’s predetermined operational objectives
for the year under review executive bonuses are based on a mix of financial objectives relating to regional or group revenue and group ebitda with
minimum and threshold achievement levels 75 of such bonus is payable if the group attained 95 or more of the target ebitda 
cash bonus payments represented 48 of executive basic pay in the current year 2003 53 2002 40 70 of executive directors’ cash
bonus is uncapped bonuses are not pensionable
share options
the remuneration committee regards share options as an important component of total remuneration but intends to make only limited allocation 
of options in the future for the benefit of senior management rather than executive directors as detailed above the grant of options to senior
management are subject to operational and individual targets and are set in consultation with the ceo and the executive team
up to now executive directors’ entitlement to options under the group scheme have been subject to the achievement of the following 
performance conditions 
for financial years 19992003 options were granted to executives based on a mix of group revenue and ebitda targets for the relevant year of
account outstanding options arising from this period have been fully tested as to performance criteria and are eligible to vest in accordance with the
terms of the original grant or have otherwise lapsed
for financial year 2004 280000 options were granted to the executive directors on 3 july 2003 at a price of £6475 which was the closing middle
market price on that day steve purdham received 100000 options and the other executive directors received 60000 options each the options were
subject to the following performance and vesting conditions
 80 of options vest on 2 july 2004 subject to achievement of group target ebitda for the year ended 30 june 2004 with 75 of such options
vesting if the group attained 95 or more of target ebitda
 10 of options vest on 2 july 2005 provided that the company’s total shareholder return tsr exceeds the median achieved by techmark listed
companies over the period july 2003july 2005
 10 of options vest on 2 july 2005 provided that the company’s tsr is in the upper quartile achieved by techmark listed companies over the
period july 2003july 2005
additionally in the event that the group ebitda for the year ended 30 june 2004 performance condition is not achieved or only partially achieved
the unvested options become eligible to vest on 2 july 2005 on the same tsr basis described in the paragraphs above fifty percent of the unvested
options would then vest on the achievement of the median tsr and fifty percent on achieving a tsr in the upper quartile but thereafter no further
retesting of performance is permitted and the options lapse
none of the above performance conditions have been varied during the financial year group ebitda is assessed by reference to the published
audited annual accounts of the company following a review of the group’s full year 2004 management accounts the committee concluded that the
group ebitda targets had not been achieved in all respects and that accordingly all the relevant options would be retested under the above tsr
criteria in july 2005
throughout the year under review the committee has adopted the principle that the greater the potential award of options to participants the more
stretching shall be the relevant performance target the committee has not formally valued share options that it has approved 
there is no limit set on the number of options held by any individual participants in the company’s share option schemes including directors as the
allocation of options is wholly at the discretion of the committee the group’s current share option scheme is operated without significant external
management cost service contracts
the company has service agreements with its directors it is the remuneration committee’s policy that such agreements should contain notice periods
of not more than 12 months and that provision for compensation for loss of office is limited in scope to the termination provisions as set in each
executive director’s contract details of agreements in place for the current directors is as follows
director date of contract term notice period provision for compensation
greg lock 17 october 2000 equivalent to not less than 3 3 months’ salary and all nonreimbursed
the minimum months by either expenses after deduction of relevant
notice period party tax and national insurance
steve purdham 1 march 1998 equivalent to not less than 12 months’ basic salary employer
the minimum 12 months by pension contributions together with such
notice period either party bonuses payable pursuant to the current 
bonus arrangements and the cash 
equivalent value of all benefits in kind or 
allowances compensation payments shall 
be made after deduction of relevant 
employee tax and national insurance
simon wilson 7 february 2000 equivalent to 12 months by 12 months’ basic salary employer 
the minimum the company or pension contributions together with such
notice period 3 months by the bonuses payable pursuant to the 
director current bonus arrangements and the cash 
equivalent value of all benefits in kind or 
allowances compensation payments shall 
be made after deduction of relevant 
employee social security taxes
patrick jolly 28 august 2000 equivalent to not less than 12 months’ basic salary employer
the notice period 12 months by the pension contributions together with such
given by the company or 6 bonuses payable pursuant to the 
relevant party months by the current bonus arrangements and
director the cash equivalent value of all benefits in
kind or allowances compensation payments 
shall be made after deduction of relevant
employee tax and national insurance
kevin blakeman 17 november 2000 equivalent to 12 months by 12 months’ basic salary employer
as varied 13 the minimum the company or pension contributions together with such
december 2001 notice period not less than bonuses payable pursuant to the
3 months by the current bonus arrangements and he cash 
director tequivalent value of all benefits in kind or 
allowances compensation payments shall 
be made after deduction of relevant 
employee social security taxes
directors’ remuneration report
annual report  accounts 2004 35 directors’ remuneration report
surfcontrol plc 36
director date of contract term notice period provision for compensation
george hayter 15 june 1998 equivalent to not less than  3 months’ salary and all nonreimbursed
the minimum 3 months by  expenses after deduction of relevant notice 
period either party tax and national insurance
jane tozer 1 november 2003 equivalent to not less than  fees for 3 months and all nonreimbursed
the minimum 3 months by  expenses
notice period with either party
an initial term of
three years
rene schuster 1 november 2003 equivalent to not less than  3 months’ salary and all nonreimbursed 
the minimum 3 months by  expenses after deduction of relevant 
notice period with either party tax and national insurance
an initial term of
three years
details of the service agreements in respect to the other directors who have served during the year are as follows 
rob barrow 1 march 1998  equivalent to not less than  3 months’ salary and all nonreimbursed
as varied on the minimum 3 months by expenses after deduction of relevant 
11 june 2001 notice period either party tax and national insurance 
1 quester services limited 15 june 1998 equivalent to not less than fees for 3 months and all nonreimbursed 
2 simon acland the minimum 3 months by expenses
notice period either party
quester services limited employed simon acland as a director
each agreement also contains post termination restrictive covenants which place limitations on solicitation of customers or employees and acting in
competition with the business of the group
performance graph
the graph below sets out the cumulative tsr of the company and those companies comprising the ftse techmark all share index for the period of 
5 years from july 1999 to june 2004 in the opinion of the directors this is the principal index used by the investment community as a benchmark for
performance comparison with the company
earnings from other directorships held
steve purdham earned and retained fees of 3479 from his nonexecutive position on the board of the manchester technology fund limited 
patrick jolly earned and retained fees of 52185 from his nonexecutive position on the board of findel plc
2500
2000
1500
1000
500
0
1999 2000
year
percentage 
2001 2002 2003 2004
surfcontrol
ftse techmark all share audited information
share options
the following table shows the movement in interests in share option held by directors during the year under review
exercise exercise 1 july granted in lapsed in exercised in 30 june 
price period 2003 the year the year the year 2004
steve purdham 331p 15700–15709 150000 – – – 150000
434p 301100–291109 150000 – – – 150000
849p 14601–13610 160000 – – – 160000
365p 30602– 29611 150000 – – – 150000
421p 3703–2712 160000 – – – 160000
64750p 2705–1713 – 100000 – – 100000
steve purdham – non beneficial 321p 51000–41009 3000 – – – 3000
849p 14601–13610 3200 – – – 3200
simon wilson 849p 21201–20210 180000 – – – 180000
365p 30602–29611 37500 – – 25000 12500
421p 3703–2712 50000 – – – 50000
64750p 2705–1713 – 60000 – – 60000
patrick jolly 849p 10901–9910 260000 – – – 260000
365p 30602–29611 37500 – – 25000 12500
