TIDMKAPE
RNS Number : 5273F
Kape Technologies PLC
22 March 2022
22 March 2022
Kape Technologies plc
("Kape," the "Company," or the "Group")
FULL YEAR RESULTS FOR THE TWELVE MONTHSED 31 DECEMBER 2021
Kape Technologies plc (AIM: KAPE), the digital security and
privacy software business, announces its audited results for the
twelve months ended 31 December 2021.
Financial highlights
-- A strong financial performance driven by positive market
dynamics coupled with Kape's market-leading product stack and
organic user acquisition expertise
o Revenues exceeded management expectations(1) , increasing
89.0% to $230.7 million (2020: $122.2 million), or 20.7% on a
proforma basis
o Significant growth in recurring revenue contribution to 92% of
total revenue on a proforma basis (2020: c. 87%)
o Pro Forma Adjusted EBITDA(2, 3) up 100% to $78.0 million
(2020: $39.0 million) with Adjusted EBITDA margin increasing to
33.8% (2020: 31.9%)
o Increase of 71.1% in Fully Diluted Adjusted Earnings Per
Share(4) to 23.1 cents (2020: 13.5 cents)
o Strong cash generation; adjusted operating cashflow increased
by 116% to $44.1 million (2020: $20.4 million)
-- Raised $351.0 million (GBP258.3 million), before transactions
costs, in additional growth capital through an oversubscribed
placing and retail offer in October 2021 to finance the acquisition
of ExpressVPN.
-- Entered into a new senior secured debt facility agreement in
December 2021 of up to $290 million, comprising a $120 million
senior secured term facility, a $80 million revolving credit
facility and a $90 million uncommitted acquisition facility
Operational highlights
-- In December 2021, completed the acquisition of ExpressVPN,
one of the world's most recognised brands in the digital privacy
space, for a total consideration of $925.8 million, the Group's
largest acquisition to date
o Acquisition has created a premium digital privacy and security
player best positioned to capitalise on the growth in the digital
privacy market and is already providing significant operational
benefits to Kape, as well as earnings accretion, cost savings and
ongoing synergies
-- In March 2021, acquired Webselenese, the digital platform
which provides independent and highly valued consumer privacy and
security content, for $155.1 million , the integration of which has
bolstered Kape's go-to-market and product development strategy
o Highly strategic, providing Kape with one of the broadest
audiences for consumer digital privacy and security, with over 100
million readers
-- Significant increase of 161% in subscriber base to 6.5
million (2020: 2.5 million) whilst maintaining a high retention
rate of 81% (31 December 2020: 83%)
o 3 million subscribers were acquired as part of the ExpressVPN
acquisition with an organic increase of 20%
-- Delivered on the Group's product development roadmap
launching a Privacy First Anti-Virus solution for PC as well as a
password manager and improving server reach and infrastructure
Post period-end and Outlook
-- In January 2022, announced the appointment of Oded Baskind,
who has today joined the board as Chief Financial Officer
-- The Group has extremely limited exposure operationally to
Russia and Ukraine with under 1% of revenues generated in these
countries
-- Ongoing global uncertainty continues to result in an
increasing awareness from individuals of the requirement to protect
their digital profiles
-- The Group has traded strongly in the year to-date and
management is confident that the Group will achieve revenues of
between $610-624 million and Adjusted EBITDA of between $166-172
million in the year-ending 31 December 2022, the forecasts outlined
at the time of the ExpressVPN acquisition
-- Operationally, the focus for 2022 will be on the ongoing
integration of ExpressVPN, including fully realising potential
cost-savings initiatives, as well as executing on a number of
material opportunities
Ido Erlichman, Chief Executive Officer of Kape, commented:
"We are immensely proud of our progress in 2021, having
delivered both a record financial performance and completed the
most ambitious acquisition programme in our history. The
culmination of these collective efforts has been the creation of a
truly market leading global digital security and privacy enterprise
that is now a trailblazer in how consumers protect their digital
lives. I would personally like to thank our outstanding and highly
talented team who continue to deliver exceptional results across
our business.
"In 2021, we achieved record customer growth, providing further
evidence that our products remain both compelling and highly
innovative, and, more importantly, our customers continue to
utilise our services for many years.
"Pleasingly, we have carried this positive momentum into 2022
and remain extremely positive about Kape's prospects. Whilst we
remain ever vigilant of the broader macro-economic outlook, we
firmly believe our products fit at the heart of the broader
cybersecurity arena, which has increased importance to the global
community."
Kape's management team will be hosting a live webcast today at
1.00 p.m., which can be joined as follows:
To register and to join the stream on the day, please click the
link below:
https://webcasting.brrmedia.co.uk/broadcast/622f60a061bd9a4d102904ea
(1) Previous guidance given was for expectations of revenues
between US$197-202 million and Adjusted EBITDA of between US$73-$76
million for the year ended 31 December 2021
(2) Adjusted EBITDA is a non GAAP measure and a company specific
measure which excludes other operating income and expenses which
are considered to be one off and non-recurring in nature.
(3) Proforma Adjusted EBITDA is a non GAAP measure, it's the
Company Adjusted EBITDA after adding back deferred contracts costs
fair value accounting adjustment following ExpressVPN
consolidation.
(4) Adjusted EPS is calculated from earnings per share adding
back, share-based payments and non-recurring costs
Enquiries:
Kape Technologies plc via Vigo Consulting
Ido Erlichman, Chief Executive Officer
Oded Baskind, Chief Financial Officer
Shore Capital (Nominated Adviser & Broker)
Toby Gibbs / Mark Percy / James Thomas / Michael +44 (0)20 7408
McGloin 4090
Stifel Nicolaus Europe Limited (Joint Broker)
Alex Price / Brad Topchik / Alain Dobkin / +44 (0) 20 7710
Richard Short 7600
Vigo Consulting (Financial Public Relations)
Jeremy Garcia / Antonia Pollock/ Kendall Hill +44 (0)20 7390
kape@vigoconsulting.com 0237
About Kape
Kape is a leading 'privacy-first' digital security software
provider to consumers. Through its range of privacy and security
products, Kape focusses on protecting consumers and their personal
data as they go about their daily digital lives.
Kape has over 6.5 million paying subscribers, supported by a
team of over 850 people across ten locations worldwide. Kape has a
proven track record of revenue and EBITDA growth, underpinned by a
strong business model which leverages our digital marketing
expertise.
Through its subscription-based platform, Kape has fast
established a highly scalable SaaS-based operating model, geared
towards capitalising on the vast global consumer digital privacy
market.
www.kape.com
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Chairman's statement
The progress that Kape has achieved across 2021 has transformed
the Group into a truly global leader in the digital privacy and
security space. Our management have successfully delivered against
the Group's mission to not only create a business capable of
capitalising on an ever-growing digital privacy and security market
opportunity but to now shape our own industry. This is a
significant achievement and provides further validation that Kape
is ideally positioned for the future.
In addition to significant operational momentum, the Group
delivered substantial financial progress, underpinned by both
organic and acquisitive growth. In the year ended 31 December 2021,
Kape generated revenues of $230.7 million (2020: $122.2 million).
Pro Forma Adjusted EBITDA(2) increased 100% to $78.0 million (2020:
$39.0 million), with Pro Forma Adjusted EBITDA(2) margin growing to
33.8% (2020: 31.9%).
Notably, the Group completed two sizable acquisitions during the
year, building on its strong M&A track record. In March 2021,
the Group acquired Webselenese, the consumer privacy and security
content platform, the integration of which has underpinned Kape's
go-to-market strategy and therefore its customer acquisition
roadmap. In December 2021, Kape completed the acquisition of
ExpressVPN for $925.8 million, the Group's largest transaction
to-date. ExpressVPN is one of the world's most reputable VPN brands
and is already providing significant operational benefits to Kape,
as well as earnings accretion, cost savings and ongoing
synergies.
Environmental Social and Governance
Corporate responsibility has always been a strong guiding value
at Kape. We believe that businesses hold responsibility to the
communities in which they operate, and to the health and
sustainability of the planet. We also hold ourselves accountable to
our broad stakeholder base, to build a strong, profitable, and
sustainable business.
We are pleased to launch our corporate environmental, social,
and governance ('ESG') framework, which follows a transformational
period for the Group, as we have significantly increased our scale
and global reach.
Our first step in this process was an assessment to identify
critical ESG priorities, opportunities, and risks and we will seek
to replicate this process on a bi-annual basis.
This year we have formed an ESG board committee and created an
internal ESG task force. We have also contracted an external party
to conduct an ESG overview to identify and establish programmes and
develop policies to support the effective management of the risks
to, and opportunities for, our business which emerge. We are also
launching our inaugural ESG report with a section to appear in the
Group's 2021 Annual Report.
Kape's corporate responsibility strategy is based on our values,
convictions and a high level of commitment across the Group. We are
keen to be a responsible company that mobilises all its
stakeholders to help create a more sustainable world.
As part of our review, we have conducted a materiality
assessment and we have identified the following key areas where we
will focus our efforts: data privacy and cybersecurity; human
capital management; diversity, equity and inclusion; and energy
management and usage.
Board changes
Post period-end, in January 2022, the Company announced that,
following nine years with Kape, five as Group CFO during what was a
transformational period for the Group, Moran Laufer was stepping
down from the board to pursue other interests as part of an
anticipated relocation to Israel. Oded Baskind has been appointed
Chief Financial Officer and joined the Board of Kape. Oded has been
Kape's VP of Finance since January 2019 and has held numerous key
finance roles since joining Kape in 2014, including supporting the
Group's admission to AIM in September 2014 and its six subsequent
acquisitions.
Retention of key team members
The Company's previous long term incentive award programme for
executive directors expired at the end of 2020. Since that time,
the Company has completed the major acquisitions of Webselenese and
Express VPN, substantially increasing the Company's scale. More
recently, Moran Laufer stepped down as CFO of the Company after 5
years in that role and Oded Baskind has been appointed as CFO in
his place. In light of the above, the Remuneration Committee has
determined that new long term incentive awards should be made to
the senior executive management team of the Company, including both
executive directors, to incentivise them in delivering the next
phase of long-term value creation for shareholders. The
Remuneration Committee has consulted the Company's largest
shareholder, who is supportive of the share awards. The awards will
take the form of jointly owned equity awards, similar in form to
those made by the Company in 2018 ("JOE Awards"). Share awards of
3.4 million shares will be made to Ido Erlichman and 600,000 to
Oded Baskind. The share awards will vest equally over a period of
four years, subject to the achievement of detailed performance
conditions covering the same criteria as the original JOE awards
(Adjusted EPS, SaaS Revenue & G&A). It anticipated that the
grant of the share awards, when made, will constitute a related
party transaction.
Summary & Outlook
The Group has made a strong start to 2022 and the board and
management team are confident of the Group achieving the forecasts
as announced at the time of the ExpressVPN acquisition of 2022
revenues of between $610-624 million and Pro Forma Adjusted EBITDA
of between $166-172 million, supported by Kape's operational scale
and a proven track record of delivering growth.
The Group has limited operational and financial exposure to both
Ukraine and Russia and despite the uncertain macroeconomic backdrop
which the ongoing conflict is creating, the board believes it is
unlikely to have a negative impact on Group performance.
Operationally, the focus for 2022 will be on the ongoing
integration of ExpressVPN including fully realising potential
cost-savings initiatives as well as executing on several
go-to-market opportunities. Product development remains a key focus
area with management keen to ensure Kape remains at the forefront
of the digital privacy and security arena.
On behalf of the board of directors of Kape, I would like to
thank every Kape employee across the Group for their unwavering
commitment during 2021, which was a year not without challenges at
a macro level. The significant progress that was delivered during
2021 has provided Kape with the solid foundations to further extend
our reach across the digital privacy and security market in 2022
and beyond.
Don Elgie
Non-Executive Chair
21 March 2022
(1) Adjusted EBITDA is a company-specific measure which is
calculated as operating profit before depreciation (including
right-to-use assets amortisation), amortisation, exceptional or
non-recurring costs, other operating income/(expense) and employee
share-based payment charges.
(2) Proforma Adjusted EBITDA is a non GAAP measure, it's the
Company Adjusted EBITDA after adding back deferred contracts costs
fair value accounting adjustment following ExpressVPN
consolidation.
Chief Executive Officer's review
Introduction
2021 was a monumental year for our business, culminating in over
6.5 million customers globally now customers of Kape's brands, an
increase of c.161%. Pleasingly, we generated revenues of $230.7
million in the year, which was significantly ahead of management
expectations, and in 2022 this is expected to reach between
$610-624 million. We also transformed our operations, expanding to
10 locations globally with over 850 employees. We achieved all of
this progress through a combination of organic growth and two
pivotal acquisitions.
Kape is now one of the most prominent platforms in digital
security and privacy globally and this has been achieved in a
period where new digital threats continue to emerge and the demand
for reliable mitigation solutions has never been higher.
Across 2021, management remained focused on scaling the
business, facilitated by the highly strategic acquisitions of
Webselenese and, more recently, ExpressVPN. Concurrently, we
continued to expand our marketing channels, as well as ramping-up
our cross-sell and up-sell activities across Kape's existing user
base, with R&D a focus to ensure the development of our
industry-leading products. Our digital privacy segment continued to
deliver consistent growth with our digital security segment
returning to double digit growth in the year, following the Group's
concerted focus in the category and management now have a refreshed
vision for this business segment.
In the year ended 31 December 2021, Kape delivered an excellent
performance, generating revenue of $230.7 million (2020: $122.2
million), up 89% year-on-year with recurring revenue contributing
92% (2020: c. 87%) on a proforma basis. Pro Forma Adjusted
EBITDA(2) increased by 100% to $78.0 million (2020: $39.0 million),
whilst Pro Forma Adjusted EBITDA(2) margin grew to 33.8% (2020:
31.9%).
We have seen significant growth in demand for our solutions with
organic customer growth of 20% and an overall 260% increase in
paying subscribers during the year to 6.5 million (2020: 2.5
million). Kape now has a significant presence across the digital
privacy arena, supported by a number of strong brands including
Private Internet Access, CyberGhost, ExpressVPN and Intego. As one
of the sole players wholly focused on digital privacy, and without
any monetisation from any customer data, Kape remains ideally
placed to maintain its outstanding track record of growth.
