TIDMKAPE
RNS Number : 3747G
Kape Technologies PLC
17 March 2020
This announcement contains inside information for the purposes
of Article 7 of Regulation (EU) No 596/2014
17 March 2020
Kape Technologies plc
("Kape," the "Company," or the "Group")
FINAL RESULTS FOR THE YEARED 31 DECEMBER 2019
Strong organic growth, game-changing acquisition and
execution of long-term growth strategy
Kape (AIM: KAPE), the digital security and privacy software
business, announces its results for the year ended 31 December
2019.
Financial highlights
-- Strong revenue and profit growth underpinned by significant
organic growth in Kape's core business
o Revenues increased 27% to $66.1 million (2018: $52.1
million)
o Strong growth in recurring revenues to $51.5 million, an
increase of 87% (2018: $27.6 million)
o Adjusted EBITDA(1) up 40% to $14.6 million (2018: $10.4
million)
o Growth in adjusted EBITDA margins to 22.0% (2018: 19.9%)
o Increase of 30% in Adjusted Fully Diluted Earnings Per Share
to 6.5 cents (2018: 5.0 cents), Fully Diluted Earnings Per share
was 1.7 cents (2018: 1.5 cents)
o Net profit increased to $2.0m (2018: Net loss of $0.5m)
o Adjusted cash flow from operations attributable to current
year of $17.9 million (2018: $15.9 million), which represents a
cash conversion of 123% (2018: 153%), this excludes movement in
Deferred contract costs. Adjusted cash flow from operation of $1.0
million (2018: $5.7 million)
Operational highlights
-- Strong SaaS metrics driving the ongoing profitability, growth
and earnings predictability of the Group
-- Increase in subscribers to 2.35 million at year-end (31
December 2018: 0.83 million), with 40.2% growth (excluding Private
Internet Access), with an 81% retention rate.
-- Visibility on revenues from existing users increased to $98.8
million(2) (31 Dec 2018: $30.0 million)
-- Completed the successful integration of Intego and ZenMate
-- $1.7 million in annualised cost savings identified relating to ZenMate
-- Intego materially strengthened the Company's position in the
North American market and expands Kape's internet security software
capability
-- Completed acquisition of Private Internet Access in December
-- Integration is well underway, on track to realise $3.5 to 4.5 million annual savings in 2020
-- Expanded the Group's user base, with 49% of revenues from North America on a pro forma basis
-- Added further product innovation and R&D capabilities
-- Positioned the Group to be a global leader in digital privacy
-- Strong R&D and product development:
-- Launched proprietary infrastructure technology
-- Consumer cybersecurity centre developed and expected to launch in Q2
Outlook
-- We started 2020 with strong momentum and we are on track to
generate proforma revenues of between $120-$123 million and
Adjusted EBITDA of between $35-$38 million
-- Kape has a clear strategy in-place through which to deliver
growth underpinned by the Group's product, brand and market
presence as well as its robust business model
-- We are on-track to put in place a long-term debt facility
from commercial banks to replace the Unikmind loan
-- As per Covid-19; we do not see an effect on demand for our
products, and on the operational level Kape is a digital company
which is well structured to operate a remote workforce while
providing full service to our customers
Ido Erlichman, Chief Executive Officer of Kape, commented:
"There is no question that 2019 has been a landmark period of
growth, and I think it is very important to thank all of our staff
that helped deliver this excellent set of results and the progress
achieved during the year. We have remained steadfast in our
commitment to driving record levels of organic growth whilst
successfully executing on an extremely ambitious M&A program,
demonstrated by the acquisition of PIA. Kape is now ideally placed
to drive significant growth across our business in the burgeoning
markets in which we operate.
"We are now on the fast track to making our vision a reality by
creating one of the most prominent privacy companies globally. We
have positioned Kape to become a leading digital privacy company,
empowering consumers to manage their own data and digital security.
We also expect to enter an exciting period of product innovation as
we further realise our vision of making the internet a safe and
accessible place for everyone."
An audio webcast of Kape's results presentation is now available
via the following link:
http://bit.ly/KAPE_FY19
(1) Adjusted EBITDA from continuing operations only. Adjusted
EBITDA is a non GAAP measure and a company specific measure which
excludes other operating income and expenses which are considered
to be one off and non-recurring in nature.
(2) Calculated as expected revenues from first renewal of the
existing user base in addition to the deferred revenue balance
Enquiries:
Kape Technologies plc via Vigo Communications
Ido Erlichman, Chief Executive Officer
Moran Laufer, Chief Financial Officer
Shore Capital (Nominated Adviser & Broker)
Mark Percy / Toby Gibbs / James Thomas +44 (0)20 7408 4090
N+1 Singer (Joint Broker)
Harry Gooden / George Tzimas +44 (0)20 7496 3000
Vigo Communications (Financial Public Relations)
Jeremy Garcia / Antonia Pollock / Fiona Norman
kape@vigocomms.com +44 (0)20 7390 0237
About Kape
Kape is a leading 'privacy-first' digital security software
provider to consumers. Through its range of privacy and security
products, Kape focusses on protecting consumers and their personal
data as they go about their daily digital lives.
To date, Kape has over 2 million paying subscribers, supported
by a team of over 350 people across eight locations worldwide. Kape
has a proven track record of revenue and EBITDA growth, underpinned
by a strong business model which leverages our digital marketing
expertise.
Through our subscription-based platform, Kape has fast
established a highly scalable SaaS-based operating model, geared
towards capitalising on the vast global consumer digital privacy
market.
www.kape.com
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Chairman's statement
Introduction
Consumers' awareness of the importance of digital privacy
reached new heights in 2019, given the significant number of
high-profile data breaches, which saw hundreds of millions of
consumer data points exposed. This included, in some instances,
sensitive medical data, financial data as well as the unprecedented
600 million passwords revealed by the largest social networks.
Consumers are therefore even more mindful of the inability of some
of the world's largest companies to not only protect their online
data, but also in their understanding of the true value of personal
data to these businesses. This ongoing desire for personal
information by corporates has driven consumers to control and
protect their online footprint.
This strong macro landscape continues to fuel our end markets,
and consequently our addressable market expands almost daily. Kape
has now developed a strong suite of solutions that directly help
consumers maintain their online privacy to combat the ever evolving
and diverse threat to individuals' online security.
2019 overview
We made significant progress in 2019, strategically,
operationally and financially. Clearly the acquisition of Private
Internet Access ("PIA") in December will be particularly important
in our ongoing development, but over and above this, management
delivered strong organic growth and seamlessly integrated prior
acquisitions, such as Intego and ZenMate. This proved the team's
expertise in integrating software solutions into the Group to
deliver cost synergies and material growth. The integration of PIA
has already begun, and we look forward to realising the significant
benefits that this transaction will bring our business.
Growth Strategy
Our ongoing growth strategy will continue to be focused on a
combination of organic growth and the execution of select
acquisitions. We expect that 2020 will be focused on the
integration of PIA and specifically the implementation of our
business intelligence systems and proprietary infrastructure
management technology as well as our user acquisition. Our more
over-arching strategy will focus on the following three pillars,
which we intend to leverage to generate material growth:
-- Product - our internal R&D developments as well as the
acquisition of PIA significantly enhanced our suite of solutions
and R&D team, giving us a significant platform from which to
further broaden our technology stack
-- Brand and market presence - Private Internet is a
well-recognised brand, which we intend to leverage globally, with
the enlarged group servicing a significant user base through which
to grow
-- Business model - we operate a robust SaaS-based business
model which continues to deliver strong levels of recurring revenue
growth and earnings predictability
Corporate Governance
We constantly strive to create a company culture at Kape which
adheres to the highest levels of corporate governance. One of the
many initiatives we have undertaken is to ensure a constant
dialogue between internal and external stakeholders. This includes
holding regular meetings with key employees across the business and
engaging proactively with all our board members, ensuring the
highest levels of transparency across the organisation. Employees
are the key to our success and as such we endeavour to sustain an
inclusive environment across all our global offices, always
ensuring open lines of communication.
One of our key stakeholders is our worldwide customer base, the
satisfaction of which we constantly monitor and review as we
believe it sets us apart from many of our peers. We now service
over 2.35 million customers worldwide and this emphasis on service
is evidenced in the 81% retention rate that we have achieved in the
period. Therefore, customer support is at the front of management's
mind and prioritised through our wholly owned customer support
centres where we have expanded our 24/7 support to additional
product lines, as well as constantly improving time to respond.
With regards to the sustainability of the business, given that
we are a digital business our environmental footprint is low, but
despite this, we constantly monitor our travel and infrastructure
footprint and have strict guidelines and technologies in place to
minimise our impact.
PIA bonus award
Following the transformational acquisition of PIA, the Kape
Remuneration Committee has approved an exceptional bonus award of
$900,000 to Ido Erlichman (CEO) and $675,000 to Moran Laufer (CFO)
(the "PIA Bonus"). No other bonuses will be paid to the Executive
directors for the financial year ended 31 December 2020. This
exceptional award, due to be paid in 2020 based on the completion
of integration milestones in the first quarter of 2020, is separate
from the 2019 bonus awards which relates to performance in that
year and will be set out in the Remuneration Report in the Kape
Annual Report.
On a pro-forma basis this transaction is a significant
contribution to revenues of over $120 million and EBITDA of over
$35 million in 2020 with the prospect of increased growth in the
future. Underpinning this are the addition of 1.1 million SaaS
subscribers bringing the group's total subscribers to over 2.35
million. This enlarged subscriber group will now benefit from
Kape's high quality digital marketing channels which will further
strengthen the PIA revenues.
The PIA bonus is subject to clawback of up to 20% of the award
in relation to meeting revenue and EBITDA targets in FY2020.
The grant of the PIA Bonus is a related party transaction under
Rule 13 of the AIM Rules for Companies. Myself, David Cotterell and
Martin Blair, being the independent directors, consider, having
consulted the Company's Nominated Adviser, Shore Capital &
Corporate Limited, that the terms of the related party transaction
are fair and reasonable insofar as the Company's shareholders are
concerned.
Outlook
I am confident in Kape's prospects and that the combination of
organic growth coupled with selected acquisitions and a clear
vision and strategy in mind, provides us with an unrivalled
platform through which to drive material growth.
I would like to take this opportunity to thank the Kape team for
their continued hard work and dedication to the ongoing success of
our business.
As per Covid-19 we would like to note that we do not see
material effect on demand for our products as a result of recent
global developments; we are also prepared structurally across our
different locations for supporting the business and providing full
service to our customers through remote working arrangements.