421p 3703–2712 40000 – – – 40000
64750p 2705–1713 – 60000 – – 60000
kevin blakeman 321p 51000–41009 6000 – – – 6000
849p 9201–8210 8000 – – – 8000
849p 14601–13610 12000 – – – 12000
738p 291101–281110 85000 – – – 85000
365p 30602–29611 37500 – – 25000 12500
421p 3703–2712 40000 – – – 40000
6475p 2705–1713 – 60000 – – 60000
george hayter 186p 11999–71008 5200 – – 5200 –
849p 9201–8210 800 – – – 800
rob barrow 434p 301100–291109 150000 – – 150000 –
849p 14601–13610 80000 – 80000 – –
patrick jolly and george hayter exercised 25000 and 5200 options on 9 september 2003 at a market price of £875 they made gains of £125700
and £35828 respectively simon wilson and kevin blakeman exercised 25000 options each on the same date at a market price of £840 and made
gains of £118750 each following his retirement as a director rob barrow was eligible under the terms of his severance agreement to exercise
outstanding options by 30 june 2004 he exercised 75000 options with a grant price of £434 on 9 march 2004 at a market price of £575 and
made a gain of £105750 a further 75000 options with a grant price of £434 were exercised on 28 april 2004 at a market price of £616 giving a
gain of £136500 rob barrow’s remaining options lapsed on 30 june 2004 following his retirement from the board 
the market price of the company’s shares at the end of the financial year was £610 and ranged between £510 and £10675 during the year
directors’ remuneration report
annual report  accounts 2004 37 details of directors’ emoluments
benefits
salaryfees bonus in kind total total total
2004 2004 2004 2004 2003 2002
’000 ’000 ’000 ’000 ’000 ’000
steve purdham

339 165 23527 454 365
simon wilson 285 145 14 444 469 336
patrick jolly 348 128 43 519 459 352
kevin blakeman 223 136 9 368 373 370 
greg lock 89 – – 89 40 36
george hayter 49 – – 49 40 36
jane tozer appointed 1 november 2003 35–– 35 ––
rene schuster appointed 1 november 2003 35–– 35 ––
rob barrow resigned 1 november 2003 47–– 47 158 144
simon acland resigned 1 november 2003 14–– 14 40 36
shelagh rogan resigned 11 september 2001 –––– –342
1464 574 89 2127 2033 2017
 highest paid director
included in benefits for steve purdham is 21000 for a car expense allowance 200319000 20023000 no other director received an
expense allowance in the year
the amounts shown in the above table of directors’ emoluments for simon acland represent payments to quester services limited who employed
him as a director the company pays the current nonexecutive directors a fixed basic fee of £25000 43000 per annum rene schuster and 
jane tozer also receive an additional £5000 9000 per annum for their services as chairmen of the remuneration and audit committees george
hayter also receives an additional £5000 9000 per annum for his position as senior independent nonexecutive director nonexecutive fees are
reviewed annually by the chairman and executive board and are set at levels which are considered appropriate to attract and maintain individuals 
with requisite experience 
retirement benefits
the group operates defined contribution schemes for its executive directors consistent with its policy for its employees the parent company
contributes 5 of basic salary into the company’s uk based pension scheme and such further amounts as may be agreed by the committee into an
executive money purchase pension scheme for steve purdham surfcontrol inc provides 401k employer contributions for us based executives at the
lower of 3 of annual salary or 50 of the personal contributions paid by the executive
directors’ remuneration report
surfcontrol plc 38 these schemes are administered independently of the company details of contributions made by the group on behalf of directors are given below
2004 2003 2002
’000 ’000 ’000
steve purdham 63 54 47
simon wilson 4 67
patrick jolly 17 16 16
kevin blakeman 7 75
greg lock – ––
george hayter – ––
jane tozer – ––
rene schuster – ––
rob barrow – ––
simon acland – ––
shelagh rogan – –34
91 83 109
interest in shares
the directors who held office at the end of the financial year and their immediate families had the following interests in the shares of the company
ordinary ordinary
10p shares 10p shares
30 june 30 june 
2004 2003
steve purdham 95000 120000
simon wilson – beneficial 1330 430
simon wilson – non beneficial 1000 –
patrick jolly 3489 –
kevin blakeman 8500 8500
greg lock 17 500 19500
george hayter 9450 9450
jane tozer – –
rene schuster 10000 –
there were no changes in directors’ interests between 30 june 2004 and the date of this report
by order of the board
rene schuster
chairman of the remuneration committee
6 september 2004
directors’ remuneration report
annual report  accounts 2004 39 we have audited the financial statements on pages 41 to 67 we have also audited the information in the directors’ remuneration report that is
described as having been audited
this report is made solely to the company’s members as a body in accordance with section 235 of the companies act 1985 our audit work has
been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s 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 and the
company’s members as a body for our audit work for this report or for the opinions we have formed
respective responsibilities of directors and auditors
the directors are responsible for preparing the annual report and the directors’ remuneration report as described on page 25 this includes
responsibility for preparing the financial statements in accordance with applicable united kingdom law and accounting standards our responsibilities
as independent auditors are established in the united kingdom by statute the auditing practices board the listing rules of the financial services
authority and by our profession’s ethical guidance
we report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements and the part of the
directors’ remuneration report to be audited have been properly prepared in accordance with the companies act 1985 we also report to you if in our
opinion the directors’ report is not consistent with the financial statements if the company has not kept proper accounting records if we have not
received all the information and explanations we require for our audit or if information specified by law regarding directors’ remuneration and
transactions with the group is not disclosed
we review whether the corporate governance statement reflects the company’s compliance with the seven provisions of the combined code issued
in june 1998 specified for our review by the listing rules of the financial services authority and we report if it does not we are not required to
consider whether the board’s statements on internal control cover all risks and controls or form an opinion on the effectiveness of the group’s
corporate governance procedures or its risk and control procedures
we read the other information contained in the annual report including the corporate governance report and the unaudited part of the directors’
remuneration report and consider whether it is consistent with the audited financial statements we consider the implications for our report if we
become aware of any apparent misstatements or material inconsistencies with the financial statements
basis of audit opinion
we conducted our audit in accordance with auditing standards issued by the auditing practices board an audit includes examination on a test basis
of evidence relevant to the amounts and disclosures in the financial statements and the part of the directors’ remuneration report to be audited 
it also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements and
of whether the accounting policies are appropriate to the group’s circumstances consistently applied and adequately disclosed
we planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements and the part of the directors’ remuneration report to be audited are free
from material misstatement whether caused by fraud or other irregularity or error in forming our opinion we also evaluated the overall adequacy of
the presentation of information in the financial statements and the part of the directors’ remuneration report to be audited
opinion
in our opinion
 the financial statements give a true and fair view of the state of affairs of the company and the group as at 30 june 2004 and of the profit of the
group for the year then ended and
 the financial statements and the part of the directors’ remuneration report to be audited have been properly prepared in accordance with the
companies act 1985
kpmg audit plc
chartered accountants
registered auditor
manchester england
6 september 2004
independent auditors’ report 
to the members of surfcontrol plc
surfcontrol plc 40 2004 2003 2002
notes ’000 ’000 ’000
turnover
continuing operations 3 86859 73232 54167
acquisitions 3 476 ––
2 87335 73232 54167
cost of sales 1393 723 643
gross profit 85942 72509 53524
selling and distribution costs 3 44025 39740 32854
research and development 3 9678 7530 6358
general and administrative costs 3 16813 14580 12872
amortisation of intangible assets and depreciation 36 3148 2779 71709
movement in share option provision 316 49 487 20
total administrative expenses 29688 25376 90959
operating profitloss
continuing operations 3 13648 7393 70289
acquisitions 3 1419 ––
6 12229 7393 70289
proceeds from disposal of business 311 381 253
profitloss on ordinary activities before interest and taxation 2 12540 7774 70036
net interest receivable and similar items 7 1859 1105 651
