TIDMAVST
RNS Number : 1208E
Avast PLC
26 February 2020
Avast PLC
FULL YEAR RESULTS FOR THE YEARED 31 DECEMBER 2019
Avast plc, together with its subsidiaries ('Avast', 'the Group'
or 'the Company'), a leading global cybersecurity provider,
announces its results for the year ended 31 December 2019.
Ondrej Vlcek, Chief Executive of Avast, said:
" I'm pleased to report another year of good performance for
Avast in 2019, with results in line with the Board's expectations.
Group Adjusted Revenue was $873.1m, with organic growth of 9.1%(1)
, driven by double-digit growth in our Consumer Direct Desktop
business. We also sustained a high level of profitability with
Adjusted EBITDA margin(2) at 55.3%.
"The core of the Avast business and our fundamental strengths
remain unchanged. Our focus on cross-sell and upsell, our
localisation strategy, and new product releases continue to drive
good growth. There is an exciting pipeline of product launches for
the year ahead. We continue to expect healthy growth in 2020 and
remain confident in the long-term prospects for the business.
"For the full year 2020 we expect Group mid-single digit organic
revenue growth, and a stable EBITDA margin percentage."
FINANCIAL HIGHLIGHTS
-- Strong overall performance in line with expectations
-- Adjusted Billings at $911.0m up 5.7% at actual rates, with organic
growth of 10.2%
-- Adjusted Revenue at $873.1m up 5.6% at actual rates, with organic
growth of 9.1%
-- Consumer Direct Desktop Adjusted Revenue at $632.9m, up 9.1%
at actual rates, with organic growth of 10.7%
-- Adjusted EBITDA up 7.9% to $483.0m; Adjusted EBITDA margin at
55.3%, up 119bps
-- Adjusted fully diluted earnings per share ('EPS') up 14.1% to
$0.32 (versus $0.28 at YE 2018)
-- Proposed final dividend payable in June 2020 of 10.3 cents per
share; total dividend for the year of 14.7 cents per share,
up 8.1%(3)
-- Continued strong cash generation with Unlevered Free Cash Flow
up 7.9% to $424.6m and Levered Free Cash Flow up 14.0% to $370.4m
-- Net debt / LTM ('last twelve months') Adjusted EBITDA at 1.8x
at year end
-- On a statutory basis, Revenue up from $808.3m to $871.1m, Operating
profit up from $248.3m to $344.6m, fully diluted EPS at $0.24.
OPERATIONAL AND STRATEGIC HIGHLIGHTS
-- Customer retention rates on Consumer Direct Desktop have increased
to 67%, driven by lower churn in paid anti-virus and CCleaner
products, and APPC growth. Desktop operating KPIs tracked positively,
with customers(4) up 3.5% to 12.62m, APPC(5) up 4.2% to 1.45
and ARPC(6) up 3.6% to $51.02
-- Strong growth in the Desktop business was driven from the cross-selling
of Privacy products such as VPN and AntiTrack, and Performance
products such as Cleanup and Driver Updater
-- There has been continued expansion of multi-device subscriptions,
with Consumer Desktop an important channel for transactions
of mobile-enabled products
-- Customer numbers and penetration has risen in both established
markets such as the US, and new target countries, including
an increase in customer numbers by 19% in South East Asia and
13% in Central and Eastern Europe
-- Avast announced the termination of the provision of data to
Jumpshot from January 2020, aligning our customer offering to
the company's core values of privacy and protection.
($'m ) FY 2019 FY 2018 Change % Change % (excluding FX) (7)
--------------------------------------------------------- -------- -------- --------- ----------------------------
Adjusted Billings 911.0 862.1 5.7 8.1
Acquisitions 1.4 0.0 n/a n/a
Disposal Managed Workplace (SMB) (8) 0.0 10.5 n/a n/a
Discontinued Business (9) 8.9 15.5 (42.6) (41.7)
Adjusted Billings excl. Acquisitions, Disposals and
Discontinued business 900.7 836.2 7.7 10.2
--------------------------------------------------------- -------- -------- --------- ----------------------------
($'m ) FY 2019 FY 2018 Change % Change % (excluding FX)
------------------------------------------------------------- -------- -------- --------- ------------------------
Adjusted Revenue 873.1 827.0 5.6 7.0
Acquisitions 1.4 0.0 n/a n/a
Disposal Managed Workplace (SMB) 0.0 10.5 n/a n/a
Discontinued Business 8.9 15.5 (42.6) (41.7)
Adjusted Revenue excl. Acquisitions, Disposals and
Discontinued business 862.8 801.0 7.7 9.1
------------------------------------------------------------- -------- -------- --------- ------------------------
($'m ) FY 2019 FY 2018 Change %
-------------------------- -------- -------- ---------
Adjusted EBITDA 483.0 447.7 7.9
Adjusted EBITDA Margin % 55.3 54.1 1.2 ppts
Adjusted Net Income 322.3 270.8 19.0
Net Debt (10) 884.5 1,138.2 (22.3)
-------------------------- -------- -------- ---------
Statutory Results:
($'m ) FY 2019 FY 2018 Change %(11)
------------------------------------------ -------- -------- -------------
Revenue 871.1 808.3 7.8
Operating profit 344.6 248.3 38.8
Net Income 248.9 241.2 3.2
Net Cash Flows from operating activities 399.1 376.0 6.1
------------------------------------------ -------- -------- -------------
PRESENTATION OF RESULTS
A presentation for analysts and investors will be held at 9:00
AM GMT today (26 February) at UBS, 5 Broadgate, London, EC2M 2QS.
To register your attendance please contact ir@avast.com. The
presentation will also be accessible via a conference call and live
webcast. Please register for the call or webcast on the Company
website at https://investors.avast.com . A Q&A facility will be
available for conference call participants.
PUBLICATION OF ANNUAL REPORT
The Company today published its Annual Report and Accounts 2019.
The document will be available to view on the Company website at
https://investors.avast.com and is also being submitted to the
National Storage Mechanism for inspection at
www.morningstar.co.uk/uk/nsm .
ESG BRIEFING
Avast's Chairman and Senior Independent Director will today hold
a briefing and Q&A session on Environmental, Social and
Governance issues relevant to the Company. The event, intended for
investors and ESG rating agencies, will be held at 1:00 PM GMT in
London. For further information please contact ir@avast.com.
ENQUIRIES
Investors and analysts:
Peter Russell, Director of IR
IR@avast.com
Media:
Stephanie Kane, VP PR and Corporate Communications
mediarelations@avast.com
Tavistock
Lulu Bridges / Jos Simson / Heather Armstrong
+44 20 7920 3150
Cautionary statement regarding forward-looking statements
This announcement contains certain forward-looking statements
that are subject to the usual risk factors and uncertainties
associated with the Company's business. Whilst the Company believes
the expectations reflected herein to be reasonable in the light of
the information available to them at this time, the actual outcome
may be materially different owing to factors beyond the Company's
control or within the Company's control where, for example, the
Company decides on a change of plan or strategy. Accordingly, no
reliance may be placed on the figures contained in such
forward-looking statements.
Notes:
Throughout the Full Year Report a number of alternative
performance measures are used to provide users with a clearer
picture of the performance of the business. This is in line with
how management monitor and manage the business day-to-day.
Definitions and details are provided below. Further definitions
(see 'PRESENTATION OF RESULTS AND DEFINITIONS') and reconciliations
(see 'FINANCIAL REVIEW') of non-GAAP measures are included in the
notes to the financial statements.
All dollar figures throughout the report are at actual currency
rates unless otherwise indicated.
(1) Organic growth rate excludes the impact of FX, acquisitions,
business disposals and discontinued business. It excludes current
period billings and revenue of acquisitions until the first
anniversary of their consolidation .
(2) Adjusted EBITDA margin percentage is defined as Adjusted
EBITDA divided by Adjusted Revenue.
(3) Growth rate calculated on an annualized basis. In June 2019
the Group paid dividend of 8.6 cents per share in respect of the
period 15 May 2018 to 31 December 2018 (13.6 cents per share on an
annualized basis).
(4) Users who have at least one valid paid Consumer Direct
Desktop subscription (or licence) at the end of the period.
(5) APPC defined as the Consumer Direct Desktop simple average
valid licences or subscriptions for the financial period presented
divided by the simple average number of Customers during the same
period.
(6) ARPC defined as the Consumer Direct Desktop revenue for the
financial period divided by the simple average number of Customers
during the same period.
(7) Growth rate excluding currency impact calculated by
restating 2019 actual to 2018 FX rates (see "Principal exchange
rates applied "). Deferred revenue is translated to USD at date of
invoice and is therefore excluded when calculating the impact of FX
on revenue.
(8) On 1 February 2019 Avast plc sold the non-core asset of
Managed Workplace, its remote monitoring and management product, to
Barracuda Networks, Inc. ('Barracuda'). Managed Workplace was
Avast's solution in the Remote Monitoring and Management ('RMM')
space, which is sold to Managed Service Providers ('MSPs'). This
business was not core to our SMB strategy, which focuses on
securing the workplace. Barracuda, which has a large existing MSP
base but did not offer an RMM solution, provides a better long-term
solution for this business. In addition, Barracuda has signed a
reseller agreement with Avast under which it now resells Avast's
business security solutions to MSPs. In the year ended 31 December
2018 the asset generated low teen revenue (USD million) with a
materially lower margin profile than the Group.
(9) As the company is exiting its toolbar-related search
distribution business, which had previously been an important
contributor to AVG's revenues (referred to above and throughout the
report, with the Group's browser clean-up business, as
'Discontinued Business'), the growth figures exclude Discontinued
Business, which the Group expects to be negligible by the end of
2020. The Discontinued Business does not represent a discontinued
operation as defined by IFRS 5 since it has not been disposed of
but rather it is being continuously scaled down and is considered
to be neither a separate major line of business, nor geographical
area of operations.
(10) The Group applied the IFRS 16 standard as of 1 January 2019
using the modified retrospective approach and did not restate
comparative amounts for the year prior to first adoption. Net Debt
as of 31 December 2019 includes the balance of IFRS 16 lease
liabilities. No lease liabilities are included in the Net Debt as
of 31 December 2018. Net Debt as of 31 December 2018 adjusted for
opening balance of IFRS 16 lease liabilities would be
$1,209.9m.
CHIEF EXECUTIVE OFFICER'S REVIEW
The Group has delivered another strong year of top line growth
and high levels of profitability. The Group's Adjusted Billings of
$911.0m were up 5.7% at actual rates, with organic growth of 10.2%.
The Group's Adjusted Revenue of $873.1m were up 5.6% at actual
rates, with organic growth of 9.1%. The Consumer and SMB segments
contributed $823.9m and $49.2m respectively.
Avast's advanced machine learning monetisation platform remains
a key driver of the company's success. It effectively promotes
up-sells and cross-sells across the existing user base, across
different device types and various operating systems. In FY 2019
Avast continued its strong investment in technology capability and
innovation, and further enhanced the customer experience. The
company offered more multi-device subscriptions, with Consumer
Desktop an important channel for transactions of mobile-enabled
products, in particular for Privacy solutions such as VPN and
Password Manager.
Consumer
($'m ) FY 2019 FY 2018 Change % Change % (excluding FX)
------------------------------------------------------------- -------- -------- --------- ------------------------
Adjusted Billings 865.0 801.7 7.9 10.3
Acquisitions 1.4 0.0 n/a n/a
Discontinued Business 8.9 15.5 (42.6) (41.7)
Adjusted Billings excl. Acquisitions and Discontinued
business 854.8 786.2 8.7 11.2
------------------------------------------------------------- -------- -------- --------- ------------------------
($'m ) FY 2019 FY 2018 Change % Change % (excluding FX)
------------------------------------------------------------- -------- -------- --------- ------------------------
Adjusted Revenue 823.9 763.7 7.9 9.3
Acquisitions 1.4 0.0 n/a n/a
Discontinued Business 8.9 15.5 (42.6) (41.7)
Adjusted Revenue excl. Acquisitions and Discontinued
business 813.6 748.3 8.7 10.2
------------------------------------------------------------- -------- -------- --------- ------------------------
SMB
($'m ) FY 2019 FY 2018 Change % Change % (excluding FX)
---------------------------------- -------- -------- --------- ------------------------
Adjusted Billings 45.9 60.5 (24.0) (22.3)
Disposal Managed Workplace 0.0 10.5 n/a n/a
Adjusted Billings excl. Disposal 45.9 50.0 (8.1) (6.0)
---------------------------------- -------- -------- --------- ------------------------
($'m ) FY 2019 FY 2018 Change % Change % (excluding FX)
--------------------------------- -------- -------- --------- ------------------------
Adjusted Revenue 49.2 63.3 (22.2) (21.4)
Disposal Managed Workplace 0.0 10.5 n/a n/a
Adjusted Revenue excl. Disposal 49.2 52.7 (6.7) (5.8)
--------------------------------- -------- -------- --------- ------------------------
Business Unit Performance
Consumer Direct Desktop
($'m ) FY 2019 FY 2018 Change % Change % (excluding FX)
-------------------------------------- -------- -------- --------- ------------------------
Adjusted Billings 668.3 613.9 8.9 11.8
Acquisitions 0.3 0.0 n/a n/a
Adjusted Billings excl. Acquisitions 668.0 613.9 8.8 11.7
-------------------------------------- -------- -------- --------- ------------------------
($'m ) FY 2019 FY 2018 Change % Change % (excluding FX)
------------------------------------- -------- -------- --------- ------------------------
Adjusted Revenue 632.9 580.0 9.1 10.7
Acquisitions 0.3 0.0 n/a n/a
Adjusted Revenue excl. Acquisitions 632.6 580.0 9.1 10.7
------------------------------------- -------- -------- --------- ------------------------
Operational KPIs
31 December 31 December Change %
2019 2018
------------------------------- ------------ ------------ ---------
Number of customers 12.62m 12.19m 3.5
Average Products Per Customer 1.45 1.40 4.2
Average Revenue Per Customer $51.02 $49.24 3.6
------------------------------- ------------ ------------ ---------
-- The largest component of the Avast business, Consumer Direct
Desktop, performed strongly in the year. Adjusted Billings of
$668.3m were up 8.9% at actual rates, with organic growth of
11.7%. Adjusted Revenue of $632.9m grew 9.1% at actual rates,
with organic growth of 10.7%, in line with guidance of low double-digit
growth.
-- Customer retention rates have increased to 67%, driven by lower
churn in paid anti-virus and CCleaner products, and growth in
Average Products per Customer. All three key operating metrics-End
of Period Customers, Average Products per Customer, and Average
Revenue Per Customer- tracked in line with growth guidance of
low single digit, mid single digit and mid single digit respectively.
While the number of users has remained within a consistent range,
we have started to see lower value returns from our PPI investments,
and expect that trend to continue.
-- The consumer monetisation platform remains a key driver of growth,
effectively promoting up-sells and cross-sells of products, in
particular Privacy type products led by VPN and AntiTrack.
-- The performance of the AV business has proved resilient, benefiting
from enhanced product features and a reworked value proposition,
built around a more streamlined product line.
-- The number of multi-device subscriptions purchased on Consumer
Direct Desktop has continued to increase. Mobile-enabled VPN
and Password Manager products have led the trend, and the introduction
of multi-device compatibility for other products is set to accelerate
the convergence.
-- In July, Avast released its IoT direct-to-consumer product 'Omni'
to users in the US market. The product was named a Best of Innovation
Honoree in the prestigious CES Innovation Awards. While volumes
remain modest, initial customer feedback has been positive and
assimilated to advance product positioning.
-- Additional investments have been made in engagement strategies
to both strengthen customer care and build customer lifetime
value. Deeper analysis of processes and data has helped optimise
content, frequency and context of communications, driving an
improvement in Support Net Promoter Score and retention rates.
-- There has been continued strong execution on the localisation
program, with a sustained uplift in customer numbers and penetration
rates in new target countries from Malaysia in South East Asia
to Poland in Europe. This is in addition to continued good growth
in customer numbers in traditional markets such as the US.
-- In FY 2020 we expect Consumer Direct Desktop to deliver mid-single
digit organic revenue growth.
Consumer Direct Mobile
($'m ) FY 2019 FY 2018 Change % Change % (excluding FX)
-------------------------------------- -------- -------- --------- ------------------------
Adjusted Billings 77.3 84.6 (8.6) (7.6)
Acquisitions 1.1 0.0 n/a n/a
Adjusted Billings excl. Acquisitions 76.2 84.6 (9.9) (8.9)
-------------------------------------- -------- -------- --------- ------------------------
($'m ) FY 2019 FY 2018 Change % Change % (excluding FX)
------------------------------------- -------- -------- --------- ------------------------
Adjusted Revenue 75.4 82.5 (8.6) (7.9)
Acquisitions 1.1 0.0 n/a n/a
Adjusted Revenue excl. Acquisitions 74.3 82.5 (9.9) (9.2)
------------------------------------- -------- -------- --------- ------------------------
-- Adjusted Billings of $77.3m were down 8.6% at actual rates, representing
an organic decline of 8.9%. Adjusted Revenue of $75.4m was down
8.6% at actual rates, an organic decline of 9.2%, behind the
guidance of mid-single digit decline.
-- Sustained double-digit growth in the direct-to-consumer subscription
business has been driven by product promotion and high renewal
rates. The channel has also benefited from a positive trend in
the uptake of Avast Mobile Security for iOS. The product has
become a contributor to sales after its release last year and
more recently benefited from enhanced privacy features.
-- Multi-platform subscriptions sold through desktop continue to
negatively impact mobile. This is a trend we expect to continue,
further dampening growth in the mobile segment.
-- While adversely affected by the carry-over impact from the 2017
Sprint loss, performance in the carrier channel has also been
affected by lower marketing investments by US carriers and subsequent
weaker product performance. This resulted in weaker than expected
sales in the carrier channel, notably in the second half of 2019.
-- After strengthening its salesforce and presence in different
geographies at the start of the year Avast has since made progress
in deepening new carrier relationships. The company is involved
in several late-stage tenders and discussions around the provision
of IoT and other customer security solutions.
-- The first half of 2019 saw the launch of Avast's IoT router-based
solution via the Italian operator Wind Tre, the first of our
carrier partners worldwide to add the security, based on Avast's
Smart Life platform. Avast has further developed and commenced
customisation of its IoT solutions in response to carriers' stated
needs.
-- We remain cautious of the headwinds in the carrier channel, and
therefore expect mid-single digit organic revenue decline in
the mobile business overall in 2020.
Consumer Indirect
This business unit includes Avast Secure Browser ('ASB'),
distribution of third party software, Jumpshot analytics, and
advertising within mobile applications.
($'m ) FY 2019 FY 2018 Change % Change % (excluding FX)
----------------------------------------------- -------- -------- --------- ------------------------
Adjusted Billings 119.5 103.2 15.8 16.7
Discontinued Business 8.9 15.5 (42.6) (41.7)
Adjusted Billings excl. Discontinued business 110.6 87.8 26.1 26.9
----------------------------------------------- -------- -------- --------- ------------------------
($'m ) FY 2019 FY 2018 Change % Change % (excluding FX)
---------------------------------------------- -------- -------- --------- ------------------------
Adjusted Revenue 115.5 101.2 14.1 15.0
Discontinued Business 8.9 15.5 (42.6) (41.7)
Adjusted Revenue excl. Discontinued business 106.7 85.8 24.3 25.2
---------------------------------------------- -------- -------- --------- ------------------------
-- Within Consumer Indirect, Adjusted Revenue was $115.5m, up 14.1%
at actual rates, with organic growth of 25.2%, in line with double-digit
growth guidance.The business unit excluding Jumpshot delivered
8.6% organic revenue growth.
-- Avast Secure Browser, focused on internet security and privacy,
has performed strongly in the year, benefiting from organic demand
including from beyond the Avast and AVG user base. At year end
the Secure Browser had 35m active monthly users. Monetisation
has continued to increase at a growing rate. Avast expects the
Secure Browser to be the key driver in the Consumer Indirect
in the medium term.
-- Chrome distribution continued to soften in line with expectations.
The current Avast contract to distribute Chrome to Avast, AVG
and Ccleaner branded product sets extends to March 2020, and
renewal is currently under consideration.
-- Avast's data analytics business, Jumpshot, delivered double-digit
growth rates. In January 2020, Avast decided to terminate the
provision of anonymized data to its data analytics business,
Jumpshot, having concluded that the business was not consistent
long term with the Group's privacy priorities as a global cybersecurity
company.
-- In FY 2020 we expect the organic revenue growth in Consumer Indirect
(excluding Jumpshot) to be high-single digit.
SMB
($'m ) FY 2019 FY 2018 Change % Change % (excluding FX)
---------------------------------- -------- -------- --------- ------------------------
Adjusted Billings 45.9 60.5 (24.0) (22.3)
Disposal Managed Workplace 0.0 10.5 n/a n/a
Adjusted Billings excl. Disposal 45.9 50.0 (8.1) (6.0)
---------------------------------- -------- -------- --------- ------------------------
($'m ) FY 2019 FY 2018 Change % Change % (excluding FX)
--------------------------------- -------- -------- --------- ------------------------
Adjusted Revenue 49.2 63.3 (22.2) (21.4)
Disposal Managed Workplace 0.0 10.5 n/a n/a
Adjusted Revenue excl. Disposal 49.2 52.7 (6.7) (5.8)
--------------------------------- -------- -------- --------- ------------------------
-- The SMB business has performed in line with expectations of mid-single
digit organic revenue decline provided at half year.
-- Further to the launch of Secure Web Gateway in the first half
of the year, in October we introduced Secure Internet Gateway
(SIG), SIG is an advanced cloud security solution, set to replace
hardware based gateway solutions with better scalability. It
is especially suited to larger SMBs and Managed Service Providers
(MSPs). Early progress in Secure Web and Internet Gateway sales
pipeline development has been encouraging.
-- As part of Avast's layered security protection, our new Patch
Management Solution (PMS) went live in June 2019. This was followed
by its fourth-quarter release on the CloudCare platform, which
specifically services MSPs. In December we additionally launched
a PMS version for the Business Console platform, adding improved
functionality based on customer requests. PMS is expected to
become a meaningful revenue contributor within SMB over time.
-- As part of the transition plan, the new SMB leadership team is
now in place. The business has also exited several low-performing
countries.
-- The aforementioned product initiatives are at an early stage.
As the SMB business continues its transition to integrated endpoint
and network security, in FY 2020 we expect low-single digit organic
revenue decline.
Group Outlook
The Group expects to deliver healthy growth during FY 2020 with
organic mid-single digit revenue growth. Organic billings growth
for the FY 2020 will be broadly in line with organic revenue
growth, albeit slightly weighted towards the second half of the
financial year because of the Group's deferral of product upgrades
and releases in the first half of the year. This is due to the
rebuild of the product environment that was undertaken to
proactively harden and further secure this infrastructure after the
attempted attack late last year.
Adjusted Group EBITDA margin is expected to be broadly flat
versus FY 2019. Jumpshot is expected to incur approximately $5m of
operating costs, with negligible associated revenue, as the
business is wound down. Incremental expense released from Jumpshot
will be re-invested into the business to support long term growth
initiatives.
In relation to termination of the provision of data to Jumpshot,
the Group expects to incur a one-time exceptional cash cost in the
range of $15m-$25m in FY 2020 to cover closure costs, asset
write-down and employee restructuring. Avast will return the
investments made by Ascential plc into the business, along with
associated exit costs, amounting to $73m.
FINANCIAL REVIEW
Billings, Revenue and EBITDA
In line with our expectations, the Group has achieved good
growth and maintained high levels of profitability.
The Group's Adjusted Billings increased by $48.8m to $911.0m in
the year ended 31 December 2019, mostly driven by the core Consumer
Direct Desktop business. This represented a 5.7% increase at actual
rates and organic growth of 10.2%. Subscription billings
represented 83.4% of the Group's total Adjusted Billings in FY 2019
(85.0% in FY 2018).
The Group's Adjusted Revenue increased by $46.1m to $873.1m in
the year ended 31 December 2019, which represents a 5.6% increase
at actual rates and organic growth of 9.1%. Adjusted Revenue
included $387.6m from the release of prior-period deferred revenue.
The Adjusted Deferred Revenue(11) balance at the end of the period
exlcuding Jumpshot was $467.8m, comprising $413.6m that will be
recognised within 12 months of the balance sheet date. Including
Jumpshot it was $476.3m and $422.1m respectively. This compares to
$439.0m, comprising of $387.6m respectively, at the same time last
year. The average subscription length in the year ended 31 December
2019 was 14 months, flat versus FY 2018.
The Group's reported Billings increased by $48.8m to $911.0m in
the year ended 31 December 2019, which represents a 5.7% increase.
The Group's reported Revenue increased by $62.8m to $871.1m, which
represents a 7.8% increase. It should be noted that the difference
between the Group's statutory Revenue of $871.1m and Group's
Adjusted Revenue of $873.1 in 2019 is diminishing as the magnitude
of non-cash historical adjustments arising from the AVG acquisition
decreases (for the reconciliations, please refer to 'PRESENTATION
OF RESULTS AND DEFINITIONS'). These adjustments are expected to be
zero after 2019.
Profitability was driven by the Group's scale and operating
leverage. Adjusted EBITDA increased 7.9% to $483.0m, 8.6% excluding
FX, resulting in Adjusted EBITDA margin of 55.3% (including c.1pt
upside from IFRS 16 adoption in 2019). This is in line with full
year guidance of broadly flat adjusting for the IFRS 16 impact
(54.1% EBITDA margin in FY 2018).
The reported Operating Profit increased by $96.3m to $344.6m.
The increase was driven by a more modest impact from the deferred
revenue haircut from the AVG acquisition of $13.7m, increase in
Adjusted EBITDA of $35.3m, lower exceptional items of $23.8m, lower
depreciation and amortisation of acquisition and non-acquisition
intangibles of $33.4m and the lower impact of other adjustments of
$1.2m, partially offset by higher share-based payments costs
including related employer's costs of $(11.1)m.
