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Avast PLC (AVST)

Avast PLC

RESULTS FOR THE SIX-MONTHS ENDED 30 JUNE 2020
RNS Number : 8447V
Avast PLC
12 August 2020
 

Avast PLC

 

HALF YEAR RESULTS FOR THE SIX-MONTHS ENDED 30 JUNE 2020

 

Strong first half performance;

full year revenue outlook at the upper end of guidance

 

Avast plc, together with its subsidiaries ('Avast', 'the Group' or 'the Company'), a leading global cybersecurity provider, announces its results for the six-months ended 30 June 2020.

 

Ondrej Vlcek, Chief Executive of Avast, said:

 

"Avast has demonstrated its business resilience during the Covid-19 outbreak. Our overall operational and financial performance has been strong, aided by the work-from-home trend that has driven an increase in online consumer activity and product engagement.

 

"We have prioritised the health and wellbeing of our employees while continuing to provide high levels of user and customer support. The Group donated $25m to science and technology initiatives to help combat Covid-19, including $12m to the Covid-19 Therapeutics Accelerator, an initiative of the Bill & Melinda Gates Foundation, and $8m to the Coalition for Epidemic Preparedness Innovations. I am also immensely proud of our people who have worked tirelessly to play valuable roles in local community aid projects worldwide.

 

"Avast's mission to provide online safety and privacy for all is more relevant than ever. In the half, Avast passed the milestone of 13 million paying customers, up by 640,000. We continue to expand into new markets and extend our reach through new product offerings, such as our innovative privacy solution, BreachGuard. Despite the economic uncertainty, Avast remains well positioned. The business is resilient, strongly cash-generative, and has significant capacity to harness new growth opportunities as they emerge.

 

" The Group's first half performance underpins a strong full year outlook. We expect FY 2020 organic1 revenue growth to be at the upper end of the previously stated mid-single digit percentage range."

 

FINANCIAL HIGHLIGHTS

 

·

Strong overall performance in line with expectations

·

Adjusted Billings at $469.1m up 2.1% at actual rates, with organic growth of 9.2%

·

Adjusted Revenue at $433.1m up 1.5% at actual rates, with organic growth of 6.6%

·

Consumer Direct Desktop Adjusted Revenue at $334.4m, up 8.7% at actual rates, with organic growth of 9.1%

·

Adjusted EBITDA up 2.1% to $241.4m; Adjusted EBITDA margin2 at 55.7%, up 31bps

·

Adjusted fully diluted earnings per share ('EPS') up 11.8% to $0.16 (versus $0.15 at HY 2019)

·

Final dividend in respect of 2019 paid in June 2020 of 10.3 cents per share; total dividend for the year of 14.7 cents per share, up 8.1%3. Declared interim dividend payable in October 2020 of 4.8cents per share, up 9.1%

·

Continued strong cash generation with Unlevered Free Cash Flow up 4.7% to $241.2m and Levered Free Cash Flow up 10.3% to $220.9m

·

Resilient balance sheet with $191.0m of cash and available liquidity4. Net debt / LTM ('last twelve months') Adjusted EBITDA at 1.7x at half year

·

On a statutory basis, Revenue up from $425.4m to $433.1m, Operating profit including $22.7m of Covid-19 donations paid (out of total committed $25.0m) decreased from $161.9m to $134.5m, fully diluted EPS at $0.08.

 

 

OPERATIONAL AND STRATEGIC HIGHLIGHTS

 

·

The work-from-home trend presented a strong tailwind to the core Consumer Desktop business, with an upswing in demand across the product portfolio, including premium AV. Desktop operating KPI's reflected the strong growth in customer numbers5, up 5.1% in the six months to 13.26m. APPC6 increased by 1.7% to 1.48 and ARPC7 , impacted by the timing of customer growth (Q2) versus revenue materialising in H2, was up 0.7% to $51.40.

·

Avast's localisation program, which customises the product and customer experience to suit local preferences, helped drive growth in customer numbers and penetration. There was marked strength in target countries worldwide, including Brazil, Mexico and Argentina in LatAm, and Japan in Asia. This was accompanied by continued gains in traditional markets such as the US and the UK.

·

The Group's innovative new product, BreachGuard was soft launched in the US, presenting another building block to the company's privacy offering.

·

Avast expanded the device compatibility of its current and new products. This resulted in continued growth in multi-device licenses that enable a seamless journey for customers between desktop and mobile.

·

While impacted by lower digital advertising, Avast Secure Browser's user activity and search volumes remained strong. Revenues in the Indirect segment were underpinned by the successful extension in March of the Chrome distribution contract.

·

The wind down of the Jumpshot business is on schedule, to budget and has not had a discernible impact on the core business.

·

Avast Free Antivirus was named a Top-Rated Product for 2019 by test-lab AV Comparatives.

·

Avast plc became a member of the FTSE 100 index on 19 June 2020.

 

($'m )

H1 2020

H1 2019

Change %

Change % (excluding FX) 8

Adjusted Billings

469.1

459.6

2.1

4.5

Acquisitions

0.1

0.0

n/a

n/a

Disposal Managed Workplace (SMB) 9

0.0

1.0

n/a

a

Discontinued Business 10

2.4

21.5

(88.8)

(88.7)

Adjusted Billings excl. Acquisitions, Disposals and Discontinued business

466.7

437.2

6.7

9.2

 

($'m )

H1 2020

H1 2019

Change %

Change % (excluding FX)

Adjusted Revenue

433.1

426.8

1.5

1.9

Acquisitions

0.1

0.0

n/a

n/a

Disposal Managed Workplace (SMB)

0.0

1.0

n/a

n/a

Discontinued Business

3.3

21.1

(84.4)

(84.3)

Adjusted Revenue excl. Acquisitions, Disposals and Discontinued business

429.7

404.7

6.2

6.6

 

($'m )


H1 2020

H1 2019

Change %

Adjusted EBITDA


241.4

236.5

2.1

Adjusted EBITDA Margin %


55.7

55.4

0.3 ppts

Adjusted Net Income


169.8

148.2

14.6

Net Debt


817.0

1,104.6

(26.0)

 

Statutory Results:

($'m )


H1 2020

H1 2019

Change %

Revenue


433.1

425.4

1.8

Operating profit


134.5

161.9

(16.9)

Net Income


86.5

112.6

(23.2)

Net Cash Flows from operating activities


225.8

176.5

27.9

 

 

COVID-19 IMPACT AND BUSINESS RESILIENCE

 

·

The health and wellbeing of the Group's employees is our priority. Avast offices worldwide were closed as a preventative measure on 16 March. While some offices reopened in June in line with local risk levels, the Executive Team took the decision in early August to close all offices until January 2021, at which date the situation will be reassessed. Keeping offices closed and embracing remote work for a longer period means less risk for employees. Avast recognises the strain the pandemic has had, and continues to have, on its employees and is working hard to ensure that they the support they need wherever they are. This includes a program of remote work training with self-care help, private GP services and performance management coaching.

·

During Covid-19, Avast's services have remained unaffected, with minimal disruption to operations. The Group has not furloughed any employees or made use of any government support programs, and there are no plans to do so. Continued investment in people resulted in a rise in headcount in the first half of the year, with a digital on-boarding experience created for new joiners.

·

Avast has set up a Future of Work task force, comprised of 60 employees, to consider the company's future work structures and facilities use. 

·

The Board's assessment of the principal risks affecting the business has been extended to cover the risks associated with the impact of Covid-19. These risks have been developed in light of Covid-19 Scenario Planning undertaken by the Board. Avast's recurring and subscription-based revenues, and strong liquidity position gives the business a resilient operational and financial position. However, the impact of the pandemic remains uncertain, and the Board continues to closely monitor developments in order to adapt and respond accordingly.

·

In recognition of the responsibility Avast has to the communities in which it operates, Avast's drive to keep people safe and its belief in the role of technology in achieving this, Avast is donating $25 million to science and technology initiatives to help combat Covid-19, offering critical financial and practical support to the global scientific and technology community. This includes $12m to the Covid-19 Therapeutics Accelerator, an initiative of the Bill & Melinda Gates Foundation, and $8m to the Coalition for Epidemic Preparedness Innovations. An additional $5 million has been earmarked for further science programs such as Folding@home's supercomputing program that seeks to find a cure for the virus. The $25m donation is treated as an exceptional item in the P&L.

 

 

PRESENTATION OF RESULTS

 

Management will hold a live webcast presentation and conference call for analysts and investors at 9:00 AM BST today (12 August 2020). Please register to participate on the Company website at https://investors.avast.com. A Q&A facility will be available for conference call participants.

 

 

ENQUIRIES

 

Investors and analysts:

Peter Russell, Director of IR

IR@avast.com

 

Media:

Stephanie Kane, VP PR and Corporate Communications

mediarelations@avast.com

 

Tavistock

Lulu Bridges / Heather Armstrong

+44 20 7920 3150

 

Cautionary statement regarding forward-looking statements

 

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

 

Notes:

 

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

 

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

 

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

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

3 Growth rate calculated on an annualized basis. In June 2019 the Group paid dividend of 8.6 cents per share in respect of the period 15 May 2018 to 31 December 2018 (13.6 cents per share on an annualized basis).

4 Total available liquidity includes cash and cash equivalents balance as at 30 June 2020 of $151m and revolving credit facility of $40m (not drawn at 30 June 2020).

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

6 APPC defined as the Consumer Direct Desktop simple average valid licences or subscriptions for the financial period presented divided by the simple average number of Customers during the same period.

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

8 Growth rate excluding currency impact calculated by restating 2020 actual to 2019 FX rates (see "Principal exchange rates applied "). Deferred revenue is translated to USD at date of invoice and is therefore excluded when calculating the impact of FX on revenue.

9 On 1 February 2019 Avast plc sold the non-core asset of Managed Workplace, its remote monitoring and management product, to Barracuda Networks, Inc. ('Barracuda'). Managed Workplace was Avast's solution in the Remote Monitoring and Management ('RMM') space, which is sold to Managed Service Providers ('MSPs'). This business was not core to our SMB strategy, which focuses on securing the workplace. Barracuda, which has a large existing MSP base but did not offer an RMM solution, provides a better long-term solution for this business. In addition, Barracuda has signed a reseller agreement with Avast under which it now resells Avast's business security solutions to MSPs. In the year ended 31 December 2018 the asset generated low teen revenue (USD million) with a materially lower margin profile than the Group.

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

 

CHIEF EXECUTIVE OFFICER'S REVIEW

The Group has delivered a strong first half performance of top line organic growth and high levels of profitability. The Group's Adjusted Billings of $469.1m were up 2.1% at actual rates, with organic growth of 9.2%. The Group's Adjusted Revenue of $433.1m was up 1.5% at actual rates, with organic growth of 6.6%. The Consumer and SMB segments contributed $409.9m and $23.2m respectively.

 

The Group overall has seen a net positive impact from recent Covid-related events. The core Consumer Desktop segment, which accounts for 79.0% of the Group's Adjusted Billings, outperformed as people spent more time on their computers at home. Strength in Desktop was partially countered by economic factors affecting other parts of the Group. In Consumer Mobile, there was good direct-to-consumer growth. However, in the mobile carrier channel, the reduced economic activity felt by US carriers has been passed on to app security providers, impairing revenue growth from existing products. The Consumer Indirect channel was affected by a reduction in digital advertising as media buyers adjusted or paused their activities. Mixed trends were experienced in SMB, where strength in the direct online offering was offset by Covid-19 related headwinds to the partner channel. As Desktop revenues are recognised over the contract length, on average 14 months, its performance for the period is most visible in Group billings. In contrast, both Consumer Indirect and SMB more immediately impacted the Group's revenue performance.

 

Avast's platform model continues to serve the business extremely well, affording multiple avenues for revenue generation. In particular, we are capturing strong growth as we cross-sell additional privacy and performance-related products to our more than 435 million users worldwide. This has driven a sustained increase in customer numbers, which now stands at 13.26m, up from 12.62m at the end of 2019. Providing the best protection and privacy is a priority, and we have done this by continuing to refine and add new layers to our security technology. In addition, more multi-device subscriptions have been offered, predominantly sold via Desktop, as we increase the device compatibility of existing and new products

 

Consumer

 

($'m )

H1 2020

H1 2019

Change %

Change %

(excluding FX)

Adjusted Billings

445.8

435.2

2.4

4.9

Acquisitions

0.1

0.0

n/a

n/a

Discontinued Business

2.4

21.5

(88.8)

(88.7)

Adjusted Billings excl. Acquisitions and Discontinued business

443.4

413.8

7.2

9.7

 

($'m )

H1 2020

H1 2019

Change %

Change %

(excluding FX)

Adjusted Revenue

409.9

400.9

2.3

2.7

Acquisitions

0.1

0.0

n/a

n/a

Discontinued Business

3.3

21.1

(84.4)

(84.3)

Adjusted Revenue excl. Acquisitions and Discontinued business

406.5

379.7

7.0

7.5

 

SMB

 

($'m )

H1 2020

H1 2019

Change %

Change %

(excluding FX)

Adjusted Billings

23.3

24.4

(4.5)

(3.3)

Disposal Managed Workplace

0.0

1.0

n/a

n/a

Adjusted Billings excl. Disposal

23.3

23.4

(0.5)

0.7

 

($'m )

H1 2020

H1 2019

Change %

Change %

(excluding FX)

Adjusted Revenue

23.2

25.9

(10.3)

(10.0)

Disposal Managed Workplace

0.0

1.0

n/a

n/a

Adjusted Revenue excl. Disposal

23.2

24.9

(6.8)

(6.5)

 

 

Privacy

 

Following the closure of Jumpshot at the end of January, AV user behaviour has remained resilient. Statistics in the subsequent period show no adverse changes versus average trends. The company has renewed its commitment to privacy as a core value through a series of actions taken in the first half of the year. Avast established a dedicated internal privacy working group and has also partnered with two independent privacy advocacy organisations, the TrustArc and the Future of Privacy Forum. The company now carries the TRUSTe Verified Privacy seal, which certifies its standards meet globally recognised requirements. Regular engagement with the Future of Privacy Forum's experts are helping shape internal data practices. 

