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RNS
Kape Technologies  -  KAPE   

Final Results

Released 07:00 13-Mar-2018

RNS Number : 4845H
Kape Technologies PLC
13 March 2018
 

 

13 March 2018

Kape Technologies plc

("Kape," the "Company," or the "Group")

 

Final results for the year ended 31 December 2017

 

Kape (AIM: KAPE), the consumer security software business, announces its final results for the year ended 31 December 2017.

 

Financial highlights

 

·    Revenue increased by 17.4% to $66.4 million (2016: $56.5 million)

·    Adjusted EBITDA1 increased by 29% to $8.3 million (2016: $6.4 million) representing an Improved EBITDA margin of 12.5% (2016: 11.3%)

·    Strong growth in underlying Adjusted EBITDA from core activities excluding Web Apps and Licenses segment of 172% to $6.2 million (2016: $2.3 million)

·    Increase in Media and App Distribution combined segment results2 of 47.6% to $21.7 million (2016: $14.7 million) and combined segment margins2 to 32.0% (2016: 28.3%)

·    Adjusted cash generated from operations1 of $7.6 million (2016: $7.9 million) representing cash conversion from Adjusted EBITDA of 92% (2016: 123%)

·    Strong balance sheet, with a cash balance at year-end of $69.5 million after $7.4 million of acquisition related payments (31 December 2016: $72.1 million)

·    The board has proposed a special dividend in total of a $7.0 million of 4.93 US$ cents (3.55 pence) per share, amounting to $7.0 million

 

Operational highlights

 

·    Acquisition of CyberGhost S.A ("CyberGhost"), a leading SaaS cybersecurity provider focused on the provision of Virtual Private Network ("VPN") solutions, in March 2017

-     Integration of CyberGhost is now complete and the business is fully integrated with Kape's user acquisition platform

-     CyberGhost has performed ahead of management expectations, contributing a net profit of $1.5 million in 2017

·    Significant growth in paying users of 21% to 887,000 (2016: 734,000)

·    Launched Reimage for Mac, to increase the product's addressable market

·    Post year-end, in March 2018, rebranded the business to Kape Technologies plc, to reflect the Company's transformation of its operations and shift in strategic focus

·    Significant progress made in transitioning the business towards a pure SaaS model with enhanced earnings visibility

-     82% growth in premium subscriptions to 260,000 (2016: 143,000) driven by shifting the focus of the business to a SaaS model

-     Expect to deliver $8.0 million of recurring income from existing users in 2018

·    Successful demonstration of ability to drive organic growth initiatives whilst maximising benefits from selective acquisitions continues to underpin medium-term growth expectations

 

Ido Erlichman, Chief Executive Officer of Kape, commented:

 

"With strong growth in revenue and Adjusted EBITDA, 2017 has been a successful year, in which we have achieved key milestones in becoming a leading provider of consumer cybersecurity products.

 

"The successful integration and subsequent strong performance of CyberGhost is evidence of our ability to acquire and integrate businesses into the Kape platform, driving growth through our existing digital marketing technology. We continue to evaluate selective acquisitions to expand our product offering and broaden our reach in the growing market of security and privacy online.

 

"We have made a strong start to 2018, with a solid performance across our core product stack. Following the recent rebranding of the Group, we look forward to driving Kape forward and continuing to deliver shareholder value."

 

 

1 EBITDA, Adjusted EBITDA and Adjusted cash flow from operations are non GAAP measures. Adjusted EBITDA and adjusted cash flow from operations are company specific measures which exclude certain expenses which are considered to be one off and non-recurring in nature.

2 The segment result has been calculated using revenue less costs directly attributable to that segment

Enquiries

 

Kape plc

Ido Erlichman, Chief Executive Officer

Moran Laufer, Chief Financial Officer

 

via Vigo Communications

Shore Capital (Nominated Adviser & Broker)

Toby Gibbs / James Thomas

 

+44 (0)20 3772 2496

Vigo Communications (Financial Public Relations)

Jeremy Garcia / Antonia Pollock

kape@vigocomms.com

+44 (0)20 7830 9700

 

About Kape

 

Kape is a cybersecurity company focused on helping consumers around the world to have better experience and protection in their digital life. Kape develops and distributes a variety of digital products in the online security space. The Company utilises its proprietary digital distribution technology to optimise its reach and create a superb user experience. Kape offers products which provide online security, privacy and an optimal online experience. Kape's vision is to provide online autonomy for a secure and accessible personal digital life, with team of over 350 people across seven locations worldwide.

 

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014.

 

Chairman's statement

 

Introduction

2017 has been a pivotal year for our business in which we fully aligned our operations to focus on cybersecurity software.

Our management team has worked tirelessly to deliver on our stated growth objectives which has now culminated in the renaming and rebranding of the business to Kape Technologies plc (previously Crossrider Plc), an important milestone in the repositioning of the business. Since October 2016, the Company has focused on both acquiring and developing cybersecurity software solutions for consumers, whilst utilising its proprietary digital distribution technology to grow its user base across the Company's product suite.

 

The Company's management has deployed Kape's in-depth expertise and technological capabilities within its digital marketing platform to support and grow our expanded customer base and promote our own products and services. This market leading digital pedigree has enabled the Group to accelerate the Company's successful transformation during 2017. 

Products

In the last year, management has taken great strides to broaden our product stack, which includes our Reimage software and DriverAgent solutions. In March 2017, we acquired CyberGhost, a cybersecurity SaaS provider with specific focus on the provision of Virtual Private Networks ("VPN") solutions, as well as a sizeable customer base. With CyberGhost now fully integrated into the Group, I am pleased to report it has performed ahead of management's expectations on a revenue and profit levels.

In addition, and as part of the expansion into new products, the Company has launched Reimage for Mac, expanding the product's potential customer base.

We continue to experience positive customer traction across all our products, further demonstrating our ability to successfully leverage our expertise and digital marketing platform in order to drive higher margins.

Strategic priorities

 

Our management team remains committed to delivering sustainable growth and is therefore focused on the following key strategic priorities:

 

·      to develop the Company's product offering organically through internal R&D and to grow our user base across the Company's growing portfolio of software products, leveraging Kape's proprietary distribution technology and expertise;

 

·      to continue to implement our plan for new acquisitions that expand both the Company's product offering and reach, with the potential to enter additional complementary sector verticals; and

 

·      to grow the Company's recurring revenue stream by gradually transitioning to a fully SaaS-based model, which will improve both the visibility and quality of earnings, as well as increasing the life time value of our customers.

 

Board appointments

In February 2017, the Company appointed Moran Laufer, Chief Financial Officer of Kape, to the board of the Company. Moran has been a key member of the Company's management, supporting its recent acquisitions as well as being part of the finance team since 2012, successfully supporting the Group's admission to AIM in 2014.

Looking forward

Kape's management has been successful in demonstrating their ability to both drive organic growth initiatives alongside maximising the benefits from strategic acquisitions.

The board is therefore confident that with its new brand positioning, strategic growth priorities and ongoing focus on consumer cybersecurity, Kape will be able to continue to maximise shareholder value. 

The board remains confident in delivering year-on-year growth in 2018.

Don Elgie

Non-Executive Chairman

12 March 2018 

 

Chief Executive Officer's review 

 

Introduction

When I joined Kape (formerly Crossrider Plc) in May 2016, I did so with a clear vision of where I, with the full support of the board, wanted to take this business.  It was clear that despite our pedigree in digital marketing, our future laid beyond adtech. 

I am therefore delighted to look back at 2017 as a year of significant strategic and operational progress.  Over the past twelve months we have delivered on a number of key milestones and taken notable steps to becoming one of the leading next generation providers of consumer cybersecurity products.  

We have built on our existing PC repair (Reimage) and device driver update (DriverAgent) solutions, through both the acquisition and internal development of new products during the year, which is a clear sign of our ambition.

Central to our strategy has been to shift our product focus to be B2C-driven and SaaS enabled and thereby increasing our recurring revenue base, creating a more predictable sales platform from which to grow. 

We are therefore delighted to have delivered such a strong underlying EBITDA performance, up 172%, excluding the web apps and licenses segment, further demonstrating the excellent performance of our business model.

Operational update

In March 2017, we acquired CyberGhost, a leading cybersecurity SaaS provider with a focus on the provision of virtual private network ("VPN") solutions.  The acquisition was successfully integrated into Kape by June 2017 and I am delighted to report, made a positive net profit contribution in the year of $1.5 million.

With CyberGhost now consolidated into the larger Kape operation, we have been successful in generating significant synergies and delivering superior customer traction post-integration with our digital user acquisition platform. This resulted in an increase in CyberGhost's user base by over 30% compared to December 2016 and the last quarter of 2017 saw record sales for the business in terms of volume and EBITDA.

We have grown Kape's product portfolio this year and it now consists of four main products; the CyberGhost VPN, a SaaS product; as well as Reimage PC, DriverAgent and Reimage for Mac, which are purchased on a one-time and yearly unlimited use basis with a technical support component. We have started to implement a SaaS model in the Reimage PC and expect to see the results of this change towards the end of 2018 when the licenses come up for renewal. In addition, we started to utilise the growth in our product offering and user base and we now offer the purchase of CyberGhost and Reimage as a package, providing our customers the best in class products in one place.