profitloss on ordinary activities before taxation 14399 8879 69385
tax on profitloss on ordinary activities 8 2862 2516 980
profitloss on ordinary activities after taxation and retained profitloss for the period 1819 11537 6363 68405
basic earningsloss per ordinary share cents 4 373 209 2259
diluted earningsloss per share cents 4 360 208 2259
there is no material difference between the reported results and the results calculated on an historical cost basis
all results are from continuing activities except for proceeds from disposal of business
an unaudited reconciliation between the group profit on ordinary activities after taxation and ebitda is shown on page 68
group statement of total recognised gains  losses
for the years ended 30 june
2004 2003 2002
notes ’000 ’000 ’000
profitloss for the year 11537 6363 68405
unrealised exchange difference on translation 1819 3355 1095 105
total recognised gains and losses relating to the financial year 14892 7458 68510
the notes on pages 46 to 67 form part of these financial statements
group profit  loss account
for the years ended 30 june
annual report  accounts 2004 41 2004 2003 2002
notes ’000 ’000 ’000
fixed assets
intangible assets 9 12554 –1152
tangible assets 10 4065 3268 2950
16619 3268 4102
investments 11 31 29 7
16650 3297 4109
current assets
stocks 12 69 –18
debtors 13 31681 24138 14149
cash at bank and in hand 2426 87477 61707 35454
119227 85845 49621
creditors amounts falling due within one year 14 72226 52241 35642
net current assets 47001 33604 13979
total assets less current liabilities 63651 36901 18088
creditors amount falling due after more than one year 15 26001 16742 7126
provisions for liabilities and charges 16 446 540 72
37204 19619 10890
capital and reserves
called up share capital 1718 5027 4946 4904
share premium account 18 3803 79 63724
merger reserve 18 – –130407
capital redemption reserve 18 882 882 882
profit and loss account 18 27492 13712 189027
shareholders’ funds 37204 19619 10890
shareholders’ funds comprise
equity shareholders’ funds 19 37204 19619 10890
approved by the board of directors on 6 september 2004 and signed on its behalf by
steve purdham director simon wilson director
the notes on pages 46 to 67 form part of these financial statements
group balance sheet
as at 30 june 2004
surfcontrol plc 42 2004 2003 2002
notes ’000 ’000 ’000
fixed assets
intangible assets 9 11911 ––
tangible assets 10 1426 1308 1395
13337 1308 1395
investments 11 199754 187208 186459
213091 188516 187854
current assets
stocks 12 – –18
debtors 13 15993 5714 3700
cash at bank and in hand 55630 36503 13664
71623 42217 17382
creditors amounts falling due within one year 14 38462 14222 7799
net current assets 33161 27995 9583
total assets less current liabilities 246252 216511 197437
creditors amount falling due after more than one year 15 12577 3880 1922
provisions for liabilities and charges 16 446 540 72
233229 212091 195443
capital and reserves
called up share capital 1718 5027 4946 4904
share premium account 18 3803 79 63724
merger reserve 18 130407 130407 130407
capital redemption reserve 18 882 882 882
profit and loss account 18 93110 75777 4474
shareholders’ funds 233229 212091 195443
shareholders’ funds comprise
equity shareholders’ funds 19 233229 212091 195443
approved by the board of directors on 6 september 2004 and signed on its behalf by
steve purdham director simon wilson director
the notes on pages 46 to 67 form part of these financial statements
company balance sheet
as at 30 june 2004
annual report  accounts 2004 43 2004 2003 2002
notes ’000 ’000 ’000
net cash inflow from operating activities 22 32637 24093 11686
returns on investments and servicing of finance 23 1792 741 630
taxation 5536 1048 150
capital expenditure and financial investment
purchase of tangible fixed assets 2267 1633 1061
purchase of investments – 19 4
sale of tangible fixed assets 17 28 64
net cash outflow from capital expenditure and financial investment 2250 1624 1001 
acquisitions and disposals
purchase of subsidiary undertaking 8910 ––
cash acquired with subsidiary undertaking 120 ––
proceeds from disposal of business 311 381 253
net cash inflow from acquisitions and disposals 8479 381 253
net cash inflow before management of liquid resources and financing 18164 22543 11718
management of liquid resources 24 7470 15620 4075
financing
proceeds from share issue 3750 1271 523
purchase of own shares for treasury 839 ––
issue costs – –50
repayment of amounts borrowed – –32
net repayment of capital element of finance 24 38 45 160
net cash inflow from financing 2873 1226 381
increase in cash in the period 24 13567 8149 16174
the notes on pages 46 to 67 form part of these financial statements
group statement of cash flow
for the years ended 30 june
surfcontrol plc 44 2004 2003 2002
notes ’000 ’000 ’000
increase in cash in the period 13567 8149 16174
cash outflow from decrease in debt and lease financing 24 38 45 192
net transfers from liquid resources 24 7470 15620 4075
change in net funds resulting from cash flows 24 21075 23814 12291
new finance leases 24 – – 64
difference on translation 24 4727 2477 591
movement in net funds in the period 25802 26291 12818
net funds at 1 july 20031 july 20021 july 2001 24 61634 35343 22525
net funds at 30 june 200430 june 200330 june 2002 24 87436 61634 35343
the notes on pages 46 to 67 form part of these financial statements
reconciliation of net cash flow to 
movement in net funds
for the years ended 30 june
annual report  accounts 2004 45 notes to the financial statements
for the years ended 30 june
surfcontrol plc 46
1 accounting policies
the following principal accounting policies have been applied consistently in dealing with items considered material in relation to the group’s 
financial statements
accounting convention
the financial statements are prepared under the historical cost convention and in accordance with applicable united kingdom accounting standards 
the functional currency of the group is us dollars as the majority of the group’s business is conducted in the united states and accordingly amounts
in the financial statements are denominated in that currency
basis of consolidation
the group financial statements consolidate the financial statements of surfcontrol plc and its subsidiary undertakings made up to 30 june 2004
unless otherwise stated the acquisition method of accounting has been adopted under this method the results of subsidiary undertakings acquired
in the year are included in the consolidated profit and loss account from the date of acquisition
under section 230 4 of the companies act 1985 the company is exempt from the requirements to present its own profit and loss account 
turnover and deferred income
turnover represents the value of goods and services net of vat and other regional sales tax delivered in the normal course of business turnover
from perpetual software and appliance license sales is recognised once the license is delivered all significant obligations in relation to the sale have
been fulfilled and where the sales price is fixed and determinable sales made via channel partners are neither invoiced nor recognised as turnover
until the product or service is delivered to the end customer turnover from the following items are recognised over the relevant period of the contract
on a straightline basis softwareappliance support and maintenance content list subscriptions cyber patrol home product subscriptions and oem
contract licenses turnover from services is recognised upon completion where the proportion of the total sale price attributable to different elements
of the sale is not specifically identified an estimate is made based upon the published list prices for each of the individual elements
deferred income represents the value of goods and services net of vat and other regional sales tax that has been invoiced but not considered
delivered or completed plus the unrecognised portion of turnover from softwareappliance support and maintenance content list subscriptions cyber
patrol home product subscriptions and oem contract licenses deferred income is carried forward within creditors and released to turnover in the
profit and loss account in future periods
research and development
all research and development expenditure is written off as incurred
technical support
all preand post sales support expenditure is written off as incurred
deferred taxation
deferred tax is recognised without discounting in respect of all timing differences between the treatment of certain items for taxation and accounting
purposes which have arisen but not reversed by the balance sheet date except as otherwise required by frs 19
pensions
the group operates a number of defined contribution pension schemes the assets of which are held separately from those of the group in
independently administered funds contributions are charged to the profit and loss account as incurred
share options
the tax charge arising on the future potential exercise of inland revenue unapproved options is charged to the profit and loss account over the period
from the date of grant to the date options unconditionally vest with the employee the charge is based upon the difference between the option
exercise price and the closing market price at the balance sheet date notes to the financial statements
for the years ended 30 june
annual report  accounts 2004 47
1 accounting policies cont
intangible assets and goodwill