 

Avast anticipates significant future opportunity in online privacy protection and continues to invest in its privacy related products and technologies. After the successful release of AntiTrack in 2019, Avast soft launched a complementary product, BreachGuard to the North American market. The new privacy software gives users better control over their personal data, preventing its spread and abuse.

 

Avast's response to Covid-19

 

During this difficult time, Avast employees have stayed true to the mission and values for which the company stands, demonstrating support for one another, customers and the thousands of communities they serve. In addition to personal financial donations, they have volunteered their time and technology expertise to support local causes worldwide. Avast employees have helped create 3D printed face masks for distribution to frontline workers, and cooperated with the Czech Technical University in Prague to produce full-face masks for medical use. Avast's linguistic experts have been translating medical materials from different languages and sharing them with local hospitals. Additionally, they have supported community schemes, such as helping with food banks in cities like Alameda and Sacramento in the US.

 

As a technology company, Avast is naturally drawn to looking at initiatives where research and innovation can drive real impact. After careful analysis, it was determined that the Wellcome-coordinated Covid-Zero Coalition is aligned with the company's vision. Via the Avast Foundation, the company committed to making a $20m donation to two research and development initiatives referenced in the Coalition's call to action: the Therapeutic Accelerator, in partnership with the Bill & Melinda Gates Foundation, for the development of diagnostic testing and treatments, and the Coalition for Epidemic Preparedness Innovations (CEPI) for the development of vaccines. An additional $5 million has been earmarked for further scientific initiatives, including Folding@home's supercomputing program that seeks to find a cure for the virus, support for the development and production of ventilators, and the import and donation of 1 million face masks. The company also donated about 1,000 daily lunches in May and June from its canteens in Prague and Brno to people on the front lines.

 

The uncertainty and fear surrounding the Covid-19 pandemic has led to a wave of scammers and hackers looking to exploit the situation for their own ends. Avast has used its expertise and intelligence to thwart Covid-19 related cybercrime. The company's Threat Intelligence team set up Coronascam.org to be a source of information on cybersecurity attacks targeting vulnerable users and organisations. Avast researchers have been busy helping medical institutions combat critical security threats, such as ransomware.

 

As Covid-19 related uncertainty continues, Avast has maintained its practical support for people's online digital lives, from communicating up-to-date advice about scams to making its products more widely available. This includes the free provision of the company's parental assistance app, Avast Family Space, in selected markets to help families manage the reliance on internet and device usage over the summer. Also, as many SMB customers put new virtual working practices in place, Avast is offering additional technical support to ensure security isn't compromised.

 

Further details of the company's relief efforts can be found at our dedicated webpage https://www.avast.com/covid19.

 

 

 

Business Unit Performance

 

Consumer Direct Desktop

 

($'m )

H1 2020

H1 2019

Change %

Change % (excluding FX)

Adjusted Billings

370.6

340.5

8.8

11.8

Acquisitions

0.1

0.0

n/a

n/a

Adjusted Billings excl. Acquisitions

370.5

340.5

8.8

11.8

 

($'m )

H1 2020

H1 2019

Change %

Change % (excluding FX)

Adjusted Revenue

334.4

307.6

8.7

9.2

Acquisitions

0.1

0.0

n/a

n/a

Adjusted Revenue excl. Acquisitions

334.3

307.6

8.7

9.1

 

Operational KPIs

 


30 June 2020

31 December 2019

Change %

Number of customers

13.26m

12.62m

5.1

Average Products Per Customer

1.48

1.45

1.7

Average Revenue Per Customer

$51.40

$51.02

0.7

 

·

The Direct Desktop business has benefited in the lockdown environment from a tailwind as people have spent more time online to work and play. Increased demand was observed across all three product categories of security, performance and privacy.

·

While Avast's billings mix is increasingly geared towards higher-growth non-AV products, in the first half of the current year traditional AV has performed strongly as remote working has deepened reliance on best-in-class core security software.

·

Market dynamics, consumer confidence in Avast's products and ongoing improvements to the customer experience contributed to strong customer conversion and retention rates. Growth in customer numbers was recorded in almost all countries where Avast is present. 

·

Avast's localisation program, which customises the product and customer experience to suit local preferences, continued to reap gains. There was marked strength in customer growth in target countries worldwide, including Brazil, Mexico and Argentina in LatAm, and Japan in Asia. This was accompanied by continued gains in traditional markets such as the US and the UK.

·

Avast actively optimised its marketing in an environment where consumers have been increasingly receptive to the company's products and services. A rise in organically derived AV installations was augmented by a temporary increase in pay-per-install and pay-per-click investment to enhance brand visibility and product distribution.

·

Avast's privacy offering has become even more relevant in the current environment and the company has continued its expansion into this category. As a complement to its existing VPN and Antitrack software, Avast's newest privacy product BreachGuard made its market debut in the US with a soft launch in H1. The product grants users increased control over their personal data on the internet.

·

Other new releases in the first half of the year include Avast Battery Saver, a performance category product that reduces power consumption and extends battery life, and a brand new feature of AntiTrack, the Windows System Privacy Manager to help customers handle the operating system's more complex privacy settings.

·

Actions taken in the period as part of the company's continuous improvement strategy for customer experience include: escalation of customer journey mapping; increased interaction at the onboarding process; and the rollout of Net Promoter Scores to more product sets. In May a new Customer Success team was established to help drive engagement and retention.

·

The good performance of this core business in the first half means that we now increase our FY 2020 expectations for Direct Desktop to high single-digit organic revenue growth.

 

Consumer Direct Mobile

 

($'m )

H1 2020

H1 2019

Change %

Change % (excluding FX)

Adjusted Billings

37.1

39.4

(5.8)

(4.6)

Acquisitions

0.0

0.0

n/a

n/a

Adjusted Billings excl. Acquisitions

37.1

39.4

(5.8)

(4.7)

 

($'m )

H1 2020

H1 2019

Change %

Change % (excluding FX)

Adjusted Revenue

36.5

38.3

(4.7)

(4.4)

Acquisitions

0.0

0.0

n/a

n/a

Adjusted Revenue excl. Acquisitions

36.5

38.3

(4.7)

(4.4)

 

·

Within the Mobile segment there has been continued good growth in the direct-to-consumer channel, led by the subscription business. The channel has benefited from a positive trend in uptake of Avast Mobile Security for iOS.

·

In the carrier channel, the reduced economic activity felt by US carriers has been passed on to app security providers, impairing revenue growth from existing products. While pressure on commercial terms is likely to persist in 2020, mobile partnerships remain an important part of Avast's go-to-market strategy and an avenue of growth over the longer term. The company continues to work to bring its products, in particular its differentiated IoT solution, to more partners and their customers.

·

There has been sustained growth in multi-device licenses that enable a seamless journey for customers between desktop and mobile. The trend is not reflected in the mobile segment's performance since these licenses are predominantly sold and accounted for within Consumer Direct desktop.

·

In June, Nick Viney was appointed to the role of Senior VP and GM for Avast's Telco, IoT and Family business unit. In his role, Nick will lead the development of the company's position in smart home security while expanding its overall portfolio of security products and partners including carriers and Original Equipment Manufacturers.

·

We remain cautious of the headwinds in the carrier channel and due to these additional short-term challenges, we reduce our guidance to high single-digit organic revenue decline in the mobile business overall in 2020.

 

 

Consumer Indirect

 

This business unit includes Avast Secure Browser ('ASB'), the distribution of third party software and advertising within mobile applications.

 

($'m )

H1 2020

H1 2019

Change %

Change % (excluding FX)

Adjusted Billings

38.1

55.3

(31.1)

(30.7)

Discontinued Business

2.4

21.5

(88.8)

(88.7)

Adjusted Billings excl. Discontinued business

35.7

33.9

5.4

6.0

 

($'m )

H1 2020

H1 2019

Change %

Change % (excluding FX)

Adjusted Revenue

39.0

55.0

(29.1)

(28.7)

Discontinued Business

3.3

21.1

(84.4)

(84.3)

Adjusted Revenue excl. Discontinued business

35.7

33.9

5.4

6.0

 

 

·

At the end of March, an extension of the Chrome distribution deal was secured, renewing the contract that covers Avast, AVG and CCleaner branded products until 31 March 2021.

·

Avast Secure Browser user activity remained resilient. Search volumes by the Secure Browser's 35m monthly active users increased by 21% on the previous six months. However, a reduction in spend by advertisers due to the economic uncertainty meant that the revenue performance of the Secure Browser, which monetises through search advertising, was softer than expected. Advertising within mobile apps was similarly affected. Within Consumer Indirect the timing of revenue recognition is closely aligned to billings, meaning advertising weakness was fully captured in both metrics in the first half period.

·

In April, Avast released an Android version of Avast Secure Browser to extend its platform support beyond Windows and Mac on desktop to mobile. It supports multiple Domain Name Systems (DNS) options to ensure user requests are kept private and secure. Later this year, the mobile version of Avast Secure Browser will be made available on iOS. This will be accompanied by the introduction of multi-platform browsing as part of Avast's ongoing focus to converge user experiences across devices.

·

In January 2020, Avast terminated the provision of data to its data analytics business, Jumpshot. The wind down of Jumpshot proceeded as planned. The total exceptional expense related to the restructuring is expected to remain within the $15 to $25m range previously indicated.

·

A return to a stronger advertising environment will enable the Browser to regain its traction as the growth driver to the Consumer Indirect segment. Against the backdrop of uncertainty as to the timing of any rebound in advertising, we lower our FY 2020 guidance for Consumer Indirect to a mid-single digit increase in organic revenue.

 

 

SMB

 

($'m )

H1 2020

H1 2019

Change %

Change % (excluding FX)

Adjusted Billings

23.3

24.4

(4.5)

(3.3)

Disposal Managed Workplace

0.0

1.0

n/a

n/a

Adjusted Billings excl. Disposal

23.3

23.4

(0.5)

0.7

 

($'m )

H1 2020

H1 2019

Change %

Change % (excluding FX)

Adjusted Revenue

23.2

25.9

(10.3)

(10.0)

Disposal Managed Workplace

0.0

1.0

n/a

n/a

Adjusted Revenue excl. Disposal

23.2

24.9

(6.8)

(6.5)

 

·

The SMB segment has performed in line with expectations, albeit with a shift in the anticipated business mix. Pandemic conditions have resulted in a stronger online component, offsetting some weakness in the channel part of SMB, which includes network security.

·

As the SMB business continued its transition to integrated endpoint and network security, there was a return to positive billings growth in the second quarter of 2020.

·

In the first half of the year, the Network team signed up an additional 17 large managed security service providers (MSSPs) to incorporate antivirus and Secure Internet Gateway (SIG) solutions into their SMB services. Agreement on a SIG partnership was also been reached with a US national internet access provider targeting SMB markets.

·

The process of migrating distributors from legacy systems to the new Avast Order Management System (OMS) has now been completed. This has reduced the complexity of the billings system and gives both direct customers and channel partners a single integrated purchase location. New feature functionality will continue to be added to the OMS platform in the months ahead.

·

While the business gained traction with its online offering, we remain cautious on the near-term outlook due to the risk that some SMB customers may be adversely affected by the shutdown and reduced economic activity. We therefore reiterate our previous guidance of low single-digit organic revenue decline.

 

 

Group Outlook

 

The initial phase of the Covid-19 pandemic resulted in a sharp increase in normal online activity. The spike in demand for cybersecurity products was closely correlated with the imposition of lockdowns, both in terms of timing and intensity. As communities emerge from lockdown, Avast's install and conversion trends in most countries have largely returned to their pre-Covid levels. Therefore, our current assessment is that the pronounced uplift experienced in the first half was temporary. The duration of the Covid-19 crisis is unpredictable and it is difficult to quantify the economic impact in the months ahead. In light of these considerations, we maintain our previous FY 2020 guidance for the Group of organic mid-single digit revenue growth, albeit at the upper end of the range. We raise our organic billings growth expectation from in-line to be slightly in excess of organic revenue growth, with higher growth now in H1 versus H2 due to the Covid-related benefit we experienced in H1. We maintain our FY 2020 Adjusted Group EBITDA margin guidance at broadly flat year-on-year.