Don Elgie
Non-executive Chairman
16 March 2020
Chief Executive Officer's review
Introduction
We have entered 2020 in a very strong position. 2019 was a
landmark year for Kape, in which we delivered extensive organic
growth and successfully executed our mergers and acquisition
strategy. During 2019, our core Digital Privacy segment revenues
grew by 81.6% (excluding PIA) compared to last year, we made the
game-changing acquisition of Private Internet Access and completed
the successful integration of Zenmate and Intego.
Kape now has a significant base from which to capture the
explosive growth in the digital privacy and security market,
underpinned by our recent acquisition which has established our
business as the pre-eminent digital privacy company globally. The
enlarged group has a sizable global footprint and boasts an
enviable portfolio of privacy-first products, positioning it at the
forefront of this rapidly expanding market.
Beyond the acquisition, the Group traded strongly in the
year-ended 31 December 2019, delivering Adjusted EBITDA of $14.6
million, which was slightly above management expectations and
represents a 40% increase on the prior year (2018: $10.4 million).
This was achieved with revenues of $66.1 million (2018: $52.1
million), representing an increase of 27% and an increase in net
profit to $2.0 million (2019: ($0.5) million) as the Group
continued its focus on profitable growth.
Operational review
Key Performance Indicators
Kape continues to deliver a strong return on investment and
attractive unit economics supported by its subscription revenue
stream and innovative customer acquisition model.
In order to ensure the ongoing profitability, growth and
earnings predictability of the Group, Kape reports against the
following key KPIs:
-- Subscriber base demonstrates the development of our SaaS
business model and future revenue potential
-- Retention rate indicates levels of customer satisfaction and
the high quality of our services and products
-- Deferred income and Adjusted operating cash flow are an
indicator of the high visibility over revenues and quality of
earnings
31 Dec 31 Dec
2019 2018
'000 '000
Adjusted EBITDA 14,559 10,374
Subscribers (thousands) 2,350 830
Retention rate 81% 74%
Deferred income ($'000) 35,312 9,514
Adjusted operating cash flow(3) :
Attributable to current year ($'000) 17,902 15,936
Investment in growth (16,928) (10,215)
--------------------------------------- ---------- ----------
Adjusted operating cash flow ($'000) 974 5,721
In 2019, Kape performed strongly against its KPIs, with a
combination of strong organic growth and the acquisition of PIA
transforming our user base, the Group now servicing 2.35 million
subscribers at year-end (31 December 2018: 830,000), an increase of
42.2% in organic growth, excluding the user base of PIA. Kape also
expects to generate a much higher level of visibility over income
with expected revenues of $98.8 million in future financial years
anticipated to be generated from existing customers, an increase of
230% (31 December 2018: $30.0 million), driven by the increase in
the Group's user base. The decrease in adjusted operating cashflow
is due to our strategy to invest in expanding our user base. In
addition, Kape's sustains a high retention rate across its user
base of 81%, which is very strong for a consumer-focused software
business.
Kape generated significant adjusted operating cash flow in 2019,
up 12.3% to $17.9 million (31 December 2018: $15.9 million),
supported by its subscription revenue stream, which enabled the
Company to increase its investment in growth by 65.7% to $16.9
million in 2019 (31 December 2018: $10.2 million).
Another important capability which we continue to measure is our
success in both integrating and growing acquisitions. Since the
acquisition of CyberGhost in March 2017, we have grown our paying
customer base at Cyberghost by 400% and we have organically grown
our digital privacy revenue by 81.5% in the year ended 31 December
2019, demonstrating our clear ability to successfully leverage our
digital marketing engine to grow a business servicing consumers and
SMEs.
Furthermore, in 2019, we have been able to successfully complete
the integration of both Zenmate and Intego, which we acquired in
2018, reducing the cost-base while continuing to develop our core
cybersecurity capabilities. These successful transactions gave us
the confidence to execute on the much larger Private Internet
Access acquisition and are testament to our ability in integrating
businesses to enhance revenue growth rates, optimise synergies and
realise cost benefits.
Acquisition of Private Internet Access
On the 16(th) of December 2019, Kape acquired Private Internet
Access. This deal is transformational for the Group both
strategically and financially. Kape has now doubled its paying
customer base whilst creating a significant foothold in the US
market, with 49% of the Group's customers now based in the US. In
addition, the PIA brand has positioned Kape as a top player in the
North American market within the digital privacy and security
space. The enlarged business is also highly cash generative and the
acquisition was significantly earnings enhancing, with the enlarged
group expected to generate over US$120 million in revenues and over
$35 million in Adjusted EBITDA in the year ended 31 December
2020.
Moving forward, the acquisition provides three core levers for
growth and we are already ahead of schedule in leveraging
these:
-- User growth: we are currently implementing our customer
acquisition engine to increase users as, prior to its acquisition,
PIA's customer acquisition strategy was primarily organic
-- Brand expansion: Private Internet Access is a
well-established brand in the US and, when combined with our growth
engine, has the potential to be the largest brand in this space
globally
-- Product development: as part of the transaction, we added new
digital privacy products, which are currently being formally
launched or are in the late stages of development. We expect these
to provide further opportunity to grow our user base:
o LibreBrowser - a completely private browser
o Private.sh - a private and encrypted search engine based on
cryptography technology
o Private Storage - a cloud-based secure private storage
solution
Our integration program is now well underway and has been
progressing ahead of expectations. We plan to realise between $3.5
to 4.5 million in annualised cost savings by the end of 2020.
Savings will mainly be driven by the implementation of our
infrastructure and capacity management technology, which has been
developed in-house, into PIA's infrastructure allowing a reduction
in the cost to serve our users while increasing the quality of our
service across our entire customer base. In addition economies of
scale allow us to improve our capacity management as well as vendor
relations. Already, we have almost completed the integration of the
customer service side where we are providing PIA's customers with
our 24/7 customer support.
Organic growth
The Group's existing solutions performed strongly in 2019,
benefiting from growing demand coupled with the ongoing
implementation of our digital marketing expertise. Growth was
derived mainly from our Digital Privacy segment, driven by overall
growth in the market as well as management's focus on privacy
solutions given the high retention rates in that division.
Overall, we have experienced 42% growth in paying subscribers
from 830,000 (December 2018) to 1.18 million (December 2019)
excluding PIA. We have also demonstrated a substantial growth in
revenues from $52.1 million (December 2018) to $63.6 million
(December 2019) excluding PIA.
Product development
We have made significant progress on the R&D front,
including the launch of a landmark infrastructure revamp for our
privacy solution, Gen4, an internal technology development which
allows Kape to upgrade our infrastructure in a modular way,
enabling technological updates to be created at a speed well above
industry standards. This upgrade increases the speed of connection
by an average of 35% in key geographies and our server fleet
performs significantly more efficiently than before the upgrade;
providing our customers with better performance and increased
scalability; this upgrade also improves our security levels with
server encryption, man-in-the-middle attack prevention and other
protections. Most notably, we have already started integrating this
solution into the PIA infrastructure.
In addition, in 2019, the Group continued to demonstrate its
ability to launch innovative solutions to combat the increasing
diversity of digital threats to consumers. In June 2019, the Group
launched the ZenMate Ultimate app, the most comprehensive update of
ZenMate's VPN platform to-date, which has seen strong traction
since launch. Furthermore, in July 2019, our macOS security analyst
team was the first to discover several important malware security
threats for Apple users, against which Intego's users are now fully
protected.
Looking forward, we are expecting to launch our privacy and
security control center in Q2 2020, which will allow our customers
to have visibility over their exposure and control their security
and privacy measures from one dashboard. This will deliver a
complete solution of digital privacy and security features in a
unified experience.
Growth strategy
We believe Kape is very well-placed to markedly increase its
market share in what is a rapidly expanding space. Central to this
are our core growth engines, which are to:
-- Expand our global customer base
- Utilise the strong foundation of the Group's over 2.35 million
paying subscribers to accelerate future growth
-- Drive product innovation and R&D
- Execute on opportunities to increase the breadth of solutions we currently provide globally
-- Leverage brand recognition
- Take advantage of the significant opportunity to further
leverage the 'Private Internet' brand internationally, beyond North
America
-- Utilise our unique technology platform
- Further bolster the implementation of our user acquisition technologies
-- Continue to evaluate select acquisitions
- Build upon our track-record of integrating and growing SaaS
products to create a truly dominant business globally
Outlook
2019 was undoubtably a seminal year for the Group, in which we
created a strong launchpad to accelerate our growth aspirations.
These excellent foundations have enabled the Group to make a strong
start to 2020 and we expect this to continue beyond the current
financial year.
We are pleased to be able to deliver on what we have previously
pledged to our partners and shareholders and have a clear roadmap
to continue delivering profitable growth in future periods.
We are now fast-tracking our vision into a reality by creating
one of the most prominent privacy companies globally. In one
acquisition, I believe we have positioned Kape to become one of the
leading digital privacy service providers in the world, empowering
consumers to manage their own data and digital security.
Ido Erlichman
Chief Executive Officer
16 March 2020
(3) Adjusted operating cash flow attributable to current year is
calculated as Adjusted operating cash flow excluding change in
deferred contract costs
Chief Financial Officer's review
Overview
Revenue from continued operations for the year to 31 December
2019 increased by 26.9% to $66.1 million (2018: $52.1 million).
Adjusted EBITDA(4) from continued operations increased by 40.3% to
$14.6 million (2018: $10.4 million) with the increase in Adjusted
EBITDA driven by the strong performance of Kape's Digital Privacy
activity, with an overall increase of 98.0% in revenues and 72.3%
in segment results. Organically, excluding the contribution of PIA,
the Digital Privacy segment revenues and segment results increased
by 81.5% to $27.6m and 48.3% to $13.4m respectively.
Adjusted cash flow from operations attributable to the current
financial period was $17.9 million (2018: $15.9 million), which
represents cash conversion of 123%. In addition, during the period
$16.9 million was reinvested in user acquisition costs that will be
expensed in future periods (2018: $10.2 million). When including
this investment, adjusted cash flow from operations decreased to
$1.0 million (2018: $5.7 million). At 31 December 2019 the Group's
cash balance was $8.2 million (31 December 2018: $40.4 million) and
the net debt was $32.0 million after a cash investment of $64.3
million for the acquisition of PIA.
