Half-year Report

Avast PLC

HALF YEAR RESULTS FOR THE SIX-MONTHS ENDED 30 JUNE 2021

First half performance in line with the Board's expectations; full year revenue guidance maintained

Avast plc, together with its subsidiaries ('Avast', 'the Group' or 'the Company'), a leading global cybersecurity provider, announces its results for the six-months ended 30 June 2021.

Ondrej Vlcek, Chief Executive of Avast, said:

"In line with the Board's expectations, we are pleased to report a resilient set of group results for the first half of 2021, against the backdrop of a strong prior year performance. The Group delivered double-digit organic revenue growth1 and sustained high levels of profitability with Adjusted EBITDA margin at 57.3%2.

"We are optimistic about Avast's prospects for the second half of the year, and as comparator period trends start to normalise, we anticipate a reacceleration of billings growth. The launch of our new flagship Avast One product remains on track for later this year. Our focus remains on driving customer engagement, acquisition and retention, which will require higher levels of margin investment in R&D, innovation and marketing over the medium term."

FINANCIAL HIGHLIGHTS

OPERATIONAL AND STRATEGIC HIGHLIGHTS

Statutory Results:

RECOMMENDED MERGER OF AVAST PLC WITH NORTONLIFELOCK INC.

On 10 August 2021, the Boards of NortonLifeLock, Inc. ("Norton") and the Company reached agreement on the terms of a recommended merger of Company with Norton, in the form of a recommended offer by Nitro Bidco Limited, a wholly owned subsidiary of Norton, for the entire issued and to be issued ordinary share capital of the Company (the "Merger"). It is intended that the Merger will be affected by means of a Court-sanctioned scheme of arrangement under Part 26 of the Companies Act. Further details relating to the offer by Norton, including the offer price and conditionality, is set out in the announcement made by Norton on 10 August 2021 pursuant to Rule 2.7 of the City Code on Takeovers and Mergers ("Code").

RESULTS PRESENTATION RECORDING AND LIVE Q&A

A recording of the results webcast presentation will shortly be available on the Company website at https://investors.avast.com. Avast management will also hold a live Q&A session for analysts and investors at 9:00 AM BST today (11 August 2021), addressing both results and the recommended merger. Please register at the Company website to participate.

ENQUIRIES

Investors and analysts:

Peter Russell, Director of IR

[email protected] 

Media:

Stephanie Kane, VP PR and Corporate Communications

[email protected] 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This announcement contains certain forward-looking statements that are subject to the usual risk factors and uncertainties associated with the Company's business. Whilst the Company believes the expectations reflected herein to be reasonable in the light of the information available to them at this time, the actual outcome may be materially different owing to factors beyond the Company's control or within the Company's control where, for example, the Company decides on a change of plan or strategy. Accordingly, no reliance may be placed on the figures contained in such forward-looking statements.

Notes:

Throughout the Half Year Report a number of alternative performance measures are used to provide users with a clearer picture of the performance of the business. This is in line with how management monitor and manage the business day-to-day. Definitions and details are provided below. Further definitions (see 'PRESENTATION OF RESULTS AND DEFINITIONS') and reconciliations (see 'FINANCIAL REVIEW') of non-GAAP measures are included in the notes to the financial statements.

All dollar figures throughout the report are at actual currency rates unless otherwise indicated.

1 Organic growth rate excludes the impact of FX, acquisitions, business disposals and discontinued business. It excludes current period billings and revenue of acquisitions until the first anniversary of their consolidation.

2 Adjusted EBITDA margin percentage is defined as Adjusted EBITDA divided by Revenue.

3 Total available liquidity includes cash and cash equivalents balance as at 30 June 2021 of $357.6m and revolving credit facility of $40m (not drawn at 30 June 2021).

4 Users who have at least one valid paid Consumer Direct subscription (or licence) at the end of the period.

5 APPC defined as the Consumer Direct simple average valid licences or subscriptions for the period of the last twelve months divided by the simple average number of Customers during the same period.

6 ARPC defined as the Consumer Direct revenue for the period of the last twelve months divided by the simple average number of Customers during the same period.

7 Growth rate excluding currency impact calculated by restating 2021 actual to 2020 FX rates (see "Principal exchange rates applied"). Deferred revenue is translated to USD at the date of invoice and is therefore excluded when calculating the impact of FX on revenue.

