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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Kape Technologies Plc | LSE:KAPE | London | Ordinary Share | IM00BQ8NYV14 | ORD USD0.0001 |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 285.00 | 279.00 | 285.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMKAPE
RNS Number : 2232T
Kape Technologies PLC
19 March 2019
This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014
19 March 2019
Kape Technologies plc
("Kape," the "Company," or the "Group")
Final results for the year ended 31 December 2018
Kape (AIM: KAPE), the consumer security software business, is pleased to announce its final results for the year ended 31 December 2018.
Financial highlights
-- Revenue(1) of $52.1 million (2017: $50.6 million). Strong progress in transitioning to a SaaS revenue model, with 53% of revenues now recurring (2017:19%).
-- Adjusted EBITDA(2) from continuing operations up 28.3% to $10.4 million (2017: $8.1 million), slightly ahead of market expectations.
-- 73% increase in underlying Adjusted EBITDA from core activities excluding Web Apps and Licences segment(3) .
-- Increase of 31% in combined segment results(3) to $25.7 million (2017: $19.6 million).
-- Significant increase in Segment margins to 49.3% (2017: 35.7%) and EBITDA margins to 19.9% (2017: 16.0%).
-- Strong balance sheet with $40.4 million cash (2017: $69.5 million). -- Increase of 36.8% in Adjusted Earnings Per Share to 5.2 cents (2017: 3.8 cents).
-- Adjusted cash flow from operation of $5.7 million (2017: $8.1 million). Excluding movement in Deferred contract costs, Adjusted cash flow from operations attributable to the current year was $15.9 million (2017: $9.5 million) which represents a cash conversion of 153% (2017: 117%).
Operational highlights
-- Executed two earnings enhancing acquisitions, now fully integrated ahead of management expectations:
o In July 2018, acquired Intego, a leading Mac and iOS cybersecurity and malware SaaS business, for a total consideration of $16.0 million.
o In October 2018, acquired ZenMate, a multi-platform security software business with a focus on the provision of virtual private network ("VPN") solutions, for a total consideration of $5.6 million (EUR4.8 million).
o Integration of Intego and ZenMate products to Kape's user acquisition platform. Realisation of operational synergies.
-- Completed the transformation to a privacy-first cybersecurity provider, divesting non-core Media assets to Ecom Online Ltd in July 2018.
-- Ongoing progress in developing the Group's SaaS revenue model:
o Visibility on revenue in future periods from existing users of approximately $30 million(4) (2017: $8 million).
o Growth of 219% in subscriptions to 830,000 (2017: 260,000).
o Customer retention rates increased to 74% (2017: 69%).
-- Launched CyberGhost 7.0 app and developed plug-ins for Chrome and Firefox browsers.
-- The board remains confident in delivering year-on-year growth in 2019, in-line with market expectations.
Ido Erlichman, Chief Executive Officer of Kape, commented:
"2018 was a strong year for Kape, as evidenced by our EBITDA growth for the year. We have also made substantial progress in transitioning to a pure SaaS-based model, with $30 million(4) in revenues expected to be generated from existing users in future periods, providing a solid platform for sustainable future growth.
"Our M&A activity has also gathered momentum, with the integration of the two businesses that we acquired in 2018 completed ahead of schedule. This, coupled with our focus on product development, will enable us to further broaden and deepen our presence in the digital privacy and security sectors."
(1) Revenue from continuing operations
(2) 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.
(3) The Adjusted EBITDA attributable to the Web Apps and License division for 2017 was $2.2 million. This division was discontinued as of September 2017; as no such revenue was recorded in 2018.
(4) 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) Shaun Dobson / Lauren Kettle / Harry Mills (Corporate Finance) Tom Salvesen (Corporate Broking) +44 (0) 20 7496 3000 Vigo Communications (Financial Public Relations) Jeremy Garcia / Antonia Pollock kape@vigocomms.com +44 (0)20 7390 0237
About Kape
Kape is a cybersecurity company focused on helping consumers around the world to have better experience and protection in their digital life. Kape develops and distributes a variety of digital products in the online security space. The Group utilises its proprietary digital distribution technology to optimise its reach and create a superb user experience. Kape offers products which provide online security, privacy and an optimal online experience. Kape's vision is to provide online autonomy for a secure and accessible personal digital life, with team of over 350 people across seven locations worldwide.
www.kape.com
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Chairman's statement
Introduction
I am pleased to report 12 months of significant further development for the Group, during which Kape delivered another impressive operating profit performance. Our senior management team has worked tirelessly to both shape and grow the business - successfully completing two acquisitions, alongside product upgrades and launches. This strong performance has only been possible due to the commitment, hard work and dedication of the entire 'global' Kape family and has underpinned our transformation into a leading consumer security company.
Market overview
The shift that Kape has made into a leading privacy-first consumer security company has been central to our commitment to create long-term shareholder value, as the directors believe that the characteristics of the global cybersecurity market support our underlying growth aspirations for the business.
As the world becomes more reliant on digital communication, with individuals accessing data across multiple devices and from various locations globally, consumers have become more vulnerable to cyber-attacks - with high profile hacking often targeting individuals' private and personal data stored online. We believe that digital 'privacy', alongside 'protection' is becoming the number one individual security concern. The global cybersecurity market was worth $153 billion in 2018 and is estimated to be growing by 12-15% p.a., while the market for privacy solutions is growing at an equally fast rate of 15% p.a.
Kape's growing range of 'privacy first' solutions are now well-positioned to capitalise on this sizeable global market opportunity, as we continue to market to a receptive and highly scalable customer base.
Competitive advantage
Customer acquisition knowhow and a superior product stack continue to be key competitive advantages for our business.
Our ability to manage and implement highly targeted customer acquisition methodologies enables our team to reach millions of customers daily, effectively and has enabled management to both accelerate organic growth and enhance the customer traction of the software solutions that we have acquired.
Our product and R&D teams continue to work hard to develop and improve our solutions, ensuring quality and ease of use as well as heightened customisation and performance.
Alongside this, Kape prides itself on the strength and talent of its people. We now operate from ten locations in eight countries and are thriving as a truly global business. We are also strong advocates of diversity within our workforce and closely monitor the gender ratio of employees within the Company, with the percentage of women growing from 25% to 35% in 2018, which is an incredible achievement given less than 20% of the global cybersecurity workforce are women. We firmly believe that part of Kape's long-term success is the global and diverse nature of our workforce and we intend to continue our efforts to promote this. We have accelerated our training efforts across the Company and see personal development as an important strategic component of our future growth.
Ongoing strategy
Given the successful execution of our organic and acquisitive growth strategy in the year, management remain fully committed to maintaining our current focus. We will therefore continue to develop and grow our product base, while evaluating selective acquisition targets, which would further enhance our market presence.
The board remains confident in delivering year-on-year growth in 2019.
Don Elgie
Non-Executive Chairman
18 March 2019
Chief Executive Officer's review
Introduction
2018 was a very significant year for Kape, during which we completed our transformation into a privacy-led cybersecurity software provider, reaching over a million paying customers. We are now proud to offer our consumers an end-to-end software suite which includes: Privacy (CyberGhost and ZenMate), Malware Protection (Intego) and Performance (ReImage and Driverfix).
In the last 12 months, we delivered adjusted EBITDA growth of 28.3% to $10.4 million, increased our subscription user base by 219% to c. 830,000 users and improved our customer retention rate to 74%. We expect to generate revenues of c. $30 million in future financial years from the existing user base.
