Final Results

RNS Number : 4880S

Kape Technologies PLC

17 March 2021

Kape Technologies plc

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

FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2020

Strong revenue and EBITDA growth underpinned by significant operational progress

Kape (AIM: KAPE), the digital security and privacy software business, announces its results for the year ended 31 December 2020.

Financial highlights

The Group experienced strong revenue growth, with EBITDA ahead of expectations and improved profitability underpinned by organic growth initiatives.

· Revenues increased 85% to $122.2 million (2019: $66.1 million) driven by a 31% increase in organic growth in the digital privacy segment and full year contribution of Private Internet Access ("PIA")

· Recurring revenues of $106.4 million, an increase of 106.6% (2019: $51.5 million) underpin earnings visibility

· Adjusted EBITDA¹ up 168% to $39.0 million (2019: $14.6 million) and Operating profit up 158% to $10.7 million (2019: $4.1 million)

· Adjusted EBITDA margin increased to 31.9% (2019: 22.0%)

· Net profit increased to $28.9 million (2019: $2.0 million), including a $25.6 million one off tax benefit, a result of the increased tax base of the PIA intangible assets

· Fully Diluted Earnings Per share² up 771% to 14.8 cents (2019: 1.7 cents)

· Adjusted cash flow from operations increased by 1,994% to $20.4 million (2019: $1.0 million) as a result of the enhanced cash profile of the business due its growing customer base

· Adjusted cash flow from operations attributable to current year, excludes investment in future growth, of $43.6 million (2019: $17.9 million), which represents cash conversion of 112% (2019: 123%), excluding movement in deferred contract costs

· Cash balance of $49.9 million and net cash of $11.1 million at the end of the year

Operational highlights

· Increase in subscribers to 2.52 million at 31 December 2020 (31 December 2019: 2.31 million) with a 83% retention rate (31 December 2019: 81%)

• Visibility on revenues from existing users increased to $110.5 million³ (31 December 2019: $98.8 million)

· Completed the successful integration of PIA

• Delivered operational cost synergies of $6.5 million, ahead of expectations of $3.5-4.5 million

• Kape's user acquisition expertise and technology continues to drive growth of PIA users

· Raised additional growth capital through a successful $115.5 million fundraising in October 2020, which was both oversubscribed and upscaled

• Expanded Kape's investor base across the UK, Europe, US and Israel

• Facilitated the buy-out of the equity interests in the Company of the two co-founders of PIA

• Provided additional funds to execute on the Group's growth strategy

• Followed on from the new $70 million banking facilities secured by Kape in March 2020

· Delivered on the Group's product development roadmap, launching a number of significant new solutions and initiatives during the year

• Transformed the digital business from VPN provider to a fully-fledged privacy and security suite

• Launched CyberGhost's first unified privacy and security suite, adding Privacy Guard and Security Updater

· Accelerated cross-selling initiatives across the Group, another driver for future growth

Post period-end

· Trading in the first quarter of 2021 has remained strong with solid traction for Kape's solutions

· Appointed Pierre-Etienne Lallia as Non-executive Director in January 2021

· In March 2021, announced the acquisition of Webselenese - a highly strategic acquisition for the Group

• Provides Kape with one of the broadest audiences for consumer digital privacy and security

• Deepens the Group's go-to-market capabilities, bringing Kape closer to the consumer through unrivalled insights and expertise, to support the Group's product development roadmap

• Key pillar in Kape's strategic roadmap to become a world leader in consumer digital privacy and security

• Significantly earnings enhancing, with 65% accretion of EPS expected in 2021

Outlook

· It is anticipated that the enlarged group will generate revenues of between $197-202 million and Adjusted EBITDA of between $73-76 million for the full year 2021 on a reported basis⁴

· The Board remains confident in the Group's growth prospects in 2021 and beyond

Ido Erlichman, Chief Executive Officer of Kape, commented:

"2020 marks a key year in Kape's progression; with strong growth across the business. We have successfully completed the integration of PIA realising cost savings which were 50% higher than we anticipated, alongside strong traction in new users in Q4."

"Our product development efforts have accelerated as we launched a complete privacy and security suite, providing our users with a wider set of Kape products available from one point of purchase."

"Pleasingly, we have made a strong start to 2021. We accelerated our M&A activities with the highly strategic acquisition of Webselenese last week, our largest acquisition to date. Kape is also experiencing strong growth momentum across all our business units during the first quarter of the year and we expect these trends to continue as we deliver on our strategic roadmap."

An audio webcast of Kape's results presentation will be made available on the Company's website later today.

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 expenses and employee share-based payment charges.

² From continuing operations

³ Calculated as expected revenues from first renewal of the existing user base in addition to the deferred revenue balance

⁴ Consolidating Webselenese as from the 5 March 2021. On a pro forma basis it is anticipated that the enlarged group will generate revenues of between $208-213 million and Adjusted EBITDA of between $78-81 million for the full year 2021

Enquiries:

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

About Kape

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

To date, Kape has over 2.5 million paying subscribers, supported by a team of over 360 people across eight locations worldwide.

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

www.kape.com

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Chairman's statement

2020 was a year dominated by the social and economic challenges brought about by the Covid-19 pandemic. As we look back over 2020 and evaluate our progress, I am immensely proud of the response of our management team in safeguarding our people and of our employees in keeping our customers protected. The need for digital privacy products has never been more relevant. There is no question that the sudden and rapid shift to remote working accelerated consumer awareness of the need for a more comprehensive suite of privacy solutions capable of protecting their data, identity and digital footprint, in turn fuelling demand.

This helped deliver a very strong performance from the Group. In the year ended 31 December 2020, revenue generated was at the upper end of management's forecasted range at $122.2 million (2019: $66.1 million), an increase of 85%, with recurring revenue now representing c. 87% of total Group revenue. Kape also achieved Adjusted EBITDA¹ ahead of management's expectations at $39.0 million (2019: $14.6 million).

Management delivered on its promise to integrate PIA, strengthen the balance sheet and accelerate product development initiatives. The integration of PIA has exceeded expectations, which is particularly pleasing, given that, at the time we made the acquisition, it was our largest acquisition and integration to date. This experience of delivering a successful integration gives us huge confidence following the recent announcement of our acquisition of Webselenese.

We were extremely pleased to complete the successful fundraise in October 2020, and for Kape's first capital raise since IPO to be significantly oversubscribed, and subsequently upscaled, validates investor support for Kape's vision and the execution of our strategy to date. The ability of the Company's R&D team to innovate and launch multiple new products was again demonstrated during 2020 and we are already seeing growing traction for these products, paving the way for Kape to play an expanding role in individuals' lives globally. The business reached a new level of maturity in 2020 and we are already building on this in the current financial year.

Post period-end

We were pleased to announce the appointment of Pierre-Etienne Lallia as Non-executive Director in January 2021. Mr. Lallia brings extensive experience working across the capital markets arena, having spent much of his career at leading global investment banks. Mr Lallia is Managing Director of Globe Invest UK Ltd and the appointed representative of Unikmind Holdings Limited, the Company's largest shareholder. He is a significant addition to the Board of Kape.

The acquisition of Webselenese in March 2021 is pivotal in Kape's strategic roadmap. Whilst to date Kape's M&A strategy has focused on expanding its product portfolio, which we will continue to do, this addition to the Group is highly strategic and enhances both our go-to-market capabilities and product development roadmap whilst at the same time being significantly earnings enhancing.

Outlook

As announced at the time of the Webselenese acquisition, it is expected that the enlarged group will generate consolidated full-year 2021 revenues of between $197-202 million and Adjusted EBITDA of between $73-76 million.

We expect that the combination of our growing product stack and our superior go-to-market capabilities will accelerate our growth across 2021 and in the years to come, particularly as we begin to see the benefits from the acquisition of Webselenese. We continue to execute on our ambitious strategy to be our customers' go-to partner in ensuring control over their online privacy and security both through organic growth and further acquisitions.

Summary

Kape's management team have continued to demonstrate their unique combination of a compelling strategic vision coupled with superior execution capabilities. We are confident that during 2021 and beyond we will continue to deliver against our strategy and on our ambitious growth trajectory. I would like to thank the entire global Kape team for their hard work and dedication during what has been a trying time for every individual. Kape's ongoing success would not be possible without the tenacity and determination of its people.

We were especially encouraged by the participation of a number of core management and employees in the Company's recent equity fundraising in October 2020 which amounted to circa $600,000.

Don Elgie

Non-executive Chairman

16 March 2021

¹Adjusted 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 expenses and employee share-based payment charges.

Chief Executive Officer's review

Introduction

2020 was an extremely positive year for Kape, both in terms of operational progress and financial performance. Kape delivered a record performance in 2020, with a significant increase in both revenues and improved profitability. With Covid-19 causing widespread uncertainty globally, the requirement for high quality and secure internet software solutions has been further reinforced, triggering a sustained increase in demand for Kape's products. If we have learned anything from 2020, then it is that the move to increased working from home is very much here to stay which bodes extremely well for Kape's future.

In the year ended 31 December 2020, revenue generated was at the upper end of management's forecasted range at $122.2 million (2019: $66.1 million), an increase of 85%, with recurring revenue now representing c. 87% of total Group revenue. Kape achieved Adjusted EBITDA¹ ahead of management's expectations at $39.0 million (2019: $14.6 million), up 168%, with Adjusted EBITDA margin increasing significantly to 31.9% (2019: 22.0%).

