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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 |
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0 | 0 | N/A | 0 |
TIDMKAPE
RNS Number : 3747G
Kape Technologies PLC
17 March 2020
This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014
17 March 2020
Kape Technologies plc
("Kape," the "Company," or the "Group")
FINAL RESULTS FOR THE YEARED 31 DECEMBER 2019
Strong organic growth, game-changing acquisition and
execution of long-term growth strategy
Kape (AIM: KAPE), the digital security and privacy software business, announces its results for the year ended 31 December 2019.
Financial highlights
-- Strong revenue and profit growth underpinned by significant organic growth in Kape's core business
o Revenues increased 27% to $66.1 million (2018: $52.1 million)
o Strong growth in recurring revenues to $51.5 million, an increase of 87% (2018: $27.6 million)
o Adjusted EBITDA(1) up 40% to $14.6 million (2018: $10.4 million)
o Growth in adjusted EBITDA margins to 22.0% (2018: 19.9%)
o Increase of 30% in Adjusted Fully Diluted Earnings Per Share to 6.5 cents (2018: 5.0 cents), Fully Diluted Earnings Per share was 1.7 cents (2018: 1.5 cents)
o Net profit increased to $2.0m (2018: Net loss of $0.5m)
o Adjusted cash flow from operations attributable to current year of $17.9 million (2018: $15.9 million), which represents a cash conversion of 123% (2018: 153%), this excludes movement in Deferred contract costs. Adjusted cash flow from operation of $1.0 million (2018: $5.7 million)
Operational highlights
-- Strong SaaS metrics driving the ongoing profitability, growth and earnings predictability of the Group
-- Increase in subscribers to 2.35 million at year-end (31 December 2018: 0.83 million), with 40.2% growth (excluding Private Internet Access), with an 81% retention rate.
-- Visibility on revenues from existing users increased to $98.8 million(2) (31 Dec 2018: $30.0 million)
-- Completed the successful integration of Intego and ZenMate -- $1.7 million in annualised cost savings identified relating to ZenMate
-- Intego materially strengthened the Company's position in the North American market and expands Kape's internet security software capability
-- Completed acquisition of Private Internet Access in December -- Integration is well underway, on track to realise $3.5 to 4.5 million annual savings in 2020 -- Expanded the Group's user base, with 49% of revenues from North America on a pro forma basis -- Added further product innovation and R&D capabilities -- Positioned the Group to be a global leader in digital privacy -- Strong R&D and product development: -- Launched proprietary infrastructure technology -- Consumer cybersecurity centre developed and expected to launch in Q2
Outlook
-- We started 2020 with strong momentum and we are on track to generate proforma revenues of between $120-$123 million and Adjusted EBITDA of between $35-$38 million
-- Kape has a clear strategy in-place through which to deliver growth underpinned by the Group's product, brand and market presence as well as its robust business model
-- We are on-track to put in place a long-term debt facility from commercial banks to replace the Unikmind loan
-- As per Covid-19; we do not see an effect on demand for our products, and on the operational level Kape is a digital company which is well structured to operate a remote workforce while providing full service to our customers
Ido Erlichman, Chief Executive Officer of Kape, commented:
"There is no question that 2019 has been a landmark period of growth, and I think it is very important to thank all of our staff that helped deliver this excellent set of results and the progress achieved during the year. We have remained steadfast in our commitment to driving record levels of organic growth whilst successfully executing on an extremely ambitious M&A program, demonstrated by the acquisition of PIA. Kape is now ideally placed to drive significant growth across our business in the burgeoning markets in which we operate.
"We are now on the fast track to making our vision a reality by creating one of the most prominent privacy companies globally. We have positioned Kape to become a leading digital privacy company, empowering consumers to manage their own data and digital security. We also expect to enter an exciting period of product innovation as we further realise our vision of making the internet a safe and accessible place for everyone."
An audio webcast of Kape's results presentation is now available via the following link:
http://bit.ly/KAPE_FY19
(1) Adjusted EBITDA from continuing operations only. Adjusted EBITDA is a non GAAP measure and a company specific measure which excludes other operating income and expenses which are considered to be one off and non-recurring in nature.
(2) Calculated as expected revenues from first renewal of the existing user base in addition to the deferred revenue balance
Enquiries:
Kape Technologies plc via Vigo Communications Ido Erlichman, Chief Executive Officer Moran Laufer, Chief Financial Officer Shore Capital (Nominated Adviser & Broker) Mark Percy / Toby Gibbs / James Thomas +44 (0)20 7408 4090 N+1 Singer (Joint Broker) Harry Gooden / George Tzimas +44 (0)20 7496 3000 Vigo Communications (Financial Public Relations) Jeremy Garcia / Antonia Pollock / Fiona Norman kape@vigocomms.com +44 (0)20 7390 0237
About Kape
Kape is a leading 'privacy-first' digital security software provider to consumers. Through its range of privacy and security products, Kape focusses on protecting consumers and their personal data as they go about their daily digital lives.
To date, Kape has over 2 million paying subscribers, supported by a team of over 350 people across eight locations worldwide. Kape has a proven track record of revenue and EBITDA growth, underpinned by a strong business model which leverages our digital marketing expertise.
Through our subscription-based platform, Kape has fast established a highly scalable SaaS-based operating model, geared towards capitalising on the vast global consumer digital privacy market.
www.kape.com
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Chairman's statement
Introduction
Consumers' awareness of the importance of digital privacy reached new heights in 2019, given the significant number of high-profile data breaches, which saw hundreds of millions of consumer data points exposed. This included, in some instances, sensitive medical data, financial data as well as the unprecedented 600 million passwords revealed by the largest social networks. Consumers are therefore even more mindful of the inability of some of the world's largest companies to not only protect their online data, but also in their understanding of the true value of personal data to these businesses. This ongoing desire for personal information by corporates has driven consumers to control and protect their online footprint.
This strong macro landscape continues to fuel our end markets, and consequently our addressable market expands almost daily. Kape has now developed a strong suite of solutions that directly help consumers maintain their online privacy to combat the ever evolving and diverse threat to individuals' online security.
2019 overview
We made significant progress in 2019, strategically, operationally and financially. Clearly the acquisition of Private Internet Access ("PIA") in December will be particularly important in our ongoing development, but over and above this, management delivered strong organic growth and seamlessly integrated prior acquisitions, such as Intego and ZenMate. This proved the team's expertise in integrating software solutions into the Group to deliver cost synergies and material growth. The integration of PIA has already begun, and we look forward to realising the significant benefits that this transaction will bring our business.
Growth Strategy
Our ongoing growth strategy will continue to be focused on a combination of organic growth and the execution of select acquisitions. We expect that 2020 will be focused on the integration of PIA and specifically the implementation of our business intelligence systems and proprietary infrastructure management technology as well as our user acquisition. Our more over-arching strategy will focus on the following three pillars, which we intend to leverage to generate material growth:
-- Product - our internal R&D developments as well as the acquisition of PIA significantly enhanced our suite of solutions and R&D team, giving us a significant platform from which to further broaden our technology stack
-- Brand and market presence - Private Internet is a well-recognised brand, which we intend to leverage globally, with the enlarged group servicing a significant user base through which to grow
-- Business model - we operate a robust SaaS-based business model which continues to deliver strong levels of recurring revenue growth and earnings predictability
Corporate Governance
We constantly strive to create a company culture at Kape which adheres to the highest levels of corporate governance. One of the many initiatives we have undertaken is to ensure a constant dialogue between internal and external stakeholders. This includes holding regular meetings with key employees across the business and engaging proactively with all our board members, ensuring the highest levels of transparency across the organisation. Employees are the key to our success and as such we endeavour to sustain an inclusive environment across all our global offices, always ensuring open lines of communication.
One of our key stakeholders is our worldwide customer base, the satisfaction of which we constantly monitor and review as we believe it sets us apart from many of our peers. We now service over 2.35 million customers worldwide and this emphasis on service is evidenced in the 81% retention rate that we have achieved in the period. Therefore, customer support is at the front of management's mind and prioritised through our wholly owned customer support centres where we have expanded our 24/7 support to additional product lines, as well as constantly improving time to respond.
With regards to the sustainability of the business, given that we are a digital business our environmental footprint is low, but despite this, we constantly monitor our travel and infrastructure footprint and have strict guidelines and technologies in place to minimise our impact.
PIA bonus award
Following the transformational acquisition of PIA, the Kape Remuneration Committee has approved an exceptional bonus award of $900,000 to Ido Erlichman (CEO) and $675,000 to Moran Laufer (CFO) (the "PIA Bonus"). No other bonuses will be paid to the Executive directors for the financial year ended 31 December 2020. This exceptional award, due to be paid in 2020 based on the completion of integration milestones in the first quarter of 2020, is separate from the 2019 bonus awards which relates to performance in that year and will be set out in the Remuneration Report in the Kape Annual Report.
On a pro-forma basis this transaction is a significant contribution to revenues of over $120 million and EBITDA of over $35 million in 2020 with the prospect of increased growth in the future. Underpinning this are the addition of 1.1 million SaaS subscribers bringing the group's total subscribers to over 2.35 million. This enlarged subscriber group will now benefit from Kape's high quality digital marketing channels which will further strengthen the PIA revenues.
The PIA bonus is subject to clawback of up to 20% of the award in relation to meeting revenue and EBITDA targets in FY2020.
The grant of the PIA Bonus is a related party transaction under Rule 13 of the AIM Rules for Companies. Myself, David Cotterell and Martin Blair, being the independent directors, consider, having consulted the Company's Nominated Adviser, Shore Capital & Corporate Limited, that the terms of the related party transaction are fair and reasonable insofar as the Company's shareholders are concerned.