On 16 December 2019, the Group acquired 100% of the share
capital of LTMI holding, trading as Private Internet Access, for a
total consideration of $130.1 million(5) and enterprise value of
$162.3 million(6) . PIA was established in 2009 and is a security
software business, based in Denver, Colorado, with a focus on the
provision of virtual private network ("VPN") solutions. Since its
inception, PIA has grown to become a leading VPN service provider
focused on the consumer market and employing approximately 65
employees of which 35% are in an R&D capacity. PIA has over 1
million paying subscribers globally, with 49% of them based in the
N. America.
The divestment of the Media division in July 2018, resulted in
changes to its management reporting system and we now operate with
two reportable segments:
-- Digital Privacy - comprising the Group's Virtual Private
Network products which comprise Cyberghost, Private Internet Access
and Zenmate;
-- Digital Security - comprising the Group's end point security and PC performance products
Segment Result
Revenue Segment result
2019 2018 2019 2018
$'000 $'000 $'000 $'000
Digital Security 35,949 36,849 17,873 16,672
Digital Privacy 30,111 15,211 15,536 9,018
-------- -------- -------- --------
Revenue 66,060 52,060 33,409 25,690
======== ======== ======== ========
The segment result has been calculated using revenue less costs
directly attributable to that segment. Cost of sales comprises
payment processing fees and infrastructure costs of the group's
privacy products. Direct sales and marketing costs are user
acquisition costs.
Digital Privacy
2019 2018
$'000 $'000
Revenue 30,111 15,211
Cost of sales (5,440) (3,036)
Direct sales and marketing
costs (9,135) (3,157)
--------- ----------
Segment result 15,536 9,018
--------- ----------
Segment margin (%) 51.6 59.3
During the period, the Digital Privacy segment has seen
continued growth with an 98% increase in revenue to $30.1 million
(2018: $15.2 million) and a 72.3% increase in segment result to
$15.5 million (2018: $9.0 million). The segment margin has
decreased to 51.6% (2018: 59.3%) mainly because the revenue growth
is driven by user acquisition activities. Following the acquisition
of PIA in December 2019, PIA contributed $2.5 million to revenues
and $2.0 million to segment results. Excluding the acquisition of
PIA, the segment results increased by 48.3% to $13.4 million in
2019.
Digital Security
2019 2018
$'000 $'000
Revenue 35,949 36,849
Cost of sales (2,085) (2,569)
Direct sales and marketing
costs (15,991) (17,608)
---------- ----------
Segment result 17,873 16,672
---------- ----------
Segment margin (%) 49.7 45.2
During the period, the Digital Security segment margins have
improved to 49.7% (2018: 45.2%) resulting in an increase of 7.2% in
segment results to $17.9 million (2018: $16.7 million) despite a
2.4% decrease in revenues to $35.9 million (2018: $36.9 million).
The increase in margins is driven from the higher proportion of
recurring revenue of Intego's end point security products.
Adjusted EBITDA from continued operations
Adjusted EBITDA from continued operations for the year to 31
December 2019 was $14.6 million (2018: $10.4 million). Adjusted
EBITDA is a non-GAAP company specific measure which is considered
to be a key performance indicator of the Group's financial
performance. It excludes share based payment charges and expenses
which are considered to be one-off and non-recurring in nature and
are excluded from the following analysis:
2019 2018
$'000 $'000
Revenue 66,060 52,060
Cost of sales (7,525) (5,605)
Direct sales and marketing
costs (25,126) (20,765)
---------- ----------
Segment result 33,409 25,690
---------- ----------
Indirect sales and marketing
costs (7,903) (6,398)
Research and development costs (3,149) (1,389)
Management, general and administrative
cost (7,798) (7,529)
---------- ----------
Adjusted EBITDA 14,559 10,374
---------- ----------
Operating profit
A reconciliation of Adjusted EBITDA to operating profit is
provided as follows:
2019 2018
$'000 $'000
Adjusted EBITDA 14,559 10,374
Employee share-based payment
charge (1,680) (1,490)
Charge for repurchase of
employee options - -
Other operating income (91)
Exceptional and non-recurring
costs (2,331) (1,441)
Depreciation and amortisation (6,314) (3,800)
Operating profit 4,143 3,643
--------- ---------
Exceptional and non-recurring costs in 2019 comprised
restructuring costs of $0.4 million due to restructuring of Zenmate
and Intego that were acquired in 2018 and $1.9 million for
professional services and other acquisition related cost that
derive from the acquisition of PIA (2018: $0.8 million).
Prof t before tax from continuing operations
Profit before tax from continuing operations was $2.8 million
(2018: $3.3 million).
Profit after tax from continuing operations
Profit from continuing operations was $2.5 million (2018: $2.2
million). The tax charge derives mainly from group subsidiaries'
residual profits. The Group recognises a deferred tax asset of $1.6
million (2018: $0.2 million) in respect of tax losses accumulated
in previous years. The increase is due to recognition of tax asset
in Germany following the merger of two subsidiaries ZenGuard GMBH
and Mobile Concepts GMBH.
Cash flow
2019 2018
$'000 $'000
Cash flow from operations (1,357) 3,695
Exceptional and non-recurring
payments 2,331 1,441
Net cash flow from discontinued
operating activities - 336
Net cash paid due to restructuring
plan - 249
Adjusted cash flow from operations 974 5,721
--------- --------
% of Adjusted EBITDA 7% 55%
--------- --------
Excluding increase of deferred
contract costs 16,928 10,215
--------- --------
Adjusted Cash flow from operations
attributable to current year 17,902 15,936
--------- --------
% of Adjusted EBITDA 123% 154%
--------- --------
Cash flow from operations was $1.4 million (2018: $3.7 million).
Adjusted cash flows from operations, after adding back payments
that are one-off in nature was $1.0 million (2018: $5.7 million).
This represents a cash conversion of 7% of Adjusted EBITDA (2018:
55%). The decrease in operating cash flow is due to an increase in
user acquisition investment attributable to future periods to $16.9
million (2018: $10.2 million). Excluding the investment, adjusted
operating cash flow attributable to the current financial period
increased to $17.9 million (2018: $15.9 million), which represents
a cash conversion of 123%.
Tax paid net of refunds in the period was $1.4 million (2018:
$0.5 million). The increase was mainly due to prepayments in France
and the United States by Group subsidiaries related to Intego.
Cash spent in the period on capital expenditure of $67.5 million
(2018: $23.6 million) mainly comprises $64.4 million for the
acquisition of PIA, $2.6 (2018: $2.3 million) million capitalised
development costs and $0.5 million (2018: $0.2 million) purchase of
fixed assets.
Financial position
At 31 December 2019, the Company had cash of $8.2 million (31
December 2018: $40.4 million), net assets of $155.0 million (31
December 2018: $73.0 million) and net debt of $32 million (2018:
Nil). At 31 December 2019, trade receivables and contract assets
were $3.4 million (31 December 2018: $3.6 million).
Moran Laufer
Chief Financial Officer
16 March 2020
(4) Adjusted EBITDA is a company specific measure which is
calculated as operating profit before depreciation, amortisation
(including right to use asset amortisation), exceptional and
non-recurring costs, employee share-based payment charges and
charge of repurchase of employee options which are considered to be
one off and non-recurring in nature as set out in note 4. The
Directors believe that this provides a better understanding of the
underlying trading performance of the business.
(5) Total consideration per Note 10 plus cash paid to PIA's
phantom shareholder, the value of the share consideration was
calculated based on the share price at the day of closing, 16
December 2019
(6) Total consideration in (4) above plus cash paid to repay
long-term debt
Consolidated statement of comprehensive income
For the year ended 31 December 2019
2019 2018
Note $'000 $'000
Revenue 2,3 66,060 52,060
Cost of sales (7,525) (5,605)
---------- ----------
Gross profit 58,535 46,455
Selling and marketing costs 2c (33,124) (27,564)
Research and development
costs (3,349) (1,653)
Management, general and administrative
costs (11,514) (9,795)
Depreciation and amortisation 6,13 (6,314) (3,800)
Other operating expenses (91) -
Total operating costs (54,392) (42,812)
Operating profit 4 4,143 3,643
Adjusted EBITDA 4 14,559 10,374
---------- ----------
Employee share-based payment
charge 8 (1,680) (1,490)
Other operating expenses (91) -
Exceptional or non-recurring
costs 4 (2,331) (1,441)
Depreciation and amortisation 6,13 (6,314) (3,800)
Operating profit 4,143 3,643
----------------------------------------- ------ ----------
Finance income 300 587
Finance costs (1,644) (938)
---------- ----------
Profit before taxation 2,799 3,292
Tax charge 5 (314) (1,064)
---------- ----------
Profit from continuing operations 2,485 2,228
Loss from discontinued operations
(attributable to equity holders
of the company) 11 (465) (2,734)
---------- ----------
Profit/ (Loss) for the year 2,020 (506)
Other comprehensive income:
Items that may be reclassified
to profit and loss :
Foreign exchange differences
on translation of foreign
operations (81) 7
---------- ----------
Total comprehensive Income/
(loss) for the year 1,939 (499)
========== ==========
Total profit/ (loss) for
the year attributable to:
Owners of the parent 2,020 (518)
Non-controlling interests - 12
---------- ----------
Total comprehensive income/
(loss) attributable to:
Owners of the parent 1,939 (511)
Non-controlling interests - 12
---------- ----------
Total profit/ (loss) for
the year attributable to
Owners of the parent:
Continuing operations 2,485 2,228
Discontinuing operations (465) (2,746)
2,020 (518)
Earnings per share from continuing
operations attributable to
the ordinary equity holders
of the company:
Basic earnings per share
(cents) 9 1.7 1.5
Diluted earnings per share
(cents) 9 1.7 1.5
---------- ----------
Earnings per share from discontinued
operations attributable to
the ordinary equity holders
of the company:
Basic earnings per share
(cents) 9 (0.3) (0.3)
Diluted earnings per share
(cents) 9 (0.4) (0.3)
---------- ----------
Consolidated statement of financial position
As at 31 December 2019
2019 2018
Note $'000 $'000
Non-current assets
Intangible assets 6 242,100 36,265
Property, plant and equipment 2,351 713
Right-of-use assets 13 2,985 1,769
Deferred consideration 11,15 446 934
Deferred contract costs 2c 16,542 7,196
Deferred tax asset 5 2,180 728
266,604 47,605
---------- ----------
Current assets
Software license inventory 96 52
Deferred contract costs 2c 12,798 5,216
Deferred consideration 11,15 346 323
Trade and other receivables 6,687 6,101
Cash and cash equivalents 8,211 40,405
28,138 52,097
Total assets 294,742 99,702
========== ==========
Equity
Share capital 16 15
Additional paid in capital 209,501 131,091
Foreign exchange differences
on translation of foreign
operations 778 859
Retained earnings (55,291) (58,991)
Equity attributable to equity
holders of the parent 155,004 72,974
---------- ----------
Non-controlling interests - -
---------- ----------
Total equity 155,004 72,974
---------- ----------
Non-current liabilities
