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Kape Technologies (KAPE)

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Wednesday 17 March, 2021

Kape Technologies

Final Results

RNS Number : 4880S
Kape Technologies PLC
17 March 2021
 

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

[email protected]

+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

 

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.
 

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

 

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.

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.

(c)  Assets recognised from costs to obtain and fulfil a contract

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

 

31 December 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

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

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.

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).

 

(c)  Loan Covenants

 

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

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

· The ratio of Total Net Debt on the last day of the relevant period to Adjusted EBITDA in respect of that Relevant period ("Adjusted Leverage"), shall not exceed 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.

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