Outlook
I am confident in Kape's prospects and that the combination of organic growth coupled with selected acquisitions and a clear vision and strategy in mind, provides us with an unrivalled platform through which to drive material growth.
I would like to take this opportunity to thank the Kape team for their continued hard work and dedication to the ongoing success of our business.
As per Covid-19 we would like to note that we do not see material effect on demand for our products as a result of recent global developments; we are also prepared structurally across our different locations for supporting the business and providing full service to our customers through remote working arrangements.
Don Elgie
Non-executive Chairman
16 March 2020
Chief Executive Officer's review
Introduction
We have entered 2020 in a very strong position. 2019 was a landmark year for Kape, in which we delivered extensive organic growth and successfully executed our mergers and acquisition strategy. During 2019, our core Digital Privacy segment revenues grew by 81.6% (excluding PIA) compared to last year, we made the game-changing acquisition of Private Internet Access and completed the successful integration of Zenmate and Intego.
Kape now has a significant base from which to capture the explosive growth in the digital privacy and security market, underpinned by our recent acquisition which has established our business as the pre-eminent digital privacy company globally. The enlarged group has a sizable global footprint and boasts an enviable portfolio of privacy-first products, positioning it at the forefront of this rapidly expanding market.
Beyond the acquisition, the Group traded strongly in the year-ended 31 December 2019, delivering Adjusted EBITDA of $14.6 million, which was slightly above management expectations and represents a 40% increase on the prior year (2018: $10.4 million). This was achieved with revenues of $66.1 million (2018: $52.1 million), representing an increase of 27% and an increase in net profit to $2.0 million (2019: ($0.5) million) as the Group continued its focus on profitable growth.
Operational review
Key Performance Indicators
Kape continues to deliver a strong return on investment and attractive unit economics supported by its subscription revenue stream and innovative customer acquisition model.
In order to ensure the ongoing profitability, growth and earnings predictability of the Group, Kape reports against the following key KPIs:
-- Subscriber base demonstrates the development of our SaaS business model and future revenue potential
-- Retention rate indicates levels of customer satisfaction and the high quality of our services and products
-- Deferred income and Adjusted operating cash flow are an indicator of the high visibility over revenues and quality of earnings
31 Dec 31 Dec 2019 2018 '000 '000 Adjusted EBITDA 14,559 10,374 Subscribers (thousands) 2,350 830 Retention rate 81% 74% Deferred income ($'000) 35,312 9,514 Adjusted operating cash flow(3) : Attributable to current year ($'000) 17,902 15,936 Investment in growth (16,928) (10,215) --------------------------------------- ---------- ---------- Adjusted operating cash flow ($'000) 974 5,721
In 2019, Kape performed strongly against its KPIs, with a combination of strong organic growth and the acquisition of PIA transforming our user base, the Group now servicing 2.35 million subscribers at year-end (31 December 2018: 830,000), an increase of 42.2% in organic growth, excluding the user base of PIA. Kape also expects to generate a much higher level of visibility over income with expected revenues of $98.8 million in future financial years anticipated to be generated from existing customers, an increase of 230% (31 December 2018: $30.0 million), driven by the increase in the Group's user base. The decrease in adjusted operating cashflow is due to our strategy to invest in expanding our user base. In addition, Kape's sustains a high retention rate across its user base of 81%, which is very strong for a consumer-focused software business.
Kape generated significant adjusted operating cash flow in 2019, up 12.3% to $17.9 million (31 December 2018: $15.9 million), supported by its subscription revenue stream, which enabled the Company to increase its investment in growth by 65.7% to $16.9 million in 2019 (31 December 2018: $10.2 million).
Another important capability which we continue to measure is our success in both integrating and growing acquisitions. Since the acquisition of CyberGhost in March 2017, we have grown our paying customer base at Cyberghost by 400% and we have organically grown our digital privacy revenue by 81.5% in the year ended 31 December 2019, demonstrating our clear ability to successfully leverage our digital marketing engine to grow a business servicing consumers and SMEs.
Furthermore, in 2019, we have been able to successfully complete the integration of both Zenmate and Intego, which we acquired in 2018, reducing the cost-base while continuing to develop our core cybersecurity capabilities. These successful transactions gave us the confidence to execute on the much larger Private Internet Access acquisition and are testament to our ability in integrating businesses to enhance revenue growth rates, optimise synergies and realise cost benefits.
Acquisition of Private Internet Access
On the 16(th) of December 2019, Kape acquired Private Internet Access. This deal is transformational for the Group both strategically and financially. Kape has now doubled its paying customer base whilst creating a significant foothold in the US market, with 49% of the Group's customers now based in the US. In addition, the PIA brand has positioned Kape as a top player in the North American market within the digital privacy and security space. The enlarged business is also highly cash generative and the acquisition was significantly earnings enhancing, with the enlarged group expected to generate over US$120 million in revenues and over $35 million in Adjusted EBITDA in the year ended 31 December 2020.
Moving forward, the acquisition provides three core levers for growth and we are already ahead of schedule in leveraging these:
-- User growth: we are currently implementing our customer acquisition engine to increase users as, prior to its acquisition, PIA's customer acquisition strategy was primarily organic
-- Brand expansion: Private Internet Access is a well-established brand in the US and, when combined with our growth engine, has the potential to be the largest brand in this space globally
-- Product development: as part of the transaction, we added new digital privacy products, which are currently being formally launched or are in the late stages of development. We expect these to provide further opportunity to grow our user base:
o LibreBrowser - a completely private browser
o Private.sh - a private and encrypted search engine based on cryptography technology
o Private Storage - a cloud-based secure private storage solution
Our integration program is now well underway and has been progressing ahead of expectations. We plan to realise between $3.5 to 4.5 million in annualised cost savings by the end of 2020. Savings will mainly be driven by the implementation of our infrastructure and capacity management technology, which has been developed in-house, into PIA's infrastructure allowing a reduction in the cost to serve our users while increasing the quality of our service across our entire customer base. In addition economies of scale allow us to improve our capacity management as well as vendor relations. Already, we have almost completed the integration of the customer service side where we are providing PIA's customers with our 24/7 customer support.
Organic growth
The Group's existing solutions performed strongly in 2019, benefiting from growing demand coupled with the ongoing implementation of our digital marketing expertise. Growth was derived mainly from our Digital Privacy segment, driven by overall growth in the market as well as management's focus on privacy solutions given the high retention rates in that division.
Overall, we have experienced 42% growth in paying subscribers from 830,000 (December 2018) to 1.18 million (December 2019) excluding PIA. We have also demonstrated a substantial growth in revenues from $52.1 million (December 2018) to $63.6 million (December 2019) excluding PIA.
Product development
We have made significant progress on the R&D front, including the launch of a landmark infrastructure revamp for our privacy solution, Gen4, an internal technology development which allows Kape to upgrade our infrastructure in a modular way, enabling technological updates to be created at a speed well above industry standards. This upgrade increases the speed of connection by an average of 35% in key geographies and our server fleet performs significantly more efficiently than before the upgrade; providing our customers with better performance and increased scalability; this upgrade also improves our security levels with server encryption, man-in-the-middle attack prevention and other protections. Most notably, we have already started integrating this solution into the PIA infrastructure.
In addition, in 2019, the Group continued to demonstrate its ability to launch innovative solutions to combat the increasing diversity of digital threats to consumers. In June 2019, the Group launched the ZenMate Ultimate app, the most comprehensive update of ZenMate's VPN platform to-date, which has seen strong traction since launch. Furthermore, in July 2019, our macOS security analyst team was the first to discover several important malware security threats for Apple users, against which Intego's users are now fully protected.
Looking forward, we are expecting to launch our privacy and security control center in Q2 2020, which will allow our customers to have visibility over their exposure and control their security and privacy measures from one dashboard. This will deliver a complete solution of digital privacy and security features in a unified experience.
Growth strategy
We believe Kape is very well-placed to markedly increase its market share in what is a rapidly expanding space. Central to this are our core growth engines, which are to:
-- Expand our global customer base
- Utilise the strong foundation of the Group's over 2.35 million paying subscribers to accelerate future growth
-- Drive product innovation and R&D - Execute on opportunities to increase the breadth of solutions we currently provide globally -- Leverage brand recognition
- Take advantage of the significant opportunity to further leverage the 'Private Internet' brand internationally, beyond North America
-- Utilise our unique technology platform - Further bolster the implementation of our user acquisition technologies -- Continue to evaluate select acquisitions
- Build upon our track-record of integrating and growing SaaS products to create a truly dominant business globally
Outlook
2019 was undoubtably a seminal year for the Group, in which we created a strong launchpad to accelerate our growth aspirations. These excellent foundations have enabled the Group to make a strong start to 2020 and we expect this to continue beyond the current financial year.
We are pleased to be able to deliver on what we have previously pledged to our partners and shareholders and have a clear roadmap to continue delivering profitable growth in future periods.
We are now fast-tracking our vision into a reality by creating one of the most prominent privacy companies globally. In one acquisition, I believe we have positioned Kape to become one of the leading digital privacy service providers in the world, empowering consumers to manage their own data and digital security.
Ido Erlichman
Chief Executive Officer
16 March 2020
(3) Adjusted operating cash flow attributable to current year is calculated as Adjusted operating cash flow excluding change in deferred contract costs
Chief Financial Officer's review
Overview
Revenue from continued operations for the year to 31 December 2019 increased by 26.9% to $66.1 million (2018: $52.1 million). Adjusted EBITDA(4) from continued operations increased by 40.3% to $14.6 million (2018: $10.4 million) with the increase in Adjusted EBITDA driven by the strong performance of Kape's Digital Privacy activity, with an overall increase of 98.0% in revenues and 72.3% in segment results. Organically, excluding the contribution of PIA, the Digital Privacy segment revenues and segment results increased by 81.5% to $27.6m and 48.3% to $13.4m respectively.