Contract liabilities 2b 6,013 2,165
Deferred tax liabilities 5 22,102 3,125
Long term lease liabilities 13 1,753 1,693
Deferred and contingent consideration 15 14,578 143
44,446 7,126
---------- ----------
Current liabilities
Trade and other payables 19,632 11,131
Shareholder loan 12c 40,221 -
Contract liabilities 2b 29,299 7,349
Short term lease liabilities 13 1,365 226
Deferred and contingent consideration 15 4,775 896
95,292 19,602
---------- ----------
Total equity and liabilities 294,742 99,702
========== ==========
Consolidated statement of changes in equity
For the year ended 31 December 2019
Foreign
exchange
differences
on Equity
translation attributable
Additional Share of foreign to equity Total
Share paid to be operations Retained holders of Non-controlling
capital in capital issued earnings the parent interests
$'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000
At 1 January
2018 15 130,728 - 852 (53,200) 78,395 977 79,372
Loss for the
year - - - - (518) (518) 12 (506)
Other
comprehensive
income:
Foreign exchange
differences on
translation
of foreign
operations - - - 7 - 7 - 7
--------- ------------ --------- ------------- ---------- ------------------ ----------------- ---------
Total
comprehensive
loss for the
year - - - 7 (518) (511) 12 (499)
Non-controlling
interest from
disposal
of subsidiary - - - - - - (989) (989)
Transactions
with
owners:
Share based
payments - - - - 1,490 1,490 - 1,490
Exercise of
employee
options (note
7) * 363 - - - 363 - 363
Dividend paid to
company's
shareholders - - - - (6,763) (6,763) - (6,763)
--------- ------------ --------- ------------- ---------- ------------------ ----------------- ---------
At 31 December
2018 15 131,091 - 859 (58,991) 72,974 - 72,974
========= ============ ========= ============= ========== ================== ================= =========
At 1 January
2019 15 131,091 - 859 (58,991) 72,974 - 72,974
Profit for the
year - - - - 2,020 2,020 - 2,020
Other
comprehensive
income:
Foreign exchange
differences on
translation
of foreign
operations - - - (81) - (81) - (81)
--------- ------------ --------- ------------- ---------- ------------------ ----------------- ---------
Total
comprehensive
loss for the
year - - - (81) 2,020 1,939 - 1,939
Transactions
with
owners:
Share based
payments - - - - 1,680 1,680 - 1,680
Exercise of
employee
options (note
7) * 255 - - - 255 - 255
Issue of equity
share capital
(note
10) 1 21,656 - - - 21,657 - 21,657
Deferred share
consideration
(note 10) - - 56,499 - - 56,499 - 56,499
At 31 December
2019 16 153,002 56,499 778 (55,291) 155,004 - 155,004
========= ============ ========= ============= ========== ================== ================= =========
* amounts below 1 thousands
Consolidated statement of cash flows
For the year ended 31 December 2019
2019 2018
Note $'000 $'000
Cash flow from operating activities
Profit/ (Loss) for the year after taxation 2,020 (506)
Adjustments for:
Amortisation of intangible assets 6 4,784 2,617
Loss from Selling the media activity 11 - 2,252
Amortisation of Right-to-use assets 13 1,177 1,209
Depreciation of property, plant and
equipment 353 288
Loss on sale of property, plant and
equipment 57 58
Tax charge 5 314 1,230
Interest income (300) (587)
Interest expenses, fair value movements
on deferred consideration 11 814 232
Share based payment charge 8 1,680 1,490
Interest received 300 587
Unrealised foreign exchange differences 143 (168)
Operating cash flow before movement
in working capital 11,342 8,702
Decrease in trade and other receivables 374 3,142
(Increase)/ Decrease in software licenses
inventory (44) 13
Increase in trade and other payables 1,824 82
Increase in deferred contract costs (16,928) (10,215)
Increase in contract liabilities 2,075 1,971
---------- ----------
Cash (outflow)/ Inflow from operations (1,357) 3, 695
Tax paid net of refunds (1,416) (502)
---------- ----------
Cash (used in)/ generated from operations (2,773) 3,193
Cash flow from investing activities
Purchases of property, plant and equipment (518) (179)
Sale of property, plant and equipment 7 10
Net cash paid on business combination 10 (64,324) (20,823)
Net cash paid on business sold 11 - (341)
Intangible assets acquired 6 (2) (6)
Capitalisation of development costs 6 (2,620) (2,289)
---------- ----------
(23, 628
Net cash used in investing activities (67,457) )
Cash flow from financing activities
Repurchase of employee share options 14 (880) (929)
Dividend paid - (6,763)
Payment of leases 13 (1,246) (1,087)
Proceeds from loan 12 40,000
Exercise of options by employees 7 255 363
Net cash generated/ (used in) from
financing activities 38,129 (8,416)
---------- ----------
Net (decrease) in cash and cash equivalents (32,101) (28,851)
Revaluation of cash due to changes
in foreign exchange rates (93) (246)
Cash and cash equivalents at beginning
of year 40,405 69,502
---------- ----------
Cash and cash equivalents at end of
year 8,211 40,405
========== ==========
Notes forming part of the financial information for the year
ended 31 December 2019
1 Basis of preparation
The financial information set out in this document does not
constitute the Group's financial statements for the year ended 31
December 2019 or 31 December 2018. The annual report and financial
statements for the year ended 31 December 2019 were approved by the
Board of Directors on 16 March 2020, along with this preliminary
announcement. The financial statements for the year ended 31
December 2019 have been reported on by the Independent Auditor. The
Independent Auditor's report on the financial statements for the
year ended 2018 was unqualified and did not draw attention to any
matters by way of emphasis.
The financial information set out in these preliminary results
has been prepared using International Financial Reporting Standards
(IFRSs) as issued by the International Accounting Standards Board.
The accounting policies adopted in these preliminary results have
been consistently applied to all the years presented and are
consistent with the policies used in the preparation of the
financial statements for the year ended 31 December 2018, except
for those that relate to new standards and interpretations
effective for the first time for periods beginning on (or after) 1
January 2019. New standard impacting the Group that have be adopted
in the annual financial statements for the year ended 31 December
2019 is IFRIC 23 Uncertainty over Income Tax Positions . Details of
the impact of this standard is given below. Other new standards,
amendments and interpretations to existing standards, which have
been adopted by the Group have not been listed, since they have no
material impact on the financial statements.
The Group's revenue and operating costs are predominantly
denominated in US Dollars and accordingly the Group's financial
statements have been presented in US Dollars.
Going concern
The Directors have, at the time of approving the financial
statements, a reasonable expectation that the Company and the Group
have adequate resources to continue in operational existence for
the foreseeable future. The bridge loan term granted by Unikmind
for the acquisition of LTMI holding was due to expire on 12 June
2020, but post year end was extended to expire on 31 March 2021.
The directors of Kape consider, having consulted with the Company's
nominated adviser, that the grant of the option to extend the term
of the Term Loan to 31 March 2021 is fair and reasonable insofar as
the Company's shareholders are concerned. The company is currently
working on refinancing the bridge loan granted by Unikmind with
long term bank debt. They therefore continue to adopt the going
concern basis of accounting in preparing the financial
statements.
Adoption of new and revised standards
New standard impacting the Group that will be adopted in the
annual financial statements for the year ended 31 December 2019,
and which have given rise to changes in the Group's accounting
policies is:
-- IFRIC 23 - Uncertainty over Income Tax Positions (IFRIC 23);
IFRIC 23 - Uncertainty over Income Tax Positions
IFRIC 23 provides guidance on the accounting for current and
deferred tax liabilities and assets incircumstances in which there
is uncertainty over income tax treatments. The Interpretation
requires:
-- The Group to determine whether uncertain tax treatments
should be considered separately, or together as a group, based on
which approach provides better predictions of the resolution;
-- The Group to determine if it is probable that the tax
authorities will accept the uncertain tax treatment; and
-- If it is not probable that the uncertain tax treatment will
be accepted, measure the tax uncertainty based on the most likely
amount or expected value, depending on whichever method better
predicts the resolution of the uncertainty. This measurement is
required to be based on the assumption that each of the tax
authorities will examine amounts they have a right to examine and
have full knowledge of all related information when making those
examinations.
The Group elected to apply IFRIC 23 retrospectively with the
cumulative effect recorded in retained earnings as at the date of
initial application, 1 January 2019. The Group has maintained
provisions for potential historic tax liabilities, As at 31
December 2019 the amount of these provisions is $ 5.3 million
(2018:$1.4 million). The increase in tax liabilities comprise $3.3
million related to the acquisition of LTMI holding and $0.6 million
from uncertainties over the income tax treatment related to cross
border services and transactions that derive from the
multi-national nature of the Company.
2 Revenue
2019 2018
$'000 $'000
Sale of Digital Security, malware protection
and PC performance products 35,949 36,849
Sale of Digital Privacy software solutions 30,111 15,211
66,060 52,060
======== ========
Revenues from software and SAAS products offering security,
malware protection and PC performance are generated from the
Digital Security CGU, while revenues from provision of Digital
privacy software solutions are generated from the Digital Privacy
CGU. The revenues generated from the Media CGU in the period ended
December 31,2018 are presented as discontinued operations.
(a) Disaggregation of revenue
The following table presents our revenues disaggregated by the
timing of revenue recognition in accordance with our reporting
segments:
2019 2018
(USD, in thousands) (USD, in thousands)
Digital Digital Total Digital Digital Total
Security Privacy Security Privacy
----------- ---------- -------- ----------- ---------- --------
Revenue recognised
over a period 4,294 20,191 24,485 1,817 9,971 11,788
----------- ---------- -------- ----------- ---------- --------
Revenue recognised
at a point in
time 31,655 9,920 41,575 35,032 5,240 40,272
----------- ---------- -------- ----------- ---------- --------
Total 35,949 30,111 66,060 36,849 15,211 52,060
----------- ---------- -------- ----------- ---------- --------
(b) Contract liabilities
The company has recognised the following revenue-related
contract liabilities:
31 December 2019 31 December 2018
(USD, in thousands) (USD, in thousands)
Contract liabilities 35,312 9,514
---------------------- ----------------------
Significant changes in relation to contract liabilities
The following table shows the significant changes in the current
reporting period which relate to carried-forward contract
liabilities.