The table below presents the Group's Adjusted Billings and
Adjusted Revenue for the periods indicated:
($'m ) FY 2019 FY 2018 Change % Change % (excluding FX)
------------------------------------------------------------- -------- -------- --------- ------------------------
Adjusted Billings 911.0 862.1 5.7 8.1
------------------------------------------------------------- -------- -------- --------- ------------------------
Consumer 865.0 801.7 7.9 10.3
------------------------------------------------------------- -------- -------- --------- ------------------------
Acquisitions 1.4 0.0 n/a n/a
------------------------------------------------------------- -------- -------- --------- ------------------------
Direct (excl. Acquisitions) 744.1 698.4 6.5 9.2
------------------------------------------------------------- -------- -------- --------- ------------------------
Discontinued Business 8.9 15.5 (42.6) (41.7)
------------------------------------------------------------- -------- -------- --------- ------------------------
Indirect (excl. Discontinued Business) 110.6 87.8 26.1 26.9
------------------------------------------------------------- -------- -------- --------- ------------------------
SMB 45.9 60.5 (24.0) (22.3)
------------------------------------------------------------- -------- -------- --------- ------------------------
Disposal Managed Workplace 0.0 10.5 n/a n/a
------------------------------------------------------------- -------- -------- --------- ------------------------
SMB excl. Disposal 45.9 50.0 (8.1) (6.0)
============================================================= ======== ======== ========= ========================
Adjusted Billings excl. Acquisitions, Disposals and
Discontinued business 900.7 836.2 7.7 10.2
============================================================= ======== ======== ========= ========================
Adjusted Revenue 873.1 827.0 5.6 7.0
Consumer 823.9 763.7 7.9 9.3
Acquisitions 1.4 0.0 n/a n/a
Direct (excl. Acquisitions) 706.9 662.5 6.7 8.2
Discontinued Business 8.9 15.5 (42.6) (41.7)
Indirect (excl. Discontinued Business) 106.7 85.8 24.3 25.2
SMB 49.2 63.3 (22.2) (21.4)
Disposal Managed Workplace 0.0 10.5 n/a n/a
SMB excl. Disposal 49.2 52.7 (6.7) (5.8)
============================================================= ======== ======== ========= ========================
Adjusted Revenue excl. Acquisitions, Disposals and
Discontinued business 862.8 801.0 7.7 9.1
============================================================= ======== ======== ========= ========================
Costs
($'m ) FY 2019 FY 2018 Change Change %
------------------------------------------------------------------------------ -------- -------- ------- ---------
Cost of revenues (210.7) (241.4) 30.7 12.7
------------------------------------------------------------------------------ -------- -------- ------- ---------
Share-based payments (incl. employer's costs) 0.5 0.2 0.3 Fav (12)
------------------------------------------------------------------------------ -------- -------- ------- ---------
Amortisation of acquisition intangible assets 88.3 127.5 (39.2) (30.7)
------------------------------------------------------------------------------ -------- -------- ------- ---------
Depreciation and amortisation (excl. amortisation of acquisition intangible
assets) 8.9 9.4 (0.5) (5.0)
------------------------------------------------------------------------------ -------- -------- ------- ---------
Gross-up and other adjustments (0.3) (2.6) 2.3 90.3
Exceptional items 0.1 0.6 (0.5) (78.8)
Adjusted Cost of revenues (excluding D&A) (113.2) (106.3) (6.9) (6.5)
------------------------------------------------------------------------------ -------- -------- ------- ---------
The increase in the Group's Adjusted Cost of Revenues reflects
higher sales commissions and licence fees of $(4.1)m related to the
increase in Adjusted Revenue, increase in costs for distribution of
digital content of $(1.1)m and investment into personnel costs of
$(1.9)m, offset by a positive FX impact and other costs of $0.2m.
Adjusted Cost of Revenues represent the Group's cost of revenues
adjusted for depreciation and amortisation charges, share-based
payments charges, exceptional items and other adjustments.
The Group's reported Cost of revenues decreased by $30.7m to
$(210.7)m primarily due to the lower amortisation of acquisition
intangibles. The amortisation of acquisition intangibles represents
intangible assets acquired through business combinations.
($'m ) FY 2019 FY 2018 Change Change %
------------------------------------------------------------------------------ -------- -------- ------- ---------
Operating costs (315.8) (318.6) 2.8 0.9
------------------------------------------------------------------------------ -------- -------- ------- ---------
Share-based payments (incl. employer's costs) 24.4 13.7 10.7 77.9
------------------------------------------------------------------------------ -------- -------- ------- ---------
Depreciation and amortisation (excl. amortisation of acquisition intangible
assets) 12.7 6.8 5.9 87.8
------------------------------------------------------------------------------ -------- -------- ------- ---------
Exceptional items 1.7 25.0 (23.3) (93.2)
Adjusted Operating costs (excluding D&A) (276.9) (273.0) (3.9) (1.4)
------------------------------------------------------------------------------ -------- -------- ------- ---------
The increase in the Group's Adjusted Operating costs excluding
the positive impact of IFRS 16 implementation of $8.5m was
$(12.5)m. The increase was caused by investment into R&D of
$(11.0)m, sales and marketing of $(6.9)m, offset by lower bad debt
costs and other costs of $5.4m. Adjusted Operating costs represent
the Group's operating costs adjusted for depreciation and
amortisation charges, share-based payments charges and exceptional
items.
The decrease in the Group's reported Operating costs of $2.8m,
from $(318.6)m to $(315.8)m, reflects the lower exceptional items,
partially offset by higher share-based payments and higher
depreciation and amortisation of non-acquisition intangibles driven
primarily by amortisation of right-of-use assets. The net impact of
IFRS 16 implementation on reported Operating costs including impact
on amortisation is a decrease in costs of $0.8m.
Exceptional items
Exceptional items are income or expenses that arise from events
or transactions that are clearly distinct from the ordinary
activities of the Group. The Group believes that these
non-recurring items should be separately disclosed to show the
underlying business performance of the Group more accurately. Once
an item is disclosed as exceptional, it will remain exceptional
through completion of the event or programme. Exceptional items in
2019 consist primarily of legal fees and restructuring costs
related to the disposal of a subsidiary and related business
operation (Managed Workplace business of SMB segment) and to the
acquisition of TrackOFF and Tenta (see Note 6 Exceptional items).
The portion of the exceptional items directly related to the
disposal of a business operation was included in the investing cash
flow and costs related to the acquisition were included in
operating cash flow. The net gain on disposal of a business
operation of $17.5m (see Note 16 Disposal of business operation)
was treated as exceptional and is not included in Adjusted Net
income. Exceptional items in 2018 related mainly to IPO costs.
Finance income and expense
Adjusted finance expense on a net basis was $(61.4)m in 2019,
$30.9m lower compared to $(92.3)m in 2018. Excluding the negative
impact of the implementation of IFRS 16 of $(2.3)m, the adjusted
finance costs decreased by $33.2m. The decrease was driven by lower
total loan interest costs of $29.3m resulting from the repayment of
$300m debt post IPO in 2018 and the additional repayment of $297.4m
in 2019 (see Note 27 Term Loan), positive FX impact of $3.8m and
decrease in other finance costs of $0.1m.
The Group's statutory net finance costs decreased by $18.4m to
$(47.5)m in 2019 resulting from the decrease in adjusted finance
costs described above, offset by the lower unrealised foreign
exchange gains in 2019 from the Euro denominated debt.
($'m ) FY 2019 FY 2018 Change Change %
------------------------------------------------------- -------- -------- ------- ---------
Finance income and expenses, net (47.5) (65.9) 18.4 27.9
------------------------------------------------------- -------- -------- ------- ---------
Unrealized FX (gain)/loss on EUR tranche of bank loan (13.9) (26.4) 12.5 47.4
------------------------------------------------------- -------- -------- ------- ---------
Adjusted Finance income and expenses, net (61.4) (92.3) 30.9 33.5
------------------------------------------------------- -------- -------- ------- ---------
Income tax
In the year ended 31 December 2019, the Group reported an Income
tax expense of $(65.7)m, compared to the income tax benefit of
$58.7m in the year ended 31 December 2018. The income tax benefit
in 2018 was primarily driven by the transfer of AVG E-comm web shop
to Avast Software B.V. ("Avast BV") on 1 May 2018 ("IP transfer").
Subsequently, the former Dutch AVG business from Avast BV
(including the web shop) was sold to Avast Software s.r.o. The
total net impact of this transaction was $94.4m, which was treated
as an exceptional item in 2018. The transferred IP is amortised for
tax purposes over 15 years.
Income tax was further impacted by the tax benefit of the
foreign exchange movements on intercompany loans arising in the
statutory accounts of the subsidiary concerned of $0.4m (tax
benefit of $9.8m in 2018) and the recognition of previously
unrecognised tax losses related to the previous periods of
$4.7m.
The tax impact of other adjusted items represents the tax impact
of amortisation of acquisition intangibles, deferred revenue
haircut reversal arising from prior acquisitions, exceptional items
and other adjusted items, which has been calculated applying the
tax rate that the Group determined to be applicable to the relevant
item.
Adjusted Income tax is $(77.8)m for FY 2019, resulting in an
adjusted effective tax rate of 19.4% (FY 2018: 20.2%). The Adjusted
effective tax rate is the Adjusted Income tax percentage of
Adjusted Profit before tax of $400.1m (defined as Adjusted Net
Income of $322.3m before the deduction of Adjusted Income tax of
$(77.8)m.)
($'m ) FY 2019 FY 2018 Change Change %
--------------------------------------------------- -------- -------- -------- ---------
Income tax (65.7) 58.7 (124.3) Unf
--------------------------------------------------- -------- -------- -------- ---------
Tax impact of FX difference on intercompany loans (0.4) (9.8) 9.4 96.3
--------------------------------------------------- -------- -------- -------- ---------
Tax impact of IP transfer 6.3 (99.2) 105.5 Fav
--------------------------------------------------- -------- -------- -------- ---------
Tax impact of COGS deferral adjustment - 0.3 (0.3) Unf
--------------------------------------------------- -------- -------- -------- ---------
Tax impact of disposal of a business operations 2.3 - 2.3 n/a
--------------------------------------------------- -------- -------- -------- ---------
Tax impact on adjusted items (20.3) (18.5) (1.9) (10.4)
--------------------------------------------------- -------- -------- -------- ---------
Adjusted Income tax (77.8) (68.4) (9.3) (13.7)
--------------------------------------------------- -------- -------- -------- ---------
Cash Flow
Unlevered free cash flow represents the amount of cash generated
by operations after allowing for capital expenditure, taxation and
working capital movements. Unlevered free cash flow provides an
understanding of the Group's cash generation and is a supplemental
measure of liquidity in respect of the Group's operations.
Levered free cash flow represents amounts of incremental cash
flows the Group has after it has met its financial obligations
(after interest and lease repayments) and is defined as Unlevered
Free Cash Flow less cash interest and lease repayments.
($'m ) FY 2019 FY 2018 Change Change %
------------------------------------------------------------------------------ -------- -------- ------- ---------
Adjusted Cash EBITDA 519.4 476.8 42.6 8.9
------------------------------------------------------------------------------ -------- -------- ------- ---------
Net change in working capital (excl. change in deferred revenue and deferred
COGS) (10.0) 13.8 (23.8) Unf
------------------------------------------------------------------------------ -------- -------- ------- ---------
Capex (29.9) (16.8) (13.1) (77.7)
------------------------------------------------------------------------------ -------- -------- ------- ---------
Cash Tax (excl. Dutch exit tax) (54.8) (79.8) 25.0 31.3
------------------------------------------------------------------------------ -------- -------- ------- ---------
Unlevered Free Cash Flow 424.6 394.0 30.7 7.9
Cash Interest (45.1) (67.6) 22.5 33.2
Lease Repayments (9.2) (1.5) (7.6) Unf
Levered Free Cash Flow 370.4 324.9 45.5 14.0
============================================================================== ======== ======== ======= =========
Cash conversion (13) 82% 83%
The working capital movement in 2018 comprised a positive
movement in receivables driven by the renegotiation of payment
terms with payment providers. Adjusted for the impact of
renegotiation of payment terms with payment providers, the cash
conversion in FY 2018 would be 78%.
In line with guidance, capex represents 3% of Adjusted revenue
in 2019, which is a slight increase versus 2018 (2%), due to
investment into network infrastructure.
The cash tax included in the calculation of Unlevered Free Cash
Flow excludes a $49.4m Dutch exit tax paid in March 2019 as this
was treated as an exceptional item. The decrease in the adjusted
cash tax is driven by the Czech Republic true-up system, where a
company is obliged to make quarterly income tax advances based on
its last known tax liability. Upon filing a tax return, tax
advances paid during the year for which the tax return is filed
offset the final tax liability. As the taxable income for 2017 was
significantly higher than the taxable income for 2018 due to
unrealized FX gain on intercompany loans, the reported cash tax in
2018 was higher by the amount of the true up. No such true up
payment occurred in 2019.
($'m ) FY 2019 FY 2018 Change Change %
------------------------------------------ -------- -------- -------- ---------
Net cash flows from operating activities 399.1 376.0 23.1 6.1
Net cash used in investing activities (16.7) (28.8) 12.1 42.0
Net cash flows from financing activities (440.9) (254.0) (186.9) (73.6)
------------------------------------------ -------- -------- -------- ---------
The following table presents a reconciliation between the
Group's Adjusted Cash EBITDA and Net cash flows from operating
activities as per the consolidated statement of cash flows.
($'m ) FY 2019 FY 2018 Change Change %
------------------------------------------------------------------------------ -------- -------- ------- ---------
Adjusted Cash EBITDA 519.4 476.8 42.6 8.9
------------------------------------------------------------------------------ -------- -------- ------- ---------
Net change in working capital (excl. change in deferred revenue and deferred
COGS) (10.0) 13.8 (23.8) Unf
------------------------------------------------------------------------------ -------- -------- ------- ---------
Cash Tax (excl. Dutch exit tax) (54.8) (79.8) 25.0 31.3
------------------------------------------------------------------------------ -------- -------- ------- ---------
Dutch exit cash tax (49.4) - (49.4) n/a
Movement of provisions and allowances 5.9 3.5 2.4 68.6
Exceptional items (excl.transaction costs) (1.5) (25.6) 24.1 94.1
Employer's costs on share-based payments (4.2) - (4.2) n/a
FX gains/losses and other non-cash items (6.3) (12.7) 6.4 50.4
Net Cash Flows from operating activities 399.1 376.0 23.1 6.1
------------------------------------------------------------------------------ -------- -------- ------- ---------
The Group's net cash flow from operating activities increased by
$23.1m primarily due to higher Adjusted Cash EBITDA of $42.6m,
lower cash tax of $25.0m, lower exceptional items (excl.
transaction costs) of $24.1m, positive impact of the movement in
provisions and allowances of $2.4m and positive change in FX
gains/losses and other financial expenses and non-cash gains of
$6.4m, offset by Dutch exit tax paid of $(49.4)m, negative impact
of working capital movement (excl. change in deferred revenue and
deferred COGS) of $(23.8)m and employer's costs on share-based
payments of $(4.2)m (see Note 35 Share-based payments). The portion
of the exceptional items directly related to the disposal of
business operation of $(0.3)m was included in cash flows from
investing activities.
The Group's net cash outflow from investing activities of
$(16.7)m was comprised of capex of $(29.9)m, consideration paid for
TrackOFF and Tenta acquisitions net of cash acquired of $(14.8)m
(see Note 15 Business combinations), settlement of contingent
consideration of $(0.2)m, proceeds from the sale of a business
operation net of cash disposed and transaction costs of $26.7m (see
Note 16 Disposal of a business operation) and interest received of
$1.5m. The Group's net cash outflow from investing activities in
2018 of $(28.8)m was comprised of capex of $(16.8)m, consideration
paid for InLoop acquisition net of cash acquired of $(4.2)m (see
Note 15 Business combinations), payment of the remaining portion of
the consideration for the acquisition of AVG Technologies B.V. of
$(8.0)m and interest received of $0.3m.
The Group's net cash outflow from financing activities includes
$(83.7)m final dividend paid in respect of 2018, $(43.2)m interim
dividend paid in respect of 2019, $(297.4)m net voluntary repayment
of borrowings, $(63.0)m mandatory repayment of borrowings, interest
paid of $(45.1)m, transaction costs related to borrowings of
$(0.9)m, lease repayments of $(9.2)m, proceeds from the exercise of
options of $47.2m and net proceeds from transactions with
non-controlling interest $54.3m (see Note 34 Non-controlling
interest). The full amount of lease repayments in FY 2019 of
$(9.2)m relates to IFRS 16 implementation and the comparable amount
of cash outflow in FY 2018 was included under cash flows from
operating activities. The Group's net cash outflow from financing
activities in 2018 included net proceeds from the issue of shares
of $195.8m, proceeds from exercise of options in 2H 2018 of $0.9m,
offset by the voluntary repayment of borrowings of $(300.0)m, the
mandatory repayment of borrowings of $(78.5)m, interest paid of
$(67.6)m, transaction costs related to borrowings of $(3.1)m and
lease repayments of $(1.5)m.
Financing
The Group reduced its term loan by the repayment of $400m from
USD tranche in March 2019, while executing an incremental EUR177.5m
($202.6m) add-on to EUR tranche, and voluntarily repaid another
$100m from USD tranche in October 2019 (see Note 27 Term Loan). As
of 31 December 2019, the total Gross debt(14) of the Group was
$1,101.1m and the total Net debt(14) was $884.5m. The decrease in
gross debt since 31 December 2018 is attributable to $297.4m
voluntary repayment of borrowings, $63.0m of mandatory repayment of
borrowings, $6.9m decrease in lease liabilities and a positive
unrealised FX gain of $13.9m on the EUR tranche of the loan. The
Group adopted IFRS 16 as of 1 January 2019 using the modified
retrospective approach and did not restate for the year prior to
first adoption. The balance of lease liabilities as of 31 December
2018, shown in the table below, have been presented as if adjusted
for opening balance of IFRS 16 impact.
In April 2019 the Group applied for the margin reduction by
0.25% p.a. on both tranches due to a favorable leverage ratio and,
in October 2019, the Group further reduced the margin on the EUR
tranche by 0.25% p.a (see Note 27 Term Loan).
($'m ) 31 December 2019 31 December 2018 31 December 2018 Margin
incl. IFRS 16 impact
------------------------------- ----------------- ----------------- ---------------------- ---------------------
USD tranche principal 336.5 864.7 864.7 USD LIBOR plus 2.25%
------------------------------- ----------------- ----------------- ---------------------- ---------------------
EUR tranche principal 699.8 545.8 545.8 EURIBOR plus 2.25%
------------------------------- ----------------- ----------------- ---------------------- ---------------------
Revolver/Overdraft - - - USD LIBOR plus 2.25%
------------------------------- ----------------- ----------------- ---------------------- ---------------------
Lease liabilities 64.8 - 71.7
------------------------------- ----------------- ----------------- ---------------------- ---------------------
Gross debt 1,101.1 1,410.5 1,482.2
------------------------------- ----------------- ----------------- ---------------------- ---------------------
Cash and cash equivalents (216.6) (272.3) (272.3)
------------------------------- ----------------- ----------------- ---------------------- ---------------------
Net debt 884.5 1,138.2 1,209.9
------------------------------- ----------------- ----------------- ---------------------- ---------------------
Net debt / LTM Adjusted EBITDA 1.8x 2.5x 2.7x
Principal exchange rates applied
The table below summarises the principal exchange rates used for
the translation of foreign currencies into US Dollar. The assets
and liabilities are translated using period-end exchange rates.
Income and expense items are translated at the average exchange
rates for the period.
($:1.00 ) FY 2019 FY 2018
average average
----------- ----------- -----------
AUD 0.6966 0.7479
BRL 0.2545 0.2757
CAD 0.7524 0.7720
CHF 1.0061 1.0228
CZK 0.0437 0.0461
EUR 1.1212 1.1814
GBP 1.2757 1.3357
ILS 0.2797 0.2784
NOK 0.1139 0.1230
------------- ----------- -----------
Earnings per share
Basic Adjusted earnings per share amounts are calculated by
dividing the Adjusted net income for the period by the weighted
average number of shares of common stock outstanding during the
year. The diluted Adjusted earnings per share amounts consider the
weighted average number of shares of common stock outstanding
during the year adjusted for the effect of dilutive options. On a
statutory basis, fully diluted EPS was $0.24 (see Note 14 for the
statutory earnings per share).
($'m ) FY 2019 FY 2018
------------------------------------------------------------------- -------------- ------------
Adjusted Net Income attributable to equity holders 322.1 270.8
------------------------------------------------------------------- -------------- ------------
Basic weighted average number of shares 973,788,157 914,567,949
------------------------------------------------------------------- -------------- ------------
Effects of dilution from share options and restricted share units 44,313,005 62,120,397
------------------------------------------------------------------- -------------- ------------
Dilutive weighted average number of shares 1,018,101,162 976,688,346
------------------------------------------------------------------- -------------- ------------
Basic Adjusted earnings per share ($/share) 0.33 0.30
------------------------------------------------------------------- -------------- ------------
Diluted Adjusted earnings per share ($/share) 0.32 0.28
=================================================================== ============== ============
Dividend
The Directors propose to pay a final dividend of 10.3 cents per
share in respect of the year ending 31 December 2019 (payment of
$104.6m). Combined with the interim dividend of 4.4 cents per share
paid in October 2019 (payment of $43.2m), gives a total dividend
for the financial year of 14.7 cents (total payment of $147.8m),
which represents 40% of the Group's levered free cash flow for the
period in accordance with the Company's dividend policy. Subject to
shareholder approval, the final dividend will be paid in US dollars
on 24 June 2020 to shareholders on the register on 22 May 2020.
There will be an option for shareholders to elect to receive the
dividend in pounds sterling and such an election should be made no
later than 8 June 2020. The foreign exchange rate at which
dividends declared in US dollars will be converted into pounds
sterling will be calculated based on the average exchange rate over
the five business days prior to 11 June 2020 and announced shortly
thereafter.
Proposed Dividend Timetable
Ex-dividend Date: 21 May 2020
Record Date: 22 May 2020
Last Date for Currency Election: 8 June 2020
Payment: 24 June 2020
Notes:
(11) Adjusted deferred revenue represents the balance of
deferred revenue excluding the effects of the fair value
revaluation of the acquiree's pre-acquisition deferred revenues and
including the impact of gross-up adjustment.
(12) 'Fav' in change % represents favorable growth rate figure
over 100 per cent, 'Unf' represents unfavorable decline greater
than negative 100 per cent.
(13) Cash conversion is defined as Unlevered Free Cash Flow
divided by Adjusted Cash EBITDA.
(14) Gross debt represents the sum of the total book value of
the Group's loan obligations (i.e. sum of loan principals) and
lease liabilities. Net debt indicates gross debt netted by the
company's cash and cash equivalents. Both gross debt and net debt
exclude the amount of capitalized arrangement fees on the balance
sheet as of 31 December 2019 of $8.7m and accrued interest of
$(0.1)m (31 December 2018: $19.1m and $(0.1)m).
PRINCIPAL RISKS AND UNCERTAINTIES
The occurrence of any of the key risks below would have a
material adverse effect on the Group's business, results of
operations, financial condition and/or prospects:
Risk Impact Strategy
Offering: The risk is If we do not offer products Our strategy to address
that our product and and services that appeal this risk and achieve
service offerings stop to users, our free user long term strategic
appealing to users. base may materially objectives is to invest
decline and/or we will in product innovation,
fail to monetise our product management,
products and services. quality assurance, and
customer care.
---------------------------------- ------------------------------
People: The risk is If we cannot attract We believe we need to
talented people leave or retain a talented create an exciting brand;
or do not join our workforce. workforce, we will not provide attractive and
remain competitive in competitive compensation;
our industry. provide our people with
global mobility; recruit
from a broad pool of
candidates; promote
based on diversity of
backgrounds, skills,
cultures, gender, and
ethnicity; and provide
effective training for
personal and professional
growth in order to achieve
long term strategic
objectives.
---------------------------------- ------------------------------
Data and our security Failing to protect the We strive for strong,
systems: The risk is data we store and the effective, and comprehensive
that the data we store, systems that store this data and systems security
such as customer data, data could have a material and governance. As a
and the systems that adverse impact on our result, we have implemented
store, manage and process reputation, and our a host of new security
this data become compromised. ability to provision processes and measures
services and updates, to protect the data
potentially resulting we store, systems that
in a material decline store such data, and
in our user base, negative the updates we provide
financial consequences to provision our products
and investigations, and services. We develop
fines and censure by products and services
governmental and regulatory designed for security
bodies. and privacy, and believe
this helps us maintain
an ethical culture in
which people are concerned
about and committed
to securing and protecting
data.
---------------------------------- ------------------------------
Regulatory: We operate New laws may impose We monitor global legal
a digital business globally, restrictions and obligations developments and participate
and the scale and complexity on the Group that negatively in industry-wide lobbying.
of new laws, including impact the Group's profitability
regarding data protection, and ability to grow.
auto-renewal billing
and tax, are increasing
as the digital economy
becomes the backbone
of global economic growth.
---------------------------------- ------------------------------
Concentration: Our products We face exposure and We develop deep partner
rely on our users being risks from large vendors, relationships with these
able to easily find such as Microsoft, Google, vendors; however, we
and install them. Apple, Facebook, Digital continually seek out
River, and telecommunication additional strategic
carriers, who may take partnerships and growth
actions that restrict through organic initiatives.
our users from being
able to access and use
our products.
---------------------------------- ------------------------------
PRESENTATION OF RESULTS AND DEFINITIONS
This Full Year Report contains certain non-IFRS financial
measures to provide further understanding and a clearer picture of
the financial performance of the Group. These alternative
performance measures (APMs) are used for the assessment of the
Group's performance and this is in line with how management monitor
and manage the business day-to-day. It is not intended that APMs
are a substitute for, or superior to statutory measures. The APMs
are not defined or recognised under IFRS including Adjusted
Billings, Adjusted Revenue, Organic Growth, Adjusted EBITDA,
Adjusted Cash EBITDA, Adjusted Net Income and Unlevered Free Cash
Flow as defined and reconciled below.
These non-IFRS financial measures and other metrics are not
measures recognised under IFRS. The non-IFRS financial measures and
other metrics, each as defined herein, may not be comparable to
similarly titled measures presented by other companies as there are
no generally accepted principles governing the calculation of these
measures and the criteria upon which these measures are based can
vary from company to company. Even though the non-IFRS financial
measures and other metrics are used by management to assess the
Group's financial results and these types of measures are commonly
used by investors, they have important limitations as analytical
tools, and investors should not consider them in isolation or as
substitutes for analysis of the Group's position or results as
reported under IFRS. The Group considers the following metrics to
be the KPIs it uses to help evaluate growth trends, establish
budgets and assess operational performance and efficiencies.
"Adjusted" and "Underlying" numbers were presented in the Full
Year Report for the year ended 2018. Many of the adjusting items
were common to both and the values were similar. As presenting a
large number of similar APMs can increase complexity to users, the
Group limited the metrics to "Adjusted" measures, which is
consistent with those used in the business. Organic Growth APMs
were introduced in this Full Year Report to present the change in
revenue and billings resulting from continuing Group operations.
Besides these changes, the definitions of non-GAAP measures in the
year ended 31 December 2019 are consistent with those presented in
the IPO prospectus and there have been no changes to the bases of
calculation.
CONSOLIDATED STATEMENT OF ADJUSTED PROFIT AND LOSS
FOR THE YEARED 31 DECEMBER 2019
($'m)
Year ended Year ended
================= ============
31 December 2019 31 December
2018
------------------------------ --- ----------------- ------------
REVENUES 873.1 827.0
Cost of revenues (113.2) (106.3)
------------------------------ --- ----------------- ------------
GROSS PROFIT 759.9 720.7
Gross profit margin 87.0% 87.1%
Sales and marketing (123.1) (116.3)
Research and development (76.7) (65.7)
General and administrative (77.0) (91.0)
------------------------------ --- ----------------- ------------
Total operating costs (276.9) (273.0)
EBITDA 483.0 447.7
EBITDA margin 55.3% 54.1%
Depreciation & Amortisation
(15) (21.6) (16.2)
------------------------------ --- ----------------- ------------
EBIT 461.5 431.6
Finance income and expenses (61.4) (92.3)
------------------------------ --- ----------------- ------------
PROFIT BEFORE TAX 400.1 339.3
Income tax (77.8) (68.4)
------------------------------ --- ----------------- ------------
NET INCOME 322.3 270.8
Net Income margin 36.9% 32.7%
Net income attributable
to:
- equity holders of the
parent 322.1 270.8
- non-controlling interest 0.2 -
Earnings per share (in $
per share):
Basic EPS 0.33 0.30
Diluted EPS 0.32 0.28
Adjusted Billings
Adjusted Billings represent the full value of products and
services being delivered under subscription and other agreements
and include sales to new end customers plus renewals and additional
sales to existing end customers. Under the subscription model, end
customers pay the Group for the entire amount of the subscription
in cash upfront upon initial delivery of the applicable products.
Although the cash is paid upfront, under IFRS, subscription revenue
is deferred and recognised rateably over the life of the
subscription agreement, whereas non-subscription revenue is
typically recognised immediately. Adjusted Billings represents the
Group's reported billings.