Performance in the Group's App Distribution segment - which is now Kape's sole focus - remained strong, with revenues of $52.1 million (2017: $48.2 million), and an improvement in both profitability, margin and forward visibility over revenues as a result of the Group's transition to a recurring revenue model.
We have achieved this positive momentum by focusing on a clear strategy, centred on:
-- growing our existing user base by leveraging our proprietary technology to drive customer acquisition;
-- broadening and strengthening our product offering through R&D and acquisitions which offer the potential to enter new verticals; and
-- building our SaaS-based business model to improve both visibility and quality of earnings.
Operational overview
Key Performance Indicators
In order to focus on profitability, growth and earnings predictability we introduced five key performance indicators, which ultimately underpin Kape's financial progress.
Deferred income and adjusted operating cash flow demonstrate the true value of each product purchase from our customers, given that they recognise the benefits across the life time of the contract. Paying users and subscriptions represent our ability to grow the customer base. The retention rate is an indication of the quality of our service and products and our aim is for this to remain constant over the short term and improve in the medium term.
Hot Features
Premium
2018 2017
Paying users (thousands) 1,100 887
Subscriptions (thousands) 830 260
Retention rate 74% 69%
Deferred income ($'000) 9,514 4,014
Adjusted operating cash flow:
Attributable to current year
($'000) 15,936 9,471
Investment in growth (10,215) (1,330)
---------------------------------- ---------- ---------
Adjusted operating cash flow
($'000) 5,721 8,141
Strong progress was made in the year against our core KPIs, with the increase in both paying users and subscriptions demonstrating the strength of our digital marketing expertise in driving user acquisition. Additionally, the increase in our retention rate to 74% is particularly pleasing, and now compares favourably against the wider B2C cybersecurity industry. Clearly, the most important improvement is in visibility of revenues, and we expect to deliver $30 million revenue from existing users in future periods (Dec 2017: $8 million). This is a key metric for the Group, as it reflects our customers' satisfaction, in addition to providing quality, highly visible earnings for the Company moving forward. In 2018, the Company remained highly cash generative. As stated in our growth ambitions we enhanced the investment in growth, primarily in user acquisition.
Divestment of Media division and re-brand
During 2018, we completed our transition to solely focus on the delivery of cybersecurity solutions following the divestment of Kape's Media division, announced in July 2018, to Ecom Online Ltd. As consideration, Kape will receive a 50% share of EBITDA from the Media division for the next five years following the sale. This divestment resulted in an anticipated decrease in revenues for the year and is aligned to the Company's strategy to focus on the development and growth of its owned cybersecurity assets. In March 2018, we rebranded to Kape Technologies Group plc to better reflect the ongoing activities of the business.
Acquisitions and integration
In-line with our strategy laid out at the beginning of the year, we were able to successfully execute on two earnings enhancing acquisitions in 2018, both of which form part of Kape's approach to acquire select businesses to add complementary products and additional users.
In July 2018, Kape acquired Intego, a US-headquartered SaaS business providing malware protection, firewall, anti-spam, backup, data protection and parental control software for Mac users globally, for a total consideration of $16.0 million. With a user base of 150,000 paying customers, high renewal rates and a strong brand presence, Intego brought additional benefits to the Group. We have now completed the integration of Intego and implemented Kape's user acquisition methodologies which we expect to accelerate Intego's growth in the first half of 2019. We have also integrated Intego's R&D, marketing and product teams into Kape, which further benefit from the economies of scale of the enlarged group. We also expect to release new malware protection products in the coming months.
In October 2018, Kape acquired ZenMate, a multi-platform security software business with a focus on the provision of privacy solutions, for a total consideration of $5.6 million. ZenMate is a highly complementary solution to CyberGhost, Kape's existing VPN solution. This synergistic infrastructure allows Kape to leverage the products' strengths and create an improved product for users worldwide coupled with substantial cost savings. In addition, with ZenMate's highly regarded web firewall and its Safesearch application, Kape is now able to provide a broader software suite to protect our customers' digital lives. As part of its integration, Kape implemented an extensive restructuring of ZenMate, which has been completed in less than two months, ahead of management's expectations. As a result, in this short time we have been able to bring ZenMate to profitability. ZenMate is anticipated to be EBITDA enhancing from Q1 2019.
Prior to being acquired, both businesses' marketing activities were primarily organic, presenting a clear opportunity for the implementation of Kape's digital marketing expertise to drive user acquisition and enhance profit margin. The benefits of this implementation are anticipated to begin to be realised in 2019.
Organic growth
During the year, we saw accelerated growth in CyberGhost, as we increased user acquisition through the application of our digital marketing technologies and expertise. We have seen positive results in CyberGhost's user acquisition on desktop and mobile; and expect enhanced growth and profitability to be delivered in 2019. In 2018, CyberGhost was one of the top performing VPN solutions globally - ranking in the top three in the US, France, Germany and the UK by industry reviewers.
In our Performance vertical (ReImage and Driverfix), focus has been on transitioning to a subscription-based model and implementing new product marketing initiatives ahead of the launch of two major updates for our driver and computer repair solutions. We are extremely pleased with the results of the transition to a subscription model, which we expect to improve profitability moving forward.
Product development
We accelerated our R&D efforts in the year and we now have 68 employees globally who are top-tier experts in their field. Our focus has been on:
-- investment in the next generation infrastructure; -- development of new products and updates to existing solutions; and -- implementation of proprietary cross-product business intelligence and marketing tools.
Specifically, we released the most comprehensive update to our CyberGhost product to-date with the launch of the CyberGhost 7.0 app across Apple and Android devices, following an increase in mobile subscribers, as individuals look to safeguard their mobile devices. Kape also launched a Google Chrome and Mozilla Firefox plug-in based on a distributed computing platform and operating system, which enables greater freedom on the internet. We have seen significant traction across these products, demonstrating our standing at the forefront of the privacy technology sector.
Outlook
The underlying trends in digital privacy and cybersecurity continue to broaden Kape's addressable VPN market to $36 billion by 2022 with demand for privacy solutions anticipated to continue growing 15% annually, underpinning the ongoing demand for our products.
Management are confident that not only does a sizable opportunity exist to add further products to Kape's portfolio through ongoing acquisitions, but there is also substantial potential within Kape's existing product portfolio and user base to further invest in organic initiatives.
We continue to improve and expand our product offering to best serve our customers globally and will continue to evaluate select acquisition opportunities to broaden and deepen our reach.
Ido Erlichman
Chief Executive Officer
18 March 2019
Chief Financial Officer's review
Overview
Revenue from continued operations for the year to 31 December 2018 increased by 3% to $52.1 million (2017: $50.6 million). Adjusted EBITDA(5) from continued operations increased by 28.4% to $10.4 million (2017: $8.1 million) with the increase in Adjusted EBITDA was driven by the strong performance of Kape's core App Distribution activity, with an increase of 8% in revenues, 49.3% in segment results and 73.3% in underlying adjusted EBITDA. In July 2018, Kape divested its Media division to a third Party, Ecom online Ltd, and is now considered a discontinued operation.
Kape remains a highly cash generative business, with cash generated from continued operations after adjusting for one-off non-recurring items in 2018 of $5.7 million (2017: $8.1 million). This represents adjusted cash conversion of 55% (2017: 101%). Cash flow from operations includes $10.2 of million investment in user acquisitions growth that will be expensed in future periods as it attributable to future revenue from subscriptions and is recognised over the expected life time of the users in accordance with IFRS 15 (2017: $1.3 million). When excluding this investment adjusted cash conversion from operations was $15.9 million, which represents cash conversion of 151%. The Group's balance sheet remains strong with cash of $40.4 million at 31 December 2018 (31 December 2017: $69.5 million) and no debt after cash outflow for investing and financing activities of $32.0 million, that comprise mainly of the acquisitions of Intego and ZenMate and a special dividend payment.