intangible assets include the fair value of acquired intellectual property and goodwill acquired goodwill representing the excess of the fair value of the
consideration and associated costs over the fair value of the separable net assets acquired arising on consolidation is capitalised acquired intellectual
property is also capitalised where in the opinion of the directors it satisfies the recognition criteria given in frs 10 goodwill and intangible assets
acquired intellectual property and positive goodwill is amortised to nil by equal annual instalments over its estimated useful economic life for
acquisitions to date the estimated useful economic life of these assets has been two years
on the subsequent disposal or termination of the business the profit and loss on disposal or termination is calculated after charging the unamortised
amount of any related goodwill
tangible fixed assets and depreciation
tangible fixed assets fixed are recorded at cost as and when they are delivered and available for use the carrying value of such assets is written down
by the amount of any impairment and the loss is recognised in the profit and loss account in the period in which this occurs
included within tangible fixed assets are the project costs associated with the construction of various software and hardware systems for use within the
group’s internal systems cost includes basic salary related employer tax costs and travel expenses for computer engineers for the duration of the
development stage of the application also included in the asset cost are any related external consultancy or engineering fees all costs relating to initial
planning or aborted projects are written off to profit and loss account as incurred
assets in the course of construction are not depreciated until they are completed at which time the final asset cost is transferred to computer
equipment and software or fixtures and fittings
depreciation is provided at rates calculated to write off the cost less the estimated residual value of tangible fixed assets over their estimated useful
economic lives as follows
computer equipment and software – over 3 years
motor vehicles – over 4 years
fixtures and fittings – over 5 years
investments
fixed asset investments which principally relate to the company’s investment in subsidiary undertakings are stated at cost less any provisions for
impairment in value
stocks
stocks are valued at the lower of cost and net realisable value cost is determined on a “first in first out” basis net realisable value is determined on
the basis of expected selling price less any further anticipated costs that may be incurred prior to completion or disposal
cash and liquid resources
cash for the purpose of the cash flow statement comprises cash in hand deposits repayable on demand and investments in instant access money
market managed funds liquid resources are current asset investments which are disposable without curtailing or disrupting the business and are either
readily convertible into known amounts of cash at or close to their carrying values or traded in an active market liquid resources comprise term
deposits of one year or less and certificates of deposit
leasing and hire purchase commitments
assets held under finance leases and hire purchase contracts are capitalised in the balance sheet and are depreciated over their useful lives the
corresponding liability for the capital element is recorded as borrowings and the interest element of the rental obligations is charged to the profit and
loss account over the period of the lease on a straightline basis rentals paid under operating leases are charged to income on a straightline basis
over the lease term 1 accounting policies cont
foreign currencies
monetary assets and liabilities of each entity denominated in currencies other than the functional currency of the group are translated at the rates of
exchange ruling at the balance sheet date transactions in such currencies are recorded at the average rate ruling during the period of the transaction 
exchange differences arising from the translation of the opening net assets of entities which principally operate in currencies other than us dollars to
the exchange rate ruling at the balance sheet date and the difference between the profit and loss accounts of such entities translated at an average
rate and at the closing rate are recorded as movements on reserves all other differences are taken to the profit and loss account
relevant rates of exchange were
balance sheet rate of exchange us dollar to local currency 2004 2003 2002
uk sterling 181 165 153
euro 122 115 099
australian dollar 070 067 056
chinese yuan 012 na na
profit and loss account average rate of exchange us dollar to local currency 2004 2003 2002
uk sterling 174 158 144
euro 119 105 090
australian dollar 071 059 053
chinese yuan 012 na na
2 segmental analysis
analysis by geographical area
a geographical analysis of the group’s turnover profitloss before interest and tax and net assetsliabilities is as follows
2004 2003 2002
turnover by destination ’000 ’000 ’000
united kingdom 15778 11792 7865
mainland europe 7357 4493 3282
north america 57395 52381 40696
rest of the world 6805 4566 2324
87335 73232 54167
2004 2003 2002
turnover by origin ’000 ’000 ’000
united kingdom 19108 14572 9635
mainland europe 5553 3384 2352
north america 57216 52553 40856
rest of the world 5458 2723 1324
87335 73232 54167
notes to the financial statements
for the years ended 30 june
surfcontrol plc 48 2 segmental analysis cont
2004 2003 2002
profit loss before interest and tax ’000 ’000 ’000
united kingdom 5679 6111 11981
mainland europe 87 28 2955
north america 9332 51 55155
rest of the world 2384 1584 55
12540 7774 70036
2004 2003 2002
net assets  liabilities ’000 ’000 ’000
united kingdom 27485 10396 3418
mainland europe 4508 2517 1869
north america 14767 27304 18609
rest of the world 3472 1798 557
50232 42015 24453
head office and central administration 87436 61634 35343
37204 19619 10890
profitloss before interest and tax and net assetsliabilities incorporate the effect of the group’s transfer pricing arrangements these adjustments
primarily consist of intragroup recharges arising from the location of intellectual property
head office and central administration net assets comprise cash balances of 87477000 and finance lease obligations of 41000 at 30 june 2004 
2003 cash balances 61707000 finance lease obligations 73000 2002 cash balances 35454000finance lease obligations 111000
analysis by product group
during the current and preceding financial years the group had one product group and one class of business development and sale of software
notes to the financial statements
for the years ended 30 june
annual report  accounts 2004 49 3 analysis of operations
continuing acquisitions total
operations
’000 ’000 ’000
2004 2004 2004
turnover 86859 476 87335
cost of sales 1280 113 1393
gross profit 85579 363 85942
selling and distribution costs 43812 213 44025
research and development 9622 56 9678
general and administrative costs 16660 153 16813
amortisation of intangible assets – 1351 1351
depreciation 1788 9 1797
movement in share option provision 49 – 49
operating profit 13648 1419 12229
4 earningsloss per share
basic and diluted earningsloss per ordinary share are calculated as follows
2004 2003 2002
’000 ’000 ’000
profitloss on ordinary activities after taxation for basic and diluted earnings per share 11537 6363 68405
basic weighted average ordinary shares in issue 30974588 30426265 30275479
dilutive effect of share options 1036691 192885 –
diluted weighted average ordinary shares in issue 32011279 30619150 30275479
basic earningsloss per ordinary share cents 3725 2091 22590
diluted earningsloss per ordinary share cents 3604 2078 22590
share options in issue and outstanding at 30 june 2002 had no dilutive effect as the group made a loss on ordinary activities after taxation during that
financial year
own shares held by the company of 106000 2003 nil 2002 nil have been treated as cancelled for the purpose of the earnings per 
share calculation
notes to the financial statements
for the years ended 30 june
surfcontrol plc 50 5 staff costs
2004 2003 2002
’000 ’000 ’000
wages and salaries 35077 31287 24439
social security costs 3221 2964 2162
other pension costs note 21 1013 845 567
39311 35096 27168
staff costs include directors’ remuneration which is analysed further in the directors’ remuneration report on pages 33 to 39
included in wages and salaries was 977000 2003 1320000 2001 1020000 arising from performance related bonuses earned during 
the year these bonuses which exclude directors’ bonuses and commission paid to sales staff relate to the achievement of predetermined individual
regional or global corporate targets
the average monthly number of employees during the year was
2004 2003 2002
selling and distribution 270 245 227
research and development 119 108 97
administration 75 75 69
464 428 393
notes to the financial statements
for the years ended 30 june
annual report  accounts 2004 51 6 operating profitloss
2004 2003 2002
’000 ’000 ’000
operating profitloss is arrived at after charging
depreciation
owned assets 1754 1580 1324
assets held under finance leases and hire purchase contracts 43 47 85
loss on disposal of fixed assets 31 109 28
amortisation of intangible assets 1351 1152 70300
auditors’ remuneration 296 284 147
other fees payable to the auditors and their associates
further assurance services 77 67 83