Significant changes in the contract 31 December 2019 31 December
liabilities balances during the 2018
period are as follows:
(USD, in thousands) (USD, in thousands)
Business combination (23,723) (3,415)
---------------------- ----------------------
Revenue recognised that was included
in the contract liability balance
from Business combination 1,946 1,863
---------------------- ----------------------
Revenue recognised that was included
in the contract liability balance
at the beginning of the period 7,349 3,189
---------------------- ----------------------
Increases due to cash received,
excluding amounts recognised as
revenue during the period (11,370) (7,022)
---------------------- ----------------------
Revaluation of contract liabilities
in foreign currency - (117)
---------------------- ----------------------
Management expects that 83.0% of the transaction price allocated
to the unsatisfied contracts (which represent to contract
liabilities) as of 31 December 2019 will be recognised as revenue
during the next annual reporting period ($29,299,000), 13.6% and
2.9% ($4,812,000 and $1,032,000) will be recognised in 2021 and
2022 financial years, respectively. The remaining 0.5% ($169,000)
will be primarily recognised on the following financial years.
(c) Assets recognised from costs to obtain and fulfil a contract
Significant changes in relation to assets recognised from costs
to obtain and fulfil a contract
31 December 2019 31 December 2018
(USD, in thousands) (USD, in thousands)
Short term Asset recognised
from marketing cost to obtain
a contract 12,057 4,624
---------------------- ----------------------
Long term Asset recognised
from marketing cost to obtain
a contract 16,325 7,066
---------------------- ----------------------
Short term Asset recognised
from fulfilment cost to fulfil
a contract 741 592
---------------------- ----------------------
Long term Asset recognised
from fulfilment cost to fulfil
a contract 217 130
---------------------- ----------------------
Significant changes in the
deferred contract costs balances
during the period are as follows:
---------------------- ----------------------
Business combination - 387
---------------------- ----------------------
Amortization recognised during
the period - marketing costs (12,033) (3,954)
---------------------- ----------------------
Amortization recognised during
the period - fulfilment cost (2,963) (1,318)
---------------------- ----------------------
Increases due to cash paid
- marketing costs 28,725 14,054
---------------------- ----------------------
Increases due to cash paid
- fulfilment cost 3,199 1,443
---------------------- ----------------------
Revaluation of contract costs
in foreign currency - 8
---------------------- ----------------------
3 Segmental information
Segments revenues and results
The divestment of the Media division in July 2018 (Note 11),
resulted in changes to its management reporting system and now
operates two reportable segments:
-- Digital Security - comprising software and SAAS products
offering security, malware protection and PC performance.
-- Digital Privacy - comprising virtual private network ("VPN")
solutions and privacy SAAS products.
The Media division which represented a separate reportable
segment in the prior year and this has been accounted for as a
discontinued operation, as set-out in Note 11.
Year ended 31 December 2019 Digital Digital
Security Privacy Total
2019 2019 2019
$'000 $'000 $'000
Revenue 35,949 30,111 66,060
Cost of sales (2,085) (5,440) (7,525)
Direct sales and marketing
costs (15,991) (9,135) (25,126)
---------------- --- ---------- --- -------------------
Segment result 17,873 15,536 33,409
Central operating costs (18,850)
-------------------
Adjusted EBITDA(1) 14,559
Other operating income (91)
Depreciation and amortisation (6,314)
Employee share-based payment
charge (1,680)
Exceptional or non-recurring
costs (2,331)
-------------------
Operating profit 4,143
Finance income 300
Finance costs (1,644)
-------------------
Profit before tax 2,799
Taxation (314)
-------------------
Profit from continuing operations 2,485
Loss from discontinued operation
(attributable to equity holders
of the company) (465)
Profit from the year 2,020
Exceptional or non-recurring costs in 2019 comprised
restructuring costs of $0.4 million mainly due to restructuring of
ZenMate and Intego that were acquired during 2018, $1.9 million
(2018: $0.8 million) for professional services and other business
combinations related costs which derive from LTMI Holding
acquisition.
Year ended 31 December 2018
Digital Security Digital
Privacy Total
2018 2018 2018
$'000 $'000 $'000
Revenue 36,849 15,211 52,060
Cost of sales (2,569) (3,036) (5,605)
Direct sales and marketing
costs (17,608) (3,157) (20,765)
----------------------- ---------- ----------
Segment result 16,672 9,018 25,690
Central operating costs (15,316)
----------
Adjusted EBITDA(1) 10,374
Depreciation and amortisation (3,800)
Employee share-based payment
charge (1,490)
Exceptional or non-recurring
costs (1,441)
----------
Operating profit 3,643
Finance income 587
Finance costs (938)
----------
Profit before tax 3,292
Taxation (1,064)
----------
Profit from continuing operations 2,228
Loss from discontinued operation
(attributable to equity holders
of the company) (2,734)
Loss from the year (506)
Exceptional or non-recurring costs in 2018 comprised
non-recurring staff costs of $0.5 million mainly due to payments
made to option holders in parallel to the special dividend paid in
June, $0.8 million for professional services for acquisitions and
rebranding expenses and $0.1 of onerous cost related to lease
contract.
(1) Adjusted EBITDA is a company specific measure which is
calculated as operating loss before depreciation (including right
to use assets amortisation), amortisation, exceptional or
non-recurring costs, employee share-based payment charges and
charge for repurchase of employees options which are considered to
be one off and non-recurring in nature as set out in note 4. The
Directors believe that this provides a better understanding of the
underlying trading performance of the business.
Information about major customers
In 2019 and 2018 there were no customers contributing more than
10% of total revenue of the Group.
Geographical analysis of revenue
Revenue by origin of the recording entity
2019 2018
$'000 $'000
Europe 56,793 49,302
US 9,267 2,758
-------- ---------
66,060 52,060
======== =========
Geographical analysis of non-current assets
2019 2018
$'000 $'000
Europe 23,212 23,972
Asia 160 90
US 221,079 12,916
--------- --------
Total intangible assets and property,
plant and equipment 244,451 36,978
========= ========
4 Operating profit
Adjusted EBITDA
Adjusted EBITDA is calculated as follows:
2019 2018
$'000 $'000
Operating profit 4,143 3,643
Depreciation and amortisation 6,314 3,800
Other operating income 91
Employee share-based payment
charge 1,680 1,490
Exceptional or non-recurring
costs:
Non-recurring staff and restructuring
costs 416 543
Exceptional costs 1,915 898
Adjusted EBITDA 14,559 10,374
Operating profit has been arrived at after charging:
2019 2018
$'000 $'000
Exceptional or non-recurring operating
costs
Non-recurring staff costs 416 543
Professional services related
to business combination 1,915 813
Costs related to onerous rent
agreement - 85
------- -------
2,331 1,441
------- -------
Auditor's remuneration:
Audit 210 220
Taxation services 21 7
Amortisation of intangible assets 4,784 2,305
Depreciation 353 286
Amortisation of Right-to-use assets 1,177 1,209
Employee share-based payment charge
(note 8) 1,680 1,490
======= =======
Operating costs
Operating costs are further analysed as follows:
2019 2019 2018 2018
Adjusted Total Adjusted Total
$'000 $'000 $'000 $'000
Direct sales and marketing
costs 25,126 25,126 20,765 20,765
Indirect sales and marketing
costs 7,903 7,998 6,398 6,799
----------- -------- ----------- --------
Selling and marketing
costs 33,029 33,124 27,163 27,564
--------------------------------- ----------- -------- ----------- --------
Research and development
costs 3,149 3,349 1,389 1,653
Management, general and
administrative cost 7,798 11,514 7,529 9,795
Other operating expenses - 91 - -
Depreciation and amortisation 2,652 6,314 2,079 3,800
Total operating costs 46,628 54,392 38,160 42,812
=========== ======== =========== ========
Adjusted operating costs exclude share based payment charges,
exceptional or non-recurring costs, other operating expenses and
amortisation of acquired intangible assets. See note 3.
5 Taxation
The parent company is domiciled, for tax purposes, in both the
Isle of Man and the UK. The final tax charge shown below arises
partially from the difference in tax rates applied in the
difference jurisdictions in which the subsidiaries'
jurisdictions.
The Group recognised a deferred tax asset of $1,598,000 (2018:
$159,000) in respect of tax losses accumulated in previous
years.
The total tax charge can be reconciled to the overall tax charge
as follows:
2019 2018
$'000 $'000
Profit from continuing operations before
income tax expense 2,799 3,292
Loss from discontinuing operation before
income tax expense (465) (2,568)
--------- ---------
2,334 724
Tax at the applicable tax rate of 19%
(2018: 19%) 443 137
Tax effect of
Differences in overseas rates (386) 83
Expenses not deductible for tax purposes 999 835
Previously unrecognised tax losses now
recouped to reduce current tax expense (14) -
Deferred tax not recognised on losses carried
forward 454 81
Recognition of previously unrecognised
deferred tax assets (1,561) -
Tax expense for previous years 379 94
Tax charge for the year 314 1,230
========= =========
Income tax expenses is attributable to:
Profit from continuing operations 314 1,064
Loss from discontinued operation - 166
--------- ---------
314 1,230
========= =========
The tax expense/ (credit) from continuing
operations Analysed as:
Deferred taxation in respect of the current
year (1,608) 173
Current tax charge 1,922 891
--------- ---------
Tax charge for the year 314 1,064
========= =========
The group has maximum corporation tax losses carried forward at
each period end as set out below:
2019 2018
$'000 $'000
Corporate tax losses carried
forward 35,671 38,974
======== ========
Details of the deferred tax asset recognised arising in respect
of losses and timing differences is set out below:
2019 2018
$'000 $'000
At the beginning of the year 728 97
Additions through business combinations - 770
Disposal of the media division - (12)
Recognised/ (Derecognised) in the year
from continuing operations 1,443 (115)
Foreign exchange revaluation 9 (12)
------- -------
At the end of the year 2,180 728
======= =======
Details of the deferred tax liability recognised arising from
timing differences is set out below:
Business Deferred Capitalised
combination contract Software Development Total
costs Costs
$'000 $'000 $'000 $'000
At 1 January 2018 349 - - 349
Arising from business
combinations 2,631 87 - 2,718
Foreign exchange differences - - - -
Movement in the year
due to temporary differences
from continuing operations (262) 11 309 58
At 31 December 2018 2,718 98 309 3,125
============== =========== ======================= =========
Arising from business
combinations 19,145 - - 19,145
Foreign exchange differences (3) - - (3)
Movement in the year
due to temporary differences
from continuing operations (726) 261 300 (165)
-------------- ----------- ----------------------- ---------
At 31 December 2019 21,134 359 609 22,102
============== =========== ======================= =========
In addition, the Group has an unrecognised deferred tax asset in
respect of the following:
2019 2018
$'000 $'000
Tax losses carried forward 30,457 38,218
Unrecognised deferred tax
assets due to tax losses
carried forward 4,057 6,603
-------- --------
The Group maintained provisions for potential historic tax
liabilities presented on Other payables. In 2019 the Group
increased its provision of corporate tax liabilities by $0.6
million to $2.0 million (2018: $1.4 million). The increase in tax
liabilities driven by the multi-national nature of the Company
which give rise to uncertainty over the income tax treatment
related to cross border services and transactions. In addition,
Other payables as of 31 December 2019 include tax exposure balance
of $3.3 million (2018: $Nil) following the due diligence performed
with LTMI Holding acquisition.
