Half-year Report

Avast PLC

HALF YEAR RESULTS FOR THE SIX-MONTHS ENDED 30 JUNE 2022

First half performance in line with the Board's expectations

Avast plc, together with its subsidiaries ('Avast', 'the Group', 'Avast Group', or 'the Company'), a leading global cybersecurity provider, announces its results for the six-months ended 30 June 2022.

In the first half of 2022 the Group delivered mid-single digit organic billings growth1 with a good level of profitability.

RECOMMENDED MERGER OF AVAST PLC WITH NORTONLIFELOCK INC. ('NORTON')

FINANCIAL HIGHLIGHTS

OPERATIONAL AND STRATEGIC UPDATES

Statutory Results:

RECOMMENDED MERGER OF AVAST PLC WITH NORTONLIFELOCK INC.

On 10 August 2021, the Boards of NortonLifeLock, Inc. ("Norton") and the Company reached agreement on the terms of a recommended merger of the Company with Norton, in the form of a recommended offer by Nitro Bidco Limited, a wholly owned subsidiary of Norton, for the entire issued and to be issued ordinary share capital of the Company (the "Merger"). It is intended that the Merger will be affected by means of a Court-sanctioned scheme of arrangement under Part 26 of the Companies Act 2006. Further details relating to the offer by Norton is set out in the announcement made by Norton on 11 August 2021 pursuant to Rule 2.7 of the City Code on Takeovers and Mergers ("Code") and the scheme document published by the Company on 28 October 2021.

On 3 August 2022, the UK's Competition and Markets Authority (the "CMA") published its provisional findings that the Merger was not expected to give rise to a substantial lessening of competition in the UK and Norton and Avast published their response to the CMA's findings. As stated in that announcement, Norton intends to continue to work with the CMA and with Avast to enable the CMA's final report to be issued as soon as practicable. The statutory deadline for publication of the CMA's final report is 8 September 2022 (unless extended).

PUBLICATION

A copy of the half year report will shortly be available on the Company website at https://investors.avast.com.

ENQUIRIES

Investors and analysts:

Paul Carter and Anca Timpescu, Investor Relations

[email protected]

Media:

Stephanie Kane, VP PR and Corporate Communications

[email protected]

Tavistock

+44 20 7920 3150

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

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

Notes:

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

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

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

2 Adjusted Revenue represents the Group's reported revenue adjusted for the Deferred Revenue Haircut Reversal. Under IFRS 3, Business Combinations, an acquirer must recognise assets acquired and liabilities assumed at fair value as of the acquisition date. The process of determining the fair value of deferred revenues acquired often results in a significant downward adjustment to the target's book value of deferred revenues. The reversal of the downward adjustment to the book value of deferred revenues of companies the Group has acquired during the periods under review is referred to as the "Deferred Revenue Haircut Reversal".

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

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

5 Total available liquidity includes cash and cash equivalents balance as at 30 June 2022 of $338.0m and revolving credit facility of $40m (not drawn at 30 June 2022).

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

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

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

9 Growth rate excluding currency impact calculated by restating 2022 actual to 2021 FX rates (see "Principal exchange rates applied"). Deferred revenue is translated to USD at the date of invoice and is therefore excluded when calculating the impact of FX on revenue.

10 Growth figures exclude Discontinued Business, which includes toolbar-related search distribution business and the browser clean-up, which had previously been an important contributor to AVG's revenues, and the Google Chrome Distribution business. Together these businesses are referred to above as "Discontinued Business". The Discontinued Business does not represent a discontinued operation as defined by IFRS 5 since it either has not been disposed of but rather it is being continuously scaled down or it is considered to be neither a separate major line of business, nor geographical area of operations. In H1 2022 the Group suspended its activities in Russia and Belarus in response to the military conflict in Ukraine. These sales, which do not represent a discontinued operation as defined by IFRS 5, are also excluded from the growth figures. These sales didn't represent a separate segment or operation of the Group.