The tenacity and dedication of our employees was more evident than ever in 2020. Despite the challenges arising from the increase in employees working from home, as a business, we delivered across all our key strategic milestones. This is testament to the more than 360 individuals that Kape employs globally, who work daily innovating, improving, and delivering on our vision to become the privacy and security provider of choice for consumers. Notable achievements in the year include:

· completing the integration of PIA ahead of schedule and achieving synergies beyond expectations;

· delivering on our product roadmap, launching our first unified privacy and security suite, providing consumers with a comprehensive protection solution to safely navigate their life online; and

· raising additional capital and expanding our investor base in the UK, Europe, US and Israel, to continue on our growth trajectory.

PIA Integration

In the latter part of 2020, we completed the integration of PIA, having acquired the business in December 2019. The first half of the year was focused on improving the business' infrastructure and realising cost synergies. Pleasingly, we were successful in improving the service that we provide to our customers whilst reducing the cost to serve, as a result of the technical strengths and economies of scale of the enlarged group.

The cost synergies that the Group achieved totaled $6.5 million - well ahead of the upper end of the $3.5-4.5 million range previously guided. From a cultural aspect, it has been encouraging to see that the pursuit for privacy and security for consumers unites all of the Group's employees, with PIA's team central to our ongoing efforts. By the completion of the integration, we had retained 97% of the original PIA team (excluding preplanned departures) and a number of former PIA employees have since taken on enhanced Group-wide roles. In the final quarter of 2020, the strength of combining Kape's go-to-market technologies with PIA's brand recognition began to come to fruition, with 93% growth achieved in cash revenue from new users in Q4 2020 compared with the same period in the prior year. We expect this trend to continue as we expand our customer acquisition efforts.

Product development

2020 was a significant year for Kape in terms of product development, as we transformed our digital business from a VPN provider to a fully-fledged consumer focused privacy suite. This included the launch of CyberGhost's first unified privacy and security suite, an all-in-one digital freedom, data privacy and security system providing consumers with a comprehensive solution enabling them to safely navigate their lives online. Two significant new features were added, Privacy Guard, which gives users full control over their operating system's settings and Security Updater, which protects devices from threats caused by vulnerable versions of installed apps. The WireGuard® encryption protocol has also been introduced to enhance the security and performance of our VPN service and we launched our endpoint protection for Windows, with this product now available to CyberGhost customers.

Kape is also adding products which protect two further privacy touchpoints: a Password Manager, which is a fully secured vault which allows customers to actively guard their passwords; and an end-to-end encryption service for cloud-data in partnership with Boxcryptor, which ensures that users' files are encrypted before they are synced to supported cloud storage providers.

We have seen increasing uptake for our powerful antivirus real-time protection for Windows in our privacy suite, as well as the introduction of our tokenised dedicated IP product. Overall, 10% of all new CyberGhost users have taken up additional products during the first two months of 2021, as we accelerate our cross-selling initiatives, which we believe are a key strategic growth driver for the Group. Kape's product roadmap is geared towards adding adjacent products which will enhance and improve our customers' control over their digital privacy and security, and we are seeing growth in up-sell and cross-sell.

Finally, we have begun deploying colocation, adding a private server network, which is owned and controlled by Kape in 17 locations including Chicago, Frankfurt, Silicon Valley, Toronto and Berlin, providing our customers with even greater autonomy and digital protection.

Strengthening the Balance Sheet

In April 2020, the Group secured a new senior term loan and revolving credit facilities of up to $70 million with Bank of Ireland, Barclays Bank, and Citi Commercial Bank. The Group's balance sheet was further strengthened in October 2020, through a significantly oversubscribed and upscaled $115.5 million fundraise to provide additional growth capital. We were very pleased with the strong response to the fundraising, which further endorsed our strategy, as we received high levels of interest from existing shareholders, as well as welcoming a number of new US institutions to our register. Post year-end, as part of the funding for the Webselenese acquisition, the Group increased debt funding through drawing down $85 million under a bridge facility made available by TS Next Level Investments Limited, an affiliate of Unikmind Holdings Limited, Kape's majority shareholder.

Key Performance Indicators

In the year ended 31 December 2020, the Group continued to perform very strongly against its KPIs, which are designed to track the ongoing profitability and earnings predictability of the Group by assessing the progress of the Group's SaaS business model.

	31 Dec 2020 '000	31 Dec 2019 '000
Subscribers (thousands)	2,519	2,308
Retention rate³	83%	81%
Deferred income ($'000)	36,594	35,312

	Year ended 30 Dec 2020	Year ended 30 Dec 2020
Adjusted EBITDA	38,973	14,559
Adjusted operating cash flow²:
Attributable to current year ($'000)	43,594	17,902
Investment in growth	(23,194)	(16,928)
Adjusted operating cash flow ($'000)	20,400	974

The number of subscribers increased in the year to 2.52 million, as we started to introduce our customer acquisition capabilities and technologies across PIA in the second half of the year, a trend we expect to accelerate.

The number of CyberGhost and Intego subscribers increased 19% and 28% respectively on an annualised basis during the period and we expect PIA to achieve these double-digit growth rates, as all solutions continue to benefit from Kape's ongoing customer acquisition technologies. The PC performance products saw a flattening in users during the period, as we continue to shift our customer acquisition focus to the high growth privacy and security verticals.

Pleasingly, we also achieved an uplift in retention to 83%, which remains very high for a consumer software business. With recurring revenues now accounting for 87% of group revenue, Kape has strong visibility over its future earnings with deferred income of $36.6 million at 2020 year-end.

We achieved a significant increase in Adjusted EBITDA of 168%, as well as a marked increase in adjusted operating cash flow attributable to the current year to $43.6 million (2019: $17.9 million), enabling us to make substantial investment in the future growth of the business, as we continue to execute on our strategy.

COVID-19 response

As announced in March 2020, Kape successfully shifted its global workforce to remote working across the majority of its locations with minimal impact on the Group's output. The health and wellbeing of our employees is a central priority for Kape and whilst we are pleased to see the worldwide roll-out of vaccination programs, management continues to monitor the situation very closely. Covid-19 has triggered a seismic shift in the way that people work and interact causing a global acceleration in digitisation. In turn, individuals' digital privacy and security has become a priority resulting in a sustained increase in demand for Kape's products. Pleasingly, the Group has been able to service this increase in demand despite the ongoing influences of the pandemic without impact to the quality of its services.

Acquisition of Webselenese

In March 2021, post year-end, the Group announced the acquisition of Webselenese - a highly strategic transaction for Kape that markedly bolsters our go-to-market and product development capabilities. Webselenese is an insight-driven digital platform which provides independent and highly valued consumer privacy and security content to millions of users globally via its market leading review site, attracting eight and a half million unique monthly readers in more than 29 languages, with a strong presence in North America.

It is anticipated that Webselenese's unrivalled level of market understanding and consumer feedback will support Kape's ongoing product development and organic user growth with Webselenese maintaining its editorial independence as its management team will stay with the business. This acquisition is a very important milestone in Kape's journey to becoming the leading force across the global consumer digital privacy and security arena and we look forward to providing further updates regarding the synergies from and integration of the acquisition in due course.

Outlook

I am delighted with our progress during 2020, both in terms of strategic objectives and accelerating our financial and customer growth targets. This momentum has been maintained into 2021 with continued strong organic growth coupled with the acquisition of Webselenese, which we managed to execute less than six months after securing our additional funding.

The board and management team believe that the Group is now better placed than ever before to continue to deliver meaningful growth in the medium to long-term and benefit from the burgeoning digital privacy and security markets. It is expected that following the acquisition of Webselenese in March 2021, the Group will generate consolidated 2021 revenues of between $197-202 million and Adjusted EBITDA of between $73-76 million, signposting another period of material growth for the business.

We expect the combination of expanding our product stack coupled with our superior go-to-market capabilities will accelerate growth in the medium-term. We continue to execute on our ambitious strategy to be our customers' go-to partner in ensuring control over their online privacy and security.

Ido Erlichman

Chief Executive Officer

16 March 2021

¹Adjusted 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 expenses and employee share-based payment charges.

²Adjusted operating cash flow attributable to current year is calculated as Adjusted operating cash flow excluding change in deferred contract costs.

³Retention rates are calculated on a six month basis.

Chief Financial Officer's review

Overview

Revenues for the year to 31 December 2020 increased by 85.0% to $122.2 million (2019: $66.1 million). The increase in revenues was driven by a full year contribution of PIA as well as 31% organic growth in the Digital Privacy segment. Adjusted EBITDA increased by 167.7% to $39.0 million (2019: $14.6 million). Operating profit increased by 158.5% to $10.7 million (2019: $4.1 million).

Adjusted cash flow from operations attributable to the current financial period was $43.6 million (2019: $17.9 million), which represents cash conversion of 112% (2019: 123%). In addition, during the period, $23.2 million was reinvested in user acquisition costs that will be expensed in future periods (2019: $16.9 million). After including this investment, Adjusted cash flow from operations increased to $20.4 million (2019: $1.0 million). As 31 December 2020 the Group's cash balance was $49.9 million (31 December 2019: $8.2 million) and net debt was $11.1 million.

On 28 April 2020, Kape agreed with Bank of Ireland, Barclays Bank, and Citi Commercial Bank, to refinance the shareholder loan, that the Company entered into in December 2019, with a senior secured term and revolving credit facilities of up to $70 million. The New Debt Facilities comprised a $40 million term facility, a $10 million revolving credit facility, and a $20 million uncommitted acquisition facility. The new Debt Facilities carry an interest rate of 3 months LIBOR (as of the beginning of the relevant period) plus a margin of 1.85-2.25% per annum.

On 5 March 2021, the Group acquired 100% of the share capital of Uma Capital Ltd and Ani Ariel Ltd, the owners of Webselenese, a digital platform which provides independent and highly valued consumer privacy and security content to millions of users globally via market leading review sites.The total consideration was $149.1 million (the "Consideration") to be satisfied by a combination of $116.6 million in cash and $32.5 million in new shares, amounting to 12.1 million Kape ordinary shares. We anticipate that the Acquisition will support and improve the Group's organic growth prospects in the fast-growing consumer digital privacy and security markets.