To implement the change in business model and focus on profitability, growth and earnings predictability, we have instated five key performance indicators which guide how we measure the success of our operations across the business:

·      deferred income;

·      adjusted operating cashflow;

·      retention rate;

·      paying users; and

·      premium subscriptions.

Deferred income and adjusted operating cashflow are key measures as they demonstrate the true value of each product purchase from our customers, given that they recognise the benefits across the life time of the contract. Paying users and premium subscriptions represent our ability to grow our customer base and we expect these to grow over time. The retention rate is an indication of the quality of our service and products and our aim is for this to remain constant over time and improve in the medium term.

Key performance indicators









2017


2016







Paying users (thousands)



887


734

Premium subscriptions (thousands)



260


143

Retention rate



69%


69%

Adjusted operating cash flow ($'000)



7,641


7,873

Deferred income ($'000)



4,014


2,1873

 

We have also been successful in growing our paying user base for Reimage and DriverAgent, by over 18%, and introducing a subscription based payment model. We also launched a Mac version of Reimage in September 2017, to complement our highly successful PC solution. We believe this new release will substantially grow our potential addressable market for this product.

Given our focus on further strengthening our SaaS business model, 2018 will be the first year we are able to generate significant revenues from our existing customer base.  Therefore, during 2018, we expect to deliver $8.0 million of recurring income from existing users4,  which greatly improves both the visibility and quality of our earnings.

3On a proforma basis If Cyberghost was part of the group on 31 December 2016

4Based on deferred revenue balance and current retention rate for existing subscriptions.

Cybersecurity market

Management identified the consumer cybersecurity space as presenting a significant opportunity for Kape, as a sizeable growth market with few nimble B2C focused-players that can easily adapt to the ever-changing digital landscape. As the internet has become increasingly central to people's lives and concurrently hacking has also evolved significantly, the sharing of data online is posing an increasing threat to individuals' online security.

 

In 2004, the global cybersecurity market was worth $3.5 billion and in 2017 it was worth over $120 billion, representing growth of over 35 times in 13 years, with key growth drivers including5:

·      a growing number of internet users to c. 3.17 billion globally;

·      increased network and WiFi connectivity across the world;

·      commercial entities increasingly collecting personal data;

·      cybercrime targeting individuals, not just enterprise-level hacks;

·      heightened regulatory uncertainty around privacy and online security; and

·      the emergence of the Internet of Things.

The proliferation of internet users has led to a sizeable B2C cybersecurity marketplace, with the addressable market for personal digital safety in 2018 estimated to be $10 billion. Kape is well-placed to capitalise on the increasing awareness of individuals to protect both their privacy and security online, as the Company has end-to end control over the user journey by leveraging its digital marketing technology and expertise.

The Company's renewed focus on the consumer cybersecurity market is increasingly coming to fruition, as evidenced by the strong performance of Kape's core divisions and existing software solutions in 2017. This, coupled with the acquisition and successful integration and performance of CyberGhost, is a real testament to our ability to deliver in the cybersecurity space.

5Based on deferred revenue balance and current retention rate for existing subscriptions.

 

Re-branding

Given the extensive re-engineering of the business we took the decision to rename and rebrand the Company to Kape Technologies plc. Kape will be the future umbrella for all our products and services as we focus on delivering upon the following strategic priorities:

·      strengthening and developing both our consumer and corporate brand globally;

·      better leveraging product cross-selling opportunities within the cybersecurity arena;

·      growing our product offering through both organic growth and acquisitions;

·      developing and increasing our marketing reach under a unified banner; and

·      further strengthening our SaaS business, thereby increasing our recurring revenue base.

Kape's core principles are to be proactive, accessible and bold. We believe there is a real need for innovative solutions for customers and a requirement for online privacy and security as individuals manoeuvre through today's ever-changing online environment.  It is this shift in buying and browsing behaviour that is ultimately driving demand for our products.

Current trading and outlook

Over the past 12 months we have delivered on our stated growth strategy. The Group has made significant headway in developing our product suite, which has been greatly enhanced by the addition of CyberGhost.  The launch of Reimage for Mac is a great example of our internal development capability and our unique 'in-house' digital user acquisition expertise has enabled Kape to expand our user base globally.

We are motivated by the opportunities that exist within our growing portfolio of products and continue to constantly evaluate selective acquisition opportunities which could potentially broaden our software portfolio and accelerate our expansion into the global consumer cybersecurity market.

In 2018, we are focussing on two core growth initiatives:

·      to continue to grow organically against our key KPIs, including users and revenues from our existing product portfolio; and

·      to deliver on a growth enhancing acquisitions which incorporate the following criteria:

-           a sizeable and growing user base;

-           an established recurring revenue model; and

-           the ability to deliver strong synergies with both Kape's digital distribution capabilities and expertise.

We have made a strong start to 2018, with record monthly sales, compared to equivalent period, achieved across our products as we continue to reap the benefits of our renewed focus on the Cybersecurity market. 

The board therefore remains confident in delivering year-on-year growth in 2018, in-line with market expectations.

Special Dividend

Following our robust performance this year and significant adjusted cashflow from operations of $7.6 million the board has declared a special dividend of 4.93 US$ cents per share, amounting to a total of $7.0 million. This is the first special dividend the Company has issued; it follows the successful transition of the business, will contribute to maintaining balance sheet efficiency and reflects our confidence in the business. The dividend shall be paid in sterling and therefore it will be subject to a conversion exchange rate from US dollars based on a GBP/USD rate of 1.3887, being the rate at 4.30 pm on 12 March 2018, as a result shareholders will receive 3.55 pence per share. The special dividend will become payable on 13 June 2018 to those shareholders on the Company's register as at the record date of 25 May 2018. The ex-dividend date is 24 May 2018.

Ido Erlichman

Chief Executive Officer

12 March 2018

Chief Financial Officer's review

 

Overview

Revenue for the year to 31 December 2017 increased by 17.4% to $66.4 million (2016: $56.5 million) and Adjusted EBITDA by 28.9% to $8.3 million (2016: $6.4 million). The increase was driven by strong financial performance of the core App Distribution and Media segments which, excluding the Web Apps and License segment, shows a significant increase of 23.0% in revenue and 46.9% in combined segment results. The increase in core activities was off-set by the winding down of the Web Apps and License business that was completed in September 2017.

Kape remains a highly cash generative business, with cash generated from operations after adjusting for one-off non-recurring items of $7.6 million (2016: $7.9 million). This represents adjusted cash conversion of 92% (2016: 123%). The Group balance sheet remains strong with cash of $69.5 million at 31 December 2017 (31 December 2016: $72.1 million) and no debt.

In March 2017, Kape completed the acquisition of CyberGhost S.A for a maximum consideration of €9.1 million ($9.6 million) out of which €3.1 million ($3.3 million) was in cash at closing, €3.0 million ($3.2 million) in nominal value share options, which are subject to the continued employment of the founder over the vesting period, and a deferred earn-out consideration capped at €3.0 million ($3.2 million) million. €1.75 million ($1.9 million) was paid at closing as a prepayment of the deferred earn out consideration. The fair value of the contingent consideration at acquisition was €1.4 million ($1.5 million). On 20 November 2017, the Company repurchased 3,810,667 options out of the 4,400,000 option granted to the founder for total cash consideration of €3.2 million ($3.8 million) following his reposition from managing director to Chairman and Corporate Development Manager of CyberGhost. Out of the total consideration, €1.6 million ($1.9 million) was paid upon execution of the repurchase agreement, while the remaining amount is to be paid in eight equal instalments.

In April 2017, Kape increased its holding in Clearvelvet Trading Ltd ("Clearvelvet"), a programmatic video advertising company, from 16.67% to 50.01%, for an initial consideration of $1.7 million out of which $0.8 million was in cash and $0.9 million conversion of a loan balance. The cash balance of Clearvelvet at acquisition was $1.4 million. In addition, the sellers would have been entitled to receive up to a total of $1.4 million in earn-out consideration, to be satisfied in cash subject to their continued employment by Clearvelvet. The earn-out consideration was contingent on achieving EBITDA of $1.7 million in 2017 (pro-rated from 60% of target) and $2.2 million for 2018 (pro-rated from 67% of target). The 2017 EBIDTA goal was not achieved, as a result no earn out has been charged for 2017 and no accrual made for 2018 earn out. The earn-out consideration is accounted for remuneration in the post-acquisition income statement rather than as part of the acquisition cost.

Segment Result



Revenue


Segment result



 

2017


2016


 

2017


2016



$'000


$'000


$'000


$'000

App Distribution


48,226


38,241


17,207


11,267

Media


15,781


13,783


4,464


3,480

Web Apps and License


2,376


4,508


2,376


4,508

Revenue


66,383


56,532


24,047


19,255

The segment result has been calculated using revenue less costs directly attributable to that segment. Cost of sales comprises commissions paid to publishers and payment processing fees. Direct sales and marketing costs comprise traffic acquisition costs.