Adjusted Revenue
Adjusted Revenue represents the Group's reported revenue
adjusted for the Deferred Revenue Haircut Reversal(16) and Gross-Up
Adjustment(17) . These historical adjustments are expected to be
zero from 2019. The following is a reconciliation of the Group's
reported Revenue to the Group's Adjusted Billings and Group's
reported Revenue to the Group's Adjusted Revenue:
($'m ) FY 2019 FY 2018 Change Change %
------------------------------------------- -------- -------- ------- ---------
Revenue 871.1 808.3 62.8 7.8
------------------------------------------- -------- -------- ------- ---------
Net deferral of revenue 39.9 53.9 (14.0) (26.0)
------------------------------------------- -------- -------- ------- ---------
Adjusted Billings 911.0 862.1 48.8 5.7
Revenue 871.1 808.3 62.8 7.8
------------------------------------------- -------- -------- ------- ---------
Deferred Revenue Haircut reversal / Other 1.8 17.2 (15.4) (89.3)
------------------------------------------- -------- -------- ------- ---------
Gross-Up Adjustment 0.1 1.5 (1.3) (91.2)
------------------------------------------- -------- -------- ------- ---------
Adjusted Revenue 873.1 827.0 46.1 5.6
Adjusted EBITDA
Adjusted earnings before interest, taxation, depreciation and
amortisation ('Adjusted EBITDA') is defined as the Group's
operating profit/loss before depreciation, amortisation of
non-acquisition intangible assets, share-based payments including
related employer's costs, exceptional items, amortisation of
acquisition intangible assets, the Deferred Revenue Haircut
Reversal and the COGS Deferral Adjustments(18) .
Adjusted Cash EBITDA
Cash earnings before interest, taxation, depreciation and
amortisation ('Adjusted Cash EBITDA') is defined as Adjusted EBITDA
plus the net deferral of revenue, the net change in deferred cost
of goods sold and the reversal of the COGS Deferral Adjustments.The
following is a reconciliation of the Group's reported Operating
profit to Adjusted EBITDA and Adjusted Cash EBITDA:
($'m ) FY 2019 FY 2018 Change Change %
--------------------------------------------------------------------- -------- -------- ------- ---------
Operating profit 344.6 248.3 96.3 38.8
--------------------------------------------------------------------- -------- -------- ------- ---------
Share-based payments (incl. employer's costs) 24.9 13.9 11.1 79.5
--------------------------------------------------------------------- -------- -------- ------- ---------
Exceptional items 1.8 25.6 (23.8) (92.8)
--------------------------------------------------------------------- -------- -------- ------- ---------
Amortisation of acquisition intangible assets 88.4 127.5 (39.0) (30.6)
--------------------------------------------------------------------- -------- -------- ------- ---------
Deferred Revenue Haircut reversal / Other 1.8 17.2 (15.4) (89.3)
COGS Deferral Adjustments (0.1) (1.1) 1.0 89.1
Depreciation 18.8 13.4 5.5 41.0
Amortisation of non-acquisition intangible assets 2.8 2.8 (0.1) (2.1)
Adjusted EBITDA 483.0 447.7 35.3 7.9
--------------------------------------------------------------------- -------- -------- ------- ---------
Net change in deferred revenues including FX re-translation / Other 38.0 36.6 1.4 3.9
Net change in deferred cost of goods sold (1.8) (8.7) 6.9 78.7
--------------------------------------------------------------------- -------- -------- ------- ---------
Reversal of COGS deferral adjustment 0.1 1.1 (1.0) (90.1)
--------------------------------------------------------------------- -------- -------- ------- ---------
Adjusted Cash EBITDA 519.4 476.8 42.6 8.9
===================================================================== ======== ======== ======= =========
Adjusted Net Income
Adjusted Net Income represents statutory net income plus the
Deferred Revenue Haircut Reversal, share-based payments,
exceptional items, amortisation of acquisition intangible assets,
unrealised foreign exchange gain/loss on the EUR tranche of the
bank loan, the COGS Deferral Adjustments, the tax impact from the
unrealised exchange differences on intercompany loans and the tax
impact of the foregoing adjusting items and IP transfers, less gain
on disposal of business operation. The following is a
reconciliation of the Group's reported Net income to Adjusted Net
Income:
($'m ) FY 2019 FY 2018 Change Change %
------------------------------------------------------- -------- -------- ------- ---------
Net Income 249.0 241.2 7.8 3.2
------------------------------------------------------- -------- -------- ------- ---------
Deferred Revenue Haircut reversal / Other 1.8 17.2 (15.4) (89.3)
------------------------------------------------------- -------- -------- ------- ---------
Share-based payments 24.9 13.9 11.1 79.5
------------------------------------------------------- -------- -------- ------- ---------
Exceptional items 1.8 25.6 (23.8) (92.8)
------------------------------------------------------- -------- -------- ------- ---------
Amortisation of acquisition intangible assets 88.4 127.5 (39.1) (30.6)
------------------------------------------------------- -------- -------- ------- ---------
Unrealised FX gain/(loss) on EUR tranche of bank loan (13.9) (26.4) 12.5 47.4
Tax impact from FX difference on intercompany loans (0.4) (9.8) 9.4 96.3
COGS Deferral Adjustments (0.1) (1.1) 1.0 89.1
Tax impact of COGS deferral adjustment - 0.3 (0.3) Unf
Tax impact on adjusted items (20.3) (18.5) (1.8) (9.8)
Tax impact of IP transfer 6.3 (99.2) 105.5 Fav
Gain on disposal of business operation (17.5) - (17.5) n/a
Tax impact from disposal of business operation 2.3 - 2.3 n/a
Adjusted Net Income 322.3 270.8 51.5 19.0
======================================================= ======== ======== ======= =========
Unlevered Free Cash Flow
Represents Adjusted Cash EBITDA less capex, plus cash flows in
relation to changes in working capital (excluding change in
deferred revenue and change in deferred cost of goods sold as these
are already included in Adjusted Cash EBITDA) and taxation. Changes
in working capital are as per the cash flow statement on an
unadjusted historical basis and unadjusted for exceptional items.
Cash tax excludes a $49.4m Dutch exit tax paid in March 2019 as
this was treated as an exceptional item.
Levered Free Cash Flow
Represents amounts of incremental cash flows of the Group after
it has met its financial obligations (after interest and lease
repayments) and is defined as Unlevered Free Cash Flow less cash
interest and lease repayments.
Rounding
Due to rounding, numbers presented throughout this document may
not add up precisely to the totals provided, however growth rates
are calculated based on precise actual numbers.
Notes:
(15) Depreciation and amortisation included in Adjusted Net
Income excludes amortisation of acquisition intangibles.
(16) Under IFRS 3, Business Combinations, an acquirer must
recognise assets acquired and liabilities assumed at fair value as
of the acquisition date. The process of determining the fair value
of deferred revenues acquired often results in a significant
downward adjustment to the target's book value of deferred
revenues. The reversal of the downward adjustment to the book value
of deferred revenues of companies the Group has acquired during the
periods under review is referred to as the 'Deferred Revenue
Haircut Reversal'.
(17) The 'Gross-Up Adjustment' refers to the estimated impact of
the additional amount of 2015 and 2016 revenue and expenses and
their deferral that would have been recognised by Avast had the
contractual arrangements with certain customers qualified to have
been recognised on a gross rather than a net basis prior to 2017
(AVG had historically recognised Billings and revenues on a gross
basis, whereas Avast recognised them on a net basis). Both
businesses recognise revenue on a gross basis since 2017.
(18) There was no deferred cost of goods sold ( 'COGS') balance
consolidated by the Group in the acquisition balance sheet of AVG
in 2016 and thus no subsequent expense was recorded as the revenue
in respect of pre-acquisition date billings was recognised. The
'COGS Deferral Adjustments' refers to an adjustment to reflect the
recognition of deferred cost of goods sold expenses that would have
been recorded in 2016 and 2017 in respect of pre-acquisition date
AVG billings, had the AVG and the Group's businesses always been
combined and had AVG always been deferring cost of goods sold.
CONSOLIDATED STATEMENT OF PROFIT AND LOSS
For the year-ended 31 December 2019
Note Year-ended Year-ended
31 December 31 December
2019 2018
$M $M
---------------------------------------- ----- ------------- -------------
REVENUE 5 871.1 808.3
Cost of revenues 8 (210.7) (241.4)
---------------------------------------- ----- ------------- -------------
GROSS PROFIT 660.4 566.9
Sales and marketing (132.0) (124.5)
Research and development (82.5) (68.9)
General and administrative (101.3) (125.2)
---------------------------------------- ----- ------------- -------------
Total operating costs 9 (315.8) (318.6)
OPERATING PROFIT 344.6 248.3
---------------------------------------- ----- ------------- -------------
Net gain on disposal of a
business operation 16 17.5 -
---------------------------------------- ----- ------------- -------------
Interest income 11 1.5 0.3
---------------------------------------- ----- ------------- -------------
Interest expense 11 (58.7) (85.8)
---------------------------------------- ----- ------------- -------------
Other finance income and expense
(net) 11 9.7 19.7
---------------------------------------- ----- ------------- -------------
PROFIT BEFORE TAX 314.6 182.5
Income tax 13 (65.7) 58.7
---------------------------------------- ----- ------------- -------------
PROFIT FOR THE FINANCIAL YEAR 248.9 241.2
======================================== ===== ============= =============
Attributable to:
---------------------------------------- ----- ------------- -------------
Equity holders of the parent 248.7 241.2
---------------------------------------- ----- ------------- -------------
Non-controlling interest
("NCI") 34 0.2 -
======================================== ===== ============= =============
Earnings per share (in $
per share):
Basic EPS 14 0.26 0.26
Diluted EPS 14 0.24 0.25
The accompanying notes form an integral part of these financial
statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year-ended 31 December 2019
Year-ended Year-ended
31 December 31 December
2019 2018
$M $M
---------------------------------------------- ------------- -------------
Profit for the financial year 248.9 241.2
Other comprehensive gains/(losses):
---------------------------------------------- ------------- -------------
Items that may be reclassified subsequently
to profit or loss:
* Translation differences 0.3 (1.6)
============================================== ============= =============
Total other comprehensive gains/(losses) 0.3 (1.6)
============================================== ============= =============
Comprehensive income for the year 249.2 239.6
============================================== ============= =============
Attributable to:
--------------------------------------------- ----------------------------
Equity holders of the parent 249.0 239.6
---------------------------------------------- ------------- -------------
Non-controlling interest 0.2 -
============================================== ============= =============
The accompanying notes form an integral part of these financial
statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2019
Company registered number: 07118170 Note 31 December 2019 31 December
2018
$M $M
-------------------------------------- ------- --------------------------- ------------
ASSETS
Current assets
Cash and cash equivalents 17 216.6 272.3
Trade and other receivables 18 78.9 82.9
Capitalised contract costs 19 33.3 31.2
Prepaid expenses 13.6 8.5
Inventory 0.4 0.5
Tax receivables 13 22.0 7.3
Other financial assets 1.2 0.4
--------------------------- ------------
366.0 403.1
Non-current assets
Property, plant and equipment 20 42.9 29.3
Right-of-use assets 21 62.6 -
Intangible assets 22 193.3 267.3
Deferred tax assets 13 203.8 204.1
Other financial assets 0.8 0.7
Capitalised contract costs 19 4.4 4.6
Prepaid expenses 0.8 2.0
Goodwill 23 1,991.3 1,993.7
=========================== ============
2,499.9 2,501.7
TOTAL ASSETS 2,865.9 2,904.8
--------------------------- ------------
SHAREHOLDERS' EQUITY AND LIABILITIES
Current liabilities
Trade payables and other liabilities 24 65.1 64.0
Lease liability 21 7.3 0.4
Provisions 25 11.6 9.1
Income tax liability 13 0.3 40.4
Deferred revenue 26 420.5 384.3
Term loan 27 58.2 73.4
563.0 571.6
Non-current liabilities
Lease liability 21 57.5 2.6
Provisions 25 0.9 0.9
Deferred revenues 26 54.3 51.2
Term loan 27 969.5 1,318.1
Financial liability 2.1 1.0
--------------------------- ------------
Other non-current liabilities 1.7 4.3
--------------------------- ------------
Redemption obligation 29 56.3 -
--------------------------- ------------
Deferred tax liabilities 13 36.2 54.7
=========================== ============
1,178.5 1,432.8
Shareholders' equity
Share capital 31 136.0 129.0
Share premium, statutory and
other reserves 31, 32 280.7 275.9
Translation differences 1.3 (0.3)
Retained earnings 698.9 494.8
--------------------------- ------------
Equity attributable to equity
holders of the parent 1,116.9 899.4
Non-controlling interest 33 7.5 1.0
1,124.4 900.4
TOTAL SHAREHOLDERS' EQUITY AND
LIABILITIES 2,865.9 2,904.8
-------------------------------------- ------- --------------------------- ------------
The accompanying notes form an integral part of these financial
statements.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the year-ended 31 December 2019
Equity
Share attributable
premium, to equity
statutory holders
Share and other Translation Retained of the Non-controlling Total
Capital reserves differences earnings parent interests equity
Note $M $M $M $M $M $M $M
----------------- ----- -------- ---------- ------------ --------- ------------- ---------------- --------
At 31 December
2017 371.7 3.3 1.3 57.9 434.2 0.9 435.1
----------------- ----- -------- ---------- ------------ --------- ------------- ---------------- ----------
Result of the
year - - - 241.2 241.2 - 241.2
----------------- ----- -------- ---------- ------------ --------- ------------- ---------------- ----------
Other
comprehensive
income - - (1.6) - (1.6) - (1.6)
----------------- ----- -------- ---------- ------------ --------- ------------- ---------------- ----------
Comprehensive
income for the
year - - (1.6) 241.2 239.6 - 239.6
----------------- ----- -------- ---------- ------------ --------- ------------- ---------------- ----------
Primary proceeds 31 8.0 191.8 - - 199.8 - 199.8
----------------- ----- -------- ---------- ------------ --------- ------------- ---------------- ----------
Group
re-organisation 31 (250.8) 250.8 - - - - -
----------------- ----- -------- ---------- ------------ --------- ------------- ---------------- ----------
Capital
reduction 31 - (180.6) - 180.6 - - -
----------------- ----- -------- ---------- ------------ --------- ------------- ---------------- ----------
Other movements - - - 0.3 0.3 - 0.3
----------------- ----- -------- ---------- ------------ --------- ------------- ---------------- ----------
Share issue
expense 31 - (4.0) - - (4.0) - (4.0)
----------------- ----- -------- ---------- ------------ --------- ------------- ---------------- ----------
Share-based
payments
deferred tax 13 - - - 14.8 14.8 - 14.8
----------------- ----- -------- ---------- ------------ --------- ------------- ---------------- ----------
Share-based
payments 35 - 13.8 - - 13.8 0.1 13.9
----------------- ----- -------- ---------- ------------ --------- ------------- ---------------- ----------
Exercise of
options 31 0.1 0.8 - - 0.9 - 0.9
----------------- ----- -------- ---------- ------------ --------- ------------- ---------------- ----------
At 31 December
2018 129.0 275.9 (0.3) 494.8 899.4 1.0 900.4
================= ===== ======== ========== ============ ========= ============= ================ ==========
Result of the
year - - - 248.7 248.7 0.2 248.9
----------------- ----- -------- ---------- ------------ --------- ------------- ---------------- ----------
Other
comprehensive
income - - 0.3 - 0.3 - 0.3
----------------- ----- -------- ---------- ------------ --------- ------------- ---------------- ----------
Comprehensive
income for the
year - - 0.3 248.7 249.0 0.2 249.2
----------------- ----- -------- ---------- ------------ --------- ------------- ---------------- ----------
Transactions
with
NCI - Sale of
interest 34 - - - 48.6 48.6 5.7 54.3
----------------- ----- -------- ---------- ------------ --------- ------------- ---------------- ----------
Transactions
with
NCI -
Recognition
of put
liability 29 - (55.7) - - (55.7) - (55.7)
----------------- ----- -------- ---------- ------------ --------- ------------- ---------------- ----------
Share-based
payments
deferred tax - - - 34.9 34.9 - 34.9
----------------- ----- -------- ---------- ------------ --------- ------------- ---------------- ----------
Other movements - 0.2 1.3 (1.1) 0.4 - 0.4
----------------- ----- -------- ---------- ------------ --------- ------------- ---------------- ----------
Share-based
payments 35 - 20.1 - - 20.1 0.6 20.7
----------------- ----- -------- ---------- ------------ --------- ------------- ---------------- ----------
Exercise of
options 31 7.0 40.2 - - 47.2 - 47.2
----------------- ----- -------- ---------- ------------ --------- ------------- ---------------- ----------
Cash dividend 33 - - - (127.0) (127.0) - (127.0)
----------------- ----- -------- ---------- ------------ --------- ------------- ---------------- ----------
At 31 December
2019 136.0 280.7 1.3 698.9 1,116.9 7.5 1,124.4
================= ===== ======== ========== ============ ========= ============= ================ ==========
The accompanying notes form an integral part of these financial
statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year-ended 31 December 2019
Note Year-ended Year-ended
31 December 31 December
2019 2018
$M $M
--------------------------------------------- ----- ------------- -------------
Cash flows from operating activities
Profit for the financial year 248.9 241.2
Non-cash adj. to reconcile profit
to net cash flows:
Income tax 13 65.7 (58.7)
Depreciation 12 18.9 13.4
Amortisation 12 91.1 130.3
Gain on disposal of a business
operation 16 (17.5) -
Gain on disposal of property, plant
and equipment (0.2) (0.2)
Movement of provisions and allowances 5.9 3.5
Interest income 11 (1.5) (0.3)
Interest expense, changes of fair
values of derivatives and other
non-cash financial expense 11 59.6 85.5
Shares granted to employees 34 20.7 13.9
Effect of exchange rate changes
on cash and cash equivalents held
in foreign currencies (2.8) (2.8)
Unrealised foreign exchange gains
and losses and other non-cash transactions (13.8) (32.0)
Working capital adjustments:
(Increase)/decrease in trade and
other receivables and inventories (10.4) 4.1
Increase/(decrease) in trade and
other payables (1.2) 1.0
Increase in deferred revenues 26 39.9 56.9
Income tax paid (104.2) (79.8)
Net cash flows from operating activities 399.1 376.0
------------- -------------
Cash flows from investing activities
Acquisition of property and equipment 20 (26.3) (13.5)
Acquisition of intangible assets 22 (3.6) (3.4)
Investment in subsidiary, net of
cash acquired 15 (14.8) (4.2)
Settlement of contingent consideration (0.2) (8.0)
Proceeds from sale of a business
operation, net of cash disposed 16 26.7 -
Interest received 1.5 0.3
------------- -------------
Net cash used in investing activities (16.7) (28.8)
------------- -------------
Cash flows from financing activities
Proceeds from issue shares 31 - 199.8
Transaction costs related to the
issue shares 31 - (4.0)
Transaction with NCI, net of fees 34 54.3 -
Exercise of options 31 47.2 0.9
Dividend paid 33 (127.0) -
Repayment of borrowings 27 (562.9) (378.5)
Proceeds from borrowings 27 202.6 -
Transaction costs related to borrowings 27 (0.9) (3.1)
Interest paid 27 (45.1) (67.6)
Lease payments interest 21 (2.3) -
Lease payments principal 21 (6.8) (1.5)
Net cash used in financing activities (440.9) (254.0)
------------- -------------
Net increase/(decrease) in cash
and cash equivalents (58.5) 93.2
Effect of exchange rate changes
on cash and cash equivalents held
in foreign currencies 2.8 2.8
Cash and cash equivalents at beginning
of period 17 272.3 176.3
------------- -------------
Cash and cash equivalents at end
of period 216.6 272.3
--------------------------------------------- ----- ------------- -------------
The accompanying notes form an integral part of these financial
statements.
1. general information
Avast plc, together with its subsidiaries (collectively,
"Avast", "the Group" or "the Company"), is a leading global
cybersecurity provider. Avast plc is a public limited company
incorporated and domiciled in the UK, and registered under the laws
of England & Wales under company number 07118170 with its
registered address at 110 High Holborn, London WC1V 6JS. The
ordinary shares of Avast plc are admitted to the premium listing
segment of the Official List of the UK Financial Conduct Authority
and trade on the London Stock Exchange plc's main market for listed
securities.
These results do not comprise statutory accounts within the
meaning of section 435 of the Companies Act 2006. The consolidated
financial statements for the year ended 31 December 2019 have been
audited with an unqualified report that did not contain an emphasis
of matter referenced or a statement under section 498(2) or (3) of
the Companies Act 2006.
The consolidated financial statements of the Group for the year
ended 31 December 2019 were approved by the Board of Directors on
25 February 2020 and have not yet been delivered to the
registrar.
2. Significant accounting policies
The accounting policies used in preparing the historical
financial information are set out below. These accounting policies
have been consistently applied in all material respects to all
periods presented except for the changes described in Note 4.
Basis of preparation
The audited consolidated financial statements of the Group have
been prepared in accordance with International Financial Reporting
Standards as adopted by the European Union ("IFRS"). The
consolidated financial statements have been prepared on a
historical cost basis and are presented in US dollars. All values
are rounded to the nearest 0.1 million ($'m), except where
otherwise indicated.
Under section 408 of the Companies Act 2006, the parent company
is exempt from the requirement to present its own profit and loss
account.
The Group uses the direct method of consolidation, under which
the financial statements are translated directly into the
presentation currency of the Group, the US Dollar ("USD"). The
consolidation of a subsidiary begins when the Group obtains control
over the subsidiary, and continues to be consolidated until the
date when such control ceases. All intra-group balances,
transactions, unrealized gains and losses resulting from
intra-group transactions and dividends are eliminated in full on
consolidation.
The directors have reviewed the projected cash flow and other
relevant information and have a reasonable expectation that the
Group has adequate resources to continue in operational existence
for the foreseeable future. For this reason, the directors continue
to adopt the going concern assumption in preparing the consolidated
financial statements .
Revenue recognition
Revenue is measured based on the fair value of consideration
specified in the contract with a customer and excludes taxes and
duty. The Group recognizes the revenue when it transfers control
over a product and service to a customer. Each contract is
evaluated to determine whether the Group is the principal in the
revenue arrangements.
Revenues from individual products and services are aggregated
into the following categories:
Consumer
Direct
The principal revenue stream of the Group is derived from the
sale of its software and related services for desktop and mobile
which protect users' security, online privacy and device
performance. Licence agreements with customers include a
pre-defined subscription period during which the customer is
entitled to the usage of the products, including updates of the
software. The typical length of a subscription period is 1, 12, 24,
or 36 months. Antivirus software requires frequent updates to keep
the software current in order for it to be beneficial to the
customer and the customer is therefore required to use the updated
software during the licence period. This provides evidence that the
licence grants the right to access the software over time and
therefore revenue is recognised evenly over the term of the
licence. The software licence, together with the unspecified
updates, form a single distinct performance obligation.
The Group mainly sells software licences through direct sales
(mainly through e-commerce services providers including Digital
River and the Group's e-shop) to customers. However, the Group also
sells a small portion through indirect sales via the Group's
retailers and resellers.
Deferred revenue represents the contract liability arising from
contracts with customers. The portion of deferred revenues that
will be recognised as revenue in the 12 months following the
balance sheet date is classified as current, and the remaining
balance is classified as non-current. Deferred revenue also
materially represents the transaction price relating to sales of
software licences that is allocated to future performance
obligations. Some of the Group's products can be used on a one-time
basis (VPN and Utilities), in which case sales are recognised
immediately as revenue.
The Group uses a practical expedient not to adjust the promised
amount of consideration for the effects of a significant financing
component if the Group expects, at contract inception, that the
period between when the Group transfers a promised good or service
to a customer and when the customer pays for that good or service
will be one year or less.
When the Group concludes that it has control over the provided
product or service before that product or service is transferred to
the customer, the Group acts as principal and revenues for
satisfying the performance obligations are recognised on a gross
basis (before deduction of resellers' commissions, payment provider
fees and the third party costs). Otherwise revenues are recognised
on a net basis.
The Group accounts for sales of products through E-Commerce
partners on a gross basis before the deduction of the E-Commerce
partners's commissions and fees. The Group's e-commerce service
providers fulfil administrative functions, such as collecting
payment and remitting any required sales tax. The Group's
e-commerce service providers collect the fees and transfer cash
payments to the Group on a monthly basis within 30 days after the
end of the month with respect to which payment is being made. The
Group sets the retail list prices and has control over the licences
before transferring them to the customer.
The Group also sells subscription software licences through an
e-shop directly to end customers in cooperation with certain
payment gateways providers. Revenue from sales through the e-shop
are accounted for on a gross basis before the deduction of payment
gateways fees. The Group sets the final retail prices and fully
controls the revenue arrangement with the end customers.
Location Labs, Inc. ("Location Labs") provides mobile security
solutions that partner with Mobile Network Operators ( "MNOs")
providing locator, phone controls and drive safe products to their
customers. Once the product is developed by Avast based on the
MNO's requirements, the product is then sold to the end customer
via the MNO's subscription plans . The revenues generated by these
arrangements are based on revenue share percentages as stated in
the MNO agreements. Revenue is recognised on a net basis, after
deduction of partners` commissions, based on the delivery of
monthly services to the end customers of the MNOs. Avast has no
control of the product and no discretion to set the final
prices.
The Group also sells a limited amount of physical CDs through
its distributors which then sell the Group's products (Internet
Security and Antivirus Software) to retail stores. The retail
revenue is recognised on a gross basis, before the deduction of
distributors commissions, ratably over the subscription period.
The Group reduces revenue for estimated sales returns. End users
may return the Group's products, subject to varying limitations,
through resellers or to the Group directly for refund within a
reasonably short period from the date of purchase. The Group
estimates and records provisions for sales returns based on
historical experience. The amount of such provisions is not
material.
Indirect
Consumer indirect revenues arise from several products and
distribution arrangements that represent the monetisation of the
user base. These arrangements are accounted for on a net basis in
an amount corresponding to the fee the Group receives from the
monetisation arrangement. The contracted partner in the arrangement
is the customer rather than the end customer. The most significant
sources of revenues are:
-- Google - The Group has two distribution arrangements with Google
Ireland Limited ("Google") pursuant to which the Group is paid
fees in connection with the Group's offers to users of Google
Chrome or Google Toolbar. The Group recognises revenue from
Google in full in the month they are earned as the Group has
no subsequent performance obligations after the date of sale.
-- Secure Browsing - The Group's Secure browser earns the Group
a share of advertising revenue generated by end user search
activity. Revenue is recognised immediately as the Group has
no performance obligation after the date of sale.
-- Advertising - Other Consumer Indirect derived revenues are
comprised of advertising fees and product fees. Advertising
fees are earned through advertising arrangements the Group
has with third parties whereby the third party is obligated
to pay the Group a portion of the revenue they earn from advertisements
to the Group's end users. Amounts earned are reflected as revenue
in the month the advertisement is delivered to the end user.
The Group also receives product fees earned through arrangements
with third parties, whereby the Group incorporates the content
and functionality of the third party into the Group's product
offerings. Fees earned during a period are based on the number
of active clients with the installed third-party content or
functionality multiplied by the applicable client fee.
-- Analytics - The Group offered big data and marketing analytics
through its entity, Jumpshot Inc. ("Jumpshot"), generating
mostly recurring subscription revenue. Subscriptions were recognised
ratably over the subscription period covered by the contract.
Subsequent to year end, the Group decided to wind down the
Jumpshot business as further described in the Note 39.