Despite the resurgence of Covid-19 globally in the last year, at
Kape we have been able to support business as usual with a mix of
remote working and selected office attendance across our various
locations. The effect on the business was minimal with a slight
uptick in demand for Kape's products as a result.
With regards to the effect of recent events in the Ukraine on
Kape's business, in the last year Kape had less than 1% of its
business generated from Russia and has no operations. In addition,
in Ukraine, Kape has a handful of contractors all of which we have
offered to relocate.
Market dynamics
The demand for privacy is growing at c. 17% per annum (6) with
this demand mainly driven by the ongoing increasing awareness of
digital privacy concerns, as well a willingness of consumers to pay
for more premium software services. The number of devices per
person has also increased, as well as the proliferation in use of
IOT devices, further supporting the growth in the market.
Alongside this growth in demand, individuals are increasingly
looking for a higher quality of service with brand equity and brand
trust providing a competitive advantage for Kape, as its premium
brands are well-placed within the market. The privacy market is
also driven primarily by young consumers with 70% of the market
under the age of 45.
Acquisition and integration of Webselenese
In March 2021, Kape completed the acquisition of Webselenese, an
independent consumer digital privacy and security content provider,
that has transformed Kape's go-to-market and product development
capabilities.
Webselenese has already significantly contributed to Kape's
organic growth not only in accelerating customer acquisition but
also enabling the ongoing reduction of the Group's average Customer
Acquisition Cost ('CAC') by increasing the visibility of Kape's
brands. In addition, Webselenese has provided the wider group with
a 'brain trust' from which knowledge transfer has already begun to
support Kape's ongoing product development initiatives, with team
members contributing across the business to optimise Kape's global
digital operations.
Furthermore, in 2021 while Webselenese was under Kape's
ownership, its revenues increased 52.5% on a yearly proforma basis,
as it benefitted from Kape's infrastructure and central functions
with traction also being seen in additional verticals beyond
digital privacy, providing a further potential growth strand for
the Group going forward.
Acquisition of ExpressVPN and financing
In December 2021, we completed the acquisition of ExpressVPN,
one of the world's leading brands in the digital privacy space. The
transaction was transformational for Kape, positioning the Group at
the forefront of the digital privacy space, adding the premium
brand in the space, a robust infrastructure, an incredible
international team, and the addition of over three million
customers in our key markets.
The transaction also provided Kape with a number of strategic
benefits, including access to ExpressVPN's extensive distribution
network, which includes HP and Philips. Kape's management team
believes that both significant go to market synergies, as well as
cross sell revenue opportunities exist across the Group's enlarged
platform, with an improvement in lifetime value ("LTV") versus
customer acquisition cost ("CAC") ratios anticipated in the
future.
The acquisition provides a number of potential synergies with c.
$30 million expected to be realised on an annualised basis by 2023.
With the process now well underway we have been able to progress
the integration faster than anticipated with the Group already
benefiting from significant economies of scale, and we expect
operational cost savings to exceed expectations for the year.
To fund the acquisition, Kape raised $351.0 million (GBP258.3
million), before transactions costs, in fresh equity through a
multiple-times oversubscribed placing and retail offer, a clear
indication of the market's confidence in the rationale behind the
transaction and further reinforcing Kape's overarching future
growth strategy. In addition, Kape's lender group, comprised of
Bank of Ireland, Barclays Bank PLC, Citi Bank, Citizens Bank, BNP
Paribas and Leumi Bank, gave its consent to the acquisition,
extending their revolving credit facility to Kape from $10 million
to $80 million, providing the Group with debt facilities in
aggregate of up to $220 million.
Key Performance Indicators
Kape once again delivered very strongly across its KPIs during
2021, which the Group reports against to track the ongoing progress
of its SaaS business model, which in-turn underpins the
profitability, earnings predictability and growth potential of the
Group.
31 Dec 31 Dec
2021 2020
'000 '000
Subscribers (thousands) 6,573 2,51 9
Retention rate (3) 81% 83%
Deferred income ($'000) 155,856 36,594
Revenue ($'000) 230,665 122,212
Year ended Year ended
30 Dec 30 Dec 2020
2021
Adjusted EBITDA(1) 86,042 38,973
Proforma Deferred Contract expenses adjustment (8,016) -
------------------------------------------------- ------------ --------------
Proforma Adjusted EBITDA(2) 78,026 38,973
Adjusted operating cash flow(4) :
Attributable to current year ($'000) 78,080 43,594
Investment in growth (33,955) (23,194)
------------------------------------------------- ------------ --------------
Adjusted operating cash flow ($'000) 44,125 20,400
Product development and cross-promotion
R&D continues to be a key growth initiative to ensure Kape
remains at the forefront of the digital-privacy sphere by both
augmenting existing services and launching additional products,
alongside adding products through M&A. Development highlights
during the year included the launch in May 2021 of a privacy-first
antivirus solution, an all-encompassing security coverage product,
one of the first of its kind; and a B2B2C agreement secured in July
2021 for Kape to provide 'Three Hong Kong' customers with the
opportunity to purchase the Private Internet Access VPN.
Kape also significantly expanded its R&D capabilities with
49% of Kape's core employees(5) in R&D functions, which, in the
medium- to long-term, will ensure Kape will be able to continue to
innovate in developing the best-in-class products to provide
enhanced digital privacy and security to consumers globally.
In addition, Kape is increasingly focusing resources on
cross-promotion, investing in targeted campaigns to engage existing
customers who already trust Kape. As of 31 December 2021, 20% of
new Intego users and 12% of new CyberGhost customers purchased more
than one product from the Group, signposting great potential to
grow that uplift as well as offering further complementary products
across the ExpressVPN user base. With the significant expansion of
the Group's user base during 2021, management believes that
cross-promotion will become an ever more important growth driver
for Kape.
Growth drivers
Following the significant strategic progress that Kape has
delivered in recent years, we have established a tier one global
premium digital privacy player, providing us with a significant
opportunity to leverage the following and capitalise on the market
opportunity to deliver future growth:
-- Reach: over 6.5 million subscribers globally provide
significant leverage to realise cross-sell initiatives
-- Go-to-market capabilities: with the leading brands in the
space and multiple channels including Webselenese, this provides
Kape with a strong network to optimise CAC and retention rates
-- Strong product portfolio: trusted solutions with high levels
of recurring revenues alongside potential to accelerate product
development potential
-- M&A: building on its strong track-record, management
continues to selectively evaluate certain strategic
opportunities
Outlook
2021 was another landmark year for our business and we look
forward to further expanding our offering, continuously improving
our products and growing our reach to serve more people around the
world. Looking ahead, Kape is focused on harnessing its operational
footprint as well as its world-class go-to-market capabilities,
deepened by the acquisitions of ExpressVPN and Webselenese, to
capitalise on strong market tailwinds.
Despite the ongoing global macroeconomic uncertainty, largely as
a result of the ongoing conflict in Ukraine, management is very
confident in achieving revenues for the year ending 31 December
2022 of between $610- 624 million and Proforma Adjusted EBITDA (2)
of between $166-172 million.
I would like to thank all of our team for their sustained
efforts and achievements throughout the year. Kape's employees are
the backbone of our business, and the loyalty of our fast-growing
customer base speaks volumes to the first-rate service and advanced
digital protection Kape's dedicated workforce and solutions
continue to provide.
We have ambitious plans for 2022, but based on our success
to-date, the board and management team of Kape are highly
optimistic for Kape's growth prospects in the current year and
beyond.
Ido Erlichman
Chief Executive Officer
21 March 2022
(1) Adjusted EBITDA is a company-specific measure which is
calculated as operating profit before depreciation (including
right-to-use assets amortisation), amortisation, exceptional or
non-recurring costs, other operating income/(expense) and employee
share-based payment charges.
(2) Proforma Adjusted EBITDA is a non GAAP measure, it's the
Company Adjusted EBITDA after adding back deferred contracts costs
fair value accounting adjustment following ExpressVPN
consolidation.
(3) Retention rates are calculated on a six-month basis.
(4) Adjusted operating cash flow attributable to current year is
calculated as Adjusted operating cash flow excluding change in
deferred contract costs.
(5) Excluding support functions
(6) Based on study commissioned by Kape in March 2022
Chief Financial Officer's review
Overview
Revenues for the year to 31 December 2021 increased by 89% to
$230.7 million (2020: $122.2 million), or 20.7% on a proforma
basis. The increase in revenues is a result of an increase in
Kape's legacy subscriptions revenue of 21.2% to $128.9 million
(2020: $106.4 million), as well ten months' contribution from
Webselenese. Pro Forma Adjusted EBITDA increased by 100% to $78.0
million (2020: $39.0 million). Operating profit increased by 257%
to $38.2 million (2020: $10.7 million).
Adjusted cash flow from operations attributable to the current
financial period was $78.1 million (2020: $43.6 million), which
represents cash conversion of 91% (2020: 112%). In addition, during
the period, $33.9 million was reinvested in user acquisition costs
that will be expensed in future periods (2020: $23.2 million).
After including this investment, adjusted cash flow from operations
was $44.1 million (2020: $20.4 million). As 31 December 2021, the
Group's cash balance was $27.0 million (31 December 2020: $49.9
million) and net debt was $457.5 million.
On 5 March 2021, the Group acquired 100% of the share capital of
Uma Capital Ltd and Ani Ariel Ltd, the owners of Webselenese, a
digital platform which provides independent and highly valued
consumer privacy and security content to millions of users globally
via market leading review sites. The total consideration was $155.1
million (the "Consideration") satisfied by a combination of $119.2
million in cash and $28.6 million in new shares, amounting to 12.1
million Kape Ordinary Shares and deferred and contingent
consideration of $7.4 million.
To fund the transaction, the Group drew down $85 million from a
$120 million Bridge Loan by TS Next Level Investments Limited
("TSNLI"). The Bridge Loan carried a fixed coupon of 6.0% per annum
payable on funds drawn and an arrangement fee of 1.0%. TSNLI is an
affiliated company of Unikmind Holdings Limited, Kape's largest
shareholder.
On 28 May 2021, the Company agreed with Bank of Ireland,
Barclays Bank PLC, Citi Bank, Citizens Bank, BNP Paribas and Leumi
Bank (together, "the Banks"), to repay the TSNLI bridge loan in
full and replace its existing term facility and RCF with new senior
secured bank facilities of up to $220 million ("New Debt
Facilities"). The New Debt Facilities comprise a $120 million
senior secured term facility, a $10 million revolving credit
facility and a $90 million uncommitted acquisition facility.
On 15 December 2021, the Group acquired certain assets,
liabilities and service entities together comprising the ExpressVPN
business ("ExpressVPN") from Access Global Limited and its
subsidiaries ("Access Global"), ExpressVPN is one of the most
recognised brands in the digital privacy space and its acquisition
created a premium digital privacy and security player
best-positioned to serve the growing demand for digital privacy.
The total consideration was $925.8 million (the "Consideration") to
be satisfied by a combination of $334.5 million in cash upon
closing, $20 million in cash on the six months anniversary, two
deferred cash consideration of $172.5 million (fair value of $339.2
million) to be satisfied on the 1(st) and 2(nd) anniversaries and
$232.1 million in new shares, amounting to 47.8 million Kape
Ordinary Shares.
The initial cash consideration was funded through an equity
placing of $351.0 million (GBP258.3 million), before transactions
costs, which completed on 1 October 2021. To secure the USD value
of the equity placing, the Group entered into a forward sale of the
GBP receipts from the placement. On 15 December 2021 the Banks,
gave their consent to the ExpressVPN Acquisition and increased
their committed facilities to Kape to $290 million, including an
$80 million RCF.
It is the Board's intention that the Deferred Consideration will
be funded from its operational cashflow and by using the extended
revolving credit facility provided to Kape by the existing lender
group. TS Next Level Investments Limited, has entered into binding
commitment letters with the Group, subject to limited conditions,
to make available to the Group, if required, loan facilities of up
to $345 million in aggregate in connection with Kape's obligation
to pay ExpressVPN's deferred consideration.
Segment Result
Revenue Segment result
2021 2020 2021 2020
$'000 $'000 $'000 $'000
Digital Security 38,042 32,368 14,609 13,346
Digital Privacy 117,042 89,844 74,450 52,835
Digital Content 75,581 - 38,271 -
--------- --------- --------- --------
Revenue 230,665 122,212 127,330 66,181
--------- --------- --------- --------
The segment result has been calculated using revenue less costs
directly attributable to that segment. Cost of sales comprises
payment processing fees and infrastructure costs of the Group's
privacy products. Direct sales and marketing costs are mainly user
acquisition costs.
Digital Privacy
2021 2020
$'000 $'000
Revenue 117,042 89,844
Cost of sales (13,370) (14,127)
Direct sales and marketing
costs (29,222) (22,882)
--------------- ----------
Segment result 74,450 52,835
---------- ----------
Segment margin (%) 63.6 58.8
During the period, the Digital Privacy segment saw continued
growth with a 30.3% increase in revenue to $117.0 million (2020:
$89.8 million) and a 40.9% increase in segment result to $74.5
million (2020: $52.8 million). Following the acquisition of
ExpressVPN in December 2021, ExpressVPN contributed $20.5 million
to revenues and $18.9 million to segment results. Revenue growth
was driven by Kape's legacy subscriber base growth of 14.3%.
Digital Security
2021 2020
$'000 $'000
Revenue 38,042 32,368
Cost of sales (2,602) (2,045)
Direct sales and marketing
costs (20,831) (16,977)
---------- ----------
Segment result 14,609 13,346
---------- ----------
Segment margin (%) 38.4 41.2
During the year, revenue from the Digital Security segment
returned to growth with an increase of 17.5% to $38.0 million
(2020: $32.4 million). The increase was driven by a 20.0% growth in
revenue from Intego's Endpoint security products. In addition,
revenue from the Company's PC performance products has increased by
16.8% but with a lower margin of 25.9% (2020: 29.4%) following an
increase in advertising cost.