To fund the transaction the Company has drawn down $85 million from a $120 million Bridge Loan by TS Next Level Investments Limited ("TSNLI"). The Bridge Loan will carry a fixed coupon of 6.0% per annum payable on funds drawn and an arrangement fee of 1.0%. The Bridge Loan is subordinated to Kape's existing bank facilities and is repayable on 31 December 2021 (which may be extended to 30 April 2022 at the sole discretion of Kape). TSNLI is an affiliated company of Unikmind Holdings Limited, Kape's largest shareholder, therefore the bridge loan is considered a related party transaction. The Company intends to refinance the Bridge Loan in full within a period of 90 days with a new upsized facility from its lending banks. There are no penalties for early repayment under the bridge loan agreement.

Segment Result

	Revenue		Segment result
	2020	2019	2020	2019
	$'000	$'000	$'000	$'000
Digital Security	32,368	35,949	13,346	17,873
Digital Privacy	89,844	30,111	52,835	15,536
Revenue	122,212	66,060	66,181	33,409

The segment result has been calculated using revenue less costs directly attributable to that segment. Cost of sales comprises payment processing fees and infrastructure costs of the Group's privacy products. Direct sales and marketing costs are user acquisition costs.

Digital Privacy
	2020	2019
	$'000	$'000
Revenue	89,844	30,111
Cost of sales	(14,127)	(5,440)
Direct sales and marketing costs	(22,882)	(9,135)
Segment result	52,835	15,536
Segment margin (%)	58.8	51.6

During the period, the Digital Privacy segment saw continued growth with an 198% increase in revenue to $89.8 million (2019: $30.1 million) and an 240% increase in segment result to $52.8 million (2019: $15.5 million). Following the completion of its acquisition in December 2019, PIA contributed $53.5 million of revenue in the period (2019: $2.5 million). The segment margin has increased to 58.8% (2019: 51.6%) driven mainly from higher margins on revenue generated by PIA.

Digital Security
	2020	2019
	$'000	$'000
Revenue	32,368	35,949
Cost of sales	(2,045)	(2,085)
Direct sales and marketing costs	(16,977)	(15,991)
Segment result	13,346	17,873
Segment margin (%)	41.2	49.7

During the year, revenue from the Digital Security segment slightly decreased, by 10% to $32.4 million (2019: $35.9 million). This decrease was driven by a decrease in revenues generated from the PC performance products following a management decision to shift focus and budgets to Intego's Endpoint security products as its user base generates higher life-time value due to a better retention rate of its subscriber base. Revenue generated from sales of Intego's end point security products have increased by 9%.

Adjusted EBITDA

Adjusted EBITDA for the year to 31 December 2020 was $39.0 million (2019: $14.6 million). Adjusted EBITDA is a non-GAAP company specific measure which is considered to be a key performance indicator of the Group's financial performance. Adjusted EBITDA is calculated as operating profit before depreciation (including right-to-use assets amortisation), amortisation, exceptional or non-recurring costs, other operating expenses and employee share-based payment. Such amounts are excluded from the following analysis:


	2020	2019
	$'000	$'000
Revenue	122,212	66,060
Cost of sales	(16,172)	(7,525)
Direct sales and marketing costs	(39,859)	(25,126)
Segment result	66,181	33,409

Indirect sales and marketing costs	(9,192)	(7,903)
Research and development costs	(6,194)	(3,149)
Management, general and administrative cost	(11,822)	(7,798)
Adjusted EBITDA	38,973	14,559

Operating profit

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


	2020	2019
	$'000	$'000
Adjusted EBITDA	38,973	14,559
Employee share-based payment charge	(1,232)	(1,680)
Other operating expenses	(313)	(91)
Exceptional and non-recurring costs	(6,623)	(2,331)
Depreciation and amortisation	(20,097)	(6,314)
Operating profit	10,708	4,143

Exceptional or non-recurring costs in 2020 includes non-recurring staff costs of $6.4 million comprised mainly of a $4.9 million one-off bonus award to the management team for the successful integration of PIA and a $1.5 million onerous contract cost relating to PIA's founder consulting agreement, and $0.2 million (2019: $1.9 million) for professional services costs related to business combinations.

Increase in Depreciation and amortisation is driven by a $12.6 million (2019: $0.6 million) amortisation charge of PIA acquired intangibles assets.

Profit before tax from continuing operations

Profit before tax from continuing operations was $7.3 million (2019: $2.8 million).

Profit after tax from continuing operations

Profit from continuing operations was $29.7 million (2019: $2.5 million). At the time of the acquisition of PIA, the Company recognised a deferred tax liability of $25.8 million, which had been reversed through the tax income line in the year ended 31 December 2020 and presented in the tax note as part of 'Reversal of previously recognised deferred tax liability'. The reversal is following a share buy back from the PIA's founders that changed the tax structure of the acquisition and increased the tax basis of the acquired intangible assets. See notes 5 and 7 for more details.

The Group recognised a deferred tax asset of $6.2 million (2019: $1.6 million) in respect of tax losses accumulated in previous years.

Cash flow

	2020	2019
	$'000	$'000
Cash flow from operations	15,244	(1,357)
Exceptional and non-recurring payments	5,156	2,331
Adjusted cash flow from operations	20,400	974
% of Adjusted EBITDA	52%	7%
Excluding increase of deferred contract costs	23,194	16,928
Adjusted Cash flow from operations attributable to current year	43,594	17,902
% of Adjusted EBITDA	112%	123%

Cash flow from operations was $15.2 million (2019: ($1.4) million). Adjusted cash flows from operations, after adding back payments that are one-off in nature was $20.4 million (2019: $1.0 million). This represents a cash conversion of 52% of Adjusted EBITDA (2019: 7%). The increase in operating cash flow is due to an increase in revenues from renewals of existing subscribers. Following the increase in renewal revenue, customer acquisition cash investment in the year was 51% out of cash revenue (2019: 63%). The Company invested $23.2 million (2019: $16.9 million) in user acquisition that is attributable to revenue that will be recognised in future periods. Excluding the investment, adjusted operating cash flow attributable to the current financial period increased to $43.6 million (2019: $17.9 million), which represents a cash conversion of 112% (2019: 123%).

Tax paid net of refunds in the period was $0.7 million (2019: $1.4 million). The decrease was mainly due to prepayments that were paid in 2019 in France and the United States by Group subsidiaries related to Intego.

Cash spent in the period on capital expenditure of $9.1 million (2019: $67.5 million) mainly comprises $5.8 million for the acquisition of PIA (2019: $64.3 million), $2.5 million (2019: $2.6 million) capitalised development costs and $0.5 million (2019: $0.5 million) purchase of fixed assets.

In October, the company raised a net amount of $113.2 million by a share placing and paid $72.5 million to buy back shares and settle deferred share considerations of PIA's founders. In addition, the Company paid $1.8 million interest for the Bridge Loan and subsequent bank debt (2019: $NIL) and $3.6 million (2019: $NIL) to repay debt. In total, cash flow from financing activities for the year was $35.8 million (2019: $38.1 million).

Financial position

At 31 December 2020, the Company had cash of $49.9 million (31 December 2019: $8.2 million), net assets of $228.8 million (31 December 2019: $155.0 million) and net cash of $11.1 million (2019: net debt of $32.0 million). At 31 December 2020, trade receivables and contract assets were $4.0 million (31 December 2019: $3.4 million).

Following the acquisition of Webselense and draw down of the Bridge Loan in March 2021, the adjusted pro forma leverage of the group is c. x1.6. It is our intention to further decrease the leverage by the end of 2021 and maintain a moderate level of financial indebtedness going forward.

Moran Laufer

Chief Financial Officer

16 March 2021

Consolidated statement of comprehensive income

For the year ended 31 December 2020

		2020	2019
	Note	$'000	$'000

Revenue	2,3	122 ,212	66,060
Cost of sales		(16,172)	(7,525)
Gross profit		106,040	58,535

Selling and marketing costs	2c	(49,112)	(33,124)
Research and development costs		(6,332)	(3,349)
Management, general and administrative costs		(19,478)	(11,514)
Depreciation and amortisation	6	(20,097)	(6,314)
Other operating expenses		(313)	(91)
Total operating costs		(95,332)	(54,392)

Operating profit	4	10,708	4,143

Adjusted EBITDA	4	38,973	14,559

Employee share-based payment charge	8	(1,232)	(1,680)
Other operating expenses		(313)	(91)
Exceptional or non-recurring costs	4	(6,623)	(2,331)
Depreciation and amortisation	6	(20,097)	(6,314)
Operating profit		10,708	4,143

Finance income		-	300
Finance costs		(3,382)	(1,644)
Profit before taxation		7,326	2,799
Tax charge	5	22,343	(314)
Profit from continuing operations		29,669	2,485

Loss from discontinued operations (attributable to equity holders of the company)	11	(792)	(465)
Profit for the year		28,877	2,020
Other comprehensive income:
Items that may be reclassified to profit and loss:
Foreign exchange differences on translation of foreign operations		(6)	(81)
Total comprehensive Income for the year		28,871	1,939
Total profit/(loss) for the year attributable to Owners of the parent:
Continuing operations		29,669	2,485
Discontinuing operations		(792)	(465)
		28,877	2,020
Earnings per share attributable to the ordinary equity holders of the company:
Basic earnings per share (cents)	9	15.0	1.4
Diluted earnings per share (cents)	9	14.4	1.3

Earnings per share from continuing operations attributable to the ordinary equity holders of the company:
Basic earnings per share (cents)	9	15.4	1.7
Diluted earnings per share (cents)	9	14.8	1.7

