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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Kape Technologies Plc | LSE:KAPE | London | Ordinary Share | IM00BQ8NYV14 | ORD USD0.0001 |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 285.00 | 279.00 | 285.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Jul 2019 to Jul 2024
TIDMKAPE
RNS Number : 4845H
Kape Technologies PLC
13 March 2018
13 March 2018
Kape Technologies plc
("Kape," the "Company," or the "Group")
Final results for the year ended 31 December 2017
Kape (AIM: KAPE), the consumer security software business, announces its final results for the year ended 31 December 2017.
Financial highlights
-- Revenue increased by 17.4% to $66.4 million (2016: $56.5 million)
-- Adjusted EBITDA(1) increased by 29% to $8.3 million (2016: $6.4 million) representing an Improved EBITDA margin of 12.5% (2016: 11.3%)
-- Strong growth in underlying Adjusted EBITDA from core activities excluding Web Apps and Licenses segment of 172% to $6.2 million (2016: $2.3 million)
-- Increase in Media and App Distribution combined segment results(2) of 47.6% to $21.7 million (2016: $14.7 million) and combined segment margins(2) to 32.0% (2016: 28.3%)
-- Adjusted cash generated from operations(1) of $7.6 million (2016: $7.9 million) representing cash conversion from Adjusted EBITDA of 92% (2016: 123%)
-- Strong balance sheet, with a cash balance at year-end of $69.5 million after $7.4 million of acquisition related payments (31 December 2016: $72.1 million)
-- The board has proposed a special dividend in total of a $7.0 million of 4.93 US$ cents (3.55 pence) per share, amounting to $7.0 million
Operational highlights
-- Acquisition of CyberGhost S.A ("CyberGhost"), a leading SaaS cybersecurity provider focused on the provision of Virtual Private Network ("VPN") solutions, in March 2017
- Integration of CyberGhost is now complete and the business is fully integrated with Kape's user acquisition platform
- CyberGhost has performed ahead of management expectations, contributing a net profit of $1.5 million in 2017
-- Significant growth in paying users of 21% to 887,000 (2016: 734,000) -- Launched Reimage for Mac, to increase the product's addressable market
-- Post year-end, in March 2018, rebranded the business to Kape Technologies plc, to reflect the Company's transformation of its operations and shift in strategic focus
-- Significant progress made in transitioning the business towards a pure SaaS model with enhanced earnings visibility
- 82% growth in premium subscriptions to 260,000 (2016: 143,000) driven by shifting the focus of the business to a SaaS model
- Expect to deliver $8.0 million of recurring income from existing users in 2018
-- Successful demonstration of ability to drive organic growth initiatives whilst maximising benefits from selective acquisitions continues to underpin medium-term growth expectations
Ido Erlichman, Chief Executive Officer of Kape, commented:
"With strong growth in revenue and Adjusted EBITDA, 2017 has been a successful year, in which we have achieved key milestones in becoming a leading provider of consumer cybersecurity products.
"The successful integration and subsequent strong performance of CyberGhost is evidence of our ability to acquire and integrate businesses into the Kape platform, driving growth through our existing digital marketing technology. We continue to evaluate selective acquisitions to expand our product offering and broaden our reach in the growing market of security and privacy online.
"We have made a strong start to 2018, with a solid performance across our core product stack. Following the recent rebranding of the Group, we look forward to driving Kape forward and continuing to deliver shareholder value."
(1) EBITDA, Adjusted EBITDA and Adjusted cash flow from operations are non GAAP measures. Adjusted EBITDA and adjusted cash flow from operations are company specific measures which exclude certain expenses which are considered to be one off and non-recurring in nature.
(2) The segment result has been calculated using revenue less costs directly attributable to that segment
Enquiries
Kape plc via Vigo Communications Ido Erlichman, Chief Executive Officer Moran Laufer, Chief Financial Officer Shore Capital (Nominated Adviser & Broker) +44 (0)20 3772 Toby Gibbs / James Thomas 2496 Vigo Communications (Financial Public Relations) Jeremy Garcia / Antonia Pollock +44 (0)20 7830 kape@vigocomms.com 9700
About Kape
Kape is a cybersecurity company focused on helping consumers around the world to have better experience and protection in their digital life. Kape develops and distributes a variety of digital products in the online security space. The Company utilises its proprietary digital distribution technology to optimise its reach and create a superb user experience. Kape offers products which provide online security, privacy and an optimal online experience. Kape's vision is to provide online autonomy for a secure and accessible personal digital life, with team of over 350 people across seven locations worldwide.
This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014.
Chairman's statement
Introduction
2017 has been a pivotal year for our business in which we fully aligned our operations to focus on cybersecurity software.
Our management team has worked tirelessly to deliver on our stated growth objectives which has now culminated in the renaming and rebranding of the business to Kape Technologies plc (previously Crossrider Plc), an important milestone in the repositioning of the business. Since October 2016, the Company has focused on both acquiring and developing cybersecurity software solutions for consumers, whilst utilising its proprietary digital distribution technology to grow its user base across the Company's product suite.
The Company's management has deployed Kape's in-depth expertise and technological capabilities within its digital marketing platform to support and grow our expanded customer base and promote our own products and services. This market leading digital pedigree has enabled the Group to accelerate the Company's successful transformation during 2017.
Products
In the last year, management has taken great strides to broaden our product stack, which includes our Reimage software and DriverAgent solutions. In March 2017, we acquired CyberGhost, a cybersecurity SaaS provider with specific focus on the provision of Virtual Private Networks ("VPN") solutions, as well as a sizeable customer base. With CyberGhost now fully integrated into the Group, I am pleased to report it has performed ahead of management's expectations on a revenue and profit levels.
In addition, and as part of the expansion into new products, the Company has launched Reimage for Mac, expanding the product's potential customer base.
We continue to experience positive customer traction across all our products, further demonstrating our ability to successfully leverage our expertise and digital marketing platform in order to drive higher margins.
Strategic priorities
Our management team remains committed to delivering sustainable growth and is therefore focused on the following key strategic priorities:
-- to develop the Company's product offering organically through internal R&D and to grow our user base across the Company's growing portfolio of software products, leveraging Kape's proprietary distribution technology and expertise;
-- to continue to implement our plan for new acquisitions that expand both the Company's product offering and reach, with the potential to enter additional complementary sector verticals; and
-- to grow the Company's recurring revenue stream by gradually transitioning to a fully SaaS-based model, which will improve both the visibility and quality of earnings, as well as increasing the life time value of our customers.
Board appointments
In February 2017, the Company appointed Moran Laufer, Chief Financial Officer of Kape, to the board of the Company. Moran has been a key member of the Company's management, supporting its recent acquisitions as well as being part of the finance team since 2012, successfully supporting the Group's admission to AIM in 2014.
Looking forward
Kape's management has been successful in demonstrating their ability to both drive organic growth initiatives alongside maximising the benefits from strategic acquisitions.
The board is therefore confident that with its new brand positioning, strategic growth priorities and ongoing focus on consumer cybersecurity, Kape will be able to continue to maximise shareholder value.
The board remains confident in delivering year-on-year growth in 2018.
Don Elgie
Non-Executive Chairman
12 March 2018
Chief Executive Officer's review
Introduction
When I joined Kape (formerly Crossrider Plc) in May 2016, I did so with a clear vision of where I, with the full support of the board, wanted to take this business. It was clear that despite our pedigree in digital marketing, our future laid beyond adtech.
I am therefore delighted to look back at 2017 as a year of significant strategic and operational progress. Over the past twelve months we have delivered on a number of key milestones and taken notable steps to becoming one of the leading next generation providers of consumer cybersecurity products.
We have built on our existing PC repair (Reimage) and device driver update (DriverAgent) solutions, through both the acquisition and internal development of new products during the year, which is a clear sign of our ambition.
Central to our strategy has been to shift our product focus to be B2C-driven and SaaS enabled and thereby increasing our recurring revenue base, creating a more predictable sales platform from which to grow.
We are therefore delighted to have delivered such a strong underlying EBITDA performance, up 172%, excluding the web apps and licenses segment, further demonstrating the excellent performance of our business model.
Operational update
In March 2017, we acquired CyberGhost, a leading cybersecurity SaaS provider with a focus on the provision of virtual private network ("VPN") solutions. The acquisition was successfully integrated into Kape by June 2017 and I am delighted to report, made a positive net profit contribution in the year of $1.5 million.
With CyberGhost now consolidated into the larger Kape operation, we have been successful in generating significant synergies and delivering superior customer traction post-integration with our digital user acquisition platform. This resulted in an increase in CyberGhost's user base by over 30% compared to December 2016 and the last quarter of 2017 saw record sales for the business in terms of volume and EBITDA.
