22nd Aug 2018 07:00
Avast PLC
HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2018
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 2018.
FINANCIAL HIGHLIGHTS
· Good first half performance with full year expectations for the Group unchanged, except slight improvement to Adjusted EBITDA margin guidance
· Adjusted Billings excluding FX1 and Discontinued Business2 up 8.2%, 12.0% in actual rates to $421.2m
· Adjusted Revenue excluding FX and Discontinued Business up 8.5%, 9.8% in actual rates to $394.3m
· Adjusted Revenue in Consumer Desktop excluding FX up 12.6%, 14.0% in actual rates to $281.0m
· Adjusted EBITDA up 10.6% to $222.1m; Adjusted EBITDA margin at 55.1%, up 258bps
· Adjusted Net Income up 16.7% to $130.2m
· Adjusted fully diluted earnings per share ("EPS") up 12.4% to $0.14
· Continued strong cash generation with Unlevered Free Cash Flow up 25.1% to $192.2m
· Net debt / LTM ('last twelve months') Adjusted Cash EBITDA at 2.7x at period end and 3.0x on net debt to Adjusted EBITDA basis
· On statutory basis, Revenue up from $294.0m to $388.6m, Operating profit up from $36.3m to $109.7m, Net Income up from $(51.6)m to $160.2m and statutory fully diluted EPS up to $0.17
OPERATIONAL HIGHLIGHTS
· Strong performance in core Consumer Desktop business, driven by growth in Utilities and VPN. Since year end FY17, KPIs have tracked in line with guidance with number of customers3 up 2.6% to 11.67m, an increase of 298k; Average Products Per Customer (APPC4) up 3.0% to 1.36; Average Revenue Per Customer (ARPC5) up 3.5% to $46.92
· Group synergies from AVG integration realized as expected, contributing $25.2m in EBITDA in the period
· Ongoing disruption from integration work in SMB presented a slight headwind to SMB segment billings. Continued restructuring with a clear focus on driving profitable business
· Expansion of Avast's value-added solutions with successful launch of Avast Secure Browser, Avast AntiTrack and Avast Driver Updater. Development of Smart Home, HackCheck and Family Shield initiatives continues to progress well
· Admission to trading on the London Stock Exchange on 15 May 2018
($'m) | H1 2018 | H1 20176 | Change % | Change % (excluding FX) |
Adjusted Billings | 430.2 | 399.8 | 7.6 | 4.0 |
Discontinued Operations | 9.0 | 23.6 | (62.0) | (63.2) |
Adjusted Billings excl. Discontinued Operations | 421.2 | 376.2 | 12.0 | 8.2 |
($'m) | H1 2018 | H1 20176 | Change % | Change % (excluding FX) |
Adjusted Revenue | 403.3 | 382.8 | 5.4 | 4.1 |
Discontinued Operations | 9.0 | 23.6 | (62.0) | (63.2) |
Adjusted Revenue excl. Discontinued Operations | 394.3 | 359.2 | 9.8 | 8.5 |
($'m) |
| H1 2018 | H1 20176 | Change % | |
Adjusted EBITDA |
| 222.1 | 200.9 | 10.6 | |
Adjusted Cash EBITDA |
| 246.4 | 217.7 | 13.2 | |
Adjusted Net Income |
| 130.2 | 111.6 | 16.7 | |
Net Debt |
| 1,305.8 | 1,639.2 | (20.3) | |
Statutory Results (unaudited):
($'m) |
| H1 2018 | H1 2017 | Change %7 |
Revenue |
| 388.6 | 294.0 | 32.2 |
Operating profit |
| 109.7 | 36.3 | Fav |
Net Income |
| 160.2 | (51.6) | Fav |
Net Cash Flows from operating activities |
| 166.1 | 129.7 | 28.1 |
Vincent Steckler, Chief Executive of Avast, said:
"I'm pleased to report our first set of results since our IPO earlier this year that indicate the Group is performing strongly with sustained high growth, in line with market expectations, and with slightly higher EBITDA levels.
Within our core, market-leading consumer business, our subscription business continues to enhance the predictability and visibility of the Group's future revenue streams as well as providing cross-sell and up-sell opportunities.
The last six months have seen some positive developments for the global cybersecurity market. Legislation and high-profile data breaches have led to an increased focus on privacy concerns and security risks amongst both consumer and business customers who are responding appropriately and we continue to see double digit increases in global spend.
Avast is set to capitalise on these opportunities. Having already delivered a number of key products focused on online security, personal privacy and utilities in the first half of the year, we have a robust pipeline of new products for both the consumer and SMB market, which gives us confidence for continued growth. With the rapid increase of connected devices in homes and in offices today, our focus is on helping people secure and manage their online environment in a simple and easy way.
Looking ahead, we are confident that we can continue to execute the strategy we outlined at IPO and we are on track to deliver on full year guidance of high single digit revenue growth, with slight EBITDA margin improvement.".
PRESENTATION OF RESULTS
There will be a live webcast presentation and conference call of the results to analysts and investors at 9:00 AM BST today (22 August 2018). Please register to participate at the Company website https://investors.avast.com/. A Q&A facility will be available for conference call participants.
ENQUIRIES
Investors and analysts:
Peter Russell, Director of IR
IR@avast.com
Media:
Stephanie Kane, VP PR and Corporate Communications
mediarelations@avast.com
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 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 we use a number of alternative performance measures 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 reconciliations (see "FINANCIAL REVIEW") of non-GAAP measures are included in notes to the financial statements.
All dollar figures throughout the report are at actual currency rates unless otherwise indicated.
1 Growth rate excluding currency impact calculated by restating H1 2018 actual to H1 2017 FX rates. Deferred revenue is translated to USD at date of invoice and is therefore excluded when calculating the impact of FX on revenue
2 As the company is exiting its toolbar-related search distribution business, which had previously been an important contributor to AVG's revenues (referred to above and throughout the Half Year Report, with the Group's browser clean-up business, as "Discontinued Business"), the growth figures exclude Discontinued Business, which the Group expects to be negligible by the end of 2019
3 Users who have at least one valid paid Consumer Direct Desktop subscription (or license) at the end of the period
4 APPC defined as the total valid licenses or subscriptions for the period presented divided by the average Customers during the same period
5 ARPC defined as the Consumer Direct Desktop revenue for the period divided by the average Customers during the same period
6 Growth figures exclude the impact of prior year Piriform acquisition through the inclusion of Piriform pre-acquisition results in H1 2017. Had Piriform, acquired on 18 July 2017, always been a part of the Group, it would have contributed $9.9m to Adjusted Billings, $10.1m to Adjusted Revenue and $6.1m to Adjusted EBITDA in H1 2017. These amounts are included in the Group's H1 2017 baseline figures
7 "Fav" in change % represents favourable growth rate figure over 100 per cent, "Unf" represents unfavourable decline greater than negative 100 per cent
CHIEF EXECUTIVE OFFICER'S REVIEW
Operating performance in the first half was in line with expectations. We are reaffirming our full year guidance, but with a slight improvement in EBITDA margin. The Group has recorded good growth in the period, while maintaining market-leading levels of profitability. On a like-for-like basis, the Group's Adjusted Billings increased year-on-year 8.2 per cent excluding currency impact, and 12.0 per cent in actual rates from $376.2m to $421.2m. The Consumer and SMB segments contributed $391.1m and $30.1m respectively. Our subscription business continues to enhance the predictability and visibility of the Group's future revenue streams. On a like-for-like basis, the Group's Adjusted Revenues increased year-on-year 8.5 per cent excluding currency impact, and 9.8 per cent in actual rates from $359.2m to $394.3m. The Consumer and SMB segments contributed $362.2m and $32.2m respectively.
Profitability is driven by the Group's scale and operating leverage, and has also benefited from synergies. Most of the significant synergy opportunities from the AVG acquisition have now been realised, with another $25.2m in EBITDA in the half year, as expected. Adjusted EBITDA increased 10.6% to $222.1m, resulting in Adjusted EBITDA margin of 55.1%. While the impact of AVG integration synergies are heavily weighted to the first half of the year, operational improvements mean we foresee a slight improvement to our Adjusted EBITDA margin, which we expect to be flat year-on-year now inclusive of annualised PLC costs of $7m.
The Group's cost-effective user acquisition model and large, global user base of more than 435m users, remain key competitive strengths for the business. As part of the user acquisition strategy and continual enhancement of the user experience, Avast has taken additional measures in the first half of 2018 to improve ease-of-install and reduce install time of products.
Together with its user base, Avast's consumer monetisation platform has been a key driver of the Group's success, effectively promoting up-sells and cross-sells amongst existing users. The platform has helped deliver a good performance for the period in all our key operating metrics, in particular Average Product Per Customer and Average Revenue Per Customer. Enhancements to our machine-learning algorithms and scanning technology have further optimised the monetisation performance. Owing to the Group's strong focus on R&D, there has also been continued improvement in the breadth and quality of our value-added solutions, including the launch of Avast AntiTrack, Avast Driver Updater and Avast Secure Browser. The development of new initiatives Smart Home, HackCheck and Family Shield continues to proceed well.
Consumer
($'m) | H1 2018 | H1 2017 | Change % | Change % (excluding FX) |
Adjusted Billings | 400.1 | 365.9 | 9.4 | 5.6 |
Discontinued Operations | 9.0 | 23.6 | (62.0) | (63.2) |
Adjusted Billings excl. Discontinued Operations | 391.1 | 342.3 | 14.3 | 10.4 |
($'m) | H1 2018 | H1 2017 | Change % | Change % (excluding FX) |
Adjusted Revenue | 371.1 | 348.2 | 6.6 | 5.3 |
Discontinued Operations | 9.0 | 23.6 | (62.0) | (63.2) |
Adjusted Revenue excl. Discontinued Operations | 362.2 | 324.6 | 11.6 | 10.3 |
SMB
($'m) | H1 2018 | H1 2017 | Change % | Change % (excluding FX) |
Adjusted Billings | 30.1 | 33.9 | (11.3) | (14.0) |
Adjusted Revenue | 32.2 | 34.5 | (6.9) | (7.6) |
Operational KPIs
| 30 June 2018 | 31 December 2017 | Change % |
Number of customers | 11.67m | 11.37m | 2.6 |
Average Products Per Customer | 1.36 | 1.32 | 3.0 |
Average Revenue Per Customer | $46.92 | $45.35 | 3.5 |
Quarterly performance
The table below presents the Group's Adjusted Billings and Adjusted Revenue for the periods indicated:
($'m) | Q1 2018 | Q1 2017 | Change % | Change % (excluding FX) |
Adjusted Billings | 226.2 | 200.5 | 12.8 | 7.7 |
Adjusted Billings excl. Discontinued Operations | 221.2 | 187.6 | 17.9 | 12.5 |
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Adjusted Revenue | 199.6 | 189.6 | 5.3 | 4.4 |
Adjusted Revenue excl. Discontinued Operations | 194.6 | 176.7 | 10.1 | 9.3 |
($'m) | Q2 2018 | Q2 2017 | Change % | Change % (excluding FX) |
Adjusted Billings | 204.0 | 199.2 | 2.4 | 0.2 |
Adjusted Billings excl. Discontinued Operations | 200.1 | 188.6 | 6.1 | 3.8 |
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Adjusted Revenue | 203.7 | 193.2 | 5.4 | 3.9 |
Adjusted Revenue excl. Discontinued Operations | 199.7 | 182.5 | 9.4 | 7.8 |
Q1 2018 year-on-year billings strength was helped by cross-sell campaigns and a carry-over effect from price increases implemented in Q2 2017. Q2 2018 year-on-year underlying billings growth was negatively impacted by the WannaCry bump in the prior year.
Business Unit Performance
Consumer Direct Desktop
($'m) | H1 2018 | H1 2017 | Change % | Change % (excluding FX) |
Adjusted Billings | 308.4 | 263.4 | 17.1 | 12.4 |
Adjusted Revenue | 281.0 | 246.6 | 14.0 | 12.6 |
· The largest component of the Avast business, Consumer Direct Desktop, performed strongly in the first half of the year with billings up 12.4 per cent year-on-year excluding FX. Revenue, as the trailing indicator, grew 12.6 per cent year-on-year excluding FX.