On 24 July 2018, the Group acquired 100% of the share capital of Neutral Holdings Inc, trading as Intego, for a total consideration of $16.0 million. Intego is 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. In the year to 31 December 2017, Intego generated profit before tax of $1.3 million.
On 16 October 2018, the Group acquired 100% of the share capital of ZenGuard GMBH trading as ZenMate, a multi-platform security software business with a focus on the provision of virtual private network solutions. The total consideration for the acquisition was $5.6 million (EUR4.8 million) in cash, funded from Kape's internal cash resources, which was satisfied on closing of the acquisition. As part of the acquisition, Kape initiated restructuring plan which was intended to downsize ZenMate's staff and reduce operational costs.
(5) Adjusted EBITDA is a company specific measure which is calculated as operating loss before depreciation, amortisation, exceptional and non-recurring costs, employee share-based payment charges and 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.
Segment Result
Revenue Segment result
2018 2017 2018 2017
$'000 $'000 $'000 $'000
App Distribution 52,060 48,226 25,690 17,207
Web Apps and License - 2,376 - 2,376
-------- -------- -------- --------
Revenue 52,060 50,602 25,690 19,583
======== ======== ======== ========
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 VPN products. Direct sales and marketing costs are user acquisition costs.
App Distribution
2018 2017
$'000 $'000
Revenue 52,060 48,226
Cost of sales (5,605) (4,572)
Direct sales and marketing
costs (20,765) (26,447)
----------- ----------
Segment result 25,690 17,207
----------- ----------
Segment margin (%) 49.3 35.7
During the period, the App Distribution segment has seen continued growth with an 8.0% increase in revenue to $52.1 million (2017: $48.2 million) and a 49.3% increase in segment result to $25.7 million (2017: $17.2 million). The segment margin has significantly improved to 49.3% (2017: 35.7%). Following their acquisition, Intego contributed $2.6 million and ZenMate contributed $0.4 million to the segment result. Excluding acquisitions, the segment results has increased by 30.2% to $22.4 million in 2018.
Adjusted EBITDA from continued operations
Adjusted EBITDA from continued operations for the year to 31 December 2018 was $10.4 million (2017: $8.1 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:
2018 2017
$'000 $'000
Revenue 52,060 50,602
Cost of sales (5,605) (4,572)
Direct sales and marketing
costs (20,765) (26,447)
---------- ----------
Segment result 25,690 19,583
---------- ----------
Indirect sales and marketing
costs (6,398) (3,657)
Research and development costs (1,389) (535)
Management, general and administrative
cost (7,529) (7,306)
---------- ----------
Adjusted EBITDA 10,374 8,085
---------- ----------
Operating profit
A reconciliation of Adjusted EBITDA to operating loss is provided as follows:
2018 2017
$'000 $'000
Adjusted EBITDA 10,374 8,085
Employee share-based payment
charge (1,490) (303)
Charge for repurchase of
employee options - (3,176)
Exceptional and non-recurring
costs (1,441) (796)
Depreciation and amortisation (3,800) (2,376)
Operating profit 3,643 1,434
--------- ---------
Exceptional and non-recurring costs in 2018 comprised non-recurring staff costs of $0.5 million (2017: $0.3 million), mainly due to payments made to employees option holders in parallel to the special dividend paid in June, $0.8 million for professional services for acquisitions (2017: $0.3 million) and $0.1 million related to an onerous lease contract (H1 2017: Nil).
Prof t / (Loss) before tax from continuing operations
Profit before tax from continuing operations was $3.3 million (2017: $1.3 million)
Profit from continuing operations
Profit from continuing operations was $2.2 million (2017: $0.2 million). The tax charge derives mainly from group subsidiaries' residual profits. The Group recognises a deferred tax asset of $0.2 million (2017: Nil) in respect of tax losses accumulated in previous years.
Discontinued operations
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 focus on the development and distribution of its own cybersecurity products. As consideration, the Group will receive a 50% share of EBITDA from the Media division for the five years following the sale. The Company recognised a loss from the sale as calculated below:
2018
$'000
Consideration received or receivable:
Fair value of contingent consideration 1,257
---------
Total consideration 1,257
Carry amount of net assets sold (4,498)
Non-controlling interest 989
---------
Loss on sale (2,252)
---------
The financial performance and cash flow information presented are for the period ended 26 July 2018 and the year ended 31 December 2017.
2018 2017
$'000 $'000
Revenue 4,185 15,781
Share of results of equity accounted associates - (40)
Expenses (4,501) (19,895)
--------- ----------
Loss before income tax (316) (4,154)
Income tax income/ (expenses) (166) 636
--------- ----------
Loss after income tax of discontinued operation (482) (3,518)
Loss on sale of the Media division (2,252) -
--------- ----------
Loss from discontinued operation (2,734) (3,518)
--------- ----------
Net cash outflow from operating activities (336) (603)
Net cash outflow from investing activities (341) (175)
Net cash flow from financing activities - -
--------- ----------
Net decrease in cash generated by the Media
division (677) (778)
--------- ----------
Cash flow
2018 2017
$'000 $'000
Cash flow from operations 3,695 6,533
Exceptional and non-recurring
payments 1,441 1,005
Net cash flow from discontinued
operating activities 336 603
Net cash paid due to restructuring
plan 249 -
Adjusted cash flow from operations 5,721 8,141
------- -------
% of Adjusted EBITDA 55% 101%
------- -------
Cash flow from operations was $3.7 million (2017: $6.5 million). Adjusted cash flows from operations, after adding back payments that are one off in nature was $5.7 million (2017: $8.1 million). This represents a cash conversion of 55% of Adjusted EBITDA (2017: 101%). Cash flow from operations includes $10.2 million investment in user acquisitions growth that will be expensed in future periods as it attributable to future revenue from subscriptions and therefore is recognised over the expected life time of the users in accordance with IFRS 15 (2017: $1.3 million). When excluding this investment adjusted cash conversion from operations is $15.9 million (2017: $9.5 million) which represents cash conversion of 151% (2017: 115%).
Tax paid net of refunds in the period was $0.5 million (2017: $0.1 million).
Cash spent in the period on capital expenditure of $2.5 million (2017: $2 million) mainly comprises of capitalised development costs and purchase of fixed assets. Net cash paid for acquisitions in the period totalled $20.8 million (2017: $5.3 million), out of which the Company paid $15.5 million in relation to the acquisition of Neural Holdings Inc and $5.3 million related to the acquisition of ZenGuard GMBH. Net cash outflow for sold operations in the period amounted to $0.3 million in relation to the disposal of the Media division to a third party in July 2018. As a result, net cash outflow from investing activities was $23.6 million (2017: $7.4 million).
In June 2018, the Company paid a special dividend in the amount of $6.8 million representing 3.55 pence per share. In November 2017, the Company repurchased 3.8 million share options from CyberGhost's founder for a total consideration of $3.8 million, out of which $1.9 million was paid in 2017 and the rest in eight equal quarterly instalments. During 2018 $0.9 million in payments were made for the repurchase. During 2018 the company paid $1.1 million of lease related payments that were recorded as part of the financing activities following the adoption of IFRS 16. Employee option exercises resulted in cash receipts of $0.4 million during 2018. As a result, net cash outflow from financing activities was $8.4 million (2017: 1.5 million).