We have grown Kape's product portfolio this year and it now consists of four main products; the CyberGhost VPN, a SaaS product; as well as Reimage PC, DriverAgent and Reimage for Mac, which are purchased on a one-time and yearly unlimited use basis with a technical support component. We have started to implement a SaaS model in the Reimage PC and expect to see the results of this change towards the end of 2018 when the licenses come up for renewal. In addition, we started to utilise the growth in our product offering and user base and we now offer the purchase of CyberGhost and Reimage as a package, providing our customers the best in class products in one place.
To implement the change in business model and focus on profitability, growth and earnings predictability, we have instated five key performance indicators which guide how we measure the success of our operations across the business:
-- deferred income; -- adjusted operating cashflow; -- retention rate; -- paying users; and -- premium subscriptions.
Deferred income and adjusted operating cashflow are key measures as they demonstrate the true value of each product purchase from our customers, given that they recognise the benefits across the life time of the contract. Paying users and premium subscriptions represent our ability to grow our customer base and we expect these to grow over time. The retention rate is an indication of the quality of our service and products and our aim is for this to remain constant over time and improve in the medium term.
Hot Features
Premium
Key performance indicators
2017 2016
Paying users (thousands) 887 734
Premium subscriptions
(thousands) 260 143
Retention rate 69% 69%
Adjusted operating
cash flow ($'000) 7,641 7,873
Deferred income ($'000) 4,014 2,187(3)
We have also been successful in growing our paying user base for Reimage and DriverAgent, by over 18%, and introducing a subscription based payment model. We also launched a Mac version of Reimage in September 2017, to complement our highly successful PC solution. We believe this new release will substantially grow our potential addressable market for this product.
Given our focus on further strengthening our SaaS business model, 2018 will be the first year we are able to generate significant revenues from our existing customer base. Therefore, during 2018, we expect to deliver $8.0 million of recurring income from existing users(4) , which greatly improves both the visibility and quality of our earnings.
(3) On a proforma basis If Cyberghost was part of the group on 31 December 2016
(4) Based on deferred revenue balance and current retention rate for existing subscriptions.
Cybersecurity market
Management identified the consumer cybersecurity space as presenting a significant opportunity for Kape, as a sizeable growth market with few nimble B2C focused-players that can easily adapt to the ever-changing digital landscape. As the internet has become increasingly central to people's lives and concurrently hacking has also evolved significantly, the sharing of data online is posing an increasing threat to individuals' online security.
In 2004, the global cybersecurity market was worth $3.5 billion and in 2017 it was worth over $120 billion, representing growth of over 35 times in 13 years, with key growth drivers including(5) :
-- a growing number of internet users to c. 3.17 billion globally; -- increased network and WiFi connectivity across the world; -- commercial entities increasingly collecting personal data; -- cybercrime targeting individuals, not just enterprise-level hacks; -- heightened regulatory uncertainty around privacy and online security; and -- the emergence of the Internet of Things.
The proliferation of internet users has led to a sizeable B2C cybersecurity marketplace, with the addressable market for personal digital safety in 2018 estimated to be $10 billion. Kape is well-placed to capitalise on the increasing awareness of individuals to protect both their privacy and security online, as the Company has end-to end control over the user journey by leveraging its digital marketing technology and expertise.
The Company's renewed focus on the consumer cybersecurity market is increasingly coming to fruition, as evidenced by the strong performance of Kape's core divisions and existing software solutions in 2017. This, coupled with the acquisition and successful integration and performance of CyberGhost, is a real testament to our ability to deliver in the cybersecurity space.
(5) Based on deferred revenue balance and current retention rate for existing subscriptions.
Re-branding
Given the extensive re-engineering of the business we took the decision to rename and rebrand the Company to Kape Technologies plc. Kape will be the future umbrella for all our products and services as we focus on delivering upon the following strategic priorities:
-- strengthening and developing both our consumer and corporate brand globally; -- better leveraging product cross-selling opportunities within the cybersecurity arena; -- growing our product offering through both organic growth and acquisitions; -- developing and increasing our marketing reach under a unified banner; and -- further strengthening our SaaS business, thereby increasing our recurring revenue base.
Kape's core principles are to be proactive, accessible and bold. We believe there is a real need for innovative solutions for customers and a requirement for online privacy and security as individuals manoeuvre through today's ever-changing online environment. It is this shift in buying and browsing behaviour that is ultimately driving demand for our products.
Current trading and outlook
Over the past 12 months we have delivered on our stated growth strategy. The Group has made significant headway in developing our product suite, which has been greatly enhanced by the addition of CyberGhost. The launch of Reimage for Mac is a great example of our internal development capability and our unique 'in-house' digital user acquisition expertise has enabled Kape to expand our user base globally.
We are motivated by the opportunities that exist within our growing portfolio of products and continue to constantly evaluate selective acquisition opportunities which could potentially broaden our software portfolio and accelerate our expansion into the global consumer cybersecurity market.
In 2018, we are focussing on two core growth initiatives:
-- to continue to grow organically against our key KPIs, including users and revenues from our existing product portfolio; and
-- to deliver on a growth enhancing acquisitions which incorporate the following criteria: - a sizeable and growing user base; - an established recurring revenue model; and
- the ability to deliver strong synergies with both Kape's digital distribution capabilities and expertise.
We have made a strong start to 2018, with record monthly sales, compared to equivalent period, achieved across our products as we continue to reap the benefits of our renewed focus on the Cybersecurity market.
The board therefore remains confident in delivering year-on-year growth in 2018, in-line with market expectations.
Special Dividend
Following our robust performance this year and significant adjusted cashflow from operations of $7.6 million the board has declared a special dividend of 4.93 US$ cents per share, amounting to a total of $7.0 million. This is the first special dividend the Company has issued; it follows the successful transition of the business, will contribute to maintaining balance sheet efficiency and reflects our confidence in the business. The dividend shall be paid in sterling and therefore it will be subject to a conversion exchange rate from US dollars based on a GBP/USD rate of 1.3887, being the rate at 4.30 pm on 12 March 2018, as a result shareholders will receive 3.55 pence per share. The special dividend will become payable on 13 June 2018 to those shareholders on the Company's register as at the record date of 25 May 2018. The ex-dividend date is 24 May 2018.
Ido Erlichman
Chief Executive Officer
12 March 2018
Chief Financial Officer's review
Overview
Revenue for the year to 31 December 2017 increased by 17.4% to $66.4 million (2016: $56.5 million) and Adjusted EBITDA by 28.9% to $8.3 million (2016: $6.4 million). The increase was driven by strong financial performance of the core App Distribution and Media segments which, excluding the Web Apps and License segment, shows a significant increase of 23.0% in revenue and 46.9% in combined segment results. The increase in core activities was off-set by the winding down of the Web Apps and License business that was completed in September 2017.
Kape remains a highly cash generative business, with cash generated from operations after adjusting for one-off non-recurring items of $7.6 million (2016: $7.9 million). This represents adjusted cash conversion of 92% (2016: 123%). The Group balance sheet remains strong with cash of $69.5 million at 31 December 2017 (31 December 2016: $72.1 million) and no debt.
In March 2017, Kape completed the acquisition of CyberGhost S.A for a maximum consideration of EUR9.1 million ($9.6 million) out of which EUR3.1 million ($3.3 million) was in cash at closing, EUR3.0 million ($3.2 million) in nominal value share options, which are subject to the continued employment of the founder over the vesting period, and a deferred earn-out consideration capped at EUR3.0 million ($3.2 million) million. EUR1.75 million ($1.9 million) was paid at closing as a prepayment of the deferred earn out consideration. The fair value of the contingent consideration at acquisition was EUR1.4 million ($1.5 million). On 20 November 2017, the Company repurchased 3,810,667 options out of the 4,400,000 option granted to the founder for total cash consideration of EUR3.2 million ($3.8 million) following his reposition from managing director to Chairman and Corporate Development Manager of CyberGhost. Out of the total consideration, EUR1.6 million ($1.9 million) was paid upon execution of the repurchase agreement, while the remaining amount is to be paid in eight equal instalments.
In April 2017, Kape increased its holding in Clearvelvet Trading Ltd ("Clearvelvet"), a programmatic video advertising company, from 16.67% to 50.01%, for an initial consideration of $1.7 million out of which $0.8 million was in cash and $0.9 million conversion of a loan balance. The cash balance of Clearvelvet at acquisition was $1.4 million. In addition, the sellers would have been entitled to receive up to a total of $1.4 million in earn-out consideration, to be satisfied in cash subject to their continued employment by Clearvelvet. The earn-out consideration was contingent on achieving EBITDA of $1.7 million in 2017 (pro-rated from 60% of target) and $2.2 million for 2018 (pro-rated from 67% of target). The 2017 EBIDTA goal was not achieved, as a result no earn out has been charged for 2017 and no accrual made for 2018 earn out. The earn-out consideration is accounted for remuneration in the post-acquisition income statement rather than as part of the acquisition cost.