 

While we do not anticipate the strongly elevated performance levels of the second quarter to be sustained, we are confident that Avast is able to capture material benefits from the most recent period beyond the short term. Firstly, we are optimistic that the increased user activity seeded during this period will translate over time into durable demand for our products. Secondly, we believe that the stronger digitisation trends brought about by the pandemic are likely to persist in some measure and the resultant value of cybersecurity and privacy products will be felt more than ever. Thirdly, we look forward to realising the full potential of our expanding product portfolio.

 

The strength of Avast's business model, which includes strong cash generation, enables us to consistently deploy capital in a way that creates the greatest value for our customers and shareholders. Our current balance sheet structure offers increased capacity to support both organic and acquisitive growth. We will retain our focus on product and technology capability and continue to enhance the customer experience for long-term impact. Market dynamics are increasingly supportive of Avast's products and services, and while we will exploit adjacency opportunities, we are determined to maintain and strengthen our competitive leadership in our core capabilities. The talents of our experienced team, a strong culture and sustained investment means we are well placed to continue to deliver on our growth ambitions.

 

 

FINANCIAL REVIEW

 

Billings, Revenue and EBITDA

 

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

 

The Group's Adjusted Billings increased by $9.5m to $469.1m in the half year ended 30 June 2020, mostly driven by the core Consumer Direct Desktop business. This represented a 2.1% increase at actual rates and organic growth of 9.2%. Subscription billings represented 87.3% of the Group's total Adjusted Billings in H1 2020 (87.8% in H1 2019 excluding Jumpshot).

 

The Group's Adjusted Revenue increased by $6.4m to $433.1m in the half year ended 30 June 2020, which represents a 1.5% increase at actual rates and organic growth of 6.6%. Adjusted Revenue included $275.7m from the release of prior-period deferred revenue. The deferred revenue balance at the end of the period was $504.7m, comprising $448.6m that will be recognised within 12 months of the balance sheet date. This compares to $466.4m, of which $412.2m was to be recognised within 12 months, at the same time last year excluding Jumpshot's deferred revenue. The average subscription length in the half year ended 30 June 2020 was 14 months, flat versus H1 2019.

 

The Group's reported Billings increased by $9.5m to $469.1m in the half year ended 30 June 2020, which represents a 2.1% increase. The Group's reported Revenue increased by $7.7m to $433.1m, which represents a 1.8% increase. It should be noted that there is no difference between the Group's reported Revenue and Group's Adjusted Revenue or between the Group's reported Billings and Group's Adjusted Billings in H1 2020 as the non-cash historical adjustments arising from the AVG acquisition have come to an end (for the reconciliations of comparatives, please refer to 'PRESENTATION OF RESULTS AND DEFINITIONS').

 

Profitability was driven by the Group's scale and operating leverage. Adjusted EBITDA increased 2.1% to $241.4m, 1.5% excluding FX, resulting in Adjusted EBITDA margin of 55.7%. This is in line with full year guidance of broadly flat (55.4% EBITDA margin in H1 2019).

 

The reported Operating Profit decreased by $(27.4)m to $134.5m. The decrease was driven by higher costs of $(35.1)m partially offset by higher reported revenue of $7.7m. Increase in costs was driven by increase in exceptional items of $(45.8)m including Jumpshot wind-down costs of $(24.7)m and donations on research and development initiatives related to Covid-19 of $(22.7)m, partially offset by lower amortisation of acquisition intangibles of $8.9m and lower share-based payment costs of $3.2m.

 

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

($'m )

H1 2020

H1 2019

Change %

Change %

(excluding FX)

Adjusted Billings

469.1

459.6

2.1

4.5

Consumer

445.8

435.2

2.4

4.9

Acquisitions

0.1

0.0

n/a

n/a

Direct (excl. Acquisitions)

407.7

379.9

7.3

10.1

Discontinued Business

2.4

21.5

(88.8)

(88.7)

Indirect (excl. Discontinued Business)

35.7

33.9

5.4

6.0

SMB

23.3

24.4

(4.5)

(3.3)

Disposal Managed Workplace

0.0

1.0

n/a

n/a

SMB excl. Disposal

23.3

23.4

(0.5)

0.7

Adjusted Billings excl. Acquisitions, Disposals and Discontinued business

466.7

437.2

6.7

9.2

Adjusted Revenue

433.1

426.8

1.5

1.9

Consumer

409.9

400.9

2.3

2.7

Acquisitions

0.1

0.0

n/a

n/a

Direct (excl. Acquisitions)

370.8

345.9

7.2

7.6

Discontinued Business

3.3

21.1

(84.4)

(84.3)

Indirect (excl. Discontinued Business)

35.7

33.9

5.4

6.0

SMB

23.2

25.9

(10.3)

(10.0)

Disposal Managed Workplace

0.0

1.0

n/a

n/a

SMB excl. Disposal

23.2

24.9

(6.8)

(6.5)

Adjusted Revenue excl. Acquisitions, Disposals and Discontinued business

429.7

404.7

6.2

6.6

 

Costs

 

($'m )

H1 2020

H1 2019

Change

Change %

Cost of revenues

(104.6)

(107.5)

2.9

2.7

Share-based payments (incl. employer's costs)

0.4

0.2

0.2

Fav 11

Amortisation of acquisition intangible assets

39.7

48.8

(9.2)

(18.8)

Depreciation and amortisation (excl. amortisation of acquisition intangible assets)

4.3

4.3

(0.0)

(1.3)

Gross-up and other adjustments

-

(0.2)

0.2

Fav

Exceptional items

2.5

0.2

2.3

Fav

Adjusted Cost of revenues (excluding D&A)

(57.7)

(54.2)

(3.5)

(6.5)

 

The increase in the Group's Adjusted Cost of Revenues reflects higher sales commissions, licence fees and distribution of digital content costs of $(3.0)m related to the increase in Adjusted Revenue and investment into personnel costs of $(1.4)m partially offset by lower Jumpshot's cost of revenues of $0.6m and positive FX impact of $0.3m. Adjusted Cost of Revenues represent the Group's cost of revenues adjusted for depreciation and amortisation charges, share-based payments charges, exceptional items and other adjustments.

 

The Group's reported Cost of revenues decreased by $2.9m to $(104.6)m primarily due to the lower amortisation of acquisition intangibles. The amortisation of acquisition intangibles represents intangible assets acquired through business combinations.

 

($'m )

H1 2020

H1 2019

Change

Change %

Operating costs

(194.0)

(156.0)

(38.0)

(24.4)

Share-based payments (incl. employer's costs)

8.6

12.0

(3.4)

(28.3)

Amortisation of acquisition intangible assets

0.2

-

0.2

n/a

Depreciation and amortisation (excl. amortisation of acquisition intangible assets)

6.3

6.5

(0.2)

(2.1)

Exceptional items

44.9

1.5

43.4

Fav

Adjusted Operating costs (excluding D&A)

(134.0)

(136.0)

2.0

1.5

 

The decrease in the Group's Adjusted Operating costs was caused by decrease in Jumpshot costs of $8.6m and positive FX impact and other savings of $3.7m, partially offset by re-investment into R&D of $(3.2)m, sales and marketing of $(4.9)m and higher increase in holiday accrual of $(2.2)m. Adjusted Operating costs represent the Group's operating costs adjusted for depreciation and amortisation charges, share-based payments charges and exceptional items.

 

The increase in the Group's reported Operating costs of $(38.0)m, from $(156.0)m to $(194.0)m, reflects primarily the increase in exceptional items driven by Jumpshot wind-down operating costs of $(22.2)m and donations on research and development initiatives related to Covid-19 of $(22.7)m.

 

Exceptional items

Exceptional items are income or expenses that arise from events or transactions that are clearly distinct from the ordinary activities of the Group. The Group believes that these non-recurring items should be separately disclosed to show the underlying business performance of the Group more accurately. Once an item is disclosed as exceptional, it will remain exceptional through completion of the event or programme. Exceptional items in H1 2020 consist primarily of donations on research and development initiatives related to Covid-19 and personnel and non-personnel costs related to Jumpshot wind-down (see Note 5 Exceptional items). Related cash flows have been included in the net cash flows from operating activities. In H1 2019 exceptional costs consisted primarily of legal and professional fees related to the disposal of a subsidiary and related business operation (Managed Workplace business of SMB segment) and to the acquisition of TrackOFF. The portion of the exceptional items directly related to the disposal of business operation in H1 2019 was included in investing cash flows, costs related to the acquisition were included in operating cash flows. The net gain on disposal of a business operation of $17.5m in H1 2019 was treated as exceptional as well and therefore not included in Adjusted Net income.

 

Finance income and expense

 

Adjusted finance expense on a net basis was $(21.6)m in H1 2020, $18.2m lower compared to $(39.8)m in H1 2019. The decrease was driven by lower total loan interest costs of $17.1m resulting from the repayment of debt of $297.4m on top of mandatory repayments in 2019 and $1.1m decrease in other net finance costs including FX impact.

 

The Group's reported net finance costs decreased by $16.3m to $(19.2)m in H1 2020 resulting from the decrease in adjusted finance costs described above, partially offset by the lower unrealised foreign exchange gains in H1 2020 from the Euro denominated debt.

 

($'m )

H1 2020

H1 2019

Change

Change %

Finance income and expenses, net

(19.2)

(35.5)

16.3

46.0

Unrealized FX (gain)/loss on EUR tranche of bank loan

(2.4)

(4.3)

1.9

43.5

Adjusted Finance income and expenses, net

(21.6)

(39.8)

18.2

45.7

 

Income tax

 

In the year ended 30 June 2020, the Group reported an income tax expense of $(28.8)m, compared to the income tax expense of $(31.3)m in the half year ended 30 June 2019.

 

Income tax was impacted by the tax benefit from the foreign exchange movements on intercompany loans arising in the statutory accounts of the subsidiary concerned of $3.7m (tax expense of $1.0m in H1 2019).

 

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

 

The tax impact of other adjusted items represents the tax impact of amortisation of acquisition intangibles, deferred revenue haircut reversal arising from prior acquisitions, exceptional items and other adjusted items, which has been calculated applying the tax rate that the Group determined to be applicable to the relevant item.

 

Adjusted Income tax is $(39.4)m for H1 2020, resulting in an adjusted effective tax rate of 18.8% (H1 2019: 20.3%). The Adjusted effective tax rate is the Adjusted Income tax percentage of Adjusted Profit before tax of $209.2m (defined as Adjusted Net Income of $169.8m before the deduction of Adjusted Income tax of $(39.4)m.)

($'m )

H1 2020

H1 2019

Change

Change %

Income tax

(28.8)

(31.3)

2.5

8.0

Tax impact of FX difference on intercompany loans

(3.7)

1.0

(4.7)

Unf

Tax impact of IP transfer

3.1

3.1

0.0

0.0

Tax impact of disposal of a business operations

-

2.3

2.3

n/a

Tax impact on adjusted items

(10.0)

(12.8)

2.8

21.9

Adjusted Income tax

(39.4)

(37.7)

(1.7)

(4.5)

 

Cash Flow

 

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

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

 

($'m )

H1 2020

H1 2019

Change

Change %

Adjusted Cash EBITDA

275.1

268.2

7.0

2.6

Net change in working capital (excl. change in deferred revenue and deferred COGS)

(1.8)

(10.0)

8.2

83.1

Capex

(2.7)

(3.2)

0.5

15.8

Cash Tax (excl. 2019 Dutch exit tax)

(6.8)

(24.6)

17.8

72.3

Covid-19 donations

(22.7)

-

(22.7)

n/a

Unlevered Free Cash Flow

241.2

230.4

10.8

4.7

Cash Interest

(15.4)

(26.1)

10.7

41.1

Lease Repayments

(4.9)

(4.1)

(0.8)

(19.5)

Levered Free Cash Flow

220.9

200.2

20.7

10.3

Cash conversion 12

88%

86%

 

 

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

 

Covid-19 related restrictions led to a number of investment projects being postponed to H2 2020. Due to further uncertainty about restrictions, we now expect our FY Capex to represent only 1-2% of Adjusted revenue in 2020. That represents a decrease versus 2019 (3%), when the Group carried out a significant investment into network infrastructure.

 

The decrease in the adjusted cash tax is driven by the Czech Republic true-up system, where a company is obliged to make quarterly income tax advances based on its last known tax liability. Upon filing a tax return, tax advances paid during the year for which the tax return is filed offset the final tax liability. In H1 2020 the Group received a significant refund related to previous periods. No further refund is expected in H2 2020. The cash tax included in the calculation of Unlevered Free Cash Flow in H1 2019 excluded a $49.4m Dutch exit tax paid in March 2019 as this was treated as an exceptional item. No cash tax has been treated as exceptional in H1 2020.