Small and Medium-sized business ("SMB")
SMB includes subscription revenue targeted at small and
medium-sized businesses. Revenue is generated through the sale of
security software and other IT managed solutions (including
CloudCare). CloudCare is a cloud-based security suite designed for
SMBs and third party managed service providers who can use this
tool to manage security on behalf of their clients. Licences are
provided in conjuction with hosting services as the customers have
no control over the software independently. The licence is not
distinct and would be combined with the hosting service as a single
performance obligation. The performance obligation is typically
satisfied over the subscription term, beginning on the date that
service is made available to the customer. Revenues from sales of
CloudCare are recognised on a gross basis, before deduction of the
payment gateways fees.
Cost of revenues
Expenses directly connected with the sale of products and the
provision of services, e.g. commissions, payments and other fees
and third party licence costs related to the subscription software
licences , are recognised as cost of revenues.
Capitalised contract costs
The Group pays commissions, third party licence costs and
payment fees to resellers and payment providers for selling the
subscription software licences to end customers. Capitalised
contract costs are amortised over the licence period and recognised
in the cost of revenues. Capitalised contract costs are subject to
an impairment assessment at the end of each reporting period.
Impairment losses are recognised in profit or loss.
Taxes
Current income tax assets and liabilities recognised are the
amount expected to be recovered from or paid to the taxation
authorities. The tax rates and tax laws used to compute the amount
are those that are enacted or substantively enacted at the
reporting date in the country where the Group operates and
generates taxable income.
Deferred tax is recognised for all temporary differences,
except:
-- where the deferred tax arises from the initial recognition
of goodwill or of an asset or liability
in a transaction that is not a business combination and, at
the time of the transaction, affects neither the accounting
profit nor taxable profit or loss; and
-- in respect of taxable temporary differences associated with
investments in subsidiaries, associates and interests in joint
ventures, where the timing of the reversal of the temporary
differences can be controlled and it is probable that the temporary
differences will not reverse in the foreseeable future.
Deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available, whereby the
deductible temporary differences and the carry forward of unused
tax credits and unused tax losses, can be utilised.
The carrying amount of deferred tax assets is reviewed at each
reporting date and reduced to the extent that it is no longer
probable that sufficient taxable profit will be available to allow
all or part of the deferred tax asset to be utilised. Unrecognised
deferred tax assets are reassessed at each reporting date and are
recognised to the extent that it has become probable that future
taxable profits will allow the deferred tax asset to be
recovered.
Deferred tax assets and liabilities are measured at the tax
rates that are expected to apply in the year when the asset is
realised or the liability is settled, based on tax rates (and tax
laws) that have been enacted or substantively enacted at the
reporting date for the respective tax jurisdiction.
Deferred tax items are recognised with respect to the related
underlying transaction either in other comprehensive income or
directly in equity. Deferred tax assets and deferred tax
liabilities are offset if a legally enforceable right exists to set
off current tax assets against current income tax liabilities and
the deferred taxes relate to the same taxable entity and the same
taxation authority.
Foreign currency translation
The Group's historical financial information is presented in US
dollars ("USD" or "$"). The functional currencies of all Group
entities are presented in the table below. Each entity in the Group
(including branch offices not representing incorporated entities)
determines its own functional currency, and items included in the
financial statements of each entity are measured using that
functional currency. For the purposes of inclusion in the
historical financial information, the statement of financial
position of entities with non-USD functional currencies are
translated into USD at the exchange rates prevailing at the balance
sheet date and the income statements are translated at the average
exchange rate for each month of the relevant year. The resulting
net translation difference is recorded in other comprehensive
income.
The functional currencies of the Group's main entities are as
follows:
Company or branch Functional
currency
------------------------------ -----------
Avast plc USD
Avast Holding B.V. USD
Avast Operations B.V. USD
Avast Software B.V. USD
Avast Software s.r.o. USD
Avast Software, Inc. USD
Avast Corporate Services B.V. USD
Avast Deutschland GmbH EUR
AVG Technologies UK Limited GBP
AVG Technologies USA, Inc. USD
FileHippo s.r.o. CZK
InloopX s.r.o. EUR
Location Labs, Inc USD
Piriform Group Limited GBP
Piriform Limited GBP
Piriform Software Limited GBP
Piriform, Inc. USD
Privax Limited USD
TrackOFF, Inc. USD
Jumpshot s.r.o. CZK
Jumpshot, Inc. USD
------------------------------ -----------
Transactions in foreign currencies are initially recorded by the
Group entities at their respective functional currency rates
prevailing at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are recalculated at
the functional currency spot rate of exchange valid at the
reporting date. All differences are recorded in the statement of
profit and loss as finance income and expenses.
Non-monetary items that are measured in terms of historical cost
in a foreign currency are translated using the exchange rates at
the dates of the initial transactions.
Business combinations and Goodwill
Business combinations are accounted for using the acquisition
method. The cost of an acquisition is measured as the aggregate of
the consideration transferred measured at acquisition date fair
value and the amount of any non-controlling interests in the
acquiree. For each business combination, the Group elects whether
to measure the non-controlling interests in the acquiree at fair
value or at the proportionate share of the acquiree's identifiable
net assets. Acquisition-related costs are expensed as incurred and
included in Administrative expenses.
When the Group acquires a business, it assesses the financial
assets and liabilities assumed for appropriate classification and
designation in accordance with the contractual terms, economic
circumstances and pertinent conditions as at the acquisition date.
If the business combination is achieved in stages, any previously
held equity interest is re-measured at its acquisition date fair
value and any resulting gain or loss is recognised in profit or
loss. It is then considered in the determination of goodwill.
Any contingent consideration to be transferred will be
recognised at fair value at the acquisition date. Contingent
consideration is measured at fair value with changes in fair value
recognised in profit or loss. Contingent consideration that is
classified as equity is not re-measured and subsequent settlement
is accounted for within equity.
Goodwill is initially measured at cost, being the excess of the
aggregate of the consideration transferred and the amount
recognised for non-controlling interests, and any previous interest
held, over the net identifiable assets acquired and liabilities
assumed. If the fair value of the net assets acquired is in excess
of the aggregate consideration transferred, the Group re-assesses
whether it has correctly identified all of the assets acquired and
all of the liabilities assumed and reviews the procedures used to
measure the amounts to be recognised at the acquisition date.
During the measurement period, which may be up to one year from the
acquisition date, the Group may record adjustments to the assets
acquired and liabilities assumed with the corresponding offset to
goodwill. Upon the conclusion of the measurement period or final
determination of the values of assets acquired or liabilities
assumed, whichever comes first, any subsequent adjustments are
recorded to the Consolidated Statement of Profit and Loss.
After initial recognition, goodwill is measured at cost less any
accumulated impairment losses. For the purpose of impairment
testing, goodwill acquired in a business combination is, from the
acquisition date, allocated to each of the Group's cash-generating
units that are expected to benefit from the combination,
irrespective of whether other assets or liabilities of the acquiree
are assigned to those units.
Intangible Assets
Intangible assets acquired separately are measured on initial
recognition at cost. The cost of intangible assets acquired in a
business combination is their fair value as at the date of
acquisition.
Intangible assets are carried at cost less accumulated
amortisation and accumulated impairment losses.
Intangible assets with finite lives are amortised over their
useful economic life and assessed for impairment whenever there is
an indication that the intangible asset may be impaired. The
amortisation period for
an intangible asset with a finite useful life is reviewed at
least at the end of each reporting period.
The amortisation expense on intangible assets with finite lives
is recognised in the Consolidated Statement of Profit and Loss in
the expense category consistent with the function of the intangible
assets.
Indefinite lived intangibles are not amortised but are tested
for impairment annually and for impairment indicators on a
quarterly basis. The assessment of indefinite life is reviewed
annually to determine whether the indefinite life assumption
continues to be appropriate.
The useful economic lives of intangible assets are as
follows:
Years
--------------------------- -----------
Developed technology 4-5
Avast Trademark Indefinite
Piriform Trademark 10
AVG Trademark 6
Customer relationships
and user base 4
Other licensed intangible
assets 3-5
--------------------------- -----------
Research and development costs
Research costs are expensed when incurred when the criteria for
capitalisation are not met. Development expenditures are recognised
as an intangible asset when the Group can demonstrate:
- the technical feasibility of completing the intangible asset
so that the asset will be available for use or sale;
- its intention to complete and its ability and intention to use or sell the asset;
- how the asset will generate future economic benefits;
- the availability of resources to complete the asset; and
- the ability to measure reliably the expenditure during development.
Development expenditure incurred on minor or major upgrades, or
other changes in software functionalities does not satisfy the
criteria, as the product is not substantially new in its design or
functional characteristics. Such expenditure is therefore
recognised as an expense in the Consolidated Statement of Profit or
Loss as incurred.
Goodwill
Goodwill is assessed as having an indefinite useful life and is
tested for impairment annually.
Property, plant and equipment
Property, plant and equipment are carried at cost less
accumulated depreciation and accumulated impairment losses. Cost
comprises the aggregate amount paid and the fair value of any other
consideration given
to acquire the asset and includes costs directly attributable to
making the asset capable of operating as intended.
Repairs and maintenance costs are charged to the Consolidated
Statement of Profit and Loss during the accounting period during
which they are incurred.
Depreciation is recorded on a straight-line basis over the
estimated useful life of an asset, as follows:
Years
------------------------- ---------------
over the lease
Leasehold improvements term
Machinery and equipment 2-5
------------------------- ---------------
Gains or losses arising from the de-recognition of property,
plant and equipment are measured as the difference between the net
disposal proceeds and the carrying amount of the asset and are
recognised in the Consolidated Statement of Profit and Loss when
the asset is de-recognised.
Impairment
The Group assesses at each reporting date whether there is an
indication that an asset may be impaired. If any indication exists,
or when annual impairment testing for an asset is required, the
Group estimates the asset's recoverable amount. An asset's
recoverable amount is the higher of an asset's or cash-generating
unit's ("CGU") fair value less costs of disposal or its value in
use and is determined for an individual asset, unless the asset
does not generate cash inflows that are largely independent of
those from other assets or groups of assets.
Where the carrying amount of an asset or CGU exceeds its
recoverable amount, the asset is considered impaired and is written
down to its recoverable amount. In assessing value in use, the
estimated future cash flows are discounted to their present value
using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to
the asset. In determining fair value less costs of disposal, recent
market transactions are taken into account, if available. If no
such transactions can be identified, an appropriate valuation model
is used.
Impairment losses of continuing operations are recognised in the
Consolidated Statement of Profit and Loss in those expense
categories consistent with the function of the impaired asset. For
assets excluding goodwill, an assessment is made at each reporting
date as to whether there is any indication that previously
recognised impairment losses may no longer exist or may have
decreased. Any reversal of previously recognised impairment is
limited so that the carrying amount of the asset does not exceed
the lower of its recoverable amount or the carrying amount that
would have been determined, net of depreciation, had no impairment
loss been recognised for the asset in prior years. Such reversal is
recognised in the Consolidated Statement of Profit and Loss.
Goodwill and intangible assets with indefinite useful lives are
tested for impairment annually as at 31 December at the operating
segment level, which is the smallest group of CGUs to which the
Goodwill and intangible assets with indefinite useful life can be
allocated. Goodwill is allocated to the groups of CGUs, that
corresponds with operating segments (Consumer and SMB) according to
the allocation from past business combinations - see Note 23.
Intangible assets with indefinite useful lives are all allocated to
the Group of CGUs that corresponds to the Consumer operating
segment.
Leases
For any new contracts entered into on or after 1 January 2019,
the Group considers whether a contract is, or contains a lease.
That is, if the contract conveys the right to control the use of an
identified asset for a period of time in exchange for
consideration.
On transition to IFRS 16, the Group elected to apply the
practical expedient to grandfather the assessment of which
transactions are leases. The Group applied IFRS 16 only to
contracts that were previously identified as leases. Therefore, the
definition of a lease under IFRS 16 was applied only to contracts
entered into on or after 1 January 2019.
The Group applies a recognition exemption for lease contracts
that, at the commencement date, have a lease term of 12 months or
less and do not contain a purchase option ('short-term leases'),
and lease contracts for which the underlying asset is of low value
('low-value assets'). Short-term lease payments are recognised as
operating expenses in the Consolidated Statement of Profit and Loss
on a straight-line basis over the lease term.
Right-of-use assets
The Group recognises right-of-use assets at the commencement
date of the lease. Right-of-use assets are measured at cost, less
any accumulated depreciation and impairment losses, and are
subsequently adjusted (where appropriate) for any remeasurement of
lease liabilities. The cost of right-of-use assets includes the
amount of lease liabilities recognised, initial direct costs
incurred, and lease payments made at or before the commencement
date less any lease incentives received.
The right-of-use asset is depreciated on a straight-line basis
over the lease term or, if it is shorter, over the useful life of
the leased asset. The Group currently applies the lease term for
depreciation of all right-of-use assets (see Note 21). Related
expense is presented within depreciation, allocated to general and
administrative expenses. The Group also assesses the right-of-use
asset for impairment when such indicators exist.
Lease liabilities
At the commencement date of the lease, the Group recognises
lease liabilities measured at the present value of lease payments
to be made over the lease term. The lease payments include fixed
payments less any lease incentives receivable, variable lease
payments that depend on an index or a rate and lease payments
within extension option periods for which the Group considers it
likely that the extension option will be utilised.
In calculating the present value of lease payments, the Group
uses the incremental borrowing rate at the lease commencement date
because the interest rate implicit in the lease is not readily
determinable.
The amount of lease liabilities is increased to reflect the
accretion of interest and reduced for the lease payments made.
Lease interest is presented within Interest expenses. In addition,
the carrying amount of lease liabilities is re-measured if there is
a reassessment of the lease term (using a revised discount rate at
the date of the reassessment) or a change in the variable lease
payments that depend on an index or rate (using the original
discount rate). In such cases, there is a corresponding adjustment
to the right-of-use asset.
Operating leases (accounting policy applied prior to 1 January
2019)
Under IAS 17 (prior to transition to IFRS 16), leases where the
lessee did not obtain substantially all the risks and rewards of
ownership of the asset were classified as operating leases.
Operating lease payments, other than contingent rentals, were
recognised as an expense in the Consolidated Statement of Profit
and Loss on a straight-line basis over the lease term.
Employee stock option plans
Employees of the Group receive remuneration in the form of
share-based payment transactions whereby employees render services
as consideration for equity instruments (equity-settled
transactions).
Equity-settled transactions
The cost of equity-settled transactions is determined based on
the fair value of the share-based payment award at the date when
the grant is made, taking into account the market and non-vesting
conditions, using an appropriate valuation model. Non-market
vesting conditions are not taken into account in determining the
fair value of the award. The cost is recognised, together with a
corresponding increase in other capital reserves in equity, over
the period in which the performance or service conditions are
fulfilled. The cumulative expense recognised for equity-settled
transactions at each reporting date until the vesting date reflects
the extent to which the vesting period has expired and the Group's
best estimate of the number of equity instruments that will
ultimately vest. The Consolidated Statement of Profit and Loss
expense or credit for a period represents the movement in
cumulative expense recognised as at the beginning and end of that
period and is recognised in compensation expense.
No expense is recognised for awards that do not ultimately vest,
except for equity-settled transactions where vesting is conditional
upon a market or non-vesting condition, which are treated as
vesting irrespective of whether or not the market or non-vesting
condition is satisfied, provided that all other performance and/or
service conditions are satisfied.
When the terms of an equity-settled transaction are modified,
where the modification increases the total fair value of the
share-based payment transaction, or is otherwise beneficial to the
employee as measured at the date of modification, additional
expense is recognised. When an equity-settled award is cancelled
other than by forfeiture, it is treated as if it vested on the date
of cancellation, and any expense not yet recognised for the award
is recognised immediately. This includes any award where
non-vesting conditions within the control of either the entity or
the employee are not met. However, if a new award is substituted
for the cancelled award, and designated as a replacement award on
the date that it is granted, the cancelled and new awards are
treated as if they were a modification of the original award. The
dilutive effect of outstanding options is reflected in the
computation of diluted earnings per share.
Payments for settlement of equity-settled awards are taken to
equity up to the fair value of the award at the time of settlement
(with any excess recognised in profit or loss).
Deferred tax assets are recognized in connection with granted
stock option in the amount of the expected tax deduction available
on exercise, measured using the share price at the end of the
period and multiplied by the expired portion of the vesting period.
The cumulative related tax benefit is recognised in profit and loss
to the extent of the tax rate applied to the cumulative recognised
share-based payments expense, with the excess (if any) recognised
directly through equity.
Employee benefits
Pension obligations
Contributions are made to the Government health, retirement
benefit and unemployment plans at statutory rates applicable during
the period and are based on gross salary payments. The arrangements
of the Government health, retirement benefit and unemployment plans
qualify as defined contribution plans. The Group has no further
payment obligations once the contributions have been paid. The
expense for the contributions is charged to profit and loss in the
same period as the related salary expense. As a benefit for
employees, the Group also makes contributions to defined
contribution schemes operated by external (third party) pension
companies. These contributions are charged to profit and loss in
the period to which the contributions relate.
Defined contribution plans
The Group maintains a defined contribution 401(k) retirement
savings plan for its U.S. employees. Each participant in the 401(k)
retirement savings plan may elect to contribute a percentage of his
or her annual compensation up to a specified maximum amount allowed
under U.S. Internal Revenue Service regulations. The Group matches
employee contributions to a maximum of 4% of the participant annual
compensation.
Redundancy and termination benefits
Redundancy and termination benefits are payable when employment
is terminated before the normal retirement or contract expiry date.
The Group recognises redundancy and termination benefits when it is
demonstrably committed to have terminated the employment of current
employees according to a detailed formal plan without possibility
of withdrawal. Benefits falling due more than 12 months after the
balance sheet date are discounted to present value. There are
currently no redundancy and termination benefits falling due more
than 12 months after the balance sheet date.
Key management personnel
The Group discloses the total remuneration of key management
personnel ("KMP") as required by IAS 24 - Related party
disclosures. The Group includes within KMP all individuals who have
authority and responsibility for planning, directing and
controlling the activities of the Group. KMP include all members of
the Board and the Executive management team of the Group. Other
related parties include family members if applicable. See Note 36
for more details.
Financial instruments
Financial assets and liabilities are recognised on the Group's
Consolidated Statement of Financial Position when the Group becomes
a contractual party to the instrument. When financial instruments
are recognised initially, they are measured at fair value, which is
the transaction price plus, in the case of financial assets and
financial liabilities not measured at fair value through profit and
loss, directly attributable transaction costs.
All assets and liabilities for which fair value is measured or
disclosed in the financial statements are categorised within the
fair value hierarchy, described as follows, based on the lowest
level input that is significant to the fair value measurement as a
whole:
-- Level 1 - Quoted (unadjusted) market prices in active markets
for identical assets or liabilities;
-- Level 2 - Valuation techniques for which the lowest level
input that is significant to the fair value measurement is directly
or indirectly observable; and
-- Level 3 - Valuation techniques for which the lowest level
input that is significant to the fair value measurement is
unobservable.
Trade and other receivables
Trade receivables are at initial recognition recorded at the
original invoice amount, including value-added tax and other sales
taxes. At subsequent reporting dates, the carrying amount is
decreased by the expected lifetime loss allowance attributable to
the receivable or group of receivables based on a credit assessment
of the counterparty or estimate for relevant group of receivables
respectively.
The Group uses the expected credit loss model for impairment of
receivables. The Group applies practical expedients when measuring
the expected credit loss. The Group applies a simplified approach
and recognises expected lifetime loss allowances for to trade
receivables and contract assets. The expected lifetime loss is
calculated using the provision matrix, which assigns provision
rates to classes of receivables based on number of days they are
overdue, based on the Group's historical credit loss experience
adjusted for forward-looking development. The classes of
receivables are stratified by types of customer and by operating
segments between the Consumer and SMB receivables.
Bad debts are written off in the period in which they are
determined to be completely irrecoverable.
Cash and cash equivalents
For the purpose of the Consolidated Statement of Cash Flows,
cash and cash equivalents consist of cash at bank, cash in hand and
short-term deposits with an original maturity of three months or
less.
The Group's Consolidated Statement of Cash Flows is prepared
based on the indirect method from the Consolidated Statement of
Financial Position and Consolidated Statement of Profit and
Loss.
Pledged or restricted assets
Financial assets transferred to third parties as collateral,
assets that are pledged and assets as to which the Group has
otherwise restricted dispositions are classified as other long-term
receivables, if the period until which the restriction ends or
return of the assets in question will take place is more than 12
months from the balance sheet date.
Trade payables and other liabilities
Trade payables and other liabilities are recognised at their
amortised cost which is deemed to be materially the same as the
fair value.
Loans
Loans are initially recognised at their fair value net of
transaction costs and subsequently measured at amortised cost using
the effective interest method. The effective interest rate is the
rate that exactly discounts the estimated future cash payments or
receipts over the expected life of the financial instrument or a
shorter period, where appropriate, to the net carrying amount of
the financial liability.
Derivative financial instruments
Derivatives are initially recognised at fair value at the date a
derivative contract is entered into and are subsequently
re-measured at fair value at the end of each reporting period. The
resulting gain or loss is recognised in profit and loss
immediately.
A derivative embedded within a host contract containing a
financial asset host is not accounted for separately. The financial
asset host together with the embedded derivative is required to be
classified in its entirety as a financial asset at fair value
through profit or loss.
De-recognition of financial instruments
A financial asset or liability is generally de-recognised when
the contract that gives right to it is settled, sold, cancelled or
expires.
When an existing financial liability is replaced by another from
the same lender on substantially different terms, or the terms of
an existing liability are substantially modified, such an exchange
or modification is treated as a de-recognition of the original
liability and the recognition of a new liability, and the
difference in the respective carrying amounts is recognised in the
Consolidated Statement of Profit and Loss.
Provisions
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event, it
is probable that an outflow of resources embodying economic
benefits will be required to settle the obligation and a reliable
estimate can be made of the amount of the obligation.
Onerous contracts
If the Group has a contract that is onerous, the present
obligation under the contract is recognised and measured as a
provision. However, before a separate provision for an onerous
contract is established, the Group recognises any impairment loss
that has occurred on assets dedicated to that contract.
An onerous contract is a contract under which the unavoidable
costs (i.e., the costs that the Group cannot avoid because it has
the contract) of meeting the obligations under the contract exceed
the economic benefits expected to be received under it. The
unavoidable costs under a contract reflect the least net cost of
exiting from the contract, which is the lower of the cost of
fulfilling it and any compensation or penalties arising from
failure to fulfil it.
Interest income and expense
Interest income consists of interest income on deposits.
Interest expense consists of interest expense on term loans
including amortisation of arrangement fees, and interest expense on
leases.
Other finance income and expense
Other financial income and expenses consist of realized and
unrealized foreign exchange gains and losses, changes in fair value
of derivatives, unwinding of discounts on non-current provisions
and other liabilities discounted to net present value and other
financial expense.
Exceptional items
Exceptional items are material or non-recurring items of income
and expense which the Group believes should be separately disclosed
to show the business performance of the Group more accurately. Such
items are separately disclosed in the notes to the consolidated
financial statements. Examples of such items include legal and
advisory costs related to acquisition, disposals, integration,
strategic restructuring program costs and cost of impairment.
3. Significant accounting judgements, estimates and assumptions
Significant judgements
Leases - Extension options
When the Group has the option to extend a lease, management uses
its judgement to determine whether or not an option would be
reasonably certain to be exercised. The Group has the option, under
some of its leases, to lease the assets for additional terms of up
to ten years. The Group applies judgement in evaluating whether it
is reasonably certain to exercise the option to renew and therefore
considers all relevant factors including long-term business
strategy, conditions of the lease, availability of alternative
options and potential relocation costs for it to exercise the
renewal. Potential future cash outflows of $7.4 million have not
been included in the lease liability because it is not reasonably
certain that the lease will be extended (or not terminated).
Impairment testing
Significant management judgment and estimates are required to
determine the individual cash generating units ("CGUs") of the
Group, the allocation of assets to these CGUs and the determination
of the value in use or fair value less cost to sell of these
individual assets. Management has concluded that the operating
segments used for segment reporting represents the lowest level
within the Group at which the Goodwill is monitored. Therefore, the
operating segments correspond to groups of CGUs at which goodwill
is tested for impairment.
Loans
The terms of the Credit Agreement offer the Company significant
flexibility, allowing it to prepay, reprice, refinance, substitute
or replace any drawn loans without penalty (except within a
six-month period following issue or a repricing, a term intended to
provide a degree of protection to the lenders' income). The terms
also provide for the Company to be able to request a reduction in
the interest rate margin payable. Although any such reduction
would, as a matter of form, be made through re-negotiation, the
agreement was drawn up on the understanding by both the Company and
the lenders that the Company would routinely make such requests
where it was supported by appropriate evidence (that market
perception of the credit risk of the company had improved) and that
such requests would generally be granted (as has been the
experience in 2017 to 2019 - see Note 27). If not granted the
Company would be able to obtain replacement financing at the
reduced market price, repay the original loan at par and the
lenders would lose their income stream.
Consequently, management's judgement is that the term loan is in
substance a floating rate loan for which the interest margin is
reset every six months to the market rate, provided it is favorable
to the Company. The reduction in margin is accounted for as a
change in effective interest rate prospectively from the moment the
change in estimate takes place rather than by treating it as a
modification of terms.
Significant estimates
Deferred tax
Deferred tax assets are recognised for unused tax losses to the
extent that it is probable that taxable profit will be available
against which the losses can be utilised. Significant management
judgement is required to determine the amount of deferred tax
assets that can be recognised, based upon the likely timing and the
level of future taxable profits.
The Group recognizes substantial deferred tax assets from unused
tax losses in its US based subsidiaries excluding Jumpshot Inc. The
management assesses that these deferred tax assets are recoverable,
with key elements of judgement being the fact that US tax losses
carry over indefinitely, and the significant business presence of
the Group in the US market give the group ability to generate
sufficient taxable profit for the forseeable future.
Based on expectations of future profitability, management expect
to recover the deferred tax asset over a 20-year time frame. The
recovery period is sensitive to the level of profitability of the
underlying business, however, there are no significant assumptions
which would impact our expectation of recovery.
The Group also recognises substantial deferred tax assets from
the 2018 transfer of intellectual property to the Czech Republic,
which is being recovered linearly over a 15-year period. The
management assesses that this deferred tax asset is recoverable,
with key elements of judgment being that the major portion of the
Group's profit is generated in the Group's Czech entity and this
structure is expected to remain for the foreseeable future.
Share-based payments
Estimating fair value for share-based payment transactions
requires determination of the most appropriate valuation model,
which depends on the terms and conditions of the grant. This
estimate also requires determination of the most appropriate inputs
to the valuation model including the volatility and dividend yield
and making assumptions about them. The Group initially measures the
cost of equity-settled transactions with employees using a
Black-scholes model. In addition, at each reporting date before
vesting, management uses the best estimate of the performance
achievement of the number of equity instruments that will
ultimately vest. The vesting of these awards is conditioned upon
the achievement of the Group's basic EPS and adjusted revenue
growth targets over the three-year period. The movements resulting
from the estimates are recognised in the Consolidated Statement of
Profit or Loss, with a corresponding entry in equity.
Redemption liability
The management believed that the estimated exercise value of the
redemption liability described in Note 29 , as at the end of the
period, was best estimated by the original transaction price. The
exercise price was at the higher of the original cost and market
value. The redemption liability was remeasured to the present value
of the estimated exercise price at each period end until expiry or
exercise.
Due to subsequent closure of Jumpshot business in January 2020
as decribed in the Note 39, the redemption obligation is void and
will be reversed in 2020.