Financial position
At 31 December 2018, the Company had cash of $40.4 million (31 December 2017: $69.5 million), net assets of $73.0 million (31 December 2017: $79.4 million) and was debt free. At 31 December 2018, trade receivables and contract assets were $3.6 million (31 December 2017: $8.5 million) which represented 13 days outstanding, (31 December 2017: 42 days). The decrease in Trade receivables is mainly due to the sale of the media division.
Early adoption of IFRS 16
From 1 January, 2018, the Company adopted IFRS 16, which specifies how to recognise, measure, present and disclose leases. The Company has not restated comparatives for the 2017 reporting period.
On initial application, the Group recognised lease liabilities in relation to leases which had previously been classified as 'operating leases' under the principles of IAS 17 Leases.
If the Company had chosen not to early adopt IFRS 16, the company net profits from continuing operations would have been $2.3 million.
The recognised right-of-use assets and lease liabilities are specified below:
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
------------- ---------- ---------
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
------------- ---------- ---------
Moran Laufer
Chief Financial Officer
18 March 2019
Consolidated statement of comprehensive income
For the year ended 31 December 2018
2018 2017
Note $'000 $'000
Revenue 2,3 52,060 50,602
Cost of sales (5,605) (4,572)
---------- ----------
Gross profit 46,455 46,030
Selling and marketing costs 2c (27,564) (30,143)
Research and development
costs (1,653) (856)
Management, general and administrative
costs (9,795) (11,221)
Depreciation and amortisation 6,13 (3,800) (2,376)
Total operating costs (42,812) (44,596)
Operating profit 4 3,643 1,434
Adjusted EBITDA 4 10,374 8,085
---------- ----------
Employee share-based payment
charge 8 (1,490) (303)
Charge for repurchase of
employee options 8 - (3,176)
Exceptional and non-recurring
costs 4 (1,441) (796)
Depreciation and amortisation 6,13 (3,800) (2,376)
Operating profit 3,643 1,434
----------------------------------------- ------ ----------
Finance income 587 277
Finance costs (938) (452)
---------- ----------
Profit before taxation 3,292 1,259
Tax charge 5 (1,064) (1,102)
---------- ----------
Profit from continuing operations 2,228 157
Loss from discontinued operations
(attributable to equity holders
of the company) 11 (2,734) (3,518)
---------- ----------
Loss for the year (506) (3,361)
Other comprehensive income:
Items that may be reclassified
to profit and loss:
Foreign exchange differences
on translation of foreign
operations 7 858
---------- ----------
Total comprehensive loss
for the year (499) (2,503)
========== ==========
Total profit/ (loss) for
the year attributable to:
Owners of the parent (518) (3,561)
Non-controlling interests 12 200
---------- ----------
Total comprehensive income/
(loss) attributable to:
Owners of the parent (511) (2,703)
Non-controlling interests 12 200
---------- ----------
Total profit/ (loss) for
the year attributable to
Owners of the parent:
Continuing operations 2,228 157
Discontinuing operations (2,746) (3,718)
(518) (3,561)
Earnings per share from continuing
operations attributable to
the ordinary equity holders
of the company:
Basic earnings per share
(cents) 9 1.5 0.1
Diluted earnings per share
(cents) 9 1.5 0.1
---------- ----------
Earnings per share attributable
to the ordinary equity holders
of the company:
Basic earnings per share
(cents) 9 (0.3) (2.4)
Diluted earnings per share
(cents) 9 (0.3) (2.4)
---------- ----------
Consolidated statement of financial position
As at 31 December 2018
2018 2017
Note $'000 $'000
Non-current assets
Intangible assets 6 36,265 12,350
Property, plant and equipment 713 815
Right-of-use assets 13 1,769 -
Non-current investments - 50
Contingent consideration 11 934 -
Deferred contract costs 2c 7,196 406
Deferred tax asset 5 728 97
47,605 13,718
---------- ----------
Current assets
Software license inventory 52 65
Deferred contract costs 2c 5,216 1,386
Contingent consideration 11 323 -
Trade and other receivables 6,101 11,071
Cash and cash equivalents 40,405 69,502
52,097 82,024
Total assets 99,702 95,742
========== ==========
Equity
Share capital 15 15
Additional paid in capital 131,091 130,728
Foreign exchange differences
on translation of foreign
operations 859 852
Retained earnings (58,991) (53,200)
Equity attributable to equity
holders of the parent 72,974 78,395
---------- ----------
Non-controlling interests - 977
---------- ----------
Total equity 72,974 79,372
---------- ----------
Non-current liabilities
Contract liabilities 2b 2,165 892
Deferred tax liabilities 5 3,125 349
Long term lease liabilities 13 1,693 -
Deferred consideration 14 143 993
7,126 2,234
---------- ----------
Current liabilities
Trade and other payables 11,131 10,094
Contract liabilities 2b 7,349 3,120
Short term lease liabilities 13 226 -
Deferred consideration 14 896 922
19,602 14,136
---------- ----------
Total equity and liabilities 99,702 95,742
========== ==========
Consolidated statement of changes in equity
For the year ended 31 December 2018
Foreign
exchange
differences Equity
on attributable
Additional translation to equity
Share paid in of foreign Retained holders of Non-controlling Total
capital capital operations earnings the parent interests
$'000 $'000 $'000 $'000 $'000 $'000 $'000
At 1 January
2017 14 130,292 (6) (49,747) 80,553 - 80,553
Loss for the
year - - (3,561) (3,561) 200 (3,361)
Other
comprehensive
income:
Foreign exchange
differences
on translation
of
foreign
operations - - 858 - 858 - 858
--------- ------------ ------------- ---------- ------------------ ----------------- ---------
Total
comprehensive
loss for the
year - - 858 (3,561) (2,703) 200 (2,503)
Non-controlling
interest
from
acquisition of
subsidiary - - - - - 777 777
Transactions
with
owners:
Share based
payments - - - 3,516 3,516 - 3,516
Exercise of
employee
options (note
7) 1 436 - - 437 - 437
Purchase of own
share
options (note
7) - - - (3,408) (3,408) - (3,408)
--------- ------------ ------------- ---------- ------------------ ----------------- ---------
At 31 December
2017 15 130,728 852 (53,200) 78,395 977 79,372
========= ============ ============= ========== ================== ================= =========
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
========= ============ ============= ========== ================== ================= =========
* amounts below 1 thousands
Consolidated statement of cash flows
For the year ended 31 December 2018
2018 2017
Note $'000 $'000
Cash flow from operating activities
Loss for the year after taxation (506) (3,361)
Adjustments for:
Amortisation of intangible assets 6 2,617 6,046
Loss from Selling the media activity 11 2,252 -
Depreciation of Right-to-use assets 13 1,209 -
Depreciation of property, plant and
equipment 288 399
Loss on sale of property, plant and
equipment 58 101
Tax charge 5 1,230 467
Interest income (587) (277)
Interest expenses, fair value movements
on deferred consideration 252 411
Share based payment charge 8 1,490 3,516
Share of results of associates - 40
Movement in deferred and contingent
consideration (20) (90)
Re-measurement gain on equity interest
in associate - (52)
Expense from repurchase of employee
share options - 208
Interest received 587 277
Unrealised foreign exchange differences (168) 240
Operating cash flow before movement
in working capital 8,702 7,925
Decrease in trade and other receivables 3,142 967
Decrease/ (Increase) in software licenses
inventory 13 (65)
Increase /(Decrease) in trade and other
payables 82 (2,113)
Decrease in other current liabilities - (209)
Increase in deferred contract costs (10,215) (1,330)
Increase in contract liabilities 1,971 1,358
---------- ---------
Cash flow from operations 3,695 6,533
Tax paid net of refunds (502) (109)
---------- ---------
Cash generated from operations 3,193 6,424
Cash flow from investing activities
Purchases of property, plant and equipment (179) (540)
Sale of property, plant and equipment 10 39
Net cash paid on business combination 10 (20,823) (5,337)
Net cash paid on business sold 11 (341) -
Intangible assets acquired 6 (6) (115)
Capitalisation of development costs 6 (2,289) (1,432)
---------- ---------
Net cash used in investing activities (23,628) (7,385)
Cash flow from financing activities
Repurchase of employee share options 7,8 (929) (1,914)
Dividend paid (6,763) -
Payment of leases (1,087) -
Exercise of options by employees 7 363 437
Net cash generated from financing activities (8,416) (1,477)
---------- ---------
Net (decrease)/increase in cash and
cash equivalents (28,851) (2,438)
Revaluation of cash due to changes
in foreign exchange rates (246) (124)
Cash and cash equivalents at beginning
of year 69,502 72,064
---------- ---------
Cash and cash equivalents at end of
year 40,405 69,502
========== =========
Notes forming part of the financial information for the year ended 31 December 2018
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 2018 or 31 December 2017. The annual report and financial statements for the year ended 31 December 2018 were approved by the Board of Directors on 18 March 2018, along with this preliminary announcement. The financial statements for the year ended 31 December 2018 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 2017, except for those that relate to new standards and interpretations effective for the first time for periods beginning on (or after) 1 January 2018. New standards impacting the Group that have be adopted in the annual financial statements for the year ended 31 December 2018 are IFRS 9 Financial Instruments and IFRS 16 Accounting for leases. Details of the impact of these two standards are 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. They therefore continue to adopt the going concern basis of accounting in preparing the financial statements.