App Distribution









2017


2016




$'000


$'000

Revenue



48,226


38,241

Cost of sales



(4,572)


(2,360)

Direct sales and marketing costs



(26,447)


(24,614)

Segment result



17,207


11,267

Segment margin (%)



35.7


29.5

 

During the period, App Distribution margins significantly improved, reaching 35.7% compared to 29.5% in 2016. The improved return on marketing investment resulted in a $10.0 million increase in revenues and $5.8 million increase in the segment result, which represents a 52.7% uplift. The increase is attributable to organic growth due to improvement in user acquisition processes and traffic quality which resulted in better conversion rates, and a decrease in average user acquisition cost as well as the addition of the DriverAgent and CyberGhost software products to the Company's portfolio in October 2016 and March 2017 respectively.

Media









2017


2016




$'000


$'000

Revenue



15,781


13,783

Cost of sales



-


-

Direct sales and marketing costs



(11,317)


(10,303)

Segment result



4,464


3,480

Segment margin %



28.3


25.3

 

In the Media division, revenues increased by 14.5% and segment results increased by 28.3% to $4.5 million. The increase was driven by the contribution of the Clearvelvet programmatic video advertising activity that was consolidated, starting in April 2017 and compensating for a decrease in revenue from the mobile content and mobile apps marketing verticals.

Web Apps and License



2017


2016




$'000


$'000

Revenue



2,376


4,508

Cost of sales



-


-

Direct sales and marketing costs



-


-

Segment result



2,376


4,508

Segment margin %



100.0


100.0

 

In accordance with the board's decision to cease investment in the Web Apps and License segment, which Kape reported in 2016, revenue in the period came solely from a software licence and services agreement between Kape and Playtech Software pursuant to the terms of which Kape has granted to Playtech Software a license to use certain software modules for Playtech Software's licensees' branded casino software. The agreement expired on 18 September 2017. Following the expiration of the license and services agreement, no further revenue is expected to be generated from this segment and as such it is expected this will be the last time we report this segment.

Adjusted EBITDA

Adjusted EBITDA for the year to 31 December 2017 was $8.3 million (2016: $6.4 million). Adjusted EBITDA is a non-GAAP company specific measure which is considered to be a key performance indicator for the Group's financial performance. It excludes share based payment charges and expenses which are considered to be one-off and non-recurring in nature and are excluded from the following analysis:










2017


2016




$'000


$'000

Revenue



66,383


56,532

Cost of sales



(4,572)


(2,360)

Direct sales and marketing costs



(37,764)


(34,917)

Segment result



24,047


19,255







Indirect sales and marketing costs



(6,207)


(4,265)

Research and development costs



(696)


(1,299)

Management, general and administrative cost



(8,883)


(7,278)

Adjusted EBITDA



8,261


6,413

 

Operating loss

A reconciliation of Adjusted EBITDA to operating loss is provided as follows:










2017


2016




$'000


$'000

Adjusted EBITDA



8,261


6,413

Employee share-based payment charge



(340)


(716)

Charge for repurchase of employee options



(3,176)


-

Exceptional and non-recurring costs



(899)


(862)

Depreciation and amortisation



(6,445)


(9,884)

Impairment of intangible assets



-


(4,683)

Operating loss



(2,599)


(9,732)

 

Exceptional and non-recurring costs for the full year 2017 comprised $0.3 million of acquisition bonuses to employees, other non-recurring staff costs of $0.1 million, professional services related to business combination of $0.3 million and a $0.2 million expense from the repurchase of the founder of CyberGhost's share options on 20 November 2017. The charge for repurchase of employee options of $3.2 million is following the acceleration of the repurchased share options.

Loss before tax

Loss before tax has decreased to $2.9 million compared to $10.0 million in 2016.

Loss after tax

Loss after tax was $3.4 million (2016: $10.7 million). The tax charge derives mainly from group subsidiaries' residual profits. The Group continues to recognise a deferred tax asset of $0.1m (2016: $0.2m) in respect of tax losses accumulated in previous years.

Cash flow




2017


2016




$'000


$'000

Cash flow from operations



6,533


5,922

Exceptional and non-recurring payments



1,108


1,951

Adjusted cash flow from operations



7,641


7,873

% of Adjusted EBITDA



92%


123%

 

Cash flow from operations was strong at $6.5 million (2016: $5.9 million). Adjusted cash flows from operations after adding back payments that are one off in nature and deferred payment for past acquisition that was treated as a remuneration expense in previous years, was $7.6 million (2016: $7.9 million). This represents a cash conversion of 92% of Adjusted EBITDA (2016: 123%).

Tax paid net of refunds in the period was $0.1 million (2016: $0.9 million).

Cash spent in the period on capital expenditure of $2 million (2016: $0.8 million) mainly comprises of capitalised development costs and purchase of fixed assets. Net cash paid for acquisitions in the period totalled $5.3 million (2016: $1.4 million), out of which the Company paid $5.7 million in relation to the CyberGhost acquisition and $0.4 million net inflow related to the acquisition of an additional 33.3% in Clearvelvet and the consolidation of its cash balance in April 2017. As a result, net cash outflow from investing activities was $7.4 million (2016: $3.1 million). In addition, $0.2 million paid in the period for past acquisitions is included in the operational cash flow as it is treated as remuneration as required by IFRS (2016: $1.1 million)

In November 2017, the Company repurchased 3.8 million share options from CyberGhost's founder for a total consideration of $3.8 million, out of which $1.9 million was paid in the year and the rest will be paid in eight equal quarterly instalments.

Financial position

At 31 December 2017, the Company had cash of $69.5 million (31 December 2016: $72.1 million), net assets of $79.4 million (31 December 2016: $80.5 million) and is debt free. At 31 December 2017, trade receivables were $8.5 million (31 December 2016: $5.6 million) which represented 42 days outstanding, (31 December 2016: 44 days).

Early adoption of IFRS 15

In May 2014, the IASB issued IFRS 15 Revenue from Contracts with Customer ("IFRS 15"), a new standard related to revenue recognition. Under the standard, revenue is recognised when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. The Company has adopted IFRS 15 using the cumulative effect method applied to those contracts which were not completed as of 1 January 2017.

Revenue recognition relating to most of our products and services remains substantially unchanged and, in consequence, the impact of the new standard on our opening balances (as at 1 January 2017) was immaterial.

On an ongoing basis, the most significant impact of the standard relates to our accounting for user acquisition costs associated with subscription sales of CyberGhost and auto renewal sales of Reimage which commenced in 2017. These costs, which relate to sales and marketing, are considered incremental in obtaining the contract, and therefore capitalised and amortised over the expected customer relationship period under the new standard. The adoption of the new standard had no impact to cash from or used in operating, financing or investing on our consolidated cash flow statements.

The impact of the adoption on our consolidated income statement and balance sheet for the period ended 31 December 2017 was as follows:

Income statement


2017 as reported under IFRS 15

2017 according to previous policy under IAS 18

Effect of the application of IFRS 15


$'000

$'000

$'000

Selling and marketing expenses

(44,117)

(45,508)

1,391

Operation loss

(2,599)

(3,990)

1,391

Adjusted EBITDA

8,261

6,870

1,391

Total comprehensive loss for the year

(2,503)

(3,894)

1,391

Basic earnings per share

(2.4)

(3.4)

1

Diluted earnings per share

(2.4)

(3.4)

1

 

Balance sheet


Balance at December 31, 2017 as reported under IFRS 15

Balance at December 31, 2017 under IAS 18

Effect of adjustment of IFRS 15


$'000

$'000

$'000

Assets recognised for costs incurred to obtain a contract




Non-current assets - Contract assets

347

-

347

Current assets - Contract assets

1,044

-

1,044


1,391

-

1,391

 

Dividends

Following our strong cash flow from operations and cash balance as of 31 December 2017, The Board has recommended a special dividend of 4.93 US$ cents per share (2016: nil) being a total payout of $7 million.

Moran Laufer

Chief Financial Officer

12 March 2018

 

Consolidated statement of comprehensive income

For the year ended 31 December 2017

 

 


2017

 

2016

 

Note


$'000

 

$'000

 

 

 

 

 

 

Revenue

2

 

66,383

 

56,532

Cost of sales

 

 

(4,572)

 

(2,360)

Gross profit

 

 

61,811

 

54,172

 

 

 

 

 

 

Selling and marketing costs

2a

 

(44,117)

 

(39,915)

Research and development costs

 

 

(1,016)

 

(1,661)

Management, general and administrative costs

 

 

(12,832)

 

(7,761)

Depreciation and amortisation

 

 

(6,445)

 

(9,884)

Impairment of intangible assets

11

 

-

 

(4,683)

Total operating costs

 

 

(64,410)

 

(63,904)

 

 

 

 

 

 

Operating loss

4

 

(2,599)

 

(9,732)

 

 

 

 

 

 

Adjusted EBITDA

 

 

8,261

 

6,413

 

 

 

 

 

 

Employee share-based payment charge

7

 

(340)

 

(716)

Charge for repurchase of employee options

7

 

(3,176)

 

-

Exceptional and non-recurring costs

4

 

(899)

 

(862)

Depreciation and amortisation

 

 

(6,445)

 

(9,884)

Impairment of intangible assets

11

 

-

 

(4,683)

Operating loss

 