8 On April 16, 2021 the Group sold a portfolio of mobile parental controls services including location features, content filtering and screen time management to Smith Micro Software Inc ('Family Safety mobile business'). Billings and revenue until close of the transaction have been included in the calculation of organic growth together with comparable periods in the baseline.

9 In January 2020 Avast decided to terminate the provision of anonymized data to its data analytics business, Jumpshot, having concluded that the business was not consistent long term with the Group's privacy priorities as a global cybersecurity company. As the company is also exiting its toolbar-related search distribution business (which had previously been an important contributor to AVG's revenues) and the browser clean-up business, the growth figures exclude all of these (referred to above and throughout the report as "Discontinued Business"), which are negligible. The Discontinued Business does not represent a discontinued operation as defined by IFRS 5 since it either has not been disposed of but rather it is being continuously scaled down or it is considered to be neither a separate major line of business, nor geographical area of operations.

10 'Fav' in change % represents a favorable growth rate figure over 100 per cent, 'Unf' represents an unfavorable decline greater than negative 100 percent.

CHIEF EXECUTIVE OFFICER'S REVIEW

The Group has delivered a good first half performance of revenue organic growth and high levels of profitability. The Group's Billings of $482.7m were up 2.9% at actual rates, with organic growth of 0.9%, consistent with our expectation that performance would be significantly second half weighted. The period lapped the one-time Covid benefit in FY 2020, which saw an uptick in first purchases, resulting in 3.9% of drag on Group billings in the first half of the current year. A further 1.5% drag was due to the strategic transition from multi-year to single year billings subscriptions that laps through the first half of the current year and 0.8% negative impact of the Family Safety business in the period to disposal. The Group's Revenue of $471.3m was up 8.8% at actual rates, with organic growth of 10.4%. The Consumer and SMB segments contributed $445.4m and $25.9m respectively to the Group's Revenue.

Consumer

SMB

Business Unit Performance

Consumer Direct

Operational KPIs

Trading performance

Users and customer retention

Enhanced service offering

Geographic expansion

Avast One

Consumer Indirect

This business unit comprises Avast Secure Browser (ASB), the distribution of third-party software and other partnerships, and advertising within mobile applications.

SMB

Identity strategy and executive appointments

In June the company welcomed a new Senior VP and General Manager of Identity, Charles Walton. In the role, Charles will define the identity product strategy, steer research and development, and direct the distribution model. Paul Carter also joined the Avast team in the role of Global Head of Corporate Development. He will work with Charles to execute on the inorganic part of the identity strategy build out.

Outlook

The first half of the current year lapped a period of strong comparatives from the effect of pandemic lockdown in 2020. As anticipated, there was also downward pressure on billings from the Group's transition from multi to single year subscriptions to increase customer lifetime value. In the second half of the year, comparator period trends start to normalise and the impact of transition to single year subscriptions ends. In addition, the increase in single year subscriptions created the benefit of an enlarged customer renewal pool. The combination of these factors means that Group billings growth is expected to re-accelerate in H2 back to high single-digit growth.

Growth will be supported by the company's strategic initiatives. The cybersecurity landscape continues to rapidly evolve with a shift towards protecting consumers' entire digital lives and increased competition from major technology players and other incumbents, who are scaling up and evolving their offerings into integrated solutions to meet changing customer preferences. To sustain and develop its competitiveness, Avast will further strengthen its investment in R&D and innovation, top-of-the-funnel installs and monetisation over the medium term, in addition to targeted acquisitions in a competitive M&A environment.

Organic Group revenue guidance for the year is maintained at the upper end of 6-8 percent growth. At business unit level, guidance for the Consumer Direct business is maintained at high single-digit organic revenue growth, albeit now anticipated to be at the upper end of that range. The company now expects Consumer Indirect to show a mid-single-digit organic revenue decline, because of the accelerated decline in Chrome distribution revenue. SMB guidance is maintained at mid-single-digit organic revenue growth as comparatives into H2 toughen.

FY 2021 Adjusted Group EBITDA margin percentage is expected to remain broadly flat versus FY 2020, owing in particular to increased user and customer acquisition costs, and materially higher marketing spend around the Avast One rollout in the second half of the year. Incremental levels of spend on customer acquisition are expected to continue in FY 2022 as the company expands awareness around its brand and new leadership products such as Avast One.

The Avast Profit Forecast, the assumptions and basis of preparation on which the Avast Profit Forecast is based and the Avast Directors' confirmation, as required by Rule 28.1 of the Code, are set out in Appendix to this announcement.