4. Application of new and revised IFRS standards
Newly adopted standards
IFRS 16 Leases
IFRS 16 Leases supersedes IAS 17 Leases, IFRIC 4 Determining
whether an Arrangement contains a Lease, SIC-15 Operating
Leases-Incentives and SIC-27 Evaluating the Substance of
Transactions Involving the Legal Form of a Lease. The standard sets
out the principles for the recognition, measurement, presentation
and disclosure of leases and requires lessees to account for all
leases under a single, on-balance sheet model.
The Group acts mainly as a lessee and the only significant lease
contracts are leased office buildings.
The Group adopted IFRS 16 using the modified retrospective
method of adoption with the date of initial application of 1
January 2019. Under this method, the standard is applied
retrospectively with the cumulative effect of initially applying
the standard recognised at the date of initial application, without
any restatement to comparatives. The Group elected to use the
transition practical expedient allowing the standard to be applied
only to contracts that were previously identified as leases
applying IAS 17 and IFRIC 4 at the date of initial application. The
Group also elected to use the recognition exemptions for lease
contracts that, at the commencement date, have a lease term of 12
months or less and do not contain a purchase option ('short-term
leases'), and lease contracts for which the underlying asset is of
low value ('low-value assets'). The Group does not have any
significant short-term or low value assets.
Right-of-use assets were measured at the amount of the lease
liability on adoption using the incremental borrowing rate at the
date of initial application (adjusted for any prepaid or accrued
lease expenses and assessed for impairment).
The impact of the initial recognition on 1 January 2019 is as
follows:
($'m ) 1 January 2019
------------------------- ---------------
Right-of-use assets 69.7
------------------------- ---------------
Prepaid expenses (2.0)
------------------------- ---------------
Accrued leased payments 4.0
------------------------- ---------------
Lease liabilities (71.7)
------------------------- ---------------
Net assets impact -
------------------------- ---------------
Application of IFRS 16 does not have any material impact on the
Group's Net Profit or EPS comparability with the prior period. The
impact is limited to differences in presentation - lease expenses
are replaced by right-of-use asset amortisation and lease interest
expense.
The Group also uses the following practical expedients permitted
by the standard:
-- the use of a single discount rate to a portfolio of leases
with reasonably similar characteristics
-- the adjustment of the right-of-use asset for any recognised
onerous lease provisions, instead of performing an impairment
review
-- applied the short-term leases exemptions to leases with lease
term that ends within 12 months at the date of initial application
-- the exclusion of initial direct costs for the measurement of
the right-of-use asset at the date of initial application,
and
-- the use of hindsight in determining the lease term where the
contract contains options to extend or terminate the lease.
The lease liabilities as at 1 January 2019 are reconciled to the
operating lease commitments as of 31 December 2018 as follows:
($ 'm)
-------------------------------------------------- -------
Operating lease commitments as at 31
December 2018 87.6
Recognition exemption:
Commitments relating to short-term leases (0.5)
Other commitments (0.3)
================================================== =======
Net operating lease commitments as at
31 December 2018 86.8
Effect from discounting at the incremental
borrowing rate as of 1 January 2019 (15.1)
Lease liabilities as at 1 January 2019 71.7
-------------------------------------------------- -------
The lease liabilities were discounted at the incremental
borrowing rates as at 1 January 2019. The weighted average discount
rate was 3.3%.
IFRIC Interpretation 23 Uncertainty over Income Tax
Treatment
The Interpretation addresses the accounting for income taxes
when tax treatments involve uncertainty that affects the
application of IAS 12 Income Taxes. It does not apply to taxes or
levies outside the scope of IAS 12, nor does it specifically
include requirements relating to interest and penalties associated
with uncertain tax treatments. The Interpretation specifically
addresses the following:
-- Whether an entity considers uncertain tax treatments separately;
-- The assumptions an entity makes about the examination of tax
treatments by taxation authorities;
-- How an entity determines taxable profit (tax loss), tax bases,
unused tax losses, unused tax credits and tax rates;
-- How an entity considers changes in facts and circumstances.
Upon adoption of the Interpretation, the Group considered
whether it had any uncertain tax positions, particularly those
relating to transfer pricing. The Company's and the subsidiaries'
tax filings in different jurisdictions include deductions related
to transfer pricing and the taxation authorities may challenge
those tax treatments. The Group determined, based on its tax
compliance and transfer pricing study, that it is probable that its
tax treatments (including those for the subsidiaries) will be
accepted by the taxation authorities. The Interpretation did not
have an impact on the consolidated financial statements of the
Group.
Standards issued but not yet effective and not early adopted
IFRS 3 Business Combinations (Amendments)
The IASB issued amendments in Definition of a Business
(Amendments to IFRS 3) aimed at resolving the difficulties that
arise when an entity determines whether it has acquired a business
or a group of assets. The Amendments are effective for business
combinations for which the acquisition date is in the first annual
reporting period beginning on or after 1 January 2020 and to asset
acquisitions that occur on or after the beginning of that period,
with earlier application permitted.
IAS 1 Presentation of Financial Statements and IAS 8 Accounting
Policies, Changes in Accounting Estimates and Errors: Definition of
'material' (Amendments)
The Amendments are effective for annual periods beginning on or
after 1 January 2020 with earlier application permitted. The
Amendments clarify the definition of material and how it should be
applied. The new definition states that, 'Information is material
if omitting, misstating or obscuring it could reasonably be
expected to influence decisions that the primary users of general
purpose financial statements make on the basis of those financial
statements, which provide financial information about a specific
reporting entity'. In addition, the explanations accompanying the
definition have been improved. Management has assessed no
significant impact from the implementation of this amendment is
expected by the Group.
5. Segment information and other disclosures
Management monitors operating results in two customer segments:
consumer products (which generate direct and indirect revenue
streams) and products for the SMB market. For management reporting
purposes, the operating and reportable segments are determined to
be Consumer and Small and Medium-sized business ("SMB"). This is
the level on which the Chief Operating Decision Maker decides about
the allocation of the Group's resources.
The principal products and services offered by each segment are
summarised below:
Consumer -The Group's consumer products include direct revenue
streams through its offerings for desktop security and mobile
device protection and consist of free and premium paid products for
the individual consumer market. The Group also has several
value-added solutions for performance, privacy and other tools. The
Group also focuses on monetising the user base indirectly, via
dynamic secure search solution, including the browser toolbar,
which gives users a convenient way to access a search engine at any
time.
SMB - The Group's SMB segment focuses on delivering high-level
security and protection solutions for Small and Medium sized
business customers.
Billings is one of the important metrics used to evaluate and
manage operating segments. Billings represent the full value of
products and services being delivered under subscription and other
agreements and include sales to new end customers plus renewals and
additional sales to existing end customers. Under the subscription
model, end customers pay the Group for the entire amount of the
subscription in cash upfront upon initial delivery of the
applicable products. Although the cash is paid up front, under
IFRS, subscription revenue is deferred and recognised rateably over
the life of the subscription agreement, whereas non-subscription
revenue is typically recognised immediately.
The Group evaluates the performance of its segments based
primarily on Billing, Revenue and Operating profit. Billings are
not defined or recognised under IFRS and considered as a non-IFRS
financial measure used to evaluate current business
performance.
Certain costs that are not directly applicable to the segments
are identified as "Corporate Overhead" costs and represent general
corporate costs that are applicable to the consolidated group. In
addition, costs relating to share-based payments and exceptional
items are not allocated to the segments since these costs are not
directly applicable to the segments, and therefore not included in
the evaluation of performance of the segments.
The following tables present summarised information by
segment:
For the year ended 31 December 2019 Consumer SMB Total
($'m )
------------------------------------------ --------- ------- --------
Billings 865.1 45.9 911.0
------------------------------------------ --------- ------- --------
Deferral of revenue (42.2) 2.3 (39.9)
------------------------------------------ --------- ------- --------
Revenues 822.9 48.2 871.1
------------------------------------------ --------- ------- --------
Deferred revenue haircut reversal 0.8 1.0 1.8
------------------------------------------ --------- ------- --------
Segment revenue 823.7 49.2 872.9
Segment cost of revenues (84.7) (5.3) (90.0)
Segment sales and marketing costs (78.7) (18.9) (97.6)
Segment research and development costs (57.7) (4.7) (62.4)
Segment general and administrative
costs (5.4) 3.1 (2.3)
------------------------------------------ --------- ------- --------
Total Segment operating profit 597.2 23.4 620.6
------------------------------------------ --------- ------- --------
Corporate overhead (137.5)
Deferred revenue haircut reversal (1.8)
------------------------------------------ --------- ------- --------
Depreciation and amortisation (110.0)
------------------------------------------ --------- ------- --------
Exceptional items (1.8)
Share-based payments (20.7)
Employer's taxes on share-based payments (4.2)
------------------------------------------ --------- ------- --------
Consolidated operating profit 344.6
========================================== ========= ======= ========
For the year ended 31 December 2018 Consumer SMB Total
($'m )
---------------------------------------- --------- ------- --------
Billings 801.6 60.5 862.1
---------------------------------------- --------- ------- --------
Deferral of revenue (50.7) (3.1) (53.8)
---------------------------------------- --------- ------- --------
Revenues 750.9 57.4 808.3
---------------------------------------- --------- ------- --------
Deferred revenue haircut reversal 10.0 5.5 15.5
---------------------------------------- --------- ------- --------
Segment revenue 760.9 62.9 823.8
Segment cost of revenues (74.0) (7.2) (81.2)
Segment sales and marketing costs (70.6) (23.5) (94.1)
Segment research and development costs (44.0) (6.6) (50.6)
Segment general and administrative
costs (4.7) - (4.7)
---------------------------------------- --------- ------- --------
Total Segment operating profit 567.6 25.6 593.2
---------------------------------------- --------- ------- --------
Corporate overhead (146.2)
Deferred revenue haircut reversal (15.5)
---------------------------------------- --------- ------- --------
Depreciation and amortisation (143.7)
---------------------------------------- --------- ------- --------
Exceptional items (25.6)
Share-based payments (13.9)
---------------------------------------- --------- ------- --------
Consolidated operating profit 248.3
======================================== ========= ======= ========
Corporate overhead costs primarily include the costs of the
Group's IT, Technology (R&D), HR, Finance and Central Marketing
functions, legal and office related costs, which are not allocated
to the individual segments.
The following table presents depreciation and amortisation by
segment:
($'m ) Year-ended Year-ended
31 December 31 December
2019 2018
------------------------------------- ------------- -------------
Consumer 91.6 130.5
------------------------------------- ------------- -------------
SMB 0.2 0.4
------------------------------------- ------------- -------------
Corporate overhead 18.2 12.8
------------------------------------- ------------- -------------
Total depreciation and amortisation 110.0 143.7
------------------------------------- ------------- -------------
The following table presents revenue of subsegments:
($'m ) Year-ended Year-ended
31 December 31 December
2019 2018
------------------------- -------------- -------------
Consumer Direct Desktop 631.1 568.4
-------------------------- ------------- -------------
Consumer Direct Mobile 75.4 81.2
-------------------------- ------------- -------------
Consumer Indirect 106.7 85.8
-------------------------- ------------- -------------
SMB 49.2 57.4
-------------------------- ------------- -------------
Other 8.7 15.5
-------------------------- ------------- -------------
Total 871.1 808.3
-------------------------- ------------- -------------
The following table presents the Group's non-current assets, net
of accumulated depreciation and amortisation, by country.
Non-current assets for this purpose consist of property and
equipment, right-of-use assets and intangible assets.
31 December 2019 31 December 2018
------------------ ------------------- -------------------
($'m ) (in %) ($'m ) (in %)
------------------ --------- -------- --------- --------
Czech Republic 257.7 86.2% 263.5 88.9%
UK 20.9 7.0% 22.2 7.5%
USA 16.1 5.4% 8.6 2.9%
Other countries* 4.1 1.4% 2.3 0.8%
Total 298.8 100.0% 296.6 100.0%
------------------ --------- -------- --------- --------
*No individual country represented more than 5% of the
respective totals.
The following table presents revenue attributed to countries
based on the location of the end user:
Year-ended Year-ended
31 December 2019 31 December 2018
------------------ -------------------- --------------------
($'m ) (in %) ($'m ) (in %)
------------------ --------- --------- --------- ---------
United States 358.9 41.2% 349.6 43.3%
United Kingdom 75.8 8.7% 68.6 8.5%
France 66.2 7.6% 61.1 7.6%
Germany 56.6 6.5% 50.7 6.3%
Other countries* 313.6 36.0% 278.3 34.3%
Total 871.1 100% 808.3 100.0%
------------------ --------- --------- --------- ---------
*No individual country represented more than 5% of the
respective totals.
Revenues from relationships with certain third parties exceeding
10% of the Group's total revenues were as follows:
Year-ended Year-ended
31 December 31 December 2018
2019
---------------------------------- ---------------- --------------------
($'m ) (in %) ($'m ) (in %)
---------------------------------- ------- ------- --------- ---------
Revenues realised through online
resellers:
---------------------------------- ------- ------- --------- ---------
Digital River 521.8 59.9% 370.1 45.8%
---------------------------------- ------- ------- --------- ---------
In 2019, revenues realized through Digital River significantly
increased by $151.7 million due to the transfer of part of the
business from in-house payment processing to the external vendor.
The majority of revenues from Digital River were reported in the
Consumer segment, while the remaining $12.0 million of revenues
were reported in the SMB segment.
6. Exceptional items
The following table presents the exceptional items by
activity:
($'m ) Year-ended Year-ended
31 December 31 December
2019 2018
-------------------------------------------- ------------- -------------
Exceptional items in the operating profit 1.8 25.6
-------------------------------------------- ------------- -------------
Net gain on disposal of business operation 17.5 -
============================================ ============= =============
Exceptional items in operating profit
The Group incurred $1.8 million of legal and professional fees
related to the various acquisitions and a disposal of a subsidiary
and related business operation that incurred during 2019. The tax
impact on these exceptional items amounted to $0.2 million (2018:
$1.5 million)
During 2018, the Group incurred costs in the amount of $18.8
million related to one-time advisory, legal and other professional
service fees of the IPO that occurred in May 2018. The majority of
these costs were tax non-deductible. Total IPO costs comprise of
$18.8 million recorded to the Consolidated Statement of Profit and
Loss in 2018, $4.1 million already accrued in trade payables in
2017 and additional $4.0 million of direct share issue expenses
recorded to equity, which gives total IPO costs of $26.8 million.
The full cash impact of the IPO costs was recorded in 2018 showing
$(4.0) million under the cash flows from financing activities as
directly linked to the share issue and the remaining $(22.8)
million is included in the cash flows from operating
activities.
The remaining portion of 2018 exceptional costs of $6.8m related
to the AVG integration and other programs implemented in prior
years that were completed in 2018.
Net gain on disposal of a business operation
On 30 January 2019, the Group sold all activities of Managed
Workplace business recognising a gain of $17.5 million as an
exceptional item (Note 16), with a tax impact of $2.3 million.
7. Auditor's Remuneration
The Group paid the following amounts to its auditors in respect
of the audit of the financial statements and for other non-audit
services provided to the Group.
($ 'm) Year-ended Year-ended
31 December 31 December
2019 2018
--------------------------------------------------- -------------- -------------
Audit of the financial statements 0.9 1.1
Audit of the financial statements of subsidiaries 0.2 0.2
---------------------------------------------------- ------------- -------------
Total audit fees 1.1 1.3
---------------------------------------------------- ------------- -------------
Other assurance services 0.1 2.5
---------------------------------------------------- ------------- -------------
Corporate finance services - 2.2
---------------------------------------------------- ------------- -------------
Tax services - 0.2
==================================================== ============= =============
Total non-audit fees 0.1 4.9
==================================================== ============= =============
Total fees 1.2 6.2
==================================================== ============= =============
The majority of other services in 2018 related to the Company's
IPO, including work as reporting accountant, and related tax and
other advisory work, which is an exceptional cost. See Note 6 .
8. Cost of revenues
Cost of revenues consist of the following:
($ 'm) Year-ended Year-ended
31 December 31 December
2019 2018
-------------------------------- ------------- -------------
Amortisation 89.9 129.4
Depreciation 7.2 7.4
Personnel costs of product
support and virus updates 19.1 17.3
Digital content distribution
costs 16.4 15.4
Third party licence costs 5.3 5.2
Other product support and
virus update costs 13.2 13.9
--------------------------------- ------------- -------------
Commissions, payment and other
fees 59.6 52.8
--------------------------------- ------------- -------------
Total 210.7 241.4
--------------------------------- ------------- -------------
9. Operating costs
Operating costs are internally monitored by function; their
allocation by nature is as follows:
($ 'm) Year-ended Year-ended
31 December 31 December
2019 2018
------------------------------------------------ ------------- -------------
Depreciation 11.7 6.0
Amortisation 1.2 0.9
Personnel expenses 180.1 168.3
Purchases of services from third party vendors
(legal, advisory and other services) 116.5 135.8
Gifts and charities 5.0 5.0
Other operating expenses 1.3 2.6
------------------------------------------------ ------------- -------------
Total 315.8 318.6
------------------------------------------------ ------------- -------------
Purchases of services from third party vendors decreased to due
adoption of IFRS 16, according to which office costs are now being
capitalized.
10. Personnel expenses
Personnel expenses consist of the following:
($ 'm) Year-ended Year-ended
31 December 2019 31 December 2018
--------------------------------------- -------------------------- --------------------------
Employees Non-executive Employees Non-executive
directors directors
--------------------------------------- ---------- -------------- ---------- --------------
Wages and salaries 135.1 0.9 135.2 0.8
Social security and health insurance* 27.2 - 23.5 0.1
Pension costs 0.2 - 0.5 -
Social costs 8.0 - 6.7 -
Severance payments and termination
benefits 2.9 - 4.9 -
--------------------------------------- ---------- -------------- ---------- --------------
Share-based payments (including
employer's costs) 24.9 - 13.7 0.2
--------------------------------------- ---------- -------------- ---------- --------------
Total personnel expense 198.3 0.9 184.5 1.1
--------------------------------------- ---------- -------------- ---------- --------------
*State and Government pension costs of Czech employees are also
included in the social security and health insurance costs.
The average number of employees by category during the period
was as follows:
Year-ended Year-ended
31 December 31 December
2019 2018
----------------------------------- ------------- -------------
Sales and marketing 635 559
Research and development 911 807
General and administrative 246 215
Total average number of employees 1,792 1,581
----------------------------------- ------------- -------------
11. Finance income and expenses
Interest income:
($ 'm) Year-ended Year-ended
31 December 31 December
2019 2018
--------------------------- ------------- -------------
Interest on bank deposits 1.5 0.3
Total finance income 1.5 0.3
--------------------------- ------------- -------------
Interest expense:
($ 'm) Year-ended Year-ended
31 December 31 December
2019 2018
---------------------------- ------------- -------------
Term loan interest expense (56.4) (85.8)
Lease interest expense (2.3) -
Total interest expense (58.7) (85.8)
---------------------------- ------------- -------------
Other finance income and expense (net):
($ 'm) Year-ended Year-ended
31 December 31 December
2019 2018
---------------------------------------------- ------------- -------------
Changes of fair values of derivatives (0.8) 1.9
Revolving loan - commitment fee (0.8) (1.3)
Foreign currency gains/(losses) (3.3) (7.1)
Unrealised foreign exchange gains/(losses)
on borrowings 13.9 26.4
Other financial expense 0.7 (0.2)
---------------------------------------------- ------------- -------------
Total other finance income and expense (net) 9.7 19.7
---------------------------------------------- ------------- -------------
12. Depreciation and amortisation
Amortisation by function:
($ 'm) Year-ended Year-ended
31 December 31 December
2019 2018
-------------------------------------------------- -------------- -------------
Cost of revenues 88.3 127.5
Total amortisation of acquisition intangible
assets 88.3 127.5
--------------------------------------------------- ------------- -------------
Cost of revenues 1.6 1.9
--------------------------------------------------- ------------- -------------
Sales and marketing 0.2 0.1
--------------------------------------------------- ------------- -------------
Research and development 0.1 0.1
--------------------------------------------------- ------------- -------------
General and administration 0.9 0.7
=================================================== ============= =============
Total amortisation of non-acquisition intangible
assets 2.8 2.8
=================================================== ============= =============
Total amortisation 91.1 130.3
--------------------------------------------------- ------------- -------------
Depreciation by function:
($ 'm) Year-ended Year-ended
31 December 31 December
2019 2018
----------------------------- -------------- -------------
Cost of revenues 7.2 7.4
Sales and marketing 0.1 0.3
Research and development 0.6 1.1
General and administration* 11.0 4.6
------------------------------ ------------- -------------
Total depreciation 18.9 13.4
------------------------------ ------------- -------------
*$7.7 million is attributable to the depreciation of
right-of-use assets (see Note 22)
Tangible and intangible assets are allocated to each department
of the Group. The depreciation and amortisation of these assets is
reported as part of operating costs and cost of revenues.
13. Income tax
In the Consolidated Statement of Financial Position, the
Corporate Income tax receivable of $17.2 million (2018: $5.8
million) is part of the caption Tax receivables.
The major components of the income tax in the consolidated
statement of comprehensive income are:
($ 'm) Year-ended Year-ended
31 December 31 December
2019 2018
------------------------------------------- ------------- -------------
Current income tax
Related to current year (54.8) (86.7)
Related to prior year (0.9) (0.6)
Current income tax total (55.7) (87.3)
Deferred tax
Related to current year (4.8) 145.9
Related to prior year (5.2) 0.1
Deferred tax total (10.0) 146.0
------------------------------------------- ------------- -------------
Total income tax (expense)/income through
P&L (65.7) 58.7
------------------------------------------- ------------- -------------
On 1 May 2018, AVG E-comm web shop was transferred to Avast
Software B.V. ("Avast BV") and subsequently, the former Dutch AVG
business (including the web shop) from Avast BV was sold to Avast
Software s.r.o. As a result, the deferred tax asset was increased
by $143.8 million. In addition, an exit charge of $49.4 million was
agreed upon with the Dutch tax authorities. The net tax effect of
the transaction in the year ended 31 December 2018 was a tax
benefit of $94.4 million.
On 1 August 2018, intangible assets of Piriform IP were sold to
Piriform UK. As a result, a deferred tax asset of $5.6 million was
recognized by the Group. The current tax expense related to the
transaction was $0.7 million. The net tax effect of the transaction
in the year ended 31 December 2018 was a tax benefit of $4.8
million.
The Group generates a temporary difference relating to an
intragroup loan denominated in USD received by Avast Software
s.r.o., a subsidiary with a USD functional currency (but with a tax
currency of CZK). This loan is subject to hedging in its local
statutory books (with the effect that current tax relief does not
cover the full period exchange differences). The tax impact related
to the loan is a deferred tax benefit of $0.4 million (2018: $9.8
million) and the Group reports a deferred tax asset of $10.1
million (2018: $9.8 million) related to the loan.
The reconciliation of income tax (expense)/benefit applicable to
accounting profit before income tax at the statutory income tax
rate to income tax expenses at the Group's effective income tax
rate is as follows:
($ 'm) Year-ended Year-ended
31 December 31 December
2019 2018
----------------------------------------------------- ------------- -------------
Profit/(loss) before tax 314.6 182.5
----------------------------------------------------- ------------- -------------
Group effective income tax rate (20%* in
2019 and 2018) (62.9) (36.5)
Recurring adjustments
Non-deductible expenses (3.7) (3.2)
Share-based payments (1.6) (2.8)
FX effect on Intercompany loans 0.4 9.8
Non recurring adjustments
Non-deductible expenses (IPO related) - (3.8)
AVG IP transfer net tax benefit - 94.4
Piriform IP transfer net tax benefit - 4.8
Current year deferred tax assets not recognised (0.1) (4.9)
Derecognition of previously recognized deferred
tax assets - (8.9)
Usage of previously not recognized deferred
tax assets 4.7 1.6
Effect of prior year taxes (6.1) (0.5)
Effect of enacted changes in tax rates on
deferred taxes 0.2 (2.5)
Remaining impact of tax rate variance and
other effects 3.4 11.2
----------------------------------------------------- ------------- -------------
Total income tax (65.7) 58.7
===================================================== ============= =============
*Estimated as a Group's blended rate across the jurisdictions
where the Group operates.
The deferred tax relates to following temporary differences:
($ 'm) 31 December 31 December
2019 2018
------------------------------------------------ ------------------ -------------------
Temporary differences Asset / Asset /
(Liability) (Liability)
------------------------------------------------ ------------------ -------------------
Fixed assets (38.2) (53.1)
IP transfer tax benefit 122.9 142.9
Deferred revenue and unbilled receivables 3.5 15.9
Tax loss carryforward 45.8 16.6
Tax credits carryforward 4.2 3.7
Loans and derivatives 2.1 11.0
Carryforward of unutilised interest 2.7 -
Share-based payments transactions 5.7 -
Provisions 0.8 1.8
Tax impact from FX difference on intercompany
loans 10.1 9.8
Other 8.0 0.8
Net 167.6 149.4
------------------------------------------------ ------------------ -------------------
Tax losses carried forward as at 31 December 2019 are recorded
by the following subsidiaries:
($ 'm)
------------------------------------------------ ------------------------- -----------------
Deferred tax Tax jurisdiction
from
tax losses carryforward
------------------------------------------------ ------------------------- -----------------
Avast Software Inc. (tax group incl. Location 44.6 United States
Labs and AVG Technologies USA)
Avast plc 0.9 United Kingdom
Other 0.3 -
Total deferred tax from tax losses carryforward 45.8 -
------------------------------------------------ ------------------------- -----------------
Tax losses carried forward in United States and United Kingdom
are related mainly to share-based payments exercises.
As a result of share-based payments exercises there was a $147.6
million (2018: $70.0 million) tax deduction in Avast Software Inc.,
Location Labs LLC, Jumpshot Inc., Avast plc and AVG UK that created
a tax benefit of $34.2 million (2018: $14.8 million). A tax benefit
of $31.8 million (2018: $14.8 million) exceeding related cumulative
remuneration expenses is recognized directly in equity, of which
the current tax benefit is $3.4 million (2018: nil) and deferred
tax benefit is $28.4 million (2018: $14.8 million).
Tax losses reported by Avast Software Inc. can be utilised by
all subsidiaries incorporated in the United States (Note 40)
excluding Jumpshot, Inc. Tax credit of $4.5 million from federal
and state tax losses generated during the years 2011 - 2017 can be
utilized over 20 years. Tax credit of $40.1 million from federal
and state tax losses can be carried forward for indefinite period
of time.
The tax deduction for share-based payments is not received until
the instruments are exercised. Therefore, a temporary difference of
$5.7 million (2018: nil) arises between the tax deduction (pro
rated for the period to vesting) and the tax effect of the related
cumulative remuneration expense. The deferred tax asset is measured
as an estimated tax deduction at the date of exercise (pro rated
for the period to vesting), based on the year end share price. As
the amount of the deferred tax asset exceeded the tax effect of the
related cumulative remuneration expense, the excess of the
associated deferred tax of $3.1 million was recognized directly in
equity.
Following the transactions of IP transfer in 2018, described
above, the Group reports a deferred tax asset of $122.9 million
(2018: $142.9 million), of which the major part of $119.5 million
relates to the transfer of the former Dutch AVG business from Avast
BV to Avast Software s.r.o. The temporary difference is amortised
and deducted from the tax base of Avast Software s.r.o. registered
in the Czech Republic linearly over 15 years.
The Group does not recognise the following potential deferred
tax asset of $21.1 million (2018: $13.8 million), mostly related to
Jumpshot tax losses, for which the Group considers future
recoverability to be uncertain.