 

(2,599)

 

(9,732)

 

 

 

 

 

 

Share of results of equity accounted associates

 

 

(40)

 

47

Finance income

 

 

277

 

4

Finance costs

 

 

(532)

 

(332)

Loss before taxation

 

 

(2,894)

 

(10,013)

Tax charge

5

 

(467)

 

(665)

Loss for the year

 

 

(3,361)

 

(10,678)

Other comprehensive income:

 

 

 

 

 

Foreign exchange differences on translation of foreign operations

 

 

858

 

-

Total comprehensive loss for the year

 

 

(2,503)

 

(10,678)

Total profit/ (loss) for the year attributable to:

 

 

 

 


Owners of the parent

 

 

(3,561)

 

-

Non-controlling interests

 

 

200

 

-

Total comprehensive income/ (loss) attributable to:

 

 

 

 


Owners of the parent

 

 

(2,703)

 

-

Non-controlling interests

 

 

200

 

-

 

 

 

 

 

 

Basic earnings per share (cents)

8

 

(2.4)

 

(7.6)

Diluted earnings per share (cents)

8

 

(2.4)

 

(7.6)

Consolidated statement of financial position

As at 31 December 2017

 

 


2017

 

2016

 

Note


$'000

 

$'000

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

Intangible assets

11

 

12,350

 

7,113

Property, plant and equipment

 

 

815

 

591

Investments in equity accounted associates

 

 

-

 

859

Non-current investments

 

 

50

 

-

Deferred contract costs  

2c


406


-

Deferred tax asset

5

 

97

 

166

 

 

 

13,718

 

8,729

Current assets

 

 

 

 

 

Software license inventory

 

 

65

 

-

Deferred contract costs

2c


1,386


-

Trade and other receivables

 

 

11,071

 

7,950

Cash and cash equivalents

 

 

69,502

 

72,064

 

 

 

82,024

 

80,014

Total assets

 

 

95,742

 

88,743

 

 

 

 

 

 

Equity

 

 

 

 

 

Share capital

 

 

15

 

14

Additional paid in capital

 

 

130,728

 

130,292

Foreign exchange differences on translation of foreign operations

 

 

852

 

(6)

Retained earnings

 

 

(53,200)

 

(49,747)

Equity attributable to equity holders of the parent

 

 

78,395

 

80,553

Non-controlling interests

 

 

977

 

-

Total equity

 

 

79,372

 

80,553

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

Contract liabilities

2b

 

892

 

-

Deferred tax liabilities

5

 

349

 

691

Deferred consideration

9

 

993

 

160

 

 

 

2,234

 

851

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

Trade and other payables

 

 

10,094

 

7,096

Contract liabilities

2b

 

3,120

 

-

Deferred consideration

9

 

922

 

243

 

 

 

14,136

 

7,339

Total equity and liabilities

 

 

95,742

 

88,743

 

The financial statements were approved by the Board and authorised for issue on 12 March 2018.

 

 

Ido Erlichman

Moran Laufer

Chief Executive Officer

Chief Financial Officer

Consolidated statement of changes in equity

For the year ended 31 December 2017

 

Share

capital

Additional paid in capital

Foreign exchange differences on translation of foreign operations

Retained earnings

Equity attributable to equity holders of the parent

Non-controlling interests

 

 

 

 

 

Total

 

$'000

$'000

$'000

$'000

$'000

$'000

   $'000

 

 

 

 

 




At 1 January 2016

14

 

131,287

(6)

 

(39,785)

91,510

-

91,510

Loss for the year

-

-

-

(10,678)

(10,678)

-

(10,678)

Other comprehensive income:

 


 

 




Foreign exchange differences on translation of foreign operations

-

-

-

-

-

-

-

Total comprehensive loss for the year

-

-

-

(10,678)

(10,678)

-

(10,678)

Transactions with owners:

 


 

 




Share based payments

-

-

-

716

716

-

716

Exercise of employee options (note 7)

-

-

-

-

-

-

-

Purchase of own shares (note 6)

-

(995)

-

-

(995)

-

(995)

At 31 December 2016

14

130,292

(6)

(49,747)

 80,553

-

80,553

At 1 January 2017

14

130,292

(6)

(49,747)

80,553

-

80,553

 

 

 

 

 




Loss for the year

-

-

 

(3,561)

(3,561)

200

(3,361)

Other comprehensive income:

 

 

 

 




Foreign exchange differences on translation of foreign operations

-

-

858

-

858

-

858

Total comprehensive loss for the year

-

-

858

(3,561)

(2,703)

200

(2,503)

Non-controlling interest from acquisition of subsidiary

-

-

-

-

-

777

777

Transactions with owners:

 

 

 

 




Share based payments

-

-

-

3,516

3,516

-

3,516

Exercise of employee options (note 7)

1

436

-

-

437

-

437

Purchase of own share options (note 7)

-

-

-

(3,408)

(3,408)

-

(3,408)

At 31 December 2017

15

130,728

852

(53,200)

78,395

977

79,372

Consolidated statement of cash flows

For the year ended 31 December 2017

 

 


2017

 

2016

 

Note


$'000

 

$'000

Cash flow from operating activities

 

 

 

 

 

Loss for the year after taxation

 

 

(3,361)

 

(10,678)

Adjustments for:

 

 

 

 

 

Amortisation of intangible assets

11

 

6,046

 

9,421

Impairment of intangible assets

11

 

-

 

4,683

Depreciation of property, plant and equipment

 

 

399

 

463

Loss on sale of property, plant and equipment

 

 

101

 

35

Tax charge

5

 

467

 

665

Interest income

 

 

(277)

 

(4)

Interest expenses

 

 

411

 

51

Share based payment charge

7

 

3,516

 

716

Share of results of associates

 

 

40

 

(47)

Movement in deferred and contingent consideration

 

 

(90)

 

-

Re-measurement gain on equity interest in associate

 

 

(52)

 

-

Expense from repurchase of employee share options

 

 

208

 

-

Interest received

 

 

277

 

-

Unrealised foreign exchange differences

 

 

240

 

4

Operating cash flow before movement in working capital

 

 

7,925

 

5,309

Decrease in trade and other receivables

 

 

967

 

8,327

Increase in software licenses inventory

 

 

(65)

 

-

Decrease in trade and other payables

 

 

(2,113)

 

(6,625)

Decrease in other current liabilities

 

 

(209)

 

(1,089)

Increase in deferred contract costs

 

 

(1,330)

 

-

Increase in contract liabilities

 

 

1,358

 

-

Cash flow from operations

 

 

6,533

 

5,922

Tax paid net of refunds

 

 

(109)

 

(904)

Cash generated from operations

 

 

6,424

 

5,018

 

 

 

 

 

 

Cash flow from investing activities

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(540)

 

(108)

Sale of property, plant and equipment

 

 

39

 

24

Net cash paid on business combination

12

 

(5,337)

 

(1,089)

Intangible assets acquired

11

 

(115)

 

(850)

Net cash paid on Investment in associates

 

 

-

 

(350)

Capitalisation of development costs

11

 

(1,432)

 

(744)

Net cash used in investing activities

 

 

(7,385)

 

(3,117)

 

 

 

 

 

 

Cash flow from financing activities

 

 

 

 

 

Repurchase of employee share options

7

 

(1,914)

 

-

Exercise of options by employees

7

 

437

 

-

Net payment for purchase of own shares

6

 

-

 

(995)

Net cash generated from financing activities

 

 

(1,477)

 

(995)

Net (decrease)/increase in cash and cash equivalents

 

 

(2,438)

 

906

 

 

 

 

 

 

Revaluation of cash due to changes in foreign exchange rates

 

 

(124)

 

(178)

Cash and cash equivalents at beginning of year

 

 

72,064

 

71,336

Cash and cash equivalents at end of year

 

 

69,502

 

72,064

 

1.  Basis of preparation

The financial information set out in this document does not constitute the Group's statutory financial statements for the year ended 31 December 2017 or 31 December 2016. The annual report and financial statements for the year ended 31 December 2017 were approved by the Board of Directors on 12 March 2018 along with this preliminary announcement. The financial statements for the year ended 31 December 2017 have been reported on by the Independent Auditor. The Independent Auditor's report on the financial statements for 2017 was unqualified and did not draw attention to any matters by way of emphasis.

The financial information set out in these preliminary results has been prepared using International Financial Reporting Standards (IFRSs) as adopted by the EU. The accounting policies adopted in these preliminary results have been consistently applied to all the years presented and are consistent with the policies used in the preparation of the financial statements for the year ended 31 December 2016.

 

Going concern

The Directors have, at the time of approving the financial statements, a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. They therefore continue to adopt the going concern basis of accounting in preparing the financial statements. 

Adoption of new and revised standards

New standards and amendments to existing standards that have been published and are mandatory for the first time for the financial year beginning 1 January 2017 have been adopted but had no significant impact on the Group.

In May 2014, the IASB issued IFRS 15 Revenue from Contract with Customer ("IFRS 15"), a new standard related to revenue recognition. Under the standard, revenue is recognised when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The Company has early adopted IFRS 15 for the financial year beginning 1 January 2017, as set out below.