Adjusted cash flow from operations attributable to the current financial period was $17.9 million (2018: $15.9 million), which represents cash conversion of 123%. In addition, during the period $16.9 million was reinvested in user acquisition costs that will be expensed in future periods (2018: $10.2 million). When including this investment, adjusted cash flow from operations decreased to $1.0 million (2018: $5.7 million). At 31 December 2019 the Group's cash balance was $8.2 million (31 December 2018: $40.4 million) and the net debt was $32.0 million after a cash investment of $64.3 million for the acquisition of PIA.
On 16 December 2019, the Group acquired 100% of the share capital of LTMI holding, trading as Private Internet Access, for a total consideration of $130.1 million(5) and enterprise value of $162.3 million(6) . PIA was established in 2009 and is a security software business, based in Denver, Colorado, with a focus on the provision of virtual private network ("VPN") solutions. Since its inception, PIA has grown to become a leading VPN service provider focused on the consumer market and employing approximately 65 employees of which 35% are in an R&D capacity. PIA has over 1 million paying subscribers globally, with 49% of them based in the N. America.
The divestment of the Media division in July 2018, resulted in changes to its management reporting system and we now operate with two reportable segments:
-- Digital Privacy - comprising the Group's Virtual Private Network products which comprise Cyberghost, Private Internet Access and Zenmate;
-- Digital Security - comprising the Group's end point security and PC performance products
Segment Result
Revenue Segment result 2019 2018 2019 2018 $'000 $'000 $'000 $'000 Digital Security 35,949 36,849 17,873 16,672 Digital Privacy 30,111 15,211 15,536 9,018 -------- -------- -------- -------- Revenue 66,060 52,060 33,409 25,690 ======== ======== ======== ========
The segment result has been calculated using revenue less costs directly attributable to that segment. Cost of sales comprises payment processing fees and infrastructure costs of the group's privacy products. Direct sales and marketing costs are user acquisition costs.
Digital Privacy 2019 2018 $'000 $'000 Revenue 30,111 15,211 Cost of sales (5,440) (3,036) Direct sales and marketing costs (9,135) (3,157) --------- ---------- Segment result 15,536 9,018 --------- ---------- Segment margin (%) 51.6 59.3
During the period, the Digital Privacy segment has seen continued growth with an 98% increase in revenue to $30.1 million (2018: $15.2 million) and a 72.3% increase in segment result to $15.5 million (2018: $9.0 million). The segment margin has decreased to 51.6% (2018: 59.3%) mainly because the revenue growth is driven by user acquisition activities. Following the acquisition of PIA in December 2019, PIA contributed $2.5 million to revenues and $2.0 million to segment results. Excluding the acquisition of PIA, the segment results increased by 48.3% to $13.4 million in 2019.
Digital Security 2019 2018 $'000 $'000 Revenue 35,949 36,849 Cost of sales (2,085) (2,569) Direct sales and marketing costs (15,991) (17,608) ---------- ---------- Segment result 17,873 16,672 ---------- ---------- Segment margin (%) 49.7 45.2
During the period, the Digital Security segment margins have improved to 49.7% (2018: 45.2%) resulting in an increase of 7.2% in segment results to $17.9 million (2018: $16.7 million) despite a 2.4% decrease in revenues to $35.9 million (2018: $36.9 million). The increase in margins is driven from the higher proportion of recurring revenue of Intego's end point security products.
Adjusted EBITDA from continued operations
Adjusted EBITDA from continued operations for the year to 31 December 2019 was $14.6 million (2018: $10.4 million). Adjusted EBITDA is a non-GAAP company specific measure which is considered to be a key performance indicator of 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:
2019 2018 $'000 $'000 Revenue 66,060 52,060 Cost of sales (7,525) (5,605) Direct sales and marketing costs (25,126) (20,765) ---------- ---------- Segment result 33,409 25,690 ---------- ---------- Indirect sales and marketing costs (7,903) (6,398) Research and development costs (3,149) (1,389) Management, general and administrative cost (7,798) (7,529) ---------- ---------- Adjusted EBITDA 14,559 10,374 ---------- ----------
Operating profit
A reconciliation of Adjusted EBITDA to operating profit is provided as follows:
2019 2018 $'000 $'000 Adjusted EBITDA 14,559 10,374 Employee share-based payment charge (1,680) (1,490) Charge for repurchase of employee options - - Other operating income (91) Exceptional and non-recurring costs (2,331) (1,441) Depreciation and amortisation (6,314) (3,800) Operating profit 4,143 3,643 --------- ---------
Exceptional and non-recurring costs in 2019 comprised restructuring costs of $0.4 million due to restructuring of Zenmate and Intego that were acquired in 2018 and $1.9 million for professional services and other acquisition related cost that derive from the acquisition of PIA (2018: $0.8 million).
Prof t before tax from continuing operations
Profit before tax from continuing operations was $2.8 million (2018: $3.3 million).
Profit after tax from continuing operations
Profit from continuing operations was $2.5 million (2018: $2.2 million). The tax charge derives mainly from group subsidiaries' residual profits. The Group recognises a deferred tax asset of $1.6 million (2018: $0.2 million) in respect of tax losses accumulated in previous years. The increase is due to recognition of tax asset in Germany following the merger of two subsidiaries ZenGuard GMBH and Mobile Concepts GMBH.
Cash flow
2019 2018 $'000 $'000 Cash flow from operations (1,357) 3,695 Exceptional and non-recurring payments 2,331 1,441 Net cash flow from discontinued operating activities - 336 Net cash paid due to restructuring plan - 249 Adjusted cash flow from operations 974 5,721 --------- -------- % of Adjusted EBITDA 7% 55% --------- -------- Excluding increase of deferred contract costs 16,928 10,215 --------- -------- Adjusted Cash flow from operations attributable to current year 17,902 15,936 --------- -------- % of Adjusted EBITDA 123% 154% --------- --------
Cash flow from operations was $1.4 million (2018: $3.7 million). Adjusted cash flows from operations, after adding back payments that are one-off in nature was $1.0 million (2018: $5.7 million). This represents a cash conversion of 7% of Adjusted EBITDA (2018: 55%). The decrease in operating cash flow is due to an increase in user acquisition investment attributable to future periods to $16.9 million (2018: $10.2 million). Excluding the investment, adjusted operating cash flow attributable to the current financial period increased to $17.9 million (2018: $15.9 million), which represents a cash conversion of 123%.
Tax paid net of refunds in the period was $1.4 million (2018: $0.5 million). The increase was mainly due to prepayments in France and the United States by Group subsidiaries related to Intego.
Cash spent in the period on capital expenditure of $67.5 million (2018: $23.6 million) mainly comprises $64.4 million for the acquisition of PIA, $2.6 (2018: $2.3 million) million capitalised development costs and $0.5 million (2018: $0.2 million) purchase of fixed assets.
Financial position
At 31 December 2019, the Company had cash of $8.2 million (31 December 2018: $40.4 million), net assets of $155.0 million (31 December 2018: $73.0 million) and net debt of $32 million (2018: Nil). At 31 December 2019, trade receivables and contract assets were $3.4 million (31 December 2018: $3.6 million).
Moran Laufer
Chief Financial Officer
16 March 2020
(4) Adjusted EBITDA is a company specific measure which is calculated as operating profit before depreciation, amortisation (including right to use asset amortisation), exceptional and non-recurring costs, employee share-based payment charges and charge of repurchase of employee options 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.