6 Intangible assets
Intellectual Trademarks Customer Goodwill Internet Capitalised Cryptocurrencies Total
Property Lists Domains Software
Development
Costs
$'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000
Cost
At 1 January
2018 38,342 10,168 3,218 6,854 94 5,102 - 63,778
Additions - 6 - - - 2,289 - 2,295
Acquisition
through
business
combination 5,751 2,491 2,342 16,168 - - - 26,752
Disposals (3,663) (2,035) (2,078) (2,524) - (768) - (11,068)
Foreign
exchange
differences (81) 10 24 125 - (30) - 48
-------------- ------------ ---------- ---------- ---------- ------------- ------------------ ----------
At 31
December
2018 40,349 10,640 3,506 20,623 94 6,593 - 81,805
============== ============ ========== ========== ========== ============= ================== ==========
Additions - - - - - 2,620 11 2,631
Acquisition
through
business
combination 31,991 36,257 27,796 111,794 231 - 6 208,075
Disposals - - - - - - - -
Foreign
exchange
differences (76) - - - - (57) - (133)
-------------- ------------ ---------- ---------- ---------- ------------- ------------------ ----------
At 31
December
2019 72,264 46,897 31,302 132,417 325 9,156 17 292,378
============== ============ ========== ========== ========== ============= ================== ==========
Accumulated
amortisation
At 1 January
2018 (35,891) (9,567) (2,548) - - (3,422) - (51,428)
Charge for
the
year (1,031) (241) (450) - - (895) - (2,617)
Disposals 3,663 2,035 2,078 - - 719 - 8,495
Foreign
exchange
differences 15 (5) (4) - - 4 - 10
At 31
December
2018 (33,244) (7,778) (924) - - (3,594) - (45,540)
============== ============ ========== ========== ========== ============= ================== ==========
Charge for
the
period (2,050) (544) (1,069) - - (1,121) - (4,784)
Disposals - - - - - - - -
Foreign
exchange
differences 37 - - - - 9 - 46
-------------- ------------ ---------- ---------- ---------- ------------- ------------------ ----------
At 31
December
2019 (35,257) (8,322) (1,993) - - (4,706) - (50,278)
============== ============ ========== ========== ========== ============= ================== ==========
Net book
value
At 1 January
2018 2,451 601 670 6,854 94 1,680 - 12,350
At 31
December
2018 7,105 2,862 2,582 20,623 94 2,999 - 36,265
-------------- ------------ ---------- ---------- ---------- ------------- ------------------ ----------
At 31
December
2019 37,007 38,575 29,309 132,417 325 4,450 17 242,100
============== ============ ========== ========== ========== ============= ================== ==========
On 13 December 2019, the Group acquired 100% of the share
capital of LTMI Holdings ("LTMI"). LTMI is the holding company for
Private Internet Access Inc ("PIA"), a leading US-based digital
privacy company with strong position in the data privacy services.
PIA was established in 2009 and is a security software business,
based in Denver, Colorado, with a focus on the provision of virtual
private network ("VPN") solutions. Since its inception, PIA has
grown to become a leading VPN service provider focused on the
consumer market and employing approximately 65 employees amongst
them 35% are in an R&D capacity. PIA has over 1 million paying
subscribers globally, with 48% of them based in the US. See Note
10.
On 16 October 2018, the Group acquired 100% of the share capital
of ZenGuard GMBH trading as ZenMate ("ZenMate"), a multi-platform
security software business with a focus on the provision of virtual
private network ("VPN") solutions. ZenMate is a digital privacy
company, headquartered in Berlin, focused on encrypting and
securing internet connections and protecting individuals' privacy
and digital data.
On 24 July 2018, the Group acquired 100% of the share capital of
Neutral Holdings Inc trading as Intego ("Intego"), a leading Mac
and IOS cybersecurity and malware protection SaaS business. Intego
is focused on the provision of malware protection, firewall,
anti-spam, backup, data protection and parental controls software
for Mac.
On 26 July 2018, the Group sold the media division to Ecom
Online Ltd. This sale is in-line with the Company's strategy to
develop and distribute its own cybersecurity products. The carrying
value of the Intangible assets of the Media division on the Group
balance sheet as the date of the sale is $2.6 million of which the
majority related to Goodwill.
Goodwill acquired in a business combination is allocated at
acquisition to the cash generating units (CGUs), or group of units
that are expected to benefit from that business combination.
The Group tests goodwill annually for impairment, or more
frequently if there are indications that goodwill might be
impaired. The recoverable amounts of the CGUs are determined from
value in use calculations. Goodwill allocated to the Digital
Security CGU has a carrying amount of $11,688,000 (2018:
$11,688,000) and the Digital Privacy CGU has a carrying amount of
$120,729,000 (2018: $8,935,000)
The key assumptions for the value in use calculations are those
regarding the discount rates, growth rates and expected changes to
selling prices and direct costs during the period.
For the Digital Security CGU, the recoverable value has been
determined from value in use calculations based on cash flow
projections for the next five years from the most recent budgets
approved by management and extrapolated cash flows beyond this
period using an estimated growth rate of 1 per cent (2018: 1 per
cent). This rate does not exceed the average long-term growth rate
for the relevant markets. The rate used to discount these forecast
cash flows is 17 per cent (2018: 25 per cent).
The discount rate used in the valuation of the Digital Security
CGU was 17 per cent. If the discount rate was increased by 1
percentage point the effect would have been nil. There is no
reasonably possible change in assumption that would give rise to an
impairment.
For the Digital Privacy CGU, the recoverable value has been
determined from value in use calculations based on cash flow
projections for the next five years from the most recent budgets
approved by management and extrapolated cash flows beyond this
period using an estimated growth rate of 1 per cent (2018: 1 per
cent). This rate does not exceed the average long-term growth rate
for the relevant markets. The rate used to discount these forecast
cash flows is 15 per cent (2018: 25 per cent).
The discount rate used in the valuation of the Digital Privacy
CGU was 15 per cent. If the discount rate was increased by 1
percentage point the effect would have been nil. There is no
reasonably possible change in assumption that would give rise to an
impairment.
Following the acquisition of LTMI holdings the company
reassessed the discount rate attributable to the company
activities, which resulted in a reduction in the discount rate used
to 17 and 15 per cent (compared to 25 per cent in 2018) for the
Digital Security and Digital Privacy CGUs, respectively. The
reduction in the discount rate reflects the increasing growth and
share of revenues from higher customer retention over time product
revenues and therefore an increased visibility of future user cash
flows. As at 31 December 2019, no impairment would have been
recognised if a 25 percent discount rate was used in the impairment
reviews for both the Digital Privacy and Digital Security CGUs.
7 Shareholder's equity
2019 2018
Number of Number of
Shares Shares
Issued and paid up ordinary shares of $0.0001 160,144,132 148,496,073
During the year a total of 610,930 new ordinary shares of
$0.0001 par value from treasury were sold for cash in relation to
share option schemes resulting in cash consideration of $255,000
(2018: $363,000).
As part of the LTMI Holdings acquisition (Note 10), the company
issued 42,701,548 new ordinary shares ("Consideration Shares") to
be paid in three phases. LTMI co-founders Andrew Lee and Steve
DeProspero will each be entitled to be issued 19,247,723
Consideration Shares representing approximately 10.4% of the
enlarged issued share capital of Kape, of which 5,250,363 are being
issued on completion, 10,498,020 will be issued on the first
anniversary of completion and 3,499,340 will be issued on the
second anniversary of completion. The balance of the Consideration
Shares, being 4,206,102 in aggregate, are being issued to four
senior executives of PIA, of which 1,147,333 are being issued on
completion, 2,294,077 will be issued on the first anniversary of
completion and 764,692 will be issued on the second anniversary of
completion. The deferred shares consideration is disclosed as
shares to be issued.
During 2018, 1,800,000 shares were transferred out of treasury
to an employee benefit trust as part of a jointly owned equity
shares award to members of the executive management.
As at 31 December 2019, the Company hold in the treasury total
of 3,865,223, of ordinary shares of $0.0001 par value (2018:
4,476,153). During 2019, 610,930 of ordinary shares of $0.0001 par
value were transferred out of treasury to satisfy the exercise of
options by the company employees (2018: 374,095).
In June 2018, the Company paid a special dividend in the amount
of $6.8 million. No additional divided was declared in 2019 and
2018.
The following describes the nature and purpose of each reserve
within owner's equity:
Reserve Description and purpose
Additional paid in Share premium (i.e. amount subscribed or
capital share capital in excess of nominal value)
Retained earnings Cumulative net gains and losses recognised
in the consolidated statement of comprehensive
income
Foreign exchange Cumulative foreign exchange differences
of translation of foreign operations
In accordance with Isle of Man Company Law, all of the reserves
with the exception of share capital are distributable.
8 Employee share-based payments
Options have been granted under the Group's share option scheme
to subscribe for ordinary shares of the Company. At 31 December
2019, the following options were outstanding (2018:
12,158,805):
Group Grant date Number of shares under option Subscription price per share
Group 1 29 May 2014 1,166,540 $0.538
Group 2 21 April 2015 245,063 $1.305
Group 3 5 January 2016 231,563 $0.710
Group 4 31 May 2016 2,000,000 $0.352
Group 5 26 October 2016 2,232,270 $0.467
Group 6 3 April 2017 586,833 $0.0001
Group 7 15 June 2017 660,587 $0.845
Group 8 26 April 2018 67,500 $0.0001
Group 9 26 April 2018 373,375 $1.280
Group 10 13 July 2018 1,810,000 $1.437
Group 11 24 August 2018 1,800,000 $0.000
Group 12 21 May 2019 367,500 $1.090
Group 13 20 November 2019 827,000 $1.040
Group 14 3 December 2019 650,000 $1.230
-------------------------------
Total 13, 018 ,231
===============================
Vesting conditions
Groups 1-5, 7-10 and 12-14 - 25% at the end of the first year
following the grant date. 6.25% on a quarterly basis during 12
quarters period thereafter.
Group 6 - 50% at the end of the second year following the grant
date and the remainder at the end of the third year following the
grant.
Group 11 - 33.33% on a yearly basis during 3 years period
following the grant date subject to certain performance
conditions
The total number of shares exercisable as of 31 December 2019
was 6,977,213 (2018: 5,864,311).