2.  Revenue

 




2017


2016




$'000


$'000







Revenue from advertising



18,157


18,291

Sale of software license



48,226


38,241




66,383


56,532

 

Revenues from sale of software tool and provision of virtual private network ("VPN") solutions are generated from the App distribution CGU, while revenues from advertising is generated mainly from the Media CGU.

On January 1, 2017, the Company adopted IFRS 15 using the cumulative effect method applied to those contracts which were not completed as of January 1, 2017. The impact of new standard on our opening balances was immaterial.

On an ongoing basis, the most significant impact of the standard relates to our accounting for marketing costs of the Reimage and CyberGhost products which commence as of FY 2017. These costs are considered incremental in obtaining the contract, and therefore capitalised and amortised over the expected customer relationship period under the new standard.

Revenue recognition related to most of our products and services remain substantially unchanged.

(a)  Disaggregation of revenue

The following table presents our revenues disaggregated by the timing of revenue recognition in accordance with our reporting segments:

 


2017

(USD, in thousands)

2016

(USD, in thousands)


App distribution

Media

Web apps and license

Total

App distribution

Media

Web apps and license

Total

Revenue recognised over a period

6,454

-

2,376

8,830

-

-

4,508

4,508

Revenue recognised at a point in time

41,772

15,781


57,553

38,241

13,783


52,024

Total

48,226

15,781

2,376

66,383

38,241

13,783

4,508

56,532

 

In accordance with the new revenue standard requirements, the disclosure of the impact of adoption on our consolidated income statement and balance sheet for the period ended December 31, 2017 was as follows:

Income statement


Fiscal year ended December 31, 2017 as reported under IFRS 15

(USD, in thousands)

Fiscal year ended December 31, 2017 under IAS 18

(USD, in thousands)

Effect of adjustment of IFRS 15

(USD, in thousands)

Costs and expenses




Selling and Marketing expenses

(44,117)

(45,508)

1,391

Total operations cost

(64,410)

(65,801)

1,391

Operation loss

(2,599)

(3,990)

1,391

Adjusted EBITDA

8,261

6,870

1,391

Total comprehensive loss for the year

(2,503)

(3,894)

1,391

Basic earnings per share

(2.4)

(3.4)

1

Diluted earnings per share

(2.4)

(3.4)

1

 

Balance sheet


Balance at December 31, 2017 as reported under IFRS 15

(USD, in thousands)

Balance at December 31, 2017 under IAS 18

(USD, in thousands)

Effect of adjustment of IFRS 15

(USD, in thousands)

Assets recognised for costs incurred to obtain a contract




Non-current assets - Deferred expenses

347

-

347

Current assets - Deferred expenses

1,044

-

1,044


1,391

-

1,391

 

The marketing costs to obtain a contract include fees paid to marketing partners on behalf of subscription sales of Cyberghost or Reimage to customers referred by the partners.

(b)  Contract liabilities

The company has recognised the following revenue-related contract liabilities:

 


December 31, 2017

(USD, in thousands)

Contract liabilities *

4,012

Total

4,012

 

(*) The balance is relating to CyberGhost, which was purchased on March 2017.

Significant changes in relation to contract liabilities

The following table shows the significant changes in the current reporting period which relate to carried-forward contract liabilities.

Significant changes in the contract liabilities balances during the period are as follows:

December 31, 2017

(USD, in thousands)

Business combination

(2,324)

Revenue recognised that was included in the contract liability balance from Business combination

2,181

Increases due to cash received, excluding amounts recognised as revenue during the period

(3,537)

Revaluation of contract liabilities in foreign currency

(332)

 

Management expects that 77.8% of the transaction price allocated to the unsatisfied contracts (which represent to contract liabilities) as of 31 December 2017 will be recognised as revenue during the next annual reporting period ($3,120,000), 12.5% and 4.6% ($500,000 and $185,000) and will be primarily recognised in the 2019 and 2020 financial years, respectively. The remaining 5.2% ($207,000) will be primarily recognised on the following financial years.

(c)  Assets recognised from costs to obtain and fulfil a contract

The Company recognises an asset in relation to marketing costs to obtain a contract.  The asset is recognised as the Company expects to recover the cost over the expected relationship period with the customer which includes the initial contract period and expected renewals. The expected relationship period with the customer is estimated based on historical contract renewals data. The asset is amortised on a straight line basis over the expected relationship period with the customer.

In addition, the company recognised an asset for fulfilment costs that are considered directly attributable in fulfilling a contract. The fulfilment costs comprised of processing fees paid to third party processing service providers. This asset is amortised on a systematic basis over the initial contract period.

 


Asset recognised from marketing cost to obtain a contract

1,386

Asset recognised from fulfilment cost to fulfil a contract

406



Amortization recognised during the period - marketing costs

(294)

Amortization recognised during the period - fulfilment cost

(804)

 

3.  Segmental information

Segments revenues and results

Based on the management reporting system, the group operates three reportable segments:

·      App distribution - comprising the Group's own software and SAAS products and distribution platform;

·      Media - comprising the Group's ad network activities and associated technology platforms; and

·      Web Apps and License - comprising revenue generated from monetising web apps and licencing the associated technology

 

Year ended 31 December 2017

 

App distribution

2017

 

 

Media

2017

 

Web apps and license

2017

 

 

Total

2017

 

 

$'000

 

$'000

 

$'000

 

$'000

 

 

 

 

 

 

 

 

 

Revenue

 

48,226

 

15,781

 

2,376

 

66,383

Cost of sales

 

(4,572)

 

-

 

-

 

(4,572)

Direct sales and marketing costs

 

(26,447)

 

(11,317)

 

-

 

(37,764)

Segment result

 

17,207

 

4,464

 

2,376

 

24,047

Central operating costs

 

 

 

 

 

 

 

(15,786)

Adjusted EBITDA(1)

 

 

 

 

 

 

 

8,261

Depreciation and amortisation

 

 

 

 

 

 

 

(6,445)

Employee share-based payment charge

 

 

 

 

 

 

 

(340)

Charge for repurchase of employee options

 

 

 

 

 

 

 

(3,176)

Exceptional and non-recurring costs

 

 

 

 

 

 

 

(899)

Operating loss

 

 

 

 

 

 

 

(2,599)

Share of results of associates

 

 

 

 

 

 

 

  (40)

Finance income

 

 

 

 

 

 

 

277

Finance costs

 

 

 

 

 

 

 

(532)

Loss before tax

 

 

 

 

 

 

 

(2,894)

Taxation

 

 

 

 

 

 

 

(467)

Loss after taxation

 

 

 

 

 

 

 

(3,361)

 

Exceptional and non-recurring costs in 2017 comprised $0.3 million of acquisition bonuses to employees, other non-recurring staff costs of $0.1 million, professional services related to business combination of $0.3 million and a $0.2 million expense from repurchase of CyberGhost's founder's share options on 20 November 2017.

Year ended 31 December 2016

 

App distribution

2016

 

 

Media

2016

 

Web apps and license

2016

 

 

Total

2016

 

 

$'000

 

$'000

 

$'000

 

$'000

 

 

 

 

 

 

 

 

 

Revenue

 

38,241

 

13,783

 

4,508

 

56,532

Cost of sales

 

(2,360)

 

-

 

-

 

(2,360)

Direct sales and marketing costs

 

(24,614)

 

(10,303)

 

-

 

(34,917)

Segment result

 

11,267

 

3,480

 

4,508

 

19,255

Central operating costs

 

 

 

 

 

 

 

(12,842)

Adjusted EBITDA(1)

 

 

 

 

 

 

 

6,413

Depreciation and amortisation

 

 

 

 

 

 

 

(9,884)

Impairment of intangible assets

 

 

 

 

 

 

 

(4,683)

Employee share-based payment charge

 

 

 

 

 

 

 

(716)

Exceptional and non-recurring costs

 

 

 

 

 

 

 

(862)

Operating loss

 

 

 

 

 

 

 

(9,732)

Share of results of associates

 

 

 

 

 

 

 

47

Finance income

 

 

 

 

 

 

 

4

Finance costs

 

 

 

 

 

 

 

(332)

Loss before tax

 

 

 

 

 

 

 

(10,013)

Taxation

 

 

 

 

 

 

 

(665)

Loss after taxation

 

 

 

 

 

 

 

(10,678)

 

Exceptional and non-recurring costs in 2016 comprised non-recurring staff restructuring costs of $0.6 million and a $0.3 million one-time onerous contract written-off in the period. The decrease in the employee share-based payment charge is due to reversal of charges from previous periods for employees that left the Company during the year.

The impairment of intangible assets charge of $4,683,000 relates to the Media segment. After allocating this charge to the Media segment, the segment result is $1,203,000 loss.

(1) Adjusted EBITDA is a company specific measure which is calculated as operating loss before depreciation, amortisation, exceptional and non-recurring costs, employee share-based payment charges and impairment of intangible assets which are considered to be one off and non-recurring in nature as set out in note 4. The Directors believe that this provides a better understanding of the underlying trading performance of the business.

 

Information about major customers

In 2017 and 2016 there were no customers contributing more than 10% of total revenue of the Group.