Earnings per share from discontinued operations attributable to the ordinary equity holders of the company:
Basic earnings per share (cents)	9	(0.4)	(0.3)
Diluted earnings per share (cents)	9	(0.4)	(0.4)

Consolidated statement of financial position

As at 31 December 2020

		2020	2019
	Note	$'000	$'000

Non-current assets
Intangible assets	6	227,949	242,864
Property, plant and equipment		1,375	2,351
Right-of-use assets		4,006	2,985
Deferred consideration	11,16	-	446
Deferred contract costs	2c	31,080	16,542
Deferred tax asset	5	6,282	2,180
		270,692	267,368
Current assets
Software license inventory		128	96
Deferred contract costs	2c	21,454	12,798
Deferred consideration	11,16	-	346
Trade and other receivables		8,884	6,687
Cash and cash equivalents		49,912	8,211
		80,378	28,138
Total assets		351,070	295,506

Equity
Share capital		22	16
Additional paid in capital		273,358	153,002
Share to be issued		1,350	56,499
Foreign exchange differences on translation of foreign operations		772	778
Retained earnings		(46,746)	(55,291)
Total equity		228,756	155,004

Non-current liabilities
Contract liabilities	2b	7,463	6,013
Deferred tax liabilities	5	2,640	22,102
Long term lease liabilities		1,975	1,753
Deferred and contingent consideration	16	407	14,578
Provisions	15	679	-
Loans and Borrowings	13	29,619	-
		42,783	44,446

Current liabilities
Trade and other payables		22,468	17,805
Provisions	15	721	-
Current tax liability	5	3,188	2,591
Loans and Borrowings	13	7,117	-
Shareholder loan	12c,13	-	40,221
Contract liabilities	2b	29,131	29,299
Short term lease liabilities		2,572	1,365
Deferred and contingent consideration	16	14,334	4,775
		79,531	96,056
Total equity and liabilities		351,070	295,506

Consolidated statement of changes in equity

For the year ended 31 December 2020

	Share capital	Additional paid in capital	Share to be issued	Foreign exchange differences on translation of foreign operations	Retained earnings	Total
	$'000	$'000	$'000	$'000	$'000	$'000

At 1 January 2019	15	131,091	-	859	(58,991)	72,974

Profit for the year	-	-	-	-	2,020	2,020
Other comprehensive income:
Foreign exchange differences on translation of foreign operations	-	-	-	(81)	-	(81)
Total comprehensive profit for the year	-	-	-	(81)	2,020	1,939
Share-based payments	-	-	-	-	1,680	1,680
Exercise of employee options (note 7)	*	255	-	-	-	255
Issue of equity share capital (note 10)	1	21,656	-	-	-	21,657
Deferred share consideration (note 10)	-	-	56,499	-	-	56,499
At 31 December 2019	16	153,002	56,499	778	(55,291)	155,004
At 1 January 2020	16	153,002	56,499	778	(55,291)	155,004

Profit for the year	-	-	-	-	28,877	28,877
Other comprehensive income:
Foreign exchange differences on translation of foreign operations	-	-	-	(6)	-	(6)
Total comprehensive loss for the year	-	-	-	(6)	28,877	28,871
Transactions with owners:
Share based payments	-	-	-	-	1,232	1,232
Exercise of employee options (note 7)	*	2,952	-	-	-	2,952
Issue of equity share capital (note 7)	6	113,213	-	-	-	113,219
Issue of equity share capital of deferred share consideration (note 16)	-	4,191	(4,191)	-	-	-
Buy-back of deferred share consideration (note 7)	-	-	(50,958)	-	(1,730)	(52,688)
Share buy-back (note 7)	-	-	-	-	(19,834)	(19,834)
At 31 December 2020	22	273,358	1,350	772	(46,746)	228,756

* amounts below 1 thousands

Consolidated statement of cash flows

For the year ended 31 December 2020

		2020	2019
	Note	$'000	$'000
Cash flow from operating activities
Profit for the year after taxation		28,877	2,020
Adjustments for:
Amortisation of intangible assets	6	17,730	4,784
Amortisation of right-to-use assets		1,707	1,177
Depreciation of property, plant and equipment		660	353
Loss on sale of property, plant and equipment		271	57
Loss on sale of right-to-use assets		53	-
Profit on sale of intangible assets	6	(27)	-
Tax charge	5	(22,343)	314
Interest income		-	(300)
Interest expenses, fair value movements on deferred consideration	11	3,997	814
Share based payment charge	8	1,232	1,680
Interest received		-	300
Unrealised foreign exchange differences		(114)	143
Operating cash flow before movement in working capital		32,043	11,342
Decrease (Increase) in trade and other receivables		(1,734)	374
Increase in software licenses inventory		(32)	(44)
Increase in trade and other payables		5,483	1,824
Decrease in provision	15	1,396	-
Increase in deferred contract costs		(23,194)	(16,928)
Increase in contract liabilities		1,282	2,075
Cash Inflow/(outflow) from operations		15,244	(1,357)
Tax paid net of refunds		(712)	(1,416)
Cash generated/(used in) from operations		14,532	(2,773)

Cash flow from investing activities
Purchase of property, plant and equipment		(536)	(518)
Proceeds from sale of property, plant and equipment		11	7
Intangible assets acquired	6	(376)	(2)
Disposal of intangible assets	6	132	-
Cash paid on business combination, net of cash acquired	10	(5,777)	(64,324)
Capitalisation of development costs	6	(2,544)	(2,620)
Net cash used in investing activities		(9,090)	(67,457)

Cash flow from financing activities
Repurchase of employee share options		-	(880)
Payment of leases		(1,836)	(1,246)
Proceeds from Shareholder loan	12,13	-	40,000
Proceeds from loans	13	40,000	-
Proceeds from RCF	13	1,654	-
Debt issuance costs	13	(1,723)	-
Repayment of interest on Shareholder loan	13	(1,155)	-
Repayment of Shareholder loan	13	(40,000)	-
Repayment of interest on loan	13	(658)	-
Repayments of long-term loan	13	(3,636)	-
Payment of deferred shares consideration	7	(52,688)	-
Payment of purchase of own shares	7	(19,834)	-
Proceeds from issuance of shares, net of transaction costs	7	113,219	-
Proceeds from exercise of options by employees	7	2,431	255
Net cash generated from financing activities		35,774	38,129
Net increase/ (decrease) in cash and cash equivalents		41,216	(32,101)
Revaluation of cash due to changes in foreign exchange rates		485	(93)
Cash and cash equivalents at beginning of year		8,211	40,405
Cash and cash equivalents at end of year		49,912	8,211

Notes forming part of the financial information for the year ended 31 December 2020

1 Basis of preparation

The financial information provided is for Kape Technologies Plc ("the Company" or "Kape") and its subsidiary undertakings (together the "Group") in respect of the financial years ended 31 December 2020 and 2019. The company is incorporated in the Isle of Man.

The financial information has been prepared in accordance with International Financial Reporting Standards, International Accounting Standards and interpretations (collectively IFRS) as issued by the International Accounting Standards Board (IASB).

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.

Going concern

The Directors, having considered the Group's resources financially and the associated risks with doing business in the current economic climate, believe the Group is capable of successfully managing these risks. The Board has reviewed the cash flow forecast and business plan as provided by management which includes the rate of revenue growth, margins and cost control as well as forecast debt covenants.

In March 2020, the Group secured a new senior term loan and revolving credit facilities of up to $70 million with Citi, Barclays and the Bank of Ireland (the "Banks").

As a result of the acquisition of Webselenese in March 2021 the Group increased debt funding through drawing down $85 million under a bridge facility made available by TS Next Level Investments Limited, an affiliate of Unikmind Holdings Limited, Kape's majority shareholder. The Bridge Loan is subordinated to Kape's existing bank facilities and is repayable on 31 December 2021 which may be extended to 30 April 2022 at the sole discretion of Kape.

Consent was obtained from the Banks for the existing $40 million term facility and $10 million revolving credit facility to remain in place and available. Under the terms agreed with the Banks, Kape has a period of 90 days to agree a new upsized facility to refinance the Bridge Loan in full, absent which the existing term facility and revolving credit facility will become repayable. In such eventuality, the remaining $35m available under the Bridge Loan will be drawn and, together with Kape's own cash resources for the balance, will be applied to repay the Banks in full.

Whilst the Bridge Loan's maximum expiry date is 30 April 2022, the Directors' were able to obtain consent from the Banks to raise the Bridge Loan, evidencing the Banks support for the Group's growth strategy. The Directors intend to re-finance the Bridge Loan with new facilities from the Banks as soon as practicable. The Directors are confident of such refinancing as evidenced by the consent granted for the Banks and the discussions to date.

As such, the Directors are satisfied that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing these 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 2020, and which have given rise to changes in the Group's accounting policies are:

● IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (Amendment - Definition of Material)

● IFRS 3 Business Combinations (Amendment - Definition of Business)

● IFRS 7, IFRS 9 and IAS 39 (Amendment - Interest Rate Benchmark Reform)

● Revised Conceptual Framework for Financial Reporting

The adoption of these standards did not have a material impact on the Group's financial statements.

2 Revenue

	2020	2019
	$'000	$'000

Sale of Digital Security, malware protection and PC performance products	32,368	35,949
Sale of Digital Privacy software solutions	89,844	30,111
	122,212	66,060

Revenues from software and SAAS products offering security, malware protection and PC performance are generated from the Digital Security CGU, while revenues from provision of Digital privacy software solutions are generated from the Digital Privacy CGU.