(5) Total consideration per Note 10 plus cash paid to PIA's phantom shareholder, the value of the share consideration was calculated based on the share price at the day of closing, 16 December 2019
(6) Total consideration in (4) above plus cash paid to repay long-term debt
Consolidated statement of comprehensive income
For the year ended 31 December 2019
2019 2018 Note $'000 $'000 Revenue 2,3 66,060 52,060 Cost of sales (7,525) (5,605) ---------- ---------- Gross profit 58,535 46,455 Selling and marketing costs 2c (33,124) (27,564) Research and development costs (3,349) (1,653) Management, general and administrative costs (11,514) (9,795) Depreciation and amortisation 6,13 (6,314) (3,800) Other operating expenses (91) - Total operating costs (54,392) (42,812) Operating profit 4 4,143 3,643 Adjusted EBITDA 4 14,559 10,374 ---------- ---------- Employee share-based payment charge 8 (1,680) (1,490) Other operating expenses (91) - Exceptional or non-recurring costs 4 (2,331) (1,441) Depreciation and amortisation 6,13 (6,314) (3,800) Operating profit 4,143 3,643 ----------------------------------------- ------ ---------- Finance income 300 587 Finance costs (1,644) (938) ---------- ---------- Profit before taxation 2,799 3,292 Tax charge 5 (314) (1,064) ---------- ---------- Profit from continuing operations 2,485 2,228 Loss from discontinued operations (attributable to equity holders of the company) 11 (465) (2,734) ---------- ---------- Profit/ (Loss) for the year 2,020 (506) Other comprehensive income: Items that may be reclassified to profit and loss : Foreign exchange differences on translation of foreign operations (81) 7 ---------- ---------- Total comprehensive Income/ (loss) for the year 1,939 (499) ========== ==========
Total profit/ (loss) for the year attributable to: Owners of the parent 2,020 (518) Non-controlling interests - 12 ---------- ---------- Total comprehensive income/ (loss) attributable to: Owners of the parent 1,939 (511) Non-controlling interests - 12 ---------- ---------- Total profit/ (loss) for the year attributable to Owners of the parent: Continuing operations 2,485 2,228 Discontinuing operations (465) (2,746) 2,020 (518) Earnings per share from continuing operations attributable to the ordinary equity holders of the company: Basic earnings per share (cents) 9 1.7 1.5 Diluted earnings per share (cents) 9 1.7 1.5 ---------- ---------- Earnings per share from discontinued operations attributable to the ordinary equity holders of the company: Basic earnings per share (cents) 9 (0.3) (0.3) Diluted earnings per share (cents) 9 (0.4) (0.3) ---------- ----------
Consolidated statement of financial position
As at 31 December 2019
2019 2018 Note $'000 $'000 Non-current assets Intangible assets 6 242,100 36,265 Property, plant and equipment 2,351 713 Right-of-use assets 13 2,985 1,769 Deferred consideration 11,15 446 934 Deferred contract costs 2c 16,542 7,196 Deferred tax asset 5 2,180 728 266,604 47,605 ---------- ---------- Current assets Software license inventory 96 52 Deferred contract costs 2c 12,798 5,216 Deferred consideration 11,15 346 323 Trade and other receivables 6,687 6,101 Cash and cash equivalents 8,211 40,405 28,138 52,097 Total assets 294,742 99,702 ========== ========== Equity Share capital 16 15 Additional paid in capital 209,501 131,091 Foreign exchange differences on translation of foreign operations 778 859 Retained earnings (55,291) (58,991) Equity attributable to equity holders of the parent 155,004 72,974 ---------- ---------- Non-controlling interests - - ---------- ---------- Total equity 155,004 72,974 ---------- ---------- Non-current liabilities Contract liabilities 2b 6,013 2,165 Deferred tax liabilities 5 22,102 3,125 Long term lease liabilities 13 1,753 1,693 Deferred and contingent consideration 15 14,578 143 44,446 7,126 ---------- ---------- Current liabilities Trade and other payables 19,632 11,131 Shareholder loan 12c 40,221 - Contract liabilities 2b 29,299 7,349 Short term lease liabilities 13 1,365 226 Deferred and contingent consideration 15 4,775 896 95,292 19,602 ---------- ---------- Total equity and liabilities 294,742 99,702 ========== ==========
Consolidated statement of changes in equity
For the year ended 31 December 2019
Foreign exchange differences on Equity translation attributable Additional Share of foreign to equity Total Share paid to be operations Retained holders of Non-controlling capital in capital issued earnings the parent interests $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 At 1 January 2018 15 130,728 - 852 (53,200) 78,395 977 79,372 Loss for the year - - - - (518) (518) 12 (506) Other comprehensive income: Foreign exchange differences on translation of foreign operations - - - 7 - 7 - 7 --------- ------------ --------- ------------- ---------- ------------------ ----------------- --------- Total comprehensive loss for the year - - - 7 (518) (511) 12 (499) Non-controlling interest from disposal of subsidiary - - - - - - (989) (989) Transactions with owners: Share based payments - - - - 1,490 1,490 - 1,490 Exercise of employee options (note 7) * 363 - - - 363 - 363 Dividend paid to company's shareholders - - - - (6,763) (6,763) - (6,763) --------- ------------ --------- ------------- ---------- ------------------ ----------------- --------- At 31 December 2018 15 131,091 - 859 (58,991) 72,974 - 72,974 ========= ============ ========= ============= ========== ================== ================= ========= At 1 January 2019 15 131,091 - 859 (58,991) 72,974 - 72,974 Profit for the year - - - - 2,020 2,020 - 2,020 Other comprehensive income: Foreign exchange differences on translation of foreign operations - - - (81) - (81) - (81) --------- ------------ --------- ------------- ---------- ------------------ ----------------- --------- Total comprehensive loss for the year - - - (81) 2,020 1,939 - 1,939 Transactions with owners: Share based payments - - - - 1,680 1,680 - 1,680 Exercise of employee options (note 7) * 255 - - - 255 - 255 Issue of equity share capital (note 10) 1 21,656 - - - 21,657 - 21,657 Deferred share consideration (note 10) - - 56,499 - - 56,499 - 56,499 At 31 December 2019 16 153,002 56,499 778 (55,291) 155,004 - 155,004 ========= ============ ========= ============= ========== ================== ================= =========
* amounts below 1 thousands
Consolidated statement of cash flows
For the year ended 31 December 2019
2019 2018 Note $'000 $'000 Cash flow from operating activities Profit/ (Loss) for the year after taxation 2,020 (506) Adjustments for: Amortisation of intangible assets 6 4,784 2,617 Loss from Selling the media activity 11 - 2,252 Amortisation of Right-to-use assets 13 1,177 1,209 Depreciation of property, plant and equipment 353 288 Loss on sale of property, plant and equipment 57 58 Tax charge 5 314 1,230 Interest income (300) (587) Interest expenses, fair value movements on deferred consideration 11 814 232 Share based payment charge 8 1,680 1,490 Interest received 300 587 Unrealised foreign exchange differences 143 (168) Operating cash flow before movement in working capital 11,342 8,702 Decrease in trade and other receivables 374 3,142 (Increase)/ Decrease in software licenses inventory (44) 13 Increase in trade and other payables 1,824 82 Increase in deferred contract costs (16,928) (10,215) Increase in contract liabilities 2,075 1,971 ---------- ---------- Cash (outflow)/ Inflow from operations (1,357) 3, 695 Tax paid net of refunds (1,416) (502) ---------- ---------- Cash (used in)/ generated from operations (2,773) 3,193 Cash flow from investing activities Purchases of property, plant and equipment (518) (179) Sale of property, plant and equipment 7 10 Net cash paid on business combination 10 (64,324) (20,823) Net cash paid on business sold 11 - (341) Intangible assets acquired 6 (2) (6) Capitalisation of development costs 6 (2,620) (2,289) ---------- ---------- (23, 628 Net cash used in investing activities (67,457) ) Cash flow from financing activities Repurchase of employee share options 14 (880) (929) Dividend paid - (6,763) Payment of leases 13 (1,246) (1,087) Proceeds from loan 12 40,000 Exercise of options by employees 7 255 363 Net cash generated/ (used in) from financing activities 38,129 (8,416) ---------- ---------- Net (decrease) in cash and cash equivalents (32,101) (28,851) Revaluation of cash due to changes in foreign exchange rates (93) (246) Cash and cash equivalents at beginning of year 40,405 69,502 ---------- ---------- Cash and cash equivalents at end of year 8,211 40,405 ========== ==========
Notes forming part of the financial information for the year ended 31 December 2019
1 Basis of preparation
The financial information set out in this document does not constitute the Group's financial statements for the year ended 31 December 2019 or 31 December 2018. The annual report and financial statements for the year ended 31 December 2019 were approved by the Board of Directors on 16 March 2020, along with this preliminary announcement. The financial statements for the year ended 31 December 2019 have been reported on by the Independent Auditor. The Independent Auditor's report on the financial statements for the year ended 2018 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 issued by the International Accounting Standards Board. 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 2018, except for those that relate to new standards and interpretations effective for the first time for periods beginning on (or after) 1 January 2019. New standard impacting the Group that have be adopted in the annual financial statements for the year ended 31 December 2019 is IFRIC 23 Uncertainty over Income Tax Positions . Details of the impact of this standard is given below. Other new standards, amendments and interpretations to existing standards, which have been adopted by the Group have not been listed, since they have no material impact on the financial statements.
The Group's revenue and operating costs are predominantly denominated in US Dollars and accordingly the Group's financial statements have been presented in US Dollars.
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. The bridge loan term granted by Unikmind for the acquisition of LTMI holding was due to expire on 12 June 2020, but post year end was extended to expire on 31 March 2021. The directors of Kape consider, having consulted with the Company's nominated adviser, that the grant of the option to extend the term of the Term Loan to 31 March 2021 is fair and reasonable insofar as the Company's shareholders are concerned. The company is currently working on refinancing the bridge loan granted by Unikmind with long term bank debt. They therefore continue to adopt the going concern basis of accounting in preparing the financial statements.
Adoption of new and revised standards
New standard impacting the Group that will be adopted in the annual financial statements for the year ended 31 December 2019, and which have given rise to changes in the Group's accounting policies is:
-- IFRIC 23 - Uncertainty over Income Tax Positions (IFRIC 23);
IFRIC 23 - Uncertainty over Income Tax Positions
IFRIC 23 provides guidance on the accounting for current and deferred tax liabilities and assets incircumstances in which there is uncertainty over income tax treatments. The Interpretation requires:
-- The Group to determine whether uncertain tax treatments should be considered separately, or together as a group, based on which approach provides better predictions of the resolution;
-- The Group to determine if it is probable that the tax authorities will accept the uncertain tax treatment; and
-- If it is not probable that the uncertain tax treatment will be accepted, measure the tax uncertainty based on the most likely amount or expected value, depending on whichever method better predicts the resolution of the uncertainty. This measurement is required to be based on the assumption that each of the tax authorities will examine amounts they have a right to examine and have full knowledge of all related information when making those examinations.
The Group elected to apply IFRIC 23 retrospectively with the cumulative effect recorded in retained earnings as at the date of initial application, 1 January 2019. The Group has maintained provisions for potential historic tax liabilities, As at 31 December 2019 the amount of these provisions is $ 5.3 million (2018:$1.4 million). The increase in tax liabilities comprise $3.3 million related to the acquisition of LTMI holding and $0.6 million from uncertainties over the income tax treatment related to cross border services and transactions that derive from the multi-national nature of the Company.
2 Revenue 2019 2018 $'000 $'000 Sale of Digital Security, malware protection and PC performance products 35,949 36,849 Sale of Digital Privacy software solutions 30,111 15,211 66,060 52,060 ======== ========
Revenues from software and SAAS products offering security, malware protection and PC performance are generated from the Digital Security CGU, while revenues from provision of Digital privacy software solutions are generated from the Digital Privacy CGU. The revenues generated from the Media CGU in the period ended December 31,2018 are presented as discontinued operations.
