TIDMKAPE
RNS Number : 5983T
Kape Technologies PLC
21 March 2023
21 March 202 3
Kape Technologies plc
("Kape," the "Company" or the "Group")
FULL YEAR RESULTS FOR THE TWELVE MONTHSED 31 DECEMBER 202 2
Record financial performance, delivering sixth consecutive year
of high double-digit growth
Pro Forma Adjusted EBITDA exceeding management expectations at
$176 million
Kape Technologies plc (AIM: KAPE), the digital security and
privacy software business, announces its audited results for the
twelve months ended 31 December 2022 ("FY 2022").
Financial Highlights
-- A record financial performance across FY 2022 driven by
significant organic growth across digital privacy, security, and
content divisions and robust market tailwinds
o Revenues of $623.5 million, an increase of 170.3% (2021:
$230.7 million)
o Strong recurring revenue contribution at 86.8% of total
revenue (2021: c.92% on a pro forma basis)
o Pro Forma Adjusted EBITDA up 125.6% to $176.0 million (2021:
$78.0 million), exceeding management expectations
o Increase of 140.7% in Fully Diluted Adjusted Earnings Per
Share to 55.6 cents (2021: 23.1 cents)
o Strong cash generation; adjusted operating cashflow increased
by 275.1% to $165.5 million (2021: $44.1 million)
o Operating profit up 161.6% to $100.1 million (2021: $38.3
million)
o Profit after tax up 203.2% to $70.9 million (2021: $23.4
million)
-- In September 2022, the Company completed a significantly
oversubscribed capital raise of GBP190.1 million.
-- Secured modified debt facilities of $425.0 million in November 2022
o Included existing lenders and two new banks
o Adjusted leverage at the end of the period is now below 1x
o Generating c.$20 million in net debt reduction and c.$8
million in savings on financing costs
Operational Highlights
-- Kape now serves over 7.4 million paying customers globally, a
12% increase from the previous year
-- Integration of ExpressVPN exceeded expectations, not only
accelerating our growth but strengthening the capabilities of our
entire digital privacy division to deliver market-leading privacy
products
-- The Company realised $9 million of synergies in FY 2022 and
expects to realise the full planned operational synergies of $30
million in FY 2023
-- Unveiled new products and features across key brands,
underlining the Group's commitment to digital innovation and
consumer privacy, including the ExpressVPN Aircove, a
groundbreaking Wi-Fi6 router with built-in VPN
-- Secured a number of new partnerships to expand distribution
footprint, including an agreement with Remote to provide the
Group's industry-leading brands with access to the business' global
customer base to support greater privacy protection in the remote
work sector
Post Period-end and Outlook
-- The Group has made a strong start to FY 2023, driven by ongoing cross-sell initiatives and well-established customer acquisition methodologies
-- After overperforming in 2022, the strong start to 2023
underpins the Board and management team's confidence in the future
performance of the Group.
-- Supported by the capital raise in September 2022, robust
balance sheet, and proven track record of acquiring and integrating
businesses, Kape is well positioned to explore potential M&A
opportunities in 2023 to complement the Group's organic growth,
which is directly in line with its ambitious buy-and-build
strategy.
Ido Erlichman, Chief Executive Officer of Kape, commented:
"Kape delivered an outstanding performance in 2022, delivering
our strongest year to date.
Over 7.4 million paying subscribers globally now consider Kape
their company of choice in the digital privacy and security space,
up 12% from the previous year.
The need for greater digital privacy and security has been key,
as more and more individuals are recognising Kape's brands as
household names in the digital privacy arena.
Kape has delivered consistent profitable growth, executing on
our strategic objectives year over year for six years in a row. We
believe we are in a perfect position to capitalise on the growing
demand in the markets in which we operate, through organic growth
and strategic M&A activity."
Enquiries:
Kape Technologies plc via Vigo Consulting
Ido Erlichman, Chief Executive Officer
Oded Baskind, Chief Financial Officer
Shore Capital (Nominated Adviser & Broker)
Simon Fine / Toby Gibbs / Mark Percy / James +44 (0)20 7408
Thomas / Iain Sexton 4090
Stifel Nicolaus Europe Limited (Joint Broker)
Alex Price / Brad Topchik / Alain Dobkin / +44 (0) 20 7710
Richard Short 7600
Vigo Consulting (Financial Public Relations)
Jeremy Garcia / Kendall Hill +44 (0)20 7390
kape@vigoconsulting.com 0237
About Kape
Kape is a leading 'privacy-first' digital security software
provider to consumers. Through its range of privacy and security
products, Kape focuses on protecting consumers and their personal
data as they go about their daily digital lives.
Kape has c. 7.4 million paying subscribers, supported by a team
of over 1,400 people across ten 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 its 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
Chairman's Statement
After six consecutive years of high double-digit revenue growth,
2022 has been another strong period for Kape, and the most
successful year to date.
During this time, Kape has been transformed into one of the
leading platforms in the consumer digital privacy and security
space, with over 7.4 million subscribers enjoying Kape's products
as they become a household name across Europe, America, and Asia.
We have seen digital privacy grow in priority for individuals, as
their digital footprint expands, and we believe this trend will
continue to accelerate. As we continue to aggressively grow our
product reach, we are in a premium position to provide
best-in-class products to assist our customers in managing their
digital identity.
Our teams have been busy across the year, delivering strong
organic growth across all our segments, to deliver revenue at the
top end guidance and exceeding our proforma Adjusted EBITDA
estimates, following the full integration of ExpressVPN, our
largest acquisition to date. We also secured additional growth
capital from our investors and secured a substantial long-term debt
package for the business.
The integration of ExpressVPN was expertly delivered during the
year, surpassing all expectations and strengthening our digital
privacy division capabilities to deliver market-leading privacy
products. Concurrently, Kape's Digital Privacy, Security, and
Content divisions all delivered strong organic growth. The Digital
Content Division has seen accelerated growth since joining the
Group, and continues to provide Kape with unrivalled market
insight, enabling the continued enhancement of our product suite
and underpinning R&D, marketing, and advertising
strategies.
In October 2022, we completed an oversubscribed GBP190.1 million
equity raise. This is testament to our overarching business
strategy and global reputation as a leading pure-play digital
security and privacy provider, as well as demonstrating the support
from investors to pursue our M&A strategy, where we have a
successful record of executing accretive acquisitions to support
our strong organic growth.
Additionally, we expanded our teams in Asia and Europe, two key
growth geographies for the Group, recruiting new employees to
facilitate the acceleration of our R&D and sales and marketing
efforts across the territories. We also rolled out a range of
innovative products and features across the year, including Threat
Manager, Parallel Connections, custom DNS and the award-winning
ExpressVPN Aircove router - the world's first Wi-Fi 6 router with a
built-in VPN.
Board Changes
We welcomed Dan Pomerantz, co-founder of ExpressVPN, as a
Non-Executive Director in 2022. Dan is also an executive of the
Company in his capacity as the General Manager of its Digital
Privacy Division. Dan's extensive experience building products and
brands at scale, together with his business acumen and financial
knowledge, will be invaluable as Kape looks to enter the company's
next phase of growth and expansion.
Environmental, Social, and Governance
After a tumultuous year for environmental, social and governance
("ESG") issues at a macro level, it's never been more important for
us to do our part. At Kape, our commitment to ESG underpins all of
the work we do to ensure the digital privacy and safety of people
online.
In 2021, we launched our corporate ESG framework. We continued
this positive ESG momentum in 2022, responding effectively and
prudently to the challenges our organisation faced to ensure we
remain on track to deliver a sustainable and resilient future for
Kape, our employees, our stakeholders and the communities we
serve.
Most notably in 2022, we introduced a range of new ESG policies
and procedures, including Kape's Code of Conduct, Modern Slavery
Statement and Anti-Sexual Harassment Policy. We also published a
new online trust centre and expanded our volunteering and donation
efforts to support individuals and NGOs during times of crisis.
We were pleased to have launched our 'Women at Kape' Employee
Resource Group ("ERG"). Equality in the workplace is everyone's
responsibility, and the launch of this ERG reflects our commitment
to building an inclusive and equal workplace culture by ensuring
issues impacting female and LGBTQIA+ employees are raised and
addressed. As we continue through 2023, we intend to expand our ERG
activity to ensure we're accounting for the diverse requirements of
our teams.
Further, as we continue to expand our scale and global reach,
sustainability is increasingly becoming an integral part of our
commercial strategy. The introduction of our new carbon footprint
measurement and green office initiatives ensures that Kape's
business operations reflect a responsible approach in our efforts
to help the world transition to a low-carbon economy.
Significantly, Kape jumped two rating points for ESG with MSCI,
the organisation responsible for measuring and modelling
environmental, social, and governance risk to provide critical
insights into company behaviours.
Behind all our ESG work, we're empowering people across all
levels of our organisation with a better understanding of ESG, so
that they can recognise how their day-to-day activities and the
work they do contributes to achieving our collective ESG targets.
For the board in particular we've provided focused training on ESG
as well as delivering ongoing ESG knowledge-building
activities.
Important issues lie ahead for the environment, and Kape is
taking every action to ensure it remains focused on playing its
part on the sustainability front. Overall, we're proud of our ESG
progress this year, and look forward to advancing our ESG agenda in
2023 and beyond.
Offer for Kape
On 13 February 2023, Unikmind Holding Limited ("Unikmind"),
Kape's majority shareholder, announced a cash offer to acquire the
entire issued share capital of Kape not already held by Unikmind at
a price of $3.44 for each Kape share, equivalent 285 pence per Kape
Share based on the Announcement Exchange Rate ("the Offer").
The independent Directors (being all of the Directors save for
Pierre Lallia) view is that the Offer does not represent the full
value of Kape. The Offer was received after a previous proposal by
Unikmind of 265 pence was rejected by the independent Directors.
Unikmind stated it intends to seek a delisting of the Company
regardless of the outcome of the Offer, hence the Independent
Directors believed that it was in the interests of shareholders for
the Company to grant Unikmind a partial standstill release from the
NDA Standstill to allow Unikmind's proposal to be presented to Kape
shareholders for their consideration.
On 6 March 2023, Unikmind posted their Offer Document to Kape
shareholders, noting that the Offer Document Exchange Rate meant
the Offer price of $3.44 for each Kape Share was worth 288 pence
per Kape Share as at 6 March 2023.
On 20 March 2023, the Independent Directors wrote to Kape
shareholders with their views on the Offer.
Summary and Outlook
Across 2022, we have seen digital privacy and cybersecurity
continue to dominate both the political and business agendas.
Actions taken by various governments to expand censorship and erode
the cybersecurity landscape have continued to highlight the need
for companies like Kape.
With an increasing number of corporations and consumers
acknowledging that online freedom and protection is imperative to
their daily lives, Kape finds itself ideally placed to capture new
business and strengthen its position in an ever-growing privacy and
security market.
After overperforming in 2022, Kape has made a strong start to
2023, underpinning the Board and management team's confidence in
the future performance of the Group.
I would like to express my sincere gratitude to all Kape
employees for their continued dedication and tenacity, in helping
to make 2022 Kape's most successful year to-date. The substantial
progress achieved during the year could not have been accomplished
without their unwavering commitment to the Group's mission.
Looking ahead, we continue to focus on expanding and innovating,
both through evolving our product portfolio to ensure we're
responding to nascent sector trends, and through improving our
operational efficiency to further accelerate the Group's organic
growth. Boosted by our capital raise, robust balance sheet and
proven track record of acquiring and integrating businesses, we are
well positioned to explore potential M&A opportunities in 2023
to complement the Group's organic growth, which is directly in line
with our ambitious buy and build strategy.
Don Elgie
Non-Executive Chair
20 March 2023
Chief Executive Officer's Review
Introduction
Kape delivered an outstanding performance in 2022, recording its
strongest year - to-date.
Over 7.4 million paying subscribers globally now consider Kape
their company of choice in the digital privacy and security space,
up 12% from the previous year.
Kape delivered a record financial performance across FY 2022,
achieving revenue of $623.5 million (2021: $230.7 million), up
170.3% year-on-year or 18.9% organic growth on a proforma basis
with recurring revenue contributing 86.8% (2021: c. 92% on a
proforma basis). Additionally, we grew Pro Forma Adjusted EBITDA(2)
by 125.6% to $176.0 million (2021: $78.0 million). We reached 94 %
adjusted cash conversion along with significantly growing our
subscribers; this year alone we have added 791,000 new subscribers
to our customer base.
Six and a half years after setting our new strategic direction
and gradually achieving milestone after milestone, we have created
significant equity value for all stakeholders in excess of $1.5
billion, it is a testament to the success of our strategic journey
and we appreciate the continued support from all our investors.
Our significant progress and financial success are best
articulated in the following chart(5) :
Market Dynamics
The global digital privacy software market is forecast to grow
to $25.8 billion by 2029, expanding at a CAGR of c. 40%(3) .