Digital Content
2021 2020
$'000 $'000
Revenue 75,581 -
Cost of sales - -
Direct sales and marketing (37,310) -
costs
---------- -------
Segment result 38,271 -
---------- -------
Segment margin (%) 50.6 -
Digital Content represents Webselenese which was acquired on 5
March 2021. From the acquisition date to year end the digital
content segment revenue was $75.6 million and segment results were
$38.2 million. On a proforma basis, excluding revenue that was
generated from Kape, revenue year over year grew significantly by
52.5% to $88.3 million (2020: $57.9 million). The growth has been
driven by an increase in traffic from both organic and acquired
sources.
Adjusted EBITDA
Adjusted EBITDA for the year to 31 December 2021 was $86.0
million (2020: $39.0 million). Adjusted EBITDA is a non-GAAP
company specific measure which is considered to be a key
performance indicator of the Group's financial performance.
Adjusted EBITDA is calculated as operating profit before
depreciation (including right-to-use assets amortisation),
amortisation, exceptional or non-recurring costs, other operating
expenses, deferred contracts fair value adjustment and employee
share-based payment. Proforma Adjusted EBITDA is calculated by
adding the Proforma Deferred contract costs expenses adjustment
related to ExpressVPN acquisition. As these are non-GAAP measures,
they should not be considered as replacements for IFRS measures.
The Group's definition of these non-GAAP measures may not be
comparable to other similarly titled measures reported by other
companies. Such amounts are excluded from the following
analysis:
2021 2020
$'000 $'000
Revenue 230,665 122,212
Cost of sales (15,972) (16,172)
Direct sales and marketing
costs (87,363) (39,859)
---------- ----------
Segment result 127,330 66,181
---------- ----------
Indirect sales and marketing
costs (19,687) (9,192)
Research and development
costs (8,176) (6,194)
Management, general and administrative
cost (13,425) (11,822)
---------- ----------
Adjusted EBITDA 86,042 38,973
---------- ----------
Proforma Deferred Contract (8,016) -
expenses adjustment
---------- ----------
Proforma Adjusted EBITDA 78,026 38,973
---------- ----------
The Increase in Direct and Indirect sales and marketing costs is
mainly due to a respective $37.3 million and $8.5 million
contribution from Webselenese in the period.
Operating profit
A reconciliation of Adjusted EBITDA to operating profit is
provided as follows:
2021 2020
$'000 $'000
Adjusted EBITDA 86,042 38,973
Employee share-based payment
charge (5,224) (1,232)
Other operating income/
(expenses) 947 (313)
Exceptional and non-recurring
costs (9,850) (6,623)
Depreciation and amortisation (33,764) (20,097)
Operating profit 38,151 10,708
---------- ----------
Increase in Depreciation and amortisation is driven by a $11.2
million (2020: $Nil) amortisation charge of Webselenese and
ExpressVPN acquired intangibles assets.
Exceptional or non-recurring costs in 2021 are comprised of
non-recurring staff costs of $6.0 million which comprise of $4.4
million one-off bonus award to the management team for the
acquisition of ExpressVPN, $0.9 million employer cost related to
management share options exercise, $0.6 million employees onerous
contract termination costs and $3.9 million (2020: $0.2 million)
professional services and other business combinations related
costs.
Profit before tax from continuing operations
Profit before tax from continuing operations was $32.6 million
(2020: $7.3 million). Finance costs of $11.2 million comprised
mainly of $4.9 million of interest on debt facilities (2020: $2.0
million), $3.6 million of commitment fees on the TSNLI revolving
facility related to the ExpressVPN acquisition. Finance income of
$5.6 million comprised from currency exchange forward deal placed
to hedge the proceeds from the share issuance executed in
October.
Profit after tax from continuing operations
Profit from continuing operations was $23.3 million (2020: $29.7
million). Tax expenses of $9.2 million comprised from $4.9 million
current tax expenses, $5.0 million deferred tax expenses and
previous year's tax income of $0.7 million. The increase of tax
expenses is attributable mainly to reversal of $25.8 million
deferred tax liability in the year ended 31 December 2020 following
a share buy back from the PIA's founders that changed the tax
structure of the acquisition and increased the tax basis of the
acquired intangible assets.
The Group recognised a deferred tax asset of $0.8 million (2020:
$6.2 million) in respect of tax losses accumulated in previous
years.
Cash flow
2021 2020
$'000 $'000
Cash flow from operations 35,489 15,244
Exceptional and non-recurring
payments 8,636 5,156
--------
Adjusted cash flow from operations 44,125 20,400
-------- --------
Adjusted EBITDA 86,042 38,973
-------- --------
% of Adjusted EBITDA 51% 52%
-------- --------
Excluding increase of deferred
contract costs 33,955 23,194
-------- --------
Adjusted Cash flow from operations
attributable to current year 78,080 43,594
-------- --------
% of Adjusted EBITDA 91% 112%
-------- --------
Cash flow from operations was $35.5 million (2020: $15.2
million). Adjusted cash flows from operations, after adding back
payments that are one-off in nature was $44.1 million (2020: $20.4
million). This represents a cash conversion of 51% of Adjusted
EBITDA (2020: 52%). The increase in operating cash flow is due to
an increase in revenues from renewals of existing subscribers and
Webselenese acquisition. The Company invested $33.9 million (2020:
$23.2 million) in user acquisition that is attributable to revenue
that will be expensed in future periods. Excluding this investment,
adjusted operating cash flow attributable to the current financial
period increased to $78.1 million (2020: $43.6 million), which
represents a cash conversion of 91% (2020: 112%).
Tax paid net of refunds in the period was $3.3 million (2020:
$0.7 million). The increase was mainly due to tax refunds receipts
in 2020 and prepayments that were paid in 2021 Israel by Group
subsidiaries.
Cash outflow from investing activities of $465.9 million (2020:
$9.1 million) mainly comprises $334 million for the acquisition of
ExpressVPN, $119.5 million for the acquisition of Webselenese,
$10.7 million for the acquisition of PIA (2020: $5.8 million), $5.3
million (2020: $2.5 million) capitalised development costs and $2.4
million (2020: $0.5 million) purchase of fixed assets.
Cash outflow from financing activities of $410.7 million (2020:
$35.8 million outflow) included a drawdown of $85 million
shareholder bridging loan and full repayment of the principal, and
$2.1 million interest and arrangement fees related to the that
loan. The repayment was funded by a $87.9 million increase of
long-term bank debt and RCF, net of issuance costs. In addition,
$11.8 million (2020: $3.6 million) has been paid for long term loan
principal and $1.9 million for interest (2020: 0.7 million), see
Note 7. Arrangement fees of $7.1 million paid to the company main
shareholder for Facility revolver of $345 million, see Note 12.
In October, the Group raised a net amount of $348.4 million by a
way of share placing used for the initial cash consideration for
the acquisition of ExpressVPN. In addition, $0.9 million (2020:
$2.4 million) has been received following the exercise of employee
share options and $3.9 million (2020: $19.8 million) has been paid
for purchase of treasury shares in the period.
Financial position
At 31 December 2021, the Company had cash of $27.0 million (31
December 2020: $49.9 million), net assets of $863.1 million (31
December 2020: $228.8 million) and net debt of $457.5 million
(2020: net cash of $11.1 million). At 31 December 2021, trade
receivables were $42.1 million (31 December 2020: $4.0
million).
In December, the club of banks extended their revolving credit
facility to Kape from $10 million to $80 million.
Following the acquisition of Webselenese, ExpressVPN and an
increase of the bank loan, the adjusted leverage (as defined in
Note 12) of the group is c. x2.88. It is our intention to further
decrease the leverage by the end of 2022 and maintain a moderate
level of financial indebtedness going forward. It is Kape's
intention to use the expected cash flow from operation and the bank
facility revolver to pay the deferred cash consideration related to
ExpressVPN acquisition.
Oded Baskind
Chief Financial Officer
21 March 2022
Consolidated statement of comprehensive income
For the year ended 31 December 2021
2021 2020
Note $'000 $'000
Revenue 2,3 230,665 122 ,212
Cost of sales (15,972) (16,172)
----------- ----------
Gross profit 214,693 106,040
Selling and marketing costs 2c (108,580) (49,112)
Research and development
costs (10,865) (6,332)
Management, general and administrative
costs (24,280) (19,478)
Depreciation and amortisation 6 (33,764) (20,097)
Other operating income (expenses) 947 (313)
Total operating costs (176,542) (95,332)
Operating profit 4 38,151 10,708
Adjusted EBITDA 4 86,042 38,973
----------- ----------
Employee share-based payment
charge 8 (5,224) (1,232)
Other operating income (expenses) 947 (313)
Exceptional or non-recurring
costs 4 (9,850) (6,623)
Depreciation and amortisation 6 (33,764) (20,097)
Operating profit 38,151 10,708
----------------------------------------- ------ -----------
Finance income 5,580 -
Finance costs (11,179) (3,382)
----------- ----------
Profit before taxation 32, 552 7,326
Tax charge 5 (9,214) 22,343
----------- ----------
Profit from continuing operations 23,338 29,669
Loss from discontinued operations
(attributable to equity holders
of the company) - (792)
----------- ----------
Profit for the year 23,338 28,877
Other comprehensive income:
Items that may be reclassified
to profit and loss:
Foreign exchange differences
on translation of foreign
operations 1 (6)
----------- ----------
Total comprehensive Income
for the year 23,339 28,871
----------- ----------
Total profit/(loss) for the
year attributable to Owners
of the parent:
Continuing operations 23,338 29,669
Discontinuing operations - (792)
----------- ----------
23,338 28,877
Earnings per share attributable
to the ordinary equity holders
of the company:
Basic earnings per share
(cents) 9 9.6 15.0
Diluted earnings per share
(cents) 9 9.4 14.4
Earnings per share from continuing
operations attributable to
the ordinary equity holders
of the company:
Basic earnings per share
(cents) 9 9.6 15.4
Diluted earnings per share
(cents) 9 9.4 14.8
----------- ----------
Earnings per share from discontinued
operations attributable to
the ordinary equity holders
of the company:
Basic earnings per share
(cents) 9 - (0.4)
Diluted earnings per share
(cents) 9 - (0.4)
----------- ----------
Consolidated statement of financial position
As of 31 December 2021
2021 2020
Note $'000 $'000
Non-current assets
Intangible assets 6 1,4 85 ,608 227,949
Property, plant and equipment 5,794 1,375
Right-of-use assets 21,880 4,006
Deferred contract costs 2c 50,698 31,080
Deferred tax asset 5 2,466 6,282
1,566,446 270,692
------------- ----------
Current assets
Software license inventory 70 128
Deferred contract costs 2c 35,791 21,454
Trade and other receivables 57,980 8,884
Cash and cash equivalents 26,984 49,912
1 20, 825 80,378
Total assets 1,687,271 351,070
------------- ----------
Equity 7,8
Share capital 36 22
Additional paid in capital 883,337 273,358
Share to be issued 1,350 1,350
Foreign exchange differences
on translation of foreign
operations 773 772
Retained earnings (22,051) (46,746)
Total equity 8 63 , 445 228,756
------------- ----------
Non-current liabilities
Contract liabilities 2b 10,885 7,463
Deferred tax liabilities 5 69,761 2,640
Long term lease liabilities 16,079 1,975
Deferred and contingent consideration 14 168,950 407
Onerous contract liability 13 - 679
Loans and Borrowings 12 97,830 29,619
------------- ----------
363,505 42,783
------------- ----------
Current liabilities
Trade and other payables 84,264 22,468
Contract liabilities 2b 144,971 29,131
Short term lease liabilities 6,940 2,572
Deferred and contingent consideration 14 199,337 14,334
Onerous contract liability 13 741 721
Loans and Borrowings 12 19,554 7,117
Current tax liability 5 4,514 3,188
460,321 79,531
------------- ----------
Total equity and liabilities 1,687,271 351,070
------------- ----------
The financial statements were approved by the Board and
authorised for issue on 21 March 2022.