Segment Result
Revenue Segment result
2017 2016 2017 2016
$'000 $'000 $'000 $'000
App Distribution 48,226 38,241 17,207 11,267
Media 15,781 13,783 4,464 3,480
Web Apps and
License 2,376 4,508 2,376 4,508
------ ------ ------- -------
Revenue 66,383 56,532 24,047 19,255
====== ====== ======= =======
The segment result has been calculated using revenue less costs directly attributable to that segment. Cost of sales comprises commissions paid to publishers and payment processing fees. Direct sales and marketing costs comprise traffic acquisition costs.
App Distribution
2017 2016
$'000 $'000
Revenue 48,226 38,241
Cost of sales (4,572) (2,360)
Direct sales and marketing
costs (26,447) (24,614)
-------- --------
Segment result 17,207 11,267
-------- --------
Segment margin (%) 35.7 29.5
During the period, App Distribution margins significantly improved, reaching 35.7% compared to 29.5% in 2016. The improved return on marketing investment resulted in a $10.0 million increase in revenues and $5.8 million increase in the segment result, which represents a 52.7% uplift. The increase is attributable to organic growth due to improvement in user acquisition processes and traffic quality which resulted in better conversion rates, and a decrease in average user acquisition cost as well as the addition of the DriverAgent and CyberGhost software products to the Company's portfolio in October 2016 and March 2017 respectively.
Media
2017 2016
$'000 $'000
Revenue 15,781 13,783
Cost of sales - -
Direct sales and marketing
costs (11,317) (10,303)
-------- --------
Segment result 4,464 3,480
-------- --------
Segment margin % 28.3 25.3
In the Media division, revenues increased by 14.5% and segment results increased by 28.3% to $4.5 million. The increase was driven by the contribution of the Clearvelvet programmatic video advertising activity that was consolidated, starting in April 2017 and compensating for a decrease in revenue from the mobile content and mobile apps marketing verticals.
Web Apps and License 2017 2016
$'000 $'000
Revenue 2,376 4,508
Cost of sales - -
Direct sales and marketing - -
costs
----- -----
Segment result 2,376 4,508
----- -----
Segment margin % 100.0 100.0
In accordance with the board's decision to cease investment in the Web Apps and License segment, which Kape reported in 2016, revenue in the period came solely from a software licence and services agreement between Kape and Playtech Software pursuant to the terms of which Kape has granted to Playtech Software a license to use certain software modules for Playtech Software's licensees' branded casino software. The agreement expired on 18 September 2017. Following the expiration of the license and services agreement, no further revenue is expected to be generated from this segment and as such it is expected this will be the last time we report this segment.
Adjusted EBITDA
Adjusted EBITDA for the year to 31 December 2017 was $8.3 million (2016: $6.4 million). Adjusted EBITDA is a non-GAAP company specific measure which is considered to be a key performance indicator for the Group's financial performance. It excludes share based payment charges and expenses which are considered to be one-off and non-recurring in nature and are excluded from the following analysis:
2017 2016
$'000 $'000
Revenue 66,383 56,532
Cost of sales (4,572) (2,360)
Direct sales and marketing costs (37,764) (34,917)
-------- --------
Segment result 24,047 19,255
-------- --------
Indirect sales and marketing costs (6,207) (4,265)
Research and development costs (696) (1,299)
Management, general and administrative
cost (8,883) (7,278)
-------- --------
Adjusted EBITDA 8,261 6,413
-------- --------
Operating loss
A reconciliation of Adjusted EBITDA to operating loss is provided as follows:
2017 2016
$'000 $'000
Adjusted EBITDA 8,261 6,413
Employee share-based
payment charge (340) (716)
Charge for repurchase
of employee options (3,176) -
Exceptional and non-recurring
costs (899) (862)
Depreciation and amortisation (6,445) (9,884)
Impairment of intangible
assets - (4,683)
------- -------
Operating loss (2,599) (9,732)
------- -------
Exceptional and non-recurring costs for the full year 2017 comprised $0.3 million of acquisition bonuses to employees, other non-recurring staff costs of $0.1 million, professional services related to business combination of $0.3 million and a $0.2 million expense from the repurchase of the founder of CyberGhost's share options on 20 November 2017. The charge for repurchase of employee options of $3.2 million is following the acceleration of the repurchased share options.
Loss before tax
Loss before tax has decreased to $2.9 million compared to $10.0 million in 2016.
Loss after tax
Loss after tax was $3.4 million (2016: $10.7 million). The tax charge derives mainly from group subsidiaries' residual profits. The Group continues to recognise a deferred tax asset of $0.1m (2016: $0.2m) in respect of tax losses accumulated in previous years.
Cash flow
2017 2016
$'000 $'000
Cash flow from operations 6,533 5,922
Exceptional and non-recurring
payments 1,108 1,951
Adjusted cash flow
from operations 7,641 7,873
----- -----
% of Adjusted EBITDA 92% 123%
----- -----
Cash flow from operations was strong at $6.5 million (2016: $5.9 million). Adjusted cash flows from operations after adding back payments that are one off in nature and deferred payment for past acquisition that was treated as a remuneration expense in previous years, was $7.6 million (2016: $7.9 million). This represents a cash conversion of 92% of Adjusted EBITDA (2016: 123%).
Tax paid net of refunds in the period was $0.1 million (2016: $0.9 million).
Cash spent in the period on capital expenditure of $2 million (2016: $0.8 million) mainly comprises of capitalised development costs and purchase of fixed assets. Net cash paid for acquisitions in the period totalled $5.3 million (2016: $1.4 million), out of which the Company paid $5.7 million in relation to the CyberGhost acquisition and $0.4 million net inflow related to the acquisition of an additional 33.3% in Clearvelvet and the consolidation of its cash balance in April 2017. As a result, net cash outflow from investing activities was $7.4 million (2016: $3.1 million). In addition, $0.2 million paid in the period for past acquisitions is included in the operational cash flow as it is treated as remuneration as required by IFRS (2016: $1.1 million)
In November 2017, the Company repurchased 3.8 million share options from CyberGhost's founder for a total consideration of $3.8 million, out of which $1.9 million was paid in the year and the rest will be paid in eight equal quarterly instalments.
Financial position
At 31 December 2017, the Company had cash of $69.5 million (31 December 2016: $72.1 million), net assets of $79.4 million (31 December 2016: $80.5 million) and is debt free. At 31 December 2017, trade receivables were $8.5 million (31 December 2016: $5.6 million) which represented 42 days outstanding, (31 December 2016: 44 days).
Early adoption of IFRS 15
In May 2014, the IASB issued IFRS 15 Revenue from Contracts with Customer ("IFRS 15"), a new standard related to revenue recognition. Under the standard, revenue is recognised when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. The Company has adopted IFRS 15 using the cumulative effect method applied to those contracts which were not completed as of 1 January 2017.
Revenue recognition relating to most of our products and services remains substantially unchanged and, in consequence, the impact of the new standard on our opening balances (as at 1 January 2017) was immaterial.
On an ongoing basis, the most significant impact of the standard relates to our accounting for user acquisition costs associated with subscription sales of CyberGhost and auto renewal sales of Reimage which commenced in 2017. These costs, which relate to sales and marketing, are considered incremental in obtaining the contract, and therefore capitalised and amortised over the expected customer relationship period under the new standard. The adoption of the new standard had no impact to cash from or used in operating, financing or investing on our consolidated cash flow statements.
The impact of the adoption on our consolidated income statement and balance sheet for the period ended 31 December 2017 was as follows:
Income statement
2017 as 2017 according Effect of
reported to previous the application
under IFRS policy under of IFRS 15
15 IAS 18
--------------------- ------------ --------------- -----------------
$'000 $'000 $'000
--------------------- ------------ --------------- -----------------
Selling and
marketing expenses (44,117) (45,508) 1,391
--------------------- ------------ --------------- -----------------
Operation loss (2,599) (3,990) 1,391
--------------------- ------------ --------------- -----------------
Adjusted EBITDA 8,261 6,870 1,391
--------------------- ------------ --------------- -----------------
Total comprehensive
loss for the
year (2,503) (3,894) 1,391
--------------------- ------------ --------------- -----------------
Basic earnings
per share (2.4) (3.4) 1
--------------------- ------------ --------------- -----------------
Diluted earnings
per share (2.4) (3.4) 1
--------------------- ------------ --------------- -----------------
Balance sheet
Balance at Balance at Effect of
December 31, December adjustment
2017 as reported 31, 2017 of IFRS 15
under IFRS under IAS
15 18
--------------------- ------------------ ----------- ------------
$'000 $'000 $'000
--------------------- ------------------ ----------- ------------
Assets recognised
for costs incurred
to obtain a
contract
--------------------- ------------------ ----------- ------------
Non-current
assets - Contract
assets 347 - 347
--------------------- ------------------ ----------- ------------
Current assets
- Contract
assets 1,044 - 1,044
--------------------- ------------------ ----------- ------------
1,391 - 1,391
--------------------- ------------------ ----------- ------------
Dividends
Following our strong cash flow from operations and cash balance as of 31 December 2017, The Board has recommended a special dividend of 4.93 US$ cents per share (2016: nil) being a total payout of $7 million.