 

($'m )

H1 2020

H1 2019

Change

Change %

Net cash flows from operating activities

225.8

176.5

49.3

27.9

Net cash used in investing activities

(3.0)

13.3

(16.3)

Unf

Net cash flows from financing activities

(289.5)

(325.4)

35.9

11.0

 

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

 

($'m )

H1 2020

H1 2019

Change

Change %

Adjusted Cash EBITDA

275.1

268.2

7.0

2.6

Net change in working capital (excl. change in deferred revenue and deferred COGS)

(1.8)

(10.0)

8.2

82.0

Cash Tax (excl. 2019 Dutch exit tax)

(6.8)

(24.6)

17.8

72.3

Dutch exit cash tax

-

(49.4)

49.4

n/a

Movement of provisions and allowances

7.5

0.9

6.6

Fav

Exceptional items (excl. transaction costs in 2019)

(47.4)

(1.3)

(46.1)

Unf

Employer's costs on share-based payments

(0.3)

(1.5)

1.2

80.0

FX gains/losses and other non-cash items

(0.5)

(5.8)

5.3

91.0

Net Cash Flows from operating activities

225.8

176.5

49.3

27.9

 

The Group's net cash flow from operating activities increased by $49.3m primarily due to exceptional Dutch exit tax payment included in the baseline of $49.4m, higher Adjusted Cash EBITDA of $7.0m, lower cash tax of $17.8m, positive impact of the movement in provisions and allowances of $6.6m, positive change in FX gains/losses and other financial expenses and non-cash costs of $5.3m, positive impact of working capital movement (excl. change in deferred revenue and deferred COGS) of $8.2m, lower employer's costs paid on share-based payments of $1.2m (see Note 4 Share-based payments) offset by higher exceptional items of $(46.1)m. The portion of the exceptional items in H1 2019 directly related to the disposal of business operation of $(0.3)m was included in cash flows from investing activities.

 

The Group's net cash outflow from investing activities of $(3.0)m was comprised of capex of $(2.7)m, settlement of contingent consideration related to Inloop and Tenta acquisitions of $(3.6)m, contingent consideration received for disposal of Managed Workplace of $3.0m and interest received of $0.3m. The Group's net cash inflow from investing activities in H1 2019 of $13.3m was comprised of capex of $(3.2)m, consideration paid for TrackOFF acquisition net of cash acquired of $(11.2)m, proceeds from the sale of Managed Workplace net of cash disposed and transaction costs of $26.7m and interest received of $1.0m.

 

The Group's net cash outflow from financing activities includes $(105.4)m dividend paid, $(100.0)m voluntary repayment of borrowings, $(30.2)m mandatory repayment of borrowings, interest paid of $(15.4)m, lease repayments of $(4.9)m, proceeds from the exercise of options of $31.2m and net proceeds from transactions with non-controlling interest $(64.8)m (see Note 17 Non-controlling interest). The Group's net cash outflow from financing activities in H1 2019 included $(83.7)m dividend paid, $(197.4)m net voluntary repayment of borrowings, $(33.5)m mandatory repayment of borrowings, interest paid of $(26.1)m, transaction costs related to borrowings of $(0.5)m, lease repayments of $(4.1)m and proceeds from the exercise of options of $19.9m.

 

Financing

 

The Group further reduced its term loan by the repayment of $100m from USD tranche in June 2020 (see Note 15 Term Loan). As of 30 June 2020, the total Gross debt13 of the Group was $968.0m and the total Net debt13 was $817.0m. The decrease in gross debt since 31 December 2019 is attributable to $100.0m voluntary repayment of borrowings, $30.2m of mandatory repayment of borrowings, $0.5m decrease in lease liabilities and a positive unrealised FX gain of $2.4m on the EUR tranche of the loan.

 

($'m )

30 June 2020

 

31 December 2019

 

Margin

 

USD tranche principal

225.1

336.5

USD LIBOR plus 2.25%

EUR tranche principal

678.6

699.8

EURIBOR plus 2.25%

Revolver/Overdraft

-

-

USD LIBOR plus 2.25%

Lease liabilities

64.3

64.8


Gross debt

968.0

1,101.1


Cash and cash equivalents

(151.0)

(216.6)


Net debt

817.0

884.5


Net debt / LTM Adjusted EBITDA

1.7x

1.8x


 

Principal exchange rates applied

 

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

 

($:1.00 )



H1 2020

average

H1 2019

average

AUD



0.6593

0.7089

BRL



0.2118

0.2600

CAD



0.7368

0.7474

CHF



1.0345

1.0017

CZK



0.0421

0.0440

EUR



1.1039

1.1327

GBP



1.2740

1.2983

ILS



0.2865

0.2745

NOK



0.1040

0.1163

 

 

Earnings per share

 

Basic Adjusted earnings per share amounts are calculated by dividing the Adjusted net income for the period by the weighted average number of shares of common stock outstanding during the year. The diluted Adjusted earnings per share amounts consider the weighted average number of shares of common stock outstanding during the year adjusted for the effect of dilutive options. On a statutory basis, fully diluted EPS was $0.08 (see Note 9 for the statutory earnings per share).

 

($'m )

H1 2020

H1 2019

Adjusted Net Income attributable to equity holders

169.8

148.2

Basic weighted average number of shares

1,016,594,917

959,745,088

Effects of dilution from share options and restricted share units

17,422,859

49,628,110

Dilutive weighted average number of shares

1,034,017,776

1,009,373,198

Basic Adjusted earnings per share ($/share)

0.17

0.15

Diluted Adjusted earnings per share ($/share)

0.16

0.15

 

Dividend

 

On 11 August 2020, the Directors declared an interim dividend of 4.8 cents per share payable in October 2020. This represents one third of 40% of the Group's levered free cash flow in 2019, in accordance with the Company's dividend policy. This will be paid in US dollars on 16 October 2020 to shareholders on the register on 11 September 2020. There will be an option for shareholders to elect to receive the dividend in pounds sterling and such an election should be made no later than 25 September 2020. Further details regarding the currency election process and payment of the dividend can be found on the Company's website at investors.avast.com.

The foreign exchange rate at which dividends declared in US dollars will be converted into pounds sterling will be calculated based on the average exchange rate over the five business days prior to 28 September 2020, and announced shortly thereafter. In accordance to the Company's dividend policy, the Group aims to pay a final dividend in Q2 2021 based on the Group's final 2020 levered free cash flow (c.40% of levered FCF less interim dividend).

Proposed Dividend Timetable

Ex-dividend Date: 10 September 2020

Record Date: 11 September 2020

Last Date for Currency Election: 25 September 2020

Payment: 16 October 2020

 

Additional financial guidance

 

In addition to the main full year 2020 guidance elements referenced in this document, additional supplementary points are provided below.


2020 current guidance

2020 previous guidance

Adjusted Depreciation and Amortisation

c. 2% of Adjusted Revenue

c. 3% of Adjusted Revenue

Capex

c. 1-2% of Adjusted Revenue

c. 2% of Adjusted Revenue

Adjusted Finance Cost and Lease Repayments

$40m P&L / $40m Cash Flow

$40m P&L / $42m Cash Flow

Adjusted Effective Tax Rate

19%

19%

Cash Tax

Adjusted Income Tax less $20m

Adjusted Income Tax less $20m

Net change in working capital (excl. change in deferred revenue and deferred COGS)

$10m outflow

$15m outflow

Basic weighted average number of shares

1,022m

1,010m

Dilutive weighted average number of shares

1,050m

1,050m

Exceptional items:



Jumpshot wind-down costs

c.$25m P&L / c.$25m Cash Flow

$15-$25m P&L $15-$25m Cash Flow

Covid-19 donations

$25m P&L / $25m Cash Flow

-

Share-based payments (incl. employer's costs)

$25m P&L

$31m P&L

Amortisation of acquisition intangible assets

$66m P&L

$66m P&L

 

 

 

Notes:

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

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

13 Gross debt represents the sum of the total book value of the Group's loan obligations (i.e. sum of loan principals) and lease liabilities. Net debt indicates gross debt netted by the company's cash and cash equivalents. Both gross debt and net debt exclude the amount of capitalized arrangement fees on the balance sheet as of 30 June 2020 of $5.7m and accrued interest of $(0.1)m (31 December 2019: $8.7m and $(0.1)m).

 

 

PRINCIPAL RISKS AND UNCERTAINTIES

 

The Board's assessment of the principal risks affecting the business has been extended to cover the risks associated with the impact of Covid-19. Avast's recurring and subscription-based revenues, and strong liquidity position gives the business a resilient operational and financial position. However, the impact of the pandemic remains uncertain, and the Board continues to closely monitor developments in order to adapt and respond accordingly. The principal risks and uncertainties which could have a material adverse effect on the Group's business, results of operations, financial condition and/or prospects are:

 

Risk

Impact

Strategy

 

Global Pandemic: an infectious disease spread on a global scale can lead to the imposition of Government controls on the movement of people with the associated cessation of large parts of the economy for a significant period of time. This brings considerable level of uncertainty in terms of the potential widespread economic downturn and/or our employees' ability to continue working.

 

The low level of business activity and reduced customer demand can lead to reduced revenues. Key employees or large proportion of employees might not be able to continue to work.

Maintenance of a strong balance sheet able to withstand a sustained period of lower business of activity. Investment into information technologies and well-being and safety of all employees to ensure business continuity while working from home.

Offering: The risk is that our product and service offerings stop appealing to users.

If we do not offer products and services that appeal to users, our free user base may materially decline, and/or we will fail to monetise our products and services.

 

Our strategy to address this risk and achieve long term strategic objectives is to invest in product innovation, product management, quality assurance, and customer care. The Covid-19 environment has not halted our continued investment, which resulted in a rise in headcount in the first half of the 2020, with a digital on-boarding experience created for new joiners.

People: The risk is talented people leave or do not join our workforce.

If we cannot attract or retain a talented workforce, we will not remain competitive in our industry.

We believe we need to create an exciting brand; provide attractive and competitive compensation; provide our people with global mobility; recruit from a broad pool of candidates; promote based on diversity of backgrounds, skills, cultures, gender, and ethnicity; and provide effective training for personal and professional growth in order to achieve long term strategic objectives. During the Covid-19 period, a program of remote work training with self-care help and performance management coaching has been implemented.

Data and our security systems: The risk is that the data we store, such as customer data, and the systems that store, manage and process this data become compromised. The Group's data and systems risk has even increased as a result of higher level of online activity during Covid-19.

Failing to protect the data we store and the systems that store this data could have a material adverse impact on our reputation, and our ability to provision services and updates, potentially resulting in a material decline in our user base, negative financial consequences and investigations, fines and censure by governmental and regulatory bodies.

We strive for strong, effective, and comprehensive data and systems security and governance. As a result, we have implemented a host of new security processes and measures to protect the data we store, systems that store such data, and the updates we provide to provision our products and services. We develop products and services designed for security and privacy, and believe this helps us maintain an ethical culture in which people are concerned about and committed to securing and protecting data. As a response to Covid-19, we utilised our technical expertise in supporting medical institutions. We also set up Coronascam.org to provide information on cybersecurity attacks targeting users.

Regulatory: We operate a digital business globally, and the scale and complexity of new laws, including regarding data protection, auto-renewal billing and tax, are increasing as the digital economy becomes the backbone of global economic growth.

New laws may impose restrictions and obligations on the Group that negatively impact the Group's profitability and ability to grow.

We monitor global legal developments and participate in industry-wide lobbying.

 

Concentration: Our products rely on our users being able to easily find and install them.

We face exposure and risks from large vendors, such as Microsoft, Google, Apple, Facebook, Digital River, and telecommunication carriers, who may take actions that restrict our users from being able to access and use our products.

We develop deep partner relationships with these vendors; however, we continually seek out additional strategic partnerships and growth through organic initiatives.

 

 

PRESENTATION OF RESULTS AND DEFINITIONS

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

 

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

 

" Adjusted" and "Underlying" numbers were presented in the Half Year Report for the half year ended 30 June 2019. Many of the adjusting items were common to both and the values were similar. As presenting a large number of similar APMs can increase complexity to users, the Group limited the metrics to "Adjusted" measures, which is consistent with those used in the business. Organic Growth APMs were introduced in the Full Year Report 2019 to present the change in revenue and billings resulting from continuing Group operations. Organic growth rate excludes the impact of FX, acquisitions, business disposals and discontinued business. It excludes current period billings and revenue of acquisitions until the first anniversary of their consolidation. Besides these changes, the definitions of non-GAAP measures in this Half Year Report are consistent with those presented in the last annual report and in the IPO prospectus and there have been no changes to the bases of calculation.

