03 May 2005

Intention to float on AIM

Endace is a network security company with a market leading technology providing solutions to companies and government agencies to guard against the growing volume and sophistication of viruses, hackers and other network attacks. 

The growing volume of data driven by increased Internet usage, high speed communications and data intensive applications is overwhelming current network security technologies.

Endace addresses this problem providing a wide range of solutions for a broad range of network protocols and speeds.

Key Highlights

• Endace has over 92 customers globally (50% growth : 2004 to 2005) in 16 countries operating high speed and critical networks including:
  • Government security agencies
  • International telcos
  • Some of the world's largest internet service providers (ISPs)
  • Blue-chip corporations
• The company has been cash generative and profitable for the last 3 years and for the 12 months ended 31 March 2005 had revenues of approximately US$6.53 million;
  • Revenues have grown at 71% CAGR (2003-2005)
• The security appliance market, comprising hardware, software and networking technologies was worth
• US$1.5bn in 2003 and is expected to grow at a CAGR of 17% to US$3.45bn by 2008
• Endace is a New Zealand registered company, with subsidiaries in the UK and USA. There is at present
• no New Zealand company listed on AiM.
• The Endace Group employs approximately 50 staff in:
  • New Zealand (Auckland and Hamilton)
  • USA (Washington, DC)
  • UK (Cambridge)

Funding Highlights

• The flotation will be by a means of a placing of new and existing ordinary shares to institutional investors in the United Kingdom
• Endace is seeking to raise c. £14m of new money (net of expenses)
• Existing shareholders will sell existing ordinary shares for an amount of up to £7m
• Growth has been constrained by lack of capital
• The net proceeds will primarily be used to establish a direct sales force, for further product
• development and for investment in research and development
• Panmure Gordon is the Nominated Advisor, Sole Bookrunner and Broker

On the plans for flotation, Professor Ian Graham, Executive Chairman, said:

"The rapid growth of the Internet in the past few years has been accompanied by a corresponding increase in the volume and sophistication of attacks on the network and its users. These threats include viruses, spam, and denial of service attacks, and also attempts to defraud or blackmail network users. This activity has in turn led to a substantial increase in the demand for the type of technology provided by Endace.

"The AIM admission and new funds will provide us with an increased international profile and will enable us to exploit the opportunities for the global expansion of our services, within a significantly growing market."

For further details

Endace Limited
Professor Ian Graham, Executive Chairman
Selwyn Pellett, Chief Executive
Tel: +44 (0)20 7187 2000
www.endace.com

Buchanan Communications
Lisa Baderoon / Tim Anderson / James Strong
Tel: +44 (0)20 7466 5000

Panmure Gordon (UK) Limited
Edward Farmer
Tel: +44 (0)20 7187 2000

NOTES TO EDITORS
Introduction

Endace is a network security company with a market leading technology. It is focused on the design and sale of specialised network interface devices and related computer systems for network security and measurement applications. The technology uses proprietary hardware, software and firmware, which have been developed over the last ten years. Endace's global customer base operate high speed, critical networks with exacting security requirements, and include government security agencies, international telecommunication companies, some of the world's largest Internet service providers and major corporations.

The Group was founded in late 2001 and has been profitable with positive cashflows since 2002. Revenue has increased from US$2.2 million in the year ended 31 March 2003 to US$6.53 million in the year ended 31 March 2005. The number of its customers has grown by over 50% in the year to 31 March 2005 to 92 customers in 16 countries.

Many information security appliances such as firewalls, intrusion detection systems and intrusion prevention systems run on a PC and use Network Interface Cards (NICs) to interface with the Internet. As the volume of traffic on data networks increases, the more challenging it is for the security appliance to process all of the data securely and existing commodity NICs are unable to process data at full network speeds. If an interface card is overloaded with high volumes of data, then the security appliances protecting that network are unable to inspect every piece of data entering the network, thus posing a threat to the security of the organization. It is fundamental for network security applications to be able to capture all of the incoming data and then inspect that data.

As the increasing use of the Internet, high-speed communications and data intensive applications drives ever increasing volumes of data, coupled with a corresponding increase in the volume and sophistication of attempted/actual network attacks, intercepts, spam, malicious and non-malicious intrusions, there is a growing need for a data capture technology specifically designed for security applications which can operate at the highest data speeds.