tax advisory services 547 419 297
other nonaudit services 2 927
operating lease rentals
equipment and vehicles 115 105 152
land and buildings 2703 2572 2323
other fees payable to the auditors and their associates in the year include tax advisory fees which primarily relate to tax compliance coordination and
planning further assurance services in the year mainly relate to fees for review of the group’s unaudited interim and quarterly financial statements
together with advice in respect of the transition to international accounting standards in addition amounts paid to the auditors in connection with
acquisition due diligence that have been capitalised were 124000 2003 nil 2002 nil
auditors’ remuneration for audit services includes 100000 2003 93000 2002 70000 in respect of the parent company
7 net interest receivable and similar items
2004 2003 2002
’000 ’000 ’000
bank and bank loan interest payable 3 2 4
finance lease and hire purchase interest payable 8 10 18
other interest payable 9 40 14
20 52 36
bank interest receivable 1879 1157687
net interest receivable 1859 1105 651
notes to the financial statements
for the years ended 30 june
surfcontrol plc 52 8 taxation on ordinary activities
2004 2003 2002
’000 ’000 ’000
us federal and state tax 669 1927 239
non us corporation tax 4847 3729 24
adjustments in respect of previous years 222 136 –
total current tax chargecredit 5294 5792 215
deferred tax 2432 3276 765
total tax chargecredit 2862 2516 980
deferred tax assets have been recognised in respect of tax losses that are more likely than not to be utilised in the near future and other timing 
differences existing at the financial year end
the total current tax charge in the year is greater than that implied by the standard rate of corporation tax in the united kingdom of 30 
the differences are explained below
2004 2003 2002
reconciliation of total current tax charge credit ’000 ’000 ’000
profitloss on ordinary activities before taxation 14399 8879 69385
tax chargecredit on profitloss on ordinary activities implied by the uk standard rate of 30 4320 2664 20816
factors affecting the tax chargecredit
expenses not deductible for tax purposes on a permanent basis 37 778 6732
goodwill amortisation charged in the year and deductible for tax purposes in future years – –13163
other short term timing differences 2332 3941 742
adjustment to tax chargecredit in respect of prior years 222 136 239
deferral of tax losses arising in the year 3730 90 932
utilisation of prior year tax losses in the year 165 1817 1207
total current tax chargecredit 5294 5792 215
a reconciliation to the deferred tax assets balance carried in the group balance sheet and shown in note 13 is given below
’000
deferred tax assets at 1 july 2003 4184
deferred tax asset from above 2432
exchange differences arising in the year 64
deferred tax assets at 30 june 2004 6680
notes to the financial statements
for the years ended 30 june
annual report  accounts 2004 53 9 intangible assets
goodwill intellectual total
property
group ’000 ’000 ’000
cost
at 1 july 2003 –––
arising from acquisitions 711 13194 13905
at 30 june 2004 711 13194 13905
amortisation
at 1 july 2003 –––
provided during the year 68 1283 1351
at 30 june 2004 68 1283 1351
net book value at 30 june 2004 643 11911 12554
net book value at 30 june 2003 –––
net book value at 30 june 2002 1152 – 1152
further details of the consideration given for these acquisitions and the provisional fair value of net assets acquired is given below
in the company the acquisition has been dealt with as follows
intellectual
property
company ’000
cost
at 1 july 2003 –
arising from acquisitions 13194
at 30 june 2004 13194
amortisation
at 1 july 2003 –
provided during the year 1283
at 30 june 2004 1283
net book value at 30 june 2004 11911
net book value at 30 june 2003 –
net book value at 30 june 2002 –
acquisition of appliance technology and chinese based sales distributor
on 19 april 2004 the group completed the purchase of linux based appliance technology from securem inc together with operational control of its
china based sales and distribution operation beijing messagesoft technology co ltd “messagesoft” a company incorporated in the people’s
republic of china
the aggregate consideration was 13194000 comprising purchase consideration of 12808000 and acquisition costs of 386000
included in the purchase price is deferred consideration consisting of a retention provision of 1000000 payable in april 2005 and an estimated
earnout of 3123000 payable over the period july 2004january 2005 see note 14
notes to the financial statements
for the years ended 30 june
surfcontrol plc 54 9 intangible assets cont
an analysis of the book and provisional fair value of assets and liabilities acquired is given below
book value fair value provisional
adjustments
1
fair values
’000 ’000 ’000
intellectual property ––13194
net liabilities of messagesoft structured as follows
fixed assets 38 26 12
stock 132 32 100
debtors 64 – 64
cash at bank and in hand 120 – 120
creditors due within one year 347 660 1007
net liabilities of messagesoft 7718 711
goodwill 711
total cost was settled by
cash consideration including costs 9071
deferred consideration 4123
13194
1
fair value adjustments relate to depreciation of fixed assets expensing of unidentified stock and incorporation of accruals for unrecorded payroll compensation and chinese taxes
messagesoft recorded a loss on ordinary activities after taxation under its accounting policies of 28000 for the period 1 january 2004 to the date 
of acquisition and a loss on ordinary activities after taxation of 20000 in its preceding financial year ended 31 december 2003
notes to the financial statements
for the years ended 30 june
annual report  accounts 2004 55 10 tangible fixed assets
computer construction fixtures motor total
equipment and software in progress andfittings vehicles
group ’000 ’000 ’000 ’000 ’000
cost
at 1 july 2003 4592 333 1947 87 6959
exchange adjustment 218 4 126 9 357
additions 1533 758 190 – 2481
acquisition of subsidiary undertaking 12––– 12
disposals 137 – 74 – 211
reclassification 100 586 486 – –
at 30 june 2004 6318 509 2675 96 9598
depreciation
at 1 july 2003 2688 – 951 52 3691
exchange adjustment 127 – 69 12 208
provided during the year 1297 – 479 21 1797
disposals 105 – 58 – 163
at 30 june 2004 4007 – 1441 85 5533
net book value at 30 june 2004 2311 509 1234 11 4065
net book value at 30 june 2003 1904 333 996 35 3268
net book value at 30 june 2002 1892 – 997 61 2950
computer construction fixtures motor total
equipment and software in progress and fittings vehicles
company ’000 ’000 ’000 ’000 ’000
cost
at 1 july 2003 1616 – 1122 87 2825
exchange adjustment 183 4 109 9 305
additions 703 84 31 – 818
disposals 102 – 74 – 176
at 30 june 2004 2400 88 1188 96 3772
depreciation
at 1 july 2003 872 – 587 58 1517
exchange adjustment 105 – 66 6 177
provided during the year 542 – 242 21 805
disposals 95 – 58 – 153
at 30 june 2004 1424 – 837 85 2346
net book value at 30 june 2004 976 88 351 11 1426
net book value at 30 june 2003 744 – 535 29 1308
net book value at 30 june 2002 725 – 615 55 1395
notes to the financial statements
for the years ended 30 june
surfcontrol plc 56 10 tangible fixed assets cont
assets held under hire purchase agreements included within tangible assets were as follows
motor fixtures
vehicles and fittings
group ’000 ’000
net book value at 30 june 2004 21 48
net book value at 30 june 2003 32 64
net book value at 30 june 2002 56 78
depreciation charged on fixed assets held under finance lease arrangements was motor vehicles 21000 2003 27000 2002 69000 and on
fixtures and fittings 22000 2003 20000 2002 16000
motor fixtures
vehicles and fittings
company ’000 ’000
net book value at 30 june 2004 11 48
net book value at 30 june 2003 32 64
net book value at 30 june 2002 56 78
depreciation charged on fixed assets held under finance leases was as for group
11 investments
2004 2003 2002
group ’000 ’000 ’000
fixed asset investments
at 1 july 20031 july 20021 july 2001 29 73
additions – 22 4
exchange adjustment 2 ––
fixed asset investments at 30 june 200430 june 200330 june 2002 31 29 7
fixed asset investments which are stated at cost wholly relate to bond holdings required by austrian law to cover severance obligations towards
employees based in that country payable in the event of a compulsory winding up of surfcontrol gmbh
2004 2003 2002
company ’000 ’000 ’000
investments in subsidiary undertakings
at 1 july 20031 july 20021 july 2001 59045 55032 55016
transfers – 4013 –
share subscriptions – –16
at 30 june 200430 june 200330 june 2002 59045 59045 55032
amounts owed by subsidiary undertakings
at 1 july 20031 july 20021 july 2001 128163 131427 112176
transfers 3291 4013 –
net additions 15837 749 19251
at 30 june 200430 june 200330 june 2002 140709 128163 131427
total unquoted investments 199754 187208 186459
amounts owed by subsidiary undertakings are included within investments where the the subsidiary and the company have agreed that the debt will
not be settled in the foreseeable future
principal trading subsidary undertakings included in the group accounts at 30 june 2004 are as shown below all of these subsidiary undertakings
with the exception of beijing messagesoft technology co ltd “messagesoft” are directly and wholly owned
notes to the financial statements
for the years ended 30 june
annual report  accounts 2004 57 11 investments cont