FINANCIAL REVIEW

Billings, Revenue and EBITDA

In line with our expectations, the Group has achieved good growth and maintained high levels of profitability.

The Group's Billings increased by $13.5m to $482.7m in the half year ended 30 June 2021, mostly driven by the core Consumer Direct business. This represented a 2.9% increase at actual rates and organic growth of 0.9%. Subscription billings represented 88.8% of the Group's total Billings in H1 2021 (87.3% in H1 2020).

The Group's Revenue increased by $38.1m to $471.3m in the half year ended 30 June 2021, which represents a 8.8% increase at actual rates and organic growth of 10.4%. Revenue included $322.2m from the release of prior-period deferred revenue. The deferred revenue balance at the end of the period was $507.7m, comprising $470.8m that will be recognised within 12 months of the balance sheet date. This compares to $504.7m, of which $448.6m was to be recognised within 12 months, at the same time last year. The average subscription length in the half year ended 30 June 2021 was 13 months, which represents slight YoY decrease (H1 2020: 14 months) reflecting the Group's transition from multi-year to single year subscriptions.

Profitability was driven by the Group's scale and operating leverage. Adjusted EBITDA increased 11.9% to $270.2m, 14.4% excluding FX, resulting in Adjusted EBITDA margin of 57.3%. Considering expected higher spend in the second half of the year related to increased user and customer acquisition costs and materially higher marketing spend around the Avast One rollout, this is in line with full year guidance of broadly flat (55.5% EBITDA margin in FY 2020).

The reported Operating Profit increased by $92.2m to $226.7m. The increase was driven by higher revenue of $38.2m, lower amortisation of acquisition intangibles of $28.2m and lower operating costs of $24.2m. The decrease in operating costs was caused by lower exceptional costs vs H1 2020 of $40.9m, disposal of Family Safety business impact of $4.5m and Jumpshot operating costs in H1 2020 before wind-down of $3.6m, partially offset by higher share-based payments costs of $(7.3)m, investment into sales and marketing of $(7.9)m and other investments and FX impact of $(9.6)m.

The table below presents the Group's Billings and Revenue for the periods indicated:

Costs

Adjusting for disposal of Family Safety mobile business and wind-down of Jumpshot, the increase in adjusted cost of revenues is $(2.7)m. The increase was driven by higher sales commissions related to higher revenue of $(1.3)m, investment into customer support of $(1.6)m, partially offset by FX impact and other savings of $0.2m. Adjusted Cost of Revenues represent the Group's cost of revenues adjusted for depreciation and amortisation charges, share-based payments charges and exceptional items.

The Group's reported Cost of revenues decreased by $29.8m to $(74.8)m primarily due to the lower amortisation of acquisition intangibles as the amortisation of significant acquisition intangibles from AVG acquisition is running out. Acquisition intangibles represent intangible assets acquired through business combinations.

The increase in Group's Adjusted Operating costs excluding impact of disposal of Family Safety mobile business and wind-down of Jumpshot operations is $(17.7)m. This increase is driven mainly by investment into sales and marketing personnel and non-personnel costs of $(7.9)m, investment into information security of $(1.1)m, investment into research and development of new technologies of $(1.1)m and negative YoY FX impact and other investments of $(7.7)m. Adjusted Operating costs represent the Group's operating costs adjusted for depreciation and amortisation charges, share-based payments charges and exceptional items.

The decrease in the Group's reported Operating costs of $24.2m, from $(194.0)m to $(169.8)m, reflects primarily the decrease in exceptional items of $40.9m driven by 2020 donations to research and development initiatives related to Covid-19 (H1 2020: $22.7m) and exceptional costs related to wind-down of Jumpshot operation (H1 2020: $22.2m, additional $2.5m were included in costs of revenues), partially offset by higher share-based payments costs of $(7.3)m resulting from RSUs granted to all employees in the beginning of 2021.

Exceptional items

Exceptional items are income or expenses that arise from events or transactions that are clearly distinct from the ordinary activities of the Group. The Group believes that these non-recurring items should be separately disclosed to show the underlying business performance of the Group more accurately. Once an item is disclosed as exceptional, it will remain exceptional through completion of the event or programme.

In April 2021 the Group sold a portfolio of mobile parental controls services including location features, content filtering and screen time management to Smith Micro Software Inc. ('Disposal of Family Safety mobile business') recognising a gain of $34.2m, which was treated as an exceptional item. The Group incurred legal and professional costs of $3.2m in relation to the disposal of business operation. These transaction costs are included in the cash flow from investing activities. The Group has also recorded non-cash impairment costs of $0.8m, which were a direct consequence of this disposal and therefore treated as exceptional.