Ido Erlichman Oded Baskind
Chief Executive Officer Chief Financial Officer
Consolidated statement of changes in equity
For the year ended 31 December 2021
Foreign
exchange
differences
Additional on translation
Share paid in Share to of foreign Retained Total
capital capital be issued operations earnings
$'000 $'000 $'000 $'000 $'000 $'000
At 1 January 2020 16 153,002 56,499 778 (55,291) 155,004
Profit for the year - - - - 28,877 28,877
Other comprehensive
income:
Foreign exchange differences
on translation of
foreign operations - - - (6) - (6)
---------- ------------ ------------- ------------------ ----------- ------------
Total comprehensive
profit for the year - - - (6) 28,877 28,871
Transactions with
owners:
Share based payments - - - - 1,232 1,232
Exercise of employee
options (note 7) * 2,952 - - - 2,952
Issue of equity share
capital (note 7) 6 113,213 - - - 113,219
Issue of equity share
capital of deferred
share consideration
(note 14) - 4,191 (4,191) - - -
Buy-back of deferred
share consideration
(note 7) - - (50,958) - (1,730) (52,688)
Share buy-back (note
7) - - - - (19,834) (19,834)
---------- ------------ ------------- ------------------ ----------- ------------
At 31 December 2020 22 273,358 1,350 772 (46,746) 228,756
---------- ------------ ------------- ------------------ ----------- ------------
At 1 January 2021 22 273,358 1,350 772 (46,746) 228,756
Profit for the year - - - - 23,338 23,338
Other comprehensive
income:
Foreign exchange differences
on translation of
foreign operations - - - 1 - 1
---------- ------------ ------------- ------------------ ----------- ------------
Total comprehensive
profit for the year - - - 1 23,338 23,339
Transactions with
owners:
Share based payments - - - - 5,224 5,224
Exercise of employee
options (note 7) - 939 - - - 939
Contributions of equity
net of transaction
cost (note 7) 8 348,382 - - - 348,390
Issue of equity share
capital (note 7) 6 260,658 - - - 260,664
Acquisition of treasury
shares (note 7) - - - - (3,867) (3,867)
At 31 December 2021 36 883,337 1,350 773 (22,051) 8 63 , 445
---------- ------------ ------------- ------------------ ----------- ------------
* Amounts below 1 thousand
Consolidated statement of cash flows
For the year ended 31 December 2021
2021 2020
Note $'000 $'000
Cash flow from operating activities
Profit for the year after taxation 23,338 28,877
Adjustments for:
Amortisation of intangible assets 6 29,173 17,730
Amortisation of right-to-use assets 3,895 1,707
Depreciation of property, plant and
equipment 696 660
Loss on sale of property, plant and
equipment 378 271
Loss on sale of right-to-use assets - 53
Profit on sale of intangible assets 6 (485) (27)
Profit from lease modification (848) -
Tax Expenses/(income) 5 9,214 (22,343)
Profit from Forward contract (5,580) -
Interest expenses, fair value movements
on deferred consideration 12,14 10,331 3,997
Share based payment charge 8 5,224 1,232
Unrealised foreign exchange differences (269) (114)
Operating cash flow before movement
in working capital 75,067 32,043
Increase in trade and other receivables (13,784) (1,734)
(Decrease)/Increase in software licenses
inventory 54 (32)
Increase in trade and other payables 12,246 5,483
(Decrease)/Increase in onerous contract
liability 13 (688) 1,396
Increase in deferred contract costs (33,955) (23,194)
(Decrease)/Increase in contract liabilities (3,451) 1,282
----------- ----------
Cash Inflow from operations 35,489 15,244
Tax paid net of refunds (3,345) (712)
----------- ----------
Cash generated from operations 32,144 14,532
Cash flow from investing activities
Purchase of property, plant and equipment (2,444) (536)
Proceeds from sale of property, plant
and equipment 2 11
Intangible assets acquired 6 (794) (376)
Disposal of intangible assets 6 1,261 132
Cash paid on business combination,
net of cash acquired 10 (464,149) (5,777)
Proceeds from Forward contract, net 5,580 -
Capitalisation of development costs 6 (5,326) (2,544)
----------- ----------
Net cash used in investing activities (465,870) (9,090)
Cash flow from financing activities
Payment of leases (2,839) (1,836)
Proceeds from Shareholder loan 11,12 85,000 -
Proceeds from loans 12 85,000 40,000
Proceeds from RCF 12 8,207 1,654
Debt issuance costs 12 (2,690) (1,723)
Shareholder facility revolver issuance
cost 12 (7,125) -
Repayment of interest on Shareholder
loan 12 (1,275) (1,155)
Repayment of Shareholder loan 12 (85,000) (40,000)
Repayment of interest on loan 12 (1,934) (658)
Repayments of long-term loan 12 (11,818) (3,636)
Payment of deferred shares consideration 7 - (52,688)
Payment of purchase of own shares 7 (3,867) (19,834)
Proceeds from issuance of shares, net
of transaction costs 7 348,390 113,219
Proceeds from exercise of options by
employees 7 939 2,431
Net cash generated from financing activities 410,988 35,774
----------- ----------
Net (decrease)/increase in cash and
cash equivalents (22,738) 41,216
Revaluation of cash due to changes
in foreign exchange rates (190) 485
Cash and cash equivalents at beginning
of year 49,912 8,211
----------- ----------
Cash and cash equivalents at end of
year 26,984 49,912
----------- ----------
Notes to the consolidated financial statements
1 Basis of preparation
The financial information provided is for Kape Technologies Plc
and its subsidiary undertakings (together the "Group", "the
Company" or "Kape") in respect of the financial years ended 31
December 2021 and 2020. The Company is incorporated in the Isle of
Man.
The financial information has been prepared in accordance with
UK adopted international accounting standards (collectively
IFRS).
The preparation of financial statements in compliance with
adopted IFRS requires the use of certain critical accounting
estimates. It also requires Group management to exercise judgement
in applying the Group's accounting policies.
Going concern
The Directors, having considered the Group's resources
financially and the associated risks with doing business in the
current economic and geo-political climate, believe the Group is
capable of successfully managing these risks. The Board has
reviewed the cash flow forecast and business plan as provided by
management which includes the rate of revenue growth, EBITDA
margins, costs, acquisition synergies, cash conversion ratio and
capital expenditure. The cash flow forecast prepared by management
for assessing going concern extends to 31 March 2023 ("the going
concern period"). Management's base case forecast is aligned with
the management's forecast for the year ending 31 December 2022.
The Group has in place debt facilities comprising a $120 million
senior secured term facility, a $90 million revolving credit
facility and a $80 million uncommitted acquisition facility. The
term facility includes quarterly capital repayments of $5 million.
The debt facilities expire in 2024. As at 31 December 2021, the
Group had drawn down $10m on the revolving credit facility and $nil
on the acquisition facility. The debt facilities are subject to the
following financial covenants
-- The ratio of EBITDA to Net Finance Charges ("Interest Cover")
shall not be less than 4.0x in respect of any Relevant Period.
-- The ratio of Total Net Debt on the last day of the relevant
period to Adjusted EBITDA in respect of that Relevant period
("Adjusted Leverage"), shall not exceed 3.5x through each of
quarters to and including 30 September 2022 and 2.5x from and
including 31 December 2022 to and including 31 March 2023.
In addition to the debt facilities above, the Group has in place
a Shareholder Deferred Consideration Facility from TS Next Level
Investments Limited ("TSNLI"), an affiliate of Unikmind, the
Group's largest shareholder. This facility makes available to
Group, if required, loan facilities of up to $345 million in
aggregate in connection with the Group's obligation to pay the
ExpressVPN deferred consideration payments due in December 2022 and
December 2023. This facility is available through to December
2023.
Based on management's base case forecast the Group is able to
meet liabilities as they fall due and operate within financial
covenants throughout the forecast period. The base case assumes the
ExpressVPN deferred consideration payment of $172.5 million due in
December 2022 is paid from cash from operations, including existing
facilities, without the use of the Shareholder Deferred
Consideration Facility.
In addition to the base case, management also considered
sensitivities in respect of potential stress tests, a reverse
stress test and the mitigating actions available to management. The
modelling of the downside scenarios assessed if there was a
significant risk to the Group's liquidity, covenant compliance
position and need to access the Shareholder Deferred Consideration
Facility. These scenarios make assumptions on revenue declines and
costs saving from freezing planned recruitment.
Under the stress tests the Group is still able to meet
liabilities as they fall due and operate within financial covenants
throughout the forecast period. The ExpressVPN deferred
consideration payment remains payable from cash from operations,
including existing facilities, without the use of the Shareholder
Deferred Consideration Facility in one of the scenarios. In the
scenario that necessitates the use of the Shareholder Deferred
Consideration Facility, the Directors assessed the liquidity of TS
Next Level Investments Limited ("TSNLI"), an affiliate of Unikmind,
the Group's largest shareholder to make such funds available on
request and as per the legal terms of the agreement. The Directors
are confident such funding would be available based on their
knowledge of the lender, the historic loan facilities the lender
has provided the Group for previous acquisitions and the
commerciality of lending such funds in order to protect the
shareholder's majority investment in the Group.
The reverse test was used to find what would be the level of
EBITDA and consequently the cash burn that would lead to a breach
in the Group's financial covenants before the end of the going
concern period. The financial covenants would be breached only if
revenues from new users declined more than 22% below management's
base case. As a result of completing this assessment management
considered the likelihood of the reverse stress test scenario
arising to be remote. In reaching this conclusion management
considered:
-- Cash collection is strong and bad debt risk is limited as
clients typically pay for services upfront.
-- Flexible cost base - a significant portion of the Group's costs are discretionary in nature
-- The contract liabilities balance is growing (contract
liabilities +326% vs 31 December 2020) supporting attractive future
revenue growth and good future revenue visibility. The contract
liabilities balance as of 31 December 2021 of $155.9 million
includes $144.9m to be released into revenue in the following 12
months.
-- We continuously monitor and invest in market needs. In the
year to 31 December 2021 the Group continued its strong investment
in technology capability and innovation demonstrated by the
increase of research and development expenses by 71% compared to
the comparative period.
-- The cash conversion of the Group is expected to increase due
to the full year impact of the Webselenese and ExpressVPN
businesses which due to their products and billing profile deliver
higher net cash inflows at the point of sale.
The Directors continue to carefully monitor the impact of the
COVID-19 pandemic, and its impact on the macroeconomic environment,
on the operations of the Group and have a range of possible
mitigating actions, which could be implemented in the event of a
downturn of the business. However, with COVID-19 driving an
increased requirement for workforces to shift to home working and
heightened concerns relating to digital security and privacy the
Group has benefited from favourable market tailwind.
The Directors have also considered the geo-political
environment, including rising inflation in some of our key markets
and the conflict in Ukraine, and whilst the impact on the Group is
currently deemed minimal, the Directors remain vigilant and ready
to implement mitigation action in the event of a downturn in demand
or an impact on operations.
The Directors are also not aware of any significant matters that
occur outside the going concern period that could reasonably
possibly impact the going concern conclusion.
Have performed the assessments as detailed above, the Directors
have a reasonable expectation that the Group will have adequate
financial resources to continue in operational existence over the
relevant going concern period and have therefore considered it
appropriate to adopt the going concern basis of preparation in the
consolidated financial statements.
Adoption of new and revised standards
New standards impacting the Group that were adopted in the
annual financial statements for the year ended 31 December 2021,
and which have given rise to changes in the Group's accounting
policies are:
-- Covid-19-related Rent Concessions - Amendments to IFRS 16 -
As a result of the COVID-19 pandemic, rent concessions have been
granted to lessees. Such concessions might take a variety of forms,
including payment holidays and deferral of lease payments. In May
2020, the IASB made an amendment to IFRS 16 Leases which provides
lessees with an option to treat qualifying rent concessions in the
same way as they would if they were not lease modifications. In
many cases, this will result in accounting for the concessions as
variable lease payments in the period in which they are granted.
The relief was originally limited to reduction in lease payments
that were due on or before 30 June 2021. However, the IASB
subsequently extended this date to 30 June 2022. The Group has
elected to apply the practical expedients.
-- Interest Rate Benchmark Reform - Phase 2 - In August 2020,
amendments were issued to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS
16 to address the issues that arise during the reform of an
interest rate benchmark rate, including the replacement of one
benchmark with an alternative one. The Phase 2 amendments provide
the following reliefs:
o When changing the basis for determining contractual cash flows
for financial assets and liabilities (including lease liabilities),
the reliefs have the effect that the changes, that are necessary as
a direct consequence of IBOR reform and which are considered
economically equivalent, will not result in an immediate gain or
loss in the income statement.
o The hedge accounting reliefs will allow most IAS 39 or IFRS 9
hedge relationships that are directly affected by IBOR reform to
continue. However, additional ineffectiveness might need to be
recorded.
The adoption of these standards did not have a material impact
on the Group's financial statements.
2 Revenue
2021 2020
$'000 $'000
Sale of Digital Security, malware protection
and PC performance products 38,042 32,368
Sale of Digital Privacy software solutions 117,042 89,844
Sale of Digital Content and software distribution 75,581 -
services
---------
230,665 122,212
--------- ---------
Revenues from software and SAAS products offering security,
malware protection and PC performance are generated from the
Digital Security CGU, revenues from provision of Digital privacy
software solutions are generated from the Digital Privacy CGU,
revenues from Digital Content and software distribution services
are generated from Digital Content CGU.
(a) Disaggregation of revenue
The following table presents our revenues disaggregated by the
timing of revenue recognition in accordance with our reporting
segments:
2021 2020
(USD, in thousands) (USD, in thousands)
Digital Digital Digital Total Digital Digital Total
Security Privacy Content Security Privacy
----------- ---------- ---------- --------- ----------- ---------- ---------
Revenue recognised
over a period 5,375 80,180 - 85,555 4,470 69,645 74,115
----------- ---------- ---------- --------- ----------- ---------- ---------
Revenue recognised
at a point in
time 32,667 36,862 75,581 145,110 27,898 20,199 48,097
----------- ---------- ---------- --------- ----------- ---------- ---------
Total 38,042 117,042 75,581 230,665 32,368 89,844 122,212
----------- ---------- ---------- --------- ----------- ---------- ---------
(b) Contract liabilities
The company has recognised the following revenue-related
contract liabilities:
31 December 2021 31 December 2020
(USD, in thousands) (USD, in thousands)
Contract liabilities 155,856 36,594
---------------------- ----------------------
Significant changes in relation to contract liabilities
The following table shows the significant changes in the current
reporting period which relate to carried-forward contract
liabilities.
Significant changes in the contract 31 December 31 December
liabilities balances during the 2021 2020
period are as follows:
(USD, in thousands) (USD, in thousands)
Contract liabilities balance at
the beginning of the period (36,594) (35,312)
---------------------- ----------------------
Business combination (122,713) -
---------------------- ----------------------
Revenue recognised that was included 13,397 -
in the contract liability balance
from Business combination
---------------------- ----------------------
Revenue recognised that was included
in the contract liability balance
at the beginning of the period 29,095 29,298
---------------------- ----------------------
Increase due to cash received,
excluding amounts recognised as
revenue during the period (39,041) (30,580)
---------------------- ----------------------
Contract liabilities balance at
the end of the period (155,856) (36,594)
---------------------- ----------------------
Management expects that 93.0% of the transaction price allocated
to the unsatisfied contracts (which represent the contract
liabilities) as of 31 December 2021 will be recognised as revenue
during the next annual reporting period ($144,971 thousands), 5.3%
and 1.5% ($8,328 thousands and $2,400 thousands) will be recognised
in 2022 and 2023 financial years, respectively. The remaining 0.2%
($157 thousand) will be recognised during the following financial
years.