Endace has designed and is supplying such a technology, using integrated software and firmware on a programmable hardware platform. This addresses the market need through full data capture at the highest data speeds on a wide range of commonly used network types, including Ethernet from 10 Mbps to 10 Gbps and SONET/SDH up to OC192. Customers have integrated Endace technology into a wide variety of their network security applications, such as lawful interception, intrusion detection systems and intrusion prevention systems. A significant market also exists in network management and testing and Endace has started to produce network appliances for monitoring, recording and analyzing network traffic.

Market trends
The growing use of the Internet, wireless communication technologies and media content has meant that the volumes of data carried onto networks is increasing rapidly; it has also resulted in a growing volume and sophistication of computer-based viruses, spyware, spam, denial of service attacks, blackmail and fraud by hackers and organised crime. A survey was conducted in 2005, by National Opinion Polls, of 200 UK companies with more than 1,000 employees on behalf of the National Hi-Tech Crime Unit, the UK national law enforcement agency set up to combat serious and organised computer-based crime. 90 per cent of those surveyed had suffered unauthorized access to, or penetration of, their networks and 97 per cent of the 200 companies surveyed had experienced virus attacks costing them a total £70.1 million in 2004 alone. (The report can be found at www.nhtcu.org).

The security appliance market, comprising the three components of hardware, software and networking technologies, accounted for US$1.5 billion of sales in 2003, and is forecast by IDC to grow at a compound annual growth rate of 17% to US $3.45 billion in 2008. organizations currently purchase a range of security applications, hosted on more than one security appliance, which include anti-virus, firewall, network intrusion detection systems and intrusion prevention systems. As the individual component parts of a network security solution can be expensive to source and maintain, the directors believe that the market will increasingly look to buy a single network security appliance better able to deliver multiple network applications from a single hardware platform. This trend towards a single Unified Threat Management appliance involves a greater demand on the Central Processing Unit ("CPU") which hosts the assembled security appliances. This creates a need for higher processing speeds and a need to offload processing and functionality from the CPU to a pre-processing device of the type Endace produces.

The directors believe that these trends enhance the attraction of Endace's core technology.

This announcement is not for publication, release or distribution, directly or indirectly, in or into the United States of America, Canada, Australia or Japan, the Republic of Ireland or their respective territories or possessions.

This announcement has been issued by Endace and is the sole responsibility of Endace. The contents of this announcement have been approved solely for the purposes of Section 21 of the Financial Services and Markets Act 2000 by Panmure Gordon (UK) Limited, 50 Stratton Street, London W1J 8LL. Panmure Gordon (UK) Limited, as nominated advisor, sole bookrunner and broker, is acting for Endace and no one else in connection with the Placing and will not be responsible to any person other than Endace for providing the protections afforded to its clients or for providing advice in relation to the Placing or any other transaction or arrangement referred to or information contained in this announcement.

This announcement does not constitute or form part of an offer for sale or subscription of, or any solicitation of an offer to purchase or subscribe for, securities and any purchase of or subscription or application for shares "Ordinary Shares" should only be made on the basis of information contained in the admission document to be issued in connection with the Placing. The price and value of, and income from, shares may go down as well as up. Persons needing advice should consult a professional adviser.

The Ordinary Shares have not been, and will not be, registered under the Securities Act, or under the securities legislation of any state of the United States of America, nor under the relevant securities laws of Canada, Australia or Japan, and may not be offered or sold in or into the United States of America. There will be no offering of shares in or into the United States of America, Canada, Australia or Japan or in any country, territory or possession where to do so may contravene local securities laws or regulations. This announcement (or any part of it) is not to be reproduced, distributed, passed on, or the contents otherwise divulged, directly or indirectly, in or into the United States, Canada, Australia or Japan, in any country, territory or possession where to do so may contravene local securities laws or regulations.

Information contained in this announcement may include 'forward looking statements'. All statements other than statements of historical facts included herein, including, without limitation, those regarding the Group's financial position, business strategy, plans and objectives of management for future operations (including development plans and objectives relating to the Group's business) are forward- looking statements.

Such forward-looking statements are based on a number of assumptions regarding the Group's present and future business strategies and the environment in which the Group expects to operate in the future. These forward-looking statements speak only as to the date of this announcement and cannot be relied upon as a guide to future performance. Endace expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained in this announcement to reflect any changes in its expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based.

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