(a) Disaggregation of revenue
The following table presents our revenues disaggregated by the timing of revenue recognition in accordance with our reporting segments:
2019 2018 (USD, in thousands) (USD, in thousands) Digital Digital Total Digital Digital Total Security Privacy Security Privacy ----------- ---------- -------- ----------- ---------- -------- Revenue recognised over a period 4,294 20,191 24,485 1,817 9,971 11,788 ----------- ---------- -------- ----------- ---------- -------- Revenue recognised at a point in time 31,655 9,920 41,575 35,032 5,240 40,272 ----------- ---------- -------- ----------- ---------- -------- Total 35,949 30,111 66,060 36,849 15,211 52,060 ----------- ---------- -------- ----------- ---------- -------- (b) Contract liabilities
The company has recognised the following revenue-related contract liabilities:
31 December 2019 31 December 2018 (USD, in thousands) (USD, in thousands) Contract liabilities 35,312 9,514 ---------------------- ----------------------
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 the contract 31 December 2019 31 December liabilities balances during the 2018 period are as follows: (USD, in thousands) (USD, in thousands) Business combination (23,723) (3,415) ---------------------- ---------------------- Revenue recognised that was included in the contract liability balance from Business combination 1,946 1,863 ---------------------- ---------------------- Revenue recognised that was included in the contract liability balance at the beginning of the period 7,349 3,189 ---------------------- ---------------------- Increases due to cash received, excluding amounts recognised as revenue during the period (11,370) (7,022) ---------------------- ---------------------- Revaluation of contract liabilities in foreign currency - (117) ---------------------- ----------------------
Management expects that 83.0% of the transaction price allocated to the unsatisfied contracts (which represent to contract liabilities) as of 31 December 2019 will be recognised as revenue during the next annual reporting period ($29,299,000), 13.6% and 2.9% ($4,812,000 and $1,032,000) will be recognised in 2021 and 2022 financial years, respectively. The remaining 0.5% ($169,000) will be primarily recognised on the following financial years.
(c) Assets recognised from costs to obtain and fulfil a contract
Significant changes in relation to assets recognised from costs to obtain and fulfil a contract
31 December 2019 31 December 2018 (USD, in thousands) (USD, in thousands) Short term Asset recognised from marketing cost to obtain a contract 12,057 4,624 ---------------------- ---------------------- Long term Asset recognised from marketing cost to obtain a contract 16,325 7,066 ---------------------- ---------------------- Short term Asset recognised from fulfilment cost to fulfil a contract 741 592 ---------------------- ---------------------- Long term Asset recognised from fulfilment cost to fulfil a contract 217 130 ---------------------- ---------------------- Significant changes in the deferred contract costs balances during the period are as follows: ---------------------- ---------------------- Business combination - 387 ---------------------- ---------------------- Amortization recognised during the period - marketing costs (12,033) (3,954) ---------------------- ---------------------- Amortization recognised during the period - fulfilment cost (2,963) (1,318) ---------------------- ---------------------- Increases due to cash paid - marketing costs 28,725 14,054 ---------------------- ---------------------- Increases due to cash paid - fulfilment cost 3,199 1,443 ---------------------- ---------------------- Revaluation of contract costs in foreign currency - 8 ---------------------- ---------------------- 3 Segmental information
Segments revenues and results
The divestment of the Media division in July 2018 (Note 11), resulted in changes to its management reporting system and now operates two reportable segments:
-- Digital Security - comprising software and SAAS products offering security, malware protection and PC performance.
-- Digital Privacy - comprising virtual private network ("VPN") solutions and privacy SAAS products.
The Media division which represented a separate reportable segment in the prior year and this has been accounted for as a discontinued operation, as set-out in Note 11.
Year ended 31 December 2019 Digital Digital Security Privacy Total 2019 2019 2019 $'000 $'000 $'000 Revenue 35,949 30,111 66,060 Cost of sales (2,085) (5,440) (7,525) Direct sales and marketing costs (15,991) (9,135) (25,126) ---------------- --- ---------- --- ------------------- Segment result 17,873 15,536 33,409 Central operating costs (18,850) ------------------- Adjusted EBITDA(1) 14,559 Other operating income (91) Depreciation and amortisation (6,314) Employee share-based payment charge (1,680) Exceptional or non-recurring costs (2,331) ------------------- Operating profit 4,143 Finance income 300 Finance costs (1,644) ------------------- Profit before tax 2,799 Taxation (314) ------------------- Profit from continuing operations 2,485 Loss from discontinued operation (attributable to equity holders of the company) (465) Profit from the year 2,020
Exceptional or non-recurring costs in 2019 comprised restructuring costs of $0.4 million mainly due to restructuring of ZenMate and Intego that were acquired during 2018, $1.9 million (2018: $0.8 million) for professional services and other business combinations related costs which derive from LTMI Holding acquisition.
Year ended 31 December 2018 Digital Security Digital Privacy Total 2018 2018 2018 $'000 $'000 $'000 Revenue 36,849 15,211 52,060 Cost of sales (2,569) (3,036) (5,605) Direct sales and marketing costs (17,608) (3,157) (20,765) ----------------------- ---------- ---------- Segment result 16,672 9,018 25,690 Central operating costs (15,316) ---------- Adjusted EBITDA(1) 10,374 Depreciation and amortisation (3,800) Employee share-based payment charge (1,490) Exceptional or non-recurring costs (1,441) ---------- Operating profit 3,643 Finance income 587 Finance costs (938) ---------- Profit before tax 3,292 Taxation (1,064) ---------- Profit from continuing operations 2,228 Loss from discontinued operation (attributable to equity holders of the company) (2,734) Loss from the year (506)
Exceptional or non-recurring costs in 2018 comprised non-recurring staff costs of $0.5 million mainly due to payments made to option holders in parallel to the special dividend paid in June, $0.8 million for professional services for acquisitions and rebranding expenses and $0.1 of onerous cost related to lease contract.
(1) Adjusted EBITDA is a company specific measure which is calculated as operating loss before depreciation (including right to use assets amortisation), amortisation, exceptional or non-recurring costs, employee share-based payment charges and charge for repurchase of employees options 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 2019 and 2018 there were no customers contributing more than 10% of total revenue of the Group.
Geographical analysis of revenue
Revenue by origin of the recording entity
2019 2018 $'000 $'000 Europe 56,793 49,302 US 9,267 2,758 -------- --------- 66,060 52,060 ======== =========
Geographical analysis of non-current assets
2019 2018 $'000 $'000 Europe 23,212 23,972 Asia 160 90 US 221,079 12,916 --------- -------- Total intangible assets and property, plant and equipment 244,451 36,978 ========= ======== 4 Operating profit
Adjusted EBITDA
Adjusted EBITDA is calculated as follows:
2019 2018 $'000 $'000 Operating profit 4,143 3,643 Depreciation and amortisation 6,314 3,800 Other operating income 91 Employee share-based payment charge 1,680 1,490 Exceptional or non-recurring costs: Non-recurring staff and restructuring costs 416 543 Exceptional costs 1,915 898 Adjusted EBITDA 14,559 10,374
Operating profit has been arrived at after charging:
2019 2018 $'000 $'000 Exceptional or non-recurring operating costs Non-recurring staff costs 416 543 Professional services related to business combination 1,915 813 Costs related to onerous rent agreement - 85 ------- ------- 2,331 1,441 ------- ------- Auditor's remuneration: Audit 210 220 Taxation services 21 7 Amortisation of intangible assets 4,784 2,305 Depreciation 353 286 Amortisation of Right-to-use assets 1,177 1,209 Employee share-based payment charge (note 8) 1,680 1,490 ======= =======
Operating costs
Operating costs are further analysed as follows:
2019 2019 2018 2018 Adjusted Total Adjusted Total $'000 $'000 $'000 $'000 Direct sales and marketing costs 25,126 25,126 20,765 20,765 Indirect sales and marketing costs 7,903 7,998 6,398 6,799 ----------- -------- ----------- -------- Selling and marketing costs 33,029 33,124 27,163 27,564 --------------------------------- ----------- -------- ----------- -------- Research and development costs 3,149 3,349 1,389 1,653 Management, general and administrative cost 7,798 11,514 7,529 9,795 Other operating expenses - 91 - - Depreciation and amortisation 2,652 6,314 2,079 3,800 Total operating costs 46,628 54,392 38,160 42,812 =========== ======== =========== ========
Adjusted operating costs exclude share based payment charges, exceptional or non-recurring costs, other operating expenses and amortisation of acquired intangible assets. See note 3.
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 recognised a deferred tax asset of $1,598,000 (2018: $159,000) in respect of tax losses accumulated in previous years.