Despite the cost-of-living crisis, consumers continue to view
digital privacy and security as a priority and are willing to pay
more to ensure they receive best-in-class services. Given that
remote working has been adopted by a large number of individuals
across the globe, the importance of dependable digital protection
has increased substantially, and is now central to consumers'
business and leisure activities.
20-45-year-olds constitute 70% of the market, and this
demographic continues to underpin the fast-paced growth in the
privacy market, together with the rise in individuals worldwide
owning multiple IoT devices.
For consumers, owning a broader range of IoT devices means
purchasing premium digital privacy protection, such as those Kape
offers, which not only provides greater value per device, but is a
necessity to comprehensively safeguard their digital lives.
Buy, Build and Grow
A key highlight of 2022 was the seamless integration of
ExpressVPN into the wider Group. This acquisition was our seventh
consecutive buy, build and grow deal in the last seven years,
realising our vision to help millions of people around the world to
live more secure and private digital lives.
Kape today is a top-tier digital privacy platform that serves
millions of subscribers worldwide. When we embarked on our strategy
six and a half years ago, we had no subscribers, yet after our
continued growth, today we serve over 7.4 million paying
subscribers worldwide.
In 2022, as we progressed in the integration project with
ExpressVPN, we were able to deliver c. $9 million in operational
synergies, representing $30 million in annualised cost savings,
reflecting our successful know-how and M&A track record to
date. This transaction extended our reach to the premium part of
the digital privacy market and enhanced our customer lifetime
value, accelerated our R&D timeline and expanded our marketing
reach. Management expects to realise further synergies in 2023.
We are delighted that ExpressVPN's management and employees have
joined the Group, demonstrating their confidence in our business
model and growth strategy. These highly know-how and innovative
individuals have brought a wealth of digital privacy and security
experience to Kape, boosting our product development and market
reach capabilities across the globe.
Product Development
Kape has progressed to become an established player in the
digital security and privacy space. Alongside our growth from
existing products, the Group has recognised its potential to
spearhead innovation in the industry. In H2 2022, our ExpressVPN
brand launched its award-winning Aircove router - the world's first
Wi-Fi 6 router with a built-in VPN. Designed for individuals
seeking to safeguard their families with a VPN, Aircove was
introduced in September 2022 and has already generated strong sales
traction in the US, complementing ExpressVPN's highly innovative
software.
Other products and features launched this year include a beta
password manager ExpressVPN Keys, which has been gathering momentum
as users welcome a broader range of privacy and security tools. We
have also introduced end-point protection for PC for Private
Internet Access customers with our Privacy First Anti-Virus
solution for PC. We continue to focus on rolling out the features
across all of our key brands in the year ahead.
Financing
Kape completed an oversubscribed and upscaled c. GBP188 million
placing and c. GBP2.1 retail offer in H2 2022. We were delighted to
receive such strong support from new and existing institutional
shareholders, including blue-chip investors from the UK, US, Europe
and Israel. This injection of capital is a strong endorsement of
our strategy. It will enable the Group to capitalise on potential
acquisition opportunities whilst further supporting organic growth
initiatives.
Additionally, we entered into an agreement for Modified bank
facilities with our existing lenders Bank of Ireland, Barclays,
Citizens Bank, BNP Paribas, Citi Commercial Bank, and Leumi Bank,
as well as two new banks, HSBC and Credit Suisse, who have joined
the enlarged syndicate. Replacing the existing debt facilities, by
paying early the deferred consideration of the ExpressVPN
acquisition, Kape immediately realised approximately $19.9 million
in net debt reduction and approximately $8 million of savings on
financing costs from terminating the underwriting commitment.
Key Performance Indicators
Significantly, Kape delivered strongly across its KPIs in 2022,
demonstrating the resilience of the Group's SaaS business model.
Kape's highly scalable model not only underpins the profitability
and earnings predictability of the Group, but also our growth
potential.
31 Dec 31 Dec
2022 2021
'000 '000
Subscribers (thousands) 7,364 6,573
Retention rate (4) 83% 81%
Deferred income ($'000) 168,342 155,856
Revenue ($'000) 623,483 230,665
Operating Income ($'000) 100,093 38,258
2022 2021
$'000 $'000
Adjusted EBITDA 283,689 86,042
Proforma Deferred Contract expenses
adjustment (107,688) (8,016)
-------------- ------------
Proforma Adjusted EBITDA(1,2) 176,001 78,026
Cash flow from operations 161,311 35,489
Exceptional and non-recurring
cash outflow 4,215 8,636
Adjusted cash flow from operations 165,526 44,125
-------------- ------------
% of Adjusted EBITDA 58.3% 51.3%
-------------- ------------
Proforma Adjusted EBITDA 176,001 78,026
-------------- ------------
% of Proforma Adjusted EBITDA 94.0% 56.6%
-------------- ------------
Growth Drivers
Kape has delivered consistent profitable growth, executing on
our strategic objectives year over year for six years in a row. We
believe we are in a perfect position to capitalise on the growing
demand in the markets we operate in. We remain committed to
delivering on our future growth aspirations and capitalising on
strong market tailwinds, with the following key pillars continuing
to drive our accelerated growth:
-- Reach : Over 7.4 million paying subscribers globally,
providing significant opportunity to generate further cross-sell
and upsell momentum.
-- Go-to-market capabilities : With the leading brands in the
space, including ExpressVPN, and Webselenese's unparalleled market
insight, Kape benefits from a robust platform which facilitates the
optimisation of CAC and retention rates.
-- Strong product portfolio: Expert solutions at the pinnacle of
sector innovation, with high levels of recurring revenues and a
growing global R&D team to help realise product development
potential.
-- M&A : Proven track record of acquiring market-leading
businesses, delivering increased synergies and greater market
penetration.
Outlook
The global demand for cutting-edge digital security and privacy
products is stronger than ever, and we recognise the pivotal role
Kape has in safeguarding businesses and consumers from existing and
emerging cyber threats. We remain focused on delivering on our
strategic priorities to further consolidate our position as a
market leader in digital privacy and security.
On behalf of the management team, I would like to share my
deepest thanks to our hugely talented global team for their drive
and determination throughout FY 2022. Without their continued
support and diligence, our focus on building a world-class digital
security and privacy provider trusted by millions across the globe
would never have been achieved.
Ido Erlichman
Chief Executive Officer
20 March 2023
(1) Adjusted EBITDA is a company-specific measure which is
calculated as operating profit before depreciation (including
right-to-use assets amortisation), amortisation, exceptional or
non-recurring costs, other operating income/(expense) and employee
share-based payment charges.
(2) Proforma Adjusted EBITDA is a non GAAP measure, it's the
Company Adjusted EBITDA after adding back deferred contracts costs
fair value accounting adjustment following ExpressVPN
consolidation.
(3)
https://www.fortunebusinessinsights.com/data-privacy-software-market-105420
(4) Retention rates are calculated on a six-month basis.
(5) Excluding Kape's discontinued operations (2018-2020)
Chief Financial Officer's review
Revenues for the year to 31 December 2022 increased by 170.3% to
$623.5 million (2021: $230.7 million), or 18.9% on a proforma
basis. The increase in revenues is a result of an increase in
Kape's subscriptions base of 12% to c.7.4 million (2021: c.6.6
million) as well as twelve months' contribution from ExpressVPN.
Pro Forma Adjusted EBITDA increased by 125.6% to $176.0 million
(2021: $78.0 million). Operating profit increased by 161.6% to $
100.1 million (2021: $38.3 million) mainly due to twelve months'
contribution from ExpressVPN and Webselenese compared to half month
and ten months in 2021, respectively.
Adjusted cash flow from operations attributable to the current
financial period was $165.5 million (2021: $44.1 million), which
represents a cash conversion of 94. 0 % from the proforma Adjusted
EBITDA (2021: 56.6%). The increase is a result of a growing
percentage of customers that continue to use Kape's products after
the end of the initial subscription period. As 31 December 2022,
the Group's cash balance was $251.6 million (31 December 2021:
$27.0 million) and net debt was $119.8 million.
On 3 October 2022, the Company completed an oversubscribed
capital raise, issuing a total of 71,762,618 new ordinary shares of
US $0.0001 each ("Ordinary Shares") subscribed for by investors, at
an issue price of 265 pence per share. The net proceeds after issue
costs from the share issuance were $213.1 million (c.GBP188.2
million).
On 12 September 2022, the Company announced that it had entered
into an Early repayment agreement with the ExpressVPN founders to
pay the deferred cash consideration in advance of the contractual
dates in the purchase agreement.
On 2 November 2022, the Company announced it had entered into an
agreement for Modified bank facility with its existing lenders Bank
of Ireland, Barclays, Citizens Bank, BNP Paribas, Citi Commercial
Bank, and Leumi Bank, and two new banks, HSBC and Credit Suisse,
who joined the enlarged syndicate. This Modified debt facility
replaced all Kape's existing loan facilities, including the
Deferred Consideration resulting from the ExpressVPN acquisition
and the Deferred Consideration Facility arrangement with TSNLI. As
a result, the Company realised $19.9 million of cash saving
following the Cash Deferred Consideration early repayment and
approximately $8.0 million of savings on financing costs from
terminating the underwriting commitment, in addition, the early
repayment resulted in a gain of $17.2 million.
The debt facility comprises a $275.0 million senior secured term
facility (the "Modified Term Facility"), a $150.0 million revolving
credit facility (the "RCF") and an uncommitted $75.0 million
facility (together the "Modified Debt Facilities"). Bank of Ireland
is the agent bank. The Modified Debt Facilities have a four-years
term with an option to extend the term by up to an additional one
year. The Modified Term Facility will be amortised on a quarterly
basis across 48 months starting December 2022, and a bullet payment
on 2 November 2026 and will carry an opening Margin of 2.75% above
Applicable Reference Rate per annum.
Segment Result
Revenue Segment result
2022 2021 2022 2021
$'000 $'000 $'000 $'000
Digital Privacy 512,575 117,042 363,575 74,450
Digital Content 71,433 75,581 14,402 38,271
Digital Security 39,475 38,042 15,233 14,609
--------- --------- --------- ---------
393,21
Revenue 623,483 230,665 0 127,330
--------- --------- --------- ---------
The segment result has been calculated using revenue less costs
directly attributable to that segment, comprises cost of sales and
direct sales and marketing costs. Segment cost of sales comprises
payment processing fees and infrastructure costs of the Group's
privacy products. Direct sales and marketing costs are mainly user
acquisition costs.
Digital Privacy
2022 2021
$'000 $'000
Revenue 512,575 117,042
Cost of sales (46,206) (13,370)
Direct sales and marketing
costs (102,794) (29,222)
----------- ----------
Segment result 363,575 74,450
----------- ----------
Segment margin (%) 70.9 63.6
----------- ----------
Proforma Deferred Contract
expenses adjustment (107,688) (8,016)
----------- ----------
Proforma Adjusted Segment
result 255,887 66,434
----------- ----------
Proforma Adjusted Segment margin
(%) 49.9 56.7
----------- ----------
During the period, the Digital Privacy segment has seen
continued growth with a 337.9% increase in revenue to $512.6
million (2021: $117.1 million), 14.25% on proforma basis, and a
388.3 % increase in the segment result to $363.6 million (2021:
$74.5 million). Proforma base revenue growth was driven by
subscriber base growth of 10.6% to 6.5 million and maintaining a
strong healthy retention rate. Proforma Adjusted Segment result is
calculated by adding back the Proforma Deferred contract costs
expenses adjustment related to the ExpressVPN acquisition. The
decrease in proforma adjusted Segment margin is attributed to the
higher cost to serve of ExpressVPN's premium product. When
comparing the period ending 31 December 2022 to 31 December 2021 on
a full proforma basis (as ExpressVPN is part of the Company for
twelve months for the period ended 31 December 2021), the Proforma
Adjusted Segment margin is slightly increased by 1.44%.
Digital Content
2022 2021
$'000 $'000
Revenue 71,433 75,581
Cost of sales - -
Direct sales and marketing
costs (57,031) (37,310)
---------- ----------
Segment result 14,402 38,271
---------- ----------
Segment margin (%) 20.2 50.6
During the period, revenue from the Digital Content segment was
$71.4 million and segment results were $14. 4 million. On a
proforma basis, excluding revenue that was generated from Kape
brands, revenue for the twelve months ended 31 December 2022 has
significantly increased by 90.3% compared with the period ended 31
December 2021. The revenue growth has been driven by revenue
generated from new verticals introduced during the last twelve
months, $31.6 million, while supported by continued growth of 6% on
a proforma basis from old verticals. The segment margin decreased
to 20.2%. Usually new verticals attribute lower margins during the
initial period until the organic traffic is established and the
acquired sources are fully optimised.
Digital Security
2022 2021
$'000 $'000
Revenue 39,475 38,042
Cost of sales (2,784) (2,602)
Direct sales and marketing
costs (21,458) (20,831)
---------- ----------
Segment result 15,233 14,609
---------- ----------
Segment margin (%) 38.6 38.4
During the period, revenue from the Digital Security segment
grew by an increase of 3.8% to $39.5 million (2021: $38.1 million).