(a) Disaggregation of revenue

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

	2020 (USD, in thousands)			2019 (USD, in thousands)
	Digital Security	Digital Privacy	Total	Digital Security	Digital Privacy	Total
Revenue recognised over a period	4,470	69,645	74,115	4,294	20,191	24,485
Revenue recognised at a point in time	27,898	20,199	48,097	31,655	9,920	41,575
Total	32,368	89,844	122,212	35,949	30,111	66,060

(b) Contract liabilities

The company has recognised the following revenue-related contract liabilities:

31 December 2020

(USD, in thousands)

31 December 2019

(USD, in thousands)

Contract liabilities

36,594

35,312

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 liabilities balances during the period are as follows:	31 December 2020 (USD, in thousands)	31 December 2019 (USD, in thousands)
Contract liabilities balance at the beginning of the period	(35,312)	(9,514)
Business combination	-	(23,723)
Revenue recognised that was included in the contract liability balance from Business combination	-	1,946
Revenue recognised that was included in the contract liability balance at the beginning of the period	29,298	7,349
Increase due to cash received, excluding amounts recognised as revenue during the period	(30,580)	(11,370)
Contract liabilities balance at the end of the period	(36,594)	(35,312)

Management expects that 79.6% of the transaction price allocated to the unsatisfied contracts (which represent the contract liabilities) as of 31 December 2020 will be recognised as revenue during the next annual reporting period ($29,131 thousands), 16.0% and 4.0% ($5,868 thousands and $1,464 thousands) will be recognised in 2022 and 2023 financial years, respectively. The remaining 0.4% ($131 thousand) will be recognised during the following financial years.

Significant changes in relation to assets recognised from costs to obtain and fulfil a contract

	31 December 2020 (USD, in thousands)	31 December 2019 (USD, in thousands)
Short term Asset recognised from marketing cost to obtain a contract	19,784	12,057
Long term Asset recognised from marketing cost to obtain a contract	30,726	16,325
Short term Asset recognised from fulfilment cost to fulfil a contract	1,670	741
Long term Asset recognised from fulfilment cost to fulfil a contract	354	217
Significant changes in the deferred contract costs balances during the period are as follows:
Balance at the beginning of the period	29,340	12,412
Amortization recognised during the period - marketing costs	(23,552)	(12,033)
Amortization recognised during the period - fulfilment cost	(5,202)	(2,963)
Increases due to cash paid - marketing costs	45,681	28,725
Increases due to cash paid - fulfilment cost	6,267	3,199
Balance at the end of the period	52,534	29,340

3 Segmental information

Segments revenues and results

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

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

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

Year ended 31 December 2020	Digital Security	Digital Privacy	Total
	2020	2020	2020
	$'000	$'000	$'000
Revenue	32,368	89,844	122,212
Cost of sales	(2,045)	(14,127)	(16,172)
Direct sales and marketing costs	(16,977)	(22,882)	(39,859)
Segment result	13,346	52,835	66,181
Central operating costs			(27,208)
Adjusted EBITDA⁽¹⁾			38,973
Other operating expenses			(313)
Depreciation and amortisation			(20,097)
Employee share-based payment charge			(1,232)
Exceptional or non-recurring costs			(6,623)
Operating profit			10,708
Finance income			-
Finance costs			(3,382)
Profit before tax			7,326
Taxation			22,343
Profit from continuing operations			29,669
Loss from discontinued operation (attributable to equity holders of the company)				(792)
Profit from the year			28,887

Exceptional or non-recurring costs in 2020 are comprised of non-recurring staff costs of $6.4 million which comprise of $4.9 million one-off bonus award to the management team for the successful integration of PIA, $1.5 million onerous contract cost relating to PIA's founder consulting agreement and $0.2 million (2019: $1.9 million) professional services and other business combinations related costs.

Year ended 31 December 2019	Digital Security	Digital Privacy	Total
	2019	2019	2019
	$'000	$'000	$'000
Revenue	35,949	30,111	66,060
Cost of sales	(2,085)	(5,440)	(7,525)
Direct sales and marketing costs	(15,991)	(9,135)	(25,126)
Segment result	17,873	15,536	33,409
Central operating costs			(18,850)
Adjusted EBITDA⁽¹⁾			14,559
Other operating expenses			(91)
Depreciation and amortisation			(6,314)
Employee share-based payment charge			(1,680)
Exceptional or non-recurring costs			(2,331)
Operating profit			4,143
Finance income			300
Finance costs			(1,644)
Profit before tax			2,799
Taxation			(314)
Profit from continuing operations			2,485
Loss from discontinued operation (attributable to equity holders of the company)					(465)
Profit from the year				2,020

Exceptional or non-recurring costs in 2019 comprised of $0.4 million severance payments relating to the restructuring of ZenMate and Intego and $1.9 million for professional services and other business combinations related costs which derive from PIA acquisition.

(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 expenses and employee share-based payment charges as set out in note 4.

Information about major customers

In 2020 and 2019 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:

	2020	2019
	$'000	$'000

Europe	61,395	56,793
US	60,817	9,267
	122,212	66,060

Geographical analysis of non-current assets

	2020	2019
	$'000	$'000

US	210,521	222,227
France	6,215	6,663
Romania	6,535	6,712
Germany	7,406	8,912
Other	2,653	3,686
Total intangible assets, right-to-use assets and property, plant and equipment	233,330	248,200

4 Operating profit

Adjusted EBITDA

Adjusted EBITDA is calculated as follows:

	2020	2019
	$'000	$'000

Operating profit	10,708	4,143
Depreciation and amortisation	20,097	6,314
Other operating expenses	313	91
Employee share-based payment charge	1,232	1,680
Exceptional or non-recurring costs:
Non-recurring staff and restructuring costs	6,405	416
Exceptional costs	218	1,915
Adjusted EBITDA	38,973	14,559

Other operating expenses in 2020 are comprised mainly of $0.2 million loss from disposal of Company owned cars related to PIA acquisition (see note 16), $0.05 million of donation done in relation to the Covid-19 pandemic and $0.05 million of other fixed assets disposals.

Operating profit has been arrived at after charging:

	2020	2019
	$'000	$'000
Exceptional or non-recurring operating costs
Non-recurring staff costs	6,405	416
Professional services related to business combination	218	1,915
	6,623	2,331

Auditor's remuneration:
Audit	273	210
Taxation services	-	21
Amortisation of intangible assets	17,730	4,784
Depreciation	660	353
Amortisation of Right-to-use assets	1,707	1,177
Employee share-based payment charge (note 8)	1,232	1,680

Operating costs

Operating costs are further analysed as follows:

	2020 Adjusted $'000	2020 Total $'000	2019 Adjusted $'000	2019 Total $'000

Direct sales and marketing costs	39,859	39,859	25,126	25,126
Indirect sales and marketing costs	9,192	9,253	7,903	7,998
Selling and marketing costs	49,051	49,112	33,029	33,124
Research and development costs	6,194	6,332	3,149	3,349
Management, general and administrative cost	11,822	19,478	7,798	11,514
Other operating expenses	-	313	-	91
Depreciation and amortisation	4,825	20,097	2,652	6,314
Total operating costs	71,892	95,332	46,628	54,392

5 Taxation

The parent company is resident, for tax purposes in the UK. The final tax charge shown below arises partially from the difference in tax rates applied in the different jurisdictions in which the subsidiaries reside.

The Group recognised a deferred tax asset of $6,215 thousands (2019: $1,598 thousands) in respect of tax losses accumulated in previous years.

The total tax charge can be reconciled to the overall tax charge as follows:

	2020	2019
	$'000	$'000

Profit from continuing operations before income tax expense	7,326	2,799
Loss from discontinuing operation before income tax expense	(792)	(465)
	6,534	2,334

Tax at the applicable tax rate of 19% (2019: 19%)	1,241	443
Tax effect of
Differences in overseas rates	2,072	(386)
Expenses not deductible for tax purposes	29	999
Previously unrecognised tax losses now recouped to reduce current tax expense	(27)	(14)
Deferred tax not recognised on losses carried forward	587	454
Recognition of previously unrecognised deferred tax assets	(261)	(1,561)
Reversal of previously recognised deferred tax liability	(25,639)	-
Tax expense for previous years	(345)	379
Tax charge for the year	(22,343)	314

Income tax expenses is attributable to:
Profit from continuing operations	(22,343)	314
Loss from discontinued operation	-	-
	(22,343)	314

The tax expense/ (credit) from continuing operations Analysed as:
Deferred taxation in respect of the current year	(23,419)	(1,608)
Current tax charge	1,076	1,922
Tax charge for the year	(22,343)	314

PIA acquisition was structured as a tax free reorganisation in accordance to section 368(a) of the IRC code. This structure enabled the sellers to postpone the tax payment on their shares consideration to the time of the sale of these shares and reduces the tax rate from an income tax rate to a capital gain tax rate on that part of the consideration. A side effect of this structure is that the tax basis of the acquired intangible assets was zero for tax purposes for the Company, and thus any amortisation expense that is recorded in relation to these assets will not deductible be from tax profits. As a result, the Company recognised a deferred tax liability on the acquired intangible assets.

Following the Company's agreement with the sellers in October 2020 to buy back the shares that were already issued at closing and to cancel their deferred shares consideration (see note 7), the acquisition of PIA no longer meets the criteria of section 368(a) which means the transaction no longer qualifies as a tax free reorganisation but instead is considered as a taxable sale of assets by the sellers. The main implications on the Company is an increase in the tax basis of the acquired assets. As a result, PIA's intangible assets, including goodwill, will be amortized over 15 years for tax purposes and therefore create a tax saving. At the time of the PIA Acquisition, the Company recognised a deferred tax liability of $25.8 million, which had been reversed through the tax income line in the year ended 31 December 2020 and presented in the tax note as part of 'Reversal of previously recognised deferred tax liability'. The change to the tax structure will result in the creation of a deferred tax liability over the 15-year period that the assets are amortise for tax purposes. The tax liability will unwind in case of a sale or a write-off of the Goodwill. These figures are based on current US tax legislation.