The total tax charge can be reconciled to the overall tax charge as follows:
2019 2018 $'000 $'000 Profit from continuing operations before income tax expense 2,799 3,292 Loss from discontinuing operation before income tax expense (465) (2,568) --------- --------- 2,334 724 Tax at the applicable tax rate of 19% (2018: 19%) 443 137 Tax effect of Differences in overseas rates (386) 83 Expenses not deductible for tax purposes 999 835 Previously unrecognised tax losses now recouped to reduce current tax expense (14) - Deferred tax not recognised on losses carried forward 454 81 Recognition of previously unrecognised deferred tax assets (1,561) - Tax expense for previous years 379 94
Tax charge for the year 314 1,230 ========= ========= Income tax expenses is attributable to: Profit from continuing operations 314 1,064 Loss from discontinued operation - 166 --------- --------- 314 1,230 ========= ========= The tax expense/ (credit) from continuing operations Analysed as: Deferred taxation in respect of the current year (1,608) 173 Current tax charge 1,922 891 --------- --------- Tax charge for the year 314 1,064 ========= =========
The group has maximum corporation tax losses carried forward at each period end as set out below:
2019 2018 $'000 $'000 Corporate tax losses carried forward 35,671 38,974 ======== ========
Details of the deferred tax asset recognised arising in respect of losses and timing differences is set out below:
2019 2018 $'000 $'000 At the beginning of the year 728 97 Additions through business combinations - 770 Disposal of the media division - (12) Recognised/ (Derecognised) in the year from continuing operations 1,443 (115) Foreign exchange revaluation 9 (12) ------- ------- At the end of the year 2,180 728 ======= =======
Details of the deferred tax liability recognised arising from timing differences is set out below:
Business Deferred Capitalised combination contract Software Development Total costs Costs $'000 $'000 $'000 $'000 At 1 January 2018 349 - - 349 Arising from business combinations 2,631 87 - 2,718 Foreign exchange differences - - - - Movement in the year due to temporary differences from continuing operations (262) 11 309 58 At 31 December 2018 2,718 98 309 3,125 ============== =========== ======================= ========= Arising from business combinations 19,145 - - 19,145 Foreign exchange differences (3) - - (3) Movement in the year due to temporary differences from continuing operations (726) 261 300 (165) -------------- ----------- ----------------------- --------- At 31 December 2019 21,134 359 609 22,102 ============== =========== ======================= =========
In addition, the Group has an unrecognised deferred tax asset in respect of the following:
2019 2018 $'000 $'000 Tax losses carried forward 30,457 38,218 Unrecognised deferred tax assets due to tax losses carried forward 4,057 6,603 -------- --------
The Group maintained provisions for potential historic tax liabilities presented on Other payables. In 2019 the Group increased its provision of corporate tax liabilities by $0.6 million to $2.0 million (2018: $1.4 million). The increase in tax liabilities driven by the multi-national nature of the Company which give rise to uncertainty over the income tax treatment related to cross border services and transactions. In addition, Other payables as of 31 December 2019 include tax exposure balance of $3.3 million (2018: $Nil) following the due diligence performed with LTMI Holding acquisition.
6 Intangible assets Intellectual Trademarks Customer Goodwill Internet Capitalised Cryptocurrencies Total Property Lists Domains Software Development Costs $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 Cost At 1 January 2018 38,342 10,168 3,218 6,854 94 5,102 - 63,778 Additions - 6 - - - 2,289 - 2,295 Acquisition through business combination 5,751 2,491 2,342 16,168 - - - 26,752 Disposals (3,663) (2,035) (2,078) (2,524) - (768) - (11,068) Foreign exchange differences (81) 10 24 125 - (30) - 48 -------------- ------------ ---------- ---------- ---------- ------------- ------------------ ---------- At 31 December 2018 40,349 10,640 3,506 20,623 94 6,593 - 81,805 ============== ============ ========== ========== ========== ============= ================== ========== Additions - - - - - 2,620 11 2,631 Acquisition through business combination 31,991 36,257 27,796 111,794 231 - 6 208,075 Disposals - - - - - - - - Foreign exchange differences (76) - - - - (57) - (133) -------------- ------------ ---------- ---------- ---------- ------------- ------------------ ---------- At 31 December 2019 72,264 46,897 31,302 132,417 325 9,156 17 292,378 ============== ============ ========== ========== ========== ============= ================== ========== Accumulated amortisation At 1 January 2018 (35,891) (9,567) (2,548) - - (3,422) - (51,428) Charge for the year (1,031) (241) (450) - - (895) - (2,617) Disposals 3,663 2,035 2,078 - - 719 - 8,495 Foreign exchange differences 15 (5) (4) - - 4 - 10 At 31 December 2018 (33,244) (7,778) (924) - - (3,594) - (45,540) ============== ============ ========== ========== ========== ============= ================== ========== Charge for the period (2,050) (544) (1,069) - - (1,121) - (4,784) Disposals - - - - - - - - Foreign exchange differences 37 - - - - 9 - 46 -------------- ------------ ---------- ---------- ---------- ------------- ------------------ ---------- At 31 December 2019 (35,257) (8,322) (1,993) - - (4,706) - (50,278) ============== ============ ========== ========== ========== ============= ================== ========== Net book value At 1 January 2018 2,451 601 670 6,854 94 1,680 - 12,350 At 31 December 2018 7,105 2,862 2,582 20,623 94 2,999 - 36,265 -------------- ------------ ---------- ---------- ---------- ------------- ------------------ ---------- At 31 December 2019 37,007 38,575 29,309 132,417 325 4,450 17 242,100
============== ============ ========== ========== ========== ============= ================== ==========
On 13 December 2019, the Group acquired 100% of the share capital of LTMI Holdings ("LTMI"). LTMI is the holding company for Private Internet Access Inc ("PIA"), a leading US-based digital privacy company with strong position in the data privacy services. PIA was established in 2009 and is a security software business, based in Denver, Colorado, with a focus on the provision of virtual private network ("VPN") solutions. Since its inception, PIA has grown to become a leading VPN service provider focused on the consumer market and employing approximately 65 employees amongst them 35% are in an R&D capacity. PIA has over 1 million paying subscribers globally, with 48% of them based in the US. See Note 10.
On 16 October 2018, the Group acquired 100% of the share capital of ZenGuard GMBH trading as ZenMate ("ZenMate"), a multi-platform security software business with a focus on the provision of virtual private network ("VPN") solutions. ZenMate is a digital privacy company, headquartered in Berlin, focused on encrypting and securing internet connections and protecting individuals' privacy and digital data.
On 24 July 2018, the Group acquired 100% of the share capital of Neutral Holdings Inc trading as Intego ("Intego"), a leading Mac and IOS cybersecurity and malware protection SaaS business. Intego is focused on the provision of malware protection, firewall, anti-spam, backup, data protection and parental controls software for Mac.
On 26 July 2018, the Group sold the media division to Ecom Online Ltd. This sale is in-line with the Company's strategy to develop and distribute its own cybersecurity products. The carrying value of the Intangible assets of the Media division on the Group balance sheet as the date of the sale is $2.6 million of which the majority related to Goodwill.
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. Goodwill allocated to the Digital Security CGU has a carrying amount of $11,688,000 (2018: $11,688,000) and the Digital Privacy CGU has a carrying amount of $120,729,000 (2018: $8,935,000)
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.
For the Digital Security CGU, the recoverable value has been determined from value in use 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 (2018: 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 17 per cent (2018: 25 per cent).
The discount rate used in the valuation of the Digital Security CGU was 17 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.
For the Digital Privacy CGU, the recoverable value has been determined from value in use 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 (2018: 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 15 per cent (2018: 25 per cent).
The discount rate used in the valuation of the Digital Privacy CGU was 15 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.
Following the acquisition of LTMI holdings the company reassessed the discount rate attributable to the company activities, which resulted in a reduction in the discount rate used to 17 and 15 per cent (compared to 25 per cent in 2018) for the Digital Security and Digital Privacy CGUs, respectively. The reduction in the discount rate reflects the increasing growth and share of revenues from higher customer retention over time product revenues and therefore an increased visibility of future user cash flows. As at 31 December 2019, no impairment would have been recognised if a 25 percent discount rate was used in the impairment reviews for both the Digital Privacy and Digital Security CGUs.
7 Shareholder's equity 2019 2018 Number of Number of Shares Shares Issued and paid up ordinary shares of $0.0001 160,144,132 148,496,073
During the year a total of 610,930 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 $255,000 (2018: $363,000).
As part of the LTMI Holdings acquisition (Note 10), the company issued 42,701,548 new ordinary shares ("Consideration Shares") to be paid in three phases. LTMI co-founders Andrew Lee and Steve DeProspero will each be entitled to be issued 19,247,723 Consideration Shares representing approximately 10.4% of the enlarged issued share capital of Kape, of which 5,250,363 are being issued on completion, 10,498,020 will be issued on the first anniversary of completion and 3,499,340 will be issued on the second anniversary of completion. The balance of the Consideration Shares, being 4,206,102 in aggregate, are being issued to four senior executives of PIA, of which 1,147,333 are being issued on completion, 2,294,077 will be issued on the first anniversary of completion and 764,692 will be issued on the second anniversary of completion. The deferred shares consideration is disclosed as shares to be issued.
During 2018, 1,800,000 shares were transferred out of treasury to an employee benefit trust as part of a jointly owned equity shares award to members of the executive management.
As at 31 December 2019, the Company hold in the treasury total of 3,865,223, of ordinary shares of $0.0001 par value (2018: 4,476,153). During 2019, 610,930 of ordinary shares of $0.0001 par value were transferred out of treasury to satisfy the exercise of options by the company employees (2018: 374,095).
In June 2018, the Company paid a special dividend in the amount of $6.8 million. No additional divided was declared in 2019 and 2018.
The following describes the nature and purpose of each reserve within owner's equity:
Reserve Description and purpose Additional paid in Share premium (i.e. amount subscribed or capital 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.
8 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 2019, the following options were outstanding (2018: 12,158,805):
Group Grant date Number of shares under option Subscription price per share Group 1 29 May 2014 1,166,540 $0.538 Group 2 21 April 2015 245,063 $1.305 Group 3 5 January 2016 231,563 $0.710 Group 4 31 May 2016 2,000,000 $0.352 Group 5 26 October 2016 2,232,270 $0.467 Group 6 3 April 2017 586,833 $0.0001 Group 7 15 June 2017 660,587 $0.845 Group 8 26 April 2018 67,500 $0.0001 Group 9 26 April 2018 373,375 $1.280 Group 10 13 July 2018 1,810,000 $1.437 Group 11 24 August 2018 1,800,000 $0.000 Group 12 21 May 2019 367,500 $1.090 Group 13 20 November 2019 827,000 $1.040 Group 14 3 December 2019 650,000 $1.230 ------------------------------- Total 13, 018 ,231 ===============================
Vesting conditions
Groups 1-5, 7-10 and 12-14 - 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.