Geographical analysis of revenue

Revenue by origin

 

 

 

2017

 

2016

 

 

 

$'000

 

$'000

 

 

 

 

 

 

Europe

 

 

48,800

 

17,297

British Virgin Islands

 

 

9,878

 

27,520

Asia

 

 

7,705

 

11,715

 

 

 

66,383

 

56,532

 

Reimage Limited was re-domiciled from British Virgin Islands to Isle of Man on 8 September 2016.

Geographical analysis of non-current assets

 

 

 

2017

 

2016

 

 

 

$'000

 

$'000

 

 

 

 

 

 

Europe

 

 

10,364

 

3,990

British Virgin Islands

 

 

1,954

 

-

Asia

 

 

847

 

3,714

Total intangible assets and property, plant and equipment

 

 

13,165

 

7,704

 

4.  Operating loss

 

Adjusted EBITDA

 

Adjusted EBITDA is calculated as follows:

 

 

 

2017

 

2016

 

 

 

$'000

 

$'000

 

 

 

 

 

 

Operating loss

 

 

(2,599)

 

(9,732)

Depreciation and amortisation

 

 

6,445

 

9,884

Impairment of intangible assets

 

 

-

 

4,683

Employee share-based payment charge

 

 

3,516

 

716

Exceptional and non-recurring costs:

 

 

 

 

 

      Non-recurring staff and restructuring costs

 

 

899

 

862

Adjusted EBITDA

 

 

8,261

 

6,413

Excluding Web Apps and License Segment

 

 

(2,062)

 

(4,139)

Adjusted EBITDA excluding Web Apps and License segment

 

 

6,199

 

2,274

 

Operating loss has been arrived at after charging:

 

 

 

2017

 

2016

 

 

 

$'000

 

$'000

Exceptional and non-recurring costs

 

 

 

 

 

Non-recurring staff costs

 

 

398

 

562

Professional services related to business combination

 

 

293

 

300

Expenses from repurchase of employee share options

 

 

208

 

-

 

 

 

899

 

862

 

 

 

 

 

 

Auditor's remuneration:

 

 

 

 

 

Audit

 

 

158

 

147

Taxation services

 

 

8

 

21

Amortisation of intangible assets

 

 

6,046

 

9,421

Depreciation

 

 

399

 

463

Impairment of intangible assets (note 11)

 

 

-

 

4,683

Employee share-based payment charge (note 7)

 

 

3,516

 

716

Rent payable under operating leases

 

 

717

 

459

 

Operating costs

Operating costs are further analysed as follows:



2017

Adjusted

$'000

2017

Total

$'000


2016

Adjusted

$'000

2016

Total

$'000








Direct sales and marketing costs


37,764

37,764


34,917

34,917

Indirect sales and marketing costs


6,207

6,353


4,265

4,998

Selling and marketing costs


43,971

44,117


39,182

39,915

Research and development costs


696

1,016


1,299

1,661

Management, general and administrative cost


 

8,883

 

12,832


 

7,278

 

7,761

Depreciation and amortisation


1,315

6,445


1,379

9,884

Impairment of intangible assets


-

-


-

4,683

Total operating costs


54,865

64,410


49,138

63,904

 

Adjusted operating costs exclude share based payment charges, exceptional and non-recurring costs, amortisation of acquired intangible assets and impairment of intangible assets.

5.  Taxation

The parent company is domiciled, for tax purposes, in both the Isle of Man and the UK. The final tax charge shown below arises partially from the difference in tax rates applied in the difference jurisdictions in which the subsidiaries' jurisdictions.

The Group continues to recognise a deferred tax asset of $97,000 (2016: $166,000) in respect of tax losses accumulated in previous years.

The total tax charge can be reconciled to the overall tax charge as follows:

 

 

 

2017

 

2016

 

 

 

$'000

 

$'000

 

 

 

 

 

 

Loss before taxation

 

 

(2,894)

 

(10,013)

 

 

 

 

 

 

Tax at the applicable tax rate of 19% (2016: 20%)

 

 

(550)

 

(2,003)

Tax effect of

 

 

 

 

 

Differences in overseas rates

(421)

 

976

Expenses not deductible for tax purposes

1,253

 

1,327

Deferred tax not recognised on losses carried forward

122

 

440

Tax expense for previous years

63

 

(75)

 

 

 

 

Tax charge for the year

 

 

467

 

665

 

 

 

 

 

 

Analysed as:

 

 

 

 

 

Deferred taxation in respect of the current year

 

 

(650)

 

263

Current tax charge

 

 

1,117

 

402

Tax charge for the year

 

 

467

 

665

 

The group has maximum corporation tax losses carried forward at each period end as set out below:

 

 

 

2017

 

2016

 

 

 

$'000

 

$'000

 

 

 

 

 

 

Corporate tax losses carried forward

 

 

33,235

 

28,320

 

Details of the deferred tax asset recognised (arising in respect of losses) is set out below:

 

 

 

2017

 

2016

 

 

 

$'000

 

$'000

 

 

 

 

 

 

At the beginning of the year

 

 

166

 

716

Additions through business combinations

 

 

10

 

-

Derecognised in the year

 

 

(100)

 

(558)

Foreign exchange revaluation

 

 

21

 

8

At the end of the year

 

 

97

 

166

 

Details of the deferred tax liability recognised (arising from timing differences on intangible valuations on business combinations) is set out below:

 

 

 

2017

 

2016

 

 

 

$'000

 

$'000

 

 

 

 

 

 

At the beginning of the year

 

 

691

 

986

Arising from business combinations

 

 

366

 

-

Foreign exchange differences

 

 

42

 

-

Movement in the year due to temporary differences

 

 

(750)

 

(295)

At the end of the year

 

 

349

 

691

 

In addition, the Group has an unrecognised deferred tax asset in respect of the following:

 

 

 

2017

 

2016

 

 

 

$'000

 

$'000

 

 

 

 

 

 

Tax losses carried forward

 

 

33,026

 

28,047

 

6.  Shareholder's equity

 

 

 

 

2017

 

2016

 

 

 

Number of Shares

 

Number of Shares

 

 

 

 

 

 

Issued and paid up ordinary shares of $0.0001

148,496,073

 

148,496,073

 

During the year a total of 801,175 new ordinary shares of $0.0001 par value from treasury were sold for cash in relation to share option schemes resulting in cash consideration of $437,000 (2016: $nil).

During the year a total of 3,810,667 of share option of $0.0001 par value were repurchased by the Company for a total cash consideration of $3,800,000 (2016: $nil).

During 2016 a total of 1,250,000 of ordinary shares of $0.0001 par value were purchased by the Company for a total cash consideration of $994,952 and are held in treasury at the reporting date.

As at 31 December 2017, the Company hold in the treasury total of 6,650,248 of ordinary shares of $0.0001 per value (2016: 7,451,423). During 2017, 801,175 of ordinary shares of $0.0001 par value were transferred out of treasury to satisfy the exercise of options by the company employees (2016: nil).

The following describes the nature and purpose of each reserve within owner's equity:

Reserve

Description and purpose

Additional paid in capital

Share premium (i.e. amount subscribed or share capital in excess of nominal value)

Retained earnings

Cumulative net gains and losses recognised in the consolidated statement of comprehensive income

Foreign exchange

Cumulative foreign exchange differences of translation of foreign operations

 

In accordance with Isle of Man Company Law, all of the reserves with the exception of share capital are distributable.

7.  Employee share based payments

 

Options have been granted under the Group's share option scheme to subscribe for ordinary shares of the Company. At 31 December 2017, the following options were outstanding (2016: 10,259,383):

Group

Grant date

Number of shares under option

Subscription price per share 

Group 1

29 May 2014

1,338,570

$0.538

Group 2

21 April 2015

523,063

 $1.376

Group 3

5 January 2016

384,000

$0.749

Group 4

31 May 2016

2,000,000

$0.371

Group 5

26 October 2016

2,232,272

$0.492

Group 6

3 April 2017

884,000

$0.0001

Group 7

15 June 2017

1,128,424

$0.890

Total

 

8,490,329

 

 

Vesting conditions

Groups 1-5 and 7 - 25% at the end of the first year following the grant date. 6.25% on a quarterly basis during 12 quarters period thereafter.

Group 6 - 50% at the end of the second year following the grant date and the remainder at the end of the third year following the grant.

The total number of shares exercisable as of 31 December 2017 was 2,973,348 (2016: 3,840,679).

The weighted average fair value of options granted in the year using the Cox, Ross and Rubinstein's Binomial Model (the "Binomial Model") was $0.50. The inputs into the Binomial model are as follows:

 

 

2017

 

2016

 

 

$'000

 

$'000

 

 

 

 

 

Early exercise factor

 

150%

 

100%-150%

Fair value of Group's stock

 

$0.78

 

$0.40-$0.80

Expected Volatility

 

70%

 

60%

Risk free interest rate

 

0.16%-1.11%

 

0.25%-1.89%

Dividend yield

 

-

 

-

Forfeiture rate

 

43%

 

7%-14%

 

 

 

 

 

Expected volatility was determined based on the historical volatility of comparable companies.

Forfeiture rate is assumed to be 7%-14% for senior management and 43% for other employees.