· Key operating metrics (number of customers, APPC, ARPC) grew in line with guidance, reflecting the health of the business in executing to plan
· Growth was driven by strong cross-selling of products including Utilities and VPN, aided by successful product launches of Avast Driver Updater and AntiTrack. Results of specific price testing also aided overall improved billings and customer volumes
· Development of Avast's monetisation capability expanded to the CCleaner brand, through enhanced in-product messaging and continued development of the platform to support contextual triggers
· Machine learning algorithms and improvements in scanning technology (Silent and Sensitive Data Scans) helped further optimise the monetisation engine
· We continue to add to the list of focus markets, in addition to sustained emphasis on the United States. Our brands in Central Europe and Latin America have benefited from Avast's experience in other non-English speaking countries. The opening of offices in Russia and Japan at the end of last year show early signs of positive impact on brand awareness, users and customers. Other localisation efforts, such as the use of local payment providers, have improved monetisation rates in the Nordics and central Europe. A further 29 languages were deployed across our product portfolio during H1, expanding market reach
· In line with previous guidance, Consumer Direct Desktop is on track to deliver low double-digit revenue growth excluding the impact of FX in 2018
Consumer Direct Mobile
($'m) | H1 2018 | H1 2017 | Change % | Change % (excluding FX) |
Adjusted Billings | 43.3 | 41.8 | 3.5 | 2.2 |
Adjusted Revenue | 41.6 | 40.4 | 3.0 | 2.4 |
· The Consumer Direct Mobile business delivered 2.2 per cent year-on-year growth excluding FX, supported by strong double-digit growth in subscriptions
· Growth in the subscription business has been driven by product optimisation and promotion, as well as good renewal rates in annual subscriptions. The introduction of bundles and multi-platform subscriptions across all Anti-virus, Utilities and VPN apps are expected to benefit average order values
· The carrier business has performed in line with expectations, declining year-on-year primarily due to Sprint loss. Future performance is set to benefit from new products with major US and European carriers in the second half of the year and new carrier relationships
· In line with previous guidance, we expect revenue in the mobile business to be broadly flat for the full year excluding the impact of FX
Consumer Indirect
This business unit includes Avast Secure Browser (ASB), distribution of third party software, Jumpshot analytics, and advertising within applications.
($'m) | H1 2018 | H1 2017 | Change % | Change % (excluding FX) |
Adjusted Billings | 48.4 | 60.6 | (20.1) | (21.5) |
Discontinued Operations | 9.0 | 23.6 | (62.0) | (63.2) |
Adjusted Billings excl. Discontinued Operations | 39.4 | 37.0 | 6.6 | 5.0 |
($'m) | H1 2018 | H1 2017 | Change % | Change % (excluding FX) |
Adjusted Revenue | 48.5 | 61.2 | (20.7) | (22.1) |
Discontinued Operations | 9.0 | 23.6 | (62.0) | (63.2) |
Adjusted Revenue excl. Discontinued Operations | 39.6 | 37.7 | 5.1 | 3.6 |
· Growth in Consumer Indirect was driven by Jumpshot and early momentum in Avast Secure Browser. This offset declines in mobile advertising, impacted by GDPR, and in Chrome distribution, which had lower first installs
· Jumpshot, Avast's data analytics business, continued with its expansion program delivering growth rates in-line with historic rates, anchored by partnerships, including with two of the leading global consumer product group companies in the world, one of the largest travel publishers and numerous other flagship brands. The business also launched on demand products for both its Insights and Campaign Optimisation solutions, enabling more marketers, product owners and strategy professionals to access our insight
· Avast Secure Browser, the updated and renamed successor product to the SafeZone Browser (SZB), launched in March 2018. The new ASB, which has been developed fully in-house and is based on the Chromium open-source project, provides quality everyday browsing, optimising the speed, privacy and security of users' online experience. The product has been very well received by both independent reviewers and users, with high acceptance levels and a low proportion of uninstalls. Over 80% of qualified SZB users have already been updated to ASB and the product is also available to new users. Initial growth trends in active users, daily activity and monetisation are pleasing
· In March Avast successfully signed a two-year renewal to March 2020 of the larger of Avast's two Google Chrome distribution contracts, covering Chrome offers to users of the Avast-branded and AVG-branded product sets. Avast's second Google Chrome distribution contract, covering Chrome offers to users of CCleaner, continues to run under its existing term to March 2019
· The legacy AVG toolbar business, as well as the legacy Avast browser clean-up business, are decreasing as expected. This business line is expected to disappear towards the end of 2019.
· In line with previous guidance, we expect Consumer Indirect excluding Discontinued Business to grow revenue mid-single digit, excluding the impact of FX in 2018.
SMB
($'m) | H1 2018 | H1 2017 | Change % | Change % (excluding FX) |
Adjusted Billings | 30.1 | 33.9 | (11.3) | (14.0) |
Adjusted Revenue | 32.2 | 34.5 | (6.9) | (7.6) |
· The SMB business was softer than expected primarily due to weakness in partner distribution as a result of ongoing integration disruption, and tightening of credit controls and previous discounting. Margins, however, have expanded as we maintained a disciplined pricing approach and cost controls. Restructuring efforts continue with a clear focus on driving profitable business
· The migration of users of endpoint security protection to the new integrated technology is advancing well and is on course to complete by the end of the year. We remain on-track to launch the initial phase of our new ordering and billing system also by year end to further improve the ease of doing business with our partner community
· In March a partnership agreement was signed with Zscaler to white label their Secure Web Gateway (SWG) and Secure Internet Gateway (SIG) SaaS products. The beta of SWG was released in July, with both products expected to be released by year end. These network security SaaS products, together with our market leading endpoint security products, will provide a complete security solution to SMBs
· We now expect SMB revenue in FY18 to decline high single-digit excluding the impact of FX, versus the mid-single digit decline previously guided
Strategic Progress
While the bulk of integration work post acquisition of AVG was completed in 2017, some important elements have been completed in the first half of 2018. For greater operational efficiency we have successfully unified a number of shared components and backend systems such as licensing, UI framework, account and device management, product analytics, and the installer / updater. Completion of this work allows the re-allocation of resources elsewhere for product innovation and new product development. The previously guided 2018 synergies from integration work completed in 2017 have mostly been recognised in the first half of the year.
Dividend
The Group intends to commence dividend payments with a final dividend payment in respect of 2018 (15 May - 31 December), which will be payable in the first half of 2019. The Group currently expects to maintain dividend payments of approximately 40% of levered free cash flow.
Technology and Innovation
Avast's product pipeline remains strong. February saw the launch of the first version of Avast AntiTrack, which protects users' privacy by eliminating data trackers and altering the digital fingerprint. Other innovations under the Avast name include a redesigned in-product checkout, launched toward the end of the first half, and the development of a multi-platform version of the parental control product, Avast Family Shield. Avast HackCheck, a monitoring service to which customers can subscribe to determine if an account has been breached, is due for launch in the second half of the year. Finally, there is Smart Home Security, where we are making great progress for its upcoming stand-alone launch and launch through our ISP and mobile partners.
People
Progress in the period has been enabled largely through the talent and hard work of Avast's 1,700 employees, who are the foundation on which the business is built. We are pleased to report that employee engagement scores continue to strengthen, with 90% of employees likely to recommend Avast as a great place to work.
FINANCIAL REVIEW
Billings and Revenue
The Group's Adjusted Billings increased by $30.4m, from $399.8m in the half-year ended 30 June 2017 to $430.2m in the half-year ended 30 June 2018, driven by the core consumer desktop business. This represented a 4.0 per cent increase excluding FX or 7.6 per cent in actual rates. Excluding Discontinued Business, the Group's Adjusted Billings increased by $45.0m, from $376.2m to $421.2m. This represented an 8.2 per cent increase excluding FX or 12.0 per cent in actual rates. Subscription billings represented 86.2 per cent of the Group's total Adjusted Billings in H1 2018 (82.7 per cent in H1 2017).
The Group's Adjusted Revenue increased by $20.5m to $403.3m in the half year ended 30 June 2018, benefiting from both deferred revenue strength and H1 2018 new billings performance. This represented a 4.1 per cent increase excluding FX or 5.4 per cent in actual rates. Excluding Discontinued Business, the Group's Adjusted Revenue increased by $35.1m from $359.2m to $394.3m, representing an 8.5 per cent increase excluding FX or 9.8 per cent in actual rates. Revenue in the period of $403.3m included $232.4m from the release of prior-period deferred revenue. The Adjusted Deferred Revenue8 balance at the end of the period was $427.7m, comprising $378.6m that will be recognised within 12 months of the balance sheet date and $49.1m that will be recognised in later periods. This compares to $379.6m, comprising of $327.7m and $51.8m respectively, at the same time last year. The average subscription length in the half-year ended 30 June 2018 was 14.2 months (14.7 months in FY 2017).
The Group's statutory Billings increased by $40.3m, from $389.9m in the half-year ended 30 June 2017 to $430.2m in the half-year ended 30 June 2018, which represents a 10.3 per cent increase. The Group's statutory Revenue increased by $94.6m in the half-year ended 30 June 2017 to $388.6m in the half-year ended 30 June 2018, which represents a 32.2 per cent increase.
The table below presents the Group's Adjusted Billings and Adjusted Revenue for the periods indicated:
($'m) | H1 2018 | H1 2017 | Change | Change % |
Adjusted Billings | 430.2 | 399.8 | 30.4 | 7.6 |
Consumer | 400.1 | 365.9 | 34.2 | 9.4 |
Direct | 351.7 | 305.3 | 46.4 | 15.2 |
Indirect (excl. Discontinued Business) | 39.4 | 37.0 | 2.4 | 6.6 |
Discontinued Business | 9.0 | 23.6 | (14.6) | (62.0) |
SMB | 30.1 | 33.9 | (3.8) | (11.3) |
Adjusted Billings excluding Discontinued Business | 421.2 | 376.2 | 45.0 | 12.0 |
Adjusted Revenue | 403.3 | 382.8 | 20.5 | 5.4 |
Consumer | 371.1 | 348.2 | 22.9 | 6.6 |
Direct | 322.6 | 287.0 | 35.6 | 12.4 |
Indirect (excl. Discontinued Business) | 39.6 | 37.7 | 1.9 | 5.1 |
Discontinued Business | 9.0 | 23.6 | (14.6) | (62.0) |
SMB | 32.2 | 34.5 | (2.3) | (6.9) |
Adjusted Revenue excluding Discontinued Business | 394.3 | 359.2 | 35.1 | 9.8 |
Costs
In H1 2018, the Group recognized the carry-over benefit from synergies from AVG acquisition of $25.2m, in particular related to payroll cost reductions in the Czech Republic and the U.S. Most of the significant synergy opportunities from the AVG acquisition have now been realised, with another $25.2m in EBITDA in the first half of the year, as expected. As previously stated, we expect a total of c$36m EBITDA benefit in the full year.
($'m) | H1 2018 | H1 2017 | Change | Change % |
Cost of revenues | (120.6) | (110.6) | (10.0) | 9.0 |
Amortisation of acquisition intangible assets | 65.0 | 65.2 | (0.2) | (0.3) |
Depreciation and amortisation (excl. amortisation of acquisition intangible assets) | 4.4 | 5.0 | (0.6) | (12.0) |
COGS deferral adjustment | (0.9) | (6.0) | 5.1 | (85.0) |
Gross-up Adjustment | (1.1) | (8.9) | 7.8 | (87.6) |
Exceptional items | 0.4 | 0.8 | (0.4) | (50.0) |
Piriform pre-acquisition cost of revenues | - | (0.7) | 0.7 | Unf |
Adjusted Cost of revenues (excluding D&A) | (52.8) | (55.1) | 2.3 | (4.2) |
The decrease in the Group's Adjusted Cost of Revenues reflects $5.7m benefit from the carry over impact of synergies, offset by investment into personnel costs of $(1.7)m and higher sales commissions and licenses of $(2.2)m related to the increase in Adjusted Revenue. The remainder of the movement represents various savings beyond synergies of $0.5m.
The Group's statutory Cost of revenues increased by $(10.0)m to $(120.6)m primarily due to increase in Revenue, partially offset by realised synergies
($'m) | H1 2018 | H1 2017 | Change | Change % |
Operating costs | (158.3) | (147.1) | (11.2) | 7.6 |
Share-based payments | 4.4 | 3.6 | 0.8 | 22.2 |
Depreciation and amortisation (excl. amortisation of acquisition intangible assets) | 3.3 | 4.7 | (1.4) | (29.8) |
Exceptional depreciation | - | 0.4 | (0.4) | Unf |
Exceptional items | 22.1 | 15.0 | 7.1 | 47.3 |
Piriform pre-acquisition operating costs | - | (3.4) | 3.4 | Unf |
Adjusted Operating costs (excluding D&A) | (128.4) | (126.8) | (1.6) | 1.3 |
The increase in the Group's Adjusted Operating costs after recognised synergies of $19.5m is $(21.1)m. The increase was caused by additional PLC costs $(1.2)m, lower R&D subsidies of $(2.2)m and investment into personnel costs $(11.5)m, consultancy and outsourced services $(2.9)m, office costs $(2.3)m and IT services and maintenance costs $(1.0)m.
Increase in the Group's statutory Operating costs of $(11.2)m, from $(147.1)m to $(158.3)m, reflects increase in exceptional costs, primarily due to IPO costs in H1 2018, investment into personnel and non-personnel costs, offset by realised synergies.
Exceptional items
Exceptional items in the first half of 2018 are represented mainly by IPO costs related to one-time advisory, legal and other professional service fees (see Note 8 Exceptional Items). Total IPO costs comprise of $18.5m recorded to income statement in H1 2018, $4.1m already recognised in 2017 and additional $4.0m direct share issue expenses recorded to equity, which gives the total IPO costs of $26.6m. The total cash impact of IPO costs in the first half of 2018 was $14.3m, out of which $4.0m are included in the cash flows from financing activities as directly linked to the share issue and $10.3m are included in the cash flows from operating activities.