Moran Laufer
Chief Financial Officer
12 March 2018
Consolidated statement of comprehensive income
For the year ended 31 December 2017
2017 2016
Note $'000 $'000
Revenue 2 66,383 56,532
Cost of sales (4,572) (2,360)
-------- --------
Gross profit 61,811 54,172
Selling and marketing
costs 2a (44,117) (39,915)
Research and development
costs (1,016) (1,661)
Management, general
and administrative
costs (12,832) (7,761)
Depreciation and amortisation (6,445) (9,884)
Impairment of intangible
assets 11 - (4,683)
-------- --------
Total operating costs (64,410) (63,904)
Operating loss 4 (2,599) (9,732)
Adjusted EBITDA 8,261 6,413
-------- --------
Employee share-based
payment charge 7 (340) (716)
Charge for repurchase
of employee options 7 (3,176) -
Exceptional and non-recurring
costs 4 (899) (862)
Depreciation and amortisation (6,445) (9,884)
Impairment of intangible
assets 11 - (4,683)
-------- --------
Operating loss (2,599) (9,732)
------------------------------ ---- -------- --------
Share of results of
equity accounted associates (40) 47
Finance income 277 4
Finance costs (532) (332)
-------- --------
Loss before taxation (2,894) (10,013)
Tax charge 5 (467) (665)
-------- --------
Loss for the year (3,361) (10,678)
Other comprehensive
income:
Foreign exchange differences
on translation of foreign
operations 858 -
-------- --------
Total comprehensive
loss for the year (2,503) (10,678)
======== ========
Total profit/ (loss)
for the year attributable
to:
Owners of the parent (3,561) -
Non-controlling interests 200 -
-------- --------
Total comprehensive
income/ (loss) attributable
to:
Owners of the parent (2,703) -
Non-controlling interests 200 -
-------- --------
Basic earnings per
share (cents) 8 (2.4) (7.6)
Diluted earnings per
share (cents) 8 (2.4) (7.6)
-------- --------
Consolidated statement of financial position
As at 31 December 2017
2017 2016
Note $'000 $'000
Non-current assets
Intangible assets 11 12,350 7,113
Property, plant and
equipment 815 591
Investments in equity
accounted associates - 859
Non-current investments 50 -
Deferred contract costs 2c 406 -
Deferred tax asset 5 97 166
13,718 8,729
-------- --------
Current assets
Software license inventory 65 -
Deferred contract costs 2c 1,386 -
Trade and other receivables 11,071 7,950
Cash and cash equivalents 69,502 72,064
82,024 80,014
Total assets 95,742 88,743
======== ========
Equity
Share capital 15 14
Additional paid in
capital 130,728 130,292
Foreign exchange differences
on translation of foreign
operations 852 (6)
Retained earnings (53,200) (49,747)
Equity attributable
to equity holders of
the parent 78,395 80,553
-------- --------
Non-controlling interests 977 -
-------- --------
Total equity 79,372 80,553
-------- --------
Non-current liabilities
Contract liabilities 2b 892 -
Deferred tax liabilities 5 349 691
Deferred consideration 9 993 160
2,234 851
-------- --------
Current liabilities
Trade and other payables 10,094 7,096
Contract liabilities 2b 3,120 -
Deferred consideration 9 922 243
14,136 7,339
-------- --------
Total equity and liabilities 95,742 88,743
======== ========
The financial statements were approved by the Board and authorised for issue on 12 March 2018.
Ido Erlichman Moran Laufer Chief Executive Officer Chief Financial Officer
Consolidated statement of changes in equity
For the year ended 31 December 2017
Foreign Equity
exchange attributable
differences to equity
Additional on translation holders
Share paid of foreign Retained of the Non-controlling
capital in capital operations earnings parent interests Total
$'000 $'000 $'000 $'000 $'000 $'000 $'000
At 1 January
2016 14 131,287 (6) (39,785) 91,510 - 91,510
Loss for the
year - - - (10,678) (10,678) - (10,678)
Other comprehensive
income:
Foreign exchange - - - - - - -
differences on
translation of
foreign operations
-------- ----------- --------------- --------- ------------------- --------------- --------
Total comprehensive
loss for the
year - - - (10,678) (10,678) - (10,678)
Transactions
with owners:
Share based
payments - - - 716 716 - 716
Exercise of - - - - - - -
employee
options (note
7)
Purchase of own
shares (note
6) - (995) - - (995) - (995)
-------- ----------- --------------- --------- ------------------- --------------- --------
At 31 December
2016 14 130,292 (6) (49,747) 80,553 - 80,553
======== =========== =============== ========= =================== =============== ========
At 1 January
2017 14 130,292 (6) (49,747) 80,553 - 80,553
Loss for the
year - - (3,561) (3,561) 200 (3,361)
Other comprehensive
income:
Foreign exchange
differences on
translation of
foreign operations - - 858 - 858 - 858
-------- ----------- --------------- --------- ------------------- --------------- --------
Total comprehensive
loss for the
year - - 858 (3,561) (2,703) 200 (2,503)
Non-controlling
interest from
acquisition of
subsidiary - - - - - 777 777
Transactions
with owners:
Share based
payments - - - 3,516 3,516 - 3,516
Exercise of
employee
options (note
7) 1 436 - - 437 - 437
Purchase of own
share options
(note 7) - - - (3,408) (3,408) - (3,408)
-------- ----------- --------------- --------- ------------------- --------------- --------
At 31 December
2017 15 130,728 852 (53,200) 78,395 977 79,372
======== =========== =============== ========= =================== =============== ========
Consolidated statement of cash flows
For the year ended 31 December 2017
2017 2016
Note $'000 $'000
Cash flow from operating activities
Loss for the year after taxation (3,361) (10,678)
Adjustments for:
Amortisation of intangible
assets 11 6,046 9,421
Impairment of intangible assets 11 - 4,683
Depreciation of property,
plant and equipment 399 463
Loss on sale of property,
plant and equipment 101 35
Tax charge 5 467 665
Interest income (277) (4)
Interest expenses 411 51
Share based payment charge 7 3,516 716
Share of results of associates 40 (47)
Movement in deferred and contingent
consideration (90) -
Re-measurement gain on equity
interest in associate (52) -
Expense from repurchase of
employee share options 208 -
Interest received 277 -
Unrealised foreign exchange
differences 240 4
Operating cash flow before
movement in working capital 7,925 5,309
Decrease in trade and other
receivables 967 8,327
Increase in software licenses
inventory (65) -
Decrease in trade and other
payables (2,113) (6,625)
Decrease in other current
liabilities (209) (1,089)
Increase in deferred contract
costs (1,330) -
Increase in contract liabilities 1,358 -
------- --------
Cash flow from operations 6,533 5,922
Tax paid net of refunds (109) (904)
------- --------
Cash generated from operations 6,424 5,018
Cash flow from investing activities
Purchases of property, plant
and equipment (540) (108)
Sale of property, plant and
equipment 39 24
Net cash paid on business
combination 12 (5,337) (1,089)
Intangible assets acquired 11 (115) (850)
Net cash paid on Investment
in associates - (350)
Capitalisation of development
costs 11 (1,432) (744)
------- --------
Net cash used in investing
activities (7,385) (3,117)
Cash flow from financing activities
Repurchase of employee share
options 7 (1,914) -
Exercise of options by employees 7 437 -
Net payment for purchase of
own shares 6 - (995)
------- --------
Net cash generated from financing
activities (1,477) (995)
------- --------
Net (decrease)/increase in
cash and cash equivalents (2,438) 906
Revaluation of cash due to
changes in foreign exchange
rates (124) (178)
Cash and cash equivalents
at beginning of year 72,064 71,336
------- --------
Cash and cash equivalents
at end of year 69,502 72,064
======= ========
1. Basis of preparation
The financial information set out in this document does not constitute the Group's statutory financial statements for the year ended 31 December 2017 or 31 December 2016. The annual report and financial statements for the year ended 31 December 2017 were approved by the Board of Directors on 12 March 2018 along with this preliminary announcement. The financial statements for the year ended 31 December 2017 have been reported on by the Independent Auditor. The Independent Auditor's report on the financial statements for 2017 was unqualified and did not draw attention to any matters by way of emphasis.
The financial information set out in these preliminary results has been prepared using International Financial Reporting Standards (IFRSs) as adopted by the EU. The accounting policies adopted in these preliminary results have been consistently applied to all the years presented and are consistent with the policies used in the preparation of the financial statements for the year ended 31 December 2016.
Going concern
The Directors have, at the time of approving the financial statements, a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. They therefore continue to adopt the going concern basis of accounting in preparing the financial statements.