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

CHIEF EXECUTIVE OFFICER'S REVIEW

The Group has delivered a set of results with solid Billings organic growth and profitability levels. The Group's Billings of $483.7m were up 0.2% at actual rates, with organic growth of 6.9%. The Group's Revenue of $472.0m was up 0.2% at actual rates, with organic growth of 2.7%. The Consumer and SMB segments contributed $446.7m and $25.3m respectively to the Group's Revenue. The Adjusted EBITDA margin decreased as a result of significant investment, but remained strong at 52.9% (FY2021: 55.0%). As previously mentioned, the margin is impacted by high levels of investment into customer acquisition and retention, DTS and the acquisition of SecureKey.

Consumer

SMB

Business Unit Performance

Consumer Direct

Operational KPIs

Trading performance

Avast One

Enhanced service offering

Consumer Indirect

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

SMB

Outlook

Avast is not providing any forward guidance at this time.

FINANCIAL REVIEW

Billings, Revenue and EBITDA

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

The Group's Billings increased by $1.0m, or 0.2% at actual rates, to $483.7m in the half year ended 30 June 2022, mostly driven by the core Consumer Direct business. Absolute growth was impacted by the unfavourable FX impact, disposal of Family Safety mobile business in 2021 and withdrawal from Russia and Belarus. Adjusted for these and excluding acquisitions and discontinued business, organic billings growth was 6.9%. Subscription billings represented 87.5% of the Group's total Billings in H1 2022 (88.8% in H1 2021).

The Group's Adjusted Revenue increased by $0.7m to $472.0m in the half year ended 30 June 2022, which represents a 0.2% increase at actual rates and organic growth of 2.7%. Adjusted Revenue included $333.4m from the release of prior-period deferred revenue (excluding SecureKey deferred revenue release). The Adjusted Deferred revenue12 balance at the end of the period was $545.6m, comprising $485.7m that will be recognised within 12 months of the balance sheet date. This compares to $507.7m, of which $470.8m was to be recognised within 12 months, at the same time last year. The average subscription length in the half year ended 30 June 2022 was 13 months, flat YoY. On a statutory basis, revenue was down 0.2% due to unfavourable FX impact, disposal of Family Safety mobile business in 2021 and withdrawal from Russia and Belarus.

Adjusted EBITDA decreased 7.6% to $249.7m, resulting in Adjusted EBITDA margin of 52.9%. The decrease in EBITDA margin was primarily driven by investment in commercial initiatives and Digital Trust Services. Incremental levels of spend are expected to continue in H2 2022 driven also by inflationary pressures and higher costs of customer acquisition and retention.

The reported Operating Profit decreased by $54.2m to $172.6m. The decrease was driven primarily by higher exceptional items in costs of $25.3m, higher adjusted operating costs of $16.9m driven by investment described above and higher share-based payments costs of $5.2m.

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

Costs

The Group's Adjusted Cost of revenues increased by $(4.2)m to $(61.7)m. The increase was driven by investment into customer support of $(3.5)m and increase in personnel costs and other of $(0.7)m. Adjusted Cost of Revenues represent the Group's cost of revenues adjusted for depreciation and amortisation charges, share-based payments charges and exceptional items.

The Group's reported Cost of revenues increased by $(5.8)m to $(80.6)m primarily due to factors described above and the higher amortisation of acquisition intangibles of $(2.1)m driven by recognition of significant intangible assets as part of the SecureKey business combination (see Note 9). Acquisition intangibles represent intangible assets acquired through business combinations.

The Group's Adjusted Operating costs increased by $(16.9)m to $(160.5)m. Excluding Family Safety disposal costs in H1 2021, the increase in costs is $(23.2)m. This increase is driven mainly by investment into DTS $(13.8)m, sales and marketing personnel and non-personnel costs of $(10.3)m and other savings including YoY FX impact of $0.9m. Adjusted Operating costs represent the Group's operating costs adjusted for depreciation and amortisation charges, share-based payments charges and exceptional items.