($ 'm) 31 December 31 December
2019 2018
------------------------------------------ -------------------- --------------------
Asset / (Liability) Asset / (Liability)
------------------------------------------ -------------------- --------------------
Tax losses carried forward - expiration
20 years 7.2 5.6
Tax losses carried forward - indefinite 1.8 1.9
Tax losses carried forward - expiration 4.5 -
1-6 years
Temporary differences related to
loans and interests - indefinite 5.2 6.3
Other temporary differences - expiration 2.4 -
n/a
Total deferred tax asset not recognised 21.1 13.8
------------------------------------------- -------------------- --------------------
The movement in deferred tax balances:
($ 'm) 31 December 31 December
2019 2018
----------------------------------- -------------------- --------------------
Asset / (Liability) Asset / (Liability)
----------------------------------- -------------------- --------------------
Deferred tax as at 1 January 149.4 (12.0)
Effect of business combination (3.3) -
(Note 15)
Deferred tax recognised in the
profit & loss (10.0) 146.0
Deferred tax recognised in equity 31.5 14.8
Translation difference - 0.6
Deferred tax as at 31 December 167.6 149.4
------------------------------------ -------------------- --------------------
The deferred tax asset increased significantly due to tax losses
realized in 2018 and 2019 from significant share-based payments'
exercises. Such significant share-based payments' transactions are
not expected to repeat in future periods and management expect the
underlying business to remain profitable for the foreseeable
future.
14. Earnings per share
Basic earnings per share ("EPS") is calculated by dividing the
net profit for the period attributable to equity holders of the
Group by the weighted average number of shares of ordinary shares
outstanding during the year.
Diluted EPS is calculated by dividing the net profit for the
period attributable to equity holders of the Group by the weighted
average number of ordinary shares outstanding during the period
plus the weighted average number of shares that would be issued if
all dilutive potential ordinary shares were converted into ordinary
shares.
Adjusted EPS is calculated by dividing the adjusted net profit
for the period attributable to equity holders by the weighted
average number of ordinary shares outstanding during the
period.
The following reflects the income and share data used in
calculating EPS:
Year-ended Year-ended
31 December 31 December
2019 2018
----------------------------------------------------- -------------- -------------
Net profit attributable to equity holders
($ 'm) 248.7 241.2
Basic weighted average number of shares 973,788,157 914,567,949
Effects of dilution from share options, performance
and restricted share units 44,313,005 62,120,397
Total number of shares used in computing dilutive
earnings per share 1,018,101,162 976,688,346
Basic earnings per share ($/share) 0.26 0.26
Diluted earnings per share ($/share) 0.24 0.25
----------------------------------------------------- -------------- -------------
Adjusted earnings per share measures:
Year-ended Year-ended
31 December 2019 31 December
2018
-------------------------------------------------------------- -------------
Net profit attributable to equity holders
($ 'm) 248.7 241.2
------------------------------------------------ ------------- -------------
Deferred Revenue Haircut reversal / Other 1.8 17.2
Share-based payments (including employers'
costs) 24.9 13.9
Exceptional items 1.8 25.6
------------------------------------------------ ------------- -------------
Amortisation of acquisition intangible
assets 88.4 127.5
------------------------------------------------ ------------- -------------
Unrealised FX gain/(loss) on EUR tranche
of bank loan (13.9) (26.4)
Tax impact from FX difference on intercompany
loans (0.4) (9.8)
COGS Deferral Adjustments (0.1) (1.1)
Tax impact of COGS deferral adjustment - 0.3
Tax impact on adjusted items (20.3) (18.5)
Tax impact of IP transfer 6.3 (99.2)
Gain on disposal of business operation (17.5) -
Tax impact from disposal of business operation 2.3 -
Adjusted net profit attributable to equity
holders ($ 'm ) 322.1 270.8
Basic weighted average number of shares 973,788,157 914,567,949
Adjusted basic earnings per share ($/share) 0.33 0.30
Diluted weighted average number of shares 1,018,101,162 976,688,346
Adjusted diluted earnings per share ($/share) 0.32 0.28
Management regard the above adjustments necessary to give a fair
picture of the adjusted results of the Group for the period.
15. Business combinations
2019 Acquisitions
Acquisition of Emerald Cactus Ventures Inc. ("Tenta")
On 6 November 2019 , Avast Software, Inc. purchased a 100% stake
in the American company Emerald Cactus Ventures Inc. that has been
offering the Tenta Browser providing a privacy-first mobile web
browser to hundreds of thousands of Android users worldwide . Tenta
Browser will be paired with the current desktop-based Avast Secure
Browser with its tens of millions of active users, resulting in a
true multi-platform, people-centric solution for private and secure
web browsing.
The transaction represents a business combination with Avast
Software Inc. being the acquirer. The fair value of the
consideration at the acquisition date was determined by the Group
to be $5.3 million and comprised the following components:
-- Initial payment - $3.3 million was paid to the owners of Tenta
on the acquisition date.
-- Holdback amount - $0.6 million will be paid in 12 months.
-- Earn-out payment - four milestone payments of $0.4 million
represents a contingent consideration payable within the next
20 months after the acquisition date to the extent that specific
milestones of Tenta are met. As of the acquisition date, the
probability weighted value of the earn-out was determined to
be $1.4 million.
The fair value of assets acquired and liabilities incurred on
the acquisition date was determined on final basis as follows:
($ 'm) Fair Value
at
6 November
2019
Intangible assets 2.3
Total Assets 2.3
Deferred tax liability 0.5
Total Liabilities 0.5
Net assets acquired 1.8
Consideration paid 5.3
Goodwill 3.5
The business combination resulted in the recognition of goodwill
of $3.5 million, which is allocated to the Consumer CGU and is
tested for impairment at least annually. The goodwill of $3.5
million comprises the workforce in place and the value of expected
synergies arising from the acquisition. The carrying value of
goodwill is not expected to be tax deductible.
The business combination resulted in the recognition of
intangible assets in the amount of $2.3 million that represents the
intellectual property of Tenta, and will be amortised over the
estimated useful life of 5 years.
Analysis of cash flows on acquisition:
($'m ) 31 December 2019
Cash consideration (5.3)
Holdback consideration payable in 12 months 0.6
Earn-out 1.4
Net cash flow on acquisition (3.3)
Transaction costs of $0.2 million have been expensed and are
included in General and administrative expenses in the Consolidated
Statement of Profit or Loss and are part of operating cash flows in
the statement of cash flows.
The revenues and net profit of the Group for the year ended 31
December 2019 would not have been significantly different had the
acquisition occurred at the beginning of the reporting period (1
January 2019).
Acquisition of TrackOFF, Inc. ("TrackOFF")
On 24 May 2019, Avast Software, Inc. purchased a 100% stake in
the American company TrackOFF, a developer of tools to protect
users' identities and personal lives. The Group has acquired
TrackOFF to strengthen further the development of Avast's
anti-tracking products and other products that help users maintain
their privacy online.
The transaction represents a business combination with Avast
Software Inc. being the acquirer. The fair value of the
consideration at the acquisition date was determined by the Group
to be $13.1 million for 100% ownership. The consideration given was
paid in cash.
The fair value of assets acquired and liabilities incurred on
the acquisition date was determined on final basis as follows:
($'m) Fair Value
at
24 May 2019
ASSETS
Current Assets
Cash and cash equivalents 0.6
Trade and other receivables 0.2
Total current assets 0.8
Non-current assets
Intangible assets 11.2
Deferred tax assets 0.4
Total non-current assets 11.6
TOTAL ASSETS 12.4
LIABILITIES
Trade payables 0.2
Deferred revenues 1.7
Other current liabilities 0.2
Total current liabilities 2.1
Deferred tax liability 2.3
Total non-current liabilities 2.3
TOTAL LIABILITIES 4.4
Net assets acquired 8.0
Consideration paid 13.1
Goodwill 5.1
The business combination resulted in the recognition of goodwill
of $5.1 million, which is allocated to the Consumer CGU and is
tested for impairment at least annually. The goodwill of $5.1
million comprises the workforce in place and the value of expected
synergies arising from the acquisition. The carrying value of
goodwill is not expected to be tax deductible.
The business combination resulted in the recognition of
intangible assets in the amount of $11.2 million that represents
intellectual property of TrackOFF, and will be amortised over the
estimated useful life of 5 years.
Analysis of cash flows on acquisition:
($'m ) 31 December 2019
Cash consideration (13.1)
Net cash acquired with the business (included
in cash flow from investing activities) 0.6
Holdback consideration payable in 12 months 1.0
Net cash flow on acquisition (11.5)
Transaction costs of $0.2 million have been expensed and are
included in General and administrative expenses in the Consolidated
Statement of Profit or Loss and are part of operating cash flows in
the statement of cash flows.
Revenues and net profit of the Group for the twelve month period
ended 31 December 2019 would not have been significantly different
had the acquisition occurred at the beginning of the reporting
period (1 January 2019).
2018 Acquisitions
Acquisition of Inloop s.r.o ("Inloop")
On 1 August 2018, Avast Software s.r.o. acquired a 100% stake in
Inloop s.r.o. ("Inloop") on behalf of INLOOPX s.r.o ("INLOOPX"), a
mobile engineering services firm based in Slovakia. The reason for
the acquisition was to obtain the skilled team of engineers to
strengthen Avast's Mobile business.
The transaction represented a business combination with Avast
Software s.r.o. being the acquirer. The acquisition date was
determined to be 1 August 2018. The former shareholders of Inloop
do not have ongoing involvement in the business or with the Avast
Group, following the acquisition.
The fair value of the consideration including contingent payment
at the acquisition date was determined by the Group to be EUR 7.3
million ($8.6 million).
The fair value of assets acquired and liabilities incurred on
the acquisition date was determined on final basis as follows:
($ 'm) Fair Value
at
1 August
2018
Cash 0.4
Personal property 0.2
Trade and other receivables 1.5
Total Assets 2.1
Total Liabilities 0.5
Net assets acquired 1.6
Consideration paid 8.6
Goodwill 7.0
The business combination results in the recognition of goodwill
of $7.0 million which is allocated to the Consumer CGU and is
tested for impairment at least annually. The large proportion of
goodwill to other identified assets is due to Inloop not having any
significant identifiable assets other than the skilled workforce
(the obtaining of which was the main purpose of the acquisition).
The carrying value of goodwill is not expected to be tax
deductible.
The revenues and net profit of the Group for the year ended 31
December 2018 would not have been significantly different had the
acquisition occurred at the beginning of the reporting period (1
January 2018).
16. Disposal of a business operation
On 30 January 2019, the Avast Group sold all activities of
Managed Workplace business, its remote monitoring and management
product, to Barracuda Networks, Inc ("Barracuda"). The transaction
consisted of the sale of a subsidiary AVG Technologies Canada, Inc.
("AVG CAN") owned by Avast Software B.V., the sale of intellectual
property ("IP") owned by Avast Software s.r.o. and the sale of
other assets, notably receivables, by Avast Deutschland GmbH, Avast
Switzerland AG, AVG Technologies Norway A/S and AVG Distribuidora
de Tecnologias do Brasil LTDA.
The total selling price for the transaction was $30.0 million,
on a cash-free, debt-free basis, of which $3.0 million was withheld
in escrow for a 12-month period to satisfy any potential indemnity
claims against the Group under the applicable share and asset
purchase agreement entered into between the parties.
As a result, the Group derecognised all assets and liabilities
of the sold subsidiary AVG CAN. Because the sale of the subsidiary
is part of a single transaction of the sale of a part of the
business, the Group presents the result of the whole transaction
(except for tax impacts) within a single line in the statement of
comprehensive income, including the sale of IP and other
assets.
The carrying amounts of assets and liabilities as of the date of
sale were as follows:
($'m) 30 January 2019
Cash and cash equivalents 6.0
Trade and other receivables 1.3
Prepaid expenses 0.2
Current assets 7.5
Tangible assets 1.4
Deferred tax assets 0.8
Non-current assets 2.2
Total assets 9.7
Trade and other payables 0.2
Lease liability 0.2
Deferred revenues 0.9
Other current liabilities 0.2
Current liabilities 1.5
Lease liabilities 0.7
Non-current liabilities 0.7
Total liabilities 2.2
Net assets 7.5
Because the sold business was part of the group of CGUs to which
goodwill was allocated, a portion of the goodwill has to be
disposed as part of the transaction. The Group have determined that
the appropriate amount of goodwill disposed of is $11.0 million
which was part of the SMB CGU.
The resulting gain on disposal of a business operation is shown
in the table below:
($'m) 30 January 2019
Consideration received or receivable:
Cash 33.0
Receivable - holdback 3.0
Total disposal consideration 36.0
Carrying amount of net assets
sold (7.5)
Gain on disposal of a business
operation 28.5
Other adjustments:
Goodwill write-off (11.0)
Net gain on disposal of a business
operation 17.5
Analysis of cash flows on disposal:
($'m ) 31 December 2019
Cash received 33.0
Net cash sold of the business (included in
cash flow from investing activities) (6.0)
Transaction costs paid (0.3)
Net cash flow on disposal 26.7
17. Cash and cash equivalents
For purposes of the statement of cash flows, cash and cash
equivalents comprise of the following :
($ 'm) 31 December 31 December
2019 2018
------------ ------------
Cash on hand and cash
equivalents 1.4 2.0
Cash in bank 215.2 270.3
Total 216.6 272.3
18. Trade and other receivables
($ 'm) 31 December 31 December
2019 2018
Trade receivables 30.4 35.7
Unbilled revenues 48.9 49.2
Other receivables 6.4 4.0
Trade receivables, gross 85.7 88.9
Less: Expected loss allowance on trade receivables,
unbilled revenues and other receivables (6.8) (6.0)
Trade receivables, net 78.9 82.9
Trade receivables are non-interest bearing and are generally
payable on 30-day terms. The fair value
of receivables approximates their carrying value due to their
short term maturities. The expected loss allowance relates to trade
receivables (with only insignificant amounts relating to other
classes of receivable).
Unbilled revenues represent sold products (for which the revenue
has been deferred over the term
of the product licence) but for which an invoice has not yet
been issued.
Other receivables represent mainly advances to, and receivables
from, employees.
($ 'm) Amount
Allowances at 31 December
2017 5.3
Additions 2.7
Write-offs (2.2)
Reversals 0.2
Allowances at 31 December
2018 6.0
Additions 1.1
Write-offs (0.3)
Reversals -
Allowances at 31 December
2019 6.8
Movements in the allowances described above relate mainly to
trade receivables.
As of 31 December 2018 and 2019, the nominal value of
receivables overdue for more than 360 days are $2.0 million
(carrying value: $0.1 million) and $4.5 million (carrying value:
nil), respectively.
The ageing analysis of trade receivables, unbilled receivables
and other receivables was as follows (carrying amounts after
valuation allowance):
($ 'm) Not past Past due Past due Past due Past due Total
due 1 - 90 more than more than more than
days 90 days 180 days 360 days
31 December
2018 74.6 7.2 0.9 0.1 0.1 82.9
31 December
2019 72.5 5.9 0.4 0.1 - 78.9
19. Capitalised contract costs
($ 'm) 31 December 2019 31 December
2018
Capitalised contract costs at 1 January 35.8 27.2
Additions 65.6 66.1
Sales commissions and fees 60.6 59.8
Licence fees 5.0 6.3
Amortisation (63.7) (57.5)
Sales commissions and fees (58.4) (52.1)
Licence fees (5.3) (5.4)
Capitalised contract costs at 31 December 37.7 35.8
Total current 33.3 31.2
Total non-current 4.4 4.6
Capitalised contract costs include commissions and fees and
third party licence costs related to the subscription software
licences that are amortised on a straight-line basis over the
licence period, consistent with the pattern of recognition of the
associated revenue. Capitalised contract costs are reviewed for
impairment annually. All costs are expected to be recovered.
20. Property, plant and equipment
($ 'm) Equipment, Vehicles Leasehold In progress Total
furniture improvements
and fixtures
Cost at 31 December 2017 36.5 0.3 12.0 3.2 52.0
Additions 11.5 0.1 0.6 1.3 13.5
Transfers 2.0 - - (2.0) -
Net foreign currency exchange
difference (0.8) 0.1 0.4 - (0.3)
Disposals (3.3) (0.1) (2.7) - (6.1)
Cost at 31 December 2018 45.9 0.4 10.3 2.5 59.1
Additions 17.8 0.1 0.9 7.5 26.3
Transfers 2.5 - - (2.5) -
Net foreign currency exchange
difference 0.3 (0.2) (0.2) 0.4 0.3
Disposals (4.9) (0.2) (1.5) (0.2) (6.8)
Cost at 31 December 2019 61.6 0.1 9.5 7.7 78.9
($ 'm) Equipment, Vehicles Leasehold In progress Total
furniture improvements
and fixtures
Acc. depreciation at 31 December
2017 (19.9) (0.2) (2.4) - (22.5)
Depreciation (11.6) (0.1) (1.7) - (13.4)
Disposals 3.3 0.1 2.7 - 6.1
Acc. depreciation at 31 December
2018 (28.2) (0.2) (1.4) - (29.8)
Depreciation (9.7) (0.1) (1.4) - (11.2)
Disposals 4.4 0.2 0.4 - 5.0
Acc. depreciation at 31 December
2019 (33.5) (0.1) (2.4) - (36.0)
NBV at 31 December 2018 17.7 0.2 8.9 2.5 29.3
NBV at 31 December 2019 28.1 - 7.1 7.7 42.9
There has been no impairment to the property, plant and
equipment held by the Group during the year.
There has been no individually significant addition to the
property, plant and equipment during the year.
For the information about items of property, plant and equipment
pledged as security refer to Note 0 .
21. Leases
Right-of-use assets
Set out below, are the carrying amounts of the Group's
right-of-use assets and the movements during the period. The Group
has lease contracts related primarily to office buildings.
($ 'm)
At 1 January 2019 69.7
Additions 0.9
Remeasurements (0.1)
Impairment (0.2)
Depreciation of right-of-use
assets (7.7)
At 31 December 2019 62.6
Lease liabilities
Lease liabilities are presented in the statement of financial
position as follows:
($ 'm)
At 1 January 2019 71.7
Additions 0.9
Remeasurements (0.1)
Lease interest expense 2.3
Payments of lease liabilities (9.2)
Foreign currency exchange difference (0.8)
At 31 December 2019 64.8
Current 7.3
Non-current 57.5
Total 64.8
Below are the terms of significant lease contracts as of 31
December 2019 :
Significant lease contracts Carrying End date Option to Option to
amount ($ extend be used
'm)
Enterprise Building in 26.6 August 24 months Yes - in
Prague, Czech Republic* 2024 two times full
Vln na Office in Brno, 23.9 January 60 months Yes - in
Czech Republic 2026 two times full
Office in Emeryville, 3.5 June 2024 60 months No
California, USA
*Lease payments are subject to indexation based on changes of
consumer price index. A 1% increase in the index would not
substantially increase total lease payments.
The following table shows the breakdown of the lease expense
between amount charged to operating profit and amounts charge to
finance costs:
($ 'm) 2019
Depreciation of right-of-use
assets 7.7
Short-term lease expense 1.2
Impairment 0.2
Leases of low-value lease expense -
Charge to operating profit 9.1
Lease interest expense 2.3
Charge to profit before taxation
for leases 11.4
For maturity of the leases, refer to Note 30.
22. Intangible assets
($ 'm) Developed Trade Software Customer Other In progress Total
Technology marks relationship
and user
base
Cost at 31 December
2017 250.5 164.1 40.0 246.6 15.0 2.0 718.2
----------- ------------- -------
Additions - - - - 2.4 1.0 3.4
----------- ------------- -------
Transfers - - - - 1.5 (1.5) -
----------- ------------- -------
Net foreign currency
exchange difference - - - - (0.1) - (0.1)
----------- ------------- -------
Cost at 31 December
2018 250.5 164.1 40.0 246.6 18.8 1.5 721.5
Business combination - - - - 13.5 - 13.5
----------- ------------- -------
Additions - - - - 2.3 1.3 3.6
----------- ------------- -------
Transfers - - - - - - -
----------- ------------- -------
Net foreign currency - - - - - - -
exchange difference
----------- ------------- -------
Cost at 31 December
2019 250.5 164.1 40.0 246.6 34.6 2.8 738.6
Developed Trade Software Customer Other In progress Total
Technology marks relationship
and user
($ 'm) base
Acc. amortisation
at
31 December 2017 (177.2) (18.7) (14.2) (105.7) (8.1) - (323.9)
Amortisation (51.5) (15.0) (8.1) (52.6) (3.1) - (130.3)
Acc. amortisation
at
31 December 2018 (228.7) (33.7) (22.3) (158.3) (11.2) - (454.2)
Amortisation (16.7) (15.2) (5.0) (50.1) (4.1) - (91.1)
Acc. amortisation
at
31 December 2019 (245.4) (48.9) (27.3) (208.4) (15.3) - (545.3)
NBV at 31 December
2018 21.8 130.4 17.7 88.3 7.6 1.5 267.3
NBV at 31 December
2019 5.1 115.2 12.7 38.2 19.3 2.8 193.3
The Group assess that the Avast trademark, with a carrying value
of $70.3 million, has an indefinite useful life, as it is a well
established brand. Avast is a core brand and is expected to be a
core brand for the foreseeable future, as the Group constantly
invests into brand development and brand awareness.
The AVG trademark, with a carrying value of $40.9 million, has a
remaining useful life of 2.7 years as of 31 December 2019. The
Piriform trademark, with a carrying value of $2.8 million, has a
remaining useful life of 7.5 years as of 31 December 2019.
AVG developed technology, with a carrying value of $5.1 million,
has a remaining useful life of 0.7 years as of 31 December
2019.
AVG customer relationship, with a carrying value of $37.0
million, has a remaining useful life of 0.7 years as of 31 December
2019.
Piriform and FileHippo software, with a gross value of $12.7
million, has a remaining useful life of 2.5 years as of 31 December
2019.
For information about intangible assets pledged as securities,
refer to Note 0 .
The Group has not capitalised development costs in the year
ended 31 December 2019 (2018: nil) as the Company believe the
criteria set out in IAS 38 has not been met. See Note 2.
23. Goodwill and impairment
($ 'm) 31 December 31 December
2019 2018
1 January 1,993.7 1,986.7
Acquisitions (Note 15) 8.6 7.0
Disposals (Note 16) (11.0) -
31 December 1,991.3 1,993.7
Goodwill was calculated as the difference between the
acquisition date fair value of consideration transferred less the
fair value of acquired net assets. See Notes 15 and 16 for further
details of the allocation to individual business segments.
Goodwill & Intangible assets impairment tests
Goodwill and intangible assets with an indefinite useful life
are tested annually for impairment. The impairment test as of 31
December 2019 is performed on the basis of two groups of cash
generating units that correspond to the two operating segments as
below:
($'m ) 31 December 31 December
2019 2018
---------------- ------------ ------------
Consumer 1,978.4 1,969.8
---------------- ------------ ------------
SMB 12.9 23.9
Total goodwill 1,991.3 1,993.7
---------------- ------------ ------------
In determining the value in use as of 31 December 2019, the
Group used the following parameters:
-- Projected 2020-2022 free cash flows based on the most current
financial plan of the Group;
-- The perpetuity growth rate of 2% p.a. after 2022 is allocated
to individual operating segments based on the management's
expectation of the operating segments' performance; and
-- An after-tax discount interest rate of 11.2% representing the
WACC of the Group (pre-tax discount interest rate of 12.9%).
The WACC was calculated from the cost of equity and cost of
debt at a ratio typical for an industry of 70% equity and 30%
debt.
The recoverable amount of tested assets exceeds their carrying
value. As the Group's management is not aware of any other
indications of impairment and given the results of the impairment
tests, no impairment was recorded.
No reasonable possible change in the calculation assumptions
would lead to an impairment.
24. Trade payables and other liabilities
($ 'm) 31 December 31 December
2019 2018
------------
Trade payables 2.6 8.5
Accruals 28.5 30.5
Amounts owed to employees 22.0 19.3
Social security and other taxes 2.0 1.5
Other payables and liabilities 10.0 4.2
Total trade payables and other liabilities 65.1 64.0
25. Provisions
The movements in the provision accounts were as follows:
($ 'm) Accrued vacation Provision Other Total
provision for restructuring
As at 31 December 2017 2.0 4.2 1.2 7.4
Additions 1.4 5.6 2.8 9.8
Utilisation (2.0) (4.2) (1.0) (7.2)
As at 31 December 2018 1.4 5.6 3.0 10.0
Additions 1.7 - 7.8 9.5
Utilisation (1.4) (3.0) (2.6) (7.0)
As at 31 December 2019 1.7 2.6 8.2 12.5
As at 31 December 2018
Total current 1.4 4.9 2.8 9.1
Total non-current - 0.7 0.2 0.9
As at 31 December 2019
Total current 1.7 1.9 8.0 11.6
Total non-current - 0.7 0.2 0.9
26. Deferred revenue
The Group sells consumer and corporate antivirus products for
periods of 12, 24 or 36 months with payment received at the
beginning of the licence term. Revenues are recognised ratably over
the subscription period covered by the agreement. Deferred revenue
materially represents the transaction price relating to sales of
software licences that is allocated to future performance
obligations.
The movements in the deferred revenue were as follows :
($ 'm) 31 December 2019 31 December
2018
1 January 435.5 378.8
Additions - billings 911.0 862.2
Business combination 0.3 -
Deductions - revenue (871.1) (808.3)
Disposal of a business operation (0.9) -
Translation and other adjustments - 2.8
31 December 474.8 435.5
Current 420.5 384.3
Non-current 54.3 51.2
Total 474.8 435.5
Prior year current deferred revenue is recogised as revenue in
the current period.
27. Term loan
Term loan balance is as follows:
($ 'm) 31 December 31 December
2019 2018
------------ ------------
Current term
loan 58.2 73.4
Long-term term
loan 969.5 1,318.1
Total term loans 1,027.7 1,391.5
($ 'm) 31 December 31 December
2019 2018
------------ ------------
USD tranche
principal 336.5 864.7
EUR tranche
principal 699.8 545.8
Total principal 1,036.3 1,410.5
In March 2019, the Group upsized the EUR tranche by EUR177.5
million ( $ 202.6 million) and paid down the USD tranche by $ 400
million. This resulted in the partial derecognition of arrangement
fees of $ 8.7 million through interest expense.
In April 2019, the Group applied for the margin reduction of
0.25% p.a. on both tranches due to favorable leverage ratio
results. The repricing of the margin to market terms, which is
allowed for in the terms of the loan, was a change in contractual
variable payments to be accounted for by altering prospectively the
effective interest rate, consistent with the requirements for
floating rate loans (see Note 3).
In October 2019, the Group paid down the USD tranche by an
additional $ 100 million. Repayment resulted in the partial
derecognition of arrangement fees of $2.7 million. Further, the
Group reduced the margin on the EUR tranche by 0.25% p.a.
The Group re-financed its bank loan from the primary proceeds
arising from the IPO on 16 May 2018, reducing the USD tranche by
$300 million and reducing the margin on both the USD and EUR
tranche by 0.25% p.a. The fees for the reduction and repricing were
$3.1 million. The Group allocated the drawing fees as of the
repricing date between the $300 million repaid amount and the
balance of the loan. The portion of unamortized issue costs
allocated to the repaid loan of $6.9 million was released into the
Consolidated Statement of Profit and Loss as a non-cash interest
expenses. Avast Software B.V. may voluntarily prepay term loans in
whole or in part without premium or penalty.
Under the Repricing agreement, the following terms apply to the
bank loans:
Facility Interest Floor Margin Margin 31
31 December 2019 December 2018
USD Tranche 3-month USD LIBOR 1.00% p.a. 2.25% p.a. 2.50% p.a.