The weighted average fair value of options granted in the year
using the Cox, Ross and Rubinstein's Binomial Model (the "Binomial
Model") was $1.03. The inputs into the Binomial model are as
follows:
2019 2018
$'000 $'000
Early exercise factor 100% 100%
Fair value of Group's stock $1.12-$1.91 $1.51-$1.61
Expected Volatility 45% 60%
Risk free interest rate 0.47%-1.08% 0.72%-1.50%
Dividend yield - -
Forfeiture rate 0%-28% 0%-28%
We used the empirical observations for early exercise factor of
public companies as an appropriate benchmark for the expected Early
exercise factor.
Expected volatility was determined based on the historical
volatility of comparable companies.
Forfeiture rate is assumed to be 0% for senior management and
28% for other employees.
The risk-free interest rate was estimated based on average
yields of UK Government Bonds.
The Group recognised total share based payments relating to
equity-settled share based payment transactions as follows:
2019 2018
$'000 $'000
Share-based payment charge 1,680 1,490
Movements in the number of share options outstanding and their
related weighted average exercise prices are as follows:
2019 2018
------------------------- -------------------------
Weighted Number Weighted Number
average of average of
exercise options exercise options
price price
At the beginning
of the year $0.59 12,158,805 $0.55 8,490,329
Granted $1.14 1,844,500 $0.81 4,162,500
Lapsed $1.00 (374,144) $0.96 (119,929)
Exercised $0.43 (610,930) $1.02 (374,095)
At the end of
the year $0.66 13,018,231 $0.59 12,158,805
=========== ============ =========== ============
The options outstanding at 31 December 2019 had a weighted
average remaining contractual life of 7.3 years (2018: 7.9
years).
On 24 August 2018, the Company awarded 1,800,000 in respect of
its ordinary shares of $0.0001 each have been granted under the
Company's 2014 Global Equity Plan to members of its executive
management. The Awards vest equally over the three-year period from
grant, subject to the achievement of certain performance metrics
relating to the three financial years of the Company commencing 1
January 2018. The Awards have been granted as Jointly Owned Equity
Awards ("JOE Awards"). Under the terms of the Awards, the
Executives will benefit from the growth in value of their
respective Award from the date of grant along with the right to
acquire the Trustee's interest by way of a nil cost option in the
event that the Awards vest.
9 Earnings per share
Basic loss/earnings per share is calculated by dividing the loss
/earnings attributable to ordinary shareholders by the weighted
average number of ordinary shares outstanding during the year.
2019 2018
cents Cents
Basic earnings per share:
From continuing operations 1.7 1.5
from discontinued operations (0.3) (1.8)
------- -------
Total basic earnings per
share 1.4 (0.3)
Diluted earnings per share:
From continuing operations 1.7 1.5
from discontinued operations (0.4) (1.8)
------- -------
Total diluted earnings per
share 1.3 (0.3)
Adjusted basic 6.8 5.2
Adjusted diluted 6.5 5.0
Adjusted earnings per share is a non-GAAP measure and therefore
the approach may differ between companies. Adjusted earnings have
been calculated as follows:
2019 2018
$'000 $'000
Profit (Loss) for the year 2,020 (506)
Post tax adjustments:
Employee share-based payment
charge 1,767 1,578
Exceptional or non-recurring
costs 2,136 1,403
Amortisation on acquired
intangible assets 3,112 1,905
Loss from discontinued operations 465 2,723
Other operating income 92 -
Finance cost on deferred
consideration for options
repurchase 138 247
Adjusted profit for the year 9,730 7,350
======= =======
Number Number
Denominator - basic:
Weighted average number of equity
shares for the purpose of earnings
per share 143,217,060 142,008,376
Adjustments for calculation of diluted
earnings per share:
Impact of potentially dilutive shares
related to employee options 6,257,713 5,947,197
Impact of potentially dilutive shares
related to deferred shares consideration
for business combinations 951,231 -
Denominator - diluted
Weighted average number of equity
shares for the purpose of diluted
earnings per share 150,426,004 147,955,573
The diluted denominator has not been used where this has
anti-dilutive effect. Basic and diluted loss per share are
therefore the same for reporting purposes.
The difference between weighted average number of Ordinary
shares used for basic earnings per share and the diluted earnings
per share is 7,208,944 (2018: 5,947,197) being the effect of all
potentially dilutive Ordinary shares derived from the number of
share options granted to employees and deferred share consideration
relating to the acquisition of LTMI holding ("PIA") that are held
in escrow against future claims.
10 Business combinations
(a) Acquisition of LTMI Holdings
On 13 December 2019, the Group acquired 100% of the share
capital of LTMI Holdings ("PIA"). LTMI is the holding company for
Private Internet Access Inc ("PIA"), a leading US-based digital
privacy company with strong position in the data privacy
services.
The Acquisition will deliver substantial operational benefits to
Kape, transforming the Group's user base with the addition of over
one million customers, 48% of which are based in the US. The
acquisition includes an additional suite of software-based privacy
solutions available across mobile, tablet and desktop and which
includes Plus Ultra, a software that speeds up internet
connections, and LibreBrowser, a completely private browser.
Details of the provisional fair value of identifiable assets and
liabilities acquired, purchase consideration and goodwill, are as
follows:
Acquiree's
carrying Provisional
amount before Fair value
combination
$'000 $'000
Brand and domain name - 36,257
Technology 478 31,991
Customer relations - 27,796
Deferred tax liability (942) (25,804)
Cash and cash equivalents 676 676
Trade and other receivables 976 976
Property, plant and equipment, net 1,539 1,539
Intangible assets, net 237 237
Right-of-use assets 386 386
Deferred Contracts costs 3,491 -
Deferred tax assets 6,438 6,659
Contract liabilities (23,723) (23,723)
Trade and other payables (11,935) (11,935)
Long-term debt (32,161) (32,161)
Lease liabilities (314) (314)
------------------------------------- ---------------- ---------------
(54,854) 12,580
------------------------------------- ---------------- ---------------
Fair value of consideration
Cash 27,076
Shares 21,657
Deferred Cash consideration 18,325
Deferred shares consideration 56,499
Deferred assets consideration 817
Goodwill 111,794
------------------------------------- ---------------- ---------------
Net cash outflow on acquisition of business
2019
$'000
Cash consideration 27,076
Cash paid to LTMI Holding's Phantom shareholder 5,763
Cash paid to repay Long-term debt 32,161
Cash and cash equivalents acquired (676)
64,324
========
PIA is being acquired for a total consideration of $130.1
million (including the $5.7 million to PIA phantom shareholder) and
an enterprise value of $162.3 (including $32.2 million for
repayment of PIA's existing debt), to be satisfied by combination
of $85.0 million cash and issuance of 42,701,548 new Kape ordinary
shares to be paid in three phases:
-- A payment upon closing of $65.0 million in cash of which
$27.1 million to PIA founders, $5.7 million to PIA phantom
shareholder and $32.2 million for repayment of PIA's existing debt,
and 11,648,059 Consideration shares.
-- A payment on the first anniversary of completion of $5.0
million in cash ("Deferred cash consideration"), 23,290,117
Consideration shares and Company owned cars ("Deferred assets
consideration")
-- A payment on the second anniversary of completion of $15.0
million in cash ("Deferred cash consideration"), 7,763,372
Consideration shares and Company owned cars ("Deferred assets
consideration")
Andrew Lee and Steve DeProspero will each be entitled to be
issued 19,247,723 Consideration Shares (subject to the escrow and
set-off arrangements described below) representing approximately
10.4% of the enlarged issued share capital of Kape, of which
5,250,363 will be issued on completion, 10,498,020 will be issued
on the first anniversary of completion and 3,499,340 will be issued
on the second anniversary of completion. The balance of the
Consideration Shares, being 4,206,102 in aggregate, are being
issued to four senior executives of PIA, of which 1,147,333 are
being issued on completion, 2,294,077 will be issued on the first
anniversary of completion and 764,692 will be issued on the second
anniversary of completion.
The Founders' Consideration Shares will be subject to a
graduated lock-in, whereby the Consideration Shares to be issued on
completion will be subject to a 12 month lock-in and the
Consideration Shares issuable on the first anniversary of
completion will be subject to a lock-in which is released as to 25%
of such Consideration Shares each quarter thereafter. Following the
expiry of their respective lock-in periods, the Consideration
Shares to be issued to the Founders on completion and on the first
anniversary of completion will be subject to a 12-month orderly
market period. The Consideration Shares issuable to the Founders on
the second anniversary of completion will not be subject to a
lock-in period but will be subject to a 12-month orderly market
period from the time of their issue.
All of the lock-in arrangements will be subject to customary
exclusions. In addition, if Unikmind or any of its concert parties
disposes of the beneficial interest in any Kape ordinary shares
during the lock-in period to a person other than another concert
party of Unikmind, the same proportion of the Founders' then
locked-in Consideration Shares (ignoring any shares held in escrow)
will be released from the lock-in but will remain subject to the
orderly market arrangements for 12 months after such release.
The initial Cash consideration and repayment of PIA's existing
debt to be funded through Kape's internal cash resources a $25.0
million and a $40.0 million short-term debt facility from Unikmind
Holdings Limited ("Unikmind"), Kape's largest shareholder, as well
as provide an additional debt facility of $20.0 million, which the
Company does not expect to draw, to satisfy the deferred cash
consideration, on similar terms. Further details of the Term Loan,
which is a related party transaction, are set out on Note 12.
Since the acquisition date, PIA has contributed $2.5 million to
group revenues, profit of $0.2 million to group profit. In
addition, since the acquisition date PIA contributed $2.0 million
to segment results of the Privacy segment (as set out in note 3).
If the acquisition had occurred on 1 January 2019, group revenue
would have been $113.2 million, group loss for the period would
have been $9.5 million and the Digital Privacy result would have
been $52.1 million.
Acquisition costs of $1.8 million arose as a result of the
transaction. These have been recognised as part of administrative
expenses in the statement of comprehensive income.
11 Discontinued operation
(a) Description
On 26 July 2018, the Group sold the Media division to Ecom
Online Ltd. As for the sale date, the Media division included
Clearvelvet Trading Limited ("Clearvelvet") and Intangible assets
of the Media CGU. As consideration, the Group will receive a 50%
share of EBITDA from the Media division for the next five years
following the sale. The Company estimate the recoverable value
based on cash flow projections for the next periods agreed upon
with the acquiree. The fair value of the deferred consideration as
at 31 December 2019 was $0.8 million (2018: $1.3 million). Decrease
to the fair value is presented as discontinued operation.
The deferred consideration fair value has been determined in use
calculations based on cash flow projections for the deferred period
left using the most recent expectations received from the acquire.
The rate used to discount these forecast cash flows is 25 per cent
(2018: 25 per cent).