The slight increase was driven by a 15.9% growth in revenue from
Intego's Endpoint security products and offset by a revenue
decrease of 9.8% from the PC performance products. The Company is
not investing further in the PC performance products activity and
Digital Security future growth will derive mainly from Intego's
Endpoint security products and new security products.
Adjusted EBITDA
Adjusted EBITDA for the year to 31 December 2022 was $283.7
million (2021: $86.0 million). Adjusted
EBITDA is a non-GAAP company specific measure that is considered
to be a key performance indicator of the Group's financial
performance. Adjusted EBITDA is calculated as operating profit
before depreciation (including right-to-use assets amortisation),
amortisation, exceptional or non-recurring costs, other operating
income/(expense) and employee share-based payment. Proforma
Adjusted EBITDA is calculated by adding the proforma deferred
contract costs expenses adjustment related to the ExpressVPN
acquisition. As these are non-GAAP measures, they should not be
considered as replacements for IFRS measures. The Group's
definition of these non-GAAP measures may not be comparable to
other similarly titled measures reported by other companies. Such
amounts are excluded from the following analysis:
2022 2021
$'000 $'000
Revenue 623,483 230,665
Cost of sales (48,990) (15,972)
Direct sales and marketing
costs (181,283) (87,363)
------------- ----------
Segment result 393,210 127,330
------------- ----------
Indirect sales and marketing
costs (45,322) (19,687)
Research and development
costs (31,635) (8,176)
Management, general and
administrative cost (32,564) (13,425)
------------- ----------
Adjusted EBITDA 283,689 86,042
------------- ----------
Proforma Deferred Contract
expenses adjustment ( 107 ,688) (8,016)
------------- ----------
Proforma Adjusted EBITDA 176,001 78,026
------------- ----------
The Proforma Adjusted EBITDA for the year to 31 December 2022
was $176.0 million (2021: $78.0 million) and margin of 28.2% (2021:
33.8%). The decrease in the Proforma Adjusted EBITDA margin is
attributable to the lower EBITDA margin of ExpressVPN slightly
offset by the cost synergies savings following the acquisition on
December 2021 and the decrease of the Digital Content segment
margin following the investment in new verticals, as explained
above.
In 2022, as we progressed in the integration project with
ExpressVPN, we were able to deliver c.$9 million in operational
synergies, representing $30 million in annualised cost savings,
reflecting our successful know-how and M&A track record to
date. Management expects to realise further synergies in 2023. The
percentage of Management, general and administrative cost and
indirect sales and marketing costs out of revenues decreased from
6% to 5% and 8% to 7% respectively, while research and development
costs increased from 3% to 5%.
The increase in costs is mainly due to ExpressVPN and
Webselenese's twelve months contribution compared to half-month and
ten months in 2021, respectively.
Operating Profit
A reconciliation of Adjusted EBITDA to operating profit is
provided as follows:
2022 2021
$'000 $'000
Adjusted EBITDA 283,689 86,042
Employee share-based payment
charge (23,614) (5,224)
Other operating (expense)/income (1,525) 947
Exceptional and non-recurring
costs (3,764) (9,850)
Depreciation and amortisation (154,693) (33,657)
----------- ----------
Operating profit 100,093 38,258
----------- ----------
Increase in depreciation and amortisation is driven by $124.0
million (2021: $11.1) amortisation charge of Webselenese and
ExpressVPN acquired intangibles assets.
Exceptional or non-recurring costs in 2022 are comprised of
non-recurring staff costs of $0.8 million, $0.9 million termination
costs of Onerous contract and $2.1 million professional services
and other business combinations related costs.
Profit before tax
Profit before tax was $92.9 million (2021: $32.7 million).
Finance costs net of Finance income of $7.2 million comprised
mainly of $10.5 million of interest on debt facilities (2021: $3.3
million), expenses of $3.0 million due to unwinding of discounting
on deferred consideration expense (2021: $0.9 million), $7.0
million full amortization of the Shareholder facility revolver
issuance cost following the termination of the Shareholder facility
(2021: $0.1 million) and $10.2 million of commitment fees on the
TSNLI revolving facility related to the ExpressVPN acquisition
until the point the facility was terminated (2021: $3.6 million),
this slightly offsets with $8.9 million net foreign exchange profit
and $17.2 million gain on early payment of Deferred Cash
Consideration resulting from the ExpressVPN acquisition.
Profit after tax
Profit after tax was $70.9 million (2021: $23.4 million). Tax
expenses for the period are $22.0 million (2021: $9.3 million), the
tax charge derives mainly from group subsidiaries' residual
profits. Since the amortisation of acquired intangibles and
share-based payment charges are not tax-deductible in several of
the jurisdictions in which the Company operates, management
believes it is appropriate to examine the effective tax rate out of
Proforma Adjusted EBITDA rather than profit before tax. The
effective tax rate out of Proforma Adjusted EBITDA increased to
12.5% (2021: c.11.9%).
Cash flow
2022 2021
$'000 $'000
Adjusted EBITDA 283,689 86,042
Proforma Deferred Contract expenses
adjustment (107,688) (8,016)
----------- ---------
Proforma Adjusted EBITDA(1,2) 176,001 78,026
Cash flow from operations 161,311 35,489
Exceptional and non-recurring
cash outflow 4,215 8,636
Adjusted cash flow from operations 165,526 44,125
----------- ---------
% of Adjusted EBITDA 58.3% 51.3%
----------- ---------
Proforma Adjusted EBITDA 176,001 78,026
----------- ---------
% of Proforma Adjusted EBITDA 94.0% 56.6%
----------- ---------
Cash flow from operations was $161.3 million (2021: $35.5
million). Adjusted cash flow from operations after adding back
one-off payments was $165.5 million (2021: $44.1 million), which
represents a cash conversion of 94.0% from the Proforma Adjusted
EBITDA. The increase is a result of growing percentage of customers
that continue to use the Kape's products after the end of the
initial subscription period.
Tax paid in the period was $6.3 million (2021: $3.3 million).
The increase was mainly due to Israeli tax prepayments that were
paid in 2022 by Group subsidiaries.
Net cash used in investing activities was $364.9 million (2021:
$465.9 million), mainly comprises $325.0 million for the early
repayment of the Deferred Cash consideration resulted from
ExpressVPN acquisition (see Note 8), $20.0 million related to the
six-month anniversary of completion of ExpressVPN acquisition,
$15.4 million (2021: $5.3 million) capitalised development costs
and $2.9 million (2020: $2.4 million) purchase of fixed assets. As
a result of the Deferred Cash Consideration early repayment the
Company saved cash $19.9 million of cash outflow.
Net cash generated from financing activities was $434.5 million
(2021: $411.0 million) included $213.0 million net proceeds from
the capital raised completed on 3 October 2022, a drawdown of
$180.5 million and $93.6 million of the Modified Bank facilities
(Term loan and Revolving facility, respectively) completed on 2
November 2022, $4.5 million resulted from debt issuance cost
related to the Modified bank facilities, $13.8 million commitment
fees payment of the Shareholder facility revolver facility (2021:
$Nil), repayments of long-term loan principal interest payments of
$21.9 million and $4.6 million , respectively (2021: $11.8 million
and $1.9 million, respectively), $1.7 million (2021: $0.9 million)
has been received following the exercise of employee share options
and $8.2 million (2021: $2.8 million) were paid for the Group's
leases. As a result of the termination of the Shareholder revolver
facility the Company saved cash outflow of $1.4 million for the
period ended 31 December 2022 and future cash outflow of $6.0
million for 2023.
Financial position
At 31 December 2022, the Company had cash of $251.6 million (31
December 2021: $27.0 million), net assets of $1,172.9 million (31
December 2021: $863.5 million) and net debt of $119.8 million
(2021: net debt of $457.5 million). At 31 December 2022, trade
receivables were $26.9 million (31 December 2021: $38.4
million).
In November, the Company signed a Modified Bank facility for
Term Facility of $275.0 million (2021: $120.0 million), Revolver
Facility of $150.0 million (2021: $80.0 million) and uncommitted
facility of $75.0 million and completed the early repayment of the
deferred cash consideration along with termination of the
Shareholder revolver facility.
Kape is well positioned to support and invest future growth as a
result of the Company's capital structure modification together
with the $213.1 million capital raise completed in October
2022.
The Adjusted Leverage (as defined in Note 10) of the Group is c.
0.68 (2021: 2.88).
Oded Baskind
Chief Financial Officer
20 March 2023
Consolidated statement of comprehensive income
For the year ended 31 December 2022
2022 2021
Note $'000 $'000
Revenue 2,3 623,483 230,665
Cost of sales (48,990) (15,972)
----------- -----------
Gross profit 574,493 214,693
Selling and marketing costs 2c (232,554) (108,580)
Research and development
costs (40,399) (10,865)
Management, general and administrative
costs (45,229) (24,280)
Depreciation and amortisation 5 (154,693) (33,657)
Other operating (expense) (1, 525
/income ) 947
----------- -----------
(474,
Total operating costs 400 ) (176,435)
Operating profit 4 100,093 38,258
Adjusted EBITDA 4 283,689 86,042
----------- -----------
Employee share-based payment
charge (23,614) (5,224)
Other operating (expense)
/ income (1,525) 947
Exceptional or non-recurring
costs 4 (3,764) (9,850)
Depreciation and amortisation 5 (154,693) (33,657)
----------- -----------
Operating profit 100,093 38,258
----------------------------------------- ------ ----------- -----------
Finance income 26,133 5,580
Finance costs (33,352) (11,179)
----------- -----------
Profit before taxation 92,874 32,659
Tax charge (21,956) (9,273)
----------- -----------
Profit for the year 70,918 23,386
Other comprehensive income:
Items that may be reclassified
to profit and loss:
Foreign exchange differences
on translation of foreign
operations - 1
----------- -----------
Total comprehensive Income
for the year 70,918 23,387
----------- -----------
Total profit for the year
attributable to Owners of
the parent:
Continuing operations 70,918 23,386
----------- -----------
70,918 23,386
----------- -----------
Earnings per share attributable
to the ordinary equity holders
of the company:
Basic earnings per share
(cents) 7 19.2 9.6
Diluted earnings per share
(cents) 7 18.8 9.4
----------- -----------
Consolidated statement of financial position
As of 31 December 2022
2022 2021
Note $'000 $'000
Non-current assets
Intangible assets 5 1,351,995 1,480,686
Property, plant and equipment 6,714 5,794
Right-of-use assets 18,234 23,757
Deferred contract costs 2c 160,576 50,698
Deferred tax asset 1,974 2,466
Long-term deposit 613 -
------------- --------------
1,540,106 1,563,401
------------- --------------
Current assets
Inventory 537 70
Deferred contract costs 2c 81,463 35,791
Trade and other receivables 38, 904 54,213
Cash and cash equivalents 251,559 26,984
------------- --------------
372,463 117,058
------------- --------------
Total assets 1,912, 569 1,680,459
------------- --------------
Equity 6
Share capital 43 36
Additional paid in capital 1,099,530 883,337
Share to be issued - 1,350
Foreign exchange differences
on translation of foreign
operations 773 773
Retained earnings 72,529 (22,003)
------------- --------------
Total equity 1,172,875 863,493
------------- --------------
Non-current liabilities
Contract liabilities 2b 14,084 10,885
Deferred tax liabilities 81,717 64,369
Long term lease liabilities 10,396 16,984
Deferred and contingent consideration 11 - 168,950
Loans and Borrowings 10 338,214 97,830
------------- --------------
444,411 359,018
------------- --------------
Current liabilities
Trade and other payables 91,813 80,919
Contract liabilities 2b 154,258 144,971
Short term lease liabilities 8,143 7,912
Deferred and contingent consideration 11 8,285 199,337
Onerous contract liability - 741
Loans and Borrowings 10 30,604 19,554
Current tax liability 2,180 4,514
------------- --------------
295,283 457,948
------------- --------------
Total equity and liabilities 1,912,569 1,680,459
------------- --------------
Consolidated statement of changes in equity
For the year ended 31 December 2022
Foreign
exchange
differences
on translation
Additional Share of foreign Total
Share paid in to be operations Retained
capital capital issued earnings
$'000 $'000 $'000 $'000 $'000 $'000
At 1 January 2021 22 273,358 1,350 772 (46,746) 228,756
Profit for the year - - - - 23,386 23,386
Other comprehensive
income:
Foreign exchange
differences on translation
of foreign operations - - - 1 - 1
---------- ------------ ---------- ------------------ ----------- -----------
Total comprehensive
profit for the year - - - 1 23,386 23,387
Transactions with
owners:
Share based payments - - - - 5,224 5,224
Exercise of employee
options (note 6) - 939 - - - 939
Share issuance net
of transaction cost
(note 6) 8 348,382 - - - 348,390
Issue of equity
share capital (note
6) 6 260,658 - - - 260,664
Acquisition of treasury
shares (note 6) - - - - (3,867) (3,867)
---------- ------------ ---------- ------------------ ----------- -----------
At 31 December
2021 36 883,337 1,350 773 (22,003) 863,493
---------- ------------ ---------- ------------------ ----------- -----------
At 1 January 2022 36 883,337 1,350 773 (22,003) 863,493
Profit for the year - - - - 70,918 70,918
Other comprehensive
income:
Foreign exchange - - - - - -
differences on translation
---------- ------------ ---------- ------------------ ----------- -----------
Total comprehensive
profit for the year - - - - 70,918 70,918
Transactions with
owners:
Share based payments - - - - 23,614 23,614
Exercise of employee
options (note 6) - 1,747 - - - 1,747
Issue of equity
share capital (note
6) 7 213,096 - - - 213,103
Issue of equity
share capital from
treasury (note 6) * 1,350 (1,350) - - -