EUR Tranche 3-month EURIBOR 0.00% p.a. 2.25% p.a. 2.75% p.a.
Both facilities are repayable in full at the end of the 84-month
term on 30 September 2023. The margin payable on both facilities is
dependent upon the ratio of the Group's net debt to adjusted EBITDA
as defined in the facility agreement.
The Credit Agreement ("CA") requires the following mandatory
repayments in addition to the quarterly amortisation payments:
Excess Cash Flow Payment Amount ("ECF Payment Amount", defined in
the CA as the consolidated net increase in cash and cash
equivalents of Avast plc for the period adjusted for potential
future business combinations and the results of Jumpshot, Inc.,
Jumpshot s.r.o. and Avast plc and other adjustments) - 50% of
Excess Cash Flow (as defined, and subject to certain reductions and
to the extent where ECF Payment Amount exceeds $40 million), with a
reduction to 25% and elimination based upon the achievement of
Total Net First Lien Leverage Ratios ("Net debt ratio") not
exceeding 3.5:1 and 3.0:1, respectively. The Net debt ratio is
defined as the nominal value of debt less cash on hand as of the
relevant date divided by adjusted operating profit for the
preceding four calendar quarters. The operating profit is adjusted
for amortisation and depreciation, non-cash expenses such as
Share-based payments, the effects of business combination
accounting and other non-cash items. The Net debt ratio was 1.9:1
as of 31 December 2019 so no mandatory repayment was required.
The following pledge agreements existed as of the date of
issuance of these consolidated financial statements:.
-- Avast Software B.V. pledged its 100% share in Avast Software
s.r.o. and 100% share in Avast Operations B.V.
-- Avast Software B.V. pledged its receivables
-- Avast Software B.V. pledged its securities
-- Avast Holding B.V. pledged its 100% share in Avast Software B.V.
-- Avast Operations B.V. pledged its receivables from intragroup loan agreements
Avast Software s.r.o. pledged its receivables from bank
accounts, trade receivables, receivables from insurance policies,
trademarks, receivables from intragroup loan agreements, its
movable assets, domain names, source codes and virus databases.
Since Avast Software s.r.o. forms a substantial portion of the
Group, the estimated value of the pledged assets exceeds the total
value of the term loan.
Term loan balance reconciliation
The table below reconciles the movements of the balance of the
Term loan with the information on above and the statement of cash
flows.
($ 'm) 31 December 31 December
2019 2018
Term loan balance at beginning
of period 1,391.5 1,781.3
Additional loan drawn (gross
of fees) 202.6 -
Drawing fees (0.9) (3.1)
Interest expense 56.4 85.8
Interest paid (45.1) (67.6)
Loan repayment (562.9) (378.5)
Unrealised foreign exchange
loss/(gain) (13.9) (26.4)
Total 1,027.7 1,391.5
Revolving facility
Avast Software B.V. also obtained a revolving credit facility of
$85.0 million for operational purposes which has not been drawn as
of the date of these consolidated financial statements. It is valid
up to 30 September 2022. The Credit Agreement includes a financial
covenant that is triggered if at any time $35.0 million or more is
outstanding under the revolving credit agreement as of 31 December
2019. If the revolving credit facility exceeds this threshold, then
the Group must maintain, on a consolidated basis, a leverage ratio
of less than 6.5:1. This covenant is tested quarterly at such time
as it is in effect.
28. Derivatives
The carrying amount of derivative financial instruments held by
the Group was as follows:
($ Type 31 December 2019 31 December 2018
'm)
------- --------------------- -----------------
Type of derivative Assets Liabilities Assets Liabilities
Interest rate Level
Cap 3 - 2.0 - 1.0
- 2.0 - 1.0
Classified as
Non-current financial
liability - 2.1 - 1.0
Total - 2.1 - 1.0
The Group has not designated the derivatives as hedging
instruments, and therefore changes in the fair value during the
period are recorded in the Consolidated Statement of Profit and
Loss.
Interest rate cap
On 20 February 2017, Avast Software B.V. entered into an
interest rate cap with an effective date from 31 March 2017 until
31 March 2021 ("Cap"). As of 31 December 2019, the 3-month USD
LIBOR is capped at 2.75% p.a. for a notional amount of $753.8
million. The capped notional amount will gradually decrease to
$709.0 million by 31 March 2021. The fee for the cap is $1.6
million annualy paid in quarterly installments.
During the reporting period ended 31 December 2019 there were no
transfers between the Level 2 and Level 3 fair value
measurements.
The movement in fair value of the derivatives was as
follows:
Interest rate
($ 'm) Cap
31 December 2017 3.2
Change in fair value
through profit and loss (2.2)
31 December 2018 1.0
Change in fair value
through profit and loss 1.1
31 December 2019 2.1
29. Redemption obligation
In connection with the sale of 35% fully diluted shares of
Jumpshot Inc. to Ascential Investor (see Note 34), the
stockholders' agreement dated 30 August 2019 gave Ascential
Investor the right (the put option) to sell back the shares.
Due to subsequent decision to close Jumpshot business in January
2020 as decribed in the Note 39, the put option is rendered void
subsequent to the year end. However, at the end of the period,
conditions below existed.
The put option can be exercised after 30 June 2022 (end of
lock-up period), only if following events happens:
-- Jumpshot fails to reach certain growth target by January 2022
(and Ascential do not deem it to be met); and
-- Avast and Ascential Investor pursuant to negotiations fail
to agree on extension of the lock-up period for reaching the
growth target.
With respect to above, Avast recognised a redemption obligation
at the present value of the exercise price ($61.6 million)
discounted by the estimated Avast annual borrowing rate of 3.6%,
with a corresponding entry in equity. The exercise price was the
higher of original cost and fair value of the shares at the time of
exercise.
Below was the estimate of the present value of the redemption
liability:
($ 'm)
At 1 January 2019 -
Initial recognition of redemption
obligation 55.7
Unwinding of discount 0.6
At 31 December 2019 56.3
30. Financial risk management
The Group's classes of financial instruments correspond with the
line items presented in the Consolidated Statement of Financial
Position.
The management of the Group identifies the financial risks that
may have an adverse impact on the business objectives and through
active risk management mitigates these risks to an acceptable
level.
The specific risks related to the Group's financial assets and
liabilities and sales and expenses are interest rate risk, credit
risk and exposure to the fluctuations of foreign currency.
Credit risk
The outstanding balances of trade and other receivables are
monitored on a regular basis, and the aim of management is to
minimize exposure of credit risk to any single counterparty or
group of similar counterparties. The credit quality of larger
customers is assessed based on the credit rating and individual
credit limits are defined in accordance with the assessment.
The Group did not issue any guarantees or credit derivatives.
The ageing of receivables is regularly monitored by Group
management. The Group does not consider the credit risk related to
cash balances held with banks to be material.
A significant portion of sales is realized through the Group's
online resellers, mainly Digital River. From 2018, the Group
manages its credit exposure by receiving advance payments from
Digital River.
The Group evaluates the concentration of risk with respect to
accounts receivable as medium, due to the relatively low balance of
trade receivables that is past due. The risk is reduced by the fact
that its customers are located in several jurisdictions and operate
in largely independent markets and the exposure to its largest
individual distributors is also medium. Sales to customers are
required to be settled upfront by credit card or cash, thus further
mitigating the risk.
Foreign currency risk
Foreign currency risk is the risk that the fair value of future
cash flows of an exposure will fluctuate because of changes in
foreign exchange rates. The Group's exposure to the risk of changes
in foreign exchange rates relates primarily to the Group's
operating activities (when revenue or expense is denominated in
foreign currency).
At the parent company level, the functional and presentation
currency is the US dollar and the Group's revenue and costs are
reported in US dollars. The Group is exposed to translation risk
resulting from the international sales and costs denominated in
currencies other than US dollars and the resulting foreign currency
balances held on the balance sheet. The Group is exposed to
material transaction and translation currency risk from
fluctuations in currency rates between USD, GBP, CZK and EUR.
The following table shows payments for the Group's products and
services by end users (either directly to Group or paid to an
e-commerce service provider) in individual currencies. Based on
agreements with the Group,
e-commerce service providers may convert billings collected on
behalf of the Group in specific currencies to a remittance currency
(usually USD and EUR) at the existing market rates which does not
remove the underlying foreign exchange risk. The table below shows
the original currency composition of payments made by end users to
illustrate the foreign exchange risk to billings.
Year-ended Year-ended
31 December 2019 31 December
2018
-------------
USD 49% 49%
EUR 22% 22%
GBP 8% 9%
Other 21% 20%
Total 100% 100%
As the majority of revenues represent sales of software
licences, the revenues are recognized over the duration
of the licence period, despite payment being received at the
start of the licence period. Because the release
of deferred revenues is performed using the exchange rates valid
at the start of the licence term, they are not subject to foreign
currency risk.
The following table shows financial assets and liabilities in
individual currencies, net:
($ 'm) 31 December 2019 31 December
2018
------------
USD* (290.1) (644.0)
EUR* (714.4) (518.8)
CZK (34.3) (32.6)
GBP 89.9 53.3
Other 25.6 44.0
Total (923.3) (1,098.1)
*The fluctuation in the currencies are mainly caused by the term
loan restructuring as further described in Note 27.
Financial assets and liabilities include cash and cash
equivalents, trade and other receivables and trade and other
payables, term loan, lease liabilities, other current liabilities
and non-current financial assets and liabilities.
The table below presents the sensitivity of the profit before
tax to a hypothetical change in EUR, CZK and other currencies and
the impact on financial assets and liabilities of the Group. The
sensitivity analysis is prepared under the assumption that the
other variables are constant. The analysis against USD is based
solely on the net balance of cash and cash equivalents, trade and
other receivables, trade and other payables and term loan.
($ 'm) % change 31 December 31 December 2018
2019
-----------------
EUR +/-10% (71.4)/71.4 (51.9)/51.9
CZK +/-10% (3.4)/3.4 (3.3)/3.3
GBP +/-10% 9.0/(9.0) 5.3/(5.3)
Other +/-10% 2.6/(2.6) 4.4/(4.4)
The sensitivity analysis above is based on the consolidated
assets and liabilities, i.e. excluding intercompany receivables and
payables. However, Avast Software s.r.o. has a significant
intercompany loan from Avast Operations B.V. denominated in USD. As
the functional currency of Avast Software s.r.o. is the USD but the
tax basis of Avast Software s.r.o. is denominated in CZK the income
tax gains or losses of Avast Software s.r.o. are exposed to
significant foreign exchange volatility. If the CZK depreciates
against the USD, the corporate income tax expense would decrease.
Avast Operations B.V. is not exposed to any similar volatilities as
its functional and tax currency is the USD.
Interest rate risk
Cash held by the Group is not subject to any material interest.
The only liabilities held by the Group subject to interest rate
risk are the loan and derivatives described in Note 27 and 28.
Other liabilities and provisions themselves are not subject to
interest rate risk. The Group keeps all its available cash in
current bank accounts or term deposit contracts (see Note 17) with
a fixed interest rate and original maturity not exceeding three
months.
As at 31 December 2019, the Group has a term loan with an
interest rate of 3-month USD LIBOR plus a 2.25% p.a. mark-up for
USD tranche and 3-month EURIBOR plus a 2.25% p.a. mark-up for EUR
tranche. The 3-month USD LIBOR and 3-month EURIBOR is subject to a
1% interest rate floor and 0% interest rate floor, respectively. As
of 31 December 2019, the 3-month USD LIBOR was 2.10% p.a. and
3-months EURIBOR was -0.41%.
To reduce the interest rate risk, Avast Software B.V. entered
into an interest rate cap ("Cap") with certain counterparties on 20
February 2017 effective from 31 March 2017. Under the Cap, 3 month
USD LIBOR is limited to 2.75% p.a. for a notional amount of $844
million at the beginning to $709 million through 31 March 2021.
Interest rate sensitivity
A change of 100 basis points in market interest rates would have
increased/(decreased) equity and profit and loss before tax by the
amounts shown below:
Year-ended Year-ended
31 December 2019 31 December
2018
-------------
Increase in interest
rates (10.4) (14.1)
Decrease in interest
rates 10.4 14.1
Liquidity risk
The Group performs regular monitoring of its liquidity position
to maintain sufficient financial sources to settle its liabilities
and commitments. The Group is dependent on a long-term credit
facility and so it must ensure that it is compliant with its terms.
As it generates positive cash flow from operating activities, the
Group is able to cover the normal operating expenditures, pay
outstanding short-term liabilities as they fall due without
requiring additional financing and has sufficient funds to make
meet the capital expenditure requirement. The Group considers the
impact on liquidity each time it makes an acquisition in order to
ensure it does not adversely affect its ability to meet the
financial obligation as they fall due .
As at 31 December 2019 and 2018, the Group's current ratio
(current assets divided by current liabilities including the
current portion of deferred revenue) was 0.65 and 0.71. The ratio
is significantly impacted by the high current deferred revenue
balance due to the sales model, where subscription revenue is
collected in advance from end users and deferred over the licence
period. The Group's current ratio excluding deferred revenue was
2.57 and 2.15 as at 31 December 2019 and 2018, respectively.
In 2019, Avast's credit ratings were upgraded to Ba2 from Ba3
with Moody's and to BB from BB- with Standard & Poor's driven
mainly by the voluntary debt repayment. The credit ratings are
subject to regular review by the credit rating agencies and may
change in response to economic and commercial developments.
The following table shows the ageing structure of financial
liabilities as of 31 December 2019:
($ 'm) Due between Due between Due in
Due within 3 to 12 1 to 5 more than
3 months months years 5 years Total
Term loan 14.5 43.6 978.2 - 1,036.3
Interest payment 7.5 21.5 69.7 - 98.7
Trade payables and other
liabilities 54.4 8.7 - - 63.1
Derivative financial
instruments 0.4 1.6 - - 2.0
Other non-current liabilities - - 1.6 - 1.6
Lease liability 2.4 6.9 32.7 42.1 84.1
Redemption obligation - - 61.6 - 61.6
Total 79.2 82.3 1,143.8 42.1 1,347.4
While the redemption liability as per Note 29 is correctly
treated as a non-current liability at the year-end, the original
transaction was reversed subsequent to the year end because of the
repayment to Ascential described further in Note 39. This impacts
the overall liquidity position after the year end.
The following table shows the ageing structure of financial
liabilities as of 31 December 2018:
($ 'm) Due between Due between Due in
Due within 3 to 12 1 to 5 more than
3 months months years 5 years Total
Term loan 18.3 55.0 1,337.2 - 1,410.5
Interest payment 14.9 44.8 195.3 - 255.0
Trade payables and other
liabilities 53.1 9.4 - - 62.5
Derivative financial
instruments 0.4 0.6 - - 1.0
Other non-current liabilities - - 4.1 0.2 4.3
Lease liability 0.1 0.3 2.2 0.3 2.9
Total 86.8 110.1 1,538.8 0.5 1,736.2
Fair values
The fair values of financial assets and liabilities are included
at the price that would be received to sell an asset, or paid to
transfer a liability, in an orderly transaction between market
participants at the end of the reporting period. The following
methods and assumptions are used to estimate the fair values:
-- Cash and cash equivalents - approximates to the carrying amount
-- Term loans - approximates to the carrying amount
-- Receivables and payables - approximates to the carrying amount
-- Lease liabilities - approximates to the carrying amount
Financial assets and liabilites that are recognised at fair
value subsequent to initial recognition are grouped into Levels 1
to 3 based on the degree to which the fair value is observable. The
three levels are defined in Note 2.
In connection with the 2nd Put/Call option (further described in
Note 34), the Group recognised redemption obligation of $61.6
million measured at the present value of the redemption exercise
price through profit or loss. The Group classifies the redemption
liability as Level 3 liability. The fair value of the 2nd Put/Call
option itself (as opposed to the gross exercise price) is
immaterial. Similarly, the fair value of the 1st Put/Call and 3rd
call options are immaterial (see Note 34).
At 31 December 2019, the Group had forward foreign exchange
contracts which were measured at Level 2 fair value subsequent to
initial recognition. The fair value of the liability in respect of
foreign exchange contracts was $0.1 million at 31 December 2019
(2018: liability of $0.2 million).
In addition, the Group had derivatives which were measured at
Level 3 fair value. See Note 28 for further information.
Capital management
For the purpose of the Group's capital management, capital
includes issued capital, share premium and all other equity
reserves attributable to the equity holders of parent. The primary
objective of the Group's capital management is to maximise the
shareholder value.
The Group manages its capital structure and makes adjustments to
it in the light of changes in circumstances, including economic
conditions. To maintain or adjust the capital structure, the Group
may adjust the dividend payment to shareholders, return capital to
shareholders or issue new shares. The Group currently expects to
maintain dividend payments of approximately 40% of Group's levered
free cash flow in the short to medium term.
The Group monitors capital using the net liability position and
gearing ratio (the net liability position divided by the sum of the
net liability position and equity). The Group includes within the
net liability position all current and non-current liabilities,
less cash and cash equivalents.
($ 'm) 31 December 31 December
2019 2018
Current and non-current liabilities* 1,685.2 2,004.4
Less: cash and short - term
deposits (216.6) (272.3)
Net liability position 1,468.6 1,732.1
Equity* 1,172.6 900.4
Gearing ratio 55.6% 65.8%
*The Group excluded redemption obligation of $56.3 million from
current and non-current liabilities in line with debt covenant
calculation and corresponding recognition of put liability of $55.7
from equity.
31. Share capital and share premium
Shares issued and fully paid: Number Share Capital Share Premium
of shares ($ 'm) ($ 'm)
Share capital at 31 December 2017(1) 95,514,902 371.7 0.9
Issuance of shares under share-based
payment plans 5,345 - -
Share capital immediately prior to IPO 95,520,247 371.7 0.9
Converted at IPO(2) 844,058,216 371.7 0.9
Net exercise of options at IPO(2) 49,603,491 - 7.4
Initial public offering(3) 58,977,478 8.0 191.8
Share issue expenses(3) - - (4.0)
Group re-organisation(4) - (250.8) (0.9)
Capital reduction(5) - - (180.6)
Issuance of shares under share-based
payment plans 799,114 0.1 0.8
Share capital at 31 December 2018 (Ordinary
shares of GBP0.10 each) 953,438,299 129.0 15.4
Issuance of shares under share-based
payment plans 54,581,736 7.0 40.2
Share capital at 31 December 2019 (Ordinary
shares of GBP0.10 each) 1,008,020,035 136.0 55.6
(1) Share capital at 31 December 2017 represented 52,377,659
common and 43,137,243 preferred shares. The nominal value of the
51,264,275 class A common shares is $6.24 per share with a share
premium of $0.044 and nominal value of the 1,113,384 class B common
shares is $1.57 with a nil share premium. The nominal value of the
43,136,243 preferred shares is $1.16 with a share premium of $0.044
and nominal value of the 1,000 management preferred shares is $6.24
per share with a share premium of $104.76 per share.
(2) Avast plc listed its shares on the London Stock exchange on
10 May 2018. As part of the IPO, holders of equity instruments in
Avast Holding received 844,058,216 shares in Avast plc. In
addition, holders of options in Avast Holding net-exercised at the
IPO 49,603,491 shares in Avast plc and 58,977,478 new shares were
issued, bringing the total amount of shares outstanding on
Admission to 952,639,185. The net exercise of options resulted in
the Group recording a share premium of $7.4 million.
(3) The increase in share capital and share premium of $195.8
million represents the net proceeds from the IPO, less direct share
issue expenses of $4 million.
(4) $250.8 million was reclassified from share capital and $0.9
million from share premium into other reserves to reflect the
nominal value of 10 pence per outstanding share.
(5) On 6 November 2018, the High Court of Justice in England and
Wales has made an order con rming the reduction of the share
premium account by GBP138 million ($180.6 million) and the
cancellation of the subscriber share of the company under section
648 Companies Act 2006. The Company now will be able to apply the
distributable reserves arising from the capital reduction and the
subscriber share cancellation towards the payment of dividends in
line with the Company's dividend policy and for the purposes of
future share buybacks.
32. Other reserves
The movements in the other reserves were as follows :
($ 'm) 2019 2018
Other reserves at 1 January 260.5 2.4
Group re-organisation (see Note
31) - 251.7
Net exercise of options (see
Note 31) - (7.4)
Redemption obligation reserve
(see Note 29) (55.7) -
Share-based payments(1) 20.1 13.8
Other movements 0.2
Other reserves at 31 December 225.1 260.5
(1) The fair value of share awards granted to employees is
recorded over the vesting periods of individual options granted as
a personnel expense with a corresponding entry to other reserves.
Refer to Note 35 for further details of share-based payments.
33. Dividends made and proposed
($ 'm) 2019 2018
---------------------------------------------- -----
Final dividend for the period 15 May 2018
to 31 December 2018 at $8.6 cents per share 83.7 -
Interim dividend for the period ended 30 June
2019 at $4.4 cents per share 43.2 -
Total cash dividend paid 127.0 -
Dividend Proposed
The Directors propose to pay a final dividend of 10.3 cents per
share in respect of the year ending 31 December 2019 (total payment
of $104.6m). Combined with the interim dividend of 4.4 cents per
share paid in October 2019 (total payment of $43.2m), gives a total
dividend for the financial year of 14.7 cents (total payment of
$147.8m), which represents 40% of the Group's levered free cash
flow for the period in accordance with the Company's dividend
policy. Subject to shareholder approval, the final dividend will be
paid in US dollars on 24 June 2020 to shareholders on the register
on 22 May 2020. There will be an option for shareholders to elect
to receive the dividend in pounds sterling and such an election
should be made no later than 8 June 2020. The foreign exchange rate
at which dividends declared in US dollars will be converted into
pounds sterling will be calculated based on the average exchange
rate over the five business days prior to 11 June 2020 and
announced shortly thereafter.
34. Non-controlling interest
In July 2019, Avast entered into an agreeement with WGSN, Inc.,
a wholly-owned subsidiary of Ascential plc. ("Ascential"), based on
which on 30 August 2019 Avast sold 35% of fully diluted shares of
Jumpshot Inc. to Ascential for a consideration of USD 58.8 million
(net of $2.8 million Avast transaction fees), while retaining
control of Jumpshot. Pursuant to the agreement, both Avast and
Ascential also made capital contributions to Jumpshot Inc. of USD
4.8 million and USD 3.2 million, respectively. In addition, as part
of the agreement, Avast made a capital contribution to Jumpshot
Inc. of USD 6.8 million which was used by Jumpshot Inc. to
repurchase a portion of the vested share options held by
employees.
Due to the decision to wind down Jumpshot in January 2020, as
described in Note 39, the below listed arrangement from the
stockholder's agreement were rendered void and cash was repaid to
Ascential plc to fulfil the redemption obligation subsequent to the
year end. However, at the end of the period, the following rights
and obligations existed:
The stockholder's agreement states that Ascential Investors
intended to obtain majority control over Jumpshot Inc. The
agreement gives the following rights to Ascential Investors and
Avast:
-- 1st Put/Call option: From 1 January 2021 until 30 June 2021,
Avast had a right to sell and Ascential Investors had a right
to buy additional 16% of fully diluted share capital of Jumpshot,
provided that certain growth targets was reached (or Ascential
Investors deem that the target was reached). The agreement
specifies how the transaction prices will be determined, and
is deemed to approximate the fair value of the shares at that
time.
-- 2nd Put/Call option: Provided certain conditions are met, at
the earliest after 30 June 2022 Ascential Investors had a right
to sell and Avast had a right to buy back the original 35%
of fully diluted share capital of Jumpshot. This option gave
rise to a redemption obligation described in detail in Note
29.
-- 3rd Call option: At the earliest of 30 June 2022 (or two years
after the 1st Put/Call was exercised) Avast could at its discretion
give Ascential a right to buy (a call option) all remaining
Avast's shares in Jumpshot Inc. at fair value.
No asset or liability was recognized in connection with the 1st
Put/Call option, as the Group considered that the defined
transaction price would represent fair value of the shares at the
time of transaction. No asset or liability was recognized in
connection with 3rd Call option, as no option rights were currently
granted.
Changes in the shareholding of Jumpshot Inc. as a result of the
agreement and the transaction close are shown in the table
below:
Pre-close Pre-close Post-close Post-close
Undiluted Diluted Undiluted Diluted
--------------------------------------
Avast 97.0% 82.8% 58.0% 52.2%
Ascential - non-controlling interest - - 39.3% 35.3%
Other - non-controlling interest 3.0% 2.6% 2.7% 2.5%
Optionholders - 14.6% - 10.0%
Total 100.0% 100.0% 100.0% 100.0%
Below is the shareholding of Jumpshot Inc. as of 31 December
2019:
Undiluted Diluted
Avast 58.2% 52.5%
Ascential - non-controlling interest 39.3% 35.4%
Other - non-controlling interest 2.5% 2.3%
Optionholders - 9.8%
Total 100.0% 100.0%
The Group accounted for this transaction as a transaction with
non-controlling interest while retaining control, with net proceeds
from the transaction as increase in total equity. The Group
initially measured the non-controlling interest as proportionate
amount of net assets. As a result, the impact on Group's equity is
as follows:
($ 'm) 31 December 2019
Equity consideration 61.6
Less: Transaction
fees (2.8)
Consideration received 58.8
Ascential contribution 3.2
Option repurchase (6.8)
Other transaction
fees (0.9)
Net proceeds from
the transaction 54.3
Change in the non-controlling
interest (5.7)
Increase in shareholder's
equity 48.6
The change in the non-controlling interest are as follows:
($ 'm) 2019 2018
At 1 January 2019 1.0 0.8
Sale of 35% of Jumpshot Inc. 5.7 -
Share-based payments 0.6 0.2
Net profit allocated to non-controlling 0.2 -
interest
At 31 December 2019 7.5 1.0
35. Share-based payments
Existing Employee Share plan (formerly known as Avast Holding
2014 Share Option Plan "Avast Option Plan")
The Avast Option Plan was the primary share option plan of the
Group prior to the IPO under which certain employees and Directors
were granted options over A-Ordinary and / or B-Ordinary Shares of
Avast Holding. Following the IPO, the Avast Option Plan was
adjusted such that the options granted under the plan ceased to be
options over shares of Avast Holdings and, instead, became options
over shares of the Company of equivalent value.
No new options have been granted under the Avast Option Plan
since the IPO. Furthermore, the Company does not intend to grant
any further options under the Avast Option Plan.
Options generally vest over a four-year period in four equal
installments. Some of the options granted to the key management
personnel are performance-based. The contractual life of all
options is 10 years.
Avast plc, 2018 Long Term Incentive Plan ("LTIP")
Following the IPO, the Company has adopted the LTIP for
employees and Executive directors. The purpose of the LTIP is to
incentivise employees and Executive Directors whose contributions
are essential to the continued growth and success of the business
of the Company, in order to strengthen their commitment to the
Company and, in turn, further the growth, development and success
of the Company. The following types of awards can be granted:
Performance Stock Units ("PSUs")
PSUs will be granted to Executive Directors and members of the
Executive Management Team. Each PSU entitles a participant to
receive a share in the Company upon the attainment, over a three
year performance period, of challenging performance conditions
determined by the Remuneration Committee.
Restricted Stock Units ("RSUs")
RSUs will be granted to key employees of the Group who are not
Executive Directors or members of the Executive Management Team.
Each RSU entitles a participant to receive a share in the Company
upon vesting of the RSU. Each award of RSUs will ordinarily vest
either in three equal proportions over a three year period or on
the third anniversary of grant or over such other period as the
Committee may determine, provided the participant remains in
service.
Stock Options ("Options ")
Options may be granted to key employees of the Group who are not
Executive Directors or members of the Executive Management Team.