The risk-free interest rate was estimated based on average yields of UK Government Bonds.

The Group recognised total share based payments relating to equity-settled share based payment transactions as follows:

 

 

 

2017

 

2016

 

 

 

$'000

 

$'000

 

 

 

 

 

 

Share-based payment charge

 

 

340

 

716

Charge for repurchase of employee options

 

 

3,176

 

-

 

Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:

 

 

2017

 

2016

 

 

Weighted
average
exercise
price

Number
of
options

 

Weighted
average
exercise
price

Number
of
options

 

 

 

 

 

 

 

At the beginning of the year

 

$0.66

10,259,383

 

$0.66

14,481,158

Granted

 

$0.17

5,843,424

 

$0.51

5,338,272

Lapsed

 

$0.81

(3,000,633)

 

$0.56

(9,560,047)

Exercised

 

$0.55

(801,178)

 

-

-

Repurchased by the company

 

$0.0001

(3,810,667)

 

-

-

At the end of the year

 

$0.55

8,490,329

 

$0.66

10,259,383

 

The options outstanding at 31 December 2017 had a weighted average remaining contractual life of 8.2 years (2016: 7.9 years).

On 20 November 2017, following his reposition from managing director to Chairman and Corporate Development Manager of CyberGhost, the Company repurchased and cancelled 3,810,667 options that were granted to the founder of Cyberghost on 3 April 2017. The total cash consideration for the options was of €3.2 million ($3.8 million) out of the total consideration, €1.6 million ($1.9 million) was paid upon execution of the repurchase agreement, while the remaining amount is to be paid in eight equal instalments. The fair value as of 20 November 2017 was €3.0 million ($3.4 million) and deducted from equity in accordance to IFRS 2.  Following the cancellation of the options a $3.2 million charge was expensed as a result of vesting terms acceleration. An additional $0.2 expense was recorded as the consideration exceeded the fair value of the options.

8.  Earnings per share

Basic loss/earnings per share is calculated by dividing the loss /earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year.

 

 

 

2017

 

2016

 

 

 

cents

 

cents

 

 

 

 

 

 

Basic

 

 

(2.4)

 

(7.6)

Diluted

 

 

(2.4)

 

(7.6)

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted basic

 

 

3.8

 

2.7

Adjusted diluted

 

 

3.7

 

2.7

 

Adjusted earnings per share is a non-GAAP measure and therefore the approach may differ between companies. Adjusted earnings have been calculated as follows:

 

 

 

2017

 

2016

 

 

 

$'000

 

$'000

 

 

 

 

 

 

Loss for the year

 

 

(3,361)

 

(10,678)

 

 

 

 

 

 

Post tax adjustments:

 

 

 

 

 

Employee share-based payment charge

 

 

3,535

 

823

Exceptional and non-recurring costs

 

 

793

 

774

Amortisation on acquired intangible assets

 

 

4,439

 

8,208

Impairment of intangible assets

 

 

-

 

4,683

Adjusted profit for the year

 

 

5,406

 

3,810

 

 

 

 

Number

 

Number

Denominator - basic:

 

 

 

 

 

Weighted average number of equity shares for the purpose of earnings per share

 

 

141,547,496

 

141,068,557

 

 

 

 

 

 

Denominator - diluted

 

 

 

 

 

Weighted average number of equity shares for the purpose of diluted earnings per share

 

 

145,260,658

 

141,182,911

 

 

 

 

 

 

The diluted denominator has not been used where this has anti-dilutive effect. Basic and diluted loss per share are therefore the same for reporting purposes.

The difference between weighted average number of Ordinary shares used for basic earnings per share and the diluted earnings per share is 114,354 being the effect of all potentially dilutive Ordinary shares derived from the number of share options granted to employees.

9. Deferred consideration

(a) Acquisition of Definiti Media Limited

The consideration for the acquisition of Definiti Media Ltd in May 2014 included $2,489,000 deferred consideration. Of this, $845,000 was repaid during the year ending 31 December 2014 and $746,000 was repaid during the year ending 31 December 2015. The remainder was repaid during the year ending 31 December 2016.

(b) Acquisition of AjillionMax  

The consideration for the acquisition of certain assets of AjilionMAX Limited in May 2014 included $654,000 deferred consideration. Of this $104,000 was repaid during the year ending 31 December 2014, $156,000 was repaid during the year ending 31 December 2015, $189,000 was repaid during the year ending 31 December 2016 and the remainder was repaid during the year ending 31 December 2017.

In addition, $435,000, included as part of the acquisition arrangements, has been recognised directly in the income statement during the year ending 31 December 2015, out of which $209,000 was paid in May 2017.

(c) Investment in Clearvelvet Trading Ltd

In September 2015, the Group acquired 16.67% of the share capital of Clearvelvet Limited for a total consideration of $850,000, of which $350,000 was paid in 2016 on completion of certain development milestones.

(d) Acquisition of DriverAgent intangibles

In October 2016, the Group acquired the intellectual property of PC maintenance software product, DriverAgent, from eSupport.com, Inc for a total consideration of $1.2 million. As for 31 December 2017, the consideration included $0.17 million of deferred consideration (2016: $0.2 million) which is contingent on future results.

(e)  Repurchase of share-based consideration

On 20 November 2017, the Company repurchased 3,810,667 options out of the 4,057,813 option granted to the Cyberghost's former founder for total cash consideration of $3.8 million (€3.2 million). Out of which $1.9 million (€1.625 million) paid upon execution of the purchase agreement, while the remaining amount to be paid in eight equal instalments amounting of $235 thousand (€197 thousand) per quarter over the course of two years and recognised as deferred consideration.

10.        Related party transactions

The Group is controlled by Unikmind Holdings Limited incorporated in British Virgin Islands, which owns 73% of the Company's shares. The controlling party is the Solidinsight Trust, established under the laws of the Isle of Man. Mr. Teddy Sagi is the sole ultimate beneficiary of the Solidinsight Trust.

(a) Related party transactions

The following transactions were carried out with related parties:

 

2017

 

2016

 

$'000

 

$'000

 

 

 

 

Revenue from common controlled company

2,587

 

5,034

Technical support services to end customers provided by common controlled company

(2,704)

 

(2,105)

Payment processing services provided by common controlled company

(208)

 

(300)

Office rent expenses to common controlled companies

(230)

 

(82)

Revenue from equity investments

-

 

100

 

(555)

 

2,647

 

(b) Receivables owed by related parties

 

 

2017

 

2016

Name

Nature of transaction

$'000

 

$'000

 


 

 

 

Parent company

Unpaid share capital

10

 

10

Equity investments

Loan and Trade

-

 

799

Companies related by virtue of common control

 

Trade

881

 

1,022

 

 

891

 

1,831

(c) Payables to related parties

 

 

2017

 

2016

Name

Nature of transaction

$'000

 

$'000

 


 

 

 

Companies related by virtue of common control

 

Other

90

 

20

 

 

90

 

20

 

11.        Intangible assets

 

 

Intellectual Property

Trademarks

Customer Lists

Goodwill

Internet Domains

Capitalised

Software

Development

Costs

Total

 

$'000

$'000

$'000

$'000

$'000

$'000

$'000

Cost

 

 

 

 

 

 

 

At 1 January 2016

35,205

9,462

2,383

7,684

69

2,706

57,509

Additions

1,219

-

-

-

-

744

1,963

At 31 December 2016

36,424

9,462

2,383

7,684

69

3,450

59,472

 

Additions

-

90

-

-

25

1,432

1,547

 

Acquisition through business combination

1,706

546

743

5,690

-

204

8,889

 

Foreign exchange differences

212

70

92

479

-

16

869

 

At 31 December 2017

38,342

10,168

3,218

13,853

94

5,102

70,777

 

 

Accumulated amortisation

 

 

 

 

 

 

 

At 1 January 2016

(27,031)

(6,474)

(932)

(2,316)

-

(1,502)

(38,255)

Charge for the year

(6,528)

(1,494)

(483)

-

-

(916)

(9,421)

Impairment losses

-

-

-

(4,683)

-

-

(4,683)

At 31 December 2016

(33,559)

(7,968)

(1,415)

(6,999)

-

(2,418)

(52,359)

Charge for the period

(2,320)

(1,595)

(1,128)

-

-

(1,003)

(6,046)

Foreign exchange differences

(12)

(4)

(5)

-

-

(1)

(22)

At 31 December 2017

(35,891)

(9,567)

(2,548)

(6,999)

-

(3,422)

(58,427)

 

Net book value

 

 

 

 

 

 

 

At 1 January 2016

8,174

2,988

1,451

5,368

69

1,204

19,254

At 31 December 2016

2,865

1,494

968

685

69

1,032

7,113

At 31 December 2017

2,451

601

670

6,854

94

1,680

12,350

 

On 14 March 2017, the Group acquired 100% of the share capital of CyberGhost S.A ("CyberGhost"), a leading cyber security SaaS provider, with a focus on the provision of virtual private network ("VPN") solutions. Prior to the acquisition date, CyberGhost acquired Mobile Concepts GmbH, a software development company based in Germany, for an amount of €1.5 million, as set out in note 12.