 

 

CONSOLIDATED STATEMENT OF ADJUSTED PROFIT AND LOSS  

FOR THE SIX-MONTHS ENDED 30 JUNE 2020

($'m)



Six-months ended

Six-months ended



30 June 2020

(Unaudited)

30 June 2019

(Unaudited)

REVENUES


433.1

426.8

Cost of revenues


(57.7)

(54.2)

GROSS PROFIT


375.4

372.6

Gross profit margin


86.7%

87.3%





Sales and marketing


(63.0)

(62.0)

Research and development


(35.4)

(35.8)

General and administrative


(35.6)

(38.2)

Total operating costs


(134.0)

(136.0)





EBITDA


241.4

236.5

EBITDA margin


55.7%

55.4%





Depreciation & Amortisation 14


(10.6)

(10.8)

EBIT


230.8

225.7





Finance income and expenses


(21.6)

(39.8)

PROFIT BEFORE TAX


209.2

186.0





Income tax


(39.4)

(37.7)

NET INCOME


169.8

148.2

Net Income margin


39.2%

34.7%





Earnings per share (in $ per share):




Basic EPS


0.17

0.15

Diluted EPS


0.16

0.15

 

Adjusted Billings

 

Adjusted Billings represent the full value of products and services being delivered under subscription and other agreements and include sales to new end customers plus renewals and additional sales to existing end customers. Under the subscription model, end customers pay the Group for the entire amount of the subscription in cash upfront upon initial delivery of the applicable products. Although the cash is paid upfront, under IFRS, subscription revenue is deferred and recognised rateably over the life of the subscription agreement, whereas non-subscription revenue is typically recognised immediately. Adjusted Billings represents the Group's reported billings.

 

Adjusted Revenue

 

Adjusted Revenue represents the Group's reported revenue adjusted for the Deferred Revenue Haircut Reversal15 and  Gross-Up Adjustment16. These historical adjustments are zero from 2020. The following is a reconciliation of the Group's reported Revenue to the Group's Adjusted Billings and Group's reported Revenue to the Group's Adjusted Revenue:

 

($'m )

H1 2020

H1 2019

Change

Change %

Revenue

433.1

425.4

7.7

1.8

Net deferral of revenue

36.0

34.3

1.7

5.1

Adjusted Billings

469.1

459.6

9.5

2.1






Revenue

433.1

425.4

7.7

1.8

Deferred Revenue Haircut reversal

-

1.3

(1.3)

Unf

Gross-Up Adjustment

-

0.1

(0.1)

Unf

Adjusted Revenue

433.1

426.8

6.4

1.5






Adjusted EBITDA

 

Adjusted earnings before interest, taxation, depreciation and amortisation ('Adjusted EBITDA') is defined as the Group's operating profit/loss before depreciation, amortisation of non-acquisition intangible assets, share-based payments including related employer's costs, exceptional items, amortisation of acquisition intangible assets, the Deferred Revenue Haircut Reversal and the COGS Deferral Adjustments17.

 

Adjusted Cash EBITDA

 

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

 

 

($'m )

H1 2020

H1 2019

Change

Change %

Operating profit

134.5

161.9

(27.4)

(16.9)

Share-based payments (incl. employer's costs)

9.0

12.2

(3.2)

(26.1)

Exceptional items

47.4

1.6

45.8

Fav

Amortisation of acquisition intangible assets

39.9

48.8

(8.9)

(18.3)

Deferred Revenue Haircut reversal 

-

1.3

(1.3)

Unf

COGS Deferral Adjustments

-

(0.1)

0.1

Fav

Depreciation

9.5

9.5

0.0

0.8

Amortisation of non-acquisition intangible assets

1.1

1.4

(0.3)

(19.4)

Adjusted EBITDA

241.4

236.5

4.9

2.1

Net change in deferred revenues including FX re-translation

36.0

33.0

3.0

9.2

Net change in deferred cost of goods sold

(2.2)

(1.5)

(0.7)

(48.1)

Reversal of COGS deferral adjustment

-

0.1

(0.1)

Unf

Adjusted Cash EBITDA

275.1

268.2

7.0

2.6

 

Adjusted Net Income

 

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

 

($'m )

H1 2020

H1 2019

Change

Change %

Net Income

86.5

112.6

(26.1)

(23.2)

Deferred Revenue Haircut reversal

-

1.3

(1.3)

Unf

Share-based payments

9.0

12.2

(3.2)

(26.1)

Exceptional items

47.4

1.6

45.8

Fav

Amortisation of acquisition intangible assets

39.9

48.8

(8.9)

(18.3)

Unrealised FX (gain)/loss on EUR tranche of bank loan

(2.4)

(4.3)

1.9

43.5

Tax impact from FX difference on intercompany loans

(3.7)

1.0

(4.7)

Unf

COGS Deferral Adjustments

-

(0.1)

0.1

Fav

Tax impact on adjusted items

(10.0)

(12.8)

2.8

21.4

Tax impact of IP transfer

3.1

3.1

-

0.0

Gain on disposal of business operation

-

(17.5)

17.5

Fav

Tax impact from disposal of business operation

-

2.3

(2.3)

Unf

Adjusted Net Income

169.8

148.2

21.6

14.6

 

Unlevered Free Cash Flow

 

Represents Adjusted Cash EBITDA less capex, plus cash flows in relation to changes in working capital (excluding change in deferred revenue and change in deferred cost of goods sold as these are already included in Adjusted Cash EBITDA) and taxation. Changes in working capital are as per the cash flow statement on an unadjusted historical basis and unadjusted for exceptional items. In H1 2019, cash tax excludes a $49.4m Dutch exit tax paid in March 2019 as this was treated as an exceptional item. In H1 2020, the $24.7m Jumpshot wind down costs were treated as an exceptional item, thus excluded from the Unlevered Free Cash Flow.

 

Levered Free Cash Flow

 

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

 

 

Rounding

 

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

 

Notes:

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

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

16 The  'Gross-Up Adjustment' refers to the estimated impact of the additional amount of 2015 and 2016 revenue and expenses and their deferral that would have been recognised by Avast had the contractual arrangements with certain customers qualified to have been recognised on a gross rather than a net basis prior to 2017 (AVG had historically recognised Billings and revenues on a gross basis, whereas Avast recognised them on a net basis). Both businesses recognise revenue on a gross basis since 2017.

17 There was no deferred cost of goods sold ( 'COGS') balance consolidated by the Group in the acquisition balance sheet of AVG in 2016 and thus no subsequent expense was recorded as the revenue in respect of pre-acquisition date billings was recognised. The 'COGS Deferral Adjustments' refers to an adjustment to reflect the recognition of deferred cost of goods sold expenses that would have been recorded in 2016 and 2017 in respect of pre-acquisition date AVG billings, had the AVG and the Group's businesses always been combined and had AVG always been deferring cost of goods sold.

 

DIRECTORS' RESPONSIBILITY STATEMENT

 

We confirm that to the best of our knowledge:

 

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

 

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

 

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

 

(b)  DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report in Financial statements dated 25 February 2020 that could do so."

 

On behalf of the Board

 

Ondrej Vlcek

Chief Executive of Avast

 

 

INDEPENDENT REVIEW REPORT TO AVAST PLC

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2020  which comprises the Consolidated Statement of Profit and Loss, Consolidated Statement of Comprehensive Income, Consolidated Statement of Financial Position, Consolidated Statement of Changes in Shareholder's Equity, Consolidated Statement of Cash Flow and the related explanatory notes. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

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

Directors' Responsibilities

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

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

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of Review

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

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2020 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Ernst & Young LLP

London

11 August 2020

 

CONSOLIDATED STATEMENT OF PROFIT AND LOSS

FOR THE SIX-MONTHS ENDED 30 JUNE 2020

 

($'m)


 

Six-months ended

Six-months ended


Note

30 June 2020

(Unaudited)

30 June 2019

(Unaudited)

REVENUES

3

433.1

425.4

Cost of revenues


(104.6)

(107.5)

GROSS PROFIT


328.5

317.9





Sales and marketing


(70.0)

(68.4)

Research and development


(45.2)

(38.6)

General and administrative


(78.8)

(49.0)

Total operating costs


(194.0)

(156.0)





OPERATING PROFIT


134.5

161.9





Net gain on disposal of a business operation


-

17.5





Interest Income

7

0.3

1.0

Interest Expense

7

(18.5)

(35.6)

Other finance income and expense (net)

7

(1.0)

(0.9)

PROFIT BEFORE TAX


115.3

143.9





Income tax

8

(28.8)

(31.3)

PROFIT FOR THE PERIOD


86.5

112.6

Attributable to:




  Equity holders of the parent


86.5

112.6

  Non-controlling interest ("NCI")


-

-





Earnings per share (in $ per share):




Basic EPS

9

0.09

0.12

Diluted EPS

9

0.08

0.11

 

 

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

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX-MONTHS ENDED 30 JUNE 2020

 

($'m)


Six-months ended

Six-months ended


30 June 2020

(Unaudited)

30 June 2019

(Unaudited)

Profit for the period

86.5

112.6

Other comprehensive gains:



Items that will not be reclassified subsequently to profit or loss:

 



  -  Defined benefit plan actuarial gain

-

-

Items that may be reclassified subsequently to profit or loss:



  -  Translation differences

0.1

0.5

Total other comprehensive gains

0.1

0.5

Comprehensive income for the period

86.6

113.1

  Attributable to:



  Equity holders of the parent

86.6

  113.1

    Non-controlling interest

-

-

 

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

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AT 30 JUNE 2020

 

($'m)

Note

30 June 2020

(Unaudited)

30 June 2019

(Unaudited)

31 December 2019

(Audited)

ASSETS





Current assets





Cash and cash equivalents


151.0

139.4

216.6

Trade and other receivables


73.1

81.5

78.9

Capitalised contract costs

10

34.2

32.8

33.3

Prepaid expenses


12.1

9.6

13.6

Inventory


0.1

0.3

0.4

Tax receivables

8

4.4

14.6

22.0

Financial assets


0.7

1.6

1.2



275.6

279.8

366.0

Non-current assets





Property, plant and equipment

11

37.8

24.3

42.9

Right-of-use assets

12

61.5

66.2

62.6

Intangible assets

11

152.8

231.4

193.3

Deferred tax asset

8

202.2

195.0

203.8

Financial assets


0.8

0.8

0.8

Capitalised contract costs

10

3.9

4.5

4.4

Prepaid expenses


0.8

2.2

0.8

Goodwill


1,991.3

1,982.8

1,991.3



2,451.1

2,507.2

2,499.9

TOTAL ASSETS


2,726.7

2,787.0

2,865.9

SHAREHOLDERS' EQUITY AND LIABILITIES





Current liabilities





Trade and other payables


58.2

57.5

65.1

Lease liability

12

7.4

6.6

7.3

Provisions

13

20.8

9.2

11.6

Income tax liability


9.4

4.0

0.3

Deferred revenues

14

448.6

415.0

420.5

Term loan

15

60.9

61.8

58.2

Financial liabilities


1.2

-

-



606.5

554.1

563.0

Non-current liabilities





Lease liability

12

56.9

62.0

57.5

Provisions

13

0.7

0.9

0.9

Deferred revenues

14

56.1

54.1

54.3

Term loan

15

837.1

1,103.3

969.5

Financial liabilities


-

2.6

2.1

Other non-current liability


0.7

1.5

1.7

Redemption obligation


-

-

56.3

Deferred tax liability

8

28.2

42.0

36.2



979.7

1,266.4

1,178.5

Shareholders' equity





Share capital


138.1

131.9

136.0

Share premium, statutory and other reserves


359.5

303.5

280.7

Translation differences


1.4

0.2

1.3

Retained earnings


641.5

529.8

698.9

Equity attributable to equity holders of the parent


1,140.5

965.4

1,116.9

Non-controlling interest


-

1.1

7.5

 

 

 


1,140.5

966.5

1,124.4

TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES


2,726.7

2,787.0

2,865.9

 

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

 

 

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

FOR THE SIX-MONTHS ENDED 30 JUNE 2020

 

($'m)



Share capital

Share premium

 

Other reserves

Translation differences

Retained earnings

Equity attributable to equity holders of the parent

Non-controlling interests

Total equity

 

At 31 December 2018


129.0 

15.4

260.5

(0.3)

494.8

899.4

1.0

900.4

Result of the six-months


-

-

-

-

112.6

112.6

-

112.6

Other comprehensive income


-

-

-

0.5

-

0.5

-

0.5

Comprehensive income for the period


-

-

-

0.5

112.6

113.1

-

113.1

 

Other movements


-

-

-

-

(0.3)

(0.3)

-

(0.3)

 

Share-based payments


-

-

10.6

-

-

10.6

0.1

10.7

 

Exercise of options


2.9

17.0

-

-

-

19.9

-

19.9

 

Share-based payments -deferred tax


-

-

-

-

6.4

6.4

-

6.4

 

Cash dividend


-

-

-

-

(83.7)

(83.7)

-

(83.7)

 