Group 11 - 33.33% on a yearly basis during 3 years period following the grant date subject to certain performance conditions
The total number of shares exercisable as of 31 December 2019 was 6,977,213 (2018: 5,864,311).
The weighted average fair value of options granted in the year using the Cox, Ross and Rubinstein's Binomial Model (the "Binomial Model") was $1.03. The inputs into the Binomial model are as follows:
2019 2018 $'000 $'000 Early exercise factor 100% 100% Fair value of Group's stock $1.12-$1.91 $1.51-$1.61 Expected Volatility 45% 60% Risk free interest rate 0.47%-1.08% 0.72%-1.50% Dividend yield - - Forfeiture rate 0%-28% 0%-28%
We used the empirical observations for early exercise factor of public companies as an appropriate benchmark for the expected Early exercise factor.
Expected volatility was determined based on the historical volatility of comparable companies.
Forfeiture rate is assumed to be 0% for senior management and 28% 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:
2019 2018 $'000 $'000 Share-based payment charge 1,680 1,490
Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:
2019 2018 ------------------------- ------------------------- Weighted Number Weighted Number average of average of exercise options exercise options price price At the beginning of the year $0.59 12,158,805 $0.55 8,490,329 Granted $1.14 1,844,500 $0.81 4,162,500 Lapsed $1.00 (374,144) $0.96 (119,929) Exercised $0.43 (610,930) $1.02 (374,095) At the end of the year $0.66 13,018,231 $0.59 12,158,805 =========== ============ =========== ============
The options outstanding at 31 December 2019 had a weighted average remaining contractual life of 7.3 years (2018: 7.9 years).
On 24 August 2018, the Company awarded 1,800,000 in respect of its ordinary shares of $0.0001 each have been granted under the Company's 2014 Global Equity Plan to members of its executive management. The Awards vest equally over the three-year period from grant, subject to the achievement of certain performance metrics relating to the three financial years of the Company commencing 1 January 2018. The Awards have been granted as Jointly Owned Equity Awards ("JOE Awards"). Under the terms of the Awards, the Executives will benefit from the growth in value of their respective Award from the date of grant along with the right to acquire the Trustee's interest by way of a nil cost option in the event that the Awards vest.
9 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.
2019 2018 cents Cents Basic earnings per share: From continuing operations 1.7 1.5 from discontinued operations (0.3) (1.8) ------- ------- Total basic earnings per share 1.4 (0.3) Diluted earnings per share: From continuing operations 1.7 1.5 from discontinued operations (0.4) (1.8) ------- ------- Total diluted earnings per share 1.3 (0.3) Adjusted basic 6.8 5.2 Adjusted diluted 6.5 5.0
Adjusted earnings per share is a non-GAAP measure and therefore the approach may differ between companies. Adjusted earnings have been calculated as follows:
2019 2018 $'000 $'000 Profit (Loss) for the year 2,020 (506) Post tax adjustments: Employee share-based payment charge 1,767 1,578 Exceptional or non-recurring costs 2,136 1,403 Amortisation on acquired intangible assets 3,112 1,905 Loss from discontinued operations 465 2,723 Other operating income 92 - Finance cost on deferred consideration for options repurchase 138 247 Adjusted profit for the year 9,730 7,350 ======= ======= Number Number Denominator - basic: Weighted average number of equity shares for the purpose of earnings per share 143,217,060 142,008,376 Adjustments for calculation of diluted earnings per share: Impact of potentially dilutive shares related to employee options 6,257,713 5,947,197 Impact of potentially dilutive shares related to deferred shares consideration for business combinations 951,231 - Denominator - diluted Weighted average number of equity shares for the purpose of diluted earnings per share 150,426,004 147,955,573
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 7,208,944 (2018: 5,947,197) being the effect of all potentially dilutive Ordinary shares derived from the number of share options granted to employees and deferred share consideration relating to the acquisition of LTMI holding ("PIA") that are held in escrow against future claims.
10 Business combinations
(a) Acquisition of LTMI Holdings
On 13 December 2019, the Group acquired 100% of the share capital of LTMI Holdings ("PIA"). LTMI is the holding company for Private Internet Access Inc ("PIA"), a leading US-based digital privacy company with strong position in the data privacy services.
The Acquisition will deliver substantial operational benefits to Kape, transforming the Group's user base with the addition of over one million customers, 48% of which are based in the US. The acquisition includes an additional suite of software-based privacy solutions available across mobile, tablet and desktop and which includes Plus Ultra, a software that speeds up internet connections, and LibreBrowser, a completely private browser.
Details of the provisional fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill, are as follows:
Acquiree's carrying Provisional amount before Fair value combination $'000 $'000 Brand and domain name - 36,257 Technology 478 31,991 Customer relations - 27,796 Deferred tax liability (942) (25,804) Cash and cash equivalents 676 676 Trade and other receivables 976 976 Property, plant and equipment, net 1,539 1,539 Intangible assets, net 237 237 Right-of-use assets 386 386 Deferred Contracts costs 3,491 - Deferred tax assets 6,438 6,659 Contract liabilities (23,723) (23,723) Trade and other payables (11,935) (11,935) Long-term debt (32,161) (32,161) Lease liabilities (314) (314) ------------------------------------- ---------------- --------------- (54,854) 12,580 ------------------------------------- ---------------- --------------- Fair value of consideration Cash 27,076 Shares 21,657 Deferred Cash consideration 18,325 Deferred shares consideration 56,499 Deferred assets consideration 817 Goodwill 111,794 ------------------------------------- ---------------- ---------------
Net cash outflow on acquisition of business
2019 $'000 Cash consideration 27,076 Cash paid to LTMI Holding's Phantom shareholder 5,763 Cash paid to repay Long-term debt 32,161 Cash and cash equivalents acquired (676) 64,324 ========
PIA is being acquired for a total consideration of $130.1 million (including the $5.7 million to PIA phantom shareholder) and an enterprise value of $162.3 (including $32.2 million for repayment of PIA's existing debt), to be satisfied by combination of $85.0 million cash and issuance of 42,701,548 new Kape ordinary shares to be paid in three phases:
-- A payment upon closing of $65.0 million in cash of which $27.1 million to PIA founders, $5.7 million to PIA phantom shareholder and $32.2 million for repayment of PIA's existing debt, and 11,648,059 Consideration shares.
-- A payment on the first anniversary of completion of $5.0 million in cash ("Deferred cash consideration"), 23,290,117 Consideration shares and Company owned cars ("Deferred assets consideration")
-- A payment on the second anniversary of completion of $15.0 million in cash ("Deferred cash consideration"), 7,763,372 Consideration shares and Company owned cars ("Deferred assets consideration")
Andrew Lee and Steve DeProspero will each be entitled to be issued 19,247,723 Consideration Shares (subject to the escrow and set-off arrangements described below) representing approximately 10.4% of the enlarged issued share capital of Kape, of which 5,250,363 will be issued on completion, 10,498,020 will be issued on the first anniversary of completion and 3,499,340 will be issued on the second anniversary of completion. The balance of the Consideration Shares, being 4,206,102 in aggregate, are being issued to four senior executives of PIA, of which 1,147,333 are being issued on completion, 2,294,077 will be issued on the first anniversary of completion and 764,692 will be issued on the second anniversary of completion.
The Founders' Consideration Shares will be subject to a graduated lock-in, whereby the Consideration Shares to be issued on completion will be subject to a 12 month lock-in and the Consideration Shares issuable on the first anniversary of completion will be subject to a lock-in which is released as to 25% of such Consideration Shares each quarter thereafter. Following the expiry of their respective lock-in periods, the Consideration Shares to be issued to the Founders on completion and on the first anniversary of completion will be subject to a 12-month orderly market period. The Consideration Shares issuable to the Founders on the second anniversary of completion will not be subject to a lock-in period but will be subject to a 12-month orderly market period from the time of their issue.
All of the lock-in arrangements will be subject to customary exclusions. In addition, if Unikmind or any of its concert parties disposes of the beneficial interest in any Kape ordinary shares during the lock-in period to a person other than another concert party of Unikmind, the same proportion of the Founders' then locked-in Consideration Shares (ignoring any shares held in escrow) will be released from the lock-in but will remain subject to the orderly market arrangements for 12 months after such release.
The initial Cash consideration and repayment of PIA's existing debt to be funded through Kape's internal cash resources a $25.0 million and a $40.0 million short-term debt facility from Unikmind Holdings Limited ("Unikmind"), Kape's largest shareholder, as well as provide an additional debt facility of $20.0 million, which the Company does not expect to draw, to satisfy the deferred cash consideration, on similar terms. Further details of the Term Loan, which is a related party transaction, are set out on Note 12.
Since the acquisition date, PIA has contributed $2.5 million to group revenues, profit of $0.2 million to group profit. In addition, since the acquisition date PIA contributed $2.0 million to segment results of the Privacy segment (as set out in note 3). If the acquisition had occurred on 1 January 2019, group revenue would have been $113.2 million, group loss for the period would have been $9.5 million and the Digital Privacy result would have been $52.1 million.
Acquisition costs of $1.8 million arose as a result of the transaction. These have been recognised as part of administrative expenses in the statement of comprehensive income.
11 Discontinued operation (a) Description
On 26 July 2018, the Group sold the Media division to Ecom Online Ltd. As for the sale date, the Media division included Clearvelvet Trading Limited ("Clearvelvet") and Intangible assets of the Media CGU. As consideration, the Group will receive a 50% share of EBITDA from the Media division for the next five years following the sale. The Company estimate the recoverable value based on cash flow projections for the next periods agreed upon with the acquiree. The fair value of the deferred consideration as at 31 December 2019 was $0.8 million (2018: $1.3 million). Decrease to the fair value is presented as discontinued operation.
