TIDMKAPE
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 YEARED 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 EBITDA(1) 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 share(2) 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 million(3) (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 basis(4)
-- 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 via Vigo Communications
Ido Erlichman, Chief Executive Officer
Moran Laufer, Chief Financial Officer
Shore Capital (Nominated Adviser & Broker)
Mark Percy / Toby Gibbs / James Thomas / +44 (0)20 7408
Michael McGloin 4090
Stifel Nicolaus Europe Limited (Joint Broker)
Alex Price / Brad Topchik / Alain Dobkin +44 (0) 20 7710
/ Richard Short 7600
Vigo Communications (Financial Public Relations)
Jeremy Garcia / Antonia Pollock +44 (0)20 7390
kape@vigocomms.com 0237
About Kape
Kape is a leading 'privacy-first' digital security software
provider to consumers. Through its range of privacy and security
products, Kape focuses on protecting consumers and their personal
data as they go about their daily digital lives.
To date, Kape has over 2.5 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 EBITDA(1) 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
EBITDA(1) 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(R) 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 $85 million under a bridge facility made available by
TS Next Level Investments Limited, an affiliate of Unikmind
Holdings Limited, Kape's majority shareholder.
Key Performance Indicators
In the year ended 31 December 2020, the Group continued to
perform very strongly against its KPIs, which are designed to track
the ongoing profitability and earnings predictability of the Group
by assessing the progress of the Group's SaaS business model.
31 Dec 31 Dec
2020 2019
'000 '000
Subscribers (thousands) 2,51 9 2,308
Retention rate(3) 83% 81%
Deferred income ($'000) 36,594 35,312
Year ended Year ended
30 Dec 2020 30 Dec 2020
Adjusted EBITDA 38,973 14,559
Adjusted operating cash flow(2) :
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.
(2) Adjusted operating cash flow attributable to current year is
calculated as Adjusted operating cash flow excluding change in
deferred contract costs.
(3) Retention 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
Foreign
exchange
differences
on translation
Additional of foreign
Share paid in Share to operations Retained Total
capital capital be issued earnings
$'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 2019
(USD, in thousands) (USD, in thousands)
Digital Digital Total Digital Security Digital Total
Security Privacy Privacy
----------- ---------- --------- ------------------ ---------- --------
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 31 December 2019
(USD, in thousands) (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 31 December 2020 31 December
liabilities balances during the 2019
period are as follows:
(USD, in thousands) (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 31 December 2019
(USD, in thousands) (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 Digital Privacy
Security
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 17,73 0 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 2020 2019 2019
Adjusted Total Adjusted Total
$'000 $'000 $'000 $'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 Other temporary
forward 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 Intangibles Deferred Capitalised
combination assets contract Software Development Total
costs Costs
$'000 $'000 $'000 $'000 $'000
At 1 January 2019 2,718 - 98 309 3,125
Arising from business
combinations 19,145 - - - 19,145
Foreign exchange differences (3) - - - (3)
Movement in the year
due to temporary differences
from continuing operations (726) - 261 300 (165)
At 31 December 2019 21,134 - 359 609 22,102
============== ============= =========== ======================= ==========
Movement in the year
due to temporary differences
from continuing operations (19,674) 376 (225) 61 (19,462)
-------------- ------------- ----------- ----------------------- ----------
At 31 December 2020 1,460 376 134 670 2,640
============== ============= =========== ======================= ==========
In addition, the Group has an unrecognised deferred tax asset in
respect of the following:
2020 2019
$'000 $'000
Tax losses carried forward 24,219 30,457
Unrecognised deferred tax
assets due to tax losses
carried forward 3,447 4,057
-------- --------
6 Intangible assets
Capitalised
Software
Intellectual Customer Internet Development
Property Trademarks Lists Goodwill Domains 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 Number of
Shares 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 Share premium (i.e. amount subscribed or
capital share capital in excess of nominal value)
Retained earnings Cumulative net gains and losses recognised
in the consolidated statement of comprehensive
income
Foreign exchange Cumulative foreign exchange differences
of translation of foreign operations
Shares to be issued Deferred share consideration
In accordance with Isle of Man Company Law, all of the reserves
with the exception of share capital are distributable.
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 Subscription
shares under price per share
option
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
20 November
Group 13 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
26 November
Group 17 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 Number Weighted Number
average of average of
exercise options exercise options
price price
----------- ------------- ----------- ------------
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 Final fair
amount before value
combination
$'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 (EUR3.2
million). Out of this $1.9 million (EUR1.625 million) were paid
upon execution of the purchase agreement, while the remaining
amount was paid in eight equal instalments amounting of $235
thousand (EUR197 thousand) per quarter over the course of two years
and recognised as deferred consideration. On 28 March 2019, the
company accepted Cyberghost's former founder request for immediate
remittance of the remaining consideration in exchange for reduction
on the amount of said consideration, equal to 7%. As 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 Bryan Cave Leighton Paisner
55 Baker Street LLP
London W1U 7EU Adelaide House
London Bridge
London EC4R 9HA
---------------------------------
Nominated Advisor and Joint Joint Broker
Broker
---------------------------------
Shore Capital & Corporate Limited Stifel Nicolaus Europe Limited
Cassini House 150 Cheapside
57 St James's Street London EC2V6ET
London SW1A 1LD
---------------------------------
Investor Relations Registrars
---------------------------------
Vigo Communications Computershare Investor Services
Sackville House (Jersey) Limited
40 Piccadilly Queensway House
London W1J 0DR Hilgrove Street
St Helier
Jersey JE1 1ES
---------------------------------
Registered Office
Sovereign House
4 Christian Road
Douglas
Isle of Man IM1 2SD
Stock exchanges
The Company's ordinary shares are listed on the AIM market of
the London Stock Exchange under the symbol "KAPE". The Company does
not maintain listings on any other stock exchanges.
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