Adoption of new and revised standards
New standards and amendments to existing standards that have been published and are mandatory for the first time for the financial year beginning 1 January 2017 have been adopted but had no significant impact on the Group.
In May 2014, the IASB issued IFRS 15 Revenue from Contract with Customer ("IFRS 15"), a new standard related to revenue recognition. Under the standard, revenue is recognised when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The Company has early adopted IFRS 15 for the financial year beginning 1 January 2017, as set out below.
2. Revenue
2017 2016
$'000 $'000
Revenue from advertising 18,157 18,291
Sale of software license 48,226 38,241
------ ------
66,383 56,532
====== ======
Revenues from sale of software tool and provision of virtual private network ("VPN") solutions are generated from the App distribution CGU, while revenues from advertising is generated mainly from the Media CGU.
On January 1, 2017, the Company adopted IFRS 15 using the cumulative effect method applied to those contracts which were not completed as of January 1, 2017. The impact of new standard on our opening balances was immaterial.
On an ongoing basis, the most significant impact of the standard relates to our accounting for marketing costs of the Reimage and CyberGhost products which commence as of FY 2017. These costs are considered incremental in obtaining the contract, and therefore capitalised and amortised over the expected customer relationship period under the new standard.
Revenue recognition related to most of our products and services remain substantially unchanged.
(a) Disaggregation of revenue
The following table presents our revenues disaggregated by the timing of revenue recognition in accordance with our reporting segments:
2017 2016
(USD, in thousands) (USD, in thousands)
------------- ---------------------------------------------- --------------------------------------------------
App distribution Media Web Total App distribution Media Web apps Total
apps and license
and
license
------------- ----------------- ------- --------- ------- ----------------- ------- ------------- -------
Revenue
recognised
over a
period 6,454 - 2,376 8,830 - - 4,508 4,508
------------- ----------------- ------- --------- ------- ----------------- ------- ------------- -------
Revenue
recognised
at a point
in time 41,772 15,781 57,553 38,241 13,783 52,024
------------- ----------------- ------- --------- ------- ----------------- ------- ------------- -------
Total 48,226 15,781 2,376 66,383 38,241 13,783 4,508 56,532
------------- ----------------- ------- --------- ------- ----------------- ------- ------------- -------
In accordance with the new revenue standard requirements, the disclosure of the impact of adoption on our consolidated income statement and balance sheet for the period ended December 31, 2017 was as follows:
Income statement
Fiscal year Fiscal year Effect of
ended December ended December adjustment
31, 2017 as 31, 2017 under of IFRS 15
reported under IAS 18 (USD, in thousands)
IFRS 15 (USD, in thousands)
(USD, in thousands)
--------------------- --------------------- --------------------- ---------------------
Costs and expenses
--------------------- --------------------- --------------------- ---------------------
Selling and
Marketing expenses (44,117) (45,508) 1,391
--------------------- --------------------- --------------------- ---------------------
Total operations
cost (64,410) (65,801) 1,391
--------------------- --------------------- --------------------- ---------------------
Operation loss (2,599) (3,990) 1,391
--------------------- --------------------- --------------------- ---------------------
Adjusted EBITDA 8,261 6,870 1,391
--------------------- --------------------- --------------------- ---------------------
Total comprehensive
loss for the
year (2,503) (3,894) 1,391
--------------------- --------------------- --------------------- ---------------------
Basic earnings
per share (2.4) (3.4) 1
--------------------- --------------------- --------------------- ---------------------
Diluted earnings
per share (2.4) (3.4) 1
--------------------- --------------------- --------------------- ---------------------
Balance sheet
Balance at Balance at Effect of
December 31, December 31, adjustment
2017 as reported 2017 under of IFRS 15
under IFRS IAS 18 (USD, in thousands)
15 (USD, in thousands)
(USD, in thousands)
--------------------- --------------------- --------------------- ---------------------
Assets recognised
for costs incurred
to obtain a
contract
--------------------- --------------------- --------------------- ---------------------
Non-current
assets - Deferred
expenses 347 - 347
--------------------- --------------------- --------------------- ---------------------
Current assets
- Deferred
expenses 1,044 - 1,044
--------------------- --------------------- --------------------- ---------------------
1,391 - 1,391
--------------------- --------------------- --------------------- ---------------------
The marketing costs to obtain a contract include fees paid to marketing partners on behalf of subscription sales of Cyberghost or Reimage to customers referred by the partners.
(b) Contract liabilities
The company has recognised the following revenue-related contract liabilities:
December 31,
2017
(USD, in thousands)
---------------------- ---------------------
Contract liabilities
* 4,012
---------------------- ---------------------
Total 4,012
---------------------- ---------------------
(*) The balance is relating to CyberGhost, which was purchased on March 2017.
Significant changes in relation to contract liabilities
The following table shows the significant changes in the current reporting period which relate to carried-forward contract liabilities.
Significant changes in December 31,
the contract liabilities 2017
balances during the period
are as follows:
(USD, in thousands)
------------------------------- ---------------------
Business combination (2,324)
------------------------------- ---------------------
Revenue recognised that
was included in the contract
liability balance from
Business combination 2,181
------------------------------- ---------------------
Increases due to cash
received, excluding amounts
recognised as revenue
during the period (3,537)
------------------------------- ---------------------
Revaluation of contract
liabilities in foreign
currency (332)
------------------------------- ---------------------
Management expects that 77.8% of the transaction price allocated to the unsatisfied contracts (which represent to contract liabilities) as of 31 December 2017 will be recognised as revenue during the next annual reporting period ($3,120,000), 12.5% and 4.6% ($500,000 and $185,000) and will be primarily recognised in the 2019 and 2020 financial years, respectively. The remaining 5.2% ($207,000) will be primarily recognised on the following financial years.
(c) Assets recognised from costs to obtain and fulfil a contract
The Company recognises an asset in relation to marketing costs to obtain a contract. The asset is recognised as the Company expects to recover the cost over the expected relationship period with the customer which includes the initial contract period and expected renewals. The expected relationship period with the customer is estimated based on historical contract renewals data. The asset is amortised on a straight line basis over the expected relationship period with the customer.
In addition, the company recognised an asset for fulfilment costs that are considered directly attributable in fulfilling a contract. The fulfilment costs comprised of processing fees paid to third party processing service providers. This asset is amortised on a systematic basis over the initial contract period.
December 31,
2017
(USD, in thousands)
-------------------------------------------------------------- ---------------------
Asset recognised from
marketing cost to obtain
a contract 1,386
-------------------------------------------------------------- ---------------------
Asset recognised from
fulfilment cost to fulfil
a contract 406
-------------------------------------------------------------- ---------------------
Amortization recognised during the period - marketing costs (294)
-------------------------------------------------------------- ---------------------
Amortization recognised
during the period -
fulfilment cost (804)
-------------------------------------------------------------- ---------------------
3. Segmental information
Segments revenues and results
Based on the management reporting system, the group operates three reportable segments:
-- App distribution - comprising the Group's own software and SAAS products and distribution platform;
-- Media - comprising the Group's ad network activities and associated technology platforms; and
-- Web Apps and License - comprising revenue generated from monetising web apps and licencing the associated technology
Year ended 31 December App distribution Media Web apps Total
2017 2017 2017 and license 2017
2017
$'000 $'000 $'000 $'000
Revenue 48,226 15,781 2,376 66,383
Cost of sales (4,572) - - (4,572)
Direct sales and marketing
costs (26,447) (11,317) - (37,764)
---------------- -------- ------------ --------
Segment result 17,207 4,464 2,376 24,047
Central operating costs (15,786)
--------
Adjusted EBITDA(1) 8,261
Depreciation and amortisation (6,445)
Employee share-based
payment charge (340)
Charge for repurchase
of employee options (3,176)
Exceptional and non-recurring
costs (899)
--------
Operating loss (2,599)
Share of results of
associates (40)
Finance income 277
Finance costs (532)
--------
Loss before tax (2,894)
Taxation (467)
--------
Loss after taxation (3,361)
Exceptional and non-recurring costs in 2017 comprised $0.3 million of acquisition bonuses to employees, other non-recurring staff costs of $0.1 million, professional services related to business combination of $0.3 million and a $0.2 million expense from repurchase of CyberGhost's founder's share options on 20 November 2017.
Year ended 31 December App distribution Media Web apps Total
2016 2016 2016 and license 2016
2016
$'000 $'000 $'000 $'000
Revenue 38,241 13,783 4,508 56,532
Cost of sales (2,360) - - (2,360)
Direct sales and marketing
costs (24,614) (10,303) - (34,917)
---------------- -------- ------------ --------
Segment result 11,267 3,480 4,508 19,255
Central operating costs (12,842)
--------
Adjusted EBITDA(1) 6,413
Depreciation and amortisation (9,884)
Impairment of intangible
assets (4,683)
Employee share-based
payment charge (716)
Exceptional and non-recurring
costs (862)
--------
Operating loss (9,732)
Share of results of
associates 47
Finance income 4
Finance costs (332)
--------
Loss before tax (10,013)
Taxation (665)
--------
Loss after taxation (10,678)
Exceptional and non-recurring costs in 2016 comprised non-recurring staff restructuring costs of $0.6 million and a $0.3 million one-time onerous contract written-off in the period. The decrease in the employee share-based payment charge is due to reversal of charges from previous periods for employees that left the Company during the year.