A smaller amount of exceptional items ($4.0m in H1 2018) relates to business combinations with AVG and with Piriform and represents the run-off of programs implemented in prior periods. Final items of restructuring will occur in Q3 2018 when the program will be completed. Integration costs are expected to end in 2019.
Finance income and expense
Adjusted finance expense on a net basis was $51.7m in H1 2018, $6.3m higher compared to $45.4min H1 2017. This was as a result of the repayment of $300m debt post IPO, that impacted P&L finance expense by $6.9m (see Note 16 Term Loan).
The Group's statutory net finance costs decreased by $47.8m to $34.3m in the half-year mainly due to unrealised foreign exchange gains in H1 2018 from the Euro denominated debt, compared to unrealized foreign exchange losses recognised in H1 2017.
($'m) | H1 2018 | H1 2017 | Change | Change % |
Finance income and expenses, net | (34.3) | (82.1) | 47.8 | (58.2) |
Unrealized FX (gain)/loss on EUR tranche of bank loan | (17.4) | 36.7 | (54.1) | Unf |
Adjusted Finance income and expenses, net | (51.7) | (45.4) | (6.3) | 13.9 |
As a result of the H1 2018 performance, we know see interest cost and lease repayment expenses as $84m for the full year P&L charge, and $71m with respect to the cash flow impact.
Income tax
In the half-year ended 30 June 2018, the Group reported an Income tax benefit of $84.8m, compared to the Income tax costs of $(5.8)m in the half-year ended 30 June 2017. The decrease in Income tax costs was primarily caused by the transfer of AVG E-comm web shop to Avast Software B.V. ("Avast BV") on 1 May 2018. Subsequently, the former Dutch AVG business from Avast BV (including the web shop) was sold to Avast Software s.r.o. As a result, a deferred tax asset of $143.8m was recognised in Avast Software s.r.o. In addition, an exit charge of $(49.4)m has been agreed upon with the Dutch tax authorities (to be paid in H1 2019). The total tax impact of the IP sale of $94.4m recognised in the statutory Income tax was treated as an exceptional item and adjusted for.
Income tax was further impacted by the tax effect of foreign exchange gain on intercompany loans of $9.4m compared to the foreign exchange loss of $(11.3)m in the half-year ended 30 June 2017. The benefit was treated as an exceptional item.
Adjusted Income tax is $(32.5)m for H1 2018, resulting in an adjusted effective tax rate of 20%.
($'m) | H1 2018 | H1 2017 | Change | Change % |
Income tax | 84.8 | (5.8) | 90.6 | Unf |
Tax impact of FX difference on intercompany loans | (9.4) | 11.3 | (20.7) | Unf |
Tax impact of IP transfer | (94.4) | - | (94.4) | - |
Tax impact of COGS deferral adjustment | 0.2 | 1.5 | (1.3) | (86.7) |
Tax impact on adjusted items | (13.7) | (41.2) | 27.5 | (66.7) |
Adjusted Income tax | (32.5) | (34.3) | 1.8 | (5.2) |
Cash Flow
($'m) | H1 2018 | H1 2017 | Change | Change % |
Adjusted Cash EBITDA | 246.4 | 217.7 | 28.7 | 13.2 |
Net change in working capital (excl. change in deferred revenue and deferred COGS) | 0.1 | (21.2) | 21.3 | Unf |
Capex | (5.0) | (8.0) | 3.0 | (37.5) |
Cash Tax | (49.4) | (34.8) | (14.6) | 42.0 |
Unlevered Free Cash Flow | 192.2 | 153.6 | 38.6 | 25.1 |
Cash Interest | (36.5) | (39.0) | 2.5 | (6.4) |
Lease Payments | (1.5) | (0.5) | (1.0) | Fav |
Levered Free Cash Flow | 154.2 | 114.1 | 40.1 | 35.1 |
Working capital movement in the half-year ended 30 June 2018 comprised a positive movement in payables driven by the outstanding unpaid IPO expenses at the end of the period and offset by the negative impact of an increase in receivables and other assets largely arising from an increase in prepaid expenses.
Lower capex in 2018 relates primarily to the timing of investments.
The increase in cash tax is driven by the Czech Republic true-up system, where a company is obliged to make quarterly income tax advances based on its last known tax liability. Upon filing a tax return, tax advances paid during the year for which the tax return is filed offset the final tax liability. As the taxable income for 2017 was significantly higher than the taxable income for 2016, the reported cash tax in H1 2018 was higher. This true up happens in H1 of each year and was as expected.
($'m) | H1 2018 | H1 2017 | Change | Change % |
Net cash flows from operating activities | 166.1 | 129.7 | 36.4 | 28.1 |
Net cash used in investing activities | (5.0) | (46.4) | 41.4 | (89.2) |
Net cash flows from financing activities | (187.0) | 16.3 | (203.3) | Unf |
Following table presents reconciliation between Group's Adjusted Cash EBITDA and Net cash flows from operating activities as per consolidated statement of cash flows.
($'m) | H1 2018 | H1 2017 | Change | Change % |
Adjusted Cash EBITDA | 246.4 | 217.7 | 28.7 | 13.2 |
Net change in working capital (excl. change in deferred revenue and deferred COGS) | 0.1 | (21.2) | 21.3 | Unf |
Cash Tax | (49.4) | (34.8) | (14.6) | 42.0 |
Movement of provisions and allowances | (1.8) | (15.0) | 13.2 | (88.0) |
Exceptional costs excl. exceptional depreciation | (22.5) | (15.8) | (6.7) | 42.4 |
FX gains/losses and other financial expenses included in operating cash flows | (6.7) | (1.2) | (5.5) | Fav |
Net Cash Flows from operating activities | 166.1 | 129.7 | 36.4 | 28.1 |
The Group's net cash flow from operating activities increased by $36.4m primarily due to higher Adjusted Cash EBITDA of $28.7m, improved working capital of $21.3m (excl. change in deferred revenue and deferred COGS) and lower decrease in provisions $13.2m partially offset by higher cash tax of $(14.6)m, higher exceptional costs (excluding exceptional depreciation) of $(6.7)m and higher FX gains/losses and other financial expenses included in operating cash flows $(5.5)m. Exceptional costs cash impact in H1 2017 was primarily driven by payment of the outstanding amounts at the end of 2016 related to the acquisition and integration with AVG.
The Group's net cash outflow from investing activities of $5.0m was comprised solely of capex. The Group's net cash outflow from investing activities in the half-year ended 30 June 2017 included $38.7m related to squeeze out proceedings from the AVG Acquisition and $8.0m capex.
The Group's net cash outflow from financing activities includes net proceeds from the issue of shares of $195.8m, offset by the voluntary repayment of borrowings of $(300.0)m, mandatory repayment of borrowings of $(41.7)m, interest paid of $(36.5)m, transaction costs related to repricing of $(3.1)m and lease repayments of $(1.5)m. The Group's net cash flows from financing activities in the half-year ended 30 June 2017 included $78.5m proceeds from borrowings, $1.0m exercise of options, outflow of $(39.0)m interest paid, $(21.5)m repayment of borrowings, $(2.2)m transaction costs related to borrowings and $(0.5)m lease repayments.
Capital structure
The Group re-financed its term loan from the primary proceeds arising on IPO on 16 May 2018 and additional excess cash of $100m, reducing the USD tranche by $300m. Total Gross debt9 was $1,457.3m as of 30 June 2018. Total Net debt9 of the Group was $1,305.8m as of 30 June 2018. Decrease in gross debt is attributable to $300.0m voluntary repayment of borrowings, $41.7m mandatory repayments of borrowings and a positive unrealised FX gain of $17.4m on EUR tranche of loan.
($'m) | 30 June 2018 | 31 December 2017 | Margin at 30 June 2018 |
Term loan (USD tranche) | 887.2 | 1,213.8 | USD LIBOR plus 2.50% |
Term loan (EUR tranche) | 570.2 | 601.7 | EURIBOR plus 2.75% |
Revolver/Overdraft | - | - | USD LIBOR plus 2.25% |
Cash and cash equivalents | (151.6) | (176.3) |
|
Gross debt | 1,457.3 | 1,815.5 |
|
Net debt | 1,305.8 | 1,639.2 |
|
Net debt / LTM Adjusted Cash EBITDA | 2.7x | 3.6x |
|
Net debt / LTM Adjusted EBITDA | 3.0x | 3.9x |
|
Principal exchange rates applied
The table below represents principal exchange rates used for 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.
($:1.00) |
|
| H1 2018 average | H1 2017 average |
AUD |
|
| 0.7716 | 0.7541 |
BRL |
|
| 0.2933 | 0.3148 |
CAD |
|
| 0.7832 | 0.7494 |
CHF |
|
| 1.0353 | 1.0054 |
CZK |
|
| 0.0475 | 0.0404 |
EUR |
|
| 1.2109 | 1.0822 |
GBP |
|
| 1.3765 | 1.2582 |
ILS |
|
| 0.2843 | 0.2732 |
NOK |
|
| 0.1262 | 0.1180 |
Earnings per share
Basic Adjusted earnings per share amounts are calculated by dividing the Adjusted Net Income for the period by the weighted average number of ordinary shares outstanding during the period. The diluted Adjusted earnings per share amounts consider the weighted average number of ordinary shares outstanding during the period adjusted for the effect of dilutive options.
($'m) | H1 2018 | H1 2017 |
Adjusted Net Income | 130.2 | 111.6 |
Basic weighted average number of shares | 875,252,749 | 834,620,771 |
Effect of stock options | 75,062,326 | 80,922,708 |
Dilutive weighted average number of shares | 950,315,075 | 915,543,479 |
Basic Adjusted earnings per share ($/share) | 0.15 | 0.13 |
Diluted Adjusted earnings per share ($/share) | 0.14 | 0.12 |
Notes:
8 Adjusted deferred revenue represents the balance of deferred revenue excluding the effects of the fair value revaluation of the acquiree's pre-acquisition deferred revenues and the impact of gross-up adjustment (see further).
9 Both gross debt and net debt exclude the amount of capitalised arrangement fees on the balance sheet as of 30 June 2018 of $23.2m and accrued interest of $(0.3)m (31 December 2017:$34.7m and $(0.6)m).
PRINCIPAL RISKS AND UNCERTAINTIES
The occurrence of any of the key risks below would have a material adverse effect on the Group's
business, results of operations, financial condition and/or prospects:
· The Group is subject to risks related to revenue concentration in the consumer desktop market, and it may be unable to sufficiently diversify its offerings and monetise its user base to increase or maintain its revenues.
· Actual, possible or perceived defects, disruptions or vulnerabilities in the Group's products, solutions or cloud infrastructure, including risks from security attacks, may lead to negative publicity, damage to its reputation, and cause a decline in revenues and profits.
· If computing platforms make it harder or impossible for users to install the Group's security solutions, or for the Group to communicate with or distribute products to its users, or for the Group to retrieve information that the Group believes it needs, this will restrict the Group's ability to acquire new users, retain existing ones or distribute additional products to existing users.
· If the Group fails to maintain its user engagement and continue to attract new users, it may be unable to maintain its scale and improve the quality of its user base on a cost-effective basis, if at all, and the Group's revenues and profits may not increase even if it continues to gain additional users.
· The Group derives a material portion of its revenues from short-term contracts and runs the risk that the parties to these contracts will not renew them.
· The Group operates in a highly competitive environment and may not be able to compete successfully.
· The Group depends on search engines, download sites and app stores to attract a significant percentage of its users and if those search engines, download sites or app stores change their rankings, it could adversely affect the Group's ability to attract new users.
· The Group may be unable to successfully integrate its recently acquired companies or any business it may acquire in the future, and those acquisitions may fail to provide the benefits the Group had anticipated.
· The Group's current operations are international in scope and it plans further geographic expansion, creating a variety of operational challenges.
· If the Group fails to keep up with rapid changes in technologies and the evolution of malware and virus threats, its business may be materially and adversely affected.
PRESENTATION OF RESULTS
This Half Year Report contains certain financial measures that are not defined or recognised under IFRS, including Adjusted Billings, Adjusted Revenue, Adjusted EBITDA, Adjusted Cash EBITDA, Adjusted Net Income and Unlevered Free Cash Flow, each as defined below. 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
Billings represent the full value of products and services, the majority of which are 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. Although the cash is paid up front, 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 Billings ("Adjusted Billings") is comprised of the Group's Billings (including the Billings of Piriform from the date of its acquisition by the Group on 18 July 2017) and adding Piriform's Billings for the period prior to its acquisition, from 1 January 2017 to 17 July 2017 ("Piriform Pre-Acquisition Billings").
Adjusted Revenue
Adjusted Revenue represents the Group's reported revenue (including Piriform from the date of its acquisition by the Group on 18 July 2017) adjusted for the Deferred Revenue Haircut Reversal, the Gross-Up Adjustment10 and the Piriform Revenue Adjustments (pre-acquisition).