IFRS 9 - Financial instruments
IFRS 9 has replaced IAS 39 Financial Instruments: Recognition and Measurement, and has had no significant effect on the Group.
The impairment provision on financial assets measured at amortised cost (such as trade and other receivables) has been calculated in accordance with IFRS 9's expected credit loss model, which differs from the incurred loss model previously required by IAS 39. The Group has chosen not to restate comparatives on adoption of IFRS 9. The change to an expected credit loss model as required under IFRS 9 has had an immaterial impact on the group.
As allowed by the transitional rules in IFRS 9, prior year financial statements have not been restated and, in any event, no material changes in the numbers recognised were required. The adoption of IFRS 9 has though resulted in presentational changes as described above.
On the date of initial application, 1 January 2018, the financial instruments of the group were as follows:
Measurement Category Carrying amount
Original New (IFRS Original New Difference
(IAS 39) 9)
$'000 $'000 $'000 $'000 $'000
Current financial assets
Trade receivables and Amortised Amortised
accrued income cost cost 8,536 8,536 -
Amortised Amortised
Other receivables cost cost 1,872 1,872 -
Amortised Amortised
Cash and cash equivalents cost cost 69,502 69,502 -
Non-current liabilities
Deferred consideration FVTPL FVTPL 993 993 -
Current liabilities
Amortised Amortised
Trade payables cost cost 2,469 2,469 -
Other payables and Amortised Amortised
accrued expenses cost cost 5,939 5,939 -
Deferred consideration FVTPL FVTPL 922 922 -
2 Revenue
2018 2017
$'000 $'000
Sale of software license
and services 52,060 48,226
Revenue from advertising - 2,376
52,060 50,602
======== ========
Revenues from sale of software tool and provision of virtual private network ("VPN") solutions are generated from the App distribution CGU, while revenues from advertising is generated mainly from the Web Apps and licenses CGU. The revenues generated from the Media CGU 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:
2018 2017
(USD, in thousands) (USD, in thousands)
App distribution Total App distribution Web apps Total
and license
Revenue recognised
over a period 11,788 11,788 6,454 2,376 8,830
Revenue recognised
at a point in time 40,272 40,272 41,772 - 41,772
------------------ -------- ------------------ -------------- --------
Total 52,060 52,060 48,226 2,376 50,602
================== ======== ================== ============== ========
(b) Contract liabilities
The company has recognised the following revenue-related contract liabilities:
December 31, December 31,
2018 2017
(USD, in thousands) (USD, in thousands)
Contract liabilities 9,514 4,012
---------------------- ----------------------
Total 9,514 4,012
====================== ======================
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 December 31, December 31, 2017
contract liabilities balances 2018
during the period are as follows:
(USD, in thousands) (USD, in thousands)
Business combination (3,415) (2,324)
Revenue recognised that was
included in the contract liability
balance from Business combination (1,863) 2,181
Revenue recognised that was (3,189) -
included in the contract liability
balance at the beginning of
the period
Increases due to cash received,
excluding amounts recognised
as revenue during the period 3,082 (3,537)
Revaluation of contract liabilities
in foreign currency (117) (332)
Management expects that 77.2% of the transaction price allocated to the unsatisfied contracts (which represent to contract liabilities) as of 31 December 2018 will be recognised as revenue during the next annual reporting period ($7,349,000), 15.1% and 4.5% ($1,432,000 and $433,000) and will be primarily recognised in the 2020 and 2021 financial years, respectively. The remaining 3.2% ($300,000) will be primarily recognised on the following financial years.
(c) Assets recognised from costs to obtain and fulfil a contract
The Company recognises an asset in relation to marketing costs to obtain a contract. The asset is recognised as the Company expects to recover the cost over the expected relationship period with the customer which includes the initial contract period and expected renewals. The expected relationship period with the customer is estimated based on historical contract renewals data. The asset is amortised on a straight line basis over the expected relationship period with the customer.
In addition, the company recognised an asset for fulfilment costs that are considered directly attributable in fulfilling a contract. The fulfilment costs comprised of processing fees paid to third party processing service providers. This asset is amortised on a systematic basis over the initial contract period.
Significant changes in relation to assets recognized from costs to obtain and fulfil a contract
December 31, December 31,
2018 2017
(USD, in thousands) (USD, in thousands)
Short term Asset recognised
from marketing cost to obtain
a contract 4,624 1,071
Long term Asset recognised
from marketing cost to obtain
a contract 7,066 315
short term Asset recognised
from fulfilment cost to fulfil
a contract 592 315
Long term Asset recognised
from fulfilment cost to fulfil
a contract 130 91
Amortization recognised during
the period - marketing costs (2,155) (294)
Amortization recognised during
the period - fulfilment cost (1,319) (804)
3 Segmental information
Segments revenues and results
On 26 July 2018, the Group disposed 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.
Based on the management reporting system, the group operates two reportable segments:
-- App distribution - comprising the Group's own software and SAAS products and distribution platform;
-- Web Apps and License - comprising revenue generated from monetising web apps and licencing the associated technology; and
Year ended 31 December 2018 App distribution Web apps Total
2018 and license 2018
2018
$'000 $'000 $'000
Revenue 52,060 - 52,060
Cost of sales (5,605) - (5,605)
Direct sales and marketing
costs (20,765) - (20,765)
------------------ -------------- -----------
Segment result 25,690 - 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 and non-recurring
costs (1,441)
-----------
Operating loss 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 operations
(attributable to equity holders
of the company) (2,734)
-----------
Loss for the year (506)
Exceptional and non-recurring costs in 2018 comprised non-recurring staff costs of $0.5 million (2017: $0.3 million) mainly due to payments made to option holders in parallel to the special dividend paid in June, $0.8 million (2017: $0.3 million) for professional services for acquisitions and rebranding expenses and $0.1 of onerous cost related to lease contract (H1 2017: Nil). The decrease in Employee share-based payment charge is due to the repurchase of the share-based option consideration from the founder of CyberGhost, which completed on 20 November 2017.