The impairment of intangible assets charge of $4,683,000 relates to the Media segment. After allocating this charge to the Media segment, the segment result is $1,203,000 loss.
(1) Adjusted EBITDA is a company specific measure which is calculated as operating loss before depreciation, amortisation, exceptional and non-recurring costs, employee share-based payment charges and impairment of intangible assets which are considered to be one off and non-recurring in nature as set out in note 4. The Directors believe that this provides a better understanding of the underlying trading performance of the business.
Information about major customers
In 2017 and 2016 there were no customers contributing more than 10% of total revenue of the Group.
Geographical analysis of revenue
Revenue by origin
2017 2016
$'000 $'000
Europe 48,800 17,297
British Virgin Islands 9,878 27,520
Asia 7,705 11,715
------ ------
66,383 56,532
====== ======
Reimage Limited was re-domiciled from British Virgin Islands to Isle of Man on 8 September 2016.
Geographical analysis of non-current assets
2017 2016
$'000 $'000
Europe 10,364 3,990
British Virgin Islands 1,954 -
Asia 847 3,714
------ -----
Total intangible assets
and property, plant and
equipment 13,165 7,704
====== =====
4. Operating loss
Adjusted EBITDA
Adjusted EBITDA is calculated as follows:
2017 2016
$'000 $'000
Operating loss (2,599) (9,732)
Depreciation and amortisation 6,445 9,884
Impairment of intangible
assets - 4,683
Employee share-based
payment charge 3,516 716
Exceptional and non-recurring
costs:
Non-recurring staff and
restructuring costs 899 862
Adjusted EBITDA 8,261 6,413
Excluding Web Apps and
License Segment (2,062) (4,139)
Adjusted EBITDA excluding
Web Apps and License
segment 6,199 2,274
------- -------
Operating loss has been arrived at after charging:
2017 2016
$'000 $'000
Exceptional and non-recurring
costs
Non-recurring staff
costs 398 562
Professional services
related to business
combination 293 300
Expenses from repurchase
of employee share options 208 -
----- -----
899 862
----- -----
Auditor's remuneration:
Audit 158 147
Taxation services 8 21
Amortisation of intangible
assets 6,046 9,421
Depreciation 399 463
Impairment of intangible
assets (note 11) - 4,683
Employee share-based
payment charge (note
7) 3,516 716
Rent payable under operating
leases 717 459
===== =====
Operating costs
Operating costs are further analysed as follows:
2017 2017 2016 2016
Adjusted Total Adjusted Total
$'000 $'000 $'000 $'000
Direct sales and
marketing costs 37,764 37,764 34,917 34,917
Indirect sales and
marketing costs 6,207 6,353 4,265 4,998
--------- -------- --------- -------
Selling and marketing
costs 43,971 44,117 39,182 39,915
-------------------------- --------- -------- --------- -------
Research and development
costs 696 1,016 1,299 1,661
Management, general
and administrative
cost 8,883 12,832 7,278 7,761
Depreciation and
amortisation 1,315 6,445 1,379 9,884
Impairment of intangible
assets - - - 4,683
--------- -------- --------- -------
Total operating
costs 54,865 64,410 49,138 63,904
========= ======== ========= =======
Adjusted operating costs exclude share based payment charges, exceptional and non-recurring costs, amortisation of acquired intangible assets and impairment of intangible assets.
5. Taxation
The parent company is domiciled, for tax purposes, in both the Isle of Man and the UK. The final tax charge shown below arises partially from the difference in tax rates applied in the difference jurisdictions in which the subsidiaries' jurisdictions.
The Group continues to recognise a deferred tax asset of $97,000 (2016: $166,000) in respect of tax losses accumulated in previous years.
The total tax charge can be reconciled to the overall tax charge as follows:
2017 2016
$'000 $'000
Loss before taxation (2,894) (10,013)
------- --------
Tax at the applicable
tax rate of 19% (2016:
20%) (550) (2,003)
Tax effect of
Differences in overseas rates (421) 976
Expenses not deductible for tax
purposes 1,253 1,327
Deferred tax not recognised on
losses carried forward 122 440
Tax expense for previous years 63 (75)
Tax charge for the
year 467 665
======= ========
Analysed as:
Deferred taxation in
respect of the current
year (650) 263
Current tax charge 1,117 402
------- --------
Tax charge for the
year 467 665
======= ========
The group has maximum corporation tax losses carried forward at each period end as set out below:
2017 2016
$'000 $'000
Corporate tax losses
carried forward 33,235 28,320
====== ======
Details of the deferred tax asset recognised (arising in respect of losses) is set out below:
2017 2016
$'000 $'000
At the beginning of
the year 166 716
Additions through business
combinations 10 -
Derecognised in the
year (100) (558)
Foreign exchange revaluation 21 8
----- -----
At the end of the year 97 166
===== =====
Details of the deferred tax liability recognised (arising from timing differences on intangible valuations on business combinations) is set out below:
2017 2016
$'000 $'000
At the beginning of
the year 691 986
Arising from business
combinations 366 -
Foreign exchange differences 42 -
Movement in the year
due to temporary differences (750) (295)
----- -----
At the end of the year 349 691
===== =====
In addition, the Group has an unrecognised deferred tax asset in respect of the following:
2017 2016
$'000 $'000
Tax losses carried
forward 33,026 28,047
------ ------
6. Shareholder's equity
2017 2016
Number Number
of Shares of Shares
Issued and paid up ordinary shares
of $0.0001 148,496,073 148,496,073
During the year a total of 801,175 new ordinary shares of $0.0001 par value from treasury were sold for cash in relation to share option schemes resulting in cash consideration of $437,000 (2016: $nil).
During the year a total of 3,810,667 of share option of $0.0001 par value were repurchased by the Company for a total cash consideration of $3,800,000 (2016: $nil).
During 2016 a total of 1,250,000 of ordinary shares of $0.0001 par value were purchased by the Company for a total cash consideration of $994,952 and are held in treasury at the reporting date.
As at 31 December 2017, the Company hold in the treasury total of 6,650,248 of ordinary shares of $0.0001 per value (2016: 7,451,423). During 2017, 801,175 of ordinary shares of $0.0001 par value were transferred out of treasury to satisfy the exercise of options by the company employees (2016: nil).
The following describes the nature and purpose of each reserve within owner's equity:
Reserve Description and purpose
Additional paid Share premium (i.e. amount subscribed
in capital or share capital in excess of
nominal value)
Retained earnings Cumulative net gains and losses
recognised in the consolidated
statement of comprehensive income
Foreign exchange Cumulative foreign exchange differences
of translation of foreign operations
In accordance with Isle of Man Company Law, all of the reserves with the exception of share capital are distributable.
7. Employee share based payments
Options have been granted under the Group's share option scheme to subscribe for ordinary shares of the Company. At 31 December 2017, the following options were outstanding (2016: 10,259,383):
Group Grant date Number of shares under option Subscription price per share
Group 1 29 May 2014 1,338,570 $0.538
Group 2 21 April 2015 523,063 $1.376
Group 3 5 January 2016 384,000 $0.749
Group 4 31 May 2016 2,000,000 $0.371
Group 5 26 October 2016 2,232,272 $0.492
Group 6 3 April 2017 884,000 $0.0001
Group 7 15 June 2017 1,128,424 $0.890
Total 8,490,329
==============================
Vesting conditions
Groups 1-5 and 7 - 25% at the end of the first year following the grant date. 6.25% on a quarterly basis during 12 quarters period thereafter.
Group 6 - 50% at the end of the second year following the grant date and the remainder at the end of the third year following the grant.
The total number of shares exercisable as of 31 December 2017 was 2,973,348 (2016: 3,840,679).
The weighted average fair value of options granted in the year using the Cox, Ross and Rubinstein's Binomial Model (the "Binomial Model") was $0.50. The inputs into the Binomial model are as follows:
2017 2016
$'000 $'000
Early exercise factor 150% 100%-150%
Fair value of Group's
stock $0.78 $0.40-$0.80
Expected Volatility 70% 60%
Risk free interest
rate 0.16%-1.11% 0.25%-1.89%
Dividend yield - -
Forfeiture rate 43% 7%-14%
Expected volatility was determined based on the historical volatility of comparable companies.
Forfeiture rate is assumed to be 7%-14% for senior management and 43% for other employees.
The risk-free interest rate was estimated based on average yields of UK Government Bonds.