On 1 April 2017, the Company increased its holding in Clearvelvet Trading limited ("Clearvelvet") to 50.01% of the share capital by acquiring an additional 33.34% of its issued share capital. In September 2015, the Group acquired 16.67% of the share capital of Clearvelvet for a total consideration of $850,000, of which $350,000 paid in 2016 with the completion of certain milestones. Clearvelvet's founders hold the remaining 49.99% of the shares. Following completion Clearvelvet is considered to be a subsidiary undertaking and has been included in the company's consolidated statements on a basis of full consolidation, as set out in note 12.

In October 2016, the Group exercised an option to acquire the intellectual property of PC maintenance software product, DriverAgent, from eSupport.com Inc. for a total consideration of $1,208,000. $150,000 from the consideration was paid in the year ending 31 December 2015 for the option and $850,000 was paid during the year ending 31 December 2016. Another $208,000 is deferred consideration which is contingent on future results of the product.

Goodwill acquired in a business combination is allocated at acquisition to the cash generating units (CGUs), or group of units that are expected to benefit from that business combination.

The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. The recoverable amounts of the CGUs are determined from value in use calculations.

The key assumptions for the value in use calculations are those regarding the discount rates, growth rates and expected changes to selling prices and direct costs during the period.

At 31 December 2017, before impairment testing, the carrying value of intangible assets allocated to the Media CGU was $2,889,000, including goodwill of $2,524,000. The carrying value of the goodwill has not been changed due to the impairment testing and no impairment loss was recognised.

For the Media CGU, the Group has prepared calculations based on cash flow projections for the next five years from the most recent budgets approved by management and extrapolated cash flows beyond this period using an estimated growth rate of 1 per cent (2016: 1 per cent). This rate does not exceed the average long-term growth rate for the relevant markets. The rate used to discount these forecast cash flows is 25 per cent (2016: 25 per cent).

The discount rate used in the valuation of the Media CGU was 25 per cent. If the discount rate was increased by 1 percentage point the effect would have been nil. There is no reasonably possible change in assumption that would give rise to an impairment.

At 31 December 2016, before impairment testing, the carrying value of intangible assets allocated to the Media CGU was $9,417,000, including goodwill of $5,368,000. As a result of the reduction in the management forecasted cash flows attributable to the acquired intangible assets, the carrying value of the goodwill has therefore been reduced to its recoverable amount of $685,000 through recognition of an impairment loss of $4,683,000.

 

 

Web Apps and License

Media

App Distribution

Total

 

 

$'000

$'000

$'000

$'000

 

 

 

 

 

 

 

 

 

 

 

 

Carrying value before impairment losses at 1 January 2016

 

974

9,417

1,405

11,796

Provisions for impairment

 

-

(4,683)

-

(4,683)

Net book value at 31 December 2016

 

974

4,734

1,405

7,113

 

The Group tests the useful economic life of the Intangible asset whenever events or changes in circumstances indicate that the useful economic life may need to be changed. The brought-forward media CGU intellectual property, customer lists and trademark were fully amortised in the year ended 31 December 2017 due to a change in management assumptions with the expected useful life of these assets. If the management assumption was not changed, the amortisation attributed to the media intellectual property and customer lists would have been $2,416,000 instead of $3,629,000.

12.        Business combinations

 

(a) Acquisition of CyberGhost S.A

On 14 March 2017, the Group acquired 100% of the share capital of CyberGhost S.A ("CyberGhost"), a leading cyber security SaaS provider, with a focus on the provision of virtual private network ("VPN") solutions. Prior to the acquisition date, CyberGhost acquired Mobile Concepts GmbH, a software development company based in Germany, for an amount of €1.5 million.

The acquisition is in line with the Company's stated strategy to broaden its product offering to service high growth consumer markets, of which cyber security is a key vertical.

Details of the fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill, are as follows:

 


Acquiree's carrying amount before combination


 

Fair value


$'000


$'000





Brand and domain name

-


546

Customer relations

-


743

Technology

1,166


1,706

Deferred tax liability

-


(366)

Cash and cash equivalents

1,070


1,070

Trade and other receivables

1,181


1,181

Property, plant and equipment

199


199

Deferred revenues

(2,324)


(2,324)

Trade and other payables

(1,857)


(1,857)

 

(565)


898

Fair value of consideration




Cash



3,272

Contingent consideration



1,477

Total consideration



4,749

Goodwill



3,851

 

Net cash outflow on acquisition of business

 



2017



$'000




Initial consideration


3,272

Prepayment in relation of deferred consideration


1,871

Cash and cash equivalents acquired


(1,070)

 


4,073

 

CyberGhost was acquired for a total consideration of up to $9.6 million (€9.1 million). The consideration comprises of $3.3 million (€3.1 million) in cash at closing, $3.2 million (€3.0 million) in nominal value share options and deferred earn out consideration capped at $3.2 million (€3.0 million), to be satisfied in cash on a euro for euro basis for the EBITDA of CyberGhost in the 12 months period post completion. $1.9 million (€1.75 million) was paid at closing as a prepayment of the deferred earn out consideration.

The share options consideration comprised of 4,400,000 options that issued over ordinary shares in the capital of the Company ("Ordinary Shares") exercisable at the nominal value of the shares ("Consideration Options"). The Consideration Options are exercisable in two equal portions on the second and third anniversary of the acquisition completion and contingent on the continued employment of the founder. If were exercised in full, the share options would represent 2.87% of the existing issued share capital of the Company.

On 20 November 2017, the Company repurchased 3,810,667 options out of the 4,400,000 option granted to the founder for total cash consideration of $3.8 million (€3.2 million). Out of which $1.9 million (€1.625 million) paid upon execution of the repurchase agreement, while the remaining amount to be paid in eight equal instalments amounting of $235 thousand (€197 thousand) per quarter over the course of two years.

The Company accelerated the vesting of the share options purchased and recognised immediately the amount that otherwise would have been recognised for services received over the remainder of the vesting period. Following the repurchase the company recognised expenses of $0.2 million for the excess of the consideration over the fair value.

Following the acquisition date, CyberGhost has issued additional shares to the Company for a consideration amount of €1.9 million that been paid in cash during the period ended 31 December 2017.

Since the acquisition date, CyberGhost has contributed $6.4 million to group revenues, loss of $1.7 million to group loss. When excluding the expense for the repurchase of Cyberghost's founder's options Cyberghost contributes $1.5 million profit to the group loss. In addition, since the acquisition date Cyberghost contributed $4.4 million to segmental results of the app distribution segment (as set out in note 3). If the acquisition had occurred on 1 January 2017, group revenue would have been $67.6 million, group loss for the period would have been $3.3 million and the app distribution segmental result would have been $18.1 million.

(b) Acquisition of Clearvelvet Trading Limited

On 1 April 2017, the Company increased its holding in Clearvelvet Trading Limited ("Clearvelvet") to 50.01% of the share capital by acquiring an additional 33.34% of its issued share capital. In September 2015, the Group acquired 16.67% of the share capital of Clearvelvet for a total consideration of $850,000, of which $350,000 was paid in 2016 with the completion of certain milestones. Clearvelvet's founders hold the remaining 49.99% of the shares. Following completion Clearvelvet is considered to be a subsidiary undertaking and has been included in the company's consolidated statements on a basis of full consolidation.

Details of the fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill, are as follows:

 


Acquiree's carrying amount before combination


 

 

Fair value


$'000


$'000





Intangible assets

204


204

Investment

50


50

Property, plant and equipment

11


11

Trade and other receivables

3,992


3,992

Deferred tax asset

10


10

Cash and cash equivalents

1,387


1,387

Trade and other payables

(4,101)


(4,101)

 

1,553


1,553

Fair value of consideration




Cash



850

Conversion of convertible loan



894

Conversion of previously held interest in associate



871

Total consideration



2,615

Goodwill



1,839

Non-controlling interest



(777)

 

The initial consideration for the acquisition of Clearvelvet was $1.7 million out of which $894,000 was conversion of the loan given by the Group on January 2016 and cash consideration of $850,000. The cash consideration paid during July 2017.

In addition, the sellers will be entitled to receive up to a total of $1.4 million earn-out consideration, to be satisfied in cash subject to their continued employment by Clearvelvet. The earn-out consideration is contingent on achieving EBITDA goals of $1.7 million in 2017 (pro-rated from 60% of target), which had not achieved, and $2.2 million for 2018 (pro-rated from 67% of target). The earn-out consideration is accounted as remuneration in the post- acquisition income statement rather as part of the acquisition cost.

Net cash outflow on acquisition of business

 



2017



$'000

Cash and cash equivalents acquired


(1,387)



(1,387)

 

Since the acquisition date, Clearvelvet has contributed $10.8 million to group revenues, profit of $0.4 million to group loss and $1.8 million to segmental results of the media segment (as set out in note 3). If the acquisition had occurred on 1 January 2017, group revenue would have been $68.9 million, group loss for the period would have been $3.6 million and the media segmental result would have been $4.9 million.

13.        Subsequent events

 

On 7 March 2018, Crossrider plc announced the renaming of the Company to Kape Technologies plc. Trading in the Company's shares under the new name and TIDM, "KAPE", will commence on 13 March 2018.


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