---------- ------------ ---------- ------------------ ----------- -----------
At 31 December 72,
2022 43 1,099,530 - 773 529 1,172,875
---------- ------------ ---------- ------------------ ----------- -----------
*amounts below 1 thousands
Consolidated statement of cash flows
For the year ended 31 December 2022
2022 2021
Note $'000 $'000
Cash flow from operating activities
Profit for the year after taxation 70,918 23,386
Adjustments for:
Amortisation of intangible assets 5 143,814 29,066
Amortisation of right-to-use assets 8,964 3,895
Depreciation of property, plant and
equipment 1,915 696
(Gain)/ Loss on sale of property,
plant and equipment (89) 378
Loss/ (Gain) on sale of intangible
assets 5 345 (485)
Profit from lease modification (25) (848)
Tax Expenses 21,956 9,273
Profit from Forward contract - (5,580)
Interest expenses, fair value movements
on deferred consideration 10,11 33,379 10,331
Share based payment charge 23,614 5,224
Gain from bank loan modification (660) -
Gain on early payment of Deferred (17,213) -
Cash Consideration
Unrealised foreign exchange differences (788) (269)
----------- -----------
Operating cash flow before movement
in working capital 286,130 75,067
Decrease /(Increase) in trade and
other receivables 7,262 (13,784)
(Decrease)/Increase in software licenses
inventory (467) 54
Increase in trade and other payables 12,751 12,246
Decrease in onerous contract liability (688) (688)
Increase in deferred contract costs 2c (155,550) (33,955)
Increase in Long-term deposit (613) -
Increase/ (Decrease) in contract
liabilities 12,486 (3,451)
----------- -----------
Cash Inflow from operations 161,311 35,489
Tax paid (6,274) (3,345)
----------- -----------
Cash generated from operations 155,037 32,144
Cash flow from investing activities
Purchase of property, plant and equipment (2,949) (2,444)
Proceeds from sale of property, plant
and equipment 217 2
Intangible assets acquired 5 (392) (794)
Disposal of intangible assets 5 342 1,261
Cash paid on business combination,
net of cash acquired 8,11 (346,679) (464,149)
Proceeds from Forward contract - 5,580
Capitalisation of development costs 5 (15,418) (5,326)
----------- -----------
Net cash used in investing activities (364,879) (465,870)
Cash flow from financing activities
Payment of leases (8,216) (2,839)
Cash outflow from Currency Option (1,450) -
Transaction, net
Proceeds from Shareholder loan 10 - 85,000
Proceeds from modification of loans 10 180,455 85,000
Proceeds from RCF 10 93,644 8,207
Debt issuance costs 10 (4,479) (2,690)
Shareholder facility revolver issuance
cost 10 - (7,125)
Shareholder facility revolver commitment
fees 10 (13,762) -
Repayment of interest on Shareholder
loan 10 - (1,275)
Repayment of Shareholder loan 9,10 - (85,000)
Repayment of interest on loan 10 (4,566) (1,934)
Repayments of long-term loan 10 (21,875) (11,818)
Payment of purchase of own shares 6 - (3,867)
Proceeds from issuance of shares,
net of transaction costs 6 213,016 348,390
Proceeds from exercise of options
by employees 1,720 939
----------- -----------
Net cash generated from financing
activities 434,487 410,988
----------- -----------
Net increase/ (decrease) in cash
and cash equivalents 224,645 (22,738)
Revaluation of cash due to changes
in foreign exchange rates (70) (190)
Cash and cash equivalents at beginning
of year 26,984 49,912
----------- -----------
Cash and cash equivalents at end
of year 251,559 26,984
----------- -----------
Notes to the consolidated financial statements
1 Basis of preparation
The financial information provided is for Kape Technologies Plc
and its subsidiary undertakings (together the "Group", "the
Company" or "Kape") in respect of the financial years ended 31
December 2022 and 2021. The Company is incorporated in the Isle of
Man.
The financial information has been prepared in accordance with
UK adopted international accounting standards (collectively
IFRS).
The preparation of financial statements in compliance with
adopted IFRS requires the use of certain critical accounting
estimates. It also requires Group management to exercise judgement
in applying the Group's accounting policies.
The results shown for the year ended 31 December 2022 and 31
December 2021 are audited. The consolidated financial information
contained in this announcement does not constitute statutory
accounts. Statutory accounts of the Company in respect of the
financial year ended 31 December 2022 were approved by the Board of
directors on 20 March 2023 and will be delivered to the
shareholders in due course. The report of the auditors on those
accounts was unqualified and did not contain an emphasis of matter
paragraph.
Going concern
The Directors, having considered the Group's resources
financially and the associated risks with doing business in the
current economic and geo-political climate, believe the Group is
capable of successfully managing these risks. The Board has
considered the current trading performance, financial position,
liquidity of the Group and business plan as provided by management
which includes the rate of revenue growth, EBITDA margins, costs,
cash conversion ratio and capital expenditure. The cash flow
forecast prepared by management for assessing going concern extends
to 31 March 2024 ("the going concern period"). Management's base
case forecast is aligned with the management's forecast for the
year ending 31 December 2023. The going concern assessment is based
upon the business and operations as of the date of signing these
financial statements. No assumptions or modelling has been
performed for any future impact that may arise from the outcome of
the announcement by Unikmind Holdings Ltd ("Unikmind") of a cash
offer to acquire the entire issued and to be issued share capital
of the Company not already held by Unikmind (see note 12,
Subsequent Events).
The Group holds a strong liquidity position with Cash balance of
$251.6 million (31 December 2021: $27.0 million), with the increase
from prior year explained by the placement completed in October
2022 ($213.1 million), strong Cash flow generated from operation
($155.0 million), proceeds from modification of Debt facility
partially offset by the early repayment of the Deferred Cash
Consideration related to ExpressVPN acquisition.
The Group has in place debt facilities comprising a $275.0
million senior secured term facility, a $150.0 million revolving
credit facility and a $75.0 million uncommitted facility. The term
facility includes 48 quarterly capital repayments of $6.875 million
and bullet payment on 2 November 2026. As at 31 December 2022, the
Group had drawn down $103.2 million on the revolving credit
facility and $nil on the uncommitted facility. The debt facilities
are subject to the following financial covenants.
-- The ratio of EBITDA to Net Finance Charges ("Interest Cover")
shall not be less than 4.0x in respect of any Relevant Period.
-- The ratio of Total Net Debt on the last day of the relevant
period to Adjusted EBITDA in respect of that Relevant period
("Adjusted Leverage"), shall not exceed 3.0x.
The Debt Facility replaced all Kape's previous loan facilities,
including the deferred consideration facility arrangements put in
place with TS Next Level Investments Limited (an affiliate of
Unikmind Holdings Limited, the Company's majority shareholder) at
the time of the acquisition of ExpressVPN (the "Deferred
Consideration Facility").
Based on management's base case forecast the Group is able to
meet liabilities as they fall due and operate within financial
covenants throughout the forecast period.
In addition to the base case, management also considered
sensitivities in respect of potential stress tests, a reverse
stress test and the mitigating actions available to management. The
modelling of the downside scenarios assessed if there was a
significant risk to the Group's liquidity and covenant compliance
position. These scenarios make assumptions on revenue declines and
costs saving from freezing planned recruitment, capital expenditure
reductions and other general operating costs.
Under the stress tests the Group is still able to meet
liabilities as they fall due and operate within financial covenants
throughout the forecast period.
The reverse test was used to find what would be the level of
EBITDA and consequently the cash burn that would lead to a breach
in the Group's financial covenants before the end of the going
concern period. The financial covenants would be breached only if
revenues from new users declined more than 70% or revenues from
Renewals declined more than 35% below management's base case. As a
result of completing this assessment management considered the
likelihood of the reverse stress test scenario arising to be
remote. In reaching this conclusion management considered:
-- Cash collection is strong and bad debt risk is limited as
clients typically pay for services upfront.
-- Flexible cost base - a significant portion of the Group's costs are discretionary in nature.
-- The contract liabilities balance is growing (an increase of
+8% compared to the balance at 31 December 2021) supporting
attractive future revenue growth and good future revenue
visibility. The contract liabilities balance as of 31 December 2022
of $168.3 million includes $154.3 million to be released into
revenue in the following 12 months. Whilst this has no future cash
impact, it supports the Directors confidence in forecast EBITDA
utilised in bank covenants test.
-- We continuously monitor and invest in market needs. In the
year to 31 December 2022 the Group continued its strong investment
in technology capability and innovation demonstrated by the
increase of research and development expenses by 274.0% compared to
the comparative period.
-- The cash conversion of the Group is trading strong with level
of 85-100% and expected to remain i n this range due to billing
profile of the Group and Cash generated from recurring revenue.
The Directors continue to carefully monitor the current
macroeconomic environment, and its impact on the operations,
revenues and growth plans of the Group.
The Directors have also considered the conflict in Ukraine, and
whilst the impact on the Group is currently deemed minimal, the
Directors remain vigilant and ready to implement mitigation action
in the event of an impact on operations. The Group has no employees
or operations in Russia or Belarus and revenues from Russia and
Belarus are less than 1% of Group's revenues for the year ended 31
December 2022.
The Directors continue to carefully monitor the current
macroeconomic environment, and its impact on the on the operations,
revenues and growth plans of the Group. The Group has not seen any
significant impact on renewals and new users from the impact on
consumers of the impact of rising inflation. The Company operates a
multi brand strategy which allows us to capture a wider price range
across the competitive landscape. The Group is mostly significantly
exposed to inflationary cost rises from staff costs and
Infrastructure services. The Group seeks to manage these by the
flexibility of the Group to change and work with different
providers and utilize the Group ability to recruit talents within
few locations. As noted above, the Group has Debt Facilities that
are subject to variable interest based on the underlying Applicable
Reference Rates.
The Directors are also not aware of any significant matters that
occur outside the going concern period that could reasonably
possibly impact the going concern conclusion.
Having performed the assessments as detailed above, the
Directors have a reasonable expectation that the Group will have
adequate financial resources to continue in operational existence
over the relevant going concern period and have therefore
considered it appropriate to adopt the going concern basis of
preparation in the consolidated financial statements.
Adoption of new and revised standards
New standards impacting the Group that were adopted in the
annual financial statements for the year ended 31 December 2022,
and which have given rise to changes in the Group's accounting
policies are:
-- IAS 37 (Amendment Onerous Contracts - Cost of Fulfilling a
Contract) . clarifies that the direct costs of fulfilling a
contract include both the incremental costs of fulfilling the
contract and an allocation of other costs directly related to
fulfilling contracts. Before recognising a separate provision for
an onerous contract, the entity recognises any impairment loss that
has occurred on assets used in fulfilling the contract.
-- Annual Improvements to IFRS Standards 2018-2020 (Amendments
to IFRS 1, IFRS 9, IFRS 16 and IAS 41.
-- References to Conceptual Framework (Amendments to IFRS 3).
Minor amendments were made to IFRS 3 Business Combinations to
update the references to the Conceptual Framework for Financial
Reporting and add an exception for the recognition of liabilities
and contingent liabilities within the scope of IAS 37 Provisions,
Contingent Liabilities and Contingent Assets and Interpretation 21
Levies. The amendments also confirm that contingent assets should
not be recognised at the acquisition date.
-- Property, Plant and Equipment: Proceeds before Intended Use
(Amendments to IAS 16) The amendment to IAS 16 prohibits an entity
from deducting from the cost of an item of fixed asset any proceeds
received from selling items produced while the entity is preparing
the asset for its intended use. The proceeds from selling such
samples, together with the costs of producing them, are now
recognised in profit or loss.
The adoption of these standards did not have a material impact
on the Group's financial statements.
2 Revenue
2022 2021
$'000 $'000
Sale of Digital Privacy software solutions 512,575 117,042
Sale of Digital Content and software distribution
services 71,433 75,581
Sale of Digital Security, malware protection
and PC performance products 39,475 38,042
---------
623,483 230,665
--------- ---------
Revenues from the provision of Digital privacy solutions are
generated from the Digital Privacy CGU, revenues from Digital
Content and software distribution services are generated from
Digital Content CGU and revenues from software and SAAS products
offering security, malware protection and PC performance are
generated from the Digital Security CGU.