The following is a reconciliation of the Group's statutory Revenue to the Group's Adjusted Billings, Group's statutory Revenue to the Group's Adjusted Revenue and Group's Billings to the Group's Adjusted Billings:
($'m) | H1 2018 | H1 2017 | Change | Change % |
Revenue | 388.6 | 294.0 | 94.6 | 32.2 |
Net deferral of revenue | 41.6 | 95.9 | (54.3) | (56.6) |
Piriform pre-acquisition billings | - | 9.9 | (9.9) | Unf |
Adjusted Billings | 430.2 | 399.8 | 30.4 | 7.6 |
|
|
|
|
|
Revenue | 388.6 | 294.0 | 94.6 | 32.2 |
Deferred Revenue Haircut reversal | 11.9 | 69.8 | (57.9) | (83.0) |
Gross-Up Adjustment | 1.1 | 8.9 | (7.8) | (87.6) |
Piriform Revenue Adjustment (pre-acquisition) | 1.7 | 10.1 | (8.4) | (83.2) |
Adjusted Revenue | 403.3 | 382.8 | 20.5 | 5.4 |
|
|
|
|
|
Billings | 430.2 | 389.9 | 40.3 | 10.3 |
Piriform pre-acquisition billings | - | 9.9 | (9.9) | Unf |
Adjusted Billings | 430.2 | 399.8 | 30.4 | 7.6 |
Adjusted EBITDA
Adjusted earnings before interest, taxation, depreciation and amortisation ("Adjusted EBITDA") is defined as the Group's operating loss/profit before depreciation, amortisation of non-acquisition acquisition intangible assets, share-based payments, exceptional items, amortisation of acquisition intangible assets, the Deferred Revenue Haircut Reversal, the COGS Deferral Adjustments(11) and Piriform pre-acquisition EBITDA.
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, the net change in deferred cost of goods sold, reversal of the COGS Deferral Adjustments11 and Piriform's pre-acquisition net deferral of revenue.
The following is a reconciliation of the Group's statutory Operating profit to Adjusted EBITDA and Adjusted Cash EBITDA:
($'m) | H1 2018 | H1 2017 | Change | Change % |
Operating profit | 109.7 | 36.3 | 73.4 | Fav |
Share-based payments | 4.4 | 3.6 | 0.8 | 22.2 |
Exceptional items | 22.5 | 16.2 | 6.3 | 38.9 |
Amortisation of acquisition intangible assets | 65.0 | 65.2 | (0.2) | (0.3) |
Underlying Operating profit | 201.6 | 121.3 | 80.3 | 66.2 |
Deferred Revenue Haircut reversal | 11.9 | 69.8 | (57.9) | (83.0) |
COGS Deferral Adjustments | (0.9) | (6.0) | 5.1 | (85.0) |
Depreciation (excl. exceptional depreciation) | 6.4 | 7.6 | (1.2) | (15.8) |
Amortisation of non-acquisition intangible assets | 1.4 | 2.0 | (0.6) | (30.0) |
Piriform pre-acquisition EBITDA | 1.7 | 6.1 | (4.4) | (72.1) |
Adjusted EBITDA | 222.1 | 200.9 | 21.2 | 10.6 |
Net change in deferred revenues including FX re-translations | 29.7 | 26.3 | 3.4 | 12.9 |
Net change in deferred cost of goods sold | (4.6) | (15.1) | 10.5 | (69.5) |
Reversal of COGS deferral adjustment | 0.9 | 6.0 | (5.1) | (85.0) |
Piriform pre-acquisition net change in deferred revenues | (1.7) | (0.2) | (1.5) | Fav |
Adjusted Cash EBITDA | 246.4 | 217.7 | 28.7 | 13.2 |
Adjusted Net income
Adjusted Net Income represents statutory net income plus the Deferred Revenue Haircut Reversal, share-based payments, exceptional items, amortisation of acquisition intangible assets, unrealised foreign exchange gain/loss on EUR tranche of bank loan, the COGS Deferral Adjustments11, Piriform's pre-acquisition Net Income, the tax impact from the unrealised exchange differences on intercompany loans and the tax impact of the foregoing adjusting items and IP sale.
The following is a reconciliation of the Group's statutory Net income to Adjusted Net Income:
($'m) | H1 2018 | H1 2017 | Change | Change % |
Net Income | 160.2 | (51.6) | 211.8 | Unf |
Deferred Revenue Haircut reversal | 11.9 | 69.8 | (57.9) | (83.0) |
Share-based payments | 4.4 | 3.6 | 0.8 | 22.2 |
Exceptional items | 22.5 | 16.2 | 6.3 | 38.9 |
Amortisation of acquisition intangible assets | 65.0 | 65.2 | (0.2) | (0.3) |
Unrealised FX gain/(loss) on EUR tranche of bank loan | (17.4) | 36.7 | (54.1) | Unf |
Tax impact from FX difference on intercompany loans | (9.4) | 11.3 | (20.7) | Unf |
COGS Deferral Adjustments | (0.9) | (6.0) | 5.1 | (85.0) |
Tax impact of COGS deferral adjustment | 0.2 | 1.5 | (1.3) | (86.7) |
Tax impact on adjusting items | (13.7) | (41.2) | 27.5 | (66.7) |
Tax impact of IP transfer | (94.4) | - | (94.4) | - |
Piriform pre-acquisition net income | 1.7 | 6.0 | (4.3) | (71.7) |
Adjusted Net Income | 130.2 | 111.6 | 18.6 | 16.7 |
Unlevered Free Cash Flow
Unlevered Free Cash Flow represents Adjusted Cash EBITDA (as adjusted for exceptional items as per the definition of "Adjusted Cash EBITDA" above) less purchases of property, plant and equipment and intangibles, 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 were already included in Adjusted Cash EBITDA) and taxation. Changes in working capital and taxation are as per the cash flow statement on an unadjusted historical basis and unadjusted for exceptional items.
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:
10 The "Gross-Up Adjustment" refers to the estimated impact of the additional amount of 2015 and 2016 revenue and expenses and their deferral that would have been recognised by Avast had the contractual arrangements with certain customers qualified to have been recognised on a gross rather than a net basis prior to 2017.
11 There was no deferred cost of goods sold ("COGS") balance consolidated by the Group in the acquisition balance sheet of AVG in 2016 and thus no subsequent expense was recorded as the revenue in respect of pre-acquisition date billings was recognised. The "COGS Deferral Adjustments" refers to an adjustment to reflect the recognition of deferred cost of goods sold expenses that would have been recorded in 2016 and 2017 in respect of pre-acquisition date AVG billings, had the AVG and the Group's businesses always been combined and had AVG always been deferring cost of goods sold.
DIRECTORS' RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
The unaudited condensed consolidated financial statements have been prepared in accordance with 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 historical financial information in part 11 of Avast plc prospectus dated 10 May 2018 that could do so."
By Order of the Board
Vince Steckler
Chief Executive Officer
22 August 2018
INDEPENDENT REVIEW REPORT TO AVAST PLC
Introduction
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 2018 which comprises the Consolidated Statement of Profit and Loss, Consolidated Statement of Comprehensive Income, Consolidated Statement of Financial Position, Consolidated Statement of Changes in Shareholders' Equity, Consolidated Statement of Cash Flows and the related explanatory notes. 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.
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.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, 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.
As disclosed in note 2, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. 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.
Conclusion
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 2018 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Ernst & Young LLP
Reading
21 August 2018
CONSOLIDATED STATEMENT OF PROFIT AND LOSS
FOR THE SIX-MONTHS ENDED 30 JUNE 2018
($'m)
|
| Six-months ended | Six-months ended |
| Note | 30 June 2018 (Unaudited) | 30 June 2017 (Unaudited) |
REVENUES | 6 | 388.6 | 294.0 |
Cost of revenues |
| (120.6) | (110.6) |
GROSS PROFIT |
| 268.0 | 183.4 |
|
|
|
|
Sales and marketing |
| (58.6) | (56.0) |
Research and development |
| (33.1) | (36.7) |
General and administrative |
| (66.6) | (54.4) |
Total operating costs |
| (158.3) | (147.1) |
|
|
|
|
OPERATING PROFIT |
| 109.7 | 36.3 |
Analysed as: |
|
|
|
Underlying Operating profit |
| 201.6 | 121.3 |
Share-based payments | 19 | (4.4) | (3.6) |
Exceptional items | 8 | (22.5) | (16.2) |
Amortisation of intangible assets acquired through business combinations | 9 | (65.0) | (65.2) |
|
|
|
|
Finance income and expenses | 10 | (34.3) | (82.1) |
PROFIT (LOSS) BEFORE TAX |
| 75.4 | (45.8) |
|
|
|
|
Income tax | 11 | 84.8 | (5.8) |
PROFIT (LOSS) FOR THE PERIOD |
| 160.2 | (51.6) |
|
|
|
|
Earnings/(losses) per share (in $ per share): |
|
|
|
Basic EPS | 12 | 0.18 | (0.06) |
Diluted EPS | 12 | 0.17 | (0.06) |
The accompanying notes form an integral part of these financial statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE SIX-MONTHS ENDED 30 JUNE 2018
($'m)
| Six-months ended | Six-months ended | |
| 30 June 2018 (Unaudited) | 30 June 2017 (Unaudited) | |
Profit (loss) for the period | 160.2 | (51.6) | |
Other comprehensive gains (losses): |
|
| |
Items that will not be reclassified subsequently to profit or loss:
|
|
| |
- Defined benefit plan actuarial gain | - | - | |
Items that may be reclassified subsequently to profit or loss: |
|
| |
- Translation differences | - | (1.3) | |
Total other comprehensive gains (losses) | - | (1.3) | |
Comprehensive income (loss) for the period | 160.2 | (52.9) | |
The accompanying notes form an integral part of these financial statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AT 30 JUNE 2018
($'m)
Note | 30 June 2018 (Unaudited) | 30 June 2017 (Unaudited) | 31 December 2017 (Audited) | |
ASSETS |
|
|
|
|
Current assets |
|
|
|
|
Cash and cash equivalents |
| 151.6 | 337.8 | 176.3 |
Trade and other receivables |
| 97.6 | 75.4 | 93.2 |
Contract costs |
| 31.6 | 21.2 | 27.1 |
Prepaid expenses |
| 12.3 | 12.0 | 8.7 |
Inventory |
| 0.5 | - | 0.5 |
Tax receivables |
| 5.4 | 3.3 | 7.5 |
Financial assets |
| 0.7 | 1.0 | 1.0 |
|
| 299.7 | 450.7 | 314.3 |
Non-current assets |
|
|
|
|
Property, plant and equipment |
| 26.6 | 31.9 | 29.5 |
Intangible assets |
| 328.9 | 429.3 | 394.3 |
Deferred tax asset |
| 210.3 | 52.2 | 66.3 |
Financial assets |
| 2.4 | 3.7 | 1.9 |
Contract costs |
| - | 0.6 | 0.1 |
Prepaid expenses |
| 0.1 | 0.5 | 0.4 |
Goodwill |
| 1,986.7 | 1,895.8 | 1,986.7 |
|
| 2,555.0 | 2,414.0 | 2,479.2 |
TOTAL ASSETS |
| 2,854.7 | 2,864.7 | 2,793.5 |
SHAREHOLDERS' EQUITY AND LIABILITIES |
|
|
|
|
Current liabilities |
|
|
|
|
Trade and other payables |
| 47.2 | 34.9 | 35.4 |
Lease liability |
| 0.1 | 1.7 | 1.7 |
Provisions |
| 6.3 | 11.6 | 6.2 |
Income tax liability |
| 38.2 | 21.8 | 28.1 |
Deferred revenues | 15 | 371.6 | 280.8 | 324.3 |
Other current liabilities |
| 32.0 | 33.9 | 38.7 |
Term loan | 16 | 74.1 | 86.1 | 92.5 |
Financial liabilities | 17 | 1.1 | - | - |
|
| 570.6 | 470.8 | 526.9 |
Non-current liabilities |
|
|
|
|
Lease liability |
| 3.0 | 5.3 | 3.3 |
Provisions |
| 1.0 | 1.9 | 1.2 |
Deferred revenues | 15 | 48.5 | 46.4 | 54.5 |
Term loan | 16 | 1,360.3 | 1,571.0 | 1,688.8 |
Financial liabilities | 17 | - | 3.4 | 3.2 |
Other non-current liability | 14 | 1.2 | 4.7 | 2.2 |
Deferred tax liability |
| 59.8 | 85.0 | 78.3 |
|
| 1,473.8 | 1,717.7 | 1,831.5 |
Shareholders' equity |
|
|
|
|
Share capital |
| 128.9 | 565.9 | 371.7 |
Share premium, statutory and other reserves |
| 446.2 | 77.1 | 3.3 |
Translation differences |
| 1.3 | 1.6 | 1.3 |
Retained earnings |
| 232.9 | 30.9 | 57.9 |
Equity attributable to equity holders of the parent |
| 809.3 | 675.5 | 434.2 |
Non-controlling interest |
| 1.0 | 0.7 | 0.9 |
|
| 810.3 | 676.2 | 435.1 |
TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES |
| 2,854.7 | 2,864.7 | 2,793.5 |
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 2018
($'m)
| Note | Share capital | Share premium, statutory and other reserves | Translation differences | Retained earnings | Equity attributable to equity holders of the parent | Non-controlling interests | Total equity | |||||
At 31 December 2016 |
| 565.3 | 73.1 | 2.9 | 82.5 | 723.8 | 0.7 | 724.5 | |||||
Result of the six months |
| - | - | - | (51.6) | (51.6) | - | (51.6) | |||||
Other comprehensive income |
| - | - | (1.3) | - | (1.3) | - | (1.3) | |||||
Comprehensive income (loss) for the period |
| - | - | (1.3) | (51.6) | (52.9) | - | (52.9) | |||||
Exercise of share options |
| 0.6 | 0.4 | - | - | 1.0 | - | 1.0 | |||||
Share-based payments | 19 | - | 3.6 | - | - | 3.6 | - | 3.6 | |||||
At 30 June 2017 |
| 565.9 | 77.1 | 1.6 | 30.9 | 675.5 | 0.7 | 676.2 | |||||
Result of the six months |
| - | - | - | 17.8 | - | - | 17.8 | |||||
Other comprehensive income |
| - | 0.1 | (0.3) | - | - | - | (0.2) | |||||
Comprehensive income (loss) for the period |
| - | 0.1 | (0.3) | 17.8 | 17.6 | - | 17.6 | |||||
Transfer within equity |
| 23.0 | (77.9) | - | 54.9 | - | - | - | |||||
Capital distribution |
| (219.1) | - | - | (45.7) | (264.8) | - | (264.8) | |||||
Share-based payments |
| - | 3.9 | - | - | 3.9 | 0.2 | 4.1 | |||||
Exercise of share options |
| 1.9 | 0.1 | - | - | 2.0 | - | 2.0 | |||||
At 31 December 2017 |
| 371.7 | 3.3 | 1.3 | 57.9 | 434.2 | 0.9 | 435.1 | |||||
Result of the six months |
| - | - | - | 160.2 | 160.2 | - | 160.2 | |||||
Other comprehensive income |
