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Kape Technologies PLC Half-year Results

21/09/2021 7:00am

UK Regulatory (RNS & others)


Kape Technologies (LSE:KAPE)
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TIDMKAPE

RNS Number : 3819M

Kape Technologies PLC

21 September 2021

21 September 2021

Kape Technologies plc

("Kape," the "Company," or the "Group")

HALF YEAR RESULTS FOR THE SIX MONTHSED 30 JUNE 2021

Kape Technologies plc (AIM: KAPE), the digital security and privacy software business, announces its unaudited results for the six months ended 30 June 2021.

Financial highlights

-- Another period of strong financial performance driven by market dynamics coupled with Kape's expanding product stack and organic user acquisition expertise

o Revenues increased 61.9% to $95.5 million (H1 2020: $59.0 million), a 27% increase on a proforma basis

o Strong growth in recurring revenues to $ 59.1 million, an increase of 16.4 % (H1 2020: $50.8 million)

o Adjusted EBITDA(1) up 75% to $28.7 million (H1 2020: $16.4 million), an increase of 19% on a proforma basis. Adjusted EBITDA margin increased to 30.0% (H1 2020: 27.8%)

o Operating Profit up 299% to $13.6 million (H1 2020: $3.4 million)

o Increase of 70 % in Fully diluted Adjusted Earnings Per Share2 to 9.0 cents (H1 2020: 5.3 cents)

o Strong cash generation; adjusted operating cashflow increase by 66% to $ 14.6 million (H1 2020: $8.8 million). Reported operating cash flow increased by 114% to $ 12.6 million (H1 2020: $5.9 million)

-- In May 2021, entered into an agreement for a new senior secured debt facility of up to $220 million, comprising a $120 million senior secured term facility, a $10 million revolving credit facility and a $90 million uncommitted acquisition facility

Operational highlights

-- In March 2021, acquired Webselenese, the digital platform which provides independent and highly valued consumer privacy and security content, for $149.1 million

o Highly strategic, providing Kape with one of the broadest audiences for consumer digital privacy and security, with over 100 million readers

o Earnings accretive, underpinning expectations for the full year 2021

o Integration proceeding rapidly with the Group already realising significant benefits including a reduction in average customer acquisition cost

-- In May 2021, launched a Privacy First Anti-Virus solution for PC. Initially offered to CyberGhost customers, it will shortly also be launched under the Private Internet Access brand

   --    Significant progress in implementation of cross-sell initiatives 

o 12% of new CyberGhost customers and over 20% of new Intego users in H1 2021 purchased more than one product

Post period-end and Outlook

-- In July 2021 , introduced Kape's first B2B2C distribution channel for PIA, entering into an agreement with cellular operator 3 Hong Kong

-- Appointed Ari Margalit as group CTO, with over 20 years of experience in the technology sector, former CTO of Weissbeerger an ABInbev company

-- In September 2021, Kape announced the $936 million acquisition of ExpressVPN, one of the world's leading pure-play providers of digital privacy and security

o Key milestone, positions Kape as a premium digital privacy and security player

o Highly and immediately earnings enhancing, enabling Kape to benefit from ExpressVPN's strong growth rates and attractive financial profile

o Complementary to Kape's existing portfolio, facilitating the expansion of the Group's global footprint with 40% of ExpressVPN's three million customers based in North America

-- It is anticipated that the Group will generate revenues of between $197-202 million and Adjusted EBITDA of between $73-76 million for the full year 2021 on a reported basis(3)

-- As announced at the time of the Proposed acquisition of ExpressVPN, the enlarged group is expected to generate revenues for the year ended 31 December 2022 of between $610-624 million and proforma Adjusted EBITDA of between $166-172 million.

Ido Erlichman, Chief Executive Officer of Kape, commented:

"2021 is shaping to be a truly exceptional year for Kape. Pleasingly, our underlying business has continued to deliver record financial results alongside the hugely impactful acquisitions of both Webselenese, and more recently, ExpressVPN.

"ExpressVPN accelerates our business growth overnight, delivering significant earnings accretion and scale to the Group. We were delighted with the response from both new and existing investors seen during the accompanying multiple-times oversubscribed fundraise, which provided a strong endorsement of our ongoing strategy.

"We believe Kape is positioned better than ever before to capitalise on the growth in the digital security and privacy market, which is showing no signs of abating, and we look to the future with confidence in delivering ongoing growth and realising significant value for all our key stakeholders."

Kape's management team will be hosting a live webcast today at 12.30 p.m. , the details to join are as follows:

To register and to join the stream on the day, please click the link below: https://webcasting.brrmedia.co.uk/broadcast/6141deeb7d0383367bb10985.

(1) 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) Adjusted EPS was calculated from the earnings per share adding back, share-based payments and non-recurring costs

(3) Consolidating Webselenese as from the 5 March 2021, being the deal's closing date

Enquiries:

 
 Kape Technologies plc                                via Vigo Consulting 
  Ido Erlichman, Chief Executive Officer 
  Moran Laufer, Chief Financial Officer 
 Shore Capital (Nominated Adviser & Broker) 
  Mark Percy / Toby Gibbs / James Thomas / Michael    +44 (0)20 7408 
  McGloin                                              4090 
 Stifel Nicolaus Europe Limited (Joint Broker) 
  Alex Price / Brad Topchik / Alain Dobkin /          +44 (0) 20 7710 
  Richard Short                                        7600 
 Vigo Consulting (Financial Public Relations) 
  Jeremy Garcia / Antonia Pollock                     +44 (0)20 7390 
  kape@vigoconsulting.com                              0237 
 

About Kape

Kape is a leading 'privacy-first' digital security software provider to consumers. Through its range of privacy and security products, Kape focuses on protecting consumers and their personal data as they go about their daily digital lives.

To date, Kape has over 2.7 million paying subscribers, supported by a team of over 430 people across eight locations worldwide.

Through its subscription-based platform, Kape has fast established a highly scalable SaaS-based operating model, geared towards serving the vast global consumer digital privacy market.

www.kape.com

   Twitter   LinkedIn 

Chief Executive Officer's review

Overview

H1 2021 has been another period of significant growth for the Group, combining both top line growth with increasing global demand for our products, and now over 2.7 million customers are using one or more of our products. With a rise in the number of consumers looking to control their digital privacy and security online, we continue to focus on evolving our product offering and infrastructure to ensure our offering captures this growing and diversifying demand.

The acquisition of Webselenese in March 2021 was another strategic milestone for the Group, providing Kape with one of the broadest audiences for consumer digital privacy and security with over 100 million readers worldwide. The acquisition deepens Kape's go-to-market capabilities and ensures Kape is ahead of the market in consumer trends, in turn providing a competitive edge. We are pleased to see the knowhow and technology of Webselenese already proving to add value across Kape's security and privacy businesses.

Subsequently, in May 2021, we announced that we had entered into an agreement with our existing bank syndicate of Bank of Ireland, Barclays Bank PLC and Citi Commercial Bank, as well as three new banks; Citizens Bank, BNP Paribas and Leumi Bank, to provide new debt facilities of up to $220 million, replacing all of our existing loan facilities. This is a strong endorsement of our ongoing strategy and provides us with significant firepower to execute on further opportunities.