Exceptional items in H1 2020 consisted primarily of donations to research and development initiatives related to Covid-19 and personnel and non-personnel costs related to the wind-down of Jumpshot (see Note 5 Exceptional items). Related cash flows have been included in the net cash flows from operating activities.

Finance income and expense

Adjusted finance expense on a net basis was $(7.4)m in H1 2021, $14.2m lower compared to $(21.6)m in H1 2020. The decrease in adjusted finance expense is related to lower loan interest costs of $4.1m resulting from the repayment of debt of $200.0m on top of mandatory repayments in 2020, one-off realised FX gain on repayment of prior loan of $5.6m and favorable impact of other FX and other finance costs of $4.5m.

The Group's reported net finance costs decreased by $27.6m resulting in income of $8.4m in H1 2021 caused by the decrease in adjusted finance costs described above and higher unrealised foreign exchange gains from the Euro denominated debt.

Income tax

In the half year ended 30 June 2021, the Group reported an income tax expense of $(63.5)m, compared to the $(28.8)m in the half year ended 30 June 2020.

Income tax was impacted by the tax benefit from the foreign exchange movements on intercompany loans arising in the statutory accounts of the subsidiary concerned of $0.9m (tax benefit of $3.7m in H1 2020).

The tax impact of IP transfer represents amortisation of the net tax impact of the transfer of AVG E-comm web shop to Avast Software B.V. ("Avast BV") on 1 May 2018 ("IP transfer"), when the former Dutch AVG business of Avast BV (including the web shop) was sold to Avast Software s.r.o. The total net impact of this transaction was $94.4m, which was treated as an exceptional item in 2018. The transferred IP is amortised for tax purposes over 15 years.

The tax impact of disposal of a business operations represents tax expense related to disposal of Family Safety mobile business of $(12.7)m.

The tax impact of other adjusted items represents the tax impact of amortisation of acquisition intangibles, or exceptional items, which have been calculated applying the tax rate that the Group determined to be applicable to the relevant item, and other adjusted items.

Adjusted income tax is $(45.8)m for H1 2021, resulting in an adjusted effective tax rate of 18.2% (H1 2020: 18.8%). The Adjusted effective tax rate is the Adjusted Income tax percentage of adjusted profit before tax of $251.6m (defined as adjusted net income of $205.8m before the deduction of adjusted income tax of $(45.8)m.)

Cash Flow

Unlevered free cash flow represents the amount of cash generated by operations after allowing for capital expenditure, taxation and working capital movements. Unlevered free cash flow provides an understanding of the Group's cash generation and is a supplemental measure of liquidity in respect of the Group's operations.

Levered free cash flow represents amounts of incremental cash flows the Group has after it has met its financial obligations (after interest and lease repayments) and is defined as Unlevered Free Cash Flow less cash interest and lease repayments.

Favorable change in working capital in H1 2021 reflects favourable timing of customers' payments, which is expected to partially reverse in H2 2021.

Due to the on-going evaluation of planned migration of Group's systems and infrastructure from on-premises to the public cloud, the capex investment is heavily weighted towards H2 2021 pending final decisions. We expect our FY Capex to represent 2% of revenue in 2021.

The increase in the adjusted cash tax is driven by the Czech Republic true-up system, where a company is obliged to make quarterly income tax advances based on its last known tax liability. Upon filing a tax return, tax advances paid during the year for which the tax return is filed offset the final tax liability. In H1 2020 the Group received a significant refund related to previous periods. No such refund was received in H1 2021.

In H1 2020 the Group recorded $(24.7)m exceptional costs related to the Jumpshot wind-down, which were largely paid by our Jumpshot subsidiary. Given these cash outflows represented one-off M&A activity, these costs were not included in Unlevered Free Cash Flow.

The following table presents a reconciliation between the Group's Adjusted Cash EBITDA and Net cash flows from operating activities as per the consolidated statement of cash flows.

The Group's net cash flow from operating activities increased by $31.0m primarily due to exceptional costs related to the wind-down of Jumpshot of $24.7m and Covid-19 donations of $22.7m included in the baseline, higher billings of $13.5m, positive impact of working capital movement (excl. change in deferred revenue and deferred COGS) of $13.9m, offset by higher cash tax of $(21.8)m and increase in Adjusted costs including unfavorable impact of movement in provisions and other of $(22.0)m. The cash portion of the exceptional items in H1 2021 directly related to the disposal of business operations of $(3.2)m was included in cash flows from investing activities.