The deferred consideration fair value has been determined in use calculations based on cash flow projections for the deferred period left using the most recent expectations received from the acquire. The rate used to discount these forecast cash flows is 25 per cent (2018: 25 per cent).
The discount rate used in the valuation was 25 per cent. If the discount rate was increased by 1 percentage point the effect would have been $0.01 million. There is no reasonably possible change in assumption that would give rise to an impairment.
(b) Financial performance
The financial performance and cash flow information presented are for the year ended 31 December 2019 and 2018.
2019 2018 $'000 $'000 Revenue - 4,185 Expenses - (4,501) ------- --------- Loss before income tax - (316) Income tax expenses - (166) ------- --------- Loss after income tax of discontinued operation - (482) Fair value movements on deferred consideration (465) - Loss on sale of the Media division - (2,252) ------- --------- Loss from discontinued operation (465) (2,734) ------- --------- Net cash outflow from operating activities - (336) Net cash outflow from investing activities - (341) Net cash flow from financing activities - - ------- --------- Net decrease in cash generated by the Media division - (677) ------- --------- (c) Details of the sale of the subsidiary 2018 $'000 Consideration received or receivable: Short term fair value of contingent consideration 323 Long term fair value of contingent consideration 934 ---------------- Total consideration 1,257 Carry amount of net assets sold Goodwill (2,524) Capitalised Software Development Costs (49) Investment (50) Property, plant and equipment (4) Trade and other receivables (2,517) Deferred tax asset (12) Cash and cash equivalents (341) Trade and other payables 999 ---------------- (4,498) Non-controlling interest 989 ---------------- Loss on sale (2,252) ---------------- 12 Related party transactions
The Group is controlled by Unikmind Holdings Limited incorporated in British Virgin Islands, which owns 67.03% of the Company's shares as at 31 December 2019. The controlling party, Unikmind Holdings Ltd, has re-domiciled form the British Virgin Islands to the Isle of Man. Mr. Teddy Sagi is the sole ultimate beneficiary of Unikmind Holdings Ltd.
(a) Related party transactions
The following transactions were carried out with related parties:
2019 2018 $'000 $'000 Revenue from common controlled company - 85 Technical support services to end customers and administration services provided by common controlled company (254) (2,227) Office expenses to common controlled companies (163) - Payment processing services provided by common controlled company (189) (376) Development services provided by common controlled company (29) - Amortisation of Right-to-use assets with common controlled companies (Note 13) (941) (744) Interest expenses from Lease liabilities to common controlled companies (65) (71) Interest expenses from shareholder short-term loan and debt facility (221) - Loss debt from related parties - (323) --------- (1,862) (3,656) ========= =========
On 6 December 2019, Kape entered into a $40.0 million short-term debt facility from Unikmind Holdings Limited ("Unikmind"), Kape's largest shareholder, and was also provided with an additional debt facility of $20.0 million, which the Company does not expect to draw, to satisfy the deferred cash consideration, on similar terms. Term Loan has a fixed interest rate of 5% above 6 months USD Libor. Each tranche of the Term Loan is repayable on the earlier of a third-party refinancing of the Term Loan and 6 months after its utilisation unless such tranche's maturity is extended until 31 March 2021. The Term Loan can be repaid early in whole or part by the Borrower free of any penalty. The Term Loan will also include a commitment fee on undrawn amounts only from the moment they become available in accordance to the payment schedule and certain other customary obligations on the Borrower in relation to the lender's costs and expenses and in relation to taxes. Term debt facilities have a fixed interest of 1.5% upon availability, $5.0 million on the first anniversary and $15.0 million on the second anniversary.
Borrowings under the Term Loan will be guaranteed by Kape and secured by a share charge granted by Kape in respect of its shares in the Borrower.
Kape intends to re-finance the Term Loan with third party facilities as soon as practicable.
(b) Receivables owed by related parties 2019 2018 Name Nature of transaction $'000 $'000 Parent company Unpaid share capital 10 10 Companies related by Other virtue of common control 20 - Companies related by virtue of common control Trade - 650 ------- 30 660 ======= ======= (c) Payables to related parties 2019 2018 Name Nature of transaction $'000 $'000 Companies related by virtue of common control Other 58 210 Unikmind Holdings Limited Shareholder loan 40,221 - ------- 40,279 210 ======== ======= (d) Right-to-use assets and Lease liabilities to related parties (Note 13) 2019 2018 $'000 $'000 Right-to-use assets 2,058 1,422 --------- --------- Lease liabilities (2,387) (1,543) --------- --------- 13 Leases
The recognised right-of-use assets relate to the following types of assets:
2019 2018 Rights-of-use assets: $'000 $'000 Real estate leases 2,847 1,720 Vehicles 138 49 ------- ------- 2,985 1,769 ======= =======
Right-of-Use Assets
Real estate Vehicles Total leases $'000 $'000 $'000 At 1 January 2018 1,331 77 1,408 Additions 1,265 - 1,265 Additions through business combination 305 - 305 Amortisation (1,181) (28) (1,209) ------------- ---------- --------- At 31 December 2018 1,720 49 1,769 ------------- ---------- --------- Additions 2,026 44 2,070 Additions through business combination 308 78 386 Effect of modification to lease terms (63) - (63) Amortisation (1,144) (33) (1,177) At 31 December 2019 2,847 138 2,985 ------------- ---------- ---------
Lease liabilities
Real estate Vehicles Total leases $'000 $'000 $'000 At 1 January 2018 1,331 77 1,408 Additions 1,265 - 1,265 Additions through business combination 305 - 305 Interest expense 82 11 93 Lease payments (1,058) (29) (1,087) Foreign exchange movements (62) (3) (65) ------------- ---------- --------- At 31 December 2018 1,863 56 1,919 ------------- ---------- --------- Additions 2,026 44 2,070 Additions through business combination 314 - 314 Effect of modification to lease terms (66) - (66) Interest expense 76 1 77 Lease payments (1,207) (39) (1,246) Foreign exchange movements 50 - 50 At 31 December 2019 3,056 62 3,118 ------------- ---------- --------- 2019 Carrying Contractual 3 months Between Between More amount cash flow or less 3-12 months 1-5 years than 5 years $'000 $'000 $'000 $'000 $'000 $'000 Lease liabilities 3,118 3,330 431 957 1,942 - ========== ============= ========== ============== ============ ==========
The Company leases various offices and vehicles. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants.
Extension and termination options are included in a number of property and equipment leases across the group. These terms are used to maximize operational flexibility in terms of managing contracts
14 Deferred and contingent consideration (a) 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 2019, the consideration included $0.2 million of consideration (2018: $0.17 million) which is contingent on future results.
(b) 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. On 28 March 2019, the company accepted Cyberghost's former founder request for immediate remittance of the remaining consideration in exchange for reduction on the amount of said consideration, equal to 7%. As for 31 December 2019, the deferred consideration is fully paid with Nil balance (2018: $0.9 million).
(c) Sale of the Media Division
On 26 July 2018, the Group sold the media division to Ecom Online Ltd. This sale is in-line with the Company's strategy to develop and distribute its own cybersecurity products. As consideration, the Group will receive a 50% share of EBITDA from the Media division for the next five years following the sale, which will be reinvested in the Group's core Digital Security and Digital Privacy segments. As at 31 December 2019, the consideration included $0.8 million (2018: $1.3 million) of deferred consideration receivable.
(d) Acquisition of Private Internet Access Inc
On 13 December 2019, the Group acquired 100% of the share capital of LTMI Holdings ("PIA"). LTMI is the holding company for Private Internet Access Inc ("PIA"), a leading US-based digital privacy company with strong position in the data privacy services. PIA is being acquired for a total consideration of $130.1 million (including the $5.7 million to PIA phantom shareholder) and an enterprise value of $162.3 (including $32.2 million for repayment of PIA's existing debt), to be satisfied by combination of $85.0 million cash and issuance of 42,701,548 new Kape ordinary shares to be paid in three phases:
-- A payment upon closing of $65.0 million in cash of which $27.1 million to PIA founders, $5.7 million to PIA phantom shareholder and $32.2 million for repayment of PIA's existing debt, and 11,648,059 Consideration shares.
-- A payment on the first anniversary of completion of $5.0 million in cash ("Deferred cash consideration"), 23,290,117 Consideration shares and Company owned cars ("Deferred assets consideration")
-- A payment on the second anniversary of completion of $15.0 million in cash ("Deferred cash consideration"), 7,763,372 Consideration shares and Company owned cars ("Deferred assets consideration")
As for 31 December 2019, the deferred consideration balance included $19.14 million of deferred cash consideration, of which $4.75 million will be paid on 2020.
15 Subsequent events
There were no material events after the reporting period, which have a bearing on the understanding of the consolidated
Shareholder information and advisors
Shareholder information, including financial results, news and information on products and services, can be found at www.kape.com.
Independent Auditor Corporate Legal Advisors BDO LLP Bryan Cave Leighton Paisner 55 Baker Street LLP London W1U 7EU Adelaide House London Bridge London EC4R 9HA --------------------------------- Nominated Advisor and Broker --------------------------------- Shore Capital & Corporate Limited Bond Street House 14 Clifford Street London W1S 4JU Investor Relations Registrars --------------------------------- Vigo Communications Computershare Investor Services 180 Piccadilly (Jersey) Limited London W1J 9HF Queensway House Hilgrove Street St Helier Jersey JE1 1ES ---------------------------------
Registered Office
Sovereign House
4 Christian Road
Douglas
Isle of Man IM1 2SD
Stock exchanges
The Company's ordinary shares are listed on the AIM market of the London Stock Exchange under the symbol "KAPE". The Company does not maintain listings on any other stock exchanges.
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 JRMMTMTJBMIM
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March 17, 2020 03:00 ET (07:00 GMT)
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