The discount rate used in the valuation was 25 per cent. If the
discount rate was increased by 1 percentage point the effect would
have been $0.01 million. There is no reasonably possible change in
assumption that would give rise to an impairment.
(b) Financial performance
The financial performance and cash flow information presented
are for the year ended 31 December 2019 and 2018.
2019 2018
$'000 $'000
Revenue - 4,185
Expenses - (4,501)
------- ---------
Loss before income tax - (316)
Income tax expenses - (166)
------- ---------
Loss after income tax of discontinued operation - (482)
Fair value movements on deferred consideration (465) -
Loss on sale of the Media division - (2,252)
------- ---------
Loss from discontinued operation (465) (2,734)
------- ---------
Net cash outflow from operating activities - (336)
Net cash outflow from investing activities - (341)
Net cash flow from financing activities - -
------- ---------
Net decrease in cash generated by the Media
division - (677)
------- ---------
(c) Details of the sale of the subsidiary
2018
$'000
Consideration received or receivable:
Short term fair value of contingent consideration 323
Long term fair value of contingent consideration 934
----------------
Total consideration 1,257
Carry amount of net assets sold
Goodwill (2,524)
Capitalised Software Development Costs (49)
Investment (50)
Property, plant and equipment (4)
Trade and other receivables (2,517)
Deferred tax asset (12)
Cash and cash equivalents (341)
Trade and other payables 999
----------------
(4,498)
Non-controlling interest 989
----------------
Loss on sale (2,252)
----------------
12 Related party transactions
The Group is controlled by Unikmind Holdings Limited
incorporated in British Virgin Islands, which owns 67.03% of the
Company's shares as at 31 December 2019. The controlling party,
Unikmind Holdings Ltd, has re-domiciled form the British Virgin
Islands to the Isle of Man. Mr. Teddy Sagi is the sole ultimate
beneficiary of Unikmind Holdings Ltd.
(a) Related party transactions
The following transactions were carried out with related
parties:
2019 2018
$'000 $'000
Revenue from common controlled company - 85
Technical support services to end customers
and administration services provided by common
controlled company (254) (2,227)
Office expenses to common controlled companies (163) -
Payment processing services provided by common
controlled company (189) (376)
Development services provided by common controlled
company (29) -
Amortisation of Right-to-use assets with common
controlled companies (Note 13) (941) (744)
Interest expenses from Lease liabilities to
common controlled companies (65) (71)
Interest expenses from shareholder short-term
loan and debt facility (221) -
Loss debt from related parties - (323)
---------
(1,862) (3,656)
========= =========
On 6 December 2019, Kape entered into a $40.0 million short-term
debt facility from Unikmind Holdings Limited ("Unikmind"), Kape's
largest shareholder, and was also provided with an additional debt
facility of $20.0 million, which the Company does not expect to
draw, to satisfy the deferred cash consideration, on similar terms.
Term Loan has a fixed interest rate of 5% above 6 months USD Libor.
Each tranche of the Term Loan is repayable on the earlier of a
third-party refinancing of the Term Loan and 6 months after its
utilisation unless such tranche's maturity is extended until 31
March 2021. The Term Loan can be repaid early in whole or part by
the Borrower free of any penalty. The Term Loan will also include a
commitment fee on undrawn amounts only from the moment they become
available in accordance to the payment schedule and certain other
customary obligations on the Borrower in relation to the lender's
costs and expenses and in relation to taxes. Term debt facilities
have a fixed interest of 1.5% upon availability, $5.0 million on
the first anniversary and $15.0 million on the second
anniversary.
Borrowings under the Term Loan will be guaranteed by Kape and
secured by a share charge granted by Kape in respect of its shares
in the Borrower.
Kape intends to re-finance the Term Loan with third party
facilities as soon as practicable.
(b) Receivables owed by related parties
2019 2018
Name Nature of transaction $'000 $'000
Parent company Unpaid share capital 10 10
Companies related by Other
virtue of common control 20 -
Companies related by
virtue of common control Trade - 650
-------
30 660
======= =======
(c) Payables to related parties
2019 2018
Name Nature of transaction $'000 $'000
Companies related by
virtue of common control Other 58 210
Unikmind Holdings Limited Shareholder loan 40,221 -
-------
40,279 210
======== =======
(d) Right-to-use assets and Lease liabilities to related parties (Note 13)
2019 2018
$'000 $'000
Right-to-use assets 2,058 1,422
--------- ---------
Lease liabilities (2,387) (1,543)
--------- ---------
13 Leases
The recognised right-of-use assets relate to the following types
of assets:
2019 2018
Rights-of-use assets: $'000 $'000
Real estate leases 2,847 1,720
Vehicles 138 49
------- -------
2,985 1,769
======= =======
Right-of-Use Assets
Real estate Vehicles Total
leases
$'000 $'000 $'000
At 1 January 2018 1,331 77 1,408
Additions 1,265 - 1,265
Additions through business combination 305 - 305
Amortisation (1,181) (28) (1,209)
------------- ---------- ---------
At 31 December 2018 1,720 49 1,769
------------- ---------- ---------
Additions 2,026 44 2,070
Additions through business combination 308 78 386
Effect of modification to lease terms (63) - (63)
Amortisation (1,144) (33) (1,177)
At 31 December 2019 2,847 138 2,985
------------- ---------- ---------
Lease liabilities
Real estate Vehicles Total
leases
$'000 $'000 $'000
At 1 January 2018 1,331 77 1,408
Additions 1,265 - 1,265
Additions through business combination 305 - 305
Interest expense 82 11 93
Lease payments (1,058) (29) (1,087)
Foreign exchange movements (62) (3) (65)
------------- ---------- ---------
At 31 December 2018 1,863 56 1,919
------------- ---------- ---------
Additions 2,026 44 2,070
Additions through business combination 314 - 314
Effect of modification to lease terms (66) - (66)
Interest expense 76 1 77
Lease payments (1,207) (39) (1,246)
Foreign exchange movements 50 - 50
At 31 December 2019 3,056 62 3,118
------------- ---------- ---------
2019 Carrying Contractual 3 months Between Between More
amount cash flow or less 3-12 months 1-5 years than
5 years
$'000 $'000 $'000 $'000 $'000 $'000
Lease liabilities 3,118 3,330 431 957 1,942 -
========== ============= ========== ============== ============ ==========
The Company leases various offices and vehicles. Lease terms are
negotiated on an individual basis and contain a wide range of
different terms and conditions. The lease agreements do not impose
any covenants.
Extension and termination options are included in a number of
property and equipment leases across the group. These terms are
used to maximize operational flexibility in terms of managing
contracts
14 Deferred and contingent consideration
(a) Acquisition of DriverAgent intangibles
In October 2016, the Group acquired the intellectual property of
PC maintenance software product, DriverAgent, from eSupport.com,
Inc for a total consideration of $1.2 million. As for 31 December
2019, the consideration included $0.2 million of consideration
(2018: $0.17 million) which is contingent on future results.
(b) Repurchase of share-based consideration
On 20 November 2017, the Company repurchased 3,810,667 options
out of the 4,057,813 option granted to the Cyberghost's former
founder for total cash consideration of $3.8 million (EUR3.2
million). Out of which $1.9 million (EUR1.625 million) paid upon
execution of the purchase agreement, while the remaining amount to
be paid in eight equal instalments amounting of $235 thousand
(EUR197 thousand) per quarter over the course of two years and
recognised as deferred consideration. On 28 March 2019, the company
accepted Cyberghost's former founder request for immediate
remittance of the remaining consideration in exchange for reduction
on the amount of said consideration, equal to 7%. As for 31
December 2019, the deferred consideration is fully paid with Nil
balance (2018: $0.9 million).
(c) Sale of the Media Division
On 26 July 2018, the Group sold the media division to Ecom
Online Ltd. This sale is in-line with the Company's strategy to
develop and distribute its own cybersecurity products. As
consideration, the Group will receive a 50% share of EBITDA from
the Media division for the next five years following the sale,
which will be reinvested in the Group's core Digital Security and
Digital Privacy segments. As at 31 December 2019, the consideration
included $0.8 million (2018: $1.3 million) of deferred
consideration receivable.
(d) Acquisition of Private Internet Access Inc
On 13 December 2019, the Group acquired 100% of the share
capital of LTMI Holdings ("PIA"). LTMI is the holding company for
Private Internet Access Inc ("PIA"), a leading US-based digital
privacy company with strong position in the data privacy services.
PIA is being acquired for a total consideration of $130.1 million
(including the $5.7 million to PIA phantom shareholder) and an
enterprise value of $162.3 (including $32.2 million for repayment
of PIA's existing debt), to be satisfied by combination of $85.0
million cash and issuance of 42,701,548 new Kape ordinary shares to
be paid in three phases:
-- A payment upon closing of $65.0 million in cash of which
$27.1 million to PIA founders, $5.7 million to PIA phantom
shareholder and $32.2 million for repayment of PIA's existing debt,
and 11,648,059 Consideration shares.
-- A payment on the first anniversary of completion of $5.0
million in cash ("Deferred cash consideration"), 23,290,117
Consideration shares and Company owned cars ("Deferred assets
consideration")
-- A payment on the second anniversary of completion of $15.0
million in cash ("Deferred cash consideration"), 7,763,372
Consideration shares and Company owned cars ("Deferred assets
consideration")
As for 31 December 2019, the deferred consideration balance
included $19.14 million of deferred cash consideration, of which
$4.75 million will be paid on 2020.
15 Subsequent events
There were no material events after the reporting period, which
have a bearing on the understanding of the consolidated
Shareholder information and advisors
Shareholder information, including financial results, news and
information on products and services, can be found at
www.kape.com.
Independent Auditor Corporate Legal Advisors
BDO LLP Bryan Cave Leighton Paisner
55 Baker Street LLP
London W1U 7EU Adelaide House
London Bridge
London EC4R 9HA
---------------------------------
Nominated Advisor and Broker
---------------------------------
Shore Capital & Corporate Limited
Bond Street House
14 Clifford Street
London W1S 4JU
Investor Relations Registrars
---------------------------------
Vigo Communications Computershare Investor Services
180 Piccadilly (Jersey) Limited
London W1J 9HF Queensway House
Hilgrove Street
St Helier
Jersey JE1 1ES
---------------------------------
Registered Office
Sovereign House
4 Christian Road
Douglas
Isle of Man IM1 2SD
Stock exchanges
The Company's ordinary shares are listed on the AIM market of
the London Stock Exchange under the symbol "KAPE". The Company does
not maintain listings on any other stock exchanges.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR JRMMTMTJBMIM
(END) Dow Jones Newswires
March 17, 2020 03:00 ET (07:00 GMT)
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