| - | - | - | - | - | - | - | |||||
Comprehensive income (loss) for the period |
| - | - | - | 160.2 | 160.2 | - | 160.2 | |||||
Primary proceeds | 18 | 8.0 | 191.8 | - | - | 199.8 | - | 199.8 | |||||
Group re-organization | 18 | (250.8) | 250.8 | - | - | - | - | - | |||||
Share issue expenses | 18 | - | (4.0) | - | - | (4.0) | - | (4.0) | |||||
Share-based payments | 19 | - | 4.3 | - | - | 4.3 | 0.1 | 4.4 | |||||
Share-based payments deferred tax |
| - | - | - | 14.8 | 14.8 | - | 14.8 | |||||
At 30 June 2018 |
| 128.9 | 446.2 | 1.3 | 232.9 | 809.3 | 1.0 | 810.3 | |||||
The accompanying notes form an integral part of these financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX-MONTHS ENDED 30 JUNE 2018
($'m)
|
| Six-months ended (Unaudited | Six-months ended |
| Note | 30 June 2018 (Unaudited) | 30 June 2017 (Unaudited) |
Cash flows from operating activities |
|
|
|
Profit (loss) for the financial period |
| 160.2 | (51.6) |
Non-cash adj. to reconcile profit to net cash flows: |
|
|
|
Income tax | 11 | (84.8) | 5.8 |
Depreciation | 9 | 6.4 | 8.0 |
Amortisation | 9 | 66.4 | 67.2 |
Loss on disposal of property, plant and equipment |
| - | 0.1 |
Movement of provisions and allowances |
| (1.8) | (15.0) |
Interest expense, changes of fair values of derivatives and other non-cash financial expense | 10 | 48.5 | 51.5 |
Shares granted to employees | 19 | 4.4 | 3.6 |
Effect of exchange rate changes on cash and cash equivalents held in foreign currencies |
| (1.2) | 2.5 |
Unrealized foreign exchange gains and losses and other non-cash transactions |
| (19.5) | 32.6 |
Working capital adjustments: |
|
|
|
(Increase)/decrease in trade and other receivables |
| (12.6) | (22.6) |
Increase/(decrease) in trade and other payables |
| 8.2 | (13.7) |
Increase in deferred revenues | 15 | 41.3 | 96.1 |
Income tax paid |
| (49.4) | (34.8) |
Net cash flows from operating activities |
| 166.1 | 129.7 |
Cash flows from investing activities |
|
|
|
Acquisition of property and equipment |
| (4.0) | (3.9) |
Acquisition of intangible assets |
| (1.0) | (4.1) |
Investment in subsidiary, net of cash acquired |
| - | (38.9) |
Restricted cash |
| - | 0.4 |
Interest received |
| - | 0.1 |
Net cash used in investing activities |
| (5.0) | (46.4) |
|
|
|
|
Cash flows from financing activities |
|
|
|
Proceeds from issue shares | 18 | 199.8 | - |
Transaction costs related to the issue of shares | 18 | (4.0) | - |
Exercise of options |
| - | 1.0 |
Repayment of borrowings | 16 | (341.7) | (21.5) |
Proceeds from borrowings | 16 | - | 78.5 |
Transaction costs related to borrowings | 16 | (3.1) | (2.2) |
Interest paid |
| (36.5) | (39.0) |
Lease repayments |
| (1.5) | (0.5) |
Net cash flows from financing activities |
| (187.0) | 16.3 |
|
|
|
|
Net increase/(decrease) in cash and cash equivalents |
| (25.9) | 99.6 |
Effect of exchange rate changes on cash and cash equivalents held in foreign currencies |
| 1.2 | (2.5) |
Cash and cash equivalents at beginning of period |
| 176.3 | 240.7 |
Cash and cash equivalents at end of period |
| 151.6 | 337.8 |
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 identification number is 07118170.
The interim financial statements were approved for issue by the Board of Directors on 20 August 2018 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.
Prior to the Initial Public Offering ("IPO"), Avast Holding B.V. ("Avast Holding") was the group for which consolidated financial statements were produced. On 10 May 2018 (the date of completion of the IPO, with 15 May 2018 representing admission to trading on the London Stock Exchange 2018), the shareholders of Avast Holding exchanged all their shares for Avast plc shares with Avast plc becoming the new holding company of the Avast Group ("Reorganisation"). Statutory accounts of Avast Holding for the year ended 31 December 2017 were approved by the Board of Directors on 27 April 2018 and were delivered to the Chamber of Commerce in Netherlands. The report of the independent auditor on those financial statements was unqualified and did not contain any statement as would be required under section 498 of the Companies Act 2006.
2. Basis of preparation
The Interim Condensed Financial Statements for the six months ended 30 June 2018 have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union and the Disclosure and Transparency Rules of the Financial Conduct Authority. The Interim Condensed Financial Statements do not include all information and disclosures required in the annual financial statements, and should be read in conjunction with the Avast Holding's annual consolidated financial statements for the year ended 31 December 2017.
As there was no change in control with the Reorganization (Avast plc becoming the new holding company of the Group as a result of a share for share exchange), the financial information is presented as a continuation of the previous Group. The Reorganization has had no accounting impact other than a transfer between share capital and share premium, statutory and other reserves so that the share capital as of 30 June 2018 corresponds to the nominal value of issued Avast plc shares. See further information on shares in Note 12.
The directors have reviewed the projected cash flow and other relevant information and have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, the directors continue to adopt the going concern assumption in preparing the Interim Condensed Financial Statements.
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, unrealized gains and losses resulting from intra-group transactions and dividends are eliminated in full on consolidation.
3. Summary of significant accounting policies
The accounting policies adopted in preparation of the Interim Condensed Financial Statements are consistent with those used to prepare the Group's annual consolidated financial statements for the year ended 31 December 2017 except for the change in accounting policy - reclassification of certain costs.
Change in accounting policy - reclassification of certain costs
From 1 January 2018, the Group presents certain overhead costs related to office lease within general and administrative costs instead of allocating them to cost of revenues, sales and marketing, research and development and general and administrative categories. Comparative balances have been adjusted for consistency purposes. This change has no overall effect on profit for the period and EPS.
($'m) | 31 December 2017 | Change in accounting policy - reclassification of office costs | 31 December 2017(restated) |
REVENUES | 652.9 | - | 652.9 |
Cost of revenues | (232.8) | 2.5 | (230.3) |
GROSS PROFIT | 420.1 | 2.5 | 422.6 |
Sales and marketing | (121.4) | 5.2 | (116.2) |
Research and development | (75.5) | 7.3 | (68.2) |
General and administrative | (98.9) | (15.0) | (113.9) |
Total operating costs | (295.8) | (2.5) | (298.3) |
OPERATING PROFIT | 124.3 | - | 124.3 |
The reclassification was made to align the consolidated statement of profit and loss with the internal operating costs classification.
New standards, interpretations and amendments adopted by the Group
The Group applies, for the first time, IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments that require restatement of previous financial statements.
As a result of IFRS 15, the Group classifies prepaid contract related fees (such as commissions to e-commerce shopping cart and online payment processes service providers) separately from the other prepaid expense as contract costs in the consolidated statement of financial position. |
4. Significant accounting judgments, estimates and assumptions
The preparation of Interim Condensed Financial Statements in accordance with international financial reporting standards ("IFRS") requires the use of estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during reporting periods.
Since the latest annual financial statements there have not been any changes to the methodology and assumptions concerning significant estimates.
5. ADOPTION OF NEW AND REVISED STANDARDS
Newly adopted standards
IFRS 9 Financial Instruments
The standard introduces new requirements for classification and measurement, impairment and hedge accounting. The Group applied the standard as of 1 January 2018. The Group decided to apply the modified retrospective method of the adoption under IFRS 9 Financial instruments. The adoption has not had a material impact on the recognition, classification and measurement of financial assets and liabilities. The term loan has been recognised as financial liability at amortised cost.
The Group analysed the term loan contract date 30 September 2016 and the subsequent amendments to the term loan contract made in 2017 and 2018. The Group is permitted to refinance the debt or any portion of it (or extend the term of the loan) without penalty if the refinancing occurs six months since the last refinancing. Based on the evaluation of the loan, the Group needed to apply a judgement and concluded the loan is a floating interest rate loan repayable each six months at par. Under IFRS 9 Financial Instruments, the Group therefore continues to account for the effects of re-pricing of the margin and not significant term loan contract modifications, on prospective basis. The un-amortized issued costs relating to the loan amounts which were repaid on refinancing have been expensed.
There are no material impacts on the Company as a result of the adoption of IFRS 9.
IFRS 15 Revenue from Contracts with customers
The objective of IFRS 15 is to establish the principles that an entity shall apply to report useful information to users of financial statements about the nature, amount, timing, and uncertainty of revenue and cash flows arising from a contract with a customer. The Group applied the standard as of 1 January 2018.
The Group decided to apply the modified retrospective method of the adoption under which IFRS 15 requires restatement of those contracts which are not completed as at the date of adoption. The Group performed an analysis of these contracts and concluded that the impact of adoption has no material impact on the Group's consolidated financial statements.
The standard required entities to exercise judgement, taking into consideration all of the relevant facts and circumstances when applying each step of the model to contracts with their customers. The standard also specifies the accounting for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract.
Each contract was evaluated to determine whether the Group is the principal in the revenue arrangement. When the Group concludes that it has control over the provided product or service, revenues are recognised on a gross basis, otherwise revenues are recognised net of resellers' commissions and fees.
- Management evaluated that the Group is the principal in the arrangements with its E-Commerce partners. Consequently, the Group accounts for sales of products through E-Commerce partners on a gross basis before deduction of the E-Commerce partners' commissions and fees. The Group controls the promised products before transferring them to the customer.
- The Group also sells subscription software licenses through an e-shop directly to end customers in cooperation with certain payment gateway providers. Revenue from sales through the e-shop are accounted for on a gross basis before the deduction of payment gateway fees. The Group controls the promised products before transferring them to the customer.
- Premium support services are accounted on a gross basis as the Group controls the services being provided.
- The Group partnered with Mobile Network Operators ("MNOs") providing various products of Location Labs. The Group is entitled to certain revenue share on their sales, which is recognised by the Group net of partners' commissions as the MNOs act as principals in contracts with the end customers.
- Sales of third-party solutions are accounted for net of the costs from the third party providing the product or service to the end customer. The provision of the service or product to the end customer is responsibility of the third party.
The standard also specifies the accounting for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract. The Group evaluated the commissions, payment and other fees and third party license costs related to the subscription software licenses as the contract related costs. As a result of IFRS 15, the Group classifies these prepaid contract related fees separately from the other prepaid expense as contract costs in the consolidated statement of financial position. Comparative balances have been adjusted for consistency purposes.