In the six months ended 30 June 2021, trading was again strong and in line with management's expectations for the full year. Group revenues increased 60% in the period to $95.7 million (H1 2020: $59.0 million), with strong underlying organic revenue growth of 27% delivered on a proforma basis. Pleasingly, the Group's Digital Security division also returned to growth in the period. Adjusted EBITDA increased 75% to $28.7 million (H1 2020: $16.4 million), an increase of 19% on a proforma basis. Adjusted EBITDA margin increased to 30.0% (H1 2020: 27.8%). The board remains confident in the Group trading in-line with management's expectations.

Post period-end, we announced the proposed acquisition of ExpressVPN, which is a milestone in the Company's history and is directly in line with our mission to provide a privacy-first end-to-end suite of services capable of capturing the increasing demand in the digital privacy market. The scale of ExpressVPN's business, in addition to its high-quality people and products, will augment the Group and deliver myriad strategic benefits.

We believe that Kape is in a stronger position than ever before to continue our exciting growth trajectory and deliver value for all our key stakeholders.

Operational review

Key Performance Indicators

Kape performed very strongly across its KPIs during the period, which the Group reports against to track the ongoing progress of its SaaS business model, which in-turn underpins the profitability, earnings predictability and growth potential of the Group.

 
                                              30 June         31 Dec 
                                                 2021           2020 
                                                 '000           '000 
 Subscribers (thousands)                        2,703          2,519 
 Retention rate                                   83%            83% 
 Deferred income ($'000)                       34,585         36,592 
 
                                           Six months     Six months 
                                             ended 30       ended 30 
                                            June 2021      June 2020 
                                          (unaudited)    (unaudited) 
 Adjusted EBITDA                               28,674         16,422 
 Adjusted operating cash flow(3) : 
 Attributable to current year ($'000)          28,552        19, 232 
 Investment in growth                        (13,960)       (10,478) 
--------------------------------------  -------------  ------------- 
 Adjusted operating cash flow ($'000)          14,592         8, 754 
 

Total number of subscribers increased to 2,703,000 as at 30 June 2021, up from 2,519,000 at 2020 year-end, with an increase in both Digital Privacy and Digital Security subscribers during the period. This was driven by growing performance in the privacy and security space, as Kape's user acquisition expertise continued to elicit positive results in gaining customers.

Overall, the Group's retention rate continues at a high of 83% (31 December 2020: 83%), which is industry-leading for a B2C SaaS-business. Deferred income was $34.6 million as at 30 June 2021 (31 December 2020: $36.6 million), which was marginally lower as a result of recognizing higher revenue at the point of sale from customers that bought more than one product in each purchase.

Integration of Webselenese

In the short period since we acquired Webselenese in March 2021, we have already seen the positive impact of the implementation of Webselenese's expertise and proprietary technologies across CyberGhost, PIA and Intego, and expect this to grow in the future. As expected, we have also been able to realise a reduction in average customer acquisition cost, with sign-ups from organic traffic increasing since the transaction. The initial signs from the integration have been very positive, and we believe there is still a lot to come from the Webselenese acquisition, with the scope to enter new verticals with Webselenese as we continue to drive Kape's organic user growth.

Product development and cross-promotion

Following the launch of the CyberGhost Privacy Suite in the fourth quarter of 2020, we have seen significant traction for our privacy-first security suite. Providing customers with a trusted one stop solution to managing and gaining control over their digital lives. This dashboard continues to sit at the centre of our product strategy.

In the first six months of 2021, we have seen an increase in users taking more than one Kape product. 12% of new CyberGhost customers and over 20% of new Intego users in H1 2021 purchased more than one product. Furthermore, in May 2021, we launched a Privacy First Anti-Virus solution for PC. This is initially Intego-branded and has already been rolled-out to CyberGhost customers and will be rolled out to PIA users in due course , providing our customers with comprehensive security coverage from one point of purchase. With our sizeable and growing user base of like-minded users, we anticipate a growing number of customers will trust Kape with more than one of their digital needs.

Post period-end, in July 2021, we announced a first of its kind agreement for Kape, with PIA's product now offered to customers of 3 Hong Kong. This is the first co-operation between PIA and a telecom operator. PIA's VPN will be available for all 3 Hong Kong's postpaid and prepaid customers who can subscribe to the service directly with 3 Hong Kong. We believe this could be a blueprint for future roll-out, further reinforcing the global increase in awareness for digital privacy solutions.

Acquisition of ExpressVPN

Post period-end, in September 2021, we announced the proposed acquisition of ExpressVPN, an industry-leading provider of digital privacy products, for $936 million. This acquisition is in line with our overarching strategy to become the leading provider of consumer-focused digital privacy and security solutions.

The combined group will service over six million paying subscribers, with Kape significantly bolstered by the addition of ExpressVPN's 290 highly experienced employees, a large percentage of which are R&D-focused. Providing Kape with significant new cross-sell and revenue generating opportunities in a fast-growing global market, we will look to leveraging ExpressVPN's extensive distribution network, including well-known OEM channel partners HP and HMD Global (home of Nokia phones), to enhance our already robust go-to-market capabilities.

The transaction is highly earnings enhancing from completion, with the enlarged group expected to generate revenues for the year ended 31 December 2022 of between $610-624 million and proforma Adjusted EBITDA of between $166-172 million.

In order to fund the acquisition, we concurrently announced a $354 million placing and retail offer. The response to which was extremely positive, with the placing multiple-times oversubscribed, which is testament to the market's belief in not only the transaction with ExpressVPN but also our ongoing growth strategy.

Outlook

With a growing customer base, expanding product offering and a clear vision, we are excited about the future periods for Kape.

In the near-term following the completion of the acquisition of ExpressVPN, which we expect to occur in the coming months we remain focused on its integration, as well as completing the integration of Webselenese, to realise the myriad benefits that these transactions have brought to the Group. In addition, we will continue to broaden our product suite and focus on providing the most value to our customers as we believe this central to accelerating our growth.

We remain on track to deliver on our expectations for the full year 2021, with the enlarged group expected to generate revenues for the year ended 31 December 2022 of between $610-624 million and proforma Adjusted EBITDA of between $166-172 million.

Ido Erlichman

Chief Executive Officer

20 September 2021

Chief Financial Officer's review

Overview

The Company delivered a strong financial performance in the first half of 2021 as revenues increased by 61.9% to $95.5 million (H1 2020: $59.0), or 26.8% on a proforma basis. The increase in revenues is a result of an increase in subscriptions revenue of 16.3% to $59.1 million (H1 2020: $50.8 million), as well as four months' contribution from Webselenese. Combined Segment results increased by 47.1% to $46.5 million (H1 2020: $31.6), and Adjusted EBITDA increased by 75% to $28.7 million (H1 2020: $16.4 million).

Adjusted cash flow from operations attributable to the current financial period was $28.5 million (H1 2020: $19.2 million), which represents a cash conversion of 100%. In addition, during the period, $14.0 million was reinvested in user acquisition costs that will be expensed in future periods (H1 2020: $10.5 million). When including this investment, adjusted cash flow from operations was $14.6 million (H1 2020: $8.8 million), an increase of 66.7% compared to the first half of 2020.