The increase in the Group's reported Operating costs of $(47.3)m, from $(169.8)m to $(217.1)m, reflects the increase of the Group's Adjusted Operating costs described above, exceptional items of $(25.3)m driven by exceptional costs incurred in relation to the acquisition of SecureKey, in relation to the proposed Merger and change in provisions. Remaining increase in reported operating costs is attributable to higher share-based payments costs.

Exceptional items

Exceptional items are income or expenses that arise from events or transactions that are clearly distinct from the ordinary activities of the Group. Exceptional items are identified by virtue of their size, nature, or incidence so as to facilitate comparison with prior periods and to assess underlying trends in the financial performance of the Group and its reportable segments. In determining whether an event or transaction is exceptional, management considers quantitative as well as qualitative factors. Once an item is disclosed as exceptional, it will remain exceptional through completion of the event or programme. Examples of such items include but are not restricted to: legal and advisory costs related to the proposed Merger, acquisitions, disposals (including gain on disposal), integration or costs incurred due to discontinuation of business.

In H1 2022, the Group incurred legal and professional costs of $3.6m in relation to the acquisition of SecureKey (see Note 9) and $13.0m of personnel, legal and consultancy costs related to the proposed Merger. Personnel costs related to the proposed Merger of $6.0m comprise primarily retention bonuses, which are accrued over the retention period. The remaining $12.6m of exceptional items relates to legal fees and the change in provisions related to regulatory investigation relating to Jumpshot (see Note 15).

All exceptional items described above were included in operating cash flows, apart from $16.8m, which were not paid before the end of June 2022 and therefore included in liabilities and provisions. Out of exceptional costs included in liabilities and provisions at the end of FY 2021, $5.5m were paid during H1 2022.

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

Finance income and expense

Adjusted finance expense on a net basis was $(25.4)m in H1 2022, $18.0m higher compared to $(7.4)m in H1 2021. The increase in adjusted finance expense is related to increase of amortisation of arrangement fees of $1.8m resulting from a new USD term loan of $200m (See Note 17), one-off realised FX gain on repayment of prior loan of $5.6m realised in H1 2021 and unfavourable impact of other FX and other finance costs of $10.6m out of which $8.2m relates to a one-off realised loss resulting from a transfer of the majority of EUR cash balances into USD cash balances.

The Group's reported net finance income decreased by $7.1m resulting in income of $1.3m in H1 2022 caused by the increase in adjusted finance costs described above, partially offset by higher unrealised foreign exchange gains from the Euro denominated debt.

Income tax

In the half year ended 30 June 2022, the Group reported an income tax expense of $(32.9)m, compared to the $(63.5)m in the half year ended 30 June 2021.

Income tax was impacted by the tax benefit from the foreign exchange movements on intercompany loans arising in the statutory accounts of the subsidiary concerned of $3.1m (tax benefit of $0.9m in H1 2021).

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

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

Adjusted income tax is $(35.9)m for H1 2022, resulting in an adjusted effective tax rate of 16.8% (H1 2021: 18.2%). The Adjusted effective tax rate is the Adjusted Income tax percentage of adjusted profit before tax of $213.9m (defined as adjusted net income of $178.0m before the deduction of adjusted income tax of $(35.9)m).

Cash Flow

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

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

The increase in the adjusted cash tax is driven by the Czech Republic true-up system, where a company is obliged to make quarterly income tax advances based on its last known tax liability. Upon filing a tax return, tax advances paid during the year for which the tax return is filed offset the final tax liability. In H1 2022 the Group paid a final settlement related to the previous period.

Net change in working capital shows unfavourable variance compared to prior year. This is caused by positive development in trade receivables balance in prior year.