Year ended 31 December 2017 App distribution Web apps Total
2017 and license 2017
2017
$'000 $'000 $'000
Revenue 48,226 2,376 50,602
Cost of sales (4,572) - (4,572)
Direct sales and marketing
costs (26,447) - (26,447)
----------------------- ----------------------- ----------------
Segment result 17,207 2,376 19,583
Central operating costs (11,498)
----------------
Adjusted EBITDA(1) 8,085
Depreciation and amortisation (2,376)
Employee share-based payment
charge (303)
Charge for repurchase of
employee options (3,176)
Exceptional and non-recurring
costs (796)
----------------
Operating profit 1,434
Finance income 277
Finance costs (452)
----------------
Profit before tax 1,259
Taxation (1,102)
----------------
Profit from continuing operations 157
Loss from discontinued operation
(attributable to equity holders
of the company) (3,518)
Loss from the year (3,361)
Exceptional and non-recurring costs in 2017 comprised $0.3 million of acquisition bonuses to employees, professional services related to business combination of $0.3 million and a $0.2 million expense from repurchase of CyberGhost's founder's share options on 20 November 2017.
(1) Adjusted EBITDA is a company specific measure which is calculated as operating loss before depreciation, amortisation, exceptional and non-recurring costs, employee share-based payment charges and 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 2018 and 2017 there were no customers contributing more than 10% of total revenue of the Group.
Geographical analysis of revenue
Revenue by origin
2018 2017
$'000 $'000
Europe 49,302 48,225
British Virgin Islands - 4
Asia - 2,373
US 2,758 -
--------- --------
52,060 50,602
========= ========
Geographical analysis of non-current assets
2018 2017
$'000 $'000
Europe 23,972 10,364
British Virgin Islands - 1,954
Asia 90 847
US 12,916 -
-------- --------
Total intangible assets and property,
plant and equipment 36,978 13,165
======== ========
4 Operating loss
Adjusted EBITDA
Adjusted EBITDA is calculated as follows:
2018 2017
$'000 $'000
Operating profit 3,643 1,434
Depreciation and amortisation 3,800 2,376
Employee share-based payment
charge 1,490 3,479
Exceptional and non-recurring
costs:
Non-recurring staff and restructuring
costs 1,441 796
Adjusted EBITDA 10,374 8,085
Excluding Web Apps and License
Segment - (2,062)
Adjusted EBITDA excluding Web
Apps and License segment 10,374 6,023
-------- ---------
Operating profit has been arrived at after charging:
2018 2017
$'000 $'000
Exceptional and non-recurring
operating costs
Non-recurring staff costs 543 295
Professional services related
to business combination 813 293
Expenses from repurchase of employee
share options - 208
Costs related to onerous rent -
agreement 85
------- -------
1,441 796
------- -------
Auditor's remuneration:
Audit 220 158
Taxation services 7 8
Amortisation of intangible assets 2,305 1,982
Depreciation 286 394
Amortisation of Right-to-use assets 1,209 -
Employee share-based payment charge
(note 8) 1,490 3,479
======= =======
Operating costs
Operating costs are further analysed as follows:
2018 2018 2017 2017
Adjusted Total Adjusted Total
$'000 $'000 $'000 $'000
Direct sales and marketing
costs 20,765 20,765 26,447 26,447
Indirect sales and marketing
costs 6,398 6,799 3,657 3,696
----------- -------- ----------- ----------
Selling and marketing
costs 27,163 27,564 30,104 30,143
--------------------------------- ----------- -------- ----------- ----------
Research and development
costs 1,389 1,653 535 856
Management, general and
administrative cost 7,529 9,795 7,306 11,221
Depreciation and amortisation 2,079 3,800 963 2,376
Total operating costs 38,160 42,812 38,908 44,596
=========== ======== =========== ==========
Adjusted operating costs exclude share-based payment charges, exceptional and non-recurring costs, amortisation of acquired intangible assets and impairment of 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 continues to recognise a deferred tax asset of $159,000 (2017: $97,000) in respect of tax losses accumulated in previous years.
The total tax charge can be reconciled to the overall tax charge as follows:
2018 2017
$'000 $'000
Profit from continuing operations
before income tax expense 3,292 1,259
Loss from discontinuing operation
before income tax expense (2,568) (4,153)
--------- ---------
724 (2,894)
Tax at the applicable tax rate of
19% (2017: 19%) 137 (550)
Tax effect of
Differences in overseas rates 83 (421)
Expenses not deductible for tax purposes 835 1,253
Deferred tax not recognised on losses carried
forward 81 122
Tax expense for previous years 94 63
Tax charge for the year 1,230 467
========= =========
Income tax expenses/ (credit) is attributable
to:
Profit from continuing operations 1,064 1,102
Loss from discontinued operation 166 (635)
--------- ---------
1,230 467
========= =========
The tax expense from continuing operations
Analysed as:
Deferred taxation in respect of the
current year 173 41
Current tax charge 891 1,061
--------- ---------
Tax charge for the year 1,064 1,102
========= =========
The group has maximum corporation tax losses carried forward at each period end as set out below:
2018 2017
$'000 $'000
Corporate tax losses carried
forward 38,974 33,235
======== ========
Details of the deferred tax asset recognised arising in respect of losses and timing differences is set out below:
2018 2017
$'000 $'000
At the beginning of the year 97 166
Additions through business combinations 770 10
Disposal of the media division (12) -
Derecognised in the year from continuing
operations (115) (100)
Foreign exchange revaluation (12) 21
------- -------
At the end of the year 728 97
======= =======
Details of the deferred tax liability recognised arising from timing differences is set out below:
2018 2017
$'000 $'000
At the beginning of the year 349 691
Arising from business combinations 2,718 366
Foreign exchange differences - 42
Movement in the year due to temporary
differences from continuing operations 58 (59)
Movement in the year due to temporary
differences from discontinuing
operation - (691)
------- -------
At the end of the year 3,125 349
======= =======
In addition, the Group has an unrecognised deferred tax asset in respect of the following:
2018 2017
$'000 $'000
Tax losses carried forward 38,218 33,026
Unrecognised deferred tax
assets due to tax losses
carried forward 6,603 4,011
-------- --------
6 Intangible assets
Intellectual Trademarks Customer Goodwill Internet Capitalised Total
Property Lists Domains Software
Development
Costs
$'000 $'000 $'000 $'000 $'000 $'000 $'000
Cost
At 1 January
2017 36,424 9,462 2,383 685 69 3,450 52,473
Additions - 90 - - 25 1,432 1,547
Acquisition
through
business
combination 1,706 546 743 5,690 - 204 8,889
Foreign exchange
differences 212 70 92 479 - 16 869
At 31 December
2017 38,342 10,168 3,218 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
============== ============ ========== ========== ========== ============== ==========
Accumulated amortisation
At 1 January 2017 (33,559) (7,968) (1,415) - - (2,418) (45,360)
Charge for the year (2,320) (1,595) (1,128) - - (1,003) (6,046)
Foreign exchange differences (12) (4) (5) - - (1) (22)
At 31 December 2017 (35,891) (9,567) (2,548) - - (3,422) (51,428)
========== ========= ========= === === ========= ==========
Charge for the period (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)
========== ========= ========= === === ========= ==========
Net book value
At 1 January 2017 2,865 1,494 968 685 69 1,032 7,113
At 31 December 2017 2,451 601 670 6,854 94 1,680 12,350
======= ======= ======= ======== ==== ======= ========
At 31 December 2018 7,105 2,862 2,582 20,623 94 2,999 36,265
======= ======= ======= ======== ==== ======= ========
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, as set out in note 10.