the company under the terms of its sale and purchase agreement with securem inc has control over the operational and financial policies 
of messagesoft and accordingly messagesoft has been accounted for as a subsidiary of the group all companies including messagesoft are engaged
in the internet filtering and secure content management market a full list of companies will be included in the company’s next annual return
country of
subsidiary name incorporation
surfcontrol inc united states
surfcontrol gmbh
1
austria
surfcontrol bv holland
surfcontrol pty limited australia
beijing messagesoft technology co ltd people’s republic of china
1
the results of surfcontrol gmbh a company incorporated in austria include those of its wholly owned subsidiary surfcontrol gmbh a company incorporated in germany engaged
in the business of internet filtering and secure management software
12 stocks
2004 2003 2002
group ’000 ’000 ’000
goods for resale 69 –18
2004 2003 2002
company ’000 ’000 ’000
goods for resale – –18
13 debtors
2004 2003 2002
group ’000 ’000 ’000
trade debtors 20524 17647 12077
other debtors 27 64 49
taxation recoverable 1475 ––
deferred tax assets 6680 4184 812
prepayment and accrued income 2975 2243 1211
31681 24138 14149
deferred tax assets are analysed as follows
2004 2003 2002
’000 ’000 ’000
unutilised trading losses 6212 3204 429 
deferred income – 555 272 
accelerated capital allowances 318 289 92 
short term timing differences 150 136 19 
6680 4184 812 
notes to the financial statements
for the years ended 30 june
surfcontrol plc 58 13 debtors cont
2004 2003 2002
company ’000 ’000 ’000
trade debtors 4652 4201 2698
other debtors 6 14 8
deferred tax assets 395 425 540
prepayment and accrued income 1356 1074 454
amounts owed to subsidiary undertakings 9584 ––
15993 5714 3700
deferred tax assets are analysed as follows
2004 2003 2002
’000 ’000 ’000
unutilised trading losses – –429 
accelerated capital allowances 318 289 92 
short term timing differences 77 136 19 
395 425 540 
there were no debtors due after more than one year in all periods at group or in the company
14 creditors amounts falling due within one year
2004 2003 2002
group ’000 ’000 ’000
trade creditors 2770 1966 1775
corporation tax 5971 4709 11
taxes  social security costs 2004 1527 1000
other creditors 308 ––
accruals 7995 6456 5967
deferred income 49036 37542 26848
obligations under finance leases and hire purchase contracts 19 41 41
deferred consideration on acquisition of subsidiary undertaking 4123 ––
72226 52241 35642
2004 2003 2002
company ’000 ’000 ’000
trade creditors 1532 776 1160
corporation tax 4147 1989 –
taxes  social security costs 1172 1069 681
accruals 2301 1739 1285
amounts owed to subsidiary undertakings 14490 1162 –
deferred income 10678 7446 4632
obligations under finance leases and hire purchase contracts 19 41 41
deferred consideration on acquisition of subsidiary undertaking 4123 ––
38462 14222 7799
notes to the financial statements
for the years ended 30 june
annual report  accounts 2004 59 15 creditors amounts falling due after more than one year
2004 2003 2002
group ’000 ’000 ’000
deferred income
due within one to two years 18399 10871 5734
due within two to five years 7580 5777 1322
due after five years – 62 –
25979 16710 7056
obligations under finance leases and hire purchase contracts
due within one to two years 19 18 70
due within two to five years 3 14 –
22 32 70
26001 16742 7126
2004 2003 2002
company ’000 ’000 ’000
deferred income
due within one to two years 4573 2425 1348
due within two to five years 2157 1361 504
due after five years – 62 –
6730 3848 1852
amounts owed to subsidiary undertakings
due within one to two years 4660 ––
due within two to five years 1165 ––
5825 ––
obligations under finance leases and hire purchase contracts
due within one to two years 19 18 70
due within two to five years 3 14 –
22 32 70
12577 3880 1922
the weighted average interest rate and period to maturity on finance lease obligations was 21 and 26 months respectively there was no material
difference between the book and fair values attributable to finance leases shown in this note
16 provisions for liabilities and charges
2004
group and company ’000
provision for option charges as at 1 july 2003 540
charged in the year 49
paid in the year 179
exchange difference arising in the year 36
provision for option charges at 30 june 2004 446
provision for option charges at 30 june 2003 540
provision for option charges at 30 june 2002 72
the tax option charge for uk employer’s national insurance and non uk employment tax relates to amounts payable on the potential profit arising
from the future exercise of unapproved options granted to directors and employees for uk personnel on options granted after 6 april 1999 the
provision is charged to the profit and loss account on a straight line basis over the relevant vesting period of the outstanding options and is based
upon the company’s closing share price on techmark as at 30 june 2004 of £610
the above charge may vary as it is dependent upon prevailing tax law future share price movements and the number of options in issue
notes to the financial statements
for the years ended 30 june 2004 30 june 2003 and 30 june 2002
surfcontrol plc 60 17 share capital
2004 2003 2002
group and company number ’000 ’000 ’000
authorised
equity ordinary shares of £010 each 54000000 9793 8806 7749
nonequity deferred shares of £050 each 1001991 – – 882
total authorised share capital 9793 8806 8631
issued and fully paid
equity ordinary shares of £010 each 31086737 5027 4946 4904
2003 30605856
2002 30343825
total called up share capital 5027 4946 4904
the authorised share capital is denominated in uk£ and consists of 54000000 10p ordinary shares with a nominal value of £5400000
fluctuations in us value arise on exchange translation 
the issued ordinary share capital of the company in uk £ at 30 june 2004 was £3109000 the company’s share capital has been translated into
us dollars on a cumulative basis at exchange rates prevailing as and when capital flows occurred movements in issued share capital over the period
wholly arose from the exercise of company share options
the ordinary shares of 10p each carry one vote and have no fixed rights to dividends they are entitled to participate equally in the assets of the
company on a winding up
share options
as at 30 june 2004 the following options to subscribe were outstanding in respect of ordinary shares of 10p each
no of shares exercise price exercise period
1020 294p 15 june 1998 to 29 january 2005
5000 242p 1 june 2002 to 31 may 2009
200000 331p 15 july 2000 to 15 july 2009
58500 321p 5 october 2000 to 4 october 2009
209900 434p 30 november 2000 to 29 november 2009
174400 849p 9 february 2001 to 8 february 2010
2000 1238p 9 february 2001 to 8 february 2010
189600 849p 21 february 2001 to 20 february 2010
96400 849p 15 march 2001 to 14 march 2010
45600 849p 22 march 2001 to 21 march 2010
1000 1712p 22 march 2001 to 21 march 2010
6400 849p 13 april 2001 to 12 april 2010
1600 849p 17 april 2001 to 16 april 2010
2400 849p 15 may 2001 to 14 may 2010
notes to the financial statements
for the years ended 30 june
annual report  accounts 2004 61 notes to the financial statements
for the years ended 30 june
surfcontrol plc 62
17 share capital cont
share options cont
no of shares exercise price exercise period
3200 849p 30 may 2001 to 29 may 2010
463600 849p 14 june 2001 to 13 june 2010
8000 1425p 14 june 2001 to 13 june 2010
9600 849p 29 june 2001 to 28 june 2010
67830 849p 18 july 2001 to 17 july 2010
923 2025p 18 july 2001 to 17 july 2010
11816 849p 30 july 2001 to 29 july 2010
64456 849p 6 august 2001 to 5 august 2010
18279 849p 30 august 2001 to 29 august 2010
18155 849p 28 september 2001 to 27 september 2010
14481 849p 30 october 2001 to 29 october 2010
260000 849p 10 september 2001 to 9 september 2010
109386 738p 29 november 2001 to 28 november 2010
15077 875p 3 december 2001 to 2 december 2010
3876 849p 30 december 2001 to 29 december 2010
22607 849p 30 january 2002 to 29 january 2011
2307 1243p 30 january 2002 to 29 january 2011
2584 849p 27 february 2002 to 26 february 2011
8075 998p 27 february 2002 to 26 february 2011
5950 448p 29 march 2002 to 28 march 2011
33769 660p 29 april 2002 to 28 april 2011
4052 545p 30 may 2002 to 29 may 2011
4026 365p 29 june 2002 to 28 june 2011
187500 365p 30 june 2002 to 29 june 2011
3750 394p 15 july 2002 to 14 july 2011
2500 392p 19 august 2002 to 18 august 2011
5625 268p 23 september 2002 to 22 september 2011
2250 313p 27 september 2002 to 26 september 2011
5000 384p 28 october 2002 to 27 october 2011
4333 493p 1 january 2003 to 31 december 2012
98667 403p 30 june 2003 to 29 june 2012
290000 421p 3 july 2003 to 2 july 2012
10000 543p 5 july 2003 to 4 july 2012
184000 6475p 2 july 2004 to 1 july 2013
30000 7625p 29 october 2004 to 28 october 2013
10000 5525p 5 april 2005 to 4 april 2014
5000 576p 9 june 2005 to 8 june 2014
217000 620p 28 june 2005 to 27 june 2014
280000 6475p 2 july 2005 to 1 july 2013
3481494
the average share price based on the company’s share price as shown in the official list of the london stock exchange during the year was
£705 and at 30 june 2003 was £610 30 june 2003 £6375 30 june 2002 £3975
employee share option schemes
the group operated two share option schemes for the benefit of group employees and directors during the year
on 2 april 1992 the “jsb computer systems executive share option scheme” was adopted by the board of directors the scheme has not been