Cash interest paid included in the calculation of Unlevered Free Cash Flow of $(10.0)m includes $(4.3)m of interest netted by the bank at the loan refinancing in H1 2021, which is included in the row "Proceeds from borrowings". Lease repayments include both interest and principal.

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

The Group's net cash flow from operating activities decreased by $(72.5)m primarily due to higher exceptional costs included in operating cash flows of $(29.3)m, lower Adjusted Cash EBITDA by $(19.6)m, impact of working capital movement (excl. change in deferred revenue and deferred COGS) of $(10.6)m, negative FX impact and other non-cash items of $(4.6)m, higher cash tax of $(15.1)m offset by positive impact of movement in provisions of $7.4m.

The Group's net cash outflow from investing activities of $(317.0)m included consideration paid for SecureKey Technologies acquisition of $(318.7)m (see Note 9), cash inflow from escrow of $5.0m from disposal of Family Safety business, capex investment of $(3.6)m and interest received of $0.3m. The Group's net cash outflow from investing activities in H1 2021 of $44.5m included net proceeds from disposal of Family Safety mobile business of $48.4m, capex investment of $(3.2)m, settlement of contingent consideration related to Tenta acquisition of $(0.7)m and interest received of $0.1m.

The Group's net cash inflow from financing activities $51.8m includes $(116.5)m dividend paid, new loan drawn of $200.0m to finance the acquisition of SecureKey, quarterly loan repayment of $(20.2)m, transaction costs related to borrowing of $(2.7)m, interest paid of $(9.0)m, lease repayments of $(3.8)m and proceeds from the exercise of options of $4.0m. The Group's net cash outflow from financing activities in H1 2021 of $(128.0)m included $(115.3)m dividend paid, net loan refinancing of $6.6m (See Note 17), quarterly loan repayment of $(10.6)m, transaction costs related to borrowing of $(2.7)m, interest paid of $(5.6)m, lease repayments of $(4.2)m and proceeds from the exercise of options of $3.8m.

Financing

On 23 March 2022, the Group borrowed a new USD term loan of $200m ("2022 Dollar Term Loan") under the existing Credit Agreement, to finance an acquisition of SecureKey (see Note 17). As of 30 June 2022, the total Gross debt14 of the Group was $987.7m and the total Net debt14 was $649.7m. The increase in gross debt since 31 December 2021 is attributable to the new 2022 Dollar Term loan of $200.0m, quarterly repayment of borrowings of $(20.2)m, decrease in lease liabilities of $(7.0)m and a positive unrealised FX gain of $(26.8)m on the EUR tranche of the loan.

The USD and EUR Tranches are repayable in full at the end of the 84-month term on 22 March 2028. The 2022 Dollar Term Loan matures on the earlier of 22 March 2023, or 30 days after completion of the proposed Merger. The interest rates of both USD and EUR Tranches depend on market developments of 3M LIBOR or 3M EURIBOR rates. A 5% increase in rates would result in additional c.$20m interest expense in 2022 which is not significant given that the Company is financially healthy due to strong cash management. Cash collection is strong and bad debt risk is limited as clients typically pay for services up front. Increased interest rates were partially offset by the margin step-down by 25 bps for USD and EUR tranche from the period starting 1 January 2022.

Principal exchange rates applied

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

Earnings per share

Basic Adjusted earnings per share amounts are calculated by dividing the Adjusted net income for the period by the weighted average number of shares of common stock outstanding during the year. The diluted Adjusted earnings per share amounts consider the weighted average number of shares of common stock outstanding during the year adjusted for the effect of dilutive options. On a statutory basis, fully diluted EPS was $0.13 (see Note 11 for the statutory earnings per share).

Dividend

On 13 July 2022, the Directors declared a conditional interim dividend of 4.8 cents per share payable in August 2022. The interim dividend is conditional on the Merger, not having become effective before 11 August 2022 (the 'Conditional Interim Dividend'). The conditional interim dividend will be paid in US dollars on 12 August 2022 to shareholders on the register as of 22 July 2022. There will be an option for shareholders to elect to receive the dividend in pounds sterling and such an election should be made no later than 29 July 2022. Further details regarding the currency election process and payment of the dividend can be found on the Company's website at investors.avast.com.