The Group maintained provisions for potential historic tax liabilities presented in income tax liabilities. In 2020 the Group increased its provision by $0.2 million to $2.2 million (2019: $2.0 million). The increase in tax liabilities driven by the multi-national nature of the Company which give rise to uncertainty over the income tax treatment related to cross border services and transactions.

The group has maximum corporation tax losses carried forward at each period end as set out below:

	2020	2019
	$'000	$'000

Corporate tax losses carried forward	46,037	35,671

Details of the deferred tax asset recognised arising in respect of losses and timing differences is set out below:

	Losses caried forward	Other temporary differences	Total
	$'000	$'000	$'000
At 1 January 2019	159	569	728
Foreign exchange differences	-	9	9
Movement in the year due to temporary differences from continuing operations	1,440	3	1,443
At 31 December 2019	1,599	581	2,180
Foreign exchange differences	145	-	145
Movement in the year due to temporary differences from continuing operations	4,471	(514)	3,957
At 31 December 2020	6,215	67	6,282

Details of the deferred tax liability recognised arising from timing differences is set out below:

	Business combination	Intangibles assets	Deferred contract costs	Capitalised Software Development Costs	Total
	$'000	$'000	$'000	$'000	$'000
At 1 January 2019	2,718	-	98	309	3,125
Arising from business combinations	19,145	-	-	-	19,145
Foreign exchange differences	(3)	-	-	-	(3)
Movement in the year due to temporary differences from continuing operations	(726)	-	261	300	(165)
At 31 December 2019	21,134	-	359	609	22,102
Movement in the year due to temporary differences from continuing operations	(19,674)	376	(225)	61	(19,462)
At 31 December 2020	1,460	376	134	670	2,640

In addition, the Group has an unrecognised deferred tax asset in respect of the following:

	2020	2019
	$'000	$'000

Tax losses carried forward	24,219	30,457
Unrecognised deferred tax assets due to tax losses carried forward	3,447	4,057

6 Intangible assets

	Intellectual Property	Trademarks	Customer Lists	Goodwill	Internet Domains	Capitalised Software Development Costs	Cryptocurrencies	Total
	$'000	$'000	$'000	$'000	$'000	$'000	$'000	$'000
Cost
At 1 January 2019	40,349	10,640	3,506	20,623	94	6,593	-	81,805
Additions	-	-	-	-	-	2,620	11	2,631
Acquisition through business combination	31,991	36,257	27,796	112,558	231	-	6	208,839
Foreign exchange differences	(76)	-	-	-	-	(57)	-	(133)
At 31 December 2019	72,264	46,897	31,302	133,181	325	9,156	17	293,142
Additions	-	11	-	-	-	2,544	365	2,920
Disposals	-	-	-	-	-	-	(105)	(105)
At 31 December 2020	72,264	46,908	31,302	133,181	325	11,700	277	295,957

Accumulated amortisation
At 1 January 2019	(33,244)	(7,778)	(924)	-	-	(3,594)	-	(45,540)
Charge for the year	(2,050)	(544)	(1,069)	-	-	(1,121)	-	(4,784)
Foreign exchange differences	37	-	-	-	-	9	-	46
At 31 December 2019	(35,257)	(8,322)	(1,993)	-	-	(4,706)	-	(50,278)
Charge for the period	(5,465)	(3,447)	(6,359)	-	-	(2,459)	-	(17,730)
At 31 December 2020	(40,722)	(11,769)	(8,352)	-	-	(7,165)	-	(68,008)
Net book value
At 1 January 2019	7,105	2,862	2,582	20,623	94	2,999	-	36,265
At 31 December 2019	37,007	38,575	29,309	133,181	325	4,450	17	242,864
At 31 December 2020	31,542	35,139	22,950	133,181	325	4,535	277	227,949

On 13 December 2019, the Group acquired 100% of the share capital of LTMI Holdings ("LTMI"). LTMI is the holding company for Private Internet Access Inc ("PIA"), a leading US-based digital privacy company with strong position in the data privacy services. PIA was established in 2009 and is a security software business, based in Denver, Colorado, with a focus on the provision of virtual private network ("VPN") solutions.

During the measurement period the Company recorded adjustments to increase liabilities assumed (other payables) with the corresponding entry to increase goodwill by $0.8 million, changes related to conditions that existed at the time of the acquisition. See note 10.

Goodwill acquired in a business combination is allocated at acquisition to the cash generating units (CGUs), or group of units that are expected to benefit from that business combination.

The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. The recoverable amounts of the CGUs are determined from value in use calculations. Goodwill allocated to the Digital Security CGU has a carrying amount of $11,688 thousands (2019: $11,688 thousands) and the Digital Privacy CGU has a carrying amount of $121,493 thousands (2019: $121,493 thousands).

The key assumptions for the value in use calculations are those regarding the discount rates, growth rates and expected changes to selling prices and direct costs during the period.

For the Digital Security CGU, the recoverable value has been determined from value in use calculations based on cash flow projections for the next five years from the most recent budgets approved by management and extrapolated cash flows beyond this period using an estimated growth rate of 3 per cent (2019: 1 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 would have been nil. The rate used to discount these forecast cash flows is 17 per cent (2019: 17 per cent).

The discount rate used in the valuation of the Digital Security CGU was 17 per cent. If the discount rate was increased by 1 percentage point the effect would have been nil. There is no reasonably possible change in assumption that would give rise to an impairment.

For the Digital Privacy CGU, the recoverable value has been determined from value in use calculations based on cash flow projections for the next five years from the most recent budgets approved by management and extrapolated cash flows beyond this period using an estimated growth rate of 1 per cent (2019: 1 per cent). This rate does not exceed the average long-term growth rate for the relevant markets. The rate used to discount these forecast cash flows is 15 per cent (2019: 15 per cent).

The discount rate used in the valuation of the Digital Privacy CGU was 15 per cent. If the discount rate was increased by 1 percentage point the effect would have been nil. There is no reasonably possible change in assumption that would give rise to an impairment.

7 Shareholder's equity

	2020	2019
	Number of Shares	Number of Shares

Issued and paid up ordinary shares of $0.0001	222,297,719	160,144,132

On 28 October 2020, the company issued a total of 59,230,769 new ordinary shares of US $0.0001 each ("Ordinary Shares") were subscribed for by investors, at an issue price of 150 pence per Placing Share. The Net amount proceeds after issue costs from the share issuance is $113.2 million.

As part of the LTMI Holdings acquisition on 2019, as disclosed in note 10, 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. 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 will be 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.

On 16 December 2020, at the first anniversary of completion, the company issued 2,294,077 new Ordinary Shares to four senior executives of LTMI out of the Deferred consideration shares. The remaining of the deferred share consideration is disclosed as shares to be issued.

As at 31 December 2020, the Company holds in the treasury total of 9,713,857 of ordinary shares of $0.0001 par value (2019: 3,865,223) and company's Employee Benefit Trust holds 1,200,000 ordinary shares. During 2020, 4,652,092 of ordinary shares of $0.0001 par value were transferred out of treasury to satisfy the exercise of options by the company employees (2019: 610,930).

No divided was declared in 2020 and 2019.

The following describes the nature and purpose of each reserve within owner's equity:

Reserve	Description and purpose
Additional paid in capital	Share premium (i.e. amount subscribed or 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.

8 Employee share-based payments

Options have been granted under the Group's share option scheme to subscribe for ordinary shares of the Company. At 31 December 2020, the following options were outstanding (2019: 13,018,231):

Group	Grant date	Number of shares under option	Subscription price per share
Group 1	29 May 2014	200,340	$0.538
Group 2	21 April 2015	179,563	$1.305
Group 3	5 January 2016	166,938	$0.710
Group 4	31 May 2016	800,000	$0.352
Group 5	26 October 2016	1,549,660	$0.467
Group 6	3 April 2017	197,500	$0.0001
Group 7	15 June 2017	498,987	$0.845
Group 9	26 April 2018	298,125	$1.280
Group 10	13 July 2018	910,000	$1.437
Group 11	24 August 2018	1,200,000	$0.000
Group 12	21 May 2019	342,500	$1.090
Group 13	20 November 2019	527,000	$1.040
Group 14	3 December 2019	650,000	$1.230
Group 15	21 May 2020	1,582,000	$2.050
Group 16	17 July 2020	25,000	$2.230
Group 17	26 November 2020	175,000	$2.400
Total		9,302,613

Vesting conditions

Groups 1-5, 7-10 and 12-17 - 25% at the end of the first year following the grant date. 6.25% on a quarterly basis during 12 quarters period thereafter.

Group 6 - 50% at the end of the second year following the grant date and the remainder at the end of the third year following the grant.

Group 11 - 33.33% on a yearly basis for 3 years period following the grant date subject to certain performance conditions.

The total number of shares exercisable as of 31 December 2020 was 4,795,448 (2019: 6,977,213).

The weighted average fair value of options granted in the year using the Cox, Ross and Rubinstein's Binomial Model (the "Binomial Model") was $1.20. The inputs into the Binomial model are as follows:

	2020	2019
	$'000	$'000

Early exercise factor	100%	100%
Fair value of Group's stock	$2.31-$2.75	$1.12-$1.91
Expected Volatility	44.6%-59.6%	45%
Risk free interest rate	(0.79%) -(0.45%)	0.47%-1.08%
Dividend yield	-	-
Forfeiture rate	0%-20%	0%-28%

We used the empirical observations for early exercise factor of public companies as an appropriate benchmark for the expected Early exercise factor.