approved by the inland revenue no options were granted during the financial year and there is no intention to grant further options under this scheme 17 share capital cont
on 11 september 1998 the board adopted the “jsb software technologies 1998 executive share option scheme” “the 1998 scheme” the
scheme is approved by the inland revenue although a schedule is incorporated into the rules allowing the grant of unapproved options the scheme is
administered by the remuneration committee options may be granted at any time the committee considers appropriate subject to compliance with
the model code on directors’ dealings options may be granted subject to such performance targets as the committee in its discretion may decide and
with approval of the inland revenue where appropriate 
on 14 july 2000 in an extraordinary general meeting of the company shareholders approved minor amendments to the 1998 scheme including
revision to the maximum limit on the number of shares for which options may be granted from 15 to 20 of the issued ordinary share capital
on 31 october 2002 in annual general meeting shareholders approved the adoption of a second schedule to the scheme to facilitate the granting of
options from november 1 2002 to californian residents staff in a manner consistent with section 25102o of the californian corporations code
18 reserves
share capital share merger profit total
capital redemption premium reserve and loss
reserve account account
group ’000 ’000 ’000 ’000 ’000 ’000
as at 1 july 2003 4946 882 79 – 13712 19619
exercise of options in the period 81 – 3724 – – 3805
retained profit for the period ––––1153711537
purchase of own shares for treasury –––– 1112 1112
unrealised exchange difference on translation –––– 3355 3355
as at 30 june 2004 5027 882 3803 – 27492 37204
as at 30 june 2003 4946 882 79 – 13712 19619
as at 30 june 2002 4904 882 63724 130407 189027 10890
during the year the company purchased 106000 of its own shares at a cost of 1112000 and at an average price of £583 1041 
share capital share merger profit total
capital redemption premium reserve and loss
reserve account account
company ’000 ’000 ’000 ’000 ’000 ’000
as at 1 july 2003 4946 882 79 130407 75777 212091
exercise of options in the period 81 – 3724 – – 3805
retained profit for the period –––– 2190 2190
purchase of own shares for treasury –––– 1112 1112
unrealised exchange difference on translation ––––1625516255
as at 30 june 2004 5027 882 3803 130407 93110 233229
as at 30 june 2003 4946 882 79 130407 75777 212091
as at 30 june 2002 4904 882 63724 130407 4474 195443
the purchase of own shares was as for group
surfcontrol plc has not presented its own profit and loss account as permitted by section 230 of the companies act 1985 a profit of 2190000
relating to the company is dealt with in the consolidated financial statements of surfcontrol plc 2003 profit 4349000 2002 profit 1731000
the aggregate nominal value of ordinary shares allotted in the year was 81000 200342000 200219000
notes to the financial statements
for the years ended 30 june
annual report  accounts 2004 63 19 reconciliations of movement in shareholders’ funds
2004 2003 2002
group ’000 ’000 ’000
profitloss on ordinary activities after taxation 11537 6363 68405
new share capital subscribed 3805 1271 536
purchase of own shares for treasury 1112 ––
unrealised exchange difference on translation 3355 1095 105
net increase decrease in shareholders’ funds 17 585 8729 67974
opening shareholders’ funds 19619 10890 78864
closing shareholders’ funds 37204 19619 10890
2004 2003 2002
company ’000 ’000 ’000
profit on ordinary activities after taxation 2190 4349 1731
new share capital subscribed 3805 1271 536
purchase of own shares for treasury 1112 ––
unrealised exchange difference on translation 16255 11028 9922
net increase in shareholders’ funds 21138 16648 12189
opening shareholders’ funds 212091 195443 183254
closing shareholders’ funds 233229 212091 195443
20 other financial commitments
a lease commitments
the group’s commitments in respect of noncancellable operating lease rentals over the next twelve months are
leasehold otherleasehold otherleasehold other
property property property
2004 2004 2003 2003 2002 2002
group ’000 ’000 ’000 ’000 ’000 ’000
in respect of leases expiring
within one year 361 26 101 38 6 107
in one to two years 188 – 625 41 183 51
in two to five years 1274 39 1281 38 1859 7
in more than five years 462 – 406 – 429 –
2285 65 2413 117 2477 165
the company’s commitments in respect of noncancellable operating lease rentals over the next twelve months are
leasehold otherleasehold otherleasehold other
property property property
2004 2004 2003 2003 2002 2002
company ’000 ’000 ’000 ’000 ’000 ’000
in respect of leases expiring
within one year 21 – 34––4
in one to two years 53 – ––––
in two to five years –22 –28 – 20
in more than five years 462 – 406 – 429 –
536 22 440 28 429 24
notes to the financial statements
for the years ended 30 june
surfcontrol plc 64 20 other financial commitments cont
b capital commitments
the group and company had the following capital commitments authorised by directors but not provided for in the accounts
2004 2003 2002
group ’000 ’000 ’000
contracted for 66 275 –
authorised but not contracted for – 54 –
2004 2003 2002
company ’000 ’000 ’000
contracted for 3 ––
authorised but not contracted for – 54 –
21 pension costs
the group operates defined contribution schemes the assets of the schemes are held separately from those in the group in independently
administered funds the pension charge included in staff costs in note 5 represents contributions payable by the group to the funds and 
amounted to 1013000 2003 845000 2002 567000 
the amount of pension cost accrued by the group was 23000 2003 11000 2002 122000
22 reconciliation of operating cash flows
2004 2003 2002
’000 ’000 ’000
operating profitloss 12229 7393 70289
depreciation 1797 1627 1409
amortisation of intangible assets 1351 1152 70300
loss on sale of tangible fixed assets 31 109 28
decrease in stocks 31 18 84
increase in debtors 2973 5430 763
increase in creditors 20302 18780 10932
decreaseincrease in provisions for liabilities and charges 131 444 15
net cash inflow from operating activities 32637 24093 11686
23 returns on investments and servicing of finance
2004 2003 2002
’000 ’000 ’000
finance lease and hire purchase interest paid 8 10 17
bank interest paid 3 2 4
other interest paid 9 29 6
bank interest received 1812 782 657
net cash inflow from returns on investment and servicing of finance 1792 741 630
notes to the financial statements
for the years ended 30 june
annual report  accounts 2004 65 24 analysis of net funds
at cash foreign at at at
1 july flow exchange 30 june 30 june 30 june
2003 differences 2004 2003 2002
’000 ’000 ’000 ’000 ’000 ’000
overnight cash balances and cash in hand 34262 13567 2689 50518 34262 24608
term deposits 27445 7470 2044 36959 27445 10846
cash at bank and in hand 61707 21037 4733 87477 61707 35454
finance leases 73 38 6 41 73 111
total 61634 21075 4727 87436 61634 35343
the principal financial risks faced by the group are counterparty exchange rate interest rate and liquidity risks counterparty risk is managed by placing
cash deposits with banks principally in the uk and us which have satisfactory credit ratings to balance interest rate and liquidity risk the group places
its cash balances in excess of immediate requirements on deposit with the intention of maximising income whilst ensuring funds are available to meet
the group’s expenditure requirements exchange rate risk is managed by minimising balances in currencies other than those of local operations the
group’s policy is not to enter into forward exchange contracts
cash and other liquid resources consist of cash held in currentdeposit accounts money market funds certificates of deposit and money market term
deposits liquid resources at 30 june 2004 had a weighted average period to maturity of 12 weeks and earned interest at a weighted average rate 
of 225 per annum
there was no significant differences between book value and fair value determined by discounting future cash flows at current interest rates for these
funds no details regarding financial exposure of the short term debtors and creditors have been included the group does not engage in any hedging
in respect of interest rate risks
there are no material committed undrawn facilities at year end 
25 analysis of net cash inflow in respect of acquisitions
a summary of the net cash outflow in respect of beijing messagesoft technology co ltd is given below
2004
’000
cash outflow from operating activities 146
contribution to operating activities by parent 500
capital expenditure and financial investment 128
increase in cash in the period 226
26 financial instruments
as permitted by frs 13 “derivatives and other financial instruments disclosures” short term debtors and creditors have been excluded from the
following analyses
the interest rate risk profile of financial assets and liabilities were as follows
2004
non interest floating fixed total
bearing rate rate
group 2004 ’000 ’000 ’000 ’000
financial assets
currency
us dollar 951 23541 20755 45247
uk sterling 1502 4401 32414 38317
euro 827 1826 304 2957
australian dollar –139 471 610
chinese yuan 346 – – 346
3626 29907 53944 87477
notes to the financial statements
for the years ended 30 june
surfcontrol plc 66 26 financial instruments cont
2003