Prior to the Company entering into the Co-Operation Agreement dated 10 August 2021, with Norton (amongst others) in connection with the Merger, the Directors have aimed to pay a dividend of approximately 40% of the Company's levered free cash flow for each financial year, with approximately one-third of this amount being paid as an interim dividend. Pursuant to the Co-Operation Agreement and the terms of the Merger as set out in Norton's announcement of its firm intention to make an offer for the entire issued and to be issued share capital of the Company pursuant to Rule 2.7 of the City Code on Takeovers and Mergers (the "Rule 2.7 Announcement"), the Company is permitted to declare and pay an interim dividend of 4.8 cents per share for the six-month period ended 30 June 2022. Any such dividend will not result in a commensurate downward adjustment to the value of NortonLifeLock's offer. Accordingly, the Directors believe that it is in the best interest of the Company and its shareholders to declare a dividend of 4.8 cents per share for the six-month financial period ended 30 June 2022. Further information regarding the Company's ability to make future interim and final dividends is set out in the Rule 2.7 Announcement.

The foreign exchange rate at which dividends declared in US dollars will be converted into pounds sterling will be calculated based on the average exchange rate over the five business days prior to 2 August 2022 and announced shortly thereafter.

Proposed Dividend Timetable

Ex-dividend Date: 21 July 2022

Record Date: 22 July 2022

Last Date for Currency Election: 29 July 2022

Payment: 12 August 2022

Notes:

12 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. There was no difference between reported deferred revenue and Adjusted Deferred Revenue in 2021.

13'Fav' in change % represents a favourable growth rate figure over 100 per cent, 'Unf' represents an unfavourable decline greater than negative 100 percent.

14 Gross debt represents the sum of the total book value of the Group's loan obligations (i.e. sum of loan principals) and lease liabilities. Net debt indicates gross debt netted by the company's cash and cash equivalents. Both gross debt and net debt exclude the amount of capitalised arrangement fees (which reflect the fact that the loan is measured at amortised cost using the effective interest method) on the balance sheet as of 30 June 2022 of $(0.1)m (31 December 2021: $3.2m).

PRINCIPAL RISKS AND UNCERTAINTIES

The principal risks identified for the half year ended 30 June 2022 are:

Additional Considerations / Emerging Risks

The Board continues to monitor potential future risks that may increase in importance, in particular, there can be no assurance that third parties will not assert that our products and intellectual property infringe, or may infringe, their proprietary rights. Any such claims, regardless of merit, could result in litigation, which could result in substantial expenses, result in the Group having to pay substantial damages (directly or on an indemnity basis), divert the attention of management, cause significant delays, materially disrupt the conduct of our business, and have a material and adverse effect on our financial condition and results of operations.

The various announcements and changing timetable of the proposed Merger is creating a degree of uncertainty that makes planning for the future for the Company and colleagues more difficult. There is risk that the Merger does not complete due to the outstanding condition to completion not being satisfied or the long stop date having passed before the outstanding condition is satisfied. We are continuing to engage with the regulators and authorities and developing plans for the various outcomes that may emerge. We remain of the view that the proposed Merger will only benefit consumers in the UK.

PRESENTATION OF RESULTS AND DEFINITIONS

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

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

"Adjusted Revenue" was not presented in the Full Year Report for 2021 as there were no variances between Adjusted and IFRS revenue neither in 2021 nor in comparatives (2020). Since the acquisition of SecureKey in H1 2022 led to significant downward fair value adjustment of deferred revenue balance at the time of acquisition ("Deferred Revenue Haircut"), Adjusted Revenue excluding the effects of this revaluation is presented for H1 2022 to be in line with how management monitors the performance and ensure like-for-like comparison.