The Group recognised total share based payments relating to equity-settled share based payment transactions as follows:
2017 2016
$'000 $'000
Share-based payment
charge 340 716
Charge for repurchase
of employee options 3,176 -
Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:
2017 2016
---------------------- ----------------------
Weighted Number Weighted Number
average of average of
exercise options exercise options
price price
At the beginning
of the year $0.66 10,259,383 $0.66 14,481,158
Granted $0.17 5,843,424 $0.51 5,338,272
Lapsed $0.81 (3,000,633) $0.56 (9,560,047)
Exercised $0.55 (801,178) - -
Repurchased
by the company $0.0001 (3,810,667) - -
--------- ----------- --------- -----------
At the end
of the year $0.55 8,490,329 $0.66 10,259,383
========= =========== ========= ===========
The options outstanding at 31 December 2017 had a weighted average remaining contractual life of 8.2 years (2016: 7.9 years).
On 20 November 2017, following his reposition from managing director to Chairman and Corporate Development Manager of CyberGhost, the Company repurchased and cancelled 3,810,667 options that were granted to the founder of Cyberghost on 3 April 2017. The total cash consideration for the options was of EUR3.2 million ($3.8 million) out of the total consideration, EUR1.6 million ($1.9 million) was paid upon execution of the repurchase agreement, while the remaining amount is to be paid in eight equal instalments. The fair value as of 20 November 2017 was EUR3.0 million ($3.4 million) and deducted from equity in accordance to IFRS 2. Following the cancellation of the options a $3.2 million charge was expensed as a result of vesting terms acceleration. An additional $0.2 expense was recorded as the consideration exceeded the fair value of the options.
8. Earnings per share
Basic loss/earnings per share is calculated by dividing the loss /earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year.
2017 2016
cents cents
Basic (2.4) (7.6)
Diluted (2.4) (7.6)
Adjusted basic 3.8 2.7
Adjusted diluted 3.7 2.7
Adjusted earnings per share is a non-GAAP measure and therefore the approach may differ between companies. Adjusted earnings have been calculated as follows:
2017 2016
$'000 $'000
Loss for the year (3,361) (10,678)
Post tax adjustments:
Employee share-based
payment charge 3,535 823
Exceptional and non-recurring
costs 793 774
Amortisation on acquired
intangible assets 4,439 8,208
Impairment of intangible
assets - 4,683
Adjusted profit for
the year 5,406 3,810
======= ========
Number Number
Denominator - basic:
Weighted average number
of equity shares for
the purpose of earnings
per share 141,547,496 141,068,557
Denominator - diluted
Weighted average number
of equity shares for
the purpose of diluted
earnings per share 145,260,658 141,182,911
The diluted denominator has not been used where this has anti-dilutive effect. Basic and diluted loss per share are therefore the same for reporting purposes.
The difference between weighted average number of Ordinary shares used for basic earnings per share and the diluted earnings per share is 114,354 being the effect of all potentially dilutive Ordinary shares derived from the number of share options granted to employees.
9. Deferred consideration
(a) Acquisition of Definiti Media Limited
The consideration for the acquisition of Definiti Media Ltd in May 2014 included $2,489,000 deferred consideration. Of this, $845,000 was repaid during the year ending 31 December 2014 and $746,000 was repaid during the year ending 31 December 2015. The remainder was repaid during the year ending 31 December 2016.
(b) Acquisition of AjillionMax
The consideration for the acquisition of certain assets of AjilionMAX Limited in May 2014 included $654,000 deferred consideration. Of this $104,000 was repaid during the year ending 31 December 2014, $156,000 was repaid during the year ending 31 December 2015, $189,000 was repaid during the year ending 31 December 2016 and the remainder was repaid during the year ending 31 December 2017.
In addition, $435,000, included as part of the acquisition arrangements, has been recognised directly in the income statement during the year ending 31 December 2015, out of which $209,000 was paid in May 2017.
(c) Investment in Clearvelvet Trading Ltd
In September 2015, the Group acquired 16.67% of the share capital of Clearvelvet Limited for a total consideration of $850,000, of which $350,000 was paid in 2016 on completion of certain development milestones.
(d) Acquisition of DriverAgent intangibles
In October 2016, the Group acquired the intellectual property of PC maintenance software product, DriverAgent, from eSupport.com, Inc for a total consideration of $1.2 million. As for 31 December 2017, the consideration included $0.17 million of deferred consideration (2016: $0.2 million) which is contingent on future results.
(e) Repurchase of share-based consideration
On 20 November 2017, the Company repurchased 3,810,667 options out of the 4,057,813 option granted to the Cyberghost's former founder for total cash consideration of $3.8 million (EUR3.2 million). Out of which $1.9 million (EUR1.625 million) paid upon execution of the purchase agreement, while the remaining amount to be paid in eight equal instalments amounting of $235 thousand (EUR197 thousand) per quarter over the course of two years and recognised as deferred consideration.
10. Related party transactions
The Group is controlled by Unikmind Holdings Limited incorporated in British Virgin Islands, which owns 73% of the Company's shares. The controlling party is the Solidinsight Trust, established under the laws of the Isle of Man. Mr. Teddy Sagi is the sole ultimate beneficiary of the Solidinsight Trust.
(a) Related party transactions
The following transactions were carried out with related parties:
2017 2016
$'000 $'000
Revenue from common controlled
company 2,587 5,034
Technical support services to
end customers provided by common
controlled company (2,704) (2,105)
Payment processing services provided
by common controlled company (208) (300)
Office rent expenses to common
controlled companies (230) (82)
Revenue from equity investments - 100
-------
(555) 2,647
======= =======
(b) Receivables owed by related parties
2017 2016
Name Nature of transaction $'000 $'000
Parent company Unpaid share capital 10 10
Equity investments Loan and Trade - 799
Companies related
by virtue of common
control Trade 881 1,022
-----
891 1,831
===== =====
(c) Payables to related parties
2017 2016
Name Nature of transaction $'000 $'000
Companies related
by virtue of common
control Other 90 20
-----
90 20
===== =====
11. Intangible assets
Intellectual Trademarks Customer Goodwill Internet Capitalised Total
Property Lists Domains Software
Development
Costs
$'000 $'000 $'000 $'000 $'000 $'000 $'000
Cost
At 1 January
2016 35,205 9,462 2,383 7,684 69 2,706 57,509
Additions 1,219 - - - - 744 1,963
At 31 December
2016 36,424 9,462 2,383 7,684 69 3,450 59,472
============= =========== ========= ========= ========= ============= =======
Additions - 90 - - 25 1,432 1,547
Acquisition
through business
combination 1,706 546 743 5,690 - 204 8,889
Foreign exchange
differences 212 70 92 479 - 16 869
------------- ----------- --------- --------- --------- ------------- -------
At 31 December
2017 38,342 10,168 3,218 13,853 94 5,102 70,777
============= =========== ========= ========= ========= ============= =======
Accumulated
amortisation
At 1 January
2016 (27,031) (6,474) (932) (2,316) - (1,502) (38,255)
Charge for the
year (6,528) (1,494) (483) - - (916) (9,421)
Impairment losses - - - (4,683) - - (4,683)
At 31 December
2016 (33,559) (7,968) (1,415) (6,999) - (2,418) (52,359)
========= ======== ======== ======== ======== =========
Charge for the
period (2,320) (1,595) (1,128) - - (1,003) (6,046)
Foreign exchange
differences (12) (4) (5) - - (1) (22)
At 31 December
2017 (35,891) (9,567) (2,548) (6,999) - (3,422) (58,427)
========= ======== ======== ======== ======== =========
Net book value
At 1 January
2016 8,174 2,988 1,451 5,368 69 1,204 19,254
At 31 December
2016 2,865 1,494 968 685 69 1,032 7,113
====== ====== ====== ====== === ====== =======
At 31 December
2017 2,451 601 670 6,854 94 1,680 12,350
====== ====== ====== ====== === ====== =======
On 14 March 2017, the Group acquired 100% of the share capital of CyberGhost S.A ("CyberGhost"), a leading cyber security SaaS provider, with a focus on the provision of virtual private network ("VPN") solutions. Prior to the acquisition date, CyberGhost acquired Mobile Concepts GmbH, a software development company based in Germany, for an amount of EUR1.5 million, as set out in note 12.
On 1 April 2017, the Company increased its holding in Clearvelvet Trading limited ("Clearvelvet") to 50.01% of the share capital by acquiring an additional 33.34% of its issued share capital. In September 2015, the Group acquired 16.67% of the share capital of Clearvelvet for a total consideration of $850,000, of which $350,000 paid in 2016 with the completion of certain milestones. Clearvelvet's founders hold the remaining 49.99% of the shares. Following completion Clearvelvet is considered to be a subsidiary undertaking and has been included in the company's consolidated statements on a basis of full consolidation, as set out in note 12.