(a) Disaggregation of revenue
The following table presents our revenues disaggregated by the
timing of revenue recognition in accordance with our reporting
segments:
2022 2021
(USD, in thousands) (USD, in thousands)
Digital Digital Digital Total Digital Digital Digital Total
Privacy Content Security Privacy Content Security
---------- ---------- ----------- --------- ---------- ---------- ----------- ---------
Revenue recognised
over a period 472,064 - 6,234 478,298 80,180 - 5,375 85,555
---------- ---------- ----------- --------- ---------- ---------- ----------- ---------
Revenue recognised
at a point
in time 40,511 71,433 33,241 145,185 36,862 75,581 32,667 145,110
---------- ---------- ----------- --------- ---------- ---------- ----------- ---------
Total 512,575 71,433 39,475 623,483 117,042 75,581 38,042 230,665
---------- ---------- ----------- --------- ---------- ---------- ----------- ---------
(b) Contract liabilities
The company has recognised the following revenue-related
contract liabilities:
31 December 2022 31 December 2021
(USD, in thousands) (USD, in thousands)
Contract liabilities 168,342 155,856
---------------------- ----------------------
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 31 December
liabilities balances during the 2022 2021
period are as follows:
(USD, in thousands) (USD, in thousands)
Contract liabilities balance at
the beginning of the period (155,856) (36,594)
---------------------- ----------------------
Business combination - (122,713)
---------------------- ----------------------
Revenue recognised that was included
in the contract liability balance
from Business combination - 13,397
---------------------- ----------------------
Revenue recognised that was included
in the contract liability balance
at the beginning of the period 144,971 29,095
---------------------- ----------------------
Increase due to cash received,
excluding amounts recognised as
revenue during the period (157,457) (39,041)
---------------------- ----------------------
Contract liabilities balance at
the end of the period (168,342) (155,856)
---------------------- ----------------------
Current Contract liabilities (154,258) (144,971)
---------------------- ----------------------
Non- Current Contract liabilities (14,084) (10,885)
---------------------- ----------------------
Management expects that 91.63% (2021:93.0%) of the transaction
price allocated to the unsatisfied contracts as of 31 December 2022
will be recognised as revenue during the next annual reporting
period ($154,258 thousands), 6.75% and 1.59% ($11,357 thousands and
$2,675 thousands) will be recognised in 2024 and 2025 financial
years, respectively. The remaining 0.03% ($52 thousand) will be
recognised during 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 2022 31 December 2021
(USD, in thousands) (USD, in thousands)
Current Asset recognised from
marketing cost to obtain a
contract 70,713 33,618
---------------------- ----------------------
Non-Current Asset recognised
from marketing cost to obtain
a contract 159,941 50,201
---------------------- ----------------------
Current Asset recognised from
fulfilment cost to fulfil a
contract 10,750 2,173
---------------------- ----------------------
Non-Current Asset recognised
from fulfilment cost to fulfil
a contract 635 497
---------------------- ----------------------
Significant changes in the
deferred contract costs balances
during the period are as follows:
---------------------- ----------------------
Balance at the beginning of
the period 86,489 52,534
---------------------- ----------------------
Amortization recognised during
the period - marketing costs ( 86 ,577) (38,853)
---------------------- ----------------------
Amortization recognised during
the period - fulfilment cost (28,948) (5,631)
---------------------- ----------------------
Increases due to cash paid
- marketing costs 233,412 72,161
---------------------- ----------------------
Increases due to cash paid
- fulfilment cost 37,663 6,278
---------------------- ----------------------
Balance at the end of the period 242,039 86,489
---------------------- ----------------------
The amortization of marketing costs to obtain a contract of
$86.6 million (2021: $38.9 million) are included in total Sales and
marketing expense of $232.5 million in period ended 31 December
2022 (2021: $108.6 million).
Management expects that 30.7% of the Asset recognized from
marketing cost to obtain a contract as of 31 December 2022 will be
recognised as Selling and marketing costs during the next annual
reporting period ($70,713 thousands), 26.7% will be recognised in
2024 ($61,592 thousands) and 42.6% ($98,349 thousands) will be
recognised thereafter.
3 Segmental information
Segments revenues and results
The Group's reportable segments are strategic business units
that offer different products and services. Operating segments are
reported in a manner consistent with the internal reporting
provided to the chief operating decision maker. The chief operating
decision maker has been identified as the management team including
the Chief Executive Officer and the Chief Financial Officer. The
Group operates three reportable segments:
-- Digital Privacy - comprising virtual private network ("VPN")
solutions and other privacy SaaS products.
-- Digital Content - comprising digital platforms which provide reviews and content.
-- Digital Security - comprising software and SaaS products
offering security, endpoint protection and PC performance .
Year ended 31 December
2022 Digital Digital Digital Total
Privacy Content Security
2022 2022 2022 2022
$'000 $'000 $'000 $'000
Revenue 512,575 71,433 39,475 623,483
Cost of sales (46,206) - (2,784) (48,990)
Direct sales and marketing
costs (102,794) (57,031) (21,458) (181,283)
----------- ----------- ------------ -----------
Segment result 363,575 14,402 15,233 393,210
Central operating costs (109,521)
-----------
Adjusted EBITDA(1) 283,689
Other operating (expense)/income (1,525)
Depreciation and amortisation (154,693)
Employee share-based payment
charge (23,614)
Exceptional or non-recurring
costs (3,764)
-----------
Operating profit 100,093
Finance income 26,133
Finance costs (33,352)
-----------
Profit before tax 92,874
Taxation (21,956)
-----------
Profit for the year 70,918
Exceptional or non-recurring costs in 2022 are comprised of
non-recurring staff costs of $0.8 million, $0.9 million termination
costs of onerous contract and $2.1 million professional services
and other business combinations related costs.
Year ended 31 December
2021 Digital Digital Digital Total
Privacy Content Security
2021 2021 2021 2021
$'000 $'000 $'000 $'000
Revenue 117,042 75,581 38,042 230,665
Cost of sales (13,370) - (2,602) (15,972)
Direct sales and marketing ( 29 , (8 7 , 363
costs 222 ) (37,310) (20,831) )
----------- ----------- ------------ ------------
Segment result 74,450 38,271 14,609 127,330
Central operating costs (41,288)
------------
Adjusted EBITDA(1) 86,042
Other operating (expense)/income 947
Depreciation and amortisation (33,657)
Employee share-based payment
charge (5,224)
Exceptional or non-recurring
costs (9,850)
------------
Operating profit 38,258
Finance income 5,580
Finance costs (11,179)
------------
Profit before tax 32,659
Taxation (9,273)
------------
Profit for the year 23,386
Exceptional or non-recurring costs in 2021 are comprised of
non-recurring staff costs of $6.0 million which comprise of $4.4
million one-off bonus award to the management team for the
acquisition of ExpressVPN, $0.9 million employer cost related to
management share option exercise, $0.6 million employees onerous
contract termination costs and $3.9 million professional services
and other business combinations related costs.
(1) Adjusted EBITDA is a company-specific measure which is
calculated as operating profit before depreciation (including
right-to-use assets amortisation), amortisation, exceptional or
non-recurring costs, other operating income/(expense) and employee
share-based payment charges as set out in note 4.
Assets and liabilities by reportable segment
Total assets and liabilities per segment are not regular
provided to the chief operating decision maker and as such no
segment disclosure for assets and liabilities has been
disclosed.
Information about major customers
In 2022 and 2021 there were no customers contributing more than
10% of total revenue of the Group.
Geographical analysis of revenue
Revenue by residence of the recording subsidiary:
2022 2021
$'000 $'000
Europe 147,257 143,965
Asia 414,190 20,466
US 62,036 66,234
--------- ---------
623,483 230,665
========= =========
Geographical analysis of non-current assets
2022 2021
$'000 $'000
US 185,083 198,864
1,12 4 ,
Singapore 1,013,739 335
France 5,588 5,690
Romania 14,253 12,954
Germany 4,696 5,904
Israel 146,139 149,580
UK 560 154
Other 6,885 12,756
Total intangible assets, right-to-use
assets and property, plant and equipment 1,376,943 1,510,237
----------- -----------
4 Operating profit
Adjusted EBITDA
Adjusted EBITDA is a company-specific measure which is
calculated as operating profit before depreciation (including
right-to-use assets amortisation), amortisation, exceptional or
non-recurring costs, other operating income/(expense) and employee
share-based payment charges.
As these are non-GAAP measures, they should not be considered as
replacements for IFRS measures. The Group's definition of these
non-GAAP measures may not be comparable to other similarly titled
measures reported by other companies.
Adjusted EBITDA is calculated as follows:
2022 2021
$'000 $'000
Operating profit 100,093 38,258
Depreciation and amortisation 154,693 33,657
Other operating expense/(income) 1,525 (947)
Employee share-based payment
charge 23,614 5,224
Non-recurring costs:
Non-recurring staff costs 752 5,969
Professional services related
to business
combination 2 , 087 3,881
Termination cost of Onerous 925 -
contract
---------- --------
Adjusted EBITDA 283,689 86,042
Other operating expense in 2022 is comprised mainly of $1.3
million expense from deferred consideration Fair value movement
through profit and loss and $0.3 million loss from disposals of
Cryptocurrencies, this partially offsets with $0.1 million gain
from fixed assets disposals.
Operating profit has been arrived at after charging:
2022 2021
$'000 $'000
Exceptional or non-recurring operating
costs
Non-recurring staff costs 752 5,969
Professional services related to
business combination 2 , 087 3,881
Termination cost of Onerous contract 925 -
--------- ------------
3,764 9,850
--------- ------------
Auditor's remuneration:
Group audit and Parent Company
(BDO) 398 304
Audit of subsidiaries (BDO) 389 270
Audit of subsidiaries (non-BDO) 80 -
Amortisation of intangible assets 143,814 29,066
Depreciation 1,915 696
Amortisation of Right-to-use assets 8,964 3,895
Employee share-based payment charge 23,614 5,224
--------- ------------
Operating costs
Operating costs are further analysed as follows:
2022 2022 2021 2021
Adjusted Total Adjusted Total
$'000 $'000 $'000 $'000
Direct sales and marketing
costs 181,283 181,283 87,363 87,363
Indirect sales and marketing
costs 45,322 51,271 19,687 21,217
----------- ---------- ----------- ----------
Selling and marketing
costs 226,605 232,554 107,050 108,580
------------------------------------ ----------- ---------- ----------- ----------
Research and development
costs 31,635 40,399 8,176 10,865
Management, general
and administrative cost 32,564 45,229 13,425 24,280
Other operating expense/(income) - 1,525 - (947)
Depreciation and amortisation 16,704 154,693 7,612 33,657
----------- ---------- ----------- ----------
Total operating costs 307,508 474,400 136,263 176,435
----------- ---------- ----------- ----------
Adjusted operating costs exclude share-based payment charges,
exceptional or non-recurring costs, other operating expense/
(income) and amortisation of acquired intangible assets. See note
3.
5 Intangible assets
Capitalised
Internet Software
Intellectual Trademarks Customer Goodwill Domains Development Non-Compete Cryptocurrencies Total
Property and Brand Lists Costs
$'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000
Cost
--------- -------------- -------------- -------------- ----------------- -------------- ---------------- ------------------- -----------------
At 1 January
2021 72,264 46,908 31,302 133,181 325 11,700 - 277 295,957
--------- -------------- -------------- -------------- ----------------- -------------- ---------------- ------------------- -----------------
Additions - - - - - 5,326 - 794 6,120
Disposals - - - - - - - (776) (776)
Acquisition
through
business
combination 170,332 110,426 332,458 658,952 - - 4,291 - 1,276,459
At 31
December
2021 242,596 157,334 363,760 792,133 325 17,026 4,291 295 1,577,760
Additions - - - - - 15,418 - 392 15,810
Disposals - - - - - - - (687) (687)
At 31
December
2022 242,596 157,334 363,760 792,133 325 32,444 4,291 - 1,592,883
------------------ -------------- -------------- -------------- ----------------- -------------- ---------------- ------------------- -----------------
Accumulated
amortisation
At 1 January
2021 (40,722) (11,769) (8,352) - - (7,165) - - (68,008)
Charge
for the
year (8,445) (5,575) (11,145) - - (3,021) (880) - (29,066)
------------------ -------------- -------------- -------------- ----------------- -------------- ---------------- ------------------- -----------------
At 31
December
2021 (49,167) (17,344) (19,497) - - (10,186) (880) - (97,074)
Charge
for the
period (38,429) (10,379) (88,109) - - (5,825) (1,072) - (143,814)
------------------ -------------- -------------- -------------- ----------------- -------------- ---------------- ------------------- -----------------
At 31
December
2022 (87,596) (27,723) (107,606) - - (16,011) (1,952) - (240,888)
------------------ -------------- -------------- -------------- ----------------- -------------- ---------------- ------------------- -----------------
Net book
value
At 1 January
2021 31,542 35,139 22,950 133,181 325 4,535 - 277 227,949
At 31
December
2021 193,429 139,990 344,263 792,133 325 6,840 3,411 295 1,480,686
------------------ -------------- -------------- -------------- ----------------- -------------- ---------------- ------------------- -----------------
At 31
December
2022 155,000 129,611 256,154 792,133 325 16,433 2,339 - 1,351,995
------------------ -------------- -------------- -------------- ----------------- -------------- ---------------- ------------------- -----------------
Business Combinations
On 5 March 2021, the Group acquired 100% of the share capital of
Uma Capital Ltd and Ani Ariel Ltd, the owners of Webselenese Ltd
("Webselenese"), a digital platform which provides independent and
highly valued consumer privacy and security content to millions of
users globally via market leading review sites.