The Group's net cash inflow from investing activities of $50.9m included net proceeds from disposal of Family Safety mobile business of $54.7m (additional 1.5m shares of common stock of Smith Micro with the fair value of $8.4m were included in total consideration received, see Note 9), capex investment of $(3.1)m and settlement of contingent consideration related to Tenta acquisition of $(0.7)m. The Group's net cash outflow from investing activities in H1 2020 of $(3.0)m was comprised of capex of $(2.7)m, settlement of contingent consideration related to Inloop and Tenta acquisitions of $(3.6)m, contingent consideration received for disposal of Managed Workplace of $3.0m and interest received of $0.3m.

The Group's net cash outflow from financing activities $(128.0)m includes $(115.3)m dividend paid, repayment of old loan of $(827.6)m, new loan drawn of $843.6m, quarterly loan repayment of $(10.6)m, transaction costs related to borrowing of $(7.7)m, interest paid of $(10.0)m, lease repayments of $(4.2)m and proceeds from the exercise of options of $3.8m. The Group's net cash outflow from financing activities in H1 2020 of $(289.5)m included $(105.4)m dividend paid, $(100.0)m voluntary repayment of borrowings, $(30.2)m mandatory repayment of borrowings, interest paid of $(15.4)m, lease repayments of $(4.9)m, proceeds from the exercise of options of $31.2m and net proceeds from transactions with non-controlling interest $(64.8)m.

Financing

On 22 March 2021, the Group successfully completed a complete refinancing of its debt, decreasing the margin on both tranches by 25bps and extending the repayment period further 5 years from the prior expiry date in September 2023 to September 2028. The new term loan was drawn with a USD and EUR tranche of USD 480m and EUR 300m respectively (see Note 16 Term Loan). As of 30 June 2021, the total Gross debt12 of the Group was $884.6m and the total Net debt12 was $527.0m. The decrease in gross debt since 31 December 2020 is attributable to the repayment of old loan of $(827.6)m, new loan drawn of $843.6m, quarterly repayment of borrowings of $(10.6)m, decrease in lease liabilities of $(6.0)m and a positive unrealised FX gain of $(15.8)m on the EUR tranche of the loan.

Principal exchange rates applied

The table below summarises the principal exchange rates used for the translation of foreign currencies into US Dollar. The assets and liabilities are translated using period-end exchange rates. Income and expense items are translated at the average exchange rates for the period.

Earnings per share

Basic Adjusted earnings per share amounts are calculated by dividing the Adjusted net income for the period by the weighted average number of shares of common stock outstanding during the year. The diluted Adjusted earnings per share amounts consider the weighted average number of shares of common stock outstanding during the year adjusted for the effect of dilutive options. On a statutory basis, fully diluted EPS was $0.20 (see Note 10 for the statutory earnings per share). As higher costs are expected in the second half of the year, in particular due to increased user and customer acquisition costs and materially higher marketing spend around the Avast One rollout, lower Adjusted net income is anticipated for H2 2021.

Dividend

On 10 August 2021, the Directors declared an interim dividend of 4.8 cents per share payable in October 2021. This will be paid in US dollars on 15 October 2021 to shareholders on the register as of 10 September 2021. There will be an option for shareholders to elect to receive the dividend in pounds sterling and such an election should be made no later than 24 September 2021. Further details regarding the currency election process and payment of the dividend can be found on the Company's website at investors.avast.com.

To date, the Directors have aimed to pay a dividend of approximately 40% of the Company's levered free cash flow for each financial year, with approximately one-third of this amount being paid as an interim dividend. Directors have declared interim dividends based on the Company's levered free cash flow for the prior financial year. Pursuant to the Co-Operation Agreement dated 10 August 2021 entered into between, amongst others, NortonLifeLock, Inc. ("Norton") and the Company and the terms of Norton's announcement of its firm intention to make an offer for the entire issued and to be issued share capital of the Company pursuant to Rule 2.7 of the City Code on Takeovers and Mergers (the "Rule 2.7 Announcement"), the Company is permitted to declare and pay an interim dividend of 4.8 cents per share for the six-month period ended 30 June 2021, without such dividend resulting in a commensurate downward adjustment to the value of Norton's offer. Accordingly, the Directors believe that it is in the best interest of the Company and its shareholders to declare a dividend of 4.8 cents per share for the six-month financial period ended 30 June 2021. Further information regarding the Company's ability to make future interim and final dividends is set out in the Rule 2.7 Announcement.