On 5 March 2021, the Group acquired 100% of the share capital of Uma Capital Ltd and Ani Ariel Ltd, the owners of Webselenese, a digital platform which provides independent and highly valued consumer privacy and security content to millions of users globally via market leading review sites. The total consideration was $152.1 million (the "Consideration") to be satisfied by a combination of $116.1 million in cash and $28.6 million in new shares, amounting to 12.1 million Kape Ordinary Shares and deferred and contingent consideration of $7.4 million.

To fund the transaction, the Company has drawn down $85 million from a $120 million Bridge Loan by TS Next Level Investments Limited ("TSNLI"). The Bridge Loan carried a fixed coupon of 6.0% per annum payable on funds drawn and an arrangement fee of 1.0%. TSNLI is an affiliated company of Unikmind Holdings Limited, Kape's largest shareholder.

On 28 May 2021, the Company agree d with Bank of Ireland, Barclays Bank PLC , Citi Commercial Bank, Citizens Bank, BNP Paribas and Leumi Bank (together, "the Banks"), to replace its existing Term Facility, RCF and Shareholder loan with a new senior secured bank facilities of up to $220 million ("New Debt Facilities"). The New Debt Facilities comprise a $120 million senior secured term facility (the "Term Facility"), a $10 million revolving credit facility (the "RCF") and a $90 million uncommitted acquisition facility (the "Uncommitted Acquisition Facility").

Segment Result

 
                         Revenue          Segment result 
                     H1 2021   H1 2020   H1 2021   H1 2020 
                       $'000     $'000     $'000     $'000 
Digital Privacy       49,552    42,237    27,674    24,560 
Digital Security      18,479    16,749     6,735     7,041 
Digital Content       27,471         -    12,097         - 
Revenue               95,502    58,986    46,502    31,601 
                    ========  ========  ========  ======== 
 

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 for the Group's privacy products. Direct sales and marketing costs are user acquisition costs.

 
 
  Digital Privacy 
                                H1 2021   H1 2020 
                                  $'000     $'000 
Revenue                          49,552    42,237 
Cost of sales                   (6,621)   (7,526) 
Direct sales and marketing 
 costs                         (15,257)  (10,151) 
                               --------  -------- 
Segment result                   27,674    24,560 
                               --------  -------- 
Segment margin (%)                 55.8      58.1 
 

During the period, the Digital Privacy segment has seen continued growth with a 17.3% increase in revenue to $49.6 million (H1 2020: $42.2 million) and a 12.7% increase in the segment result to $27.7 million (H1 2020: $24.6 million). Revenue growth was driven by subscriber base growth of 9% to 2.1 million and an increase in average revenue per subscriber of 6% following the introduction of the CyberGhost Privacy Suite and other cross-promotion activities.

 
 
  Digital Security 
                               H1 2021   H1 2020 
                                $'000     $'000 
Revenue                         18,479   16,749 
Cost of sales                  (1,279)   (1,087) 
Direct sales and marketing 
 costs                         (10,465)  (8,621) 
                               --------  ------- 
Segment result                  6,735     7,041 
                               --------  ------- 
Segment margin (%)               36.4     42.0 
 

During the period, revenue from the Digital Security segment returned to growth with an increase of 10.3% to $18.5 million (H1 2020: $16.7 million). The increase was driven by a 20.4% growth in revenue from Intego's Endpoint security products. In addition, revenue from the Company's PC performance products has increased by 7.2% but with a lower margin of 24% (H1 2020: 32%) following an increase in traffic from PPC advertising.

 
 
  Digital Content 
                               H1 2021   H1 2020 
                                $'000     $'000 
Revenue                         27,471      - 
Cost of sales                     -         - 
Direct sales and marketing 
 costs                         (15,374)     - 
                               --------  ------- 
Segment result                  12,097         - 
                               --------  ------- 
Segment margin (%)               44.0          - 
 

During the period from 5 March 2021 the digital content segment revenue was $25.8 million and segment results were $12.1 million. On a proforma basis, excluding revenue that was generated from Kape, revenue for the full period from December 2020 has significantly increased by 52% to $40.3 million (H1 2020: $26.5 million). The growth has been driven by an increase in traffic from both organic and acquired sources.

Adjusted EBITDA from continued operations

Adjusted EBITDA for the six months to 30 June 2021 was $28.7 million (H1 2020: $16.4 million). Adjusted EBITDA is a non-GAAP company specific measure which is considered to be a key performance indicator for the Group. 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:

 
 
                                            H1 2021   H1 2020 
                                              $'000     $'000 
Revenue                                      95,502    58,986 
Cost of sales                               (7,900)   (8,613) 
Direct sales and marketing 
 costs                                     (41,096)  (18,772) 
                                           --------  -------- 
Segment result                               46,506    31,601 
                                           --------  -------- 
 
Indirect sales and marketing 
 costs                                      (7,929)   (4,644) 
Research and development 
 costs                                      (3,178)   (2,963) 
Management, general and administrative 
 cost                                       (6,725)   (7,572) 
                                           --------  -------- 
Adjusted EBITDA                              28,674    16,422 
                                           --------  -------- 
EBITDA margin %                                30.0      27.8 
                                           --------  -------- 
 

The increase in indirect sales and marketing costs is mainly due to a $2.7 million contribution from Webselenese in the period. The decrease in Management, general and administrative expenses is following a full period contribution of the synergies generated from the integration of Private internet access.

Operating profit

A reconciliation of Adjusted EBITDA to operating profit is provided as follows:

 
 
                                   H1 2021  H1 2020 
                                     $'000    $'000 
Adjusted EBITDA                     28,674   16,422 
Employee share-based payment 
 charge                              (634)    (542) 
Exceptional and non-recurring 
 costs                             (1,702)  (2,683) 
Depreciation and amortisation     (13,053)  (9,790) 
Other operating income                 324        - 
Operating profit                    13,609    3,407 
                                  --------  ------- 
 

Exceptional and non-recurring costs in H1 2021 comprised non-recurring staff costs of $0.5 million related to onerous employee and service provider contracts following the integration of Private Internet Access, $0.8 million for employer costs related to employee share options exercises, and $0.5 million (H1 2020: $0.2 million) for professional services related to the acquisition of Webselenese. The increase in depreciation and amortisation derives mainly from $2.4 million amortisation charges related to the acquired intangible assets that were added through the acquisition of Webselenese in March.

Profit before tax

Profit before tax was $10.0 million (H1 2020: $0.2 million). Finance costs of $3.7 million comprised mainly of $3.1 million of interest on debt facilities (H1 2020: $1.2 million), $0.5 million non-cash interest on deferred consideration related to the Private Internet Access acquisition and finance leases (H1 2020: $0.5 million), and foreign exchange differences of $0.1 million.

Profit after tax

Profit after tax was $7.5 million (H1 2020: $0.2 million). The tax charge derives mainly from group subsidiaries' residual profits. Since the amortisation of acquired intangibles and share-based payment charges are not tax-deductible in the main jurisdictions in which the Company operates, management believes it is appropriate to examine the effective tax rate out of Adjusted EBITDA rather than Profit Before Tax. The effective tax rate out of Adjusted EBITDA increased to 8.5% (H1: 2020 7.1%).