(c) Assets recognised from costs to obtain and fulfil a contract
Significant changes in relation to assets recognised from costs
to obtain and fulfil a contract
31 December 2021 31 December 2020
(USD, in thousands) (USD, in thousands)
Short term Asset recognised
from marketing cost to obtain
a contract 33,618 19,784
---------------------- ----------------------
Long term Asset recognised
from marketing cost to obtain
a contract 50,201 30,726
---------------------- ----------------------
Short term Asset recognised
from fulfilment cost to fulfil
a contract 2,173 1,670
---------------------- ----------------------
Long term Asset recognised
from fulfilment cost to fulfil
a contract 497 354
---------------------- ----------------------
Significant changes in the
deferred contract costs balances
during the period are as follows:
---------------------- ----------------------
Balance at the beginning of
the period 52,534 29,340
---------------------- ----------------------
Amortization recognised during
the period - marketing costs (38,853) (23,552)
---------------------- ----------------------
Amortization recognised during
the period - fulfilment cost (5,631) (5,202)
---------------------- ----------------------
Increases due to cash paid
- marketing costs 72,161 45,681
---------------------- ----------------------
Increases due to cash paid
- fulfilment cost 6,278 6,267
---------------------- ----------------------
Balance at the end of the period 86,48 9 52,534
---------------------- ----------------------
3 Segmental information
Segments revenues and results
The Group's reportable segments are strategic business units
that offer different products and services. Operating segments are
reported in a manner consistent with the internal reporting
provided to the chief operating decision maker. The chief operating
decision maker has been identified as the management team including
the Chief Executive Officer and the Chief Financial Officer. The
Group operates three reportable segments:
-- Digital Security - comprising software and SaaS products
offering security, endpoint protection and PC performance.
-- Digital Privacy - comprising virtual private network ("VPN")
solutions and other privacy SaaS products.
-- Digital Content - comprising digital platforms which provide reviews and content.
Year ended 31 December
2021 Digital Digital Privacy Digital Total
Security Content
2021 2021 2021 2021
$'000 $'000 $'000 $'000
Revenue 38,042 117,042 75,581 230,665
Cost of sales (2,602) (13,370) - (15,972)
Direct sales and marketing
costs (20,831) (29,222) (37,310) (87,363)
------------ ------------------- ----------- ----------
Segment result 14,609 74,450 38,271 127,330
Central operating costs (41,288)
----------
Adjusted EBITDA(1) 86,042
Other operating income/(expense) 947
Depreciation and amortisation (33,764)
Employee share-based payment
charge (5,224)
Exceptional or non-recurring
costs (9,850)
----------
Operating profit 38,151
Finance income 5,580
Finance costs (11,179)
----------
Profit before tax 32, 552
Taxation (9,214)
----------
Profit for the year 23,338
Exceptional or non-recurring costs in 2021 are comprised of
non-recurring staff costs of $6.0 million which comprise of $4.4
million one-off bonus award to the management team for the
acquisition of ExpressVPN, $0.9 million employer cost related to
management share option exercise, $0.6 million employees onerous
contract termination costs and $3.9 million professional services
and other business combinations related costs.
Year ended 31 December
2020 Digital Security Digital Privacy Total
2020 2020 2020
$'000 $'000 $'000
Revenue 32,368 89,844 122,212
Cost of sales (2,045) (14,127) (16,172)
Direct sales and
marketing
costs (16,977) (22,882) (39,859)
------------------------- ------------------- --- --------------------
Segment result 13,346 52,835 66,181
Central operating costs (27,208)
--------------------
Adjusted EBITDA(1) 38,973
Other operating
income/(expenses) (313)
Depreciation and
amortisation (20,097)
Employee share-based
payment
charge (1,232)
Exceptional or
non-recurring
costs (6,623)
--------------------
Operating profit 10,708
Finance income -
Finance costs (3,382)
--------------------
Profit before tax 7,326
Taxation 22,343
--------------------
Profit from continuing
operations 29,669
Loss from discontinued
operation
(attributable to
equity
holders of the
company) (792)
Profit for the year 28,877
Exceptional or non-recurring costs in 2020 are comprised of
non-recurring staff costs of $6.4 million which comprise of $4.9
million one-off bonus award to the management team for the
successful integration of PIA, $1.5 million onerous contract cost
relating to PIA's founder consulting agreement and $0.2 million
professional services and other business combinations related
costs.
(1) Adjusted EBITDA is a company-specific measure which is
calculated as operating profit before depreciation (including
right-to-use assets amortisation), amortisation, exceptional or
non-recurring costs, other operating income/(expense) and employee
share-based payment charges as set out in note 4.
Information about major customers
In 2021 and 2020 there were no customers contributing more than
10% of total revenue of the Group.
Geographical analysis of revenue
Revenue by residence of the recording subsidiary:
2021 2020
$'000 $'000
Europe 143,965 61,395
Asia 20,466 -
US 66,234 60,817
--------- ---------
230,665 122,212
========= =========
Geographical analysis of non-current assets
2021 2020
$'000 $'000
US 198,864 210,521
Singapore 1,127,380 -
France 5,690 6,215
Romania 12,954 6,535
Germany 5,904 7,406
Israel 149,580 -
UK 154 139
Other 12,756 2,514
Total intangible assets, right-to-use
assets and property, plant and equipment 1,513,282 233,330
----------- ---------
4 Operating profit
Adjusted EBITDA
Adjusted EBITDA is a company-specific measure which is
calculated as operating profit before depreciation (including
right-to-use assets amortisation), amortisation, exceptional or
non-recurring costs, other operating income/(expense) and employee
share-based payment charges.
As these are non-GAAP measures, they should not be considered as
replacements for IFRS measures. The Group's definition of these
non-GAAP measures may not be comparable to other similarly titled
measures reported by other companies.
Adjusted EBITDA is calculated as follows:
2021 2020
$'000 $'000
Operating profit 38, 151 10,708
Depreciation and amortisation 33,764 20,097
Other operating expenses/ (income) ) 947( 313
Employee share-based payment
charge 5,224 1,232
Non-recurring costs:
Non-recurring staff costs 5,969 6,405
Professional services related
to business
combination 3,881 218
Adjusted EBITDA 86,042 38,973
Other operating income in 2021 is comprised mainly of $0.8
million gain from termination and modification of leases accounted
under IFRS 16, $0.5 million gain from disposals of
Cryptocurrencies, $0.05 million of donation expenses, $0.2 million
from deferred consideration Fair value movement through profit and
loss and $0.1 million of other fixed assets disposals.
Operating profit has been arrived at after charging:
2021 2020
$'000 $'000
Exceptional or non-recurring operating
costs
Non-recurring staff costs 5,969 6,405
Professional services related
to business combination 3,881 218
9,850 6,623
-------- ---------
Auditor's remuneration:
Audit 574 273
Amortisation of intangible assets 29,173 17,73 0
Depreciation 696 660
Amortisation of Right-to-use assets 3,895 1,707
Employee share-based payment charge
(note 8) 5,224 1,232
======== =========
Operating costs
Operating costs are further analysed as follows:
2021 2021 2020 2020
Adjusted Total Adjusted Total
$'000 $'000 $'000 $'000
Direct sales and marketing
costs 87,363 87,363 39,859 39,859
Indirect sales and marketing
costs 1 9 , 687 21,217 9,192 9,253
----------- --------- ----------- --------
Selling and marketing
costs 107,050 108,580 49,051 49,112
------------------------------------- ----------- --------- ----------- --------
Research and development
costs 8,176 10,865 6,194 6,332
Management, general and
administrative cost 13, 4 25 24,280 11,822 19,478
Other operating (income)/expenses - (947) - 313
Depreciation and amortisation 7,612 33,764 4,825 20,097
Total operating costs 136,263 176,542 71,892 95,332
=========== ========= =========== ========
Adjusted operating costs exclude share-based payment charges,
exceptional or non-recurring costs, other operating (income)
/expenses and amortisation of acquired intangible assets. See note
3.
5 Taxation
The parent company is resident, for tax purposes in the UK. The
final tax charge shown below arises partially from the difference
in tax rates applied in the different jurisdictions in which the
subsidiaries reside.
The Group recognised a deferred tax asset of $0.8 thousands
(2020: $6,215 thousands) in respect of tax losses accumulated in
previous years.
The total tax charge can be reconciled to the overall tax charge
as follows:
2021 2020
$'000 $'000
Profit from continuing operations before
income tax expense 32,552 7,326
Loss from discontinuing operation before
income tax expense - (792)
-------- ----------
32,552 6,534
Tax at the applicable tax rate of 19%
(2020: 19%) 6,185 1,241
Tax effect of
Differences in overseas rates 169 2,072
Expenses not deductible for tax purposes 1,637 29
Previously unrecognised tax losses now
recouped to reduce current tax expense 314 (27)
Deferred tax not recognised on losses carried
forward 768 587
Recognition of previously unrecognised
deferred tax assets 825 (261)
Reversal of previously recognised deferred
tax liability - (25,639)
Tax expense for previous years (684) (345)
Tax charge for the year 9,214 (22,343)
======== ==========
Income tax expenses is attributable to:
Profit from continuing operations 9,214 (22,343)
Loss from discontinued operation - -
-------- ----------
9,214 (22,343)
======== ==========
The tax expense/(credit) from continuing
operations Analysed as:
Deferred taxation in respect of the current
year 5,004 (23,419)
Current tax charge 4,210 1,076
-------- ----------
Tax charge for the year 9,214 (22,343)
======== ==========
The Group maintained provisions for potential historic tax
liabilities presented in income tax liabilities. In 2021 the Group
decreased its provision by $0.7 million to $1.5 million (2020: $2.2
million) as a result of settling the provision. The increase in tax
liabilities driven by the multi-national nature of the Company
which give rise to uncertainty over the income tax treatment
related to cross border services and transactions.
The group has maximum corporation tax losses carried forward at
each period end as set out below:
2021 2020
$'000 $'000
Corporate tax losses carried
forward 34,350 46,037
======== ========
Details of the deferred tax asset recognised arising in respect
of losses and timing differences is set out below:
Capitalised Losses Other
Software caried temporary Total
Development forward differences
Costs
$'000 $'000 $'000 $'000
At 1 January 2020 - 1,599 581 2,180
Foreign exchange differences - 145 - 145
Movement in the year
due to temporary differences
from continuing operations - 4,471 (514) 3,957
At 31 December 2020 - 6,215 67 6,282
============== ========== ============== =========
Acquisition through
business combinations 615 - - 615
Foreign exchange differences 25 (127) 9 (93)
Movement in the year
due to temporary differences
from continuing operations (452) (3,914) 28 (4,338)
-------------- ---------- -------------- ---------
At 31 December 202
1 188 2,174 104 2,466
============== ========== ============== =========
Details of the deferred tax liability recognised arising from
timing differences is set out below:
Business Intangible Deferred Capitalised Other
combination assets contract Software temporary Total
costs Development differences
Costs
$'000 $'000 $'000 $'000 $'000 $'000
At 1 January 2020 21,134 - 359 609 - 22,102
Arising from - - - - - -
business
combinations
Foreign exchange - - - - - -
differences
Movement in the
year
due to temporary
differences
from continuing
operations (19,674) 376 (225) 61 - (19,462)
At 31 December 2020 1,460 376 134 670 - 2,640
============== ============ =========== ============== ============== ============
Arising from business
combinations 66,299 - - - 156 66,455
Movement in the
year
due to temporary
differences
from continuing
operations (1,885) (292) 1,929 (76) 990 666
-------------- ------------ ----------- -------------- -------------- ------------
At 31 December 2021 65,874 84 2,063 594 1,146 69,761
============== ============ =========== ============== ============== ============
In addition, the Group has an unrecognised deferred tax asset in
respect of the following:
2021 2020
$'000 $'000
Tax losses carried forward 6,876 24,219
Unrecognised deferred tax
assets due to tax losses
carried forward 1,320 3,447
------- --------
6 Intangible assets
Capitalised
Internet Software
Intellectual Trademarks Customer Goodwill Domains Development Non-Compete Cryptocurrencies Total
Property and Lists Costs
Brand
$'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000
Cost
At 1 January
2020 72,264 46,897 31,302 133,181 325 9,156 - 17 293,142
Additions - 11 - - - 2,544 - 365 2,920
Disposals - - - - - - - (105) (105)
At 31
December
2020 72,264 46,908 31,302 133,181 325 11,700 - 277 295,957
=============== ============= =========== =========== =========== ============== ============== =================== =============
Additions - - - - - 5,326 - 794 6,120
Disposals - - - - - - - (776) (776)
Acquisition
through
business 104 364,51
combination 144,138 , 911 9 663,629 - - 4,291 - 1,281,488
At 31
December
2021 216,402 151,819 395,821 796,810 325 17,026 4,291 295 1,582,789
=============== ============= =========== =========== =========== ============== ============== =================== =============
Accumulated
amortisation
At 1 January
2020 (35,257) (8,322) (1,993) - - (4,706) - - (50,278)
Charge
for the
year (5,465) (3,447) (6,359) - - (2,459) - - (17,730)
--------------- ------------- ----------- ----------- ----------- -------------- -------------- ------------------- -----------
At 31
December
2020 (40,722) (11,769) (8,352) - - (7,165) - - (68,008)
--------------- ------------- ----------- ----------- ----------- -------------- -------------- ------------------- -----------
Charge
for the
period (8,218) (5,562) (11,492) - - (3,021) (880) - (29,173)
At 31
December
2021 (48,940) (17,331) (19,844) - - (10,186) (880) - (97,181)
=============== ============= =========== =========== =========== ============== ============== =================== =============
Net book
value
At 1 January
2020 37,007 38,575 29,309 133,181 325 4,450 - 17 242,864
At 31
December
2020 31,542 35,139 22,950 133,181 325 4,535 - 277 227,949
--------------- ------------- ----------- ----------- ----------- -------------- -------------- ------------------- -------------
At 31
December
2021 167,462 134,488 375,977 796,810 325 6,840 3,411 295 1,485,608
=============== ============= =========== =========== =========== ============== ============== =================== =============
On 5 March 2021, the Group acquired 100% of the share capital of
Uma Capital Ltd and Ani Ariel Ltd, the owners of Webselenese Ltd
("Webselenese"), a digital platform which provides independent and
highly valued consumer privacy and security content to millions of
users globally via market leading review sites. As further
discussed in Note 10.
On 15 December 2021, the Group acquired certain assets,
liabilities and service entities together comprising the ExpressVPN
business ("ExpressVPN") from Access Global Limited and its
subsidiaries ("Access Global"), ExpressVPN is one of the most
recognised brands in the digital privacy space and the Acquisition
creates a premium digital privacy and security player
best-positioned to serve the growing demand for digital privacy. As
further discussed in Note 10.