The foreign exchange rate at which dividends declared in US dollars will be converted into pounds sterling will be calculated based on the average exchange rate over the five business days prior to 27 September 2021 and announced shortly thereafter.

Proposed Dividend Timetable

Ex-dividend Date: 9 September 2021

Record Date: 10 September 2021

Last Date for Currency Election: 24 September 2021

Payment: 15 October 2021

Additional financial guidance

In addition to the main full year 2021 guidance elements referenced in this document, additional supplementary points are provided below.

Notes:

11 Cash conversion is defined as Unlevered Free Cash Flow divided by Adjusted Cash EBITDA.

12 Gross debt represents the sum of the total book value of the Group's loan obligations (i.e. sum of loan principals) and lease liabilities. Net debt indicates gross debt netted by the company's cash and cash equivalents. Both gross debt and net debt exclude the amount of capitalized arrangement fees on the balance sheet as of 30 June 2021 of $6.3m (31 December 2020: $2.6m and accrued interest of $(0.1)m).

PRINCIPAL RISKS AND UNCERTAINTIES

In the first 6 months of this year the Board has continued to assess and manage the risks identified in the 2020 annual report including the risks caused. Avast's recurring and subscription-based revenues, and strong liquidity position gives the business a resilient financial position. However, the impact of the pandemic remains uncertain, and the Board continues to closely monitor developments in order to adapt and respond accordingly. The principal risks and uncertainties which could have a material adverse effect on the Group's business, results of operations, financial condition and/or prospects set out in the last annual report and financial statements dated 2 March 2021 remain valid at the date of this report. These risks and uncertainties are:

PRESENTATION OF RESULTS AND DEFINITIONS

This Half Year Report contains certain non-IFRS financial measures to provide further understanding and a clearer picture of the financial performance of the Group. These alternative performance measures (APMs) are used for the assessment of the Group's performance and this is in line with how management monitor and manage the business day-to-day. It is not intended that APMs are a substitute for, or superior to reported measures. The APMs are not defined or recognised under IFRS including Billings, Organic Growth, Adjusted EBITDA, Adjusted Cash EBITDA, Adjusted Net Income and Unlevered Free Cash Flow as defined and reconciled below.

These non-IFRS financial measures and other metrics are not measures recognised under IFRS. The non-IFRS financial measures and other metrics, each as defined herein, may not be comparable to similarly titled measures presented by other companies as there are no generally accepted principles governing the calculation of these measures and the criteria upon which these measures are based can vary from company to company. Even though the non-IFRS financial measures and other metrics are used by management to assess the Group's financial results and these types of measures are commonly used by investors, they have important limitations as analytical tools, and investors should not consider them in isolation or as substitutes for analysis of the Group's position or results as reported under IFRS. The Group considers the following metrics to be the KPIs it uses to help evaluate growth trends, establish budgets and assess operational performance and efficiencies.

"Adjusted Billings" and "Adjusted Revenue" were presented in the Full Year Report for the year ended 2020 due to differences between reported and adjusted metrics resulting from historical acquisitions, which were presented in comparatives. As there are no further adjustments applicable to revenue or billings in neither 2020 nor 2021, APMs were limited to Billings and Revenue to decrease complexity for users of these accounts.

Organic Growth APMs were introduced in FY 2019 to present the change in revenue and billings resulting from continuing Group operations. Organic growth rate excludes the impact of FX, acquisitions, business disposals and Discontinued Business. It excludes current period billings and revenue of acquisitions until the first anniversary of their consolidation. In case of disposals, billings and revenue until close of the transaction are included in the calculation of organic growth together with comparable periods in the baseline. The definitions of non-GAAP measures in the half year ended 30 June 2021 are consistent with those presented in the report for FY 2020 and there have been no changes to the bases of calculation.

CONSOLIDATED STATEMENT OF ADJUSTED PROFIT AND LOSS

FOR THE SIX-MONTHS ENDED 30 JUNE 2021

($'M)

Billings

Billings represent the full value of products and services being delivered under subscription and other agreements and include sales to new end customers plus renewals and additional sales to existing end customers. Under the subscription model, end customers pay the Group for the entire amount of the subscription in cash upfront upon initial delivery of the applicable products. The invoicing timing may slightly vary through the year with immaterial impact, as part of our usual renewal offers testing. Although the cash is paid upfront, under IFRS, subscription revenue is deferred and recognised rateably over the life of the subscription agreement, whereas non-subscription revenue is typically recognised immediately.