Cash flow

 
 
                                       H1 2021  H1 2020 
                                         $'000    $'000 
Cash flow/(outflow) from 
 operations                             12,578    5,890 
Exceptional and non-recurring 
 cash outflow                            2,014    2,864 
Adjusted cash flow from operations      14,592    8,754 
                                       -------  ------- 
% of Adjusted EBITDA                       51%      53% 
                                       =======  ======= 
Excluding increase of deferred 
 contract costs                         13,960   10,478 
Adjusted Cash flow from operations 
 attributable to the current 
 year                                   28,552   19,232 
                                       -------  ------- 
% of Adjusted EBITDA                      100%     117% 
                                       =======  ======= 
 

Cash flow from operations was $12.6 million (H1 2020: $5.9 million cash outflow). Adjusted cash flow from operations after adding back one-off payments was $14.6 million (H1 2020: $8.8 million). Adjusted operating cash flow attributable to the current financial period increased to $28.6 million (H1 2020: $19.2 million), which represents a cash conversion of 100%. This excludes investment in user acquisition that will drive future revenue and therefore will be recognised in future periods in parallel to these revenues.

Net tax payments in the period were $2.1 million (H1 2020: $0.3 million). The increase is due to refunds from tax authorities in H1 2020.

Cash spent in the period on capital expenditure of $2.5 million (H1 2020: $1.4 million), comprises mainly capitalised development costs and fixed asset purchases. In addition, following the acquisition of Webselenese, there was a net cash payment of $116.1 million during the period, see Note 10(a).

Cash flow from financing activities of $80.7 million (H1 2020: $4.8 million outflow) included a drawdown of $85 million shareholder bridge loan and full repayment of the principal, and $2.1 million interest and arrangement fees related to the that loan. The repayment was funded by a $87.9 million increase of long-term bank debt and RCF, net of issuance costs, see Note 8. In addition, $0.8 million (H1 2020: $5.9 million) has been received following the exercise of employee share options and $3.3 million (H1 2021: NIL) has been paid for purchase of own shares from employees in the period.

Financial position

At 30 June 2021, the Group had cash of $22.4 million (31 December 2020: $49.9 million), net assets of $263.0 million (31 December 2020: $228.8 million), and net debt of $101.1 (31 December 20: net cash $11.1 million) which represent an adjusted leverage of x1.47.

Moran Laufer

Chief Financial Officer

20 September 2021

Consolidated statement of comprehensive income

For the six months ended 30 June 2021

 
                                                     Six months        Six months 
                                                       ended 30          ended 30 
                                                      June 2021         June 2020 
                                                    (unaudited)       (unaudited) 
                                         Note             $'000             $'000 
 
Revenue                                   3              95,502            58,986 
Cost of sales                                           (7,900)           (8,613) 
                                                   ------------      ------------ 
Gross profit                                             87,602            50,373 
 
Selling and marketing costs                            (49,106)          (23,457) 
Research and development 
 costs                                                  (3,431)           (3,054) 
Management, general and administrative 
 costs                                                  (8,727)          (10,665) 
Depreciation and amortisation                          (13,053)           (9,790) 
Other operating income                                      324                 - 
Total operating costs                     5            (73,993)          (46,966) 
 
Operating profit                          5              13,609             3,407 
 
Adjusted EBITDA                           5           28,674            16,422 
                                                   ------------      ------------ 
 
Employee share-based payment 
 charge                                                   (634)             (542) 
Exceptional and non-recurring 
 costs                                    5             (1,702)           (2,683) 
Other operating income                                      324                 - 
Depreciation and amortisation                          (13,053)           (9,790) 
Operating profit                          5              13,609             3,407 
---------------------------------------  ----      ------------ 
 
Finance costs                                           (3,648)           (2,031) 
                                                   ------------      ------------ 
Profit before taxation                                    9,961             1,376 
Tax charge                                              (2,435)           (1,167) 
                                                   ------------      ------------ 
Profit for the period                                     7,526               209 
Other comprehensive income: 
Items that may be reclassified 
 to profit and loss : 
Foreign exchange differences 
 on translation of foreign 
 operations                                                   -                 8 
                                                   ------------      ------------ 
Total comprehensive profit 
 for the period                                           7,526               217 
                                                   ============      ============ 
Earnings per share attributable 
 to the ordinary equity holders 
 of the company: 
Basic earnings per share 
 (cents)                                  7                 3.6              0.11 
Diluted earnings per share 
 (cents)                                  7                 3.5              0.11 
                                                   ------------      ------------ 
 

*Adjusted EBITDA is a non GAAP measure and a company specific measure which is earnings before interest, tax, depreciation, amortisation, share based payment charges, other operating income and exceptional and non-recurring costs.

Consolidated statement of financial position

As at 30 June 2021

 
                                                       30 June      31 December 
                                                          2021             2020 
                                                   (unaudited)        (audited) 
                                        Note             $'000            $'000 
 
Non-current assets 
Intangible assets                                      371,635          227,949 
Property, plant and equipment                            1,577            1,375 
Right-of-use assets                                     10,379            4,006 
Deferred contract costs                                 39,084           31,080 
Deferred tax asset                                       4,749            6,282 
                                                       427,424          270,692 
                                                  ------------      ----------- 
Current assets 
Software license inventory                                  89              128 
Deferred contract costs                                 27,410           21,454 
Trade and other receivables                             16,240            8,884 
Cash and cash equivalents                               22,433           49,912 
                                                        66,172           80,378 
Total assets                                           493,596          351,070 
                                                  ============      =========== 
Equity 
Share capital                            6                  23               22 
Additional paid in capital                             302,707          273,358 
Shares to be issued                                      1,350            1,350 
Foreign exchange differences 
 on translation of foreign 
 operations                                                772              772 
Retained earnings                                     (41,887)         (46,746) 
Equity attributable to equity 
 holders of the parent                                 262,965          228,756 
                                                  ------------      ----------- 
 
Non-current liabilities 
Contract liabilities                                     8,261            7,463 
Loans and Borrowings                     8             105,156           29,619 
Deferred tax liabilities                                 7,975            2,640 
Long term lease liabilities                              6,888            1,975 
Provisions                                                 311              679 
Deferred and contingent consideration                      300              407 
                                                       128,891           42,783 
                                                  ------------      ----------- 
Current liabilities 
Trade and other payables                                27,843           22,468 
Loans and Borrowings                     8              18,347            7,117 
Current tax liability                                    2,518            3,188 
Contract liabilities                                    26,324           29,131 
Short term lease liabilities                             4,010            2,572 
Provisions                                                 794              721 
Deferred and contingent consideration                   21,904           14,334 
                                                       101,740           79,531 
                                                  ------------      ----------- 
Total equity and liabilities                           493,596          351,070 
                                                  ============      =========== 
 

Consolidated statement of cash flows

For the six months ended 30 June 2021

 
                                                       Six months        Six months 
                                                    ended 30 June          ended 30 
                                                             2021         June 2020 
                                                      (unaudited)       (unaudited) 
                                                            $'000             $'000 
Cash flow from operating activities 
Profit for the period after taxation                        7,526               209 
Adjustments for: 
Amortisation of intangible assets                          11,412             8,780 
Profit on sale of intangible assets                         (275)              (27) 
Amortisation of Right-to-use assets                         1,336               680 
Depreciation of property, plant and 
 equipment                                                    305               330 
Loss from lease modification                                   10                 - 
Loss/(Profit) on sale of property, 
 plant and equipment                                           96               (7) 
Tax charge                                                  2,435             1,167 
Interest expenses, fair value movements 
 on deferred consideration                                  3,413             1,752 
Share based payment charge                                    634               542 
Unrealised foreign exchange differences                        53              (16) 
                                                   --------------      ------------ 
Operating cash flow before movement 
 in working capital                                        26,945            13,410 
Increase in trade and other receivables                     (281)           (1,265) 
Decrease in software licences inventory                        39                16 
Increase in trade and other payables                        2,157             2,610 
Decrease in provisions                                      (313)                 - 
Increase in deferred contract costs                      (13,960)          (10,478) 
(Decrease)/Increase in contract liabilities               (2,009)             1,597 
                                                   --------------      ------------ 
Cash flow from operations                                  12,578             5,890 
Tax paid net of refunds                                   (2,123)             (294) 
                                                   --------------      ------------ 
Cash generated from operations                             10,455             5,596 
 