In October 2016, the Group exercised an option to acquire the intellectual property of PC maintenance software product, DriverAgent, from eSupport.com Inc. for a total consideration of $1,208,000. $150,000 from the consideration was paid in the year ending 31 December 2015 for the option and $850,000 was paid during the year ending 31 December 2016. Another $208,000 is deferred consideration which is contingent on future results of the product.
Goodwill acquired in a business combination is allocated at acquisition to the cash generating units (CGUs), or group of units that are expected to benefit from that business combination.
The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. The recoverable amounts of the CGUs are determined from value in use calculations.
The key assumptions for the value in use calculations are those regarding the discount rates, growth rates and expected changes to selling prices and direct costs during the period.
At 31 December 2017, before impairment testing, the carrying value of intangible assets allocated to the Media CGU was $2,889,000, including goodwill of $2,524,000. The carrying value of the goodwill has not been changed due to the impairment testing and no impairment loss was recognised.
For the Media CGU, the Group has prepared calculations based on cash flow projections for the next five years from the most recent budgets approved by management and extrapolated cash flows beyond this period using an estimated growth rate of 1 per cent (2016: 1 per cent). This rate does not exceed the average long-term growth rate for the relevant markets. The rate used to discount these forecast cash flows is 25 per cent (2016: 25 per cent).
The discount rate used in the valuation of the Media CGU was 25 per cent. If the discount rate was increased by 1 percentage point the effect would have been nil. There is no reasonably possible change in assumption that would give rise to an impairment.
At 31 December 2016, before impairment testing, the carrying value of intangible assets allocated to the Media CGU was $9,417,000, including goodwill of $5,368,000. As a result of the reduction in the management forecasted cash flows attributable to the acquired intangible assets, the carrying value of the goodwill has therefore been reduced to its recoverable amount of $685,000 through recognition of an impairment loss of $4,683,000.
Web Apps Media App Distribution Total
and License
$'000 $'000 $'000 $'000
Carrying value before
impairment losses at
1 January 2016 974 9,417 1,405 11,796
Provisions for impairment - (4,683) - (4,683)
------------ ------- ---------------- -------
Net book value at 31
December 2016 974 4,734 1,405 7,113
============ ======= ================ =======
The Group tests the useful economic life of the Intangible asset whenever events or changes in circumstances indicate that the useful economic life may need to be changed. The brought-forward media CGU intellectual property, customer lists and trademark were fully amortised in the year ended 31 December 2017 due to a change in management assumptions with the expected useful life of these assets. If the management assumption was not changed, the amortisation attributed to the media intellectual property and customer lists would have been $2,416,000 instead of $3,629,000.
12. Business combinations
(a) Acquisition of CyberGhost S.A
On 14 March 2017, the Group acquired 100% of the share capital of CyberGhost S.A ("CyberGhost"), a leading cyber security SaaS provider, with a focus on the provision of virtual private network ("VPN") solutions. Prior to the acquisition date, CyberGhost acquired Mobile Concepts GmbH, a software development company based in Germany, for an amount of EUR1.5 million.
The acquisition is in line with the Company's stated strategy to broaden its product offering to service high growth consumer markets, of which cyber security is a key vertical.
Details of the fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill, are as follows:
Acquiree's
carrying Fair value
amount
before
combination
$'000 $'000
Brand and domain name - 546
Customer relations - 743
Technology 1,166 1,706
Deferred tax liability - (366)
Cash and cash equivalents 1,070 1,070
Trade and other receivables 1,181 1,181
Property, plant and equipment 199 199
Deferred revenues (2,324) (2,324)
Trade and other payables (1,857) (1,857)
------------------------------ ------------ ------------
(565) 898
------------------------------ ------------ ------------
Fair value of consideration
Cash 3,272
Contingent consideration 1,477
------------------------------ ------------ ------------
Total consideration 4,749
------------------------------ ------------ ------------
Goodwill 3,851
------------------------------ ------------ ------------
Net cash outflow on acquisition of business
2017
$'000
Initial consideration 3,272
Prepayment in relation of deferred
consideration 1,871
Cash and cash equivalents acquired (1,070)
4,073
=======
CyberGhost was acquired for a total consideration of up to $9.6 million (EUR9.1 million). The consideration comprises of $3.3 million (EUR3.1 million) in cash at closing, $3.2 million (EUR3.0 million) in nominal value share options and deferred earn out consideration capped at $3.2 million (EUR3.0 million), to be satisfied in cash on a euro for euro basis for the EBITDA of CyberGhost in the 12 months period post completion. $1.9 million (EUR1.75 million) was paid at closing as a prepayment of the deferred earn out consideration.
The share options consideration comprised of 4,400,000 options that issued over ordinary shares in the capital of the Company ("Ordinary Shares") exercisable at the nominal value of the shares ("Consideration Options"). The Consideration Options are exercisable in two equal portions on the second and third anniversary of the acquisition completion and contingent on the continued employment of the founder. If were exercised in full, the share options would represent 2.87% of the existing issued share capital of the Company.
On 20 November 2017, the Company repurchased 3,810,667 options out of the 4,400,000 option granted to the founder for total cash consideration of $3.8 million (EUR3.2 million). Out of which $1.9 million (EUR1.625 million) paid upon execution of the repurchase agreement, while the remaining amount to be paid in eight equal instalments amounting of $235 thousand (EUR197 thousand) per quarter over the course of two years.
The Company accelerated the vesting of the share options purchased and recognised immediately the amount that otherwise would have been recognised for services received over the remainder of the vesting period. Following the repurchase the company recognised expenses of $0.2 million for the excess of the consideration over the fair value.
Following the acquisition date, CyberGhost has issued additional shares to the Company for a consideration amount of EUR1.9 million that been paid in cash during the period ended 31 December 2017.
Since the acquisition date, CyberGhost has contributed $6.4 million to group revenues, loss of $1.7 million to group loss. When excluding the expense for the repurchase of Cyberghost's founder's options Cyberghost contributes $1.5 million profit to the group loss. In addition, since the acquisition date Cyberghost contributed $4.4 million to segmental results of the app distribution segment (as set out in note 3). If the acquisition had occurred on 1 January 2017, group revenue would have been $67.6 million, group loss for the period would have been $3.3 million and the app distribution segmental result would have been $18.1 million.
(b) Acquisition of Clearvelvet Trading Limited
On 1 April 2017, the Company increased its holding in Clearvelvet Trading Limited ("Clearvelvet") to 50.01% of the share capital by acquiring an additional 33.34% of its issued share capital. In September 2015, the Group acquired 16.67% of the share capital of Clearvelvet for a total consideration of $850,000, of which $350,000 was paid in 2016 with the completion of certain milestones. Clearvelvet's founders hold the remaining 49.99% of the shares. Following completion Clearvelvet is considered to be a subsidiary undertaking and has been included in the company's consolidated statements on a basis of full consolidation.
Details of the fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill, are as follows:
Acquiree's
carrying
amount Fair value
before
combination
$'000 $'000
Intangible assets 204 204
Investment 50 50
Property, plant and equipment 11 11
Trade and other receivables 3,992 3,992
Deferred tax asset 10 10
Cash and cash equivalents 1,387 1,387
Trade and other payables (4,101) (4,101)
------------------------------- ------------ ------------
1,553 1,553
------------------------------- ------------ ------------
Fair value of consideration
Cash 850
Conversion of convertible loan 894
Conversion of previously held
interest in associate 871
------------------------------- ------------ ------------
Total consideration 2,615
------------------------------- ------------ ------------
Goodwill 1,839
Non-controlling interest (777)
------------------------------- ------------ ------------
The initial consideration for the acquisition of Clearvelvet was $1.7 million out of which $894,000 was conversion of the loan given by the Group on January 2016 and cash consideration of $850,000. The cash consideration paid during July 2017.
In addition, the sellers will be entitled to receive up to a total of $1.4 million earn-out consideration, to be satisfied in cash subject to their continued employment by Clearvelvet. The earn-out consideration is contingent on achieving EBITDA goals of $1.7 million in 2017 (pro-rated from 60% of target), which had not achieved, and $2.2 million for 2018 (pro-rated from 67% of target). The earn-out consideration is accounted as remuneration in the post- acquisition income statement rather as part of the acquisition cost.
Net cash outflow on acquisition of business
2017
$'000
Cash and cash equivalents acquired (1,387)
(1,387)
=======
Since the acquisition date, Clearvelvet has contributed $10.8 million to group revenues, profit of $0.4 million to group loss and $1.8 million to segmental results of the media segment (as set out in note 3). If the acquisition had occurred on 1 January 2017, group revenue would have been $68.9 million, group loss for the period would have been $3.6 million and the media segmental result would have been $4.9 million.
13. Subsequent events
On 7 March 2018, Crossrider plc announced the renaming of the Company to Kape Technologies plc. Trading in the Company's shares under the new name and TIDM, "KAPE", will commence on 13 March 2018.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR JTMLTMBABBLP
(END) Dow Jones Newswires
March 13, 2018 03:00 ET (07:00 GMT)
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