non interest floating fixed total
bearing rate rate
group 2003 ’000 ’000 ’000 ’000
financial assets
currency
us dollar 864 24772 – 25636
uk sterling 64 8071 27043 35178
euro 109 225 – 334
australian dollar –154 403 557
singapore dollar –2–2
1037 33224 27446 61707
2002
non interest floating fixed total
bearing rate rate
group 2002 ’000 ’000 ’000 ’000
financial assets
currency
us dollar 46 22381 4987 27322
uk sterling 214 948 5859 7021
euro 294 525 – 819
australian dollar –93 199 292
462 23947 11045 35454
there were no financial liabilities except for finance lease and hire purchase obligations as at 30 june 2004 2003 nil 2002 nil floating and
fixed rate financial assets comprise cash at bank and in hand and bear interest at prevailing market rates
the uk operations held cash balances of 16300000 2003 1199000 2002 13664000 denominated in us dollars other than this and 
long term intercompany loans the operations within the group had no significant monetary assets or liabilities denominated in currencies other than
their own
there are no material unrecognised gains or losses at the beginning or end of the year as the group did not trade in financial instruments
27 related party transactions
transactions within companies within the group are not disclosed as all such transactions are eliminated on consolidation payments were also made
to quester services limited for the services of simon acland as a nonexecutive director for the period to october 2003 which are referred to in the
directors’ remuneration report on page 38 there were no other related party transactions for the financial periods under review
notes to the financial statements
for the years ended 30 june
annual report  accounts 2004 67 30 30 full year
30 june 31 march december september 30 june
2004 2004 2003 2003 2004
’000 ’000 ’000 ’000 ’000
turnover 24490 22027 21154 19664 87335
cost of sales 461 318 320 294 1393
gross profit 24029 21709 20834 19370 85942
selling and distribution costs 12377 11298 10636 9714 44025
research and development 2788 2499 2242 2149 9678
general and administrative costs 4804 4185 3993 3831 16813
amortisation of intangible assets and depreciation 1827 472 438 411 3148
movement in share option provision 162 433 6 314 49
total administrative expenses 9581 6723 6679 6705 29688
operating profit 2071 3688 3519 2951 12229
proceeds from disposal of business 2 130 117 66 311
net interest receivable 498 566 441 354 1859
profit on ordinary activities before taxation 2567 4384 4077 3371 14399
tax on profit on ordinary activities 114 1108 1031 837 2862
profit on ordinary activities after taxation 2681 3276 3046 2534 11537
basic earnings per ordinary share cents 85 106 9983 373
reconciliation of profit on ordinary activities after taxation 
to proforma profit after taxation
profit on ordinary activities after taxation 2681 3276 3046 2534 11537
movement in share option provision 162 433 6 314 49
amortisation of intangible assets 1351 ––– 1351
pro–forma profit on ordinary activities after taxation 4194 2843 3052 2848 12937
reconciliation of pro–forma profit after taxation to ebitda
earnings before net interest taxationdepreciation amortisation of goodwill 
share option provision and after proceeds from disposal of business
pro–forma profit on ordinary activities after taxation 4194 2843 3052 2848 12937
tax on profit on ordinary activities 114 1108 1031 837 2862
depreciation 476 472 438 411 1797
net interest receivable 498 566 441 354 1859
ebitda 4058 3857 4080 3742 15737
unaudited group profit  loss accounts
for the quarters ended 30 june 2004
surfcontrol plc 68 surfcontrol plc annual report  accounts 2004
principal offices
surfcontrol inc
united states – massachusetts
1900 west park drive suite 180 
westborough ma 01581 usa
tel 1 508 621 3900
fax 1 508 621 3921
email salesussurfcontrolcom
united states – california
5550 scotts valley drive
scotts valley ca 95066 usa 
tel 1 831 431 1400
fax 1 831 431 1800
email infosurfcontrolcom 
surfcontrol plc
united kingdom – congleton
riverside mountbatten way congleton
cheshire cw12 1dy united kingdom
tel 44 01260 296 200
fax 44 01260 296 201
email surfinfosurfcontrolcom
surfcontrol plc – singapore
level 58 republic plaza
9 raffles place singapore 048619
tel 65 6823 1312
fax 65 6823 1481
email supportsgsurfcontrolcom
surfcontrol plc – france
le challenge 92 124 bd françois arago
nanterre france
surfcontrol gmbh 
austria 
dorotheergasse 7 a1010 vienna austria
tel 43 1 513 44 15
fax 43 1 513 44 02
email salesatsurfcontrolcom 
surfcontrol gmbh 
germany
rüsterstraße 13
d60325 frankfurt am main germany
tel 49 69 70 79 86 0 
fax 49 69 70 79 86 20
email salesdesurfcontrolcom
surfcontrol bv
netherlands
schouwburgplein 3034 3012 cl rotterdam 
the netherlands 
tel 31 0 10 402 0000 
fax 31 0 10 402 0099
email salesnlsurfcontrolcom
surfcontrol pty ltd
australia
level 1 19 havilah street chatswood
nsw 2067 australia 
tel 61 02 9414 0000 
fax 61 02 9414 0099
email salesausurfcontrolcom
beijing messagesoft technology co ltd
office tower c2 3rd floor
oriental place beijing 100 738 china
tel 86 10 8518 8860
fax 86 10 8518 0067
email infomessagesoftnet
wwwsurfcontrolcom
the world’s 1 web and email filtering company
annual report  accounts 2004
contents
01 chairman’s statement
02 chief executive’s strategic review
12 surfcontrol at a glance
14 finance director’s review
20 board of directors
22 advisers
23 directors’ report
27 corporate governance report
33 directors’ remuneration report
40 independent auditors’ report
41 group profit and loss account
41 group statement of total recognised
gains and losses
42 group balance sheet
43 company balance sheet
44 group statement of cash flow
45 reconciliation of net cash flow to
movement in net funds
46 notes to the financial statements
68 unaudited group profit and loss account  inside front cover   inside back cover   flap inner 
highlights
■ pretax profit increased by 62 to 144m
2003 89m 
■ group turnover increased by 19 to 873m
2003 732m 
■ group invoicing increased by 16 to 1066m
2003 921m
■ cash balances as at 30 june 2004 increased 
to 875m 2003 617m 
■ gross profit margin of 98
■ increased contribution of indirect channel
sales from 49 to 58 for the year
422
01 02 03
year
04
542
732
873
turnover m
87 3m
turnover up 19 from
732m in 2003
87 5m
cash balance 617m in 2003
surfcontrol the world leader in
enterprise web and email filtering
surfcontrol plc the world leader in
enterprise web and email filtering
delivers on its promise to help companies
‘stop unwanted content’ in the workplace
by continuous innovation invention and
expansion of its filtering products to
address new content risks as they emerge 
surfcontrol is the industry’s only
complete solution to managing internet
risk surfcontrol technology protects all
points of entry and every way employees
use the internet for business – instant
messaging web email and peertopeer
it also works on every platform they work
on – blue coat cisco check point
microsoft exchange and isa 2004
and many more 
the company’s products and technology
are used by more than 20000 customers
worldwide including many of the world’s
largest corporations surfcontrol employs
more than 500 people in offices across
the united states europe and asiapacific
for further information and news
on surfcontrol please visit
httpwwwsurfcontrolcom
 vision
 leadership
 innovation
 evolution
4569 surfcontrol cover  92304  103 pm  page 2


Summary:
 surfcontrol plc surfcontrol at a glance 12
surfcontrol at a glance the market facts  figures
fact the amount of spam
messages being sent on
an average day worldwide
will reach 17bn in 2004
source idc august 2004
fact spam represents
6080 of todays email
source gartner 2004
“some form of im is now used in 85 percent of enterprises
according to surfcontrol’s research yet the it staff are
only managing the im systems being used about ten
percent of the time ”
32
03 04 05
bn
year
06 08 07
39
47
54
63
72
secure content market
20032008
bn
03 04 05
global content security market
20032007  314 cagr
07 06
global content security 
market forecast 20032007
197bn
161bn
130bn
108bn
728m
delivery
market
source ferris 2004 source idc 2003
source idc 2004 source idc 2003
source idc 2003
source idc antispam survey 2004
delivery segmentation
■ software ferris antispam
■ appliance report 2004
■ service
44
28
28
scm appliance market
prime function is content filtering
02 03 04
year
cagr 70
05 07 06
205m
390m
630m
1bn
16bn
109m
04 05
20 billion emails nonspam 2007
07 06
email boxes
business
699m
754m
806m
648m
the market explosion
worldwide  2007
av
44
billion
web 
email
19
billion
■ antivirus 15 cagr
■ web filtering 27 cagr
■ email filtering 36 cagr annual report  accounts 2004 13
fact 39 of workers have
received confidential
information via email that
was not intended for them
source surfcontrol september 2004
fact 3040 of internet use
in the workplace is not
related to business
source idc august 2004
522 people 13 offices worldwide
beijing
chertsey
congleton
frankfurt
milan
paris
rotterdam
scotts valley
shanghai
singapore
sydney
vienna
westborough
geography
technology roadmap
the next 3 years
■ enhance core
 competency of filtering
■ enhance software
 functionality
  ■ increased exploitation
   of ms platforms
  ■ linux
■ appliance delivery
■ managed service
integrated technology roadmap
service internet appliance software
global
threats
inbound
perimeter
threats
inbound 
outbound
departmental
control
inbound 
outbound
technology