Cash flow from investing activities 
Purchases of property, plant and 
 equipment                                                  (342)             (193) 
Sale of property, plant and equipment                           -                 7 
Sales of intangible assets                                    611               130 
Cash paid on business combinations, 
 net of cash acquired                                   (116,073)                 - 
Intangible assets acquired                                  (365)             (148) 
Capitalisation of development costs                       (2,427)           (1,205) 
                                                   --------------      ------------ 
Net cash used in investing activities                   (118,596)           (1,409) 
 
Cash flow from financing activities 
Payment of leases                                         (1,422)             (693) 
Proceeds from bank loan                                    85,000            40,000 
Proceeds from RCF                                           4,596             1,654 
Proceeds from shareholder loan                             85,000                 - 
Debt issuance costs                                       (1,677)             (873) 
Repayment of bank loan                                    (1,818)                 - 
Repayment of interest on bank loan                          (227)                 - 
Repayment of interest on Shareholder 
 loan                                                     (1,275)           (1,155) 
Repayment of Shareholder loan                            (85,000)          (40,000) 
Payment of purchase of own shares                         (3,299)                 - 
Exercise of options by employees                              802             5,904 
                                                   --------------      ------------ 
Net cash generated from financing 
 activities                                                80,680             4,837 
                                                   --------------      ------------ 
Net (decrease)/increase in cash and 
 cash equivalents                                        (27,461)             9,024 
 
Revaluation of cash due to changes 
 in foreign exchange rates                                   (18)             (223) 
Cash and cash equivalents at beginning 
 of year                                                   49,912             8,211 
                                                   --------------      ------------ 
Cash and cash equivalents at end 
 of year                                                   22,433            17,012 
                                                   ==============      ============ 
 

Notes

   1.   General information 

The financial information set out in this document is for Kape Technologies plc (the "Company") and its subsidiary undertakings (together the "Group") in respect of the six months ended 30 June 2021.

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 2.7 million paying subscribers, supported by a team of over 435 people across eight locations worldwide. Through its subscription based platform, Kape has established a highly scalable SaaS-based operating model, geared towards capitalising on the vast global consumer digital privacy market.

The Board of Directors approved this interim financial information on 20 September 2021.

   2.   Basis of preparation 

This interim consolidated financial information has been prepared in accordance with UK adopted international accounting standards. They do not include all disclosures that would otherwise be required in a complete set of financial statements and should be read in conjunction with the 31 December 2020 Annual Report. The financial information for the half years ended 30 June 2021 and 30 June 2020 does not constitute statutory accounts.

The annual financial statements of the Group were prepared in accordance with the International Financial Reporting Standards (IFRS) adopted in the European Union (EU).

Subsequent to the United Kingdom's exit from the European Union on 31 December 2020 the Group has transitioned from International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) to UK adopted international accounting standards. The transition has had no material impact on previously reported numbers.

The comparative financial information for the year ended 31 December 2020 included within this report does not constitute the full statutory Annual Report for that period. The statutory Annual Report and Financial Statements for 2020 have been filed with the Registrar of Companies. The Independent Auditors' Report on the Annual Report and Financial Statements for the year ended 31 December 2020 was unqualified and did not draw attention to any matters by way of emphasis.

The Group has applied the same accounting policies and methods of computation in its interim consolidated financial statements as in its 2020 annual financial statements, except for those that relate to new standards and interpretations effective for the first time for periods beginning on (or after) 1 January 202 1 , and are

adopted in the 202 1   financial statements. 

There are a number of standards, amendments to standards, and interpretations that are effective in future accounting periods that the Group has decided not to adopt early. The following amendments are effective for the period beginning 1 January 2021:

-- Covid-19 Related Rent Concessions - amendments to IFRS 16 - The amendments did not have an impact on the financial statements.

There are a number of standards, amendments to standards, and interpretations which have been issued that are effective in future accounting periods that the group has decided not to adopt early.

-- IAS 37 (Amendment Onerous Contracts - Cost of Fulfilling a Contract) - clarifies that the direct costs of fulfilling a contract include both the incremental costs of fulfilling the contract and an allocation of other costs directly related to fulfilling contracts. Before recognising a separate provision for an onerous contract, the entity recognises any impairment loss that has occurred on assets used in fulfilling the contract. The amendment is effective for annual reporting periods beginning on or after 1 January 2022. The Group is currently assessing the potential impact of this amendment on its financial statements, however, such impact if any, is not expected to be material.

-- In January 2020, amendments to IAS 1 were issued, which clarify the criteria used to determine whether liabilities are classified as current or non-current. These amendments clarify that current or non-current classification is based on whether an entity has a right at the end of the reporting period to defer settlement of the liability for at least twelve months after the reporting period. The amendments also clarify that 'settlement' includes the transfer of cash, goods, services, or equity instruments unless the obligation to transfer equity instruments arises from a conversion feature classified as an equity instrument separately from the liability component of a compound financial instrument. The amendments are effective for annual reporting periods beginning on or after 1 January 2023. The Group is currently assessing the potential impact of this amendment on its financial statements, however, such impact if any, is not expected to be material.

-- Interest Rate Benchmark Reform - Phase 2 - In August 2020, amendments were issued to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 to address the issues that arise during the reform of an interest rate benchmark rate, including the replacement of one benchmark with an alternative one. The Phase 2 amendments provide the following reliefs:

-- When changing the basis for determining contractual cash flows for financial assets and liabilities (including lease liabilities), the reliefs have the effect that the changes, that are necessary as a direct consequence of IBOR reform and which are considered economically equivalent, will not result in an immediate gain or loss in the income statement.

-- The hedge accounting reliefs will allow most IAS 39 or IFRS 9 hedge relationships that are directly affected by IBOR reform to continue. However, additional ineffectiveness might need to be recorded.

The amendments are effective for annual reporting periods beginning on or after 1 January 2021. The Group is currently assessing the potential impact of this amendment on its financial statements, however, such impact if any, is not expected to be material.

The Group does not expect any other standards issued, but not yet effective, to have a material impact on its financial statements.

After making enquiries, the directors have concluded that the Group has adequate resources to continue operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the half-yearly consolidated unaudited financial statements.