Expected volatility was determined based on the historical volatility of comparable companies.

Forfeiture rate is assumed to be 0% for senior management and 20% for other employees.

The risk-free interest rate was estimated based on average yields of UK Government Bonds.

The Group recognised total share based payments relating to equity-settled share based payment transactions as follows:

	2020	2019
	$'000	$'000

Share-based payment charge	1,232	1,680

Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:

	2020		2019
	Weighted average exercise price	Number of options	Weighted average exercise price	Number of options

At the beginning of the year	$0.66	13,018,231	$0.59	12,158,805
Granted	$2.09	1,817,000	$1.14	1,844,500
Lapsed	$1.20	)372,647)	$1.00	(374,144)
Exercised	$0.56	(5,159,971)	$0.43	(610,930)
At the end of the year	$0.84	9,302,613	$0.66	13,018,231

The options outstanding at 31 December 2020 had a weighted average remaining contractual life of 7.34 years (2019: 7.3 years).

9 Earnings per share

Basic loss/earnings per share is calculated by dividing the loss /earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year.

	2020	2019
	cents	Cents

Basic earnings per share:
From continuing operations	15.4	1.7
from discontinued operations	(0.4)	(0.3)
Total basic earnings per share	15.0	1.4

Diluted earnings per share:
From continuing operations	14.8	1.7
from discontinued operations	(0.4)	(0.4)
Total diluted earnings per share	14.4	1.3

Adjusted basic	14.1	6.8
Adjusted diluted	13.5	6.5

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

	2020	2019
	$'000	$'000

Profit for the year	28,877	2,020

Post tax adjustments:
Employee share-based payment charge	1,344	1,767
Exceptional or non-recurring costs	5,630	2,136
Amortisation on acquired intangible assets	14,652	3,112
Loss from discontinued operations	792	465
Other operating expense	371	92
Exceptional deferred tax charge	(25,639)	-
Finance cost on deferred consideration for business combination and on lease liabilities	1,157	138
Adjusted profit for the year	27,184	9,730

	Number	Number
Denominator - basic:
Weighted average number of equity shares for the purpose of earnings per share	192,596,652	143,217,060

Adjustments for calculation of diluted earnings per share:
Impact of potentially dilutive shares related to employee options	8,406,227	7,208,944

Denominator - diluted
Weighted average number of equity shares for the purpose of diluted earnings per share	201,002,879	150,426,004

The diluted denominator has not been used where this has anti-dilutive effect. Basic and diluted loss per share are therefore the same for reporting purposes.

The difference between weighted average number of Ordinary shares used for basic earnings per share and the diluted earnings per share 8,406,227 (2019: 7,208,944) being the effect of all potentially dilutive Ordinary shares derived from the number of share options granted to employees.

10 Business combinations

(a) Acquisition of LTMI Holdings

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. During the year ended December 31, 2020, the company recognized measurement period adjustments, related to liabilities assumed of $0.8 million with the corresponding entry to goodwill. In accordance with the accounting guidance the adjustment was applied on a retrospective basis with comparative financial statements updated in this Annual Reports for this adjustment. The purchase price allocation was finalized in the year ended 31 December 2020.

Details of the fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill, are as follows:

	Acquiree's carrying amount before combination	Final fair value
	$'000	$'000

Brand and domain name	-	36,257
Technology	478	31,991
Customer lists	-	27,796
Deferred tax liability	(942)	(25,804)
Cash and cash equivalents	676	676
Trade and other receivables	976	976
Property, plant and equipment, net	1,539	1,539
Intangible assets, net	237	237
Right-of-use assets	386	386
Deferred Contracts costs	3,491	-
Deferred tax assets	6,438	6,659
Contract liabilities	(23,723)	(23,723)
Trade and other payables	(12,699)	(12,699)
Long-term debt	(32,161)	(32,161)
Lease liabilities	(314)	(314)
	(55,618)	11,816
Fair value of consideration
Cash		27,076
Shares		21,657
Deferred Cash consideration		18,325
Deferred shares consideration		56,499
Deferred assets consideration		817
Goodwill		112,558

Net cash outflow on acquisition of business

		2019
		$'000

Cash consideration		27,076
Cash paid to LTMI Holding's Phantom shareholder		5,763
Cash paid to repay Long-term debt		32,161
Cash and cash equivalents acquired		(676)
		64,324

As part of the LTMI Holdings acquisition on 2019, the company issued 42,701,548 new ordinary shares ("Consideration Shares") to be paid in three phases. LTMI co-founders Andrew Lee and Steve DeProspero were each be entitled to be issued 19,247,723 Consideration Shares representing approximately 10.4% of the enlarged issued share capital of Kape, of which 5,250,363 were issued on completion, 10,498,020 were due to be issued on the first anniversary of completion and 3,499,340 will be issued on the second anniversary of completion. The balance of the Consideration Shares, being 4,206,102 in aggregate, are being issued to four senior executives of PIA, of which 1,147,333 were issued on completion, 2,294,077 were issued on the first anniversary of completion and 764,692 will be issued on the second anniversary of completion.

On 28 October 2020, the Company and the LTMI Co-founders Andrew Lee and Steve DeProspero reached an agreement whereby the Company purchased back their Initial Consideration Shares and removed their right to receive the Deferred Consideration Shares in exchange for cash consideration of approximately $72.5 million. On 6 November 2020, the Company completed the transaction. As this relates to a new agreement entered into in 2020 and was not envisaged at the date of acquisition, this has been treated as a new transaction in 2020 rather than a measurement period adjustment.

11 Discontinued operation

(a) Description

On 26 July 2018, the Group sold the Media division to Ecom Online Ltd. As for the sale date, the Media division included Clearvelvet Trading Limited ("Clearvelvet") and Intangible assets of the Media CGU. As consideration, the Group will receive a 50% share of EBITDA from the Media division for the next five years following the sale. The fair value of the deferred consideration as at 31 December 2020 was $Nil (2019: $0.8 million). Decrease to the fair value is presented as discontinued operation.

The deferred consideration fair value has been determined in use calculations based on cash flow projections for the period left using the most recent expectations received from the acquire. The rate used to discount these forecast cash flows is 25 per cent (2019: 25 per cent).

The discount rate used in the valuation was 25 per cent. If the discount rate was increased by 1 percentage point the effect would have been $Nil million. There is no reasonably possible change in assumption that would give rise to an impairment.

(b) Financial performance

The financial performance and cash flow information presented are for the year ended 31 December 2020 and 2019.

	2020	2019
	$'000	$'000

Revenue	-	-
Expenses	-	-
Loss before income tax	-	-
Income tax expenses	-	-
Loss after income tax of discontinued operation	-	-
Fair value movements on deferred consideration	(792)	(465)
Loss on sale of the Media division	-	-
Loss from discontinued operation	(792)	(465)

Net cash outflow from operating activities	-	-
Net cash outflow from investing activities	-	-
Net cash flow from financing activities	-	-
Net decrease in cash generated by the Media division	-	-

12 Related party transactions

The Group is controlled by Unikmind Holdings Limited ("Unikmind") incorporated in British Virgin Islands, which owns 64.3% of the Company's shares as at 31 December 2020. 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.

(a) Related party transactions

The following transactions were carried out with related parties:

	2020	2019
	$'000	$'000

Technical support services to end customers and administration services provided by common controlled company	(207)	(254)
Office expenses to common controlled companies	(61)	(163)
Payment processing services provided by common controlled company	-	(189)
Development services provided by common controlled company	-	(29)
Amortisation of Right-to-use assets with common controlled companies	(1,069)	(941)
Interest expenses from lease liabilities to common controlled companies	-	(65)
Interest expenses from shareholder short-term loan and debt facility	(934)	(221)
	(2,271)	(1,862)

On 6 December 2019, Kape entered into a $40.0 million short-term debt facility from Unikmind Holdings Limited ("Unikmind"), Kape's largest shareholder, and was also provided with an additional debt facility of $20.0 million, on similar terms. The Term Loan had a fixed interest rate of 5% above 6 months USD Libor. Each tranche of the Term Loan was repayable on the earlier of a third-party refinancing of the Term Loan and 6 months after its utilisation unless such tranche's maturity was extended, at the Company discretion, until 31 March 2021. The Term Loan could be repaid early in whole or part by the Borrower free of any penalty. The Term Loan also included a commitment fee on undrawn amounts only from the moment they become available in accordance to the payment schedule and certain other customary obligations on the Borrower in relation to the lender's costs and expenses and in relation to taxes. The Term debt facilities had a fixed interest of 1.5% upon availability, $5.0 million on the first anniversary and $15.0 million on the second anniversary.

Borrowings under the Term Loan were guaranteed by Kape and secured by a share charge granted by Kape in respect of its shares in the Borrower subsidiary.

In April 2020, Kape re-financed the Shareholder Term Loan with third party facilities and repaid the Shareholder Term loan in full, as further described in note 13.