At 30 June 2019


131.9

32.4

271.1

0.2

529.8

965.4

1.1

966.5

Result of the six-months


-

-

-

-

136.1

136.1

0.2

136.3

Other comprehensive income


-

-

-

(0.2)

-

(0.2)

-

(0.2)

Comprehensive income (loss) for the period


-

-

-

(0.2)

136.1

135.9

0.2

136.1

Transactions with NCI - Sale of interest


-

-

-

-

48.6

48.6

5.7

54.3

Transactions with NCI - Recognition of put liability


-

-

(55.7)

-

-

(55.7)

-

(55.7)

Share-based payments - deferred tax


-

-

-

-

28.5

28.5

-

28.5

Other movements


-

-

0.2

1.3

(0.8)

0.7

-

0.7

Share-based payments


-

-

9.5

-

-

9.5

0.5

10

Exercise of options


4.1

23.2

-

-

-

27.3

-

27.3

Cash dividend


-

-

-

-

(43.3)

(43.3)

-

(43.3)

At 31 December 2019


136.0

55.6

225.1

1.3

698.9

1,116.9

7.5

1,124.4

Result of the six-months


-

-

-

-

86.5

86.5

-

86.5

Other comprehensive income


-

-

-

0.1

-

0.1

-

0.1

Comprehensive income for the period


-

-

-

0.1

86.5

86.6

-

86.6

Other movements


-

-

-

-

(1.9)

(1.9)

-

(1.9)

Transactions with NCI - Purchase of interest


-

-

-

-

(57.3)

(57.3)

(7.5)

(64.8)

Transactions with NCI - De-recognition of put liability


-

-

55.7

-

0.6

56.3

-

56.3

Transfer share-based payments to retained earnings


-

-

(14.7)

-

14.7

-

-

-

Share-based payments 


-

-

8.7

-

-

8.7

-

8.7

Exercise of options


2.1

29.1

-

-

-

31.2

-

31.2

Share-based payments -deferred tax


-

-

-

-

5.4

5.4

-

5.4

Cash dividend


-

-

-

-

(105.4)

(105.4)

-

(105.4)

At 30 June 2020


138.1

84.7

274.8

1.4

641.5

1,140.5

-

1,140.5

 

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

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX-MONTHS ENDED 30 JUNE 2020

 

($'m)



Six-months ended

Six-months ended


Note

30 June 2020

(Unaudited)

30 June 2019

(Unaudited)

Cash flows from operating activities




Profit for the financial period


86.5

112.6

Non-cash adjustments to reconcile profit to net cash flows:




Income tax

8

28.8

31.3

Depreciation

6

9.5

9.5

Amortisation

6

41.0

50.2

Impairment


2.8

-

Gain on disposal of a business operation


-

(17.5)

Movement of provisions and allowances


7.5

0.9

Interest income

7

(0.3)

(1.0)

Interest expense, changes of fair values of derivatives and other non-cash financial expense

7

16.9

37.7

Shares granted to employees

4

8.7

10.7

Effect of exchange rate changes on cash and cash equivalents held in foreign currencies


(1.1)

(2.7)

Unrealized foreign exchange gains and losses and other non-cash transactions


0.1

(3.3)

Working capital adjustments:




(Increase)/decrease in trade and other receivables and inventories


0.3

(4.0)

(Decrease) in trade and other payables


(4.1)

(7.5)

Increase in deferred revenues


36.0

33.6

Income tax paid

 


(6.8)

(74.0)

Net cash flows from operating activities


225.8

176.5

Cash flows from investing activities




Acquisition of property and equipment


(2.2)

(2.1)

Acquisition of intangible assets


(0.5)

(1.1)

Investment in a subsidiary, net of cash acquired


-

(11.2)

Settlement of contingent consideration


(3.6)

-

Proceeds from sale of a business operation, net of cash disposed

 


3.0

26.7

Interest received

7

0.3

1.0

Net cash used in investing activities


(3.0)

13.3





Cash flows from financing activities




Transactions with NCI

17

(64.8)

-

Dividend paid

19

(105.4)

(83.7)

Exercise of options


31.2

 19.9

Repayment of borrowings

15

(130.2)

(433.5)

Proceeds from borrowings

15

-

202.6

Transaction costs related to borrowings

15

-

(0.5)

Interest paid

15

(15.4)

(26.1)

Lease payments interest

 

12

(1.1)

(1.2)

Lease payments principal

 


(3.8)

(2.9)

Net cash flows from financing activities


(289.5)

(325.4)





Net decrease in cash and cash equivalents


(66.7)

(135.6)

Effect of exchange rate changes on cash and cash equivalents held in foreign currencies


1.1

2.7

Cash and cash equivalents at beginning of period


216.6

272.3

Cash and cash equivalents at end of period


151.0

139.4





 

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

1.  General information

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

 

The Interim Condensed Financial Statements were approved for issue by the Board of Directors on 11 August 2020 and have been reviewed but not audited.

 

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

 

The financial information in respect of the financial year ended 31 December 2019 has been extracted from the audited financial statements for that financial year that have been delivered to the registrar and on which the auditors gave an unqualified audit opinion which did not include an emphasis of matter reference or a statement under sections 498(2) or (3) of Companies Act 2006. 

2.  Basis of preparation and changes to the accounting policies

4.1. Basis of preparation

The Interim Condensed Financial Statements for the six-months ended 30 June 2020 have been prepared in accordance with IAS 34Interim Financial Reporting as adopted by the European Union and the Disclosure and Transparency Rules of the Financial Conduct Authority. The Interim Condensed Financial Statements should be read in conjunction with the Annual Report and Consolidated financial statements for the year ended 31 December 2019, which have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ('IFRS').

 

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

 

Going Concern

 

Due to the uncertainty arising from the Covid-19 pandemic, management have performed a detailed going concern review and analysis of the accounts and consider that the Group has adequate resources to continue business for the foreseeable future, and a period of at least 12 months from the signing of the interim financial statements.

Group's financial covenants

 

The Group's Term Loan Credit Agreement includes a single financial covenant that is triggered at any time when $35 million or more is outstanding under the revolving credit agreement for period ending on June 30 or December 31. The Group must maintain, on a consolidated basis, a leverage ratio (set as a ratio of Consolidated First Lien Net Debt to Consolidated EBITDA) less than 6.50x. This covenant is tested quarterly at such time as it is in effect. The Total Net First Lien Leverage Ratio remains materially lower than 6.5x during the period under review. The ratio was 1.7x at 30 June 2020 and there is no reason to believe that the Group would have any material risk against the ceiling of 6.5x. As of 30 June 2020, $40 million committed was undrawn under the revolving credit facility.

 

Reverse stress testing

To make the going concern assessment, the Directors have reviewed the latest budget and 12 months forecast including the projected cash flows and other relevant information. The cash flow projections have been subject of reverse stress testing, which assessed the potential impact of extreme scenario in which the Consumer Direct Desktop billings would decline drastically without any mitigating action taken by management. Even in such scenario, which is considered remote, the Group has more than sufficient headroom in its available resources to withstand the 12 months period from signing of the interim financial statements and not to be in breach of the financial covenant. The Group would only run out of available cash in the extreme situation where practically no further Consumer Desktop billings would be realised after August 2020, collections would stop, and no meaningful offsetting cost actions would be taken, whilst still paying dividends according to the current policy (i.e. 40% of Levered Free Cash Flow).

Our business remains resilient because:

- Cash collection is strong and bad debt risk is limited as clients typically pay for service up front

- The renewal rate remains steady in Consumer Desktop

- Flexible cost base - significant portion of Group's costs are discretionary in nature

- The work-from-home trend in the pandemic environment created an upswing in demand across the product portfolio resulting in strong growth in customer numbers (up 640,000 since the end of 2019)

- Our deferred revenue balance is growing (deferred revenue up +8.2% vs H1 2019, excluding Jumpshot) supporting attractive future revenue growth and good future revenue visibility. Deferred revenue balance as of 30 June 2020 of $504.7m includes $448.6m to be released into revenue in the following 12 months

- We continuously monitor and invest into market needs. In H1 2020 Avast continued its strong investment in technology capability and innovation, and further enhanced the customer experience to support mid-term growth initiatives, and to keep up with the latest technology trends.

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

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

Impact of Covid-19 on financial statements at 30 June 2020

 

In light of the impact of Covid-19, management have considered the impact on accounting policies, judgements and estimates. In particular, on the expected credit loss, where customers have been reviewed for potential increased level of risk. There has been no material specific provision to the Group's receivables recorded as of 30 June 2020.

Impairment reviews of goodwill and intangible assets are ordinarily performed annually. At 30 June 2020, the Group reviewed whether there are any new impairment indicators present due to the uncertainty caused by Covid-19. No significant adjustment to Group's accounting estimates has been deemed necessary, considering also the fact that the headroom of market capitalization over net assets is significant. There is no reason to believe that impairment would be required.

4.2. New standards, interpretations and amendments adopted by the Group

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual consolidated financial statements for the year ended 31 December 2019, except for the adoption of new standards effective as of 1 January 2020. There were no new standards issued since 1 January 2020 that would have impacted the consolidated financial statements. The Group has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.

 

Several amendments and interpretations apply for the first time in 2020, but do not have an impact on the interim condensed consolidated financial statements of the Group.

 

IFRS 3 Business combinations (Amendments)

 

The amendment to IFRS 3 clarifies that to be considered a business, an integrated set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output. Furthermore, it clarified that a business can exist without including all of the inputs and processes needed to create outputs. These amendments had no impact on the consolidated financial statements of the Group, but may impact future periods should the Group enter into any business combinations.

 

IAS 1 Presentation of financial statements and IAS 8 Accounting policies, changes in accounting estimates and errors: Definition of 'material' (Amendments )

 

The Amendments are effective for annual periods beginning on or after 1 January 2020 with earlier application permitted. The Amendments clarify the definition of material and how it should be applied. The new definition states that, "Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity". In addition, the explanations accompanying the definition have been improved. These amendments had no impact on the consolidated financial statements of, nor is there expected to be any future impact to the Group.

 

Amendments to IFRS 7, IFRS 9 and IAS 39: Interest Rate Benchmark Reform

 

The amendments to IFRS 9 and IAS 39 Financial Instruments: Recognition and Measurement provide a number of reliefs, which apply to all hedging relationships that are directly affected by interest rate benchmark reform. A hedging relationship is affected if the reform gives rise to uncertainties about the timing and or amount of benchmark-based cash flows of the hedged item or the hedging instrument. These amendments had no impact on the consolidated financial statements of the Group.

 

3.  Segment information and other disclosures

 

For management reporting purposes, two operating segments of Consumer and Small and Medium-sized business ('SMB') have been identified based on the nature of the business and how the business is managed.

 

Billings is one of the important metrics used to evaluate and manage operating segments. Billings represent the full value of products and services being delivered under subscription and other agreements and include sales to new end customers plus renewals and additional sales to existing end customers. Under the subscription model, end customers pay the Group for the entire amount of the subscription in cash upfront upon initial delivery of the applicable products. Although the cash is paid up front, under IFRS, subscription revenue is deferred and recognised rateably over the life of the subscription agreement, whereas non-subscription revenue is typically recognised immediately.

 

The Group evaluates the performance of its segments based primarily on billing, revenue and operating profit.

Billings is not defined or recognised under IFRS and considered as a non-IFRS financial measure used to evaluate current business performance.

 

Certain costs that are not directly applicable to the segments are identified as corporate overhead costs and represent general corporate costs that are applicable to the consolidated group. In addition, costs relating to share-based payments and exceptional items are not allocated to the segments since these costs are not directly applicable to the segments, and therefore not included in the evaluation of performance of the segments.

 

The following tables present summarised information by segment:

 

Six-months ended 30 June 2020 (Unaudited)

($'m )

Consumer

SMB

Total

Billings

445.8

23.3

469.1

Deferral of revenue

(35.9)

(0.1)

(36.0)

Segment revenue

409.9

23.2

433.1

Segment cost of revenues

(40.3)

(2.8)

(43.1)

Segment sales and marketing costs

(43.3)

(8.6)

(51.9)

Segment research and development costs

(24.9)

(1.6)

(26.5)

Segment general and administrative costs

(1.2)

0.4

(0.8)

Total segment operating profit

300.2

10.6

310.8

Corporate overhead



(69.4)

Depreciation and amortisation



(50.5)

Exceptional items



(47.4)

Share-based payments



(8.7)

Employer's taxes on share-based payments


(0.3)

Consolidated operating profit



134.5

 

 

Six-months ended 30 June 2019 (Unaudited)

($'m )

Consumer

SMB

Total

Billings

435.2

24.4

459.6

Deferral of revenue

(34.9)

0.7

(34.2)

Revenues

400.3

25.1

425.4

Deferred revenue haircut reversal

0.5

0.8

1.3

Segment revenue

400.8

25.9

426.7

Segment cost of revenues

(40.7)

(2.5)

(43.2)

Segment sales and marketing costs

(39.5)

(9.6)

(49.1)

Segment research and development costs

(25.6)

(2.4)

(28.0)

Segment general and administrative costs

(2.3)

0.8

(1.5)

Total segment operating profit

292.7

12.2

304.9

Corporate overhead



(68.2)

Deferred revenue haircut reversal



(1.3)

Depreciation and amortisation



(59.7)

Exceptional items



(1.6)

Share-based payments



(10.7)

Employer's taxes on share-based payments


(1.5)

Consolidated operating profit



161.9

 

Corporate overhead costs primarily include the costs of the Group's IT, HR, Finance and central marketing functions and legal and rent costs, which are not allocated to the individual segments.