3. Disaggregation of revenue

 
                                                      Six months   Six months 
                                                        ended 30     ended 30 
                                                       June 2021    June 2020 
                                                     (unaudited)  (unaudited) 
                                                           $'000        $'000 
Sale of Digital Security, endpoint protection, 
 and PC performance products                              18,479       16,749 
Sale of Digital Privacy software solutions                49,552       42,237 
Sale of Digital Content and software distribution 
 services                                                 27,471            - 
                                                     -----------  ----------- 
                                                          95,502       58,986 
                                                     ===========  =========== 
 

The following table presents our revenues disaggregated by the timing of revenue recognition in accordance with our reporting segments:

 
                       Six months ended 30 June                   Six months ended 30 June 
                        2021 (unaudited)                           2020 (unaudited) 
                        (USD, in thousands)                        (USD, in thousands) 
                       Digital     Digital    Digital    Total    Digital     Digital    Digital    Total 
                        Security    Privacy    Content             Security    Privacy    Content 
                      ----------  ---------  ---------  -------  ----------  ---------  ---------  ------- 
 Revenue recognised 
  over a period        2,566       31,048     -          33,614   2,158       35,884     -          38,042 
                      ----------  ---------  ---------  -------  ----------  ---------  ---------  ------- 
 Revenue recognised 
  at a point in 
  time                 15,913      18,504     27,471     61,888   14,591      6,353      -          20,944 
                      ----------  ---------  ---------  -------  ----------  ---------  ---------  ------- 
 Total                 18,479      49,552     27,471     95,502   16,749      42,237     -          58,986 
                      ----------  ---------  ---------  -------  ----------  ---------  ---------  ------- 
 
   4.   Segmental information 

Segment revenues and results

Based on the management reporting system, the Group operates three reportable segments:

-- Digital Security - comprising software and SaaS products offering security, endpoint protection and PC performance.

-- Digital Privacy - comprising virtual private network ("VPN") solutions and other privacy SaaS products.

   --    Digital Content - comprising digital platforms which provide reviews and content. 
 
Six months ended 30 June           Digital   Digital   Digital 
 2021                             Security   Privacy   Content     Total 
                                     $'000     $'000     $'000     $'000 
Revenue                             18,479    49,552    27,471    95,502 
Cost of sales                      (1,279)   (6,621)         -   (7,900) 
Direct sales and marketing 
 costs                            (10,465)  (15,257)  (15,374)  (41,096) 
                                 ---------  --------  --------  -------- 
Segment result                       6,735    27,674    12,097    46,506 
Central operating costs                                         (17,832) 
                                                                -------- 
Adjusted EBITDA (note 5)                                          28,674 
Depreciation and amortisation                                   (13,053) 
Employee share-based payment 
 charge                                                            (634) 
Other operating income                                               324 
Exceptional or non-recurring 
 costs                                                           (1,702) 
                                                                -------- 
Operating profit                                                  13,609 
Finance costs                                                    (3,648) 
                                                                -------- 
Profit before tax                                                  9,961 
Taxation                                                         (2,435) 
                                                                -------- 
Profit from the period                                             7,526 
 
 
Six months ended 30 June 
 2020 
                                   Digital   Digital 
                                  Security   Privacy     Total 
                                     $'000     $'000     $'000 
 
Revenue                             16,749    42,237    58,986 
Cost of sales                      (1,087)   (7,526)   (8,613) 
Direct sales and marketing 
 costs                             (8,621)  (10,151)  (18,772) 
                                 ---------  --------  -------- 
Segment result                       7,041    24,560    31,601 
Central operating costs                               (15,179) 
                                                      -------- 
Adjusted EBITDA (note 5)                                16,422 
Depreciation and amortisation                          (9,790) 
Employee share-based payment 
 charge                                                  (542) 
Exceptional or non-recurring 
 costs                                                 (2,683) 
                                                      -------- 
Operating profit                                         3,407 
Finance costs                                          (2,031) 
                                                      -------- 
Profit before tax                                        1,376 
Taxation                                               (1,167) 
                                                      -------- 
Profit from the period                                     209 
 
   5.   Operating Profit 

Adjusted EBITDA

Adjusted EBITDA is calculated as follows:

 
                                               Six months  Six months 
                                                 ended 30    ended 30 
                                                June 2021   June 2020 
                                                    $'000       $'000 
 
Operating profit                                   13,609       3,407 
Depreciation and amortisation                      13,053       9,790 
Other operating income                              (324)           - 
Employee share-based payment 
 charge                                               634         542 
Exceptional and non-recurring 
 costs: 
     Non-recurring staff and restructuring 
      costs                                         1,232       2,465 
     Exceptional professional services 
      costs                                           470         218 
                                               ----------  ---------- 
Adjusted EBITDA                                    28,674      16,422 
                                               ----------  ---------- 
 

Operating costs

Operating costs are further analysed as follows:

 
                                         Six months  Six months  Six months  Six months 
                                           ended 30    ended 30    ended 30    ended 30 
                                          June 2021   June 2021   June 2020   June 2020 
                                           Adjusted       Total    Adjusted       Total 
                                              $'000       $'000       $'000       $'000 
 
Direct sales and marketing 
 costs                                       41,096      41,096      18,772      18,772 
Indirect sales and marketing 
 costs                                        7,929       8,010       4,644       4,685 
                                         ----------  ----------  ----------  ---------- 
Selling and marketing costs                  49,025      49,106      23,416      23,457 
---------------------------------------  ----------  ----------  ----------  ---------- 
Research and development 
 costs                                        3,178       3,431       2,963       3,054 
Management, general and administrative 
 cost                                         6,725       8,727       7,572      10,665 
Other operating income                            -       (324)           -           - 
Depreciation and amortisation                 3,110      13,053       2,155       9,790 
                                         ----------  ----------  ----------  ---------- 
Total operating costs                        62,038      73,993      36,106      46,966 
                                         ==========  ==========  ==========  ========== 
 

Adjusted operating costs exclude share-based payment charges and employer costs related to management share-option exercises, onerous contract costs related to employee termination costs, professional services related to business combinations, other operating income and amortisation of acquired intangible assets.

   6.   Shareholder's equity 

Ordinary share capital as of 30 June 2021 amounted to $23,442 (30 June 2020: $16,014; 31 December 2020: $22,230).

The number of shares in issue as of 30 June 2021 was 234,421,485 (30 June 2020: 160,144,132; 31 December 2020: 222,297,719).

As of 30 June 2021, the Company held in treasury a total of 9,806,501 ordinary shares of $0.0001 (30 June 2020: 436,884; 31 December 2020: 9,713,857). During the six months ended 30 June 2021, 712,019 ordinary shares of $0.0001 were transferred out of treasury and 600,000 from the Employee Benefit Trust to satisfy the exercise of options by the Company employees (30 June 2020: 3,428,339).

During the six months ended 30 June 2021 a total of 804,663 of ordinary shares of $0.0001 per value were transferred to treasury, of which 756,168 were surrendered by management following non-cash share options exercise and 48,495 received from the escrow account related to LTMI acquisition following agreed indemnity claims.

The Kape Technologic Plc Employee Benefit Trust holds 600,000 Ordinary Shares (30 June 2020: 1,200,000; 31 December 2020: 1,200,000), the voting rights to which have been waived.

   7.   Earnings per share 

Basic profit per share is calculated by dividing the profit attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.