Each option entitles a participant to the right to acquire a share
of the Company upon vesting of the option. Each option will
ordinarily become exercisable either in three equal proportions
over a three year period or on the third anniversary of the grant,
or over such other period as the Remuneration Committee may
determine.
Share Matching Plan ("SMP")
The Company has adopted the Avast Share Matching Plan ("SMP")
for employees and Executive Directors of the Group.The purpose of
the SMP is to encourage and enable employees and Executive
Directors to acquire a significant stake in the Company so that
they can share in the future growth, development and success of the
Company. Under this plan, the employees will be granted one matched
share for every three purchased shares after a two-year period.
Deferred Bonus Plan ("DBP")
The Company has adopted the Deferred Bonus Plan for only
Executive Directors. Where a participant is required to defer a
portion of their annual bonus into shares under the terms of the
Company's annual bonus arrangements, the Remuneration Committee may
grant an award to acquire shares under the DBP in order to
facilitate such deferral. Awards will ordinarily vest on the second
anniversary of the date of grant. No award under DBP was granted in
2019.
Jumpshot Inc., 2015 Share Option Plan ("Jumpshot Option
Plan")
The Jumpshot Option Plan was designed in order to grant options
to purchase shares of common stock of Jumpshot Inc. to certain
employees and directors of Jumpshot Inc. The purpose of the
Jumpshot Option Plan is to provide employees with an opportunity to
participate directly in the growth of the value of Jumpshot by
receiving options for shares.
Each option converts into one ordinary share of Jumpshot Inc. on
exercise. Options that are forfeited are available to be granted
again. Options generally vest over a four-year period in four equal
installments. Some of the options granted to the key management are
performance-based. The contractual life of all options is 10
years.
Share-based payment expense
The total expense that relates to the equity-settled share-based
payment transactions during the year is as follows:
($ 'm) Year-ended Year-ended
31 December 31 December
2019 2018
Avast Option Plan 5.8 8.5
LTIP 14.2 5.3
Jumpshot Option Plan 0.6 0.1
SMP 0.1 -
Total share-based payment
expense 20.7 13.9
The Group also recognised additional $4.2 million of employer's
costs related to the share-based payments exercise included in
operating costs. Total costs related to share-based payments
adjusted out from the operating profit amounted to $24.9
million.
Share Options
The fair value of equity-settled share options granted is
determined , based on the several assumptions, on the date of the
grant award using the Black-Scholes option valuation model. The
following table illustrates the weighted average inputs into the
Black-Scholes model in the year:
Avast Option Plan Year-ended Year-ended
31 December 31 December
2019 2018
Number granted in year - 1,810,000
Weighted average grant date fair value
(in $/per share) - 6.77
Weighted average exercise price (in $) - 26.98
Expected volatility - 31.58%
Weighted average expected lives (years) - 6.25
Risk free interest rate - 2.67%
Expected dividends - Nil
Jumpshot Option Plan Year-ended Year-ended
31 December 31 December
2019 2018
Number granted in year 1,864,061 1,049,289
Weighted average grant date fair value
(in $/per share) 1.80 0.35
Weighted average exercise price (in $) 4.19 0.86
Expected volatility 42.18% 44.88%
Weighted average expected lives (years) 7.34 6.92
Risk free interest rate 1.54% 2.71%
Expected dividends Nil Nil
Expected volatility was determined by calculating the historical
share price volatility of comparable listed companies over the
expected life of the options. The expected volatility reflects the
assumption that the historical volatility is indicative of future
trends, which may not necessarily be the actual outcome. An
increase in the expected volatility will increase the estimated
fair value. The expected life is the average expected period to
exercise.
The number and weighted average exercise prices of, and
movements in, share options of Avast Option Plan in the year is set
out below:
Year-ended Year-ended
31 December 2019 31 December 2018
Number of Weighted Number Weighted
shares average of shares average
exercise exercise
($) ($)
Outstanding - 1 January 68,941,832 1.60 9,383,398 8.99
Granted - 1,810,000 26.98
Forfeited - (74,750) 9.32
Exercised - - -
Outstanding on Admission - 11,118,648 12.13
Converted on Admission - 69,905,909 1.69
Forfeited (3,055,422) 3.24 (234,963) 1.23
Exercised (41,129,176) 1.07 (729,114) 1.14
Outstanding - 31 December 24,757,234 2.27 68,941,832 1.60
Vested and exercisable - 31 December 13,968,428 1.52 26,685,849 0.98
The weighted average share price for options exercised during
the year was GBP pence 367.94 (2018: GBP pence 225.88).
Options outstanding at the end of the year had the following
range of exercise prices and weighted average remaining contractual
life:
31 December 2019 31 December 2018
---- ---------------------------
Number of Weighted Number Weighted
shares average of shares average
Exercise price: outstanding remaining outstanding remaining
life (years) life (years)
$0.77 - $0.88 2,171,117 4.70 23,736,711 6.14
$1.12 - $1.84 12,006,156 7.34 31,141,544 8.21
$2.72 - $3.39 10,579,961 8.22 14,063,577 9.22
Outstanding - 31
December 24,757,234 7.49 68,941,832 7.61
Replacement options
Year-ended Year-ended
31 December 2019 31 December 2018
Number of Weighted Number Weighted
shares average of shares average
exercise exercise
($) ($)
Outstanding - 1 January 12,266,682 0.19 7,717,640 1.57
Exercised - (1,118,729) 1.57
Outstanding on Admission - - 6,598,911 1.57
Converted on Admission - - 12,336,682 0.20
Exercised (11,683,247) 0.19 (70,000) 0.18
Outstanding - 31 December 583,435 0.18 12,266,682 0.19
Vested and exercisable - 31 December 583,435 0.18 12,266,682 0.19
The following table summarises share option activity of Jumpshot
Option Plan:
Year-ended Year-ended
31 December 2019 31 December 2018
----------------------
Number of Weighted Number Weighted
shares average of shares average
exercise exercise
($) ($)
Outstanding - 1 January 6,572,291 0.40 6,815,525 0.34
Granted 1,864,061 4.19 1,049,289 0.86
Repurchased (1,615,513) 0.33 - -
Forfeited (290,001) 0.68 (1,154,152) 0.50
Exercised (962,113) 0.31 (138,371) 0.35
Outstanding - 31 December 5,568,725 1.70 6,572,291 0.40
Vested and exercisable
- 31 December 2,125,858 0.37 3,766,538 0.31
Options outstanding of Jumpshot Option Plan at the end of the
year had the following range of exercise prices and weighted
average remaining contractual life:
31 December 2019 31 December 2018
---- ---------------------------
Exercise price: Number of Weighted Number Weighted
shares average of shares average
outstanding remaining outstanding remaining
life (years) life (years)
$0.30 2,383,225 5.18 4,653,252 6.18
$0.36 301,525 6.45 583,500 7.45
$0.56 187,813 7.58 358,750 8.45
$0.86 831,476 8.54 976,789 9.55
$1.79 232,709 9.20 - -
$4.53 1,631,977 9.77 - -
Outstanding - 31
December 5,568,725 7.35 6,572,291 6.92
Restricted Share units
The following table illustrates the number and weighted average
share price on date of award, and movements in, restricted share
units granted under the LTIP:
Year-ended Year-ended
31 December 2019 31 December 2018
---- ------------------------
Number of Weighted Number Weighted
shares average of shares average
share price share
(GBP pence) price
(GBP pence)
Outstanding - 1 January 4,927,332 234.97 - -
Granted 6,130,302 354.05 5,188,917 234.94
Forfeited (1,329,900) 260.99 (261,585) 234.29
Vested (1,567,385) 237.21 - -
Outstanding - 31
December 8,160,349 319.76 4,927,332 234.97
The fair value of RSUs granted is measured as at date of grant
using Black-Scholes model, the outcome of which is a weighted
average fair value of RSUs granted during the year was GBP pence
324.93 (2018: GBP pence 219.07). Future dividends have been taken
into account based on expected cash flow and dividend policy.
Performance Share Units
The following table illustrates the number and weighted average
share price on date of award, and movements in, performance share
units granted under the LTIP:
Year-ended Year-ended
31 December 2019 31 December 2018
---- ------------------------
Number of Weighted Number Weighted
shares average of shares average
share price share
(GBP pence) price
(GBP pence)
Outstanding - 1 January 6,309,881 219.60 - -
Granted 1,458,494 303.01 6,309,881 219.60
Forfeited (2,410,338) 219.60 - -
Vested - - - -
Outstanding - 31
December 5,358,037 242.30 6,309,881 219.60
The vesting of the awards under LTIP is subject to the
attainment of performance conditions as described in the directors'
renumeration report.
The fair value of PSUs granted is measured as at date of grant
using Black-Scholes model, the outcome of which is a weighted
average fair value of PSUs granted during the year was GBP pence
303.01 (2018: GBP pence 219.60).
Share Matching Plan
During 2019, the Group has issued 201,928 shares to the
employees under Share-matching Plan and additional 66,914 will be
issued after matching period (which is two years). The cost of the
additional 66,914 shares is to be recognized against the other
reserves over the matching period and amounted to $0.2 million in
total for all tranches as of 31 December 2019. The weighted average
fair value of additional shares was GBP pence 289.78 for the year
ended 31 December 2019.
36. Related party disclosures
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not
disclosed in this note.
Compensation of key management personnel (including
Directors)
($ 'm) Year-ended Year-ended
31 December 2019 31 December 2018
------------------------
Key management Other Key management Other
personnel related personnel related
parties parties
Short term employee benefits
(including salaries) 11.9 0.1 12.7 0.1
Termination benefits 1.2 - 0.5 -
Share-based payments 10.0 - 9.3 -
Total 23.1 0.1 22.5 0.1
The amounts in the table above includes, in addition to the
compensation of key management personnel of the Group, the
remuneration of employees of the Group that are considered related
parties under IAS 24 Related party disclosures.
As a part of the IPO and Reorganisation in 2018, share
transactions occurred between Avast plc and key management
personnel and significant shareholders, including Sybil Holdings
S.a r.l.
Other Related Parties
Nadační fond AVAST ("AVAST Foundation")
The foundation was established by Avast Software s.r.o. and it
distributes the gifts to other charities and foundations in the
Czech Republic. The foundation is considered to be a related party
as the spouses of Messrs. Kučera and Baudiš are members of the
management board of the foundation.
On 13 March 2018, the Board approved that the donation for 2018
will be CZK 100 million ($5.0 million) . The donation is paid in
quarterly installments during the year.
During the twelve months ended 31 December 2019, Avast Software
s.r.o. made donations of CZK 100.0 million ($4.4 million) [2018:
CZK 68.4 million ($3.1 million)] to the Foundation. As of 31
December 2019, the Company recorded an accrual of CZK 56.6 million
($2.5 million) [2018: CZK 41.8 million ($1.9 million)].
Enterprise Office Center
On 15 November 2016, Enterprise Office Center (owned by Erste
Group Immorent) where Avast Software s.r.o. resides was sold by a
third party to a group of investors including co-founders of Avast
Group, Eduard Kučera and Pavel Baudiš for $119.5 million (ca.
EUR110 million). The term of lease ends in August 2024 and offers
two options to extend for another 24 months under the same
conditions. The annual rent is EUR 3.3 million ($3.7 million).
37. Commitments
There were no significant commitments in 2019.
Operating lease commitments - 2018
The Group leased office space which incurred $12.4 million of
the lease expense for the year ended 31 December 2018. The minimum
future rentals on operating leases are as follows as of 31 December
2018 :
($ 'm) Less
than 1 to
1 year 5 years > 5 years Total
Lease 9.5 33.6 44.6 87.7
Sublease income (0.9) (2.2) - (3.1)
Net lease 8.6 31.4 44.6 84.6
38. Principal exchange rates
Year-ended Year-ended
31 December 31 December
2019 2018
-------------
Translation of Czech crown into
US dollar ($:CZK1.00)
Average 0.0437 0.0461
Closing 0.0442 0.0445
------------------------------------- ---- -------------
Translation of Sterling into US
dollar ($:GBP1.00)
Average 1.2757 1.3357
Closing 1.3203 1.2882
Translation of Euro into US dollar
($:EUR1.00)
------------------------------------- ---- -------------
Average 1.1212 1.1814
Closing 1.1233 1.1451
39. Subsequent events
On 30 January 2020, the Group decided to wind down the operation
of its subsidiary Jumpshot Inc. The Group expects to incur a
one-time exceptional cash cost in the range of $15m-$25m in the
current financial year to cover closure costs, asset writedowns and
employee restructuring. As part of the termination arrangements,
Avast has returned the investments made by Ascential plc into the
business, along with associated exit costs, in the amount of $73.0
million. Because of the repayment, the original transaction was
reversed subsequent to the year end.
In light of recent press speculation and as part of the process
to effect an orderly wind-down of Jumpshot, Avast is in
communication with relevant regulators and authorities in respect
of certain data protection matters and is cooperating fully in
respect of all regulatory enquiries. Avast expects further
communications with the regulators from time to time and recognizes
that there may be possible future investigations, disputes, claims
and liabilities associated with the wind-down of the business which
at this time cannot be quantified.
This represents a non-adjusting subsequent event, therefore it
is disclosed but otherwise without impact on financial results for
the year ended 31 December 2019. Specifically, the Redemption
Obligation (Note 29) and Non-controlling interest (Note 34) are
accounted in line with conditions and information that existed as
of the year end.
Responsibility statement of the Directors in respect of the
Annual Financial report (Page 106 2019 Annual Report)
The Annual Report & Accounts for the year ended 31 December
2019 includes the following responsibility statement.
The directors confirm, to the best of the their knowledge,
that:
-- the Group financial statements, prepared in accordance with
IFRS as adopted by the European Union and in accordance with
applicable law, give a true and fair view of the assets,
liabilities, financial, position and profit of the Company and the
undertakings included in the consolidation taken as a whole;
and
-- the Strategic Report and Directors' Report includes a fair
review of the development and performance of the business and the
position of the company and the undertakings included in the
consolidation taken as a whole, together with a description of the
principal risks and uncertainties that they face.
The annual report and the financial statements, taken as a whole
is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Group's position and
performance, business model and strategy.
On behalf of the Board
Ondrej Vlcek
Chief Executive Officer
25 February 2019
40. Full list of subsidiaries as of 31 december 2019
Country Registered office Registered address Class Percentage of
of incorporation of share held
shares
held
Schiphol Boulevard
369, Tower F, 7th
Avast Holding floor, 1118BJ Schiphol,
B.V. the Netherlands Ordinary 100%
Schiphol Boulevard
369, Tower F, 7th
Avast Software floor, 1118BJ Schiphol,
B.V. the Netherlands Ordinary 100%
Schiphol Boulevard
369, Tower F, 7th
Avast Operations floor, 1118BJ Schiphol,
B.V.*** the Netherlands Ordinary 100%
Schiphol Boulevard
369, Tower F, 7th
floor, 1118BJ Schiphol,
Avast Corporate the Netherlands
Services B.V.*** Schiphol Boulevard
369, Tower F, 7th
Norman Data floor, 1118BJ Schiphol,
Defense Systems the Netherlands Ordinary 100%
B.V.*** Schiphol Boulevard
369, Tower F, 7th Ordinary 100%
AVG Ecommerce floor, 1118BJ Schiphol,
Netherlands CY BV the Netherlands Ordinary 100%
Pikrtova 1737/1a,
Avast Software 140 00 Prague 4,
s.r.o. Czech Republic Ordinary 100%
Pikrtova 1737/1a,
140 00 Prague 4,
Jumpshot s.r.o. Czech Republic Ordinary 58%
Pikrtova 1737/1a,
Czech 140 00 Prague 4,
Republic FileHippo s.r.o. Czech Republic Ordinary 100%
Otto-Lilienthal-Straße
Avast Deutschland 6, 88046 Friedrichshafen,
Germany GmbH Germany Ordinary 100%
7th Floor 110 High
AVG Technologies Holborn, London,
UK Limited** England, WC1V 6JS Ordinary 100%
7th Floor 110 High
Holborn, London,
Privax Limited England, WC1V 6JS Ordinary 100%
7th Floor 110 High
United Piriform Software Holborn, London,
Kingdom Ltd** England, WC1V 6JS Ordinary 100%
2625 Broadway Street,
Redwood City, County
AVAST Software, of San Mateo, CA
Inc. 94063, USA Ordinary 100%
2625 Broadway Street,
Redwood City, County
of San Mateo, CA
Remotium Inc. 94063, USA Ordinary 100%
3700 O'Donnell St,
TrackOFF, Inc. Baltimore, MD 21224 Ordinary 100%
1700 7th Ave STE
Emerald Cactus 116 #212 Seattle,
Ventures, Inc. WA 98101 Ordinary 100%
Corporation Service
Company
251 Little Falls
Sybil Software Drive, Wilmington,
LLC DE 19808, USA Ordinary 100%
329 Bryant Street,
Suite 3C San Francisco,
Jumpshot, Inc. CA 94107, USA Ordinary 58%
1313 N. Market Street,
AVG Technologies Suite 1500 Wilmington,
USA, LLC DE 19801, USA Ordinary 100%
Location Labs, 2100 Powell St, Emeryville,
LLC CA 94608, USA Ordinary 100%
Corporation Service
Company, 251 Little
Falls Drive, Wilmington,
USA Piriform Inc. DE 19808, USA Ordinary 100%
10/F, Guangdong Investment
Tower, 148 Connaught
AVAST Software Road Central, Hong
Hong Kong (Asia) Limited Kong Ordinary 100%
2 HaShlosha Street,
AVG Mobile Technologies Tel Aviv Yaffo 6706054,
Israel Ltd* Israel (PO BOX 9244) Ordinary 100%
1 Constantinou Skokou
St, Capital Chambers,
5th Floor, Agios
Piriform Group Antonios, 1061 Nicosia,
Ltd Cyprus Ordinary 100%
1 Constantinou Skokou
St, Capital Chambers,
5th Floor, Agios
Antonios, 1061 Nicosia,
Cyprus Piriform Limited Cyprus Ordinary 100%
Level 7, 122 Arthur
Street, 2060 Sydney
AVG Technologies - North Sydney, New
Australia AU Pty Ltd South Wales, Australia Ordinary 100%
Conj 38, R. Amazonas,
669 - Santa Paula,
AVG Distribuidora São Caetano
de Tecnologias do Sul - SP, 09520-070,
Brasil do Brasil Ltda. Brasil Ordinary 100%
Lysaker Torg 5, 1366
AVG Technologies Lysaker, Bærum,
Norway Norway AS Norway Ordinary 100%
Ve ká Okru ná
Slovak 26A, 010 01 ilina,
Republic INLOOPX s.r.o. Slovakia Ordinary 100%
Avast Switzerland Münchensteinerstr.
Switzerland AG 43, 4052 Basel, Switzerland Ordinary 100%
Bulevar Mihaila Pupina
Privax d.o.o 6, 11070 Belgrade-Novi
Serbia Beograd Beograd, Serbia Ordinary 100%
1F and 2F Otemachi
Building, 1-6-1 Otemachi,
Avast Software Chiyoda-ku, Tokyo,
Japan Japan Godo Kaisha Japan Ordinary 100%
* in liquidation
** AVG Technologies UK Limited and Piriform Software Ltd will
take advantage of the audit exemption set out within section 479A
of the Companies Act 2006 for the year ended 31 December 2019.
*** As of 1 January 2020, Avast Operations B.V., Avast Corporate
Services B.V. and Norman Data Defense Systems B.V. merged into
Avast Software B.V.
The Company's directly held subsidiary is Avast Holding B.V. All
other subsidiaries are indirectly held.
GLOSSARY
Adjusted Billings Adjusted Billings represents the Group's reported
billings.
Adjusted Revenue Adjusted Revenue represents the Group's reported
revenue adjusted for the Deferred Revenue Haircut
Reversal, the Gross-Up Adjustment. These historical
adjustments are negligible from 2019. A reconciliation
is included in the "PRESENTATION OF RESULTS AND
DEFINITIONS" .
Adjusted Billings/Revenue Growth rate excluding exchange rate impact calculated
excluding FX by restating 2019 actuals to 2018 FX rates. Deferred
revenue is translated to USD at date of invoice
and is therefore excluded when calculating the impact
of FX on revenue. For the FX rates applied, see
"Principal exchange rates applied".
Adjusted Cash Adjusted earnings before interest, taxation, depreciation
EBITDA and amortisation ("Adjusted EBITDA") is defined
as the Group's operating profit/loss before depreciation,
amortisation of non-acquisition intangible assets,
share-based payments, exceptional items, amortisation
of acquisition intangible assets, the Deferred Revenue
Haircut Reversal and the COGS Deferral Adjustments.
A full reconciliation is included in the "PRESENTATION
OF RESULTS AND DEFINITIONS".
Adjusted Cost Adjusted Cost of Revenues/Operating costs represent
of Revenues/Operating the Group's cost of revenues/operating costs adjusted
costs for depreciation and amortisation charges, share-based
payments charges, exceptional items, COGS deferral
adjustment and the gross-up adjustment. A full reconciliation
is included in the "Costs" section of the "FINANCIAL
REVIEW".
Adjusted EBITDA Adjusted earnings before interest, taxation, depreciation
and amortisation ("Adjusted EBITDA") is defined
as the Group's operating profit/loss before depreciation,
amortisation of non-acquisition acquisition intangible
assets, share-based payments, exceptional items,
amortisation of acquisition intangible assets, the
Deferred Revenue Haircut Reversal and the COGS Deferral
Adjustments. A full reconciliation is included in
the "PRESENTATION OF RESULTS AND DEFINITIONS".
Adjusted EBITDA Adjusted EBITDA as a percentage of Adjusted Revenue.
margin
Adjusted effective Adjusted Income tax as a percentage of Adjusted
tax rate Profit before tax (defined as Adjusted Net Income
before deduction of Adjusted Income tax) For the
Adjusted Income Tax reconciliation see "Income Tax"
section of " FINANCIAL REVIEW".
Adjusted EPS Basic Adjusted earnings per share amounts are calculated
by dividing the Adjusted net income for the period
by the weighted average number of shares of common
stock outstanding during the year. The diluted Adjusted
earnings per share amounts consider the weighted
average number of shares of common stock outstanding
during the year adjusted for the effect of dilutive
options. For the reconciliation see "Earnings per
share" in the " FINANCIAL REVIEW " section.
Adjusted Net Adjusted Net Income represents statutory net income
Income plus the Deferred Revenue Haircut Reversal, share-based
payments, exceptional items, amortisation of acquisition
intangible assets, unrealised foreign exchange gain/loss
on the EUR tranche of the bank loan, the COGS Deferral
Adjustments, the tax impact from the unrealised
exchange differences on intercompany loans and the
tax impact of the foregoing adjusting items and
IP transfers. For the reconciliation see "PRESENTATION
OF RESULTS AND DEFINITIONS" section.
Amortisation Represents the amortisation of intangible assets
of acquisition acquired through business combinations which does
intangibles not reflect the ongoing normal level of amortisation
in the business.
Average Products APPC defined as the Consumer Direct Desktop simple
Per Customer average valid licences or subscriptions for the
(APPC) financial period presented divided by the simple
average number of Customers during the same period.
See "Consumer Direct Desktop Operational KPIs".
Average Revenue ARPC defined as the Consumer Direct Desktop revenue
Per Customer for the financial period divided by the average
(ARPC) number of Customers during the same period. See
"Consumer Direct Desktop Operational KPIs".
Cash conversion Unlevered Free Cash Flow as a percentage of Adjusted
Cash EBITDA. See "Cash flow" section of " FINANCIAL
REVIEW".
COGS Deferral There was no deferred cost of goods sold ("COGS")
Adjustments balance consolidated by the Group in the acquisition
balance sheet of AVG in 2016 and thus no subsequent
expense was recorded as the revenue in respect of
pre-acquisition date billings was recognised. The
"COGS Deferral Adjustments" refers to an adjustment
to reflect the recognition of deferred cost of goods
sold expenses that would have been recorded in 2016
and 2017 in respect of pre-acquisition date AVG
billings, had the AVG and the Group's businesses
always been combined and had AVG always been deferring
cost of goods sold. See " PRESENTATION OF RESULTS
AND DEFINITIONS ".
Deferred Revenue Under IFRS 3, Business Combinations, an acquirer
Haircut Reversal must recognise assets acquired and liabilities assumed
at fair value as of the acquisition date. The process
of determining the fair value of deferred revenues
acquired often results in a significant downward
adjustment to the target's book value of deferred
revenues. The reversal of the downward adjustment
to the book value of deferred revenues of companies
the Group has acquired during the periods under
review is referred to as the "Deferred Revenue Haircut
Reversal". See " PRESENTATION OF RESULTS AND DEFINITIONS
".
Discontinued As the company is exiting its toolbar-related search
Business distribution business, which had previously been
an important contributor to AVG's revenues (referred
throughout the Full Year Report, with the Group's
browser clean-up business, as "Discontinued Business"),
the growth figures for Adjusted Revenues and Adjusted
Billings exclude Discontinued Business, which is
negligible from 2019. The Discontinued Business
does not represent a discontinued operation as defined
by IFRS 5 since it has not been disposed of but
rather it is being continuously scaled down and
is considered to be neither a separate major line
of business, nor geographical area of operations.
Exceptional Exceptional items are material and non-recurring
items items of income and expense which Group believes
should be separately disclosed to show the underlying
business performance of the Group more accurately.
For details see "Exceptional items" of " FINANCIAL
REVIEW " and "Note 6".
Gross debt Represents the sum of the total book value of the
Group's loan obligations (i.e. sum of loan principals).
A reconciliation is included in the "Financing"
section of the "FINANCIAL REVIEW".
Gross-Up Adjustment The "Gross-Up Adjustment" refers to the estimated
impact of the additional amount of 2015 and 2016
revenue and expenses and their deferral that would
have been recognised by Avast had the contractual
arrangements with certain customers qualified to
have been recognised on a gross rather than a net
basis prior to 2017 (AVG had historically recognised
Billings and revenues on a gross basis, whereas
Avast recognised them on a net basis). See " PRESENTATION
OF RESULTS AND DEFINITIONS ".
Levered Free Represents amounts of incremental cash flows the
Cash Flow Group has after it has met its financial obligations
(after interest and lease repayments) and is defined
as Unlevered Free Cash Flow less cash interest and
lease repayments. See "Cash flow" section of " FINANCIAL
REVIEW" for reconciliation .
Net debt Net debt indicates gross debt netted by the company's
cash and cash equivalents. A reconciliation is included
in the "Financing" section of the "FINANCIAL REVIEW".
Number of customers Users who have at least one valid paid Consumer
Direct Desktop subscription (or license) at the
end of the period.
Organic growth Organic growth represents growth figures excluding
the impact of FX, acquisitions, business disposals
and discontinued business. Excludes current period
revenue of acquisitions until the first anniversary
of their consolidation .
Unlevered Free Represents Adjusted Cash EBITDA less capex, plus
Cash Flow cash flows in relation to changes in working capital
(excluding change in deferred revenue and change
in deferred cost of goods sold as these are already
included in Adjusted Cash EBITDA) and taxation.
Changes in working capital and taxation are as per
the cash flow statement on an unadjusted historical
basis and unadjusted for exceptional items. See
"Cash flow" section of " FINANCIAL REVIEW" for reconciliation.
Unrealized FX In the reported financials, the Group retranslates
on EUR tranche into USD at each balance sheet date the Euro value
of bank loan of the Euro tranche of the bank debt, with the unrealised
FX movement going to the income statement. This
adjustment reverses this unrealised element of the
FX gain/ loss.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR UVUARRUUUUUR
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February 26, 2020 02:00 ET (07:00 GMT)
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