Goodwill acquired in a business combination is allocated at
acquisition to the cash generating units (CGUs), or group of units
that are expected to benefit from that business combination.
The Group tests goodwill annually for impairment, or more
frequently if there are indications that goodwill might be
impaired. The recoverable amounts of the CGUs are determined from
value in use calculations. Goodwill allocated to the Digital
Security CGU has a carrying amount of $11.7 million (2020: $11.7
million), the Digital Privacy CGU has a carrying amount of $686.2
million (2020: $121.5 million) and the Digital Content CGU has a
carrying amount of $98.9 million (2020: $N/A thousands).
The key assumptions for the value in use calculations are those
regarding the discount rates, growth rates and expected changes to
selling prices and direct costs during the period.
For the Digital Security CGU, the recoverable value has been
determined from value in use calculations based on cash flow
projections for the next five years from the most recent budgets
approved by management and extrapolated cash flows beyond this
period using an estimated growth rate of 3 per cent (2020: 3 per
cent). This rate does not exceed the average long-term growth rate
for the relevant markets. If the growth rate was decreased by 2
percentage point the effect would have been nil. The rate used to
discount these forecast cash flows is 17 per cent (2020: 17 per
cent).
If the discount rate was increased by 1 percentage point the
effect on the recoverable value would have been nil . There is no
reasonably possible change in assumption that would give rise to an
impairment.
For the Digital Privacy CGU, the recoverable value has been
determined from value in use calculations based on cash flow
projections for the next five years from the most recent budgets
approved by management and extrapolated cash flows beyond this
period using an estimated growth rate of 3 per cent (2020: 1 per
cent). This rate does not exceed the average long-term growth rate
for the relevant markets. The rate used to discount these forecast
cash flows is 14 per cent (2020: 15 per cent). The change with the
estimated growth rate and discount rate is attributed to ExpressVPN
acquisition.
If the discount rate was increased by 1 percentage point the
effect on the recoverable value would have been nil. There is no
reasonably possible change in assumption that would give rise to an
impairment.
For the Digital Content CGU, the recoverable value has been
determined from value in use calculations based on cash flow
projections for the next five years from the most recent budgets
approved by management and extrapolated cash flows beyond this
period using an estimated growth rate of 3 per cent. This rate does
not exceed the average long-term growth rate for the relevant
markets. If the growth rate was decreased by 2 percentage point the
effect on the recoverable value would have been nil. The rate used
to discount these forecast cash flows is 15 per cent (2020:
N/A).
If the discount rate was increased by 1 percentage point the
effect would have been nil. There is no reasonably possible change
in assumption that would give rise to an impairment.
7 Shareholder's equity
2021 2020
Number of Number of
Shares Shares
Issued and paid up ordinary shares of $0.0001 358,747,497 222,297,719
On 26 March 2021, the company issued total of 12,123,769
ordinary shares of $0.0001, as part of Webselenese acquisition to
Webselenese's founders and two senior members of staff.
Webselenese's founders share consideration is subject to lock-up
periods, of which 50% until the first anniversary of closing, 25%
until 18 months from closing and the remaining 25% until the second
anniversary. As further disclosed in Note 10.
On 1 October 2021, the company issued a total of 76,543,209 new
ordinary shares of US $0.0001 each were subscribed by investors, at
an issue price of 3.375 pence per Placing Share. Total issue costs
were amounted to $2,636 thousands. The Net amount proceeds after
issue costs from the share issuance is $348.4 million.
On 16 December 2021, the company issued total of 47,782,800
ordinary shares of $0.0001, to Peter Burchhardt and Dan Pomerantz,
ExpressVPN's co-founders, representing approximately 13.6% of the
enlarged issued share capital of Kape. The share consideration is
subject to lock-up periods, of which 50% until the first
anniversary of closing, 25% until 18 months from closing and the
remaining 25% until the second anniversary. As further disclosed in
Note 10.
On 28 October 2020, the company issued a total of 59,230,769 new
ordinary shares of US $0.0001 each ("Ordinary Shares") were
subscribed for by investors, at an issue price of 150 pence per
Placing Share. The Net amount proceeds after issue costs from the
share issuance is $113.2 million.
As part of the LTMI Holdings acquisition on 2019, the Company
undertook to issue 42,701,548 new ordinary shares ("Consideration
Shares") to be paid in three phases. LTMI co-founders Andrew Lee
and Steve DeProspero would each been entitled to be issued
19,247,723 Consideration Shares representing approximately 10.4% of
the enlarged issued share capital of Kape, of which 5,250,363 were
issued on completion, 10,498,020 were due to be issued on the first
anniversary of completion and 3,499,340 would have been issued on
the second anniversary of completion. The balance of the
Consideration Shares, being 4,206,102 in aggregate, are to be
issued to four senior executives of PIA, of which 1,147,333 were
issued on completion, 2,294,077 were issued on the first
anniversary of completion and 764,692 will be issued on January
2022 and is disclosed as shares to be issued.
On 28 October 2020, the Company and LTMI Co-founders have
reached an agreement with respect to the repurchase of the Initial
Consideration Shares and their right to receive the Deferred
Consideration Shares by the Company, for a total consideration of
approximately $72.5 million. Out of which, $52.7 million were paid
for the deferred share consideration and $19.8 million paid for the
Initial consideration shares and recognised as treasury. On 6
November 2020, the Company completed the transaction.
As at 31 December 2021, the Company holds in the treasury total
of 9,800,809 of ordinary shares of $0.0001 par value (2020:
10,528,728) and company's Employee Benefit Trust holds Nil (2020:
1,200,000) ordinary shares. During 2021, 1,540,482 of ordinary
shares of $0.0001 par value were transferred out of treasury to
satisfy the exercise of options by the company employees (2020:
4,652,092), and 901,823 of ordinary shares of $0.0001 par value
were transferred into treasury following surrendering of share by
the Group's Executive directors when exercised while utilizing the
net cashless exercise and indemnification from PIA share
consideration ESCROW.
No dividend was declared in 2021 and 2020.
The following describes the nature and purpose of each reserve
within owner's equity:
Reserve Description and purpose
Additional paid in Share premium (i.e. amount subscribed or
capital share capital in excess of nominal value)
Retained earnings Cumulative net gains and losses recognised
in the consolidated statement of comprehensive
income
Foreign exchange Cumulative foreign exchange differences
of translation of foreign operations
Shares to be issued Deferred share consideration
In accordance with Isle of Man Company Law, all of the reserves
with the exception of share capital are distributable.
8 Employee share-based payments
Options have been granted under the Group's share option scheme
to subscribe for ordinary shares of the Company. At 31 December
2021, the following options were outstanding (2020: 9,302,613):
Group Grant date Number of Subscription
shares under price per share
option
Group 1 29 May 2014 200,340 $0.538
Group 2 21 April 2015 148,062 $1.305
Group 3 5 January 2016 98,938 $0.710
Group 5 26 October 2016 1,249,660 $0.467
Group 6 3 April 2017 147,500 $0.0001
Group 7 15 June 2017 370,956 $0.845
Group 9 26 April 2018 227,625 $1.280
Group 10 13 July 2018 910,000 $1.437
Group 12 21 May 2019 283,125 $1.090
20 November
Group 13 2019 527,000 $1.040
Group 14 3 December 2019 634,375 $1.230
Group 15 21 May 2020 1,394,249 $2.050
Group 16 17 July 2020 25,000 $2.230
26 November
Group 17 2020 168,750 $2.400
Group 18 22 March 2021 4,112,995 $2.980
Group 19 11 October 2021 500,000 $4.379
Group 20 1 December 2021 1,132,500 $5.330
15 December
Group 21 2021 8,695,000 $5.428
---------------
Total 20,826,075
---------------
Vesting conditions
Groups 1-3, 5, 7, 9-10 and 12-21 - 25% at the end of the first
year following the grant date. 6.25% on a quarterly basis during 12
quarters period thereafter.
Group 6 - 50% at the end of the second year following the grant
date and the remainder at the end of the third year following the
grant.
The total number of shares exercisable as of 31 December 2021
was 4,120,019 (2020: 4,795,448).
The weighted average fair value of options granted in the year
using the Cox, Ross and Rubinstein's Binomial Model (the "Binomial
Model") was $2.431. The inputs into the Binomial model are as
follows:
2021 2020
$'000 $'000
Early exercise factor 100%-150% 100%
Fair value of Group's stock $4.00-$5.50 $2.31-$2.75
Expected Volatility 39%-55% 44.6%-59.6%
Risk free interest rate (0.01%)-0.89% (0.79%) -(0.45%)
Dividend yield - -
Forfeiture rate 0%-5% 0%-20%
We used the empirical observations for early exercise factor of
public companies as an appropriate benchmark for the expected Early
exercise factor.
Expected volatility was determined based on the historical
volatility of comparable companies.
Forfeiture rate is assumed to be 0% for senior management and 5%
for other employees.
The risk-free interest rate was estimated based on average
yields of UK Government Bonds.
The Group recognised total share-based payments relating to
equity-settled share-based payment transactions as follows:
2021 2020
$'000 $'000
Share-based payment charge 5,224 1,232
Movements in the number of share options outstanding and their
related weighted average exercise prices are as follows:
2021 2020
-------------------------- --------------------------
Weighted Number Weighted Number
average of average of
exercise options exercise options
price price
----------- ------------- ----------- -------------
At the beginning
of the year $0.84 9,302,613 $0.66 13,018,231
Granted $4.67 14,529,245 $2.09 1,817,000
Lapsed $2.31 )265,301) $1.20 )372,647)
Exercised $0.31 (2,740,482) $0.56 (5,159,971)
At the end of
the year $3.63 20,826,075 $0.84 9,302,613
----------- ------------- ----------- -------------
The options outstanding at 31 December 2021 had a weighted
average remaining contractual life of 8.78 years (2020: 7.34
years).
9 Earnings per share
Basic loss/earnings per share is calculated by dividing the loss
/earnings attributable to ordinary shareholders by the weighted
average number of ordinary shares outstanding during the year.
2021 2020
cents Cents
Basic earnings per share:
From continuing operations 9.6 15.4
from discontinued operations - (0.4)
------- -------
Total basic earnings per
share 9.6 15.0
Diluted earnings per share:
From continuing operations 9.4 14.8
from discontinued operations - (0.4)
------- -------
Total diluted earnings per
share 9.4 14.4
Adjusted basic 23.8 14.1
Adjusted diluted 23.1 13.5
Adjusted earnings per share is a non-GAAP measure and therefore
the approach may differ between companies. Adjusted earnings have
been calculated as follows:
2021 2020
$'000 $'000
Profit for the year 23,338 28,877
Post tax adjustments:
Employee share-based payment
charge 5,546 1,344
Exceptional or non-recurring
costs 8,968 5,630
Amortisation on acquired
intangible assets 24,265 14,652
Loss from discontinued operations - 792
Other operating (income)/expense (852) 371
Exceptional deferred tax
charge - (25,639)
Finance (income)/expenses
on deferred consideration
for business combination,
lease liabilities and forward
contract (3,640) 1,157
Adjusted profit for the year 57,625 27,184
--------- ----------
Number Number
Denominator - basic:
Weighted average number of equity
shares for the purpose of earnings
per share 241,960,504 192,596,652
Adjustments for calculation of diluted
earnings per share:
Impact of potentially dilutive shares
related to employee options 7,002,360 8,406,227
Denominator - diluted
Weighted average number of equity
shares for the purpose of diluted
earnings per share 248,962,864 201,002,879
The diluted denominator has not been used where this has
anti-dilutive effect. Basic and diluted loss per share are
therefore the same for reporting purposes.
The difference between weighted average number of Ordinary
shares used for basic earnings per share and the diluted earnings
per share 7,002,360 (2020: 8,406,227) being the effect of all
potentially dilutive Ordinary shares derived from the number of
share options granted to employees.
10. Business combinations
(a) Acquisition of Webselenese Ltd .
On 5 March 2021 (the "Closing date"), the Group acquired 100% of
the share capital of Uma Capital Ltd and Ani Ariel Ltd, which are
the owners of Webselenese Ltd ("Webselenese"), a digital platforms
which provides independent and highly valued consumer privacy and
security content to millions of users globally via market leading
review sites, and Gclid Ltd ("GCLID") assets, owed reviews
website.
The acquisition will support and improve the Group's organic
growth prospects in the fast-growing consumer digital Privacy and
Security markets through elevating Kape as a leading force across
the global consumer privacy and security arena, supporting the
Group's product and broader software portfolio development and
retaining Webselenese's highly experienced management team.
Webselenese's results are reported as a new segment within the
Group management reporting system, Digital Content.
Details of the fair value of identifiable assets and liabilities
acquired, purchase consideration and goodwill, are as follows:
Acquiree's Fair value
carrying
amount before
combination
$'000 $'000
Fixed assets, net 255 255
Trade and other receivables 7,257 7,257
Deferred tax asset 615 615
Cash and Cash equivalents 3,087 3,087
Right of use assets 509 591
Brand - 25,829
Customer lists - 10,927
Non-compete - 4,291
Technology 1,224 12,993
Trade and other payables (2,887) (2,887)
Lease liabilities (554) (591)
Deferred tax liability - (6,185)
9,506 56,182
---------------------------------------------- ---------------- -------------
Fair value of consideration
Cash 119,160
Shares 28,548
Deferred and contingent cash considerations 7,357
Goodwill 98,883
---------------------------------------------- ---------------- -------------
Net cash outflow on acquisition of business
2021
$'000
Cash consideration 119,160
Cash and cash equivalents acquired (3,087)
116,073
=========
Webselense was acquired for a total consideration of $155.1
million (including the acquisition of Gclid Ltd assets) to be
satisfied by combination of:
-- A payment upon closing of $119.2 million in cash.
-- Issuance of 12,123,769 ordinary shares of $0.0001, to
Webselenese's founders and two senior members of staff.