 
                               Six months  Six months 
                                ended 30    ended 30 
                                June 2021   June 2020 
                               cents       cents 
 
Basic earnings per share       3.6         0.11 
Diluted earnings per share     3.5         0.11 
 
Adjusted basic                 9.2         5.5 
Adjusted diluted               9.0         5.3 
 

Adjusted earnings per share is a non-GAAP measure and therefore the approach may differ between companies. Adjusted earnings have been calculated as follows:

 
                                  Six months  Six months 
                                   ended 30    ended 30 
                                   June 2021   June 2020 
                                  $'000       $'000 
 
Profit for the period             7,526       209 
 
Post tax adjustments: 
Employee share-based payment 
 charge                           721         542 
Exceptional and non-recurring 
 costs                            1,512       2,213 
Amortisation on acquired 
 intangible assets                9,553       6,785 
Other operating income            (276) 
Finance cost on deferred 
 consideration and leases         392         550 
Adjusted profit for the year      19,428      10,299 
 
 
                                                Number       Number 
Denominator - basic: 
Weighted average number of equity 
 shares for the purpose of earnings 
 per share                                 210,746,363  186,374,919 
 
Adjustments for calculation of diluted 
 earnings per share: 
Impact of potentially dilutive shares 
 related to employee options                 4,522,219    7,658,686 
 
Denominator - diluted: 
Weighted average number of equity 
 shares for the purpose of diluted 
 earnings per share                        215,268,582  194,033,605 
 
 

The difference between weighted average number of ordinary shares used for basic earnings per share and the diluted earnings per share 4,522,219 (H1 2020: 7,658,686) being the effect of all potentially dilutive ordinary shares derived from the number of share options granted to employees.

   8.   Loans and Borrowings 
 
                              Bank Loan  Shareholder 
                                                loan 
                                  $'000        $'000 
 
At 31 December 2020              36,736            - 
Bridge Loan                           -      85 ,000 
Term Facility                   85 ,000            - 
Revolving credit facility         4,596            - 
Debt issuance costs             (1,718)        (850) 
Interest expenses                   934        2,125 
Interest paid                     (227)      (1,275) 
Repayment of loan               (1,818)     (85,000) 
                                         ----------- 
At 30 June 2021                 123,503            - 
                              ---------  ----------- 
 

Shareholder loan

On 5 March 2021, Kape has entered into a binding commitment letter with TS Next Level Investments Limited ("TSNLI") under which TSNLI committed, subject to limited conditions, to provide to Kape the Bridge Loan of up to $120 million in aggregate. The Bridge Loan carried a fixed coupon of 6.0% per annum payable on funds drawn and an arrangement fee of 1.0%. The Bridge Loan was subordinated to Kape's existing bank facilities and was repayable no later than 31 December 2021. The Bridge Loan also included certain customary obligations on Kape in relation to TSNLI's costs and expenses and in relation to taxes. On 2 June 2021, Kape repaid the Bridge Loan in full and accumulated interest following closing of a new bank debt facility as described below.

Bank loan

(a) General

On 28 April 2020, the company agreed with Bank of Ireland, Barclays Bank, and Citi Commercial Bank (the 'Banks'), to provide a senior secured term and revolving credit facilities of up to $70 million (the 'old Debt Facilities'), the facility is a club of banks with Bank of Ireland acting as the agent bank. The old Debt Facilities comprised of a $40 million term facility (the 'old Term Facility'), a $10 million revolving credit facility (the 'RCF'), and a $20 million uncommitted acquisition facility. The old Debt Facilities had a three-year term with an option to extend by up to an additional two years.

On 28 May 2021 the Company agree d with Bank of Ireland, Barclays Bank PLC , Citi Commercial Bank, Citizens Bank, BNP Paribas and Leumi Bank (together, "the Banks"), to replace the Old Term Facility, RCF and Shareholder loan with a new senior secured bank facilities of up to $220 million ("New Debt Facilities"). The New Debt Facilities comprise a $120 million senior secured term facility (the "Term Facility"), a $10 million revolving credit facility (the "RCF") and a $90 million uncommitted acquisition facility (the "Uncommitted Acquisition Facility"). Bank of Ireland is the agent bank. The New Debt Facilities have a three-years term with an option to extend the term by up to an additional two years. 50% of the Term Facility will be amortised on a quarterly basis across 36 months starting September 2021 . The New Debt Facilities carry a n opening M argin of 2% above Applicable Reference Rate per annum.

Term Facility

The term facility comprised from $34.5 million remaining from the old term facility and net proceeds of the New Term Facility of $83.3 million after deducting commissions and other direct costs of the Term Facility. Commissions and other direct costs of the Term Facility have been offset against the principal balance and are amortised throughout the loan.

The Term Facility carries an interest rate of 3 months Applicable Reference Rate, which is USD or EUR LIBOR or GBP SONIA, (as of the beginning of the relevant period) plus an opening Margin of 2% per annum.

The applicable Margin is linked to the Adjusted Leverage, as defined below, tested at the end of each quarter for the preceding 12 months. In case the Adjusted Leverage will be greater than 2 or less than 1 the applicable margin will change to 2.25% or 1.85% respectively. The effective interest rate after considering debt issuance cost as of 30 June 2021 is 3.1%.

RCF

A $10 million revolving credit facility, that carries a commitment fee for the unused facility of 35% of the applicable Margin and interest rate as of the Term Facility for the used facility. As of the reporting date the total credit facility drawn amount is $6.39 million.

(b) Security

The New Debt Facilities is secured by first ranking security over all assets (including material Intellectual Property) of Kape Technologies Plc ("Parent") and her material subsidiaries ("Obligors") and over the shares in all Obligors (other than the Parent).

   (c)   Loan Covenants 

The Group is required to comply with the following financial covenants:

-- The ratio of Adjusted EBITDA to Net Finance Charges ("Interest Cover") shall not be less than 4.0x in respect of any Relevant Period.

-- The ratio of Total Net Debt on the last day of the relevant period to Adjusted EBITDA in respect of that Relevant period ("Adjusted Leverage"), shall not exceed 2.5x for the first 4 relevant period and 2.0x thereafter.

As of 30 June 2021, the Group has met the financial covenants as follows:

   --    Interest Cover:   23 
   --    Adjusted Leverage: 1.47 
 
 30 June 2021    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 
 
 Bank Loan        123,503       126,148      4,824         13,864      107,460          - 
--------------  ---------  ------------  ---------  -------------  -----------  --------- 
 
   9.   Related party transactions 

The Group is controlled by Unikmind Holdings Limited, registered in Isle of Man, which owns 60.2% of the Company's shares. Mr. Teddy Sagi is the sole ultimate beneficiary of Unikmind Holdings Limited.

On 2 June 2021, the Company fully repaid the shareholder loan and the accumulated interest following the closing of a bank debt facility, see Note 8.

During the period the following transactions were carried out with related parties:

 
                                                 Six months  Six months 
                                                   ended 30    ended 30 
                                                  June 2021   June 2020 
                                                      $'000       $'000 
 
Technical support services to end customers 
 and administration services provided by 
 common controlled companies                          (145)       (120) 
Office expenses to common controlled companies         (27)        (89) 
Amortisation of right-of-use assets with 
 common controlled companies related to 
 office leases                                        (209)       (496) 
Interest expenses from lease liabilities 
 to common controlled companies related 
 to office leases                                      (14)        (64) 
Other operating income from Lease modification 
 to common controlled companies                          10           - 
Interest expenses from shareholder short-term 
 loan and debt facility (Note 8)                    (2,125)       (934) 
                                                    (2,510)     (1,703) 
                                                 ==========  ========== 
 
   10.   Business combinations 

(a) Acquisition of Webselense Ltd

On 5 March 2021 (the "Closing date"), the Group acquired 100% of the share capital of Uma Capital Ltd and Ani Ariel Ltd, which are the owners of Webselense Ltd ("Webselense"), a digital platform which provides independent and highly valued consumer privacy and security content to millions of users globally via market leading review sites.