Adjusted EBITDA

Adjusted earnings before interest, taxation, depreciation and amortisation ('Adjusted EBITDA') is defined as the Group's operating profit/loss before depreciation, amortisation of non-acquisition intangible assets, share-based payments including related employer's costs, exceptional items and amortisation of acquisition intangible assets.

Adjusted Cash EBITDA

Cash earnings before interest, taxation, depreciation and amortisation ('Adjusted Cash EBITDA') is defined as Adjusted EBITDA plus the net deferral of revenue and the net change in deferred cost of goods sold. The following is a reconciliation of the Group's reported Operating profit to Adjusted EBITDA and Adjusted Cash EBITDA:

Adjusted Net Income

Adjusted Net Income represents reported net income plus share-based payments, exceptional items, amortisation of acquisition intangible assets, unrealised foreign exchange gain/loss on the EUR tranche of the bank loan, the tax impact from the unrealised exchange differences on intercompany loans, tax impact from disposal of business operation and the tax impact of the foregoing adjusting items and IP transfers, less gain on disposal of business operation. The following is a reconciliation of the Group's reported Net income to Adjusted Net Income:

Unlevered Free Cash Flow

Represents Adjusted Cash EBITDA less capex, donation and taxation, plus cash flows in relation to changes in working capital (excluding change in deferred revenue and change in deferred cost of goods sold as these are already included in Adjusted Cash EBITDA). Changes in working capital are as per the cash flow statement on an unadjusted historical basis and unadjusted for exceptional items. In H1 2020, the $24.7m Jumpshot wind down costs were treated as an exceptional item, thus excluded from the Unlevered Free Cash Flow.

Levered Free Cash Flow

Represents amounts of incremental cash flows of the Group after it has met its financial obligations (after interest and lease repayments) and is defined as Unlevered Free Cash Flow less cash interest and lease repayments.

Rounding

Due to rounding, numbers presented throughout this document may not add up precisely to the totals provided, however growth rates are calculated based on precise actual numbers.

Notes:

13 Depreciation and amortisation included in Adjusted Net Income excludes amortisation of acquisition intangibles.

DIRECTORS' RESPONSIBILITY STATEMENT

We confirm that to the best of our knowledge:

The unaudited condensed consolidated financial statements have been prepared in accordance with UK-adopted IAS 34 Interim Financial Reporting as adopted by the European Union

The interim management report includes a fair review of the information required by:

(a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report in Financial statements dated 3 March 2021 that could do so."

On behalf of the Board

Ondrej Vlcek

Chief Executive of Avast

INDEPENDENT REVIEW REPORT TO AVAST PLC

Conclusion

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2021 which comprises the Consolidated Statement of Profit and Loss, Consolidated Statement of Comprehensive Income, Consolidated Statement of Financial Position, Consolidated Statement of Changes in Shareholder's Equity, Consolidated Statement of Cash and the related explanatory notes that have been reviewed. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2021 is not prepared, in all material respects, in accordance with UK adopted International Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Basis for Conclusion

We conducted our review in accordance with International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

As disclosed in note 2, the annual financial statements of the group will be prepared in accordance with UK adopted IFRSs. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with UK adopted International Accounting Standard 34, "Interim Financial Reporting.

Responsibilities of the directors

The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority

Auditor's Responsibilities for the review of the financial information

In reviewing the half-yearly report, we are responsible for expressing to the Company a conclusion on the condensed set of financial statement in the half-yearly financial report. Our conclusion, is based on procedures that are less extensive than audit procedures, as described in the Basis for Conclusion paragraph of this report.

Use of our report

This report is made solely to the company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.

Ernst & Young LLP

London

10 August 2021

CONSOLIDATED STATEMENT OF PROFIT AND LOSS

FOR THE SIX-MONTHS ENDED 30 JUNE 2021

($'M)

The accompanying notes form an integral part of these financial statements.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX-MONTHS ENDED 30 JUNE 2021

($'M)

The accompanying notes form an integral part of these financial statements.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AT 30 JUNE 2021

($'M)

 The accompanying notes form an integral part of these financial statements.

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

FOR THE SIX-MONTHS ENDED 30 JUNE 2021

($'M)

The accompanying notes form an integral part of these financial statements.

