Avast plc - cache.pressmailing.net · Avast PLC HALF YEAR RESULTS FOR THE SIX-MONTHS ENDED 30 JUNE 2019 First half performance underpins a strong full year outlook at the upper end

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Avast plc

Half Year Results 2019

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Avast PLC

HALF YEAR RESULTS FOR THE SIX-MONTHS ENDED 30 JUNE 2019

First half performance underpins a strong full year 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 2019. FINANCIAL HIGHLIGHTS

• Strong overall performance in line with expectations

• Adjusted Billings excluding FX1, Discontinued Business2 and disposal of the Managed Workplace business3

up 12.5%, 9.2% in actual rates to $454.6m

• Adjusted Revenue excluding FX, Discontinued Business and disposal of the Managed Workplace business up 9.2%, 8.3% in actual rates to $421.7m

• Adjusted Revenue in Consumer Direct Desktop excluding FX up 10.5%, 9.5% in actual rates to $307.6m

• Adjusted EBITDA up 6.5% to $236.5m; Adjusted EBITDA margin4 at 55.4%, up 36