The acquisition will support and improve the Group's organic growth prospects in the fast-growing consumer digital Privacy and Security markets through Elevating Kape as a leading force across the global consumer privacy and security arena, Supporting the Group's product and broader software portfolio development and retaining Webselenese's highly experienced management team.

Webselenese's results are reported as new segment within the group management reporting system, Digital Content.

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 
 
Fixed assets, net                                       255            255 
Trade and other receivables                           7,257          7,257 
Deferred tax asset                                      615            615 
Cash and Cash equivalents                             3,087          3,087 
Right of use assets                                     507            591 
Brand                                                     -         25,829 
Customer list                                             -         10,927 
Non-compete                                               -          4,291 
Technology                                            1,224         12,993 
Trade and other payables                            (2,885)        (2,885) 
Lease liabilities                                     (554)          (591) 
Deferred tax liability                                    -        (5,906) 
                                                      9,506         56,463 
-------------------------------------------  --------------  ------------- 
Fair value of consideration 
Cash                                                               119,160 
Shares                                                              28,548 
Deferred and contingent cash consideration                           7,357 
Goodwill                                                            98,602 
-------------------------------------------  --------------  ------------- 
 

Net cash outflow on acquisition of business

 
                                         2021 
                                        $'000 
 
Cash consideration                    119,160 
Cash and cash equivalents acquired    (3,087) 
                                      116,073 
                                      ======= 
 

Webselense is being acquired for a total consideration of $155.0 million (including the acquisition of Gclid Ltd activity) to be satisfied by combination of:

-- A payment upon closing of $119.2 million in cash. Out of the cash consideration, Webselense's founders purchased $1.34 million worth of the Group shares in the market following the closing.

-- Issuance of 12,123,769 ordinary shares of $0.0001, to Webselense's founders and two senior members of staff. Webselense's founders share consideration is subject to lock-up periods, of which 50% until the first anniversary of closing, 25% until 18 months from closing and the remaining 25% until the second anniversary.

-- Deferred consideration of $2.99 million will be paid by the company for the excess working capital of Webselense at the closing date.

   --    Contingent consideration of $2.6 million which depend on the activity performance. 

-- Deferred cash consideration of $1.76 which represents the excess Income tax advances that were paid by Webselense before the acquisition date. The amount will be settled only upon achieving the amount back from the local tax authorities.

Webselense's founders are subject to Non-Competition and Non-Solicitation agreement for the employment term and period of 18 months thereafter.

The initial cash consideration founded through Kape's internal cash resources a $34.2 million and a $85.0 million bridge facility (the "Bridge Loan") from TS Next Level Investments Limited ("TSNLI"), an affiliate of Unikmind Holdings Limited, Kape's majority shareholder. The Group completed re-financing of the Bridge loan as of May 28, 2021. Further details of the Bridge Loan, which is a related party transaction, and the re-financing are set out on note 8.

   11.   Subsequent Events 

On 13 September 2021, the Group has entered into a sale and purchase agreement to acquire certain assets, liabilities and service entities together comprising the ExpressVPN business ("ExpressVPN") from Access Global Limited and its subsidiaries ("Access Global") for a total consideration of approximately US$936 million (the "Acquisition") comprised of:

-- $354 million in cash, to be satisfied by a combination of $334 million payable on completion plus $20 million in cash within six months of completion paid from excess cash of the Buyer group;

-- Deferred cash consideration to be paid in two instalments of $172.5 million each, 12 and 24 months post-completion of the Acquisition ("Deferred Consideration")

-- $237 million in new ordinary shares in the capital of the Group (amounting to 47,782,800 ordinary shares) ("Consideration Shares") to be issued on completion of the Acquisition.

Completions of the acquisition is subject to, inter alia, certain merger control consents having been received or the relevant waiting periods having expired, shareholder approval at the General Meeting in respect of the issue of the Consideration Shares and the shares to be issued in the Placing (the "Placing Shares"), and certain other conditions which are customary for an acquisition of this nature, it is anticipated that completion of the Acquisition will occur in Q4 2021.

At the day of signing, and in order to part fund the Acquisition, The Group has successfully raised gross proceeds of approximately $354 million (GBP256.5 million) pursuant to the Placing and approximately $2.5 million (GBP1.8 million) pursuant to the Retail Offer (together the "Fundraise"). Conditionally, in aggregate, a total of 76,543,209 new ordinary shares of $ 0.0001 each ("Ordinary Shares") will therefore be issued pursuant to the Fundraise.

Further, prior to completion of the Acquisition, the Group will seek consent from its existing lender group (the "Banks") for the Company's existing $120 million senior secured term facility and $10 million revolving credit facility to remain in place, absent which the existing senior secured term facility and revolving credit facility will become repayable on completion of the Acquisition.

The Group has entered into binding commitment letters with TSNLI (Affiliate of Unikmind, the Group main shareholder) under which TSNLI has committed, subject to limited conditions, to provide to Kape the Deferred Consideration Facility of up to $345 million in aggregate (in connection with the Group's obligation to pay the Deferred Consideration) and the Refinancing Facility of up to $130 million to, if required, repay the Banks in full.

The Deferred Consideration Facility will carry a variable coupon, depending on the leverage ratio: if greater than or equal to 3:1 the coupon will be 4.75% per annum, if greater than or equal to 2:1 but less than 3:1, then the coupon will be 4.25% per annum and if less than 2:1 then the coupon will be 4.00% per annum, in each case, on funds drawn. The rates set out above will each increase by 1.00% per annum on and from the second anniversary of the completion of the Acquisition and will increase by a further 1.00% per annum on and from the third anniversary of the completion of the Acquisition.

The Deferred Consideration Facility will also carry an arrangement fee of 1.5% of the total commitments, payable on completion of the Acquisition, and a commitment fee accruing at the rate of 3.50% per annum on undrawn commitments, payable on the earlier of the commitments being cancelled or utilised. Should the Group find an alternative source of financing to fund the payment of the Deferred Consideration or to refinance the Deferred Consideration Facility, the commitment fees will only be payable pro rata for the period during which the commitment under the Deferred Consideration Facility is in place.

The Refinancing Facility will carry the same coupon as sets out above, if drawn, and an arrangement fee of 1.5% of the total commitments, payable on closing. If the Refinancing Facility is drawn, TSNLI will be granted substantially the same security as has been granted to the Banks in connection with the existing term and revolving credit facilities that the Refinancing Facility will, if drawn, refinance.

   12.   Cautionary statement 

This document contains certain forward-looking statements relating to Kape Technologies plc ('the Group'). The Group considers any statements that are not historical facts as "forward-looking statements". They relate to events and trends that are subject to risk and uncertainty that may cause actual results and the financial performance of the Group to differ materially from those contained in any forward-looking statement. These statements are made by the directors in good faith based on information available to them and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.

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END

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September 21, 2021 02:00 ET (06:00 GMT)

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