Standards issued but not yet effective
The Group has not applied the following new or revised standards and interpretations that have been issued, but are not yet effective:
IFRS 16 Leases
On 13 January 2016, IASB issued a new standard that sets out the principles for the recognition, measurement, presentation and disclosure of leases. The standard provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has low value. Lessor accounting is substantially unchanged. The standard applies to annual reporting periods beginning on or after 1 January 2019. The Group will not apply the standard early. Adoption of IFRS 16 will result in an increase of the Group's assets and liabilities due to the recognition of the lease contracts within the statement of financial position, increase in EBITDA from the effect of a decrease in operating costs and an increase in amortisation and depreciation and interest expense in the Consolidated Statement of Profit and Loss. The Group is in the process of quantifying these changes.
6. Segment information AND OTHER DISCLOSURES
For management reporting purposes, two operating segments of Consumer and Small and Medium-sized business (''SMB'') have been identified based on the nature of the business and how the business is managed.
Billings is one of the important metrics used to evaluate and manage operating segments. Billings represent the full value of products and services, the majority of which are 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. Although the cash is paid up front, under IFRS, subscription revenue is deferred and recognised rateably over the life of the subscription agreement, whereas non-subscription revenue is typically recognised immediately.
Billings is not defined or recognised under IFRS and considered as a non-IFRS financial measure used to evaluate current business performance.
The management of the Group reviews financial information that is principally the same as that based on the accounting policies. Management also reviews the underlying operating profit of the segment. Total segment underlying operating profit is derived from underlying revenues and decreased by cost of revenues and operating costs directly attributable to the relevant segment. Underlying revenues are adjusted for the effects of the fair value revaluation of the acquiree's pre-acquisition deferred revenues ("Deferred revenue haircut reversal").
The following tables present summarised information by segment reconciled from the underlying operating profit of the segment to consolidated operating profit (segment costs exclude depreciation and amortisation, share-based payments, exceptional items, corporate overhead costs and the effect of the deferred revenue haircut):
Six months ended 30 June 2018 (Unaudited) ($'m) | Consumer | SMB | Total |
Billings | 400.1 | 30.1 | 430.2 |
Deferral of revenue | (39.5) | (2.1) | (41.6) |
Revenues | 360.6 | 28.0 | 388.6 |
Deferred revenue haircut reversal | 8.1 | 3.8 | 11.9 |
Segment underlying revenue | 368.7 | 31.8 | 400.5 |
Segment cost of revenues | (35.7) | (4.0) | (39.7) |
Segment sales and marketing costs | (33.0) | (10.4) | (43.4) |
Segment research and development costs | (20.7) | (3.7) | (24.4) |
Segment general and administrative costs | (1.9) | - | (1.9) |
Total Segment underlying operating profit | 277.4 | 13.7 | 291.1 |
Corporate overhead |
|
| (69.8) |
Deferred revenue haircut reversal |
|
| (11.9) |
Depreciation and amortisation |
|
| (72.8) |
Exceptional items |
|
| (22.5) |
Share-based payments |
|
| (4.4) |
Consolidated operating profit |
|
| 109.7 |
Six months ended 30 June 2017 (Unaudited) ($'m) | Consumer | SMB | Total |
Billings | 356.7 | 33.2 | 389.9 |
Deferral of revenue | (84.3) | (11.6) | (95.9) |
Revenues | 272.4 | 21.6 | 294.0 |
Deferred revenue haircut reversal | 57.7 | 12.1 | 69.8 |
Segment underlying revenue | 330.1 | 33.7 | 363.8 |
Segment cost of revenues | (22.5) | (4.4) | (26.9) |
Segment sales and marketing costs | (30.7) | (11.0) | (41.7) |
Segment research and development costs | (20.4) | (4.4) | (24.8) |
Segment general and administrative costs | (1.7) | - | (1.7) |
Total Segment underlying operating profit | 254.8 | 13.9 | 268.7 |
Corporate overhead |
|
| (67.6) |
Deferred revenue haircut reversal |
|
| (69.8) |
Depreciation and amortisation |
|
| (75.2) |
Exceptional items |
|
| (16.2) |
Share-based payments |
|
| (3.6) |
Consolidated operating profit |
|
| 36.3 |
Corporate overhead costs primarily include the costs of the Group's IT, HR, Finance and central marketing functions and legal and rent costs, which are not allocated to the individual segments. The Group does not include depreciation and amortisation, exceptional items and share-based payments in the total Segment underlying operating profit.
The following table presents depreciation and amortisation by segment, these costs are excluded in the total Segment underlying operating profit above:
($'m) | Six months ended 30 June 2018 (Unaudited) | Six months ended 30 June 2017 (Unaudited) |
Consumer | 66.5 | 72.6 |
SMB | 0.3 | 2.6 |
Corporate overhead | 6.0 | - |
Total depreciation and amortisation | 72.8 | 75.2 |
The following table presents Underlying revenue of subsegments:
($'m) | Six months ended 30 June 2018 (Unaudited) | Six months ended 30 June 2017 (Unaudited) |
Consumer Direct Desktop | 278.5 | 232.1 |
Consumer Direct Mobile | 41.6 | 40.3 |
Consumer Indirect | 39.6 | 34.1 |
SMB | 31.8 | 33.7 |
Other | 9.0 | 23.6 |
Total | 400.5 | 363.8 |
The following table presents Underlying revenue attributed to countries based on the location of the end user:
| Six months ended 30 June 2018 (Unaudited) | Six months ended 30 June 2017 (Unaudited) | ||
| ($'m) | (in %) | ($'m) | (in %) |
United States | 172.7 | 43.1% | 169.4 | 46.5% |
United Kingdom | 33.7 | 8.4% | 31.3 | 8.6% |
France | 30.1 | 7.5% | 25.0 | 6.9% |
Germany | 25.2 | 6.3% | 18.9 | 5.2% |
Other countries* | 138.8 | 34.7% | 119.2 | 32.8% |
Total | 400.5 | 100.0% | 363.8 | 100.0% |
*No individual country represented more than 5% of the respective totals.
Revenues from relationships with certain third parties exceeding 10% of the Group's total revenues were as follows:
($'m) | Six months ended 30 June 2018 (Unaudited) | Six months ended 30 June 2017 (Unaudited) |
Revenues realised through online resellers: |
|
|
Digital River | 161.2 | 91.3 |
7. Alternative performance measures
Underlying operating profit, Underlying EBITDA, Underlying Net Income and Cash EBITDA
To supplement its historical financial information, which are prepared and presented in accordance with IFRS, the Group uses the following non-GAAP financial measures that are not defined or recognised under IFRS: Underlying operating profit, Underlying earnings before interest, taxation, depreciation and amortisation ("Underlying EBITDA"), Underlying Net Income and Underlying Cash EBITDA.
Underlying operating profit, Underlying EBITDA, Underlying Net Income and Underlying Cash EBITDA provide supplemental measures of earnings that facilitates a review of operating performance on a period-over-period basis by excluding non-recurring and other items that are not indicative of the Group's underlying operating performance.
Underlying operating profit is defined as the Group's operating loss/profit before: (i) amortisation charges of intangible assets recognised as part of a business combinations; (ii) share-based payments expenses; and (iii) exceptional items.
Underlying EBITDA is defined as the Group's operating profit/loss before: (i) depreciation and amortisation charges; (ii) deferred revenue haircut reversal; (iii) share-based payments expenses; and (iv) exceptional items.
($'m) | Six months ended 30 June 2018 (Unaudited) | Six months ended 30 June 2017 (Unaudited) |
Operating profit | 109.7 | 36.3 |
Share-based payments | 4.4 | 3.6 |
Exceptional items | 22.5 | 16.2 |
Amortisation of acquisition intangible assets | 65.0 | 65.2 |
Underlying operating profit | 201.6 | 121.3 |
Deferred revenue haircut reversal | 11.9 | 69.8 |
Depreciation | 6.4 | 7.6 |
Amortisation of non-acquisition intangible assets | 1.4 | 2.0 |
Underlying EBITDA | 221.3 | 200.7 |
Underlying Net Income represents profit for the financial period before the effect of business combination accounting (the fair value revaluation of pre-acquisition deferred revenue), share-based payments, exceptional items, amortisation of acquisition intangible assets, the unrealised foreign exchange gain/(loss) on the EUR tranche of the bank loan (see Note 16), the tax impact from the unrealised exchange differences on intercompany loans (see Note 11) and the tax impact of the foregoing adjusting items and IP sale. The Group believes that Underlying Net Income is an appropriate supplemental measure that provides useful information to the Group and investors about the Group's underlying business performance.
($'m) | Six months ended 30 June 2018 (Unaudited) | Six months ended 30 June 2017 (Unaudited) |
Profit/(loss) for the year | 160.2 | (51.6) |
Deferred revenue haircut reversal | 11.9 | 69.8 |
Share-based payments | 4.4 | 3.6 |
Exceptional items | 22.5 | 16.2 |
Amortisation of acquisition intangible assets | 65.0 | 65.2 |
Unrealised FX gain/(loss) on EUR tranche of bank loan | (17.4) | 36.7 |
Tax impact of IP sale (see Note 11) | (94.4) | - |
Tax impact from foreign exchange difference on intercompany loans (see Note 11) | (9.4) | 11.3 |
Tax impact on adjusted items | (13.7) | (41.2) |
Underlying Net Income | 129.1 | 110.0 |
The tax impact of the adjusted items has been calculated by applying the tax rate that the Group determined to be applicable to the relevant item.
Cash earnings before interest, taxation, depreciation and amortisation ("Cash EBITDA") is defined as Underlying EBITDA plus the increase in deferred revenue (net of impact from foreign exchange and business combination accounting) less the net increase in prepaid expenses related to cost of revenue.
($'m) | Six months ended 30 June 2018 (Unaudited) | Six months ended 30 June 2017 (Unaudited) |
Underlying EBITDA | 221.3 | 200.7 |
Net change in deferred revenue | 29.7 | 26.3 |
Change in prepaid expenses - cost of revenue | (4.6) | (15.1) |
Underlying Cash EBITDA | 246.4 | 211.9 |
8. Exceptional items
The following table presents the exceptional items by account:
($'m) | Six months ended 30 June 2018 (Unaudited) | Six months ended 30 June 2017 (Unaudited) |
Cost of revenues | 0.4 | 0.8 |
Operating costs (excl. depreciation and amortization) | 22.1 | 15.0 |
Depreciation | - | 0.4 |
Total | 22.5 | 16.2 |
The following table presents the exceptional items by activities:
($'m) | Six months ended 30 June 2018 (Unaudited) | Six months ended 30 June 2017 (Unaudited) |
IPO related costs | 18.5 | - |
Acquisition, Integration and Restructuring costs | 4.0 | 16.2 |
Total | 22.5 | 16.2 |
IPO related costs
The costs include one-time advisory, legal and other professional service fees related to the IPO. The majority of these costs were tax non-deductible. The total cash impact of IPO related costs was $14.3 million for the six months ended 30 June 2018.
Acquisition, Integration and Restructuring costs
The costs include non-recurring costs directly relating to business combinations of AVG in 2016 and Piriform in 2017. Remaining costs relate to AVG integration and other programs implemented in prior years that will end in 2019.
9. Depreciation and amortisation
Amortisation by function:
($ 'm) | Six months ended 30 June 2018 (Unaudited) | Six months ended 30 June 2017 (Unaudited) |
Cost of revenues | 65.0 | 65.2 |
Total amortisation of acquisition intangible assets | 65.0 | 65.2 |
Cost of revenues | 1.0 | 0.9 |
Sales and marketing | 0.1 | 0.5 |
Research and development | - | 0.2 |
General and administration | 0.3 | 0.4 |
Total amortisation of non-acquisition intangible assets | 1.4 | 2.0 |
Total amortisation | 66.4 | 67.2 |
Depreciation by function:
($ 'm) | Six months ended 30 June 2018 (Unaudited) | Six months ended 30 June 2017 (Unaudited) |
Cost of revenues | 3.5 | 4.0 |
Sales and marketing | 0.2 | 0.4 |
Research and development | 0.6 | 0.8 |
General and administration | 2.1 | 2.8 |
Total depreciation | 6.4 | 8.0 |
Total depreciation of $8.0 million in 2017 includes $0.4 million of exceptional depreciation classified under exceptional costs.
Tangible and intangible assets are allocated to each department of the Group. The depreciation and amortisation of these assets is reported as part of operating costs and cost of revenues.
10. Finance income and expenses
Finance income and expenses include foreign currency gains and losses, interest income and expense and other expenses such as bank fees. Interest income primarily represents interest from term deposits. Interest expense consists of interest on the term loan and on finance leases. Changes in the fair values of derivatives represent changes in the fair value of the interest rate floor and cap of the bank loan. In relation to the external term loan denominated in EUR, significant foreign exchange revaluation amounts may arise along with foreign exchange rates movements.