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, as set out in note 10.
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, as set out in note 11.
On 14 March 2017, the Group acquired 100% of the share capital of CyberGhost S.A ("CyberGhost"), a leading cyber security SaaS provider, with a focus on the provision of virtual private network ("VPN") solutions. Prior to the acquisition date, CyberGhost acquired Mobile Concepts GmbH, a software development company based in Germany, for an amount of EUR1.5 million.
On 1 April 2017, the Company increased its holding in Clearvelvet Trading Limited ("Clearvelvet") to 50.01% of the share capital by acquiring an additional 33.34% of its issued share capital. In September 2015, the Group acquired 16.67% of the share capital of Clearvelvet for a total consideration of $850,000, of which $350,000 paid in 2016 with the completion of certain milestones.
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 App Distribution CGU has a carry amount of $20,623,000 (2017: $4,330,000).
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 App Distribution 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 (2017: 1 per cent). This rate does not exceed the average long-term growth rate for the relevant markets. The rate used to discount these forecast cash flows is 25 per cent (2017: 25 per cent).
The discount rate used in the valuation of the App Distribution CGU was 25 per cent. If the discount rate was increased by 1 percentage point the effect would have been nil. There is no reasonably possible change in assumption that would give rise to an impairment.
7 Shareholder's equity
2018 2017
Number of Number of
Shares Shares
Issued and paid up ordinary shares of $0.0001 148,496,073 148,496,073
During the year a total of 374,095 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 $363,000 (2017: $437,000).
During the year 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.
During 2017 a total of 3,810,667 of share option of $0.0001 par value were repurchased by the Company for a total cash consideration of $3,800,000.
As at 31 December 2018, the Company hold in the treasury total of 4,476,153 of ordinary shares of $0.0001 per value (2017: 6,650,248). During 2018, 374,095 of ordinary shares of $0.0001 par value were transferred out of treasury to satisfy the exercise of options by the company employees (2017: 801,175).
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 2018, the following options were outstanding (2017: 8,490,329):
Group Grant date Number of shares under option Subscription price per share
Group 1 29 May 2014 1,258,132 $0.538
Group 2 21 April 2015 338,781 $1.305
Group 3 5 January 2016 291,500 $0.710
Group 4 31 May 2016 2,000,000 $0.352
Group 5 26 October 2016 2,232,272 $0.467
Group 6 3 April 2017 884,333 $0.0001
Group 7 15 June 2017 991,287 $0.845
Group 8 26 April 2018 67,500 $0.0001
Group 9 26 April 2018 485,000 $1.280
Group 10 13 July 2018 1,810,000 $1.437
Group 11 24 August 2018 1,800,000 $0.000
Total 12,158,805
===============================
Vesting conditions
Groups 1-5 and 7-10 - 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 2018 was 5,864,311 (2017: 2,973,348).
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:
2018 2017
$'000 $'000
Early exercise factor 100% 150%
Fair value of Group's stock $1.51-$1.61 $0.78
Expected Volatility 60% 70%
Risk free interest rate 0.72%-1.50% 0.16%-1.11%
Dividend yield - -
Forfeiture rate 0%-28% 43%
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:
2018 2017
$'000 $'000
Share-based payment charge 1,490 303
Charge for repurchase of
employee options - 3,176
Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:
2018 2017
------------------------- --------------------------
Weighted Number Weighted Number
average of average of
exercise options exercise options
price price
At the beginning
of the year $0.55 8,490,329 $0.66 10,259,383
Granted $0.81 4,162,500 $0.17 5,843,424
Lapsed $0.96 (119,929) $0.81 (3,000,633)
Exercised $1.02 (374,095) $0.55 (801,178)
Repurchased by
the company - - $0.0001 (3,810,667)
----------- ------------ ----------- -------------
At the end of
the year $0.59 12,158,805 $0.55 8,490,329
=========== ============ =========== =============
The options outstanding at 31 December 2018 had a weighted average remaining contractual life of 7.9 years (2017: 8.2 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.
2018 2017
cents cents
Basic earnings per share:
From continuing operations 1.5 0.1
from discontinued operations (1.8) (2.5)
------- -------
Total basic earnings per
share (0.3) (2.4)
Diluted earnings per share:
From continuing operations 1.5 0.1
from discontinued operations (1.8) (2.5)
------- -------
Total diluted earnings per
share (0.3) (2.4)
Adjusted basic 5.2 3.8
Adjusted diluted 5.0 3.7
Adjusted earnings per share is a non-GAAP measure and therefore the approach may differ between companies. Adjusted earnings have been calculated as follows:
2018 2017
$'000 $'000
Loss for the year (506) (3,361)
Post tax adjustments:
Employee share-based payment
charge 1,578 3,535
Exceptional and non-recurring
costs 1,403 793
Amortisation on acquired
intangible assets 1,905 4,439
Loss from discontinued operations 2,723 -
Finance cost on deferred
consideration for options
repurchase 247 -
Adjusted profit for the year 7,350 5,406
======= =========
Number Number
Denominator - basic:
Weighted average number of
equity shares for the purpose
of earnings per share 142,008,376 141,547,496
Denominator - diluted
Weighted average number of
equity shares for the purpose
of diluted earnings per share 147,955,573 145,260,658
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 5,947,198 (2017: 3,713,162) being the effect of all potentially dilutive Ordinary shares derived from the number of share options granted to employees.
10. Business combinations
(a) Acquisition of Neutral Holdings Inc
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.
The Acquisition is directly in-line with Kape's core strategy to accelerate its growth in the cybersecurity market through select acquisitions, and brings significant strategic benefits to the Company.
Details of the fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill, are as follows:
Acquiree's
carrying Fair value
amount before
combination
$'000 $'000
B2C Brand - 625
Customer relations - 2,155
Corporate Trademark - 1,334
Technology - 3,687
Deferred tax liability (61) (1,857)
Cash and cash equivalents 510 510
Trade and other receivables 229 229
Property, plant and equipment 67 67
Deferred Contracts costs 291 291
Deferred tax assets 684 684
Contract liabilities (2,499) (2,499)
Trade and other payables (931) (931)
-------------------------------- ---------------- --------------
(1,710) 4,295
-------------------------------- ---------------- --------------
Fair value of consideration
Cash 15,979
Goodwill 11,684
-------------------------------- ---------------- --------------
Net cash outflow on acquisition of business
2017
$'000
Cash consideration 15,979
Cash and cash equivalents acquired (510)
15,469
========
Intego is being acquired for a total consideration of $16.0 million cash, from internal cash resources, to be satisfied on closing of the Acquisition.
Since the acquisition date, Intego has contributed $2.9 million to group revenues, profit of $1.1 million to group loss. In addition, since the acquisition date Intego contributed $2.6 million to segment results of the app distribution segment (as set out in note 3). If the acquisition had occurred on 1 January 2018, group revenue would have been $55.5 million, group loss for the period would have been $0.9 million and the app distribution segmental result would have been $28.2 million.
Acquisition costs of $0.6 million arose as a result of the transaction. These have been recognised as part of administrative expenses in the statement of comprehensive income.
(b) Acquisition of ZenGuard GMBH
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.
The Acquisition is highly complementary to CyberGhost, Kape's existing VPN solution.