On 15 December 2021, the Group acquired certain assets,
liabilities and service entities together comprising the ExpressVPN
business ("ExpressVPN") from Access Global Limited and its
subsidiaries ("Access Global"), ExpressVPN is one of the most
recognised brands in the digital privacy space and the Acquisition
creates a premium digital privacy and security player best
positioned to serve the growing demand for digital privacy.
During the measurement period the Company recorded adjustments
to assets and liabilities assumed, an increase in the value of
trademark and technology of $5.5 million and $26.2 million,
respectively, and a reduction of the customer list value by $32.1
million, as well as a reduction in the deferred tax liabilities of
$5.5 million. The net effect of these adjustments was a
corresponding $5.1 million increase in goodwill. See Note 8.
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.
ExpressVPN was allocated to the Digital Privacy group of CGUs.
Digital Privacy is the group of CGUs that is expected to benefit
from the synergies of the business combination and represents the
lowest level in the Company at which the goodwill is monitored for
internal management purposes.
Impairment
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
Privacy group of CGUs has a carrying amount of $681.5 million
(2021: $681.5 million), the Digital Content CGU has a carrying
amount of $98.9 million (2021: $98.9 million) and the Digital
Security group of CGUs has a carrying amount of $11.7 million
(2021: $11.7 million).
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 Privacy group of CGUs, 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 3 per cent (2021: 3 per
cent). This rate does not exceed the average long-term growth rate
for the relevant markets. If the growth rate was decreased by 2
percentage point the recoverable amount would still exceed the
carrying value. The rate used to discount these forecast cash flows
is 13.5 per cent (2021: 14 per cent). The change with the discount
rate is attributed to a change with the group of CGUs Risk Premium
and Risk-free rates.
If the discount rate was increased by 7 percentage points the
recoverable amount would still exceed the carrying value. There is
no reasonably possible change in assumption that would give rise to
an impairment.
For the Digital Content 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 3 per cent (2021: 3 per
cent). This rate does not exceed the average long-term growth rate
for the relevant markets. If the growth rate was decreased by 2
percentage point the effect on the recoverable amount would still
exceed the carrying value. The rate used to discount these forecast
cash flows is 16 per cent (2021: 15 per cent). The change with the
discount rate is attributed to a change with the CGU Risk Premium
and Risk-free rates.
If the discount rate was increased by 9 percentage points the
recoverable amount would still exceed the carrying value. There is
no reasonably possible change in assumption that would give rise to
an impairment.
For the Digital Security group of CGUs, 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 3 per cent (2021: 3
per cent). This rate does not exceed the average long-term growth
rate for the relevant markets. If the growth rate was decreased by
2 percentage point the recoverable amount would still exceed the
carrying value. The rate used to discount these forecast cash flows
is 13.5 per cent (2021: 17 per cent).
If the discount rate was increased by 4 percentage points the
recoverable amount would still exceed the carrying value. There is
no reasonably possible change in assumption that would give rise to
an impairment.
6 Shareholder's equity
2022 2021
Number of Number of
Shares Shares
Issued and paid-up ordinary shares
of $0.0001 431,274,804 358,747,494
Movement in shareholder's equity
Additional paid in capital Total consideration
Ref Ordinary shares
Number $'000 $'000 $'000
At 1 January 2021 222,297,716 22
Webselenese acquisition (a) 12,123,769 1 28,548 28,549
Share issuance (net of
fees) (b) 76,543,209 8 348,382 348,390
ExpressVPN acquisition (c) 47,782,800 5 232,110 232,115
At 31 December 2021 358,747,494 36
------------- ------- ---------------------------- ---------------------
Share issuance (net of
fees) (d) 71,762,618 7 213,096 213,103
Consideration shares (e) 764,692 * - -
------------- ------- ---------------------------- ---------------------
At 31 December 2022 431,274,804 43
------------- ------- ---------------------------- ---------------------
* amounts below 1 thousands
(a) On 26 March 2021, the company issued total of 12,123,769
ordinary shares of $0.0001, as part of Webselenese acquisition to
Webselenese's founders and two senior members of staff.
Webselenese's founders share consideration is subject to lock-up
periods, of which 50% until the first anniversary of closing, 25%
until 18 months from closing and the remaining 25% until the second
anniversary.
(b) On 1 October 2021, the company issued a total of 76,543,209
new ordinary shares of $0.0001 each were subscribed by investors,
at an issue price of 337.5 pence per Placing Share. Total issue
costs amounted to $2,636 thousands. The Net amount proceeds after
issue costs from the share issuance is $348.4 million.
(c) On 16 December 2021, the company issued total of 47,782,800
ordinary shares of $0.0001, to Peter Burchhardt and Dan Pomerantz,
ExpressVPN's co-founders, representing approximately 13.6% of the
enlarged issued share capital of Kape. The share consideration is
subject to lock-up periods, of which 50% until the first
anniversary of closing, 25% until 18 months from closing and the
remaining 25% until the second anniversary, as further disclosed in
Note 8.
(d) On 3 October 2022, the company issued a total of 71,762,618
new ordinary shares of $0.0001 each were subscribed for by
investors, at an issue price of 265 pence per share. The amount
proceeds from the share issuance is $213.1 million net of issue
costs of $2.4 million.
(e) As part of the LTMI Holdings acquisition in 2019, the
Company undertook to issue 42,701,548 new ordinary shares
('Consideration Shares') to be paid in three phases. LTMI
co-founders Andrew Lee and Steve DeProspero would each been
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 were issued on completion, 10,498,020 were due
to be issued on the first anniversary of completion and 3,499,340
would have been issued on the second anniversary of completion. On
28 October 2020, the Company and LTMI Co-founders have reached an
agreement with respect to the repurchase of the Initial
Consideration Shares and their right to receive the Deferred
Consideration Shares by the Company, for a total consideration of
approximately $72.5 million. Out of which, $52.7 million were paid
for the deferred share consideration and $19.8 million paid for the
Initial consideration shares and recognised as treasury. On 6
November 2020, the Company completed the transaction. The balance
of the Consideration Shares, being 4,206,102 in aggregate, are to
be issued to four senior executives of PIA, of which 1,147,333 were
issued on completion, 2,294,077 were issued on the first
anniversary of completion and 764,692 were issued on 5 January
2022.
Treasury shares and company's Employee Benefit Trust
As at 31 December 2022, the Company holds in the treasury total
of 3,502,933 of ordinary shares of $0.0001 par value (2021:
9,800,809) and company's Employee Benefit Trust holds 4,000,000
(2021: Nil) ordinary shares. During 2022, 2,297,876 of ordinary
shares of $0.0001 par value were transferred out of treasury to
satisfy the exercise of options by the company employees (2021:
1,540,482), 4,000,000 of ordinary shares of $0.0001 par value were
transferred out of treasury to the company's Employee Benefit trust
as part of a jointly owned equity shares award to members of the
executive management, and Nil (2021: 901,823) of ordinary shares of
$0.0001 par value were transferred into treasury following
surrendering of share by the Group's Executive Directors when
exercised while utilising the net cashless exercise and
indemnification from PIA share consideration ESCROW.
Dividends
No dividend was declared in 2022 and 2021.
Reserves
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
Shares to be issued Deferred share consideration
In accordance with Isle of Man Company Law, all of the reserves
with the exception of share capital are distributable.
7 Earnings per share
Basic earnings per share is calculated by dividing the earnings
attributable to ordinary shareholders by the weighted average
number of ordinary shares outstanding during the year.
2022 2021
cents Cents
Basic earnings per share:
From continuing operations 19.2 9.6
Total basic earnings per
share 19.2 9.6
Diluted earnings per share:
From continuing operations 18.8 9.4
Total diluted earnings
per share 18.8 9.4
Adjusted basic 56.9 23.8
Adjusted diluted 55.6 23.1
Adjusted earnings per share is a non-GAAP measure and therefore
the approach may differ between companies. Adjusted earnings have
been calculated as follows:
2022 2021
$'000 $'000
Profit for the year 70,918 23,386
Post tax adjustments:
Employee share-based payment
charge 24,397 5,546
Exceptional or non-recurring
costs 3,410 8,968
Amortisation on acquired intangible
assets 122,171 24,217
Other operating expense/(income) 1,473 (852)
Gain on early payment of Deferred
Cash Consideration (17,213) -
Finance expenses/(income) on
deferred consideration for business
combination, lease liabilities,
forward contract and currency
option transaction 4,500 (3,640)
---------- ---------
Adjusted profit for the year 209,656 57,625
---------- ---------
Number Number
Denominator - basic:
Weighted average number of equity
shares for the purpose of earnings
per share 368,719,684 241,960,504
Adjustments for calculation of
diluted earnings per share:
Impact of potentially dilutive
shares related to employee options 8,183,989 7,002,360
Denominator - diluted
Weighted average number of equity
shares for the purpose of diluted
earnings per share 376,903,673 248,962,864
The Company holds shares in treasury and in the Company's
Employee Benefit Trust. These are excluded from the weighted
average number of ordinary shares for the purposes of calculating
EPS as they are not outstanding. The Deferred Consideration Shares
issuable to the sellers of PIA, of which 764,692 were issued on 5
January 2022, are included for the full period in calculating the
weighted average number of shares outstanding as solely the passage
of times means they are not contingently issuable shares.
The difference between weighted average number of Ordinary
shares used for basic earnings per share and the diluted earnings
per share 8,183,989 (2021: 7,002,360) being the effect of all
potentially dilutive shares derived from the number of share
options granted to employees.
8 Business combinations
(a) Acquisition of Webselenese Ltd.
On 5 March 2021, the Group acquired 100% of the share capital of
Uma Capital Ltd and Ani Ariel Ltd, which are the owners of
Webselenese Ltd ("Webselenese"), a digital platform which provides
independent and highly valued consumer privacy and security content
to millions of users globally via market leading review sites, and
Gclid Ltd ("Gclid") assets, owed reviews website.
No changes have been recorded to the fair value of identifiable
assets and liabilities acquired, purchase consideration and
goodwill, as previously disclosed. As summary of the acquisition is
included below:
Acquiree's
carrying amount Fair value
before combination
$'000 $'000
Fixed assets, net 255 255
Trade and other receivables 7,257 7,257
Deferred tax asset 615 615
Cash and Cash equivalents 3,087 3,087
Right of use assets 509 591
Brand - 25,829
Customer lists - 10,927
Non-compete - 4,291
Technology 1,224 12,993
Trade and other payables (2,887) (2,887)
Lease liabilities (554) (591)
Deferred tax liability - (6,185)
9,506 56,182
---------------------------------------------- --------------------- --------------
Fair value of consideration
Cash 119,160
Shares 28,548
Deferred and contingent cash considerations 7,357
Goodwill 98,883
---------------------------------------------- --------------------- --------------
Net cash outflow on acquisition of business
2021
$'000
Cash consideration 119,160
Cash and cash equivalents acquired (3,087)
---------
116,073
---------
Webselenese was acquired for a total consideration of $155.1
million (including the acquisition of Gclid assets) to be satisfied
by combination of:
-- A payment upon closing of $119.2 million in cash.
-- Issuance of 12,123,769 ordinary shares of $0.0001, to
Webselenese's founders and two senior members of staff.
Webselenese's founders share consideration is subject to lock-up
periods, of which 50% until the first anniversary of closing, 25%
until 18 months from closing and the remaining 25% until the second
anniversary.
-- Deferred cash consideration of $2.99 million for the excess
working capital of Webselenese at the closing date. The
consideration was settled 90 days after closing.
-- Contingent consideration of $2.6 million which depends on
Gclid's assets performance, see note 11.
-- Deferred cash consideration of $1.76 million which represents
the excess income tax advances that were paid by Webselenese before
the acquisition date. The Company paid $1.6 million of the
consideration during 2022. The consideration balance as of 31
December 2022 is $0.1 million (2021: $1.9 million).
(b) Acquisition of ExpressVPN
On 15 December 2021, the Group acquired certain assets,
liabilities and service entities together comprising the ExpressVPN
business ("ExpressVPN"), ExpressVPN is one of the most recognised
brands in the digital privacy space and the acquisition creates a
premium digital privacy and security player best-positioned to
serve the growing demand for digital privacy.
New information about facts and circumstances existing at the
acquisition date may be obtained within one year of the acquisition
date that would give rise to measurement period adjustments. These
adjustments may be made to the provisional fair values of assets
and liabilities previously recognized or may result in the
recognition of additional assets and liabilities, and they are
applied on a retrospective basis with comparative prior periods
revised in subsequent financial statements to include the effect of
those adjustments.