Webselense's founders share consideration is subject to lock-up
periods, of which 50% until the first anniversary of closing, 25%
until 18 months from closing and the remaining 25% until the second
anniversary.
-- Deferred cash consideration of $2.99 million for the excess
working capital of Webselenese at the closing date. The
consideration was settled 90 days after closing.
-- Contingent consideration of $2.6 million which depends on Gclid's assets performance.
-- Deferred cash consideration of $1.76 million which represents
the excess income tax advances that were paid by Webselenese before
the acquisition date.
Webselenese's founders are subject to Non-Competition and
Non-Solicitation agreement for the employment term and period of
four years after the closing date.
The initial cash consideration founded through Kape's internal
cash resources a $34.2 million and a $85.0 million bridge facility
(the "Bridge Loan") from TS Next Level Investments Limited
("TSNLI"), an affiliate of Unikmind Holdings Limited, Kape's
majority shareholder. The Group completed re-financing of the
Bridge loan as of May 28, 2021. Further details of the Bridge Loan,
which is a related party transaction, and the re-financing are set
out on note 12.
Since the acquisition date, Webselenese has contributed $75.6
million to Group's revenues, profit of $9.5 million to Group
profit. In addition, since the acquisition date Webselenese
contributed $38.3 million to segment results of the Digital Content
segment (as set out in note 3). If the acquisition had occurred on
1 January 2021, Group revenue would have been $243.4 million, Group
income for the period would have been $18.0 million and the Digital
Content result would have been $43.6 million. Acquisition costs of
$0.5 million arose as a result of the transaction. These have been
recognised as part of administrative expenses in the statement of
comprehensive income.
(b) Acquisition of ExpressVPN
On 15 December 2021 (the "Closing date"), the Group acquired
certain assets, liabilities and service entities together
comprising the ExpressVPN business ("ExpressVPN") from Access
Global Limited and its subsidiaries ("Access Global"), ExpressVPN
is one of the most recognised brands in the digital privacy space
and the acquisition creates a premium digital privacy and security
player best-positioned to serve the growing demand for digital
privacy.
The acquisition delivers substantial operational benefits to the
Group. The enlarged group will have a significant scale, servicing
over 6.5 million paying subscribers, presenting considerable
cross-sell and additional revenue opportunities throughout the
platform. In addition, ExpressVPN's first-rate management and team
members joined Kape, bringing deep expertise in the digital privacy
sphere. ExpressVPN also brings a robust network of channel
partners, further strengthening the enlarged group's go-to-market
capabilities.
ExpressVPN's results are reported as part of the Digital Privacy
segment.
Details of the provisional fair value of identifiable assets and
liabilities acquired, purchase consideration and goodwill, are as
follows:
Acquiree's Provisional
carrying Fair value
amount before
combination
$'000 $'000
Fixed assets, net 2,214 2,214
Trade and other receivables 20,747 20,747
Deferred Contract costs 209,524 -
Cash and Cash equivalents 509 509
Right of use assets 6,900 7,245
Trademark - 79,082
Customer lists - 353,592
Technology 4,945 131,145
Trade and other payables (43,242) (43,242)
Contract liabilities (122,713) (122,713)
Lease liabilities (7,144) (7,245)
Deferred tax liability (159) (60,270)
71,581 361,064
------------------------------ ---------------- --------------
Fair value of consideration
Cash 334,539
Shares 232,115
Deferred cash consideration 359,156
Goodwill 564,746
------------------------------ ---------------- --------------
Net cash outflow on acquisition of business
2021
$'000
Cash consideration 334,539
Cash and cash equivalents acquired (509)
334,030
=========
ExpressVPN was acquired for a total consideration of $925.8
million to be satisfied by combination of:
-- A payment upon closing of $334.5 million in cash ("Initial
Consideration"). The cash element of the Initial Consideration is
subject to adjustment for net cash or debt in the two corporate
service entities being acquired as part of the hybrid asset and
share acquisition.
-- A payment on or before the six-month anniversary of completion, of $20.0 million.
-- A payment on the first anniversary of completion of $172.5
million in cash and on the second anniversary of completion of
$172.5 million in cash (the "Deferred Cash Consideration"). The
Deferred Cash Consideration is not subject to performance or other
conditions and its payment by Kape will be secured by way of a
charge over the shares in the Buyer. The fair value of the Deferred
Cash Consideration as of the acquisition date is $359.2
million.
-- Issuance of 47,782,800 ordinary shares of $0.0001, to Peter
Burchhardt and Dan Pomerantz, ExpressVPN's co-founders,
representing approximately 13.6% of the enlarged issued share
capital of Kape. The share consideration is subject to lock-up
periods, of which 50% until the first anniversary of closing, 25%
until 18 months from closing and the remaining 25% until the second
anniversary.
The acquisition agreement contains customary warranties for a
transaction of this nature, given by the selling entities in favour
of the Buyer and certain limited warranties given by the Group. In
addition, the Acquisition agreement contains certain indemnities to
the Buyer in respect of a limited number of specific issues
identified by the Group. The warranties and indemnities are each
subject to certain limitations. The co-founders of ExpressVPN have
personally guaranteed to the Buyer the performance by the selling
entities of their obligations in respect of the Acquisition. The
Group has guaranteed the performance by the Buyer of certain of its
obligations in respect of the acquisition.
Peter Burchhardt will have the right to appoint one
non-executive director to the Board of Kape. This right will
continue for so long as the ExpressVPN co-founders, their close
family members and their respective wholly owned companies, taken
together, hold at least 5% of Kape's ordinary shares, subject to
certain anti-dilution protections.
An amount of $10.8 million of the Consideration Shares will be
held in escrow for 24 months from completion of the Acquisition to
provide security for claims under the Acquisition documents which
are agreed or determined in favor of the Buyer.
The initial cash consideration founded through placing of $351.0
million (GBP258.3 million) secured on 14 September 2021 and
completed on 1 October 2021, as further described in Note 7. It is
Kape's intention that the Deferred Consideration will be funded
from its operational cashflow and by using the extended revolving
credit facility provided to Kape's by the existing lender group, as
further described in Note 12.
TS Next Level Investments Limited ("TSNLI"), an affiliate of
Unikmind, has entered into binding commitment letters with the
Group, subject to limited conditions, to make available to Group,
if required, loan facilities of up to $345 million in aggregate in
connection with Kape's obligation to pay the Deferred Cash
Consideration. Furthermore, Refinancing Facility of up to $130
million provided until the Group achieved the club of banks consent
to the acquisition, as further described in Note 11 and 12.
Since the acquisition date, ExpressVPN has contributed $18.2
million to Group's revenues, profit of $5.0 million to Group
profit. In addition, since the acquisition date ExpressVPN
contributed $18.9 million to segment results of the Digital Privacy
segment (as set out in note 3). If the acquisition had occurred on
1 January 2021, Group revenue would have been $515.8 million, Group
income for the period would have been $52.2 million and the Digital
Privacy result would have been $306.2 million. Acquisition costs of
$3.0 million arose as a result of the transaction. These have been
recognised as part of Management, general and administrative costs
in the statement of comprehensive income.
11 Related party transactions
The Group is controlled by Unikmind Holdings Limited
("Unikmind") incorporated in British Virgin Islands, which owns
53.7% of the Company's shares as at 31 December 2021. The
controlling party, Unikmind Holdings Ltd, has redomiciled from the
British Virgin Islands to the Isle of Man. Mr. Teddy Sagi is the
sole ultimate beneficiary of Unikmind Holdings Ltd.
(a) Related party transactions
The following transactions were carried out with related
parties:
2021 2020
$'000 $'000
Technical support services to end customers and
administration services provided by common controlled
company (271) (207)
Office expenses to common controlled companies (44) (61)
Amortisation of Right-to-use assets with common
controlled companies (410) (1,069)
Interest expenses from lease liabilities to common
controlled companies (24) -
Other operating income from lease modification
to common controlled company 38 -
Software fees provided by common controlled company (32) -
Issuance cost amortization for facility revolver
provided by shareholder (144) -
Shareholder facility revolver commitment fees (3,606) -
Interest expenses from shareholder short-term
loan and debt facility (2,125) (934)
(6,618) (2,271)
--------- ---------
On 5 March 2021, Kape entered into a binding commitment letter
with TS Next Level Investments Limited ("TSNLI") under which TSNLI
committed, subject to limited conditions, to provide to Kape the
Bridge Loan of up to $120 million in aggregate. The Bridge Loan
carried a fixed coupon of 6.0% per annum payable on funds drawn and
an arrangement fee of 1.0%. The Bridge Loan was subordinated to
Kape's existing bank facilities and was repayable no later than 31
December 2021. The Bridge Loan also included certain customary
obligations on Kape in relation to TSNLI's costs and expenses and
in relation to taxes. On 2 June 2021, Kape repaid the Bridge Loan
in full and accumulated interest following closing of a new bank
debt facility, as further described in Note 12.
On 14 September 2021, TS Next Level Investments Limited
("TSNLI"), an affiliate of Unikmind, has entered into binding
commitment letters with the Group ("Deferred Consideration
Facility"), subject to limited conditions, to make available to
Group, if required, loan facilities of up to $345 million in
aggregate in connection with Kape's obligation to pay ExpressVPN's
Deferred Consideration. Furthermore, Refinancing Facility of up to
$130 million provided until the Group achieved the club of banks
consent to the acquisition.
The Deferred Consideration Facility will carry a variable
coupon, depending on the leverage ratio: if greater than or equal
to 3:1 the coupon will be 4.75% per annum, if greater than or equal
to 2:1 but less than 3:1, then the coupon will be 4.25% per annum
and if less than 2:1 then the coupon will be 4.00% per annum, in
each case, on funds drawn. The rates set out above will each
increase by 1.00% per annum on and from the second anniversary of
the completion of the Acquisition and will increase by a further
1.00% per annum on and from the third anniversary of the completion
of the Acquisition.
The Deferred Consideration Facility also carried an arrangement
fee of 1.5% of the total commitments, paid in December 2021
following the completion of ExpressVPN acquisition, and a
commitment fee accruing at the rate of 3.50% per annum on undrawn
commitments, payable on the earlier of the commitments being
cancelled or utilised. Should Kape find an alternative source of
financing to fund the payment of the Deferred Consideration or to
refinance the Deferred Consideration Facility, the commitment fees
will only be payable pro rata for the period during which the
commitment under the Deferred Consideration Facility is in
place.
The Deferred Consideration Facility also include certain
customary obligations on Kape in relation to, inter alia, TSNLI's
costs and expenses and in relation to taxes.
Unikmind has entered into the Subscription Agreement with the
Company, details of which are set out above. No underwriting or
other fees are payable to Unikmind under the Subscription
Agreement.
On 6 December 2019, Kape entered into a $40.0 million short-term
debt facility from Unikmind Holdings Limited ("Unikmind"), Kape's
largest shareholder, and was also provided with an additional debt
facility of $20.0 million, on similar terms. The Term Loan had a
fixed interest rate of 5% above 6 months USD Libor. The Term debt
facilities had a fixed interest of 1.5% upon availability, $5.0
million on the first anniversary and $15.0 million on the second
anniversary.
In April 2020, Kape re-financed the Shareholder Term Loan with
third party facilities and repaid the Shareholder Term loan in
full, as further described in Note 12.
(b) Receivables owed by related parties
2021 2020
Name Nature of transaction $'000 $'000
Parent company Unpaid share capital 10 10
Companies related by
virtue of common control Other 40 18
50 28
------- -------
(c) Payables to related parties
2021 2020
Name Nature of transaction $'000 $'000
Companies related by
virtue of common control Other 74 6
Companies related by Accrued commitment
virtue of common control fees 3,606 -
3,680 6
------- -------
(d) Right-to-use assets and Lease liabilities to related parties
2021 2020
$'000 $'000
Right-to-use assets 5,313 758
--------- -------
Lease liabilities (5,346) (932)
--------- -------
12 Loans and Borrowings
Bank loan Shareholder
loan
$'000 $'000
At 1 January 2020 - 40,221
Term Facility 40,000 -
Revolving credit facility 1,654 -
Debt issuance costs (1,730) -
Interest expenses 1,114 934
Interest paid (658) (1,155)
Net foreign exchange (8) -
Repayment of loan (3,636) (40,000)
----------- -------------
At 31 December 2020 36,736 -
Bridge Loan - 85,000
Term Facility 85,000 -
Revolving credit facility 8,207 -
Debt issuance costs (2,186) (850)
Interest expenses 3,321 2,125
Interest paid (1,934) (1,275)
Net foreign exchange 58 -
Repayment of loan (11,818) (85,000)
----------- -------------
At 31 December 2021 117,384 -
----------- -------------
Current portion 19,554 -
----------- -------------
Non-Current portion 97,830 -
----------- -------------
Shareholder loan
On 5 March 2021, Kape has entered into a binding commitment
letter with TS Next Level Investments Limited ("TSNLI") under which
TSNLI committed, subject to limited conditions, to provide to Kape
the Bridge Loan of up to $120 million in aggregate. The Bridge Loan
carried a fixed coupon of 6.0% per annum payable on funds drawn and
an arrangement fee of 1.0%. The Bridge Loan was subordinated to
Kape's existing bank facilities and was repayable no later than 31
December 2021. The Bridge Loan also included certain customary
obligations on Kape in relation to TSNLI's costs and expenses and
in relation to taxes. On 2 June 2021, Kape repaid the Bridge Loan
in full and accumulated interest following closing of a new bank
debt facility as described below.
Shareholder Deferred Consideration Facility
On 14 September 2021, TS Next Level Investments Limited
("TSNLI"), an affiliate of Unikmind, has entered into binding
commitment letters with the Group ("Deferred Consideration
Facility"), subject to limited conditions, to make available to
Group, if required, loan facilities of up to $345 million in
aggregate in connection with Kape's obligation to pay ExpressVPN's
Deferred Cash Consideration. Furthermore, Refinancing Facility of
up to $130 million provided until the Group achieved the club of
banks consent to the acquisition.