 

The following table presents depreciation and amortisation by segment:

 

($'m )

Six-months ended 30 June 2020

(Unaudited)

Six-months ended 30 June 2019

(Unaudited)

Consumer

40.6

50.4

SMB

0.1

0.1

Corporate overhead

9.8

9.2

Total depreciation and amortisation

50.5

59.7

 

The following table presents revenue of subsegments:

 

($'m )

Six-months ended 30 June 2020

(Unaudited)

Six-months ended 30 June 2019

(Unaudited)

Consumer Direct Desktop

334.4

307.0

Consumer Direct Mobile

36.5

38.2

Consumer Indirect

35.7

33.9

SMB

23.2

25.1

Other

3.3

21.1

Total

433.1

425.4

 

The following table presents revenue attributed to countries based on the location of the customer:


Six-months ended

30 June 2020

(Unaudited)

Six-months ended

30 June 2019

(Unaudited)


($'m )

(in %)

($'m )

(in %)

United States

169.7

39.2%

175.7

41.3%

United Kingdom

39.5

9.1%

37.0

8.7%

France

33.9

7.8%

32.6

7.7%

Germany

29.2

6.8%

28.1

6.6%

Other countries*

160.8

37.1%

152.0

35.7%

Total

433.1

100.0%

425.4

100.0%

  *No individual country represented more than 5% of the respective totals.

 

Revenues from relationships with certain third parties exceeding 10% of the Group's total revenues were as follows:

 

($'m )

Six-months ended 30 June 2020

(Unaudited)

Six-months ended 30 June 2019

(Unaudited)

Revenues realised through online resellers:



  Digital River

292.6

246.4

4.  Share-Based payments

The total expense that relates to the equity-settled share-based payment transactions during the period is as follows:

 

($ 'm)


Six months ended 30 June 2020

(Unaudited)

Six months ended 30 June 2019

(Unaudited)

Avast Option Plan


(0.8)

3.9

Long Term Incentive Plan ("LTIP")


9.3

6.7

Share Matching Plan ("SMP")


0.2

-

Jumpshot Option Plan


-

0.1

Total share-based payment expense


8.7

10.7

 

The Group also recognised additional $0.3 million (H1 2019: $1.5 million) of employer's costs related to the share-based payments exercise included in operating costs. Total costs related to share-based payments adjusted out from the adjusted operating profit amounted to $9.0 million (H1 2019: $12.2 million).

 

The Group has made awards under its share-based payments plans with a weighted average share price ('WASP') on the grant date as follows:

 

($ 'm)

Six-months ended 30 June 2020

Number

(Unaudited)

Six-months ended 30 June 2020

WASP ( £ pence)

(Unaudited)

Six-months ended 30 June 2019

Number

(Unaudited)

Six-months ended 30 June 2019

WASP ( £ pence)

(Unaudited)

RSU

1,427,240

406.1

1,729,581

296.8

PSU

1,185,732

404.6

870,137

295.9

Total

2,612,972

405.4

2,599,718

296.5

 

5.  Exceptional items

 

The following table presents the exceptional items by activities:

($'m )

Six-months ended 30 June 2020

(Unaudited)

Six-months ended 30 June 2019

(Unaudited)

Exceptional items in operating profit

(47.4)

(1.6)

Net gain on disposal of business operation

-

17.5

 

Exceptional items in operating profit

 

During the six-months ended 30 June 2020, the Group returned the investment made by Ascential plc into Jumpshot in the total amount of $73.0 million, which included associated exit costs of $8.2m. These costs were included in the exceptional costs, in the net cash flows from operating activities and treated as tax non-deductible. The amount of investment returned to Ascential excluding exit costs was included in the net cash flows from financing activities.

 

In total, the Group incurred $24.7 million costs in the six-months ended 30 June 2020 in relation to winding down the operations of Jumpshot. These costs were primarily cash items consisting of restructuring personnel costs, legal fees, refunds to the customer and aforementioned Ascential exit costs. The non-cash items included gain from release of deferred revenue of $7.6m which was offset by impairment of fixed assets and right-of-use assets of $2.8m and creation of bad debt provision and write-offs of account receivables and other assets of $4.5m. These exceptional items have been treated as tax non-deductible.

 

In addition, Avast donated $22.7 million (out of total $25.0 million committed) to accelerate global R&D programs to help combat Covid-19. Total amount of donations $22.7m was included in the net cash flows from operating activities and the related tax impact has been included in the tax adjusting items ($4.3 million).

 

During the six-months ended 30 June 2019, the Group incurred $0.3 million of legal and professional fees related to the disposal of a subsidiary and related business operation and $0.2 million of legal fees related to the TrackOFF acquisition and other minor integration and restructuring costs. The tax credit from these exceptional costs was $0.2 million.

 

Net gain on disposal of a business operation

 

On 30 January 2019, the Group sold all activities of Managed Workplace business recognising a gain of $17.5 million as an exceptional item. Proceeds from this transaction, net of cash sold, have been included in cash flows from investing activities.

6.  Depreciation and amortisation

Amortisation by function:

 

($ 'm)

Six-months ended 30 June 2020

(Unaudited)

Six-months ended 30 June 2019

(Unaudited)

Cost of revenues

39.9

48.8

Total amortisation of acquisition intangible assets

39.9

48.8

Cost of revenues

0.4

0.9

Sales and marketing

0.1

0.1

Research and development

0.2

-

General and administration

0.4

0.4

Total amortisation of non-acquisition intangible assets

1.1

1.4

Total amortisation

41.0

50.2

 

Depreciation by function:

 

($ 'm)

Six-months ended 30 June 2020

(Unaudited)

Six-months ended 30 June 2019

(Unaudited)

Cost of revenues

3.9

3.5

Sales and marketing

-

0.1

Research and development

0.1

0.4

General and administration*

5.5

5.5

Total depreciation

9.5

9.5

  *$3.8 million (H1 2019: $3.8 million) is attributable to the depreciation of right-of-use assets (see Note 12)

 

Tangible and intangible assets are allocated to each department of the Group. The depreciation and amortisation of these assets is reported as part of operating costs and cost of revenues.

7.  Finance income and expenses

Interest income:

 

($ 'm)

Six-months ended 30 June 2020

(Unaudited)

Six-months ended 30 June 2019

(Unaudited)

Interest on bank deposits

0.3

1.0

Total finance income

0.3

1.0

 

Interest expense:

 

($ 'm)

Six-months ended 30 June 2020

(Unaudited)

Six-months ended 30 June 2019

(Unaudited)

Term loan interest expense

(17.4)

(34.4)

Lease interest expense

(1.1)

(1.2)

Total interest expense

(18.5)

(35.6)

 

Other finance income and expense (net):

 

($ 'm)

Six-months ended 30 June 2020

(Unaudited)

Six-months ended 30 June 2019

(Unaudited)

Changes of fair values of derivatives

1.3

(1.0)

Revolving loan - commitment fee and other fees

(0.2)

(0.6)

Foreign currency gains and losses, net

(5.0)

(3.1)

Unrealised foreign exchange gains and losses on borrowings, net

2.4

4.3

Other financial expense and income (net)

0.5

(0.5)

Total other finance income and expense (net)

(1.0)

(0.9)

8.  Income tax

In the Consolidated statement of financial position, the corporate income tax receivable of $2.0 million (H1 2019: $8.7 million) is part of the caption tax receivables.

 

The major components of the income tax in the consolidated statement of comprehensive income are:

 

($ 'm)

Six-months ended 30 June 2020

(Unaudited)

Six-months ended 30 June 2019

(Unaudited)

Current income tax

(30.7)

(30.4)

Deferred tax

1.9

(0.9)

Total income tax

(28.8)

(31.3)

 

The reconciliation of income tax benefit applicable to accounting profit before income tax at the statutory income tax rate to income tax expenses at the Group's effective income tax rate is as follows:

 

($ 'm)

Six-months ended 30 June 2020

(Unaudited)

Six-months ended 30 June 2019

(Unaudited)

Profit before tax

115.3

143.9

Group effective income tax rate (20%* in 2020 and 2019)

(23.1)

(28.8)




Recurring adjustments



Non-deductible expenses

(0.8)

(1.3)

Share-based payments

(1.3)

(2.1)

FX effect on Intercompany loans

3.7

(1.0)




Non recurring adjustments



Current year deferred tax assets not recognised

(5.7)

(0.1)

Effect of changes in tax rates on deferred taxes

0.2

(1.1)

Recognition of previously unrecognized deferred tax assets

-

4.7




Remaining impact of tax rate variance and other effects

(1.8)

(1.6)

Total income tax

(28.8)

(31.3)

  * Estimated as a Group's blended rate across the jurisdictions where the Group operates.

As of 30 June 2020, the Group recognised a deferred tax liability of $28.2million (2019: $42.0 million) which relates mainly to taxable differences recognized during purchase price allocations in previous periods.

As of 30 June 2020, the Group recognised a deferred tax asset of $202.2 million (2019: $195.0 million) of which the major part relates to deductible temporary differences in the Czech Republic ($125.1 million) and carry forward of unused tax losses and other temporary differences in United States ($64.8 million). Based on expectations of future profitability, management expects to recover the deferred tax asset over approximately  20-year period.

9.  Earnings per share

Basic earnings per share amounts are calculated by dividing the net profit for the period attributable to equity holders of the Group by the weighted average number of shares of ordinary shares outstanding during the year.

Diluted earnings per share is calculated by dividing the profit for the period attributable to equity holders of the Group by the weighted average number of ordinary shares outstanding during the period plus weighted average number of shares that would be issued if all dilutive potential ordinary shares were converted into ordinary shares.

Adjusted EPS is calculated by dividing the adjusted net profit for the period attributable to equity holders by the weighted average number of ordinary shares outstanding during the period.

 

The following reflects the income and share data used in calculating EPS:

 


Six-months ended 30 June 2020

(Unaudited)

Six-months ended 30 June 2019

(Unaudited)

Net profit attributable to equity holders ($ 'm)

86.5

112.6




Basic weighted average number of shares

1,016,594,917

959,745,088

Effect of stock options and restricted stock units 

17,422,859

49,628,110

Total number of shares used in computing dilutive earnings per share

1,034,017,776

1,009,373,198

Basic earnings per share ($/share)

0.09

0.12

Diluted earnings per share ($/share)

0.08

0.11

 

Adjusted earnings per share measures:

 


Six-months ended 30 June 2020

(Unaudited)

Six-months ended

 30 June 2019

(Unaudited)

Net profit attributable to equity holders ($ 'm)

86.5

112.6

Deferred revenue haircut reversal

-

1.3

Share-based payments (including employer's costs)

9.0

12.2

Exceptional items

47.4

1.6

Amortisation of acquisition intangible assets

39.9

48.8

Net gain on disposal of business operation

-

(17.5)

Unrealised FX gain/loss on EUR tranche of bank loan

(2.4)

(4.3)

COGS deferral adjustments

-

(0.1)

Tax impact of IP transfer

3.1

3.1

Tax impact from foreign exchange difference on intercompany loans

(3.7)

1.0

Tax impact on disposal of business operation

-

2.3

Tax impact on adjusted items

(10.0)

(12.8)

Adjusted net profit attributable to equity holders ($ 'm )

169.8

148.2

Basic weighted average number of shares

1,016,594,917

959,745,088

Diluted weighted average number of shares

1,034,017,776

1,009,373,198

Adjusted Basic earnings per share ($/share)

0.17

0.15

Adjusted Diluted earnings per share ($/share)

0.16

0.15

 

Management regard the above adjustments necessary to give a fair picture of the adjusted results of the Group for the period.

10. Capitalised contract costs

 

($ 'm)

30 June 2020

(Unaudited)

30 June 2019

(Unaudited)

31 December 2019

(Audited)

Capitalised contract costs at 1 January

37.7

35.8

35.8

Additions


34.6


32.4


65.6

  Sales commissions and fees

31.2


30.0


60.6


  Licence fees

3.4


2.4


5.0


Amortization


(34.2)


(30.9)


(63.7)

  Sales commissions and fees

(31.4)


(28.3)


(58.4)


  Licence fees

(2.8)


(2.6)


(5.3)


Capitalised contract costs at end of period

38.1

37.3

37.7

 

Total current


34.2

32.8

33.3

Total non-current


3.9

4.5

4.4

 

Capitalised contract costs include commissions, fees and third-party licence costs related to the subscription software licences that are amortised on a straight-line basis over the licence period, consistent with the pattern of recognition of the associated revenue. Capitalised contract costs are reviewed for impairment annually. All costs are expected to be recovered.