As disclosed in last year's Annual Report, the value of the
identifiable net assets of ExpressVPN had only been determined on a
provisional basis due to the proximity of the acquisition to the
year end and due to an independent valuation being carried out on
certain assets not being finalised when the 2021 financial
statements were issued. During the year ended December 31, 2022,
the Company recognised measurement period adjustments, as
follows:
(a) Trade receivables reduced by $3.8 million and trade payables
increased by $3.3 million, with a corresponding net increase in
goodwill of $0.5 million.
(b) Recognition of additional right-of-use assets and lease
liabilities, with no impact in goodwill.
(c) An increase in the value of trademark and technology of $5.5
million and $26.2 million, respectively, and a reduction of the
customer list value by $32.1 million, as well as a reduction in the
deferred tax liabilities of $5.5 million. The net effect of these
adjustments was a corresponding $5.1 million decrease in goodwill.
As a result, a decrease of $0.1 million was recognized within the
amortization of intangible assets which was slightly offset by
increase of $0.05 million of Deferred tax charge.
Details of the final fair value of identifiable assets and
liabilities acquired, purchase consideration and goodwill, are as
follows:
Change
Provisional Final Fair in fair
fair value value value
--------------- -------------- ---------- -----
$'000 Ref
------------------------------------------- -----
Fixed assets, net 2,214 2,214 -
Trade and other receivables 20,747 16,979 (3,768) (a)
Deferred Contract costs - - -
Cash and Cash equivalents 509 509 -
Right of use assets 7,245 9,122 1,877 (b)
Trademark 79,082 84,597 5,515 (c)
Customer lists 353,592 321,531 (32,061) (c)
Technology 131,145 157,339 26,194 (c)
Trade and other payables (43,242) (39,896) 3,346 (a)
Contract liabilities (122,713) (122,713) -
Lease liabilities (7,245) (9,122) (1,877) (b)
Deferred tax liability (60,270) (54,819) 5,451 (c)
------------------------------ --------------- -------------- ---------- -----
361,064 365,741 4,677
------------------------------ --------------- -------------- ---------- -----
Fair value of consideration
Cash 334,539 334,539 -
Shares 232,115 232,115 -
Deferred cash consideration 359,156 359,156 -
Goodwill 564,746 560,069 (4,677)
------------------------------ --------------- -------------- ---------- -----
Net cash outflow on acquisition of business
2022 2021
$'000 $'000
Cash consideration - 334,539
Cash and cash equivalents acquired - (509)
Deferred cash consideration early settlement 345,132
payment -
--------- ---------
345,132 334,030
--------- ---------
ExpressVPN was acquired for a total consideration of $925.8
million to be satisfied by combination of:
-- A payment upon closing of $334.5 million in cash ("Initial
Consideration"). The cash element of the Initial Consideration is
subject to adjustment for net cash or debt in the two corporate
service entities being acquired as part of the hybrid asset and
share acquisition.
-- A payment on or before the six-month anniversary of
completion, of $20.0 million. The payment was completed during the
period ended 31 December 2022.
-- A payment on the first anniversary of completion of $172.5
million in cash and on the second anniversary of completion of
$172.5 million in cash (the "Deferred Cash Consideration"). The
Deferred Cash Consideration was not subject to performance or other
conditions and its payment by Kape was secured by way of a charge
over the shares in the Buyer. The fair value of the Deferred Cash
Consideration as of the acquisition date was $359.2 million. On
September 12, 2022 Kape has signed an agreement (the "Prepayment
Agreement") that permits early settlement of the deferred
consideration for the acquisition of ExpressVPN. On November 2,
2022 the Company fully repaid the Deferred Cash consideration
capturing cash discount of $19.9 million and finance income of
$17.2 million.
-- Issuance of 47,782,800 ordinary shares of $0.0001, to Peter
Burchhardt and Dan Pomerantz, ExpressVPN's co-founders,
representing approximately 13.6% of the enlarged issued share
capital of Kape. The share consideration is subject to lock-up
periods, of which 50% until the first anniversary of closing, 25%
until 18 months from closing and the remaining 25% until the second
anniversary.
The acquisition agreement contains customary warranties for a
transaction of this nature, given by the selling entities in favour
of the Buyer and certain limited warranties given by the Group. In
addition, the Acquisition agreement contains certain indemnities to
the Buyer in respect of a limited number of specific issues
identified by the Group. The warranties and indemnities are each
subject to certain limitations. The co-founders of ExpressVPN have
personally guaranteed to the Buyer the performance by the selling
entities of their obligations in respect of the Acquisition. The
Group has guaranteed the performance by the Buyer of certain of its
obligations in respect of the acquisition.
Peter Burchhardt has the right to appoint one non-executive
director to the Board of Kape. This right will continue for so long
as the ExpressVPN co-founders, their close family members and their
respective wholly owned companies, taken together, hold at least 5%
of Kape's ordinary shares, subject to certain anti-dilution
protections. Mr Burchhardt exercised this right in September 2022
by nominating Mr Pomerantz as a Non-Executive Director which is
also employed by Kape Group in an executive capacity as the General
Manager of its Digital Privacy Division
An amount of $10.8 million of the Consideration Shares will be
held in escrow for 24 months from completion of the Acquisition to
provide security for claims under the Acquisition documents which
are agreed or determined in favour of the Buyer.
9 Related party transactions
The Group is controlled by Unikmind Holdings Limited
("Unikmind") incorporated in British Virgin Islands, which owns
54.8% of the Company's shares as at 31 December 2022. The
controlling party, Unikmind Holdings Ltd, has redomiciled from the
British Virgin Islands to the Isle of Man. Mr. Teddy Sagi is the
sole ultimate beneficiary of Unikmind Holdings Ltd. The Company
believe that all Related party transactions were made on an arm's
length basis.
(a) Related party transactions
The following transactions were carried out with related
parties:
2022 2021
$'000 $'000
Revenue from common controlled company 208 -
Technical support services to end customers
and administration services provided by common
controlled company (25) (271)
Office expenses to common controlled companies (85) (44)
Amortisation of Right-to-use assets with common
controlled companies (983) (410)
Interest expenses from lease liabilities to
common controlled companies (56) (24)
Other operating income from lease modification
to common controlled company 24 38
Software fees provided by common controlled
company (28) (32)
Issuance cost amortization for Shareholder Deferred
Consideration Facility (Note 10) (6,982) (144)
Shareholder Deferred Consideration Facility
commitment fees (Note 10) (10,156) (3,606)
Office subleasing to a common controlled company 54 -
Interest expenses from shareholder short-term
loan (1,275)
Debt issuance costs on short-term shareholder
loan - (850)
---------- ---------
(18,029) (6,618)
---------- ---------
On 5 March 2021, Kape entered into a binding commitment letter
with TS Next Level Investments Limited ("TSNLI"), "), an affiliate
of Unikmind, under which TSNLI committed, subject to limited
conditions, to provide to Kape the Bridge Loan of up to $120.0
million in aggregate. The Bridge Loan carried a fixed coupon of
6.0% per annum payable on funds drawn and an arrangement fee of
1.0%. The Bridge Loan was subordinated to Kape's existing bank
facilities and was repayable no later than 31 December 2021. On 2
June 2021, Kape fully repaid the Bridge Loan and its accumulated
interest.
On 14 September 2021, TSNLI has entered into binding commitment
letters with the Group ("Deferred Consideration Facility"), subject
to limited conditions, to make available to Group, if required,
loan facilities of up to $345.0 million in aggregate in connection
with Kape's obligation to pay ExpressVPN's Deferred Consideration.
Furthermore, Refinancing Facility of up to $130.0 million provided
until the Group achieved the club of banks consent to the
acquisition.
The Deferred Consideration Facility also carried an arrangement
fee of 1.5% of the total commitments, paid in December 2021
following the completion of ExpressVPN acquisition, and a
commitment fee accruing at the rate of 3.50% per annum on undrawn
commitments, payable on the earlier of the commitments being
cancelled or utilised. Should Kape find an alternative source of
financing to fund the payment of the Deferred Consideration or to
refinance the Deferred Consideration Facility, the commitment fees
will only be payable pro rata for the period during which the
commitment under the Deferred Consideration Facility is in
place.
On 12 September 2022, the Company entered into an Early
repayment agreement with the ExpressVPN founders to pay the
deferred cash consideration in advance of the contractual dates in
the purchase agreement.
On 2 November 2022, the Company entered into an agreement for
Modified bank facility (see Note 10). This Modified debt facility
replaced all Kape's existing loan facilities, including the
Deferred Consideration resulting from the ExpressVPN acquisition
and the Deferred Consideration Facility arrangement with TSNLI. As
a result, the Company terminated the Deferred consideration
facility from TSNLI and paid the pro-rata Commitment fees up to
that date. As of 31 December 2022, the Company paid all the
obligations to TSNLI.
(b) Receivables owed by related parties
2022 2021
Name Nature of transaction $'000 $'000
Parent company Unpaid share capital 10 10
Companies related by
virtue of common control Other 144 40
------- -------
154 50
------- -------
(c) Payables to related parties
2022 2021
Name Nature of transaction $'000 $'000
Companies related by
virtue of common control Other 6 74
Companies related by Accrued commitment
virtue of common control fees - 3,606
------- -------
6 3,680
------- -------
(d) Right-to-use assets and Lease liabilities to related parties
2022 2021
$'000 $'000
Right-to-use assets 7,428 5,313
---------- ---------
Lease liabilities (7,415) (5,346)
---------- ---------
1 0 Loans and Borrowings
Term facility Revolving Shareholder
credit facility loan
$'000 $'000 $'000
At 1 January 2021 35,176 1,560 -
Cash movements: - - -
Bridge Loan - - 85,000
Term Facility 85,000 - -
Revolving credit facility - 8,207 -
Debt issuance costs (2,186) - (850)
Repayment of loan (11,818) - (85,000)
Interest paid (1,844) (90) (1,275)
Non-cash movements:
Interest expenses 3,117 204 1,275
Debt issuance costs - - 850
Net foreign exchange - 58 -
At 31 December 2021 107,445 9,939 -
--------------- ------------------ -------------
Current liability 19,554 - -
--------------- ------------------ -------------
Non-Current liability 87,891 9,939 -
--------------- ------------------ -------------
Cash movements:
Term Facility 180,455 - -
Revolving credit facility - 93,644 -
Debt issuance costs (3,969) (1,615) -
Interest paid (3,470) (1,096) -
Repayment of loan (21,875) - -
Non-cash movements:
Interest expenses 7,576 2,926 -
Net foreign exchange - (482) -
Gain on loan modification (169) (491) -
--------------- ------------------ -------------
At 31 December 2022 265,993 102,825 -
--------------- ------------------ -------------
Current liability 29,417 1,187 -
--------------- ------------------ -------------
Non-Current liability 236,576 101,638 -
--------------- ------------------ -------------
Shareholder loan
On 5 March 2021, Kape has entered into a binding commitment
letter with TS Next Level Investments Limited ("TSNLI") under which
TSNLI committed, subject to limited conditions, to provide to Kape
the Bridge Loan of up to $120 million in aggregate. The Bridge Loan
carried a fixed coupon of 6.0% per annum payable on funds drawn and
an arrangement fee of 1.0%. The Bridge Loan was subordinated to
Kape's existing bank facilities and was repayable no later than 31
December 2021. On 2 June 2021, Kape repaid the Bridge Loan in full
and accumulated interest following closing of a bank debt facility
as described below.
Shareholder Deferred Consideration Facility
On 14 September 2021, TS Next Level Investments Limited
("TSNLI"), an affiliate of Unikmind, has entered into binding
commitment letters with the Group ("Deferred Consideration
Facility"), subject to limited conditions, to make available to
Group, if required, loan facilities of up to $345 million in
aggregate in connection with Kape's obligation to pay ExpressVPN's
Deferred Cash Consideration. Furthermore, Refinancing Facility of
up to $130 million provided until the Group achieved the club of
banks consent to the acquisition.
The Deferred Consideration Facility also carried an arrangement
fee of 1.5% of the total commitments, paid in December 2021
following the completion of ExpressVPN acquisition, and a
commitment fee accruing at the rate of 3.50% per annum on undrawn
commitments, payable on the earlier of the commitments being
cancelled or utilised. Should Kape find an alternative source of
financing to fund the payment of the Deferred Consideration or to
refinance the Deferred Consideration Facility, the commitment fees
will only be payable pro rata for the period during which the
commitment under the Deferred Consideration Facility is in
place.
On 12 September 2022, the Company announced that it had entered
into an Early repayment agreement with the ExpressVPN founders to
pay the deferred cash consideration in advance of the contractual
dates in the purchase agreement. On 2 November 2022 following
entering a Modified Bank Facility the Company terminated the
Deferred consideration facility from TSNLI and paid the pro-rata
Commitment fees up to that date, $13.8 million (see Note 9).