The Deferred Consideration Facility will carry a variable
coupon, depending on the leverage ratio: if greater than or equal
to 3:1 the coupon will be 4.75% per annum, if greater than or equal
to 2:1 but less than 3:1, then the coupon will be 4.25% per annum
and if less than 2:1 then the coupon will be 4.00% per annum, in
each case, on funds drawn. The rates set out above will each
increase by 1.00% per annum on and from the second anniversary of
the completion of the Acquisition and will increase by a further
1.00% per annum on and from the third anniversary of the completion
of the Acquisition.
The Deferred Consideration Facility also carried an arrangement
fee of 1.5% of the total commitments, paid in December 2021
following the completion of ExpressVPN acquisition, and a
commitment fee accruing at the rate of 3.50% per annum on undrawn
commitments, payable on the earlier of the commitments being
cancelled or utilised. Should Kape find an alternative source of
financing to fund the payment of the Deferred Consideration or to
refinance the Deferred Consideration Facility, the commitment fees
will only be payable pro rata for the period during which the
commitment under the Deferred Consideration Facility is in
place.
The Deferred Consideration Facility also include certain
customary obligations on Kape in relation to, inter alia, TSNLI's
costs and expenses and in relation to taxes.
Bank loan
(a) General
On 28 April 2020, Kape agreed with Bank of Ireland, Barclays
Bank, and Citi Bank (the "Banks"), to provide a senior secured term
and revolving credit facilities of up to $70 million (the "New Debt
Facilities"), the facility is a club of banks with Bank of Ireland
acting as the agent bank.
The Old Debt Facilities comprise of a $40 million term facility
(the "Term Facility"), a $10 million revolving credit facility (the
"RCF"), and a $20 million uncommitted acquisition facility (the
"Uncommitted Acquisition Facility"). The Old Debt Facilities have a
three-year term with an option to extend by up to an additional two
years.
On 28 May 2021 the Company agreed with Bank of Ireland, Barclays
Bank PLC, Citi Bank, Citizens Bank, BNP Paribas and Leumi Bank
(together, "the Banks"), to replace the Old Term Facility, RCF and
Shareholder loan with a new senior secured bank facilities of up to
$220 million ("New Debt Facilities"). The New Debt Facilities
comprise a $120 million senior secured term facility (the "Term
Facility"), a $10 million revolving credit facility (the "RCF") and
a $90 million uncommitted acquisition facility (the "Uncommitted
Acquisition Facility"). Bank of Ireland is the agent bank. The New
Debt Facilities have a three-years term with an option to extend
the term by up to an additional two years. 50% of the Term Facility
will be amortised on a quarterly basis across 36 months starting
September 2021. The New Debt Facilities carry an opening Margin of
2% above Applicable Reference Rate per annum.
On 15 December 2021 the Banks, have given its consent to the
ExpressVPN Acquisition and extended their revolving credit facility
to Kape from $10 million to $80 million. The revolving credit
facility can be utilized according to Kape's needs.
Term Facility
The term facility comprised from $34.5 million remaining from
the old term facility and net proceeds of the New Term Facility of
$83.3 million after deducting commissions and other direct costs of
the Term Facility. Commissions and other direct costs of the Term
Facility have been offset against the principal balance and are
amortised throughout the loan.
The Term Facility carries an interest rate of 3 months
Applicable Reference Rate, which is USD or EUR EURIBOR or GBP
SONIA, (as of the beginning of the relevant period) plus an opening
Margin of 2% per annum.
The applicable Margin is linked to the Adjusted Leverage, tested
at the end of each quarter for the preceding 12 months. Until 15
December 2021, in case the Adjusted Leverage will be greater than 2
or less than 1 the applicable margin will change to 2.25% or 1.85%,
respectively. Following ExpressVPN Acquisition and the Banks
consent, the applicable Margin range has modified. if greater than
or equal to 3:1 the coupon will be 2.75% per annum, if greater than
or equal to 2.5:1 but less than 3:1, then the coupon will be 2.5%
per annum, if greater than or equal to 2.0:1 but less than 2.5:1,
then the coupon will be 2.25% per annum, if greater than or equal
to 1.0:1 but less than 2.0:1, then the coupon will be 2.0% per
annum if less than 1:1 then the coupon will be 1.85% per annum, in
each case, on funds drawn.
As The applicable margin as of 31 December 2021, is 2.75% (2020:
1.85%). The effective interest rate after considering debt issuance
cost is 3.866% (2020: 3.975%).
RCF
A $80 million revolving credit facility, that carries a
commitment fee for the unused facility of 35% of the applicable
Margin and interest rate as of the Term Facility for the used
facility. As of the reporting date the total credit facility drawn
amount is $10.0 million. Arrangement Fee of 0.2% shall be paid upon
the $70 million extended facility.
(b) Security
The New Debt Facilities are secured by first ranking security
over all assets (including material Intellectual Property) of Kape
Technologies Plc ("Parent") and her material subsidiaries
("Obligors") and over the shares in all Obligors (other than the
Parent). The newly formed or acquired companies as part of the
ExpressVPN acquisition were excluded as obligors, with the
exception of charge over the shares of Kape Acquisition Pte. Ltd,
the buyer of the ExpressVPN's business.
(c) Loan Covenants
The Group is required to comply with the following financial
covenants:
-- The ratio of EBITDA to Net Finance Charges ("Interest Cover")
shall not be less than 4.0x in respect of any Relevant Period.
-- The ratio of Total Net Debt on the last day of the relevant
period to Adjusted EBITDA in respect of that Relevant period
("Adjusted Leverage"), shall not exceed 2.5x for the first 1
relevant period, From and including 30 June 2020 to and including
30 September 2021, 3.5x from and including 31 December 2021 to and
including 30 September 2022, 2.5x from and including 31 December
2022 to and including 31 March 2023 , 2.0x from and including 30
June 2023 and each Relevant Period thereafter.
As of 31 December 2021, the Group has met the financial
covenants as follows:
-- Interest Cover: 10
-- Adjusted Leverage: 2.88
Fair Value
As of December 31, 2021, the fair values are not materially
different from the carrying amount of the Bank Loan, since the
interest payable is deemed to be market rate.
13 Onerous contract liability
On 28 October 2020, as part of LTMI's founders buy-back
transaction, the Company terminated the consultancy services
arrangement provided to the Company by Andrew Lee through a
services company. The remaining contract liability will be paid in
monthly instalments, starting November 2020. As of December 31,
2021, the provision balance is $0.7 million (2020: $1.4 million).
The remaining amount will be settled in 2022.
14 Deferred and contingent consideration
DriverAgent Private Private Total
Acquisition Internet Internet Webselenese ExpressVPN
Access Access acquisition acquisition
Inc acquisition Inc acquisition
- deferred - deferred
cash assets
consideration consideration
$'000 $'000 $'000 $'000 $'000 $'000
At 1 January
2020 192 18,611 817 - - 19,620
Deferred
consideration
payments - (5,257) - - - (5,257)
Non-Cash
deferred
consideration
proceeds - - (570) - - (570)
Unwinding of
discount - 948 - - - 948
At 31 December
2020 192 14,302 247 - - 14,741
Deferred
consideration
payments - (10,714) - (3,332) - (14,046)
Non-Cash
deferred
consideration
proceeds - - (247) - - (247)
Arising from
business
combination
(see note
10) - - - 7,357 359,156 366,513
Fair value
movement
through profit
and
loss (140) - - 370 - 230
Unwinding of
discount - 696 - 42 170 908
Foreign Exchange
movements - - - 188 - 188
-------------- ----------------- ----------------- --------------- --------------- ----------
At 31 December
2021 52 4,284 - 4,625 359,326 368,287
-------------- ----------------- ----------------- --------------- --------------- ----------
199 ,3
Short term - 4,284 - 4,625 190,428 37
-------------- ----------------- ----------------- --------------- --------------- ----------
Long term 52 - - - 168,898 168,950
============== ================= ================= =============== =============== ==========
(a) Acquisition of DriverAgent intangibles
In October 2016, the Group acquired the intellectual property of
PC maintenance software product, DriverAgent, from eSupport.com,
Inc for a total consideration of $1.2 million. As for 31 December
2021, the consideration included $0.05 million of consideration
(2020: $0.2 million) which is contingent on future results.
(b) Sale of the Media Division
On 26 July 2018, the Group sold the media division to Ecom
Online Ltd. This sale is in-line with the Company's strategy to
develop and distribute its own cybersecurity products. As agreed,
the Group will receive a 50% share of EBITDA from the Media
division for the next five years following the sale, which will be
reinvested in the Group's core Digital Security and Digital Privacy
segments. As at 31 December 2021, the consideration included $Nil
million (2020: $nil million) of deferred consideration
receivable.
(c) Acquisition of Private Internet Access Inc
On 13 December 2019, the Group acquired 100% of the share
capital of LTMI Holdings ("PIA"). LTMI is the holding company for
Private Internet Access Inc ("PIA"), a leading US-based digital
privacy company with strong position in the data privacy services.
PIA was acquired for a total consideration of $130.1 million
(including the $5.7 million to PIA phantom shareholder) and an
enterprise value of $162.3 (including $32.2 million for repayment
of PIA's existing debt), to be satisfied by a combination of $85.0
million cash and issuance of 42,701,548 new Kape ordinary shares to
be paid in three phases:
-- A payment upon closing of $65.0 million in cash of which
$27.1 million to PIA founders, $5.7 million to PIA phantom
shareholder and $32.2 million for repayment of PIA's existing debt,
and 11,648,059 Consideration shares.
-- A payment on the first anniversary of completion of $5.0
million in cash ("Deferred cash consideration"), 23,290,117
Consideration shares and Company owned cars ("Deferred assets
consideration").
-- A payment on the second anniversary of completion of $15.0 million in cash ("Deferred cash consideration"), 7,763,372 Consideration shares and Company owned cars ("Deferred assets consideration").
On 28 October 2020, the Company and the LTMI Founders reached an
agreement with respect to the sale and purchase of the Initial
Consideration Shares and their right to receive the Deferred
Consideration Shares, for a total consideration of approximately
$72.5 million. On 6 November 2020, the Company completed the
transaction. As of 31 December 2020, the Company holds the Initial
Consideration Shares in Treasury.
As of 31 December 2021, the deferred consideration balance
included $4.3 million (2020: $14.3 million) of deferred cash
consideration, $1.35 million (2020: $1.35 million) of shares
consideration.
(d) Acquisition of Webselenese
On 5 March 2021 (the "Closing date"), the Group acquired 100% of
the share capital of Uma Capital Ltd and Ani Ariel Ltd, which are
the owners of Webselenese Ltd ("Webselenese") and assets from Gclid
Ltd, a digital platform which provides independent and highly
valued consumer privacy and security content to millions of users
globally via market leading review sites, as further described in
Note 10. The acquisition consideration included the following
deferred and contingent considerations:
-- Deferred cash consideration of $2.99 million for the excess
working capital of Webselenese at the closing date. The
consideration was settled 90 days after closing.
-- Gclid will receive 8% from EBITDA resulted from Gclid assets
sold. The Company can acquire the royalties right at any point, in
amount equal the last 12 months EBITDA multiple by 5.5. As of the
acquisition date the fair value of the deferred consideration was
$2.6 million. As of 31 December, the deferred consideration fair
value is $2.7 million.
-- Deferred cash consideration of $1.76 million which represents
the excess income tax advances that were paid by Webselenese before
the acquisition date.
(e) Acquisition of ExpressVPN
On 15 December 2021 (the "Closing date", "Completion"), the
Group acquired certain assets, liabilities and service entities
together comprising the ExpressVPN business ("ExpressVPN") from
Access Global Limited and its subsidiaries ("Access Global"),
ExpressVPN is one of the most recognised brands in the digital
privacy space and the Acquisition creates a premium digital privacy
and security player best positioned to serve the growing demand for
digital privacy, as further described in Note 10.
ExpressVPN was acquired for a total consideration of $925.8
million to be satisfied by combination of:
-- A payment upon closing of $334.5 million in cash ("Initial
Consideration"). The cash element of the Initial Consideration is
subject to adjustment for net cash or debt in the two corporate
service entities being acquired as part of the hybrid asset and
share acquisition.
-- A payment on or before the six-month anniversary of Completion, of $20.0 million.
-- A payment on the first anniversary of Completion of $172.5
million in cash and on the second anniversary of Completion of
$172.5 million in cash ("Deferred Cash Consideration"). The
Deferred Cash Consideration is not subject to performance or other
conditions and its payment by Kape will be secured by way of a
charge over the shares in Kape.
-- Issuance of 47,782,800 ordinary shares of $0.0001, to Peter
Burchhardt and Dan Pomerantz, ExpressVPN's co-founders,
representing approximately 13.6% of the enlarged issued share
capital of Kape. The share consideration is subject to lock-up
periods, of which 50% until the first anniversary of closing, 25%
until 18 months from closing and the remaining 25% until the second
anniversary.
As of 31 December 2021, the deferred consideration balance
included $359.3 million (2020: N/A) of deferred cash
consideration.
Shareholder information and advisors
Shareholder information, including financial results, news and
information on products and services, can be found at
www.kape.com.
Independent Auditor Corporate Legal Advisors
BDO LLP Bryan Cave Leighton Paisner
55 Baker Street LLP
London W1U 7EU Adelaide House
London Bridge
London EC4R 9HA
---------------------------------
Nominated Advisor and Joint Joint Broker
Broker
---------------------------------
Shore Capital & Corporate Limited Stifel Nicolaus Europe Limited
Shore Capital Stockbrokers Limited 150 Cheapside
Cassini House London EC2V6ET
57 St James's Street
London SW1A 1LD
---------------------------------
Investor Relations Registrars
---------------------------------
Vigo Communications Computershare Investor Services
Sackville House (Jersey) Limited
40 Piccadilly Queensway House
London W1J 0DR Hilgrove Street
St Helier
Jersey JE1 1ES
---------------------------------
Registered Office
Sovereign House
4 Christian Road
Douglas
Isle of Man IM1 2SD
Stock exchanges
The Company's ordinary shares are listed on the AIM market of
the London Stock Exchange under the symbol "KAPE". The Company does
not maintain listings on any other stock exchanges.
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END
FR JTMMTMTJTMTT
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