Finance income and expenses:
($ 'm) | Six months ended 30 June 2018 (Unaudited) | Six months ended 30 June 2017 (Unaudited) | |
Term loan interest | (49.7) | (44.2) | |
Changes of fair values of derivatives | 3.1 | (3.4) | |
Revolving loan - commitment fee | (0.6) | (0.6) | |
Foreign currency gains/(losses) | 14.3 | (30.5) | |
Other financial income/(expense) | (1.4) | (3.4) | |
Total finance income and expenses | (34.3) | (82.1) | |
11. Income tax
The major components of income tax expense in the interim consolidated income statement are:
($ 'm) | Six months ended 30 June 2018 (Unaudited) | Six months ended 30 June 2017 (Unaudited) |
Current income tax | (63.0) | (35.3) |
Deferred tax | 147.8 | 29.5 |
Total income tax | 84.8 | (5.8) |
The reconciliation of income tax benefit applicable to accounting profit before income tax at the statutory income tax rate to income tax expenses at the Group's effective income tax rate is as follows:
($ 'm) | Six months ended 30 June 2018 (Unaudited) | Six months ended 30 June 2017 (Unaudited) |
Profit/(loss) before tax | 75.4 | (45.8) |
Group effective income tax rate (20%* in 2017 and 2018) | (15.1) | 9.2 |
Non-deductible expenses | (4.2) | (1.1) |
Amortisation deduction | 3.0 | 3.7 |
Exit taxation | (49.4) | - |
Tax impact on foreign exchange difference on intercompany loans | 9.4 | (11.3) |
Share-based payments | (0.9) | (0.7) |
Current year tax losses not recognised in deferred tax | (0.5) | (0.8) |
Transfer of technology and legacy AVG business | 143.8 | - |
Remaining impact of functional vs. statutory foreign exchange rate differences and other | (1.3) | (4.8) |
Total income tax | 84.8 | (5.8) |
*Calculated as a Group's blended rate across the jurisdictions where the Group operates.
Tax impact on foreign exchange differences on intercompany gains result from USD loan of Avast Software s.r.o. ("Avast CZ") which has the Czech crown ("CZK") as the functional currency for local GAAP and tax purposes.
On 1 May 2018, AVG E-comm web shop was transferred to Avast Software B.V. ("Avast BV") and subsequently, the former Dutch AVG business (including the web shop) from Avast BV was sold to Avast CZ. As a result, the deferred tax asset was increased by approximately $143.8 million. In addition, an exit charge of $49.4 million has been agreed upon with the Dutch tax authorities.
As a result of option exercise immediately before the IPO, there was a $70.0 million tax deduction in Avast Software Inc., Jumpshot Inc., and AVG UK that created a deferred tax asset of $14.8 million recognized against equity.
12. Earnings per share
Basic earnings per share amounts are calculated by dividing the net profit for the period attributable to equity holders of the Group by the weighted average number of ordinary shares outstanding during the period.
Diluted earnings per share is calculated by dividing the profit for the period attributable to equity holders of the Group by the weighted average number of ordinary shares outstanding during the period plus weighted average number of shares that would be issued if all dilutive potential ordinary shares were converted into ordinary shares.
Underlying basic earnings per share is calculated by dividing the underlying net profit for the period attributable to equity holders by the weighted average number of ordinary shares outstanding during the period.
Earnings per share:
| Six months ended 30 June 2018 (Unaudited) | Six months ended 30 June 2017 (Unaudited) |
Net profit (loss) attributable to equity holders ($ 'm) | 160.2 | (51.6) |
|
|
|
Basic weighted average number of shares | 875,252,749 | 834,620,771 |
Effect of stock options | 75,062,326 | 80,922,708 |
Total number of antidilutive shares not used in computing diluted earnings per share* | - | (80,922,708) |
Total number of shares used in computing dilutive earnings per share | 950,315,075 | 834,620,771 |
Basic earnings/(losses) per share ($/share) | 0.18 | (0.06) |
Diluted earnings/(losses) per share ($/share) | 0.17 | (0.06) |
* if the result of the Group is a loss for the relevant period such options are considered antidilutive and are not included in calculating diluted earnings per share.
Supplementary earnings per share measures:
| Six months ended 30 June 2018 (Unaudited) | Six months ended 30 June 2017 (Unaudited) | |
Net profit (loss) attributable to equity holders ($ 'm) | 160.2 | (51.6) | |
Deferred revenue haircut reversal | 11.9 | 69.8 | |
Share-based payments | 4.4 | 3.6 | |
Exceptional items | 22.5 | 16.2 | |
Amortisation of acquisition intangible assets | 65.0 | 65.2 | |
Unrealised FX gain/loss on EUR tranche of bank loan | (17.4) | 36.7 | |
Tax impact of IP sale | (94.4) | - | |
Tax impact from foreign exchange difference on intercompany loans | (9.4) | 11.3 | |
Tax impact on adjusted items | (13.7) | (41.2) | |
Underlying net profit attributable to equity holders ($ 'm) | 129.1 | 110.0 | |
Basic weighted average number of shares | 875,252,749 | 834,620,771 | |
Underlying basic earnings per share ($/share) | 0.15 | 0.13 | |
Management regard the above adjustments necessary to give a fair picture of the underlying results of the Group for the period.
Basic earnings per share calculation
The number of shares used to calculate the basic earnings per share has been determined as the number of shares outstanding on 30 June 2018 of 952,639,185 adjusted for shares issued in the relevant previous periods (see below).
The following table presents shares outstanding at 30 June 2017:
1 January 2017 | Shares outstanding at beginning of period | 833,613,909 |
10 April 2017 | Exercise of stock options | 1,612,858 |
28 April 2017 | Exercise of stock options | 776,506 |
1 June 2017 | Exercise of stock options | 9,707 |
30 June 2017 | Shares outstanding at end of period | 836,012,980 |
The weighted average number of shares for the six month period ending 30 June 2017 of 834,620,771 has been determined as a weighted average that adjusts for options to purchase shares in Avast Holding exercised during the year 2017 multiplied by the ratio at which these shares were exchanged for shares in Avast plcon 10 May 2018.
The following table presents weighted average number of shares at 30 June 2017:
Date | Number of outstanding shares at the given date | Days outstanding | Weighted average number of shares |
1 January 2017 | 833,613,909 |
|
|
10 April 2017 | 835,226,767 | 99 | 455,954,569 |
28 April 2017 | 836,003,273 | 18 | 83,061,226 |
1 June 2017 | 836,012,980 | 34 | 157,039,289 |
30 June 2017 | 836,012,980 | 30 | 138,565,687 |
Total |
| 181 | 834,620,771 |
During the six month period ending 31 December 2017 an additional 8,045,236 stock options were exercised (after multiplication by the ratio at which the shares were exchanged for shares in Avast plcon 10 May 2018), taking the number of outstanding shares at 31 December 2017 to 844,058,216.
On 10 May 2018, as part of the IPO, holders of equity instruments in Avast Holding received 844,058,216 shares in Avast plc. In addition, holders of options in Avast Holding received 49,603,491 shares in Avast plc and 58,977,478 new shares were issued, bringing the total amount of shares outstanding on 30 June 2018 to 952,639,185.
The following table presents shares outstanding at 30 June 2018:
1 January 2018 | Shares outstanding at beginning of period | 844,058,216 |
10 May 2018 | Issuance of new shares at IPO | 58,977,478 |
10 May 2018 | Exercise of stock options | 49,603,491 |
30 June 2018 | Shares outstanding at end of period | 952,639,185 |
The following table presents weighted average number of shares at 30 June 2018:
Date | Number of outstanding shares at the given date | Days outstanding | Weighted average number of shares |
1 January 2018 | 844,058,216 |
|
|
10 May 2018 | 952,639,185 | 129 | 601,566,353 |
30 June 2018 | 952,639,185 | 52 | 273,686,396 |
Total |
| 181 | 875,252,749 |
Diluted earnings per share calculation
For the purpose of determining diluted earnings per share, the exercise price of the individual options is compared to the average market value of the shares of the Group during the relevant period. If the adjusted exercise price of an option is lower than the average market value of shares, the option is considered dilutive. The analysis only includes options granted before 30 June 2018.
The diluting effect of all options of Avast Holding for the period 1 January 2017 - 30 June 2017 corresponds to 80,922,708 shares of Avast plc (when converted at the ratio at which common shares in Avast Holding were converted into shares of Avast plc during the IPO).
The following table presents weighted average number of average number of diluted shares for the for the six month period ended 30 June 2017 (diluted earnings per share were not presented due to net loss of the Group):
Period | Number of dilutive shares during the period (converted to Avast plc shares at relevant ratio) | Days outstanding | Weighted average number of shares |
1 January 2017 - 31 March 2017 | 77,884,505 | 90 | 38,727,102 |
1 April 2017 - 30 June 2017 | 83,927,524 | 91 | 42,195,606 |
Total |
| 181 | 80,922,708 |
The diluting effect of all options of Avast Holding for the period prior to the IPO (1 January 2018 - 9 May 2018) corresponds to 88,603,709 shares of Avast plc (when converted at the ratio at which common shares in Avast Holding were converted into shares of Avast plc). After the IPO Avast plc has 82,242,591 outstanding stock options with a diluting effect corresponding to 41,469,280 shares. The weighted average number of diluted shares for the six month period ended 30 June 2018 is therefore 75,062,326 shares.
The following table presents weighted average number of average number of diluted shares for the for the six month period ended 30 June 2018:
Period | Number of dilutive shares during the period | Days outstanding | Weighted average number of shares |
1 January 2018 - 9 May 2018 | 88,603,709 | 129 | 63,148,500 |
10 May 2018 - 30 June 2018 | 41,469,280 | 52 | 11,913,826 |
Total |
| 181 | 75,062,326 |
13. Non-current assets
Intangible assets
The Group did not acquire any significant intangible non-current assets during the six months ended 30 June 2018. The amortization expense was $66.4 million and $67.2 million for the six months ended 30 June 2018 and 2017, respectively.
The Group has tested the goodwill, trademarks and domains and intangibles with an indefinite useful life for impairment as at 31 December 2017. As at 30 June 2018, the Group had not identified any indications of impairment. The key assumptions used to determine the recoverable amount were disclosed in the annual consolidated financial statements for the period ended 31 December 2017.
Property, plant and equipment
There were no significant additions to or disposals of tangible non-current assets during the six months ended 30 June 2018. The depreciation expense was $6.4 million and $8.0 million for the six months ended 30 June 2018 and 2017, respectively.
14. Post retirement benefit plans
The Company operates a defined contribution pension plan and a defined benefit plan in accordance with local regulations and practices. These plans cover a portion of the Company's employees and provide benefits to employees in the event of death, disability, or retirement. The measurement date used for the Company's employee benefit plans is 31 December. The funding policies of the Company's plans are consistent with the local government and tax requirements and several of the plans are not required to be funded according to local government and tax requirements. For all employees not part of a defined contribution pension or defined benefit plan, the Company does not pay or reimburse pension premiums other than any applicable statutory national premiums for state pension.
The Company recognises in its Consolidated Statement of Financial Position within the Other non-current liabilities the funded status of its defined benefit pension plans as the difference between the fair value of the plan assets and the benefit obligation.
Defined Contribution Plans
The Company maintains a defined contribution 401(k) retirement savings plan for its U.S. employees. Each participant in the 401(k) retirement savings plan may elect to contribute a percentage of his or her annual compensation up to a specified maximum amount allowed under U.S. Internal Revenue Service regulations. The Company matches employee contributions to a maximum of 4% of the participant annual compensation.
Defined Benefit Plan
The Group maintains a defined benefit plan for its Swiss employees. As at 30 June 2018, the Group recorded a related liability of $0.7 million [2017 H1: $1.0 million] that is reported under Other non-current liability.
15. Deferred revenues
The Group sells consumer and corporate antivirus products for periods of 12, 24 or 36 months with payment received at the beginning of the license term. Revenues are recognised rateably over the subscription period covered by the agreement.