Bank loan
(a) General
On 28 May 2021 the Company agreed with Bank of Ireland, Barclays
Bank PLC, Citi Bank, Citizens Bank, BNP Paribas and Leumi Bank, to
replace the existing bank facilities and Shareholder loan with a
Modified senior secured bank facilities of up to $220 million. The
bank facilities comprise a $120 million senior secured term
facility, a $10 million revolving credit facility and a $90 million
uncommitted acquisition facility. Bank of Ireland is the agent
bank. These bank facilities had a three-years term with an option
to extend the term by up to an additional two years. 50% of the
Term Facility will be amortised on a quarterly basis across 36 and
the rest was to be paid at a lump-sum payment.
On 15 December 2021 the Banks, have given its consent to the
ExpressVPN Acquisition and extended their revolving credit facility
to Kape from $10 million to $80 million. The revolving credit
facility can be utilized according to Kape's needs.
On 2 November 2022, the Company has entered to an agreement for
modified bank facilities with its existing lenders Bank of Ireland,
Barclays, Citizens Bank, BNP Paribas, Citi Commercial Bank, and
Leumi Bank, and two new banks, HSBC and Credit Suisse, who will
join the enlarged syndicate. This Modified debt facility replaced
all Kape's existing loan facilities, including the Deferred
Consideration resulting from the ExpressVPN acquisition and the
Deferred Consideration Facility arrangement with TSNLI (see Note
9).
The modified debt facility comprises a $275.0 million senior
secured term facility (the "Modified Term Facility"), a $150.0
million revolving credit facility (the "RCF") and an uncommitted
$75.0 million facility (together the "Modified Debt Facilities").
Bank of Ireland is the agent bank. The Modified Debt Facilities
have a four-years term with an option to extend the term by up to
an additional one year. 40% of the Term Facility will be amortised
on a quarterly basis across 48 months starting December 2022, and a
bullet payment on 2 November 2026. The Modified Debt Facilities
carry an opening Margin of 2.75% above Applicable Reference Rate
per annum. The Company paid arrangement fees of 0.75% for the
Modified Term Facility and the RCF, $3.2 million.
Term Facility
The term facility comprised from $94.5 million remaining from
the existing term facility and net proceeds of the Modified Term
Facility of $176.5 million after deducting commissions and other
direct costs of the Term Facility. Commissions and other direct
costs of the Term Facility have been offset against the principal
balance and are amortised throughout the loan.
The Term Facility carries an interest rate of 3 months
Applicable Reference Rate, which is USD SOFR or EUR EURIBOR or GBP
SONIA, (as of the beginning of the relevant period) plus an opening
Margin of 2.75% per annum.
The applicable Margin is linked to the Adjusted Leverage, tested
at the end of each quarter for the preceding 12 months, with a
range of 2%-3% per annum.
The applicable margin as of 31 December 2022, is 2.75% (2021:
2.75%) and the effective interest rate, after considering debt
issuance, cost is 7.72% (2021: 3.866%).
RCF
A $150.0 million revolving credit facility, that carries a
commitment fee for the unused facility of 35% of the applicable
Margin and interest rate as of the Term Facility for the used
facility. As of 31 December 2022, the total credit facility drawn
amount is $103.2 million.
(b) Security
The Modified Debt Facilities are secured by first ranking
security over all assets (including material Intellectual Property)
of Kape Technologies Plc ("Parent") and her material subsidiaries
("Obligors") and over the shares in all Obligors (other than the
Parent).
(c) Loan Covenants
The Group is required to comply with the following financial
covenants:
-- The ratio of EBITDA to Net Finance Charges ("Interest Cover")
shall not be less than 4.0x in respect of any Relevant Period.
-- The ratio of Total Net Debt on the last day of the relevant
period to Adjusted EBITDA in respect of that Relevant period
("Adjusted Leverage"), shall not exceed 3x. Under some condition
agreed with club of bank, the Company Net leverage can reach up to
3.5x due to acquisition spike for a period of 6 months following
acquisition.
As of 31 December 2022, the Group has met the financial
covenants as follows:
-- Interest Cover: 8
-- Adjusted Leverage: 0.68
The Group has been fully compliant with debt covenants through
the period.
Fair Value
As of December 31, 2022, the fair values are not materially
different from the carrying amount of the Bank Loan, since the
interest payable is deemed to be market rate.
Interest
For the year ended 31 December 2022 the difference between the
interest expense and the interest paid is mainly due to the
interest payable balance of $4.3 million and difference between the
effective interest rate to the nominal interest rate of the
loan.
1 1 Deferred and contingent consideration
DriverAgent Private Private Total
Acquisition Internet Internet Webselenese ExpressVPN
Access Access acquisition acquisition
Inc acquisition Inc acquisition
- deferred - deferred
cash assets
consideration consideration
$'000 $'000 $'000 $'000 $'000 $'000
At 1 January
2021 192 14,302 247 - - 14,741
Deferred
consideration
payments - (10,714) - (3,332) - (14,046)
Non-Cash
deferred
consideration
proceeds - - (247) - - (247)
Arising from
business
combination
(see note 8) - - - 7,357 359,156 366,513
Fair value
movement
through profit
and loss (140) - - 370 - 230
Unwinding of
discount - 696 - 42 170 908
Foreign
Exchange
movements - - - 188 - 188
At 31 December
2021 52 4,284 - 4,625 359,326 368,287
Current - 4,284 - 4,625 190,428 199,337
Non Current 52 - - - 168,898 168,950
Contingent
consideration
payments - - - (472) - (472)
Deferred
consideration
payments - - - (1,547) (345,132) (346,679)
Fair value
movement
through profit
and loss (52) - - 1,434 - 1,382
Early
settlement
discount - - - - (17,213) (17,213)
Unwinding of
discount - - - 63 3,019 3 ,082
Foreign
Exchange (1 0
movements - - - (1 0 2) - 2)
-------------- ----------------- ----------------- --------------- --------------- -----------
At 31 December
2022 - 4,284 - 4,001 - 8,285
-------------- ----------------- ----------------- --------------- --------------- -----------
Current - 4,284 - 4,001 - 8,285
-------------- ----------------- ----------------- --------------- --------------- -----------
Non Current - - - - - -
-------------- ----------------- ----------------- --------------- --------------- -----------
(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
2022, the consideration balance is $Nil (2021: $0.05 million).
(b) 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 was 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 a 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").
On 28 October 2020, the Company and the LTMI Founders reached an
agreement with respect to the sale and purchase of the Initial
Consideration Shares and their right to receive the Deferred
Consideration Shares, for a total consideration of approximately
$72.5 million. On 6 November 2020, the Company completed the
transaction. As of 31 December 2020, the Company holds the Initial
Consideration Shares in Treasury.
On 6 January 2022, the Company issued 764,692 new ordinary
shares following the second anniversary of completion. As of 31
December 2022, the share consideration balance is $Nil (2021: $1.35
million).
As of 31 December 2022, the deferred consideration balance
included $4.3 million (2021: $4.3 million) of deferred cash
consideration. The balance is expected to be paid on the year
ending 31 December 2023.
(c) Acquisition of Webselenese
On 5 March 2021, the Group acquired 100% of the share capital of
Uma Capital Ltd and Ani Ariel Ltd, which are the owners of
Webselenese Ltd ("Webselenese") and assets from Gclid Ltd, a
digital platform which provides independent and highly valued
consumer privacy and security content to millions of users globally
via market leading review sites, as further described in Note 8.
The acquisition consideration included the following deferred and
contingent considerations:
-- Deferred cash consideration of $2.99 million for the excess
working capital of Webselenese at the closing date. The
consideration was settled 90 days after closing.
-- Gclid will receive 8% from EBITDA resulted from Gclid assets
sold. The Company can acquire the royalties right at any point, in
amount equal the last 12 months EBITDA multiple by 5.5. As of the
acquisition date the fair value of the contingent consideration was
$2.6 million. The Company paid $0.5 million during 2022. As of 31
December 2022, the contingent consideration fair value is $3.9
million (2021: $2.7 million).
-- Deferred cash consideration of $1.76 million which represents
the excess income tax advances that were paid by Webselenese before
the acquisition date. The Company paid $1.6 million of the
consideration during 2022. The consideration balance as of 31
December 2022 is $0.1 million (2021: $1.9 million).
(d) Acquisition of ExpressVPN
On 15 December 2021 (the "Closing date", "Completion"), the
Group acquired certain assets, liabilities and service entities
together comprising the ExpressVPN business ("ExpressVPN") from
Access Global Limited and its subsidiaries ("Access Global"),
ExpressVPN is one of the most recognised brands in the digital
privacy space and the Acquisition creates a premium digital privacy
and security player best positioned to serve the growing demand for
digital privacy, as further described in Note 8.
ExpressVPN was acquired for a total consideration of $925.8
million to be satisfied by combination of:
-- A payment upon closing of $334.5 million in cash ("Initial
Consideration"). The cash element of the Initial Consideration is
subject to adjustment for net cash or debt in the two corporate
service entities being acquired as part of the hybrid asset and
share acquisition.
-- A payment on or before the six-month anniversary of
completion, of $20.0 million. The payment was completed during the
period ended 31 December 2022.
-- A payment on the first anniversary of completion of $172.5
million in cash and on the second anniversary of completion of
$172.5 million in cash (the "Deferred Cash Consideration"). The
Deferred Cash Consideration was not subject to performance or other
conditions and its payment by Kape was secured by way of a charge
over the shares in the Buyer. The fair value of the Deferred Cash
Consideration as of the acquisition date was $359.2 million. On
September 12, 2022 Kape has signed an agreement (the "Prepayment
Agreement") that permits early settlement of the deferred
consideration for the acquisition of ExpressVPN. On November 2,
2022 the Company fully repaid the Deferred Cash consideration
capturing cash discount of $19.9 million and finance income of
$17.2 million.
-- Issuance of 47,782,800 ordinary shares of $0.0001, to Peter
Burchhardt and Dan Pomerantz, ExpressVPN's co-founders,
representing approximately 13.6% of the enlarged issued share
capital of Kape. The share consideration is subject to lock-up
periods, of which 50% until the first anniversary of closing, 25%
until 18 months from closing and the remaining 25% until the second
anniversary.
1 2 Subsequent events
(a) Offer for Kape Technologies plc
Unikmind Holdings Ltd ("Unikmind") under Rule 2.7 of the City
Code on Takeovers and Mergers (the "Code") has made a cash offer to
acquire the entire issued and to be issued share capital of the
Company not already held by Unikmind at a price of $3.44, being
equivalent to 285 pence per Kape share based on the exchange rate
of GBP1:US$1.2058 as at 21:59 UKT on 10 February 2023 as derived
from data provided by Bloomberg ("Announcement Exchange Rate") (the
"Offer").
Unikmind first approached the Company on 9 December 2022 with a
proposal to make an offer for the
Company at 265 pence per share. Having carefully considered this
proposal, the Independent Directors
rejected it as offering insufficient value to shareholders.
However, the Independent Directors did agree, on
Unikmind entering into a non-disclosure agreement ("NDA") which,
inter alia, included a standstill provision
precluding Unikmind from buying Kape shares in the market until
the earlier of (i) the date on which Kape
announces its full year results for the twelve months ended 31
December 2022 and (ii) 31 March 2023 ("NDA
Standstill"), to provide to Unikmind access to certain limited
information about the business and its prospects
in order to encourage a higher offer from Unikmind.
On 13 January 2023, Unikmind made a revised proposal to the
Independent Directors at the amount equivalent of 285 pence per
ordinary share. In light of the stated intention of Unikmind to
seek a delisting of the Company regardless of the outcome of the
Offer, and the ability of Unikmind to acquire further Kape shares
without constraint once the NDA Standstill expires, the Independent
Directors believe that it was in the interests of shareholders for
the Company to grant Unikmind a partial standstill release from the
NDA Standstill to allow Unikmind's proposal to be presented to Kape
shareholders for their consideration.
(b) Silicon Valley Bank Collapsing
On Friday, March 10, 2023, Silicon Valley Bank was closed by the
California Department of Financial Protection & Innovation and
the FDIC was named Receiver. No advance notice is given to the
public when a financial institution is closed. The FDIC has created
the Deposit Insurance National Bank of Santa Clara (DINB) to
facilitate the resolution of Silicon Valley Bank. To protect the
depositors, the FDIC created the Deposit Insurance National Bank of
Santa Clara (DINB) to allow depositors access to their insured
deposits and time to open accounts at other insured
institutions.
The Company held immaterial cash balance with Silicon Valley
Bank and all was withdrawn to other bank accounts.
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 Joint Joint Broker
Broker
---------------------------------
Shore Capital & Corporate Limited Stifel Nicolaus Europe Limited
Shore Capital Stockbrokers Limited 150 Cheapside
Cassini House London EC2V6ET
57 St James's Street
London SW1A 1LD
---------------------------------
Investor Relations Registrars
---------------------------------
Vigo Communications Computershare Investor Services
Sackville House (Jersey) Limited
40 Piccadilly Queensway House
London W1J 0DR 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.
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END
FR JBMMTMTMTMMJ
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