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX-MONTHS ENDED 30 JUNE 2021

($'M)

The accompanying notes form an integral part of these financial statements.

1. General information

Avast plc, together with its subsidiaries (collectively, 'Avast', 'the Group' or 'the Company'), is a leading global cybersecurity provider. Avast plc is domiciled in the United Kingdom and its registered address is 110 High Holborn, London WC1V 6JS. Avast plc's registered number is 07118170.

The Interim Condensed Financial Statements were approved for issue by the Board of Directors on 10 August 2021 and have been reviewed but not audited.

These Interim Condensed Financial Statements do not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006.

The financial information in respect of the financial year ended 31 December 2020 has been extracted from the audited financial statements for that financial year that have been delivered to the registrar and on which the auditors gave an unqualified audit opinion which did not include an emphasis of matter reference or a statement under sections 498(2) or (3) of Companies Act 2006. 

2. Basis of preparation and changes to the accounting policies

2.1 Basis of preparation

The Interim Condensed Financial Statements for the six-months ended 30 June 2021 have been prepared in accordance with UK-adopted IAS 34 Interim Financial Reporting and the Disclosure and Transparency Rules of the Financial Conduct Authority. The Interim Condensed Financial Statements should be read in conjunction with the Annual Report and Consolidated financial statements for the year ended 31 December 2020, which have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ('IFRS'). The annual financial statements for the year ended 31 December 2021 will be prepared in accordance with UK-adopted International Accounting Standards (UK-adopted IFRS).

The Group uses the direct method of consolidation, under which the Interim Condensed Financial Statements are translated directly into the presentation currency of the Group, the US Dollar ('USD'). The consolidation of a subsidiary begins when the Group obtains control over the subsidiary and continues to be consolidated until the date when such control ceases. All intra-group balances, transactions, unrealised gains and losses resulting from intra-group transactions and dividends are eliminated in full on consolidation.

Going Concern

Due to the uncertainty of the ongoing Covid-19 pandemic, management have performed a detailed going concern review and analysis of the accounts and consider that the Group has adequate resources to continue business for the foreseeable future, and a period from the signing of the interim financial statements through 31 December 2022.

Group's financial covenants

The Group's Term Loan Credit Agreement includes a single financial covenant that is triggered at any time when $35 million or more is outstanding under the revolving credit agreement for a period ending on June 30 or December 31. The Group must maintain, on a consolidated basis, a leverage ratio (set as a ratio of Consolidated First Lien Net Debt to Consolidated EBITDA) less than 6.5x when $35m or more is outstanding. This covenant is tested quarterly at such time as it is in effect. The Total Net First Lien Leverage Ratio remains materially lower than 6.5x during the period under review. The ratio was 1.0x at 30 June 2021 and there is no reason to believe that the Group would have any material risk against the ceiling of 6.5x. As of 30 June 2021, $40 million committed was undrawn under the revolving credit facility.

Reverse stress testing

To make the going concern assessment, the Directors have reviewed the latest budget and forecast through 31 December 2022, including the projected cash flows and other relevant information. The cash flow projections have been subject to reverse stress testing, which assessed the potential impact of extreme scenario in which the billings from Desktop part of Consumer Direct segment would decline drastically without any mitigating action taken by management. Even in such a scenario, which is considered remote, the Group has more than sufficient headroom in its available resources to withstand the period from signing of the interim financial statements through 31 December 2022 and not to be in breach of the financial covenant. The Group would only run out of available cash in the extreme situation where practically no further Consumer Direct Desktop billings would be realised in H2, collections would stop, and no meaningful offsetting cost actions would be taken, whilst still paying dividends according to the current policy (i.e. 40% of Levered Free Cash Flow).

Our business remains resilient because:

The Directors continue to carefully monitor the impact of the Covid-19 pandemic on the operations of the Group and have a range of possible mitigation actions, which could be implemented in the event of a downturn of the business.

On the basis of the above considerations, the Directors have a reasonable expectation that the Group will have adequate resources to continue in business for the foreseeable future and therefore continue to adopt the going concern basis in preparing the interim financial statements.

Impact of Covid-19 on financial statements at 30 June 2021

In light of the impact of Covid-19, management have considered the impact on accounting policies, judgements and estimates. In particular, on the expected credit loss, where customers have been reviewed for potential increased level of risk. There has been no material specific provision to the Group's receivables recorded as of 30 June 2021.