The movements in the deferred revenue were as follows:
($ 'm) | 30 June 2018 (Unaudited) | 30 June 2017 (Unaudited) | 31 December 2017 (Audited) |
At 1 January | 378.8 | 231.1 | 231.1 |
Additions - billings | 430.2 | 389.9 | 800.4 |
Deductions - revenue | (388.6) | (294.0) | (652.9) |
Translation adjustments | (0.3) | 0.2 | 0.2 |
At end of period | 420.1 | 327.2 | 378.8 |
Current | 371.6 | 280.8 | 324.3 |
Non-current | 48.5 | 46.4 | 54.5 |
Total | 420.1 | 327.2 | 378.8 |
16. TERM LOAN
Term loan balance is as follows:
($ 'm) | 30 June 2018 (Unaudited) | 30 June 2017 (Unaudited) | 31 December 2017 (Audited) |
Current term loan | 74.1 | 86.1 | 92.5 |
Long-term term loan | 1,360.3 | 1,571.0 | 1,688.8 |
Total term loans | 1,434.4 | 1,657.1 | 1,781.3 |
The Group re-financed its bank loan from the primary proceeds arising on IPO on 16 May 2018 and additional excess cash of $100 million, reducing the USD tranche by $300 million and repricing the margin on both the USD and EUR tranche by 0.25% p.a. The fees for the repricing were $3.1 million. The Group allocated the unamortised issue costs as of the repricing date between the $300 million repaid amount and the balance of the loan. The portion of unamortized issue costs of $6.9 million was released into the statement of profit and loss as non-cash expense on pro rata basis. Under the Repricing agreement, the following terms apply to the bank loans outstanding at 30 June 2018:
Facility | Interest | Margin | Floor | Principal ($ 'm) |
USD Tranche | 3-month USD LIBOR* | 2.50% p.a. | 1.00% p.a. | 887.2 |
EUR Tranche | 3-month EURIBOR | 2.75% p.a. | 0.00% p.a. | 570.2 |
\* The Group entered into interest rate cap effective until 31 March 2021. As of 30 June 2018, the 3-month USD LIBOR is capped at 2.75% p.a. for a notional amount of $821.3 million.
Both facilities are repayable in full at the end of the 84-month term on 30 September 2023. The margin payable on both facilities is dependent upon the ratio of the Group's net debt to adjusted EBITDA as defined in the facility agreement.
Term loan balance reconciliation
The table below reconciles the movements of the balance of the Term loan with the information on above and the statement of cash flows.
($ 'm) | 30 June 2018 (Unaudited) | 30 June 2017 (Unaudited) | 31 December 2017 (Audited) | |
Term loan balance at beginning of period | 1,781.3 | 1,558.0 | 1,558.0 | |
Additional loan drawn (gross of fees) | - | 78.5 | 217.5 | |
Drawing fees | (3.1) | (2.2) | (3.5) | |
Non-cash interest expense | 14.6 | 6.6 | 12.8 | |
Loan repayment | (341.7) | (21.5) | (67.8) | |
Unrealised foreign exchange changes | (17.4) | 36.7 | 63.0 | |
Other | 0.7 | 1.0 | 1.3 | |
Total | 1,434.4 | 1,657.1 | 1,781.3 | |
17. Derivatives
The carrying amount of derivative financial instruments held by the Group was as follows:
($ 'm) | Type | 30 June 2018 (Unaudited) | 30 June 2017 (Unaudited) | 31 December 2017 (Audited) | ||||||
Type of derivative |
| Assets | Liabilities | Assets | Liabilities | Assets | Liabilities | |||
Embedded derivative | Level 2 | - | - | - | - | - | - | |||
Interest rate Cap | Level 3 | 1.1 | - | - | 3.4 | - | 3.2 | |||
Foreign currency contracts | Level 2 | - | 1.1 | - | - | 0.1 | - | |||
Total |
| 1.1 | 1.1 | - | 3.4 | 0.1 | 3.2 | |||
|
|
|
|
|
|
| ||||
Non-current financial liabilities |
| - | - | - | 3.4 | - | 3.2 | |||
Current financial liabilities |
| - | 1.1 | - | - | - | - | |||
Non-current financial assets |
| 1.1 | - | - | - | 0.1 | - | |||
Total |
| 1.1 | 1.1 | - | 3.4 | 0.1 | 3.2 | |||
The Group has not designated the derivatives as hedging instruments, and therefore changes in the fair value during the period are recorded in the statement of profit and loss.
18. SHAREHOLDERS' EQUITY
As of 30 June 2018, the share capital of Avast plc consists of 952,639,185 shares with a nominal value of 10 pence per share.
The increase in share capital and share premium of $195.8 million represents the net proceeds from the IPO, less direct share issue expenses of $4 million. In addition, $250.8 million was reclassified from share capital into share premium to reflect the nominal value of 10 pence per outstanding share.
The exchange of shares in Avast Holding for shares in Avast plc by the shareholders of the Group of 10 May 2018 represented a transaction between entities under common control. This Group reorganisation caused a transfer between share capital and share premium, statutory and other reserves so that the share capital as of 30 June 2018 corresponds to the nominal value of issued Avast plc shares. See further information on shares in Note 12.
The increase in the statutory and other reserves of $4.4 million represents the expense from granted stock options.
19. Related party disclosures
Compensation of key management personnel for the period is as follows:
($ 'm) | Six months ended 30 June 2018 (Unaudited) | Six months ended 30 June 2017 (Unaudited) | ||
Short term employee benefits (including salaries) | 7.3 | 5.1 | ||
Share-based payments | 3.5 | 2.7 | ||
Total | 10.8 | 7.8 | ||
The amounts in the table above includes, in addition to the compensation of key management personnel of the Group, the remuneration of employees of the Group that are considered related parties under IAS 24 Related party disclosures.
Share-based payments
Existing Employee Share plan (formerly known as Avast Holding 2014 Share Option Plan "Avast Option Plan")
The Avast Option Plan was the primary share option plan of the Group prior to the IPO under which certain employees and Directors were granted options over A-Ordinary and / or B-Ordinary Shares of Avast Holding. Following the IPO, the Avast Option Plan was adjusted such that the options granted under the plan ceased to be options over shares of Avast Holdings and, instead, became options over shares of the Company of equivalent value.
No new options have been granted under the Avast Option Plan since the IPO. Furthermore, the Company does not intend to grant any further options under the Avast Option Plan. As of 30 June 2018, 82,242,591 options under the Avast Option Plan remained outstanding.
Options generally vest over a four-year period in four equal installments. Some of the options granted to the key management personnel are performance-based. The contractual life of all options is 10 years.
On 1 February 2018, Avast Holding awarded 250,000 stock options with an exercise price of $25.00 per share ("February 2018 Options") with a total grant date fair market value of $1.3 million. On 6 May 2018, the Board approved a reduction of the exercise price for February 2018 Options from $25.00 per share to $22.42 per share resulting in the modification according to IFRS 2 Share-based payments. The grant date of the award is 1 February 2018 with vesting in four equal instalments over a four-year period.
On 30 March 2018, Avast Holding awarded 1,410,000 stock options with an exercise price of $28.00 and 150,000 with an exercise price of $25.00 with a total grant date fair market value of $10 million. The grant date of these awards is 30 March 2018 with vesting in three instalments over a four-year period.
Avast plc, 2018 Long Term Incentive Plan ("LTIP")
Following the IPO, the Company has adopted the LTIP for employees and Executive directors. The purpose of the LTIP is to incentivise employees and Executive Directors whose contributions are essential to the continued growth and success of the business of the Company, in order to strengthen their commitment to the Company and, in turn, further the growth, development and success of the Company.
The LTIP permits the grant of conditional share awards, options and cash settled equivalents, which may be granted subject to performance vesting or time vesting or continued service conditions, or a combination. The following types of awards can be granted under the LTIP:
Performance Stock Units ("PSUs")
The Company intends to grant PSUs to Executive Directors and members of the Executive Management Team. Each PSU entitles a participant to receive a share in the Company upon the attainment, over a three year performance period, of challenging performance conditions determined by the Remuneration Committee.
Restricted Stock Units ("RSUs")
The Company intends to grant RUSs to key employees of the Group who are not Executive Directors or members of the Executive Management Team. Each RSU entitles a participant to receive a share in the Company upon vesting of the RSU. Each award of RSUs will ordinarily vest either in three equal proportions over a three year period or on the third anniversary of grant or over such other period as the Committee may determine, provided the participant remains in service.
Stock Options ("Options")
The Company intends to grant Options to key employees of the Group who are not Executive Directors or members of the Executive Management Team. Each option entitles a participant to the right to acquire a share of the Company upon vesting of the option. Each option will ordinarily become exercisable either in three equal proportions over a three year period or on the third anniversary of the grant, or over such other period as the Remuneration Committee may determine. Options will only be granted under LTIP.
On 19 June 2018, the Company awarded 1,873,551 RSUs and 6,309,881 PSUs with a total grant date fair market value of $15.6 million under the Avast plc 2018 Long Term Incentive Plan. The grant date of these awards is 19 June 2018 with vesting in three equal instalments over a three-year period except for PSUs (financial performance of the Group) which have event-driven vesting conditions.
Share Matching Plan ("SMP")
The Company has adopted the Avast Share Matching Plan ("SMP") for employees and Executive Directors of the Group.
The purpose of the SMP is to encourage and enable employees and Executive Directors to acquire a significant stake in the Company so that they can share in the future growth, development and success of the Company, and to further align the interests of such employees with the interests of the shareholders of the Company. Under this plan, employee will be granted one matched share for every three purchased shares.
Deferred Bonus Plan ("DBP")
The Company has adopted Deferred Bonus Plan for Executive Directors only. Where a participant is required to defer a portion of their annual bonus into shares under the terms of the Company's annual bonus arrangements, the Remuneration Committee may grant an award to acquire shares under the DBP in order to facilitate such deferral. Awards will ordinarily vest on the second anniversary of the date of grant.
Jumpshot Inc., 2015 Share Option Plan ("Jumpshot Option Plan")
The Jumpshot Option Plan was designed in order to grant options to purchase shares of common stock of Jumpshot Inc. to certain employees and directors of Jumpshot Inc. The purpose of the Jumpshot Option Plan is to provide employees with an opportunity to participate directly in the growth of the value of Jumpshot by receiving options for shares.
The total number of shares of common stock that may be delivered pursuant to options granted under the Jumpshot Option Plan is 7,335,750. Each option converts into one ordinary share of Jumpshot Inc. on exercise. Options that are forfeited are available to be granted again. Options generally vest over a four-year period in four equal installments. Some of the options granted to the key management are performance-based. The contractual life of all options is 10 years.
On 12 February 2018, Jumpshot Inc. awarded 255,000 stock options with an exercise price of $0.86 with a total grant date fair market value of $0.1 million. The grant date of these options is 12 February 2018 with vesting in four equal instalments over a four-year period.
On 4 June 2018, Jumpshot Inc. awarded 185,000 stock options with an exercise price of $0.86 with a total grant date fair market value of $0.1 million. The grant date of these options is 4 June 2018 with vesting in four equal instalments over a four-year period.
The following table sets forth the total equity settled Share-based payments recognised in the Consolidated Statement of Profit and Loss:
($ 'm) |
| Six months ended 30 June 2018 (Unaudited) | Six months ended 30 June 2017 (Unaudited) |
Cost of revenues |
| - | - |
Sales and marketing |
| 2.0 | 1.5 |
Research and development |
| 0.2 | 0.4 |
General and administration |
| 2.2 | 1.7 |
Total share-based payments |
| 4.4 | 3.6 |
Nadační fond AVAST ("AVAST Foundation")
The foundation was established by Avast CZ and it distributes the gifts to other charities and foundations in the Czech Republic. The foundation is considered to be a related party as the spouses of Messrs. Kučera and Baudiš are members of the management board of the foundation.
On 13 March 2018, the Supervisory Board of the Group approved that the donation for 2018 will be CZK 100 million ($4.5 million). The donation is paid in quarterly instalments during the year.
During the six months ended 30 June 2018, Avast CZ made donations of CZK 25 million ($1.2 million) [2017 H1: CZK 73.9 million ($3 million)] to the Foundation. As of 30 June 2018, the Company recorded an accrual of CZK 25 million ($1.1 million) [2017 H1:nil].
CVC Administration Services S.à r.l.
On 20 March 2014, Avast BV and Avast Holding signed sub-rental agreements with CVC Administration Services S.à.r.l. for the lease of office premises which is automatically renewed every year. Each company pays€5 thousand ($5.8 thousand) every year.
On 29 August 2016, Avast Operations B.V. signed sub-rental agreements with CVC Administration Services S.à.r.l. for the lease of office premises with an annual rent of €2 thousand ($2.3 thousand). The lease is automatically renewed every year.
Enterprise Office Center
On 15 November 2016, Enterprise Office Center (owned by Erste Group Immorent) where Avast CZ resides was sold by a third party to a group of investors including co-founders of Avast Group, Eduard Kučera and Pavel Baudiš for $119.5 million (ca. €110 million). The annual rent is €2.8 million ($3.3 million). The lease will end in August 2024.
Management Board
One of the members of the Avast Holding Management Board is also a member of the Supervisory Board of Verizon Nederland B.V. (a non-executive position). Verizon Nederland B.V. is part of the Verizon Group which includes Verizon Sourcing LLC (a Delaware registered company), a key customer of Location Labs. The membership on the Verizon Nederland B.V. Supervisory Board was established before Avast BV acquired AVG.
20. Subsequent events
On 1 August 2018, Avast CZ acquired substantially all of the business and assets of Inloop, s.r.o, a company based in Slovakia. The aggregate purchase price for the sale and purchase of the business is €4.0 million ($4.7 million) and earn-out of €4.0 million ($4.7 million) if certain conditions are met.
On 3 August 2018, the Company determined to pay the remaining portion of the consideration for the acquisition of AVG Technologies B.V. of $8.4 million.
-ends-
Related Shares:
AVST.L