Organic Growth APMs were introduced in FY 2019 to present the change in revenue and billings resulting from continuing Group operations. Organic growth rate excludes the impact of FX, acquisitions, business disposals and Discontinued Business. It excludes current period billings and revenue of acquisitions until the first anniversary of their consolidation. In case of disposals, billings and revenue until close of the transaction are included in the calculation of organic growth together with comparable periods in the baseline. The definitions of non-GAAP measures in the half year ended 30 June 2022 are consistent with those presented in the report for FY 2021 and there have been no changes to the bases of calculation.

CONSOLIDATED STATEMENT OF ADJUSTED PROFIT AND LOSS

FOR THE SIX-MONTHS ENDED 30 JUNE 2022

($'M)

Billings

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

Adjusted Revenue and Adjusted Deferred Revenue

Adjusted Revenue represents the Group's reported revenue adjusted for the Deferred Revenue Haircut Reversal. Under IFRS 3, Business Combinations, an acquirer must recognise assets acquired and liabilities assumed at fair value as of the acquisition date. The process of determining the fair value of deferred revenues acquired often results in a significant downward adjustment to the target's book value of deferred revenues. The 'Deferred Revenue Haircut Reversal' refers to the reversal of the downward adjustment to the book value of deferred revenues of companies the Group has acquired during the periods under review, in this case, SecureKey's deferred revenue. 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 ($28.2m at 30 June 2022). There was no difference between reported deferred revenue and Adjusted Deferred Revenue in 2021.

The following is a reconciliation of the Group's reported Revenue to the Group's Adjusted Billings and Group's reported Revenue to the Group's Adjusted Revenue:

Adjusted EBITDA

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

Adjusted Cash EBITDA

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

Adjusted Net Income

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

Unlevered Free Cash Flow

Represents Adjusted Cash EBITDA less capex and taxation, plus cash flows in relation to changes in working capital (excluding change in deferred revenue and change in deferred cost of goods sold as these are already included in Adjusted Cash EBITDA). Changes in working capital are as per the cash flow statement on an unadjusted historical basis and unadjusted for exceptional items.

Levered Free Cash Flow

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

Rounding

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

Notes:

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

DIRECTORS' RESPONSIBILITY STATEMENT

We confirm that to the best of our knowledge:

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

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

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

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

On behalf of the Board

Ondrej Vlcek

Chief Executive of Avast

INDEPENDENT REVIEW REPORT TO AVAST PLC

Conclusion

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2022 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 1 to 22 that have been reviewed. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2022 is not prepared, in all material respects, in accordance with UK adopted International Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Basis for Conclusion

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

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

Conclusions Relating to Going Concern

Based on our review procedures, which are less extensive than those performed in an audit as described in the Basis of Conclusion section of this report, nothing has come to our attention to suggest that management have inappropriately adopted the going concern basis of accounting or that management have identified material uncertainties relating to going concern that are not appropriately disclosed.

This conclusion is based on the review procedures performed in accordance with this ISRE, however future events or conditions may cause the entity to cease to continue as a going concern.

Responsibilities of the directors

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

In preparing the half-yearly financial report, the directors are responsible for assessing the company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.

Auditor's Responsibilities for the review of the financial information

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

Use of our report

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

Ernst & Young LLP

London

8 August 2022

CONSOLIDATED STATEMENT OF PROFIT AND LOSS

FOR THE SIX-MONTHS ENDED 30 JUNE 2022

($'M)

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

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX-MONTHS ENDED 30 JUNE 2022

($'M)

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

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AT 30 JUNE 2022

($'M)

As described in Note 8, the deferred tax assets and liabilities at 30 June 2021 have been restated to offset deferred tax liabilities of $19.9m at 30 June 2021 against deferred tax assets.

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 2022

($'M)

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

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX-MONTHS ENDED 30 JUNE 2022

($'M)