Details of the fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill, are as follows:
Acquiree's
carrying
amount before Fair value
combination
$'000 $'000
Customer relations - 187
Brand - 532
Technology - 2,064
Deferred tax liability (29) (861)
Property, plant and equipment 15 15
Deferred Contracts costs 96 96
Trade and other receivables 139 139
Cash and cash equivalents 200 200
Deferred tax asset - 86
Contract liabilities (916) (916)
Trade and other payables (472) (472)
-------------------------------- ---------------- --------------
(967) 1,070
-------------------------------- ---------------- --------------
Fair value of consideration
Cash 5,554
Goodwill 4,484
-------------------------------- ---------------- --------------
ZenMate is being acquired from several venture capital funds and private investors, including the founders of the business, for a total consideration of $5.6 million (EUR4.8 million) in cash, funded from Kape's internal cash resources, to be satisfied on closing of the Acquisition.
As part of the acquisition, Kape indicated a restructuring plan which was planned and designed by ZenMate former management. The restructuring plan was intended to downsize ZenMate's staff and reduce operational costs. The restructuring plan cost was circa $0.3 million and was completed in January 2019.
Net cash outflow on acquisition of business
2018
$'000
Cash consideration 5,554
Cash and cash equivalents acquired (200)
5,354
=======
Since the acquisition date, ZenMate has contributed $0.55 million to group revenues, profit of $0.1 million to group loss and $0.4 million to segment results (as set out on note 3). If the acquisition had occurred on 1 January 2018, group revenue would have been $54.2 million, group loss for the period would have been $1.7 million and the app distribution segmental result would have been $26.7 million.
Acquisition costs of $0.1 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. This sale is in-line with the Company's strategy to develop and distribute its own cybersecurity products.
(b) Financial performance
The financial performance and cash flow information presented are for the period ended 26 July 2018 (2018 column) and the year ended 31 December 2017.
2018 2017
$'000 $'000
Revenue 4,185 15,781
Share of results of equity accounted associates - (40)
Expenses (4,501) (19,895)
--------- ----------
Loss before income tax (316) (4,154)
Income tax income/ (expenses) (166) 636
--------- ----------
Loss after income tax of discontinued operation (482) (3,518)
Loss on sale of the Media division (2,252) -
--------- ----------
Loss from discontinued operation (2,734) (3,518)
--------- ----------
Net cash outflow from operating activities (336) (603)
Net cash outflow from investing activities (341) (175)
Net cash flow from financing activities - -
--------- ----------
Net decrease in cash generated by the Media
division (677) (778)
--------- ----------
(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)
---------
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 App Distribution segment, where all Media division employees were be transferred to.
In order to calculate contingent consideration, the recoverable value has been determined from value in use calculations based on cash flow projections for the next five years agreed upon with the acquiree.
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 $0.03 million. There is no reasonably possible change in assumption that would give rise to an impairment.
12 Related party transactions
The Group is controlled by Unikmind Holdings Limited incorporated in British Virgin Islands, which owns 72.77% of the Company's shares. The controlling party is the Unikmid holding Ltd, established under the laws of British Virgin Islands. Mr. Teddy Sagi is the sole ultimate beneficiary of Unikmind Holding Ltd.
(a) Related party transactions
The following transactions were carried out with related parties:
2018 2017
$'000 $'000
Revenue from common controlled company 85 2,587
Technical support services to end customers
provided by common controlled company (2,227) (2,704)
Payment processing services provided by common
controlled company (376) (208)
Office rent expenses to common controlled
companies - (230)
Amortisation of Right-to-use assets with common
controlled companies (Note 13) (744) -
Interest expenses from Lease liabilities to -
common controlled companies (71)
Loss debt from related parties (Note 13) (323) -
---------
(3,656) (555)
========= =========
(b) Receivables owed by related parties
2018 2017
Name Nature of transaction $'000 $'000
Parent company Unpaid share capital 10 10
Companies related by
virtue of common control Trade 650 881
-------
660 891
======= =======
(c) Payables to related parties
2018 2017
Name Nature of transaction $'000 $'000
Companies related by
virtue of common control Other 210 90
-------
210 90
======= =======
(d) Right-to-use assets and Lease liabilities to related parties (Note 13)
2018 2017
$'000 $'000
Right-to-use assets 1,422 -
Lease liabilities (1,543) -
--------- -------
13 Operating leases
Effective January 1, 2018, the Company early adopted IFRS 16, which specifies how to recognize, measure, present and disclose leases. The Company has not restated comparatives for the 2017 reporting period, as permitted under the specific transitional provisions in the standard. The reclassifications and the adjustments arising from the new leasing rules are therefore recognised in the opening balance sheet on 1 January 2018.
On initial application, the group recognised lease liabilities in relation to leases which had previously been classified as 'operating leases' under the principles of IAS 17 Leases. These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee's incremental borrowing rate as of 1 January 2018. The weighted average lessee's incremental borrowing rate applied to the lease liabilities on 1 January 2018 was 4.49%. The Company has elected to record right-of-use assets based on the corresponding lease liability.
In applying IFRS 16 for the first time, the group has used the following practical expedients permitted by the standard:
-- The use of a single discount rate to a portfolio of leases with reasonably similar characteristics
-- Reliance on previous assessments on whether leases are onerous
-- The exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application; and
-- The use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease.
The group has also elected not to reassess whether a contract is, or contains a lease at the date of initial application. Instead, for contracts entered into before the transition date the group relied on its assessment made applying IAS 17 and IFRIC 4 Determining whether an Arrangement contains a Lease.
The Company's operating lease liability at December 31, 2017, as previously disclosed in the Company's consolidated financial statements (2017: $578,000) differs from the lease liability recognised on initial application of IFRS 16 at January 1, 2018 $1,408,550. The differences attributed mainly to, management assumptions for periods of the leases contract, and the Company decision to apply the practical expedient to account for each lease component and any non-lease components as a single lease component.
The recognised right-of-use assets relate to the following types of assets:
2018
Rights-of-use assets: $'000
Real estate leases 1,720
Vehicles 49
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
------------- ---------- ---------
The Group had sub-leased one of the Right-of-use asset on 2018, for total consideration of $0.1 million.
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
------------- ---------- ---------
2018 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 1,919 2,026 366 782 878 -
========== ============= ========== ============== ============ ==========
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 consideration
(a) Acquisition of AjillionMax
The consideration for the acquisition of certain assets of AjilionMAX Limited in May 2014 included $654,000 deferred consideration. Of this $104,000 was repaid during the year ending 31 December 2014, $156,000 was repaid during the year ending 31 December 2015, $189,000 was repaid during the year ending 31 December 2016 and the remainder was repaid during the year ending 31 December 2017.
In addition, $435,000, included as part of the acquisition arrangements, has been recognised directly in the income statement during the year ending 31 December 2015, out of which $209,000 was paid in May 2017.
(b) 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 2018, the consideration included $0.17 million of deferred consideration (2017: $0.17 million) which is contingent on future results.
(c) 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. As for 31 December 2018, the consideration included $0.9 million of deferred consideration (2017: $1.75 million) which will be fully paid in 2019.
(d) 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 App Distribution segment, where all Media division employees were be transferred to. As at 31 December 2018, the consideration included $1.3 million of contingent consideration receivable.
15 Subsequent events
There were no material events after the reporting period, which have a bearing on the understanding of the consolidated
16 Cautionary Statement
Kape has made forward-looking statements in this press release, including statements about the market for and benefits of its products and services; financial results; product development plans; the potential benefits of business relationships with third parties and business strategies. These statements about future events are subject to risks and uncertainties that could cause Kape's actual results to differ materially from those that might be inferred from the forward-looking statements. Kape can make no assurance that any forward-looking statements will prove correct.
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 DGGDXCSBBGCI
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March 19, 2019 03:01 ET (07:01 GMT)
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