11. Non-current assets

Intangible assets

 

The Group did not acquire any significant intangible non-current assets during the six-months ended 30 June 2020. The amortisation expense was $41.0 million and $50.2 million for the six-months ended 30 June 2020 and 2019, respectively.

 

The Group has tested the goodwill, trademarks, domains and intangibles with an indefinite useful life for impairment as at 31 December 2019. As at 30 June 2020, the Group had not identified any indicators of impairment. The key assumptions used to determine the recoverable amount were disclosed in the annual consolidated financial statements for the period ended 31 December 2019.

 

Property, plant and equipment

There were no significant additions or other disposals of tangible non-current assets during the six-months ended 30 June 2020. The depreciation expense was $5.7 million and $5.7 million for the six-months ended 30 June 2020 and 2019, respectively.

In relation to winding down the operation of Jumpshot, the Group recognised an impairment in the amount of $1.6 million included in exceptional items.

12. Leases

Right-of-use assets

Set out below are the carrying amounts of the Group's right-of-use assets and the movements during the period. The Group has lease contracts related primarily to office buildings.

($ 'm)

30 June 2020

(Unaudited)

30 June 2019

(Unaudited)

31 December 2019

(Audited)

At 1 January

62.6

69.7

69.7

Additions

3.2

0.3

0.9

Remeasurements

0.6

-

(0.1)

Impairment

(1.1)

-

(0.2)

Depreciation of right-of-use assets

(3.8)

(3.8)

(7.7)

At end of period

61.5

66.2

62.6

 

The Group recognised an impairment of $1.1 million due to the closure of Jumpshot's offices that was included in exceptional items.

 

Lease liabilities

 

Lease liabilities are presented in the statement of financial position as follows:

($ 'm)

30 June 2020

(Unaudited)

30 June 2019

(Unaudited)

31 December 2019

(Audited)

At 1 January

64.8

71.7

71.7

Additions

3.2

0.3

0.9

Remeasurements

0.6

-

(0.1)

Terminations

(0.2)

-

-

Lease interest expense

1.1

1.2

2.3

Payments of lease liabilities

(4.9)

(4.1)

(9.2)

Foreign currency exchange difference

(0.3)

(0.5)

(0.8)

At end of period

64.3

68.6

64.8

 

Total current


7.4

6.6

7.3

Total non-current


56.9

62.0

57.5

13. Provisions and contingent liabilities

The movements in the provision accounts were as follows:

  ($ 'm)

Accrued vacation provision

Provision for restructuring

Other

Total

As at 31 December 2018

1.4

5.6

3.0

10.0

Additions

2.8

-

2.2

Utilisation

(1.4)

(3.2)

(0.3)

(4.9)

As at 30 June 2019

2.8

2.4

4.9

10.1

Additions

1.7

0.2

5.6

Utilisation

(2.8)

-

(2.3)

(5.1)

As at 31 December 2019

1.7

2.6

8.2

12.5

Additions

5.3

-

6.0

11.3

Utilisation

(1.7)

(0.6)

-

(2.3)

As at 30 June 2020

5.3

2.0

14.2

21.5

 

Total current

5.3

2.0

13.5

20.8

Total non-current

-

-

0.7

0.7

 

As part of the Jumpshot wind down, the Group is in process of agreeing settlement with a number of customers. Whilst the majority of such cases have been amicably settled, some negotiations are still proceeding. A provision is recorded for all cases, when it is probable that it will result in a future economic outflow which can be reliably measured. Other provisions also includes potential claims in relation to contractual indemnities and disputes, including those related to Jumpshot . As further disclosure would prejudice the outcome of these negotiations, as permitted by IAS 37.92, we have not made any further disclosures about estimates in connection with the financial effects of, and disclosures about the uncertainty regarding the timing or amount of these.

In addition, and as disclosed in the prior year, as part of the process to effect an orderly wind-down of Jumpshot, Avast continues to be in communication with relevant regulators and authorities in respect of certain data protection matters and is cooperating fully in respect of all regulatory enquiries. Any potential future claims or liabilities arising out of communication with relevant regulators or authorities cannot at this time be quantified.

14. Deferred revenues

The Group sells consumer and corporate antivirus products for periods of 12, 24 or 36 months with payment received at the beginning of the license term. Revenues are recognised rateably over the subscription period covered by the agreement.

 

The movements in the deferred revenue were as follows :

 

($ 'm)

30 June 2020

(Unaudited)

30 June 2019

(Unaudited)

31 December 2019

(Audited)

At 1 January

474.8

435.5

435.5

Additions - billings

469.1

459.6

911.0

Business combination

-

-

0.3

Deductions - revenue

(433.1)

(425.4)

(871.1)

Disposal of business operation

-

-

(0.9)

Jumpshot's release of deferred revenue*

(7.6)

-

-

Translation adjustments

1.5

(0.6)

-

At end of period

504.7

469.1

474.8

  *Jumpshot's release of deferred revenue is included in exceptional costs.

 

Current

448.6

415.0

420.5

Non-current

56.1

54.1

54.3

Total

504.7

469.1

474.8

15. Term loan

Term loan balance is as follows:

  ($ 'm)

30 June 2020

(Unaudited)

30 June 2019

(Unaudited)

31 December 2019

(Audited)

Current term loan

60.9

61.8

58.2

Long-term term loan

837.1

1,103.3

969.5

Total term loans

898.0

1,165.1

1,027.7

 

On 30 June 2020, the Group voluntarily paid down the USD tranche by an additional $100 million. Repayment resulted in the partial de-recognition of arrangement fees of $2.7 million.

The following terms apply to the bank loans outstanding at 30 June 2020:

Facility

Interest

Margin

Floor

Principal ($ 'm)

USD Tranche

3-month USD LIBOR*

2.25% p.a.

1.00% p.a.

225.1

EUR Tranche

3-month EURIBOR

2.25% p.a.

0.00% p.a.

678.6

*The Group entered into interest rate cap effective until 31 March 2021. As of 30 June 2020, the 3-month USD LIBOR is capped at 2.75% p.a. for $731.3 million

 

Both facilities are repayable in full at the end of the 84-month term on 30 September 2023. The margin payable on both facilities is dependent upon the ratio of the Group's net debt to adjusted EBITDA as defined in the facility agreement.

Term loan balance reconciliation

The table below reconciles the movements of the balance of the term loan with the information on above and the statement of cash flows.

 

($ 'm)

30 June 2020

(Unaudited)

30 June 2019

(Unaudited)

31 December 2019

(Audited)

Term loan balance at beginning of period

1,027.7

1,391.5

1,391.5

Additional loan drawn (gross of fees)

-

202.6

202.6

Drawing fees

-

(0.5)

(0.9)

Interest expense

17.4

34.4

56.4

Interest paid

(15.4)

(26.1)

(45.1)

Loan repayment

(130.2)

(433.5)

(562.9)

Unrealised foreign exchange loss/(gain)

(2.4)

(4.3)

(13.9)

Other

0.9

1.0

-

Total

898.00

1,165.1

1,027.7

 

16. Derivatives

The carrying amount of derivative financial instruments held by the Group was as follows:

($ 'm)

Type

30 June 2020

(Unaudited)

30 June 2019

(Unaudited)

31 December 2019

(Audited)

Type of derivative


Assets

Liabilities

Assets

Liabilities

Assets

Liabilities

  Interest rate Cap

Level 3

-

1.2

-

2.6

-

2.0

  Foreign currency contracts

Level 2

0.4

-

0.4

-

-

-

Total


0.4

1.2

0.4

2.6

-

2.0

 

The Group has not designated the derivatives as hedging instruments, and therefore changes in the fair value during the period are recorded in the statement of profit and loss.

17. Non-controlling interest

In July 2019, Avast entered into an agreement with WGSN, Inc., a wholly owned subsidiary of Ascential plc ('Ascential'), based on which on 30 August 2019 Avast sold 35% of fully diluted shares of Jumpshot Inc. to Ascential for a consideration of $58.8 million (net of $2.8 million Avast transaction fees), while retaining control of Jumpshot. Pursuant to the agreement, both Avast and Ascential also made capital contributions to Jumpshot, Inc. of $4.8 million and $3.2 million, respectively. In addition, as part of the agreement, Avast made a capital contribution to Jumpshot, Inc. of $6.8 million, which was used by Jumpshot, Inc. to repurchase a portion of the vested share options held by employees.

 

On 30 January 2020, the Group decided to wind down the operation of Jumpshot. The Group returned the   investments made by Ascential plc into the business, along with associated exit costs, in the amount of $73.0 million. Associated exit costs of $8.2 million were recorded as general and administrative expenses in the statement of comprehensive income and included in the exceptional costs. The remaining  $64.8 million was recognised as a decrease in total equity.

 

As of 30 June 2020, Avast owned almost 100% of Jumpshot Inc. As a result, the non-controlling interest of $7.5 million was fully derecognised.

 

18. Redemption obligation

In connection with the sale of 35% fully diluted shares of Jumpshot, Inc. to Ascential Investor on 30 August 2019, the stockholders' agreement gave Ascential Investor the right (the put option) to sell back the shares. Avast therefore recognised a redemption obligation at the present value of the exercise price ($61.6 million) discounted by the estimated Avast annual borrowing rate of 3.6%, with a corresponding entry in equity at year end.

 

In January 2020, the Group decided to discontinue operation of Jumpshot Inc. As a result, the put option was rendered void and redemption obligation was reclassified to the same component of equity that was previously reduced (on initial recognition) as of 30 June 2020.

 

19. Ordinary dividends

The Directors declared an interim dividend of $4.8 cents per share that will be paid on 16 October 2020 to those shareholders who are on the register on 11 September 2020. In accordance with IFRS, no provision for the interim dividend has been made in these financial statements.

 

On 21 May 2020, the Board of Avast plc declared a final dividend of $10.3 cents per ordinary share in respect of the year ended 31 December 2019. The dividend was paid on 24 June 2020.

An analysis of dividends paid is set out below:

($ 'm)

  Six-months ended

30 June 2020

(Unaudited)

Six-months ended

 30 June 2019

(Unaudited)

Year-ended

31 December 2019

(Audited)

Final dividend for the year ended 31 December 2019

at $10.3 cents per share

105.4

-

-

Interim dividend for the period ended 30 June 2019 at $4.4 cents per share

-

-

43.2

Final dividend for the period 15 May 2018 to 31 December 2018 at $8.6 cents per share

-

83.7

83.7

Total cash dividend paid

105.4

83.7

127.0

 

20. Principal exchange rates

 



Six-months ended 30 June 2020

Six-months ended 30 June 2019

Year-ended

31 December 2019

Translation of Czech crown into US dollar ($:CZK1.00)





Average

Closing


0.0421

0.0419

0.0440

0.0447

0.0437

 0.0442






Translation of Sterling into US dollar ($:£1.00)





Average

Closing


1.2740

1.2273

1.2983

1.2694

1.2757

1.3203






Translation of Euro into US dollar ($:€1.00)





Average


1.1039

1.1327

1.1212

Closing


1.1198

1.1378

1.1233

21. Related party disclosures

The compensation of key management personnel for the period is as follows:

 

($ 'm)

Six-months ended 30 June 2020

(Unaudited)

Six-months ended

 30 June 2019

(Unaudited)

Short term employee benefits (including salaries)

5.7

7.1

Share-based payments

2.7

5.7

Total

8.4

12.8

 

The amounts in the table above includes, in addition to the compensation of key management personnel of the Group, the remuneration of employees of the Group that are considered related parties under IAS 24 Related party disclosures.

Nadační fond AVAST ('AVAST Foundation ' )

The foundation was established by Avast Software s.r.o. and it distributes the gifts to other charities and foundations in the Czech Republic. The foundation is considered to be a related party as the spouses of Messrs. Kučera and Baudiš are members of the management board of the foundation.

During the six-months ended 30 June 2020, Avast Software s.r.o. paid donations of CZK 45 million (c.$1.9 million) [H1 2019: CZK 100 million ($4.4 million)] to the Foundation. Further $21 million were paid to the Foundation as part of Covid-19 donations.

Enterprise Office Center

On 15 November 2016, Enterprise Office Center (owned by Erste Group Immorent) where Avast Software s.r.o. resides was sold by a third party to a group of investors including co-founders of the Group, Eduard Kučera and Pavel Baudiš for $119.5 million (ca. €110 million). The annual rent is €3 .2 million ($3.6 million). The term of lease ends in August 2024 and offers two options to extend for another 24 months under the same conditions .

22. Events after the reporting period

The Company has evaluated all events that occur after the balance sheet date through the date when the financial statements were issued to determine if they must be reported. The Company determined that there were no reportable subsequent events to be disclosed.

 

 

 

 


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