(b) Receivables owed by related parties

		2020	2019
Name	Nature of transaction	$'000	$'000

Parent company	Unpaid share capital	10	10
Companies related by virtue of common control	Other	18	20
		28	30

(c) Payables to related parties

		2020	2019
Name	Nature of transaction	$'000	$'000

Companies related by virtue of common control	Other	6	58
Unikmind Holdings Limited	Shareholder loan	-	40,221
		6	40,279

(d) Right-to-use assets and Lease liabilities to related parties

	2020	2019
	$'000	$'000

Right-to-use assets	758	2,058
Lease liabilities	(932)	(2,387)

13 Loans and Borrowings

	Bank loan	Shareholder loan
	$'000	$'000
At 1 January 2019	-	-
Term Facility	-	40,000
Interest expenses	-	221
At 31 December 2019	-	40,221
Term Facility	40,000	-
Revolving credit facility	1,654	-
Debt issuance costs	(1,730)	-
Interest expenses	1,114	934
Interest paid	(658)	(1,155)
Net foreign exchange	(8)	-
Repayment of loan	(3,636)	(40,000)
At 31 December 2020	36,736	-

Shareholder loan

On 6 December 2019, Kape entered into a $40.0 million short-term debt loan from Unikmind Holdings Limited ("Unikmind"), Kape's largest shareholder, and was also provided with an additional debt facility of $20.0 million, $5 million of it was available on December 2020 and $15 million would be available on December 2021 ("Term Loan"). The Term Loan had a fixed interest rate of 5% above 6 months USD Libor. Each tranche of the Term Loan was repayable on the earlier of a third-party refinancing of the Term Loan and 6 months after its utilisation unless such tranche's maturity was extended until 31 March 2021. The Term Loan can be prepaid in whole or any part of the Term Loan, free of any penalty at any time. The Term Loan also includes a commitment fee on undrawn amounts only from the moment they become available in accordance with the payment schedule and certain other customary obligations on the Borrower in relation to the lender's costs and expenses and in relation to taxes. Term debt facilities have a fixed interest of 1.5% upon availability.

On 4 May 2020, Kape repaid the Term Loan and the accumulated interest in full following closing of a new bank debt facility, as detailed below. The undrawn additional debt facility of $20m was also terminated as of 4 May 2020.

Bank loan

(a) General

On 28 April 2020, Kape agreed with Bank of Ireland, Barclays Bank, and Citi Commercial Bank (the "Banks"), to provide a senior secured term and revolving credit facilities of up to $70 million (the "New Debt Facilities"), the facility is a club of banks with Bank of Ireland acting as the agent bank.

The New Debt Facilities comprise of a $40 million term facility (the "Term Facility"), a $10 million revolving credit facility (the "RCF"), and a $20 million uncommitted acquisition facility (the "Uncommitted Acquisition Facility"). The New Debt Facilities have a three-year term with an option to extend by up to an additional two years, 50% of the Term Facility will be repaid on a quarterly basis across 36 months starting from 30 September 2020. The remaining 50% of the Term Facility will be repaid in a single bullet payment in 2023.

Term Facility

The net proceeds of the Term Facility after deducting debt issuance costs of the Term Facility totalled to $38.3 million. Debt issuance costs of the Term Facility have been offset against the principal balance and are amortised using the effective interest method over the life of the loan.

The Term Facility carries an interest rate of 3 months LIBOR (as of the beginning of the relevant period) plus an opening margin of 2% per annum.

The applicable Margin is linked to the Adjusted Leverage, tested at the end of each quarter for the preceding 12 months. In case the Adjusted Leverage will be greater than 2 or less than 1 the applicable margin will change to 2.25% or 1.85%, respectively. The applicable margin as of 31 December 2020, is 1.85%. The effective interest rate after considering debt issuance cost is 3.975%.

RCF

A $10 million revolving credit facility, that carries a commitment fee for the unused facility of 35% of the applicable margin and interest rate as of the Term Facility. As of the reporting date the credit facility drawn amount is $1.65 million of which $0.1 million (GBP 0.07 million) received with GBP. The RCF is paid along with the term facility last payment.

Uncommitted Acquisition Facility

Up to $20 million to be used for acquisitions, including the funding of deferred consideration due under the acquisition agreement of Private Internet Access. The interest rate will be 3 months LIBOR plus a margin of no more than 1% above the original Margin applicable to the Term Loan or RCF. As of December 31, 2020, the Uncommitted Acquisition Facility drawn amount is $Nil million.

(b) Security

The New 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).

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 2.5x for the first 4 relevant periods and 2.0x thereafter.

As of 31 December 2020, the Group has met the financial covenants as follows:

· Interest Cover: 22

· Adjusted Leverage: (0.29)

Fair Value

As of December 31, 2020, 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.

14 Governments Grants

On 30 April 2020, Private Internet Access Inc received $0.7 million from the US Treasury as part of the Paycheck Protection Program ("PPP"). Following the COVID-19 crisis, US Treasury declared the PPP to provide relief to small businesses during the Coronavirus pandemic as part of the $2 trillion Coronavirus Aid. Each business can borrow up to 2.5 of monthly payrolls, rent, and utilities expenses. The loan will bear interest of 0.5% and potentially can be fully forgiven if the proceeds were used to fund qualified payroll and non-payroll (rent and utilities) expenses in the 24 weeks subsequent to disbursement while keeping a level factor of the expenses.

As of 31 December 2020, the Group believes the PPP amount will be fully forgiven and accounted as a Government grant. The PPP is recognised in profit and loss over the period necessary to match them with the costs that they are intended to compensate. As of 31 December 2020, the remaining unrecognized balance of the PPP is $nil.

15 Provisions

On 28 October 2020, as part of LTMI's founders buy-back transaction, the Company terminated the consultancy services arrangement provided to the Company by Andrew Lee through a services company. The remaining contract liability will be paid in monthly instalments, starting November 2020. As of December 31, 2020, the provision balance is $1.4 million. From the remaining amount, $0.7 million will be settled in 2021 and $0.7 million in 2022.

16 Deferred and contingent consideration

(a) Acquisition of DriverAgent intangibles

In October 2016, the Group acquired the intellectual property of PC maintenance software product, DriverAgent, from eSupport.com, Inc for a total consideration of $1.2 million. As for 31 December 2020, the consideration included $0.2 million of consideration (2019: $0.2 million) which is contingent on future results.

(b) Repurchase of share-based consideration

On 20 November 2017, the Company repurchased 3,810,667 options out of the 4,057,813 options granted to the Cyberghost's former founder for total cash consideration of $3.8 million (€3.2 million). Out of this $1.9 million (€1.625 million) were paid upon execution of the purchase agreement, while the remaining amount was paid in eight equal instalments amounting of $235 thousand (€197 thousand) per quarter over the course of two years and recognised as deferred consideration. On 28 March 2019, the company accepted Cyberghost's former founder request for immediate remittance of the remaining consideration in exchange for reduction on the amount of said consideration, equal to 7%. As of 31 December 2019, the deferred consideration was fully paid with $Nil balance.

(c) Sale of the Media Division

On 26 July 2018, the Group sold the media division to Ecom Online Ltd. This sale is in-line with the Company's strategy to develop and distribute its own cybersecurity products. As agreed, the Group will receive a 50% share of EBITDA from the Media division for the next five years following the sale, which will be reinvested in the Group's core Digital Security and Digital Privacy segments. As at 31 December 2020, the consideration included $Nil million (2019: $0.8 million) of deferred consideration receivable.

(d) Acquisition of Private Internet Access Inc

On 13 December 2019, the Group acquired 100% of the share capital of LTMI Holdings ("PIA"). LTMI is the holding company for Private Internet Access Inc ("PIA"), a leading US-based digital privacy company with strong position in the data privacy services. PIA 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.

As of 31 December 2020, the deferred consideration balance included $14.3 million (2019: $18.4 million) of deferred cash consideration, $1.35 million (2019: $56.5 million) of shares consideration and $0.2 million (2019: $0.8 million) of assets consideration.

17 Subsequent events

On 5 March 2021 the group acquired Uma Capital Ltd and Ani Ariel Ltd, which are the owners of Webselenese, for a total consideration of $149.1 million (the "Consideration") to be satisfied by a combination of $116.6 million in cash and $32.5 million in new shares, amounting to 12.1 million Kape ordinary shares ("Consideration Shares"). Out of the cash consideration Webselenese's founders will use $1.34 million to purchase Kape Shares in the market following the close of the transaction. The cash element of the Consideration will be funded through a combination of $32.5 million of Kape's own cash resources and $85 million drawn down under a $120 million bridge facility (the "Bridge Loan") made available by TS Next Level Investments Limited ("TSNLI"), an affiliate of Unikmind Holdings Limited, Kape's majority shareholder.

The Bridge Loan will carry a fixed coupon of 6.0% per annum payable on funds drawn and an arrangement fee of 1.0%. The Bridge Loan is subordinated to Kape's existing bank facilities and is repayable on 31 December 2021 (which may be extended to 30 April 2022 at the sole discretion of Kape). The Bridge Loan may be repaid at any time in whole or part by Kape without penalty. The Bridge Loan is currently unsecured, but in the event that it is still outstanding after 90 days, customary security over the shares held by Kape in KLTM5 Holdings Inc., UMA Capital Ltd and ANI Ariel Ltd will be granted to TSNLI. The Bridge Loan also includes certain customary obligations on Kape in relation to TSNLI's costs and expenses and in relation to taxes.

Due to the proximity of the acquisition to the date of the approval of these financial statements the fair value exercise including quantification of acquired intangibles and goodwill is incomplete.

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 55 Baker Street London W1U 7EU	Bryan Cave Leighton Paisner LLP Adelaide House London Bridge London EC4R 9HA

Nominated Advisor and Joint Broker	Joint Broker
Shore Capital & Corporate Limited Cassini House 57 St James's Street London SW1A 1LD	Stifel Nicolaus Europe Limited 150 Cheapside London EC2V6ET

Investor Relations	Registrars
Vigo Communications Sackville House 40 Piccadilly London W1J 0DR	Computershare Investor Services (Jersey) Limited Queensway House Hilgrove Street St Helier Jersey JE1 1ES

Registered Office

Sovereign House
4 Christian Road
Douglas
Isle of Man IM1 2SD

Stock exchanges

The Company's ordinary shares are listed on the AIM market of the London Stock Exchange under the symbol "KAPE". The Company does not maintain listings on any other stock exchanges.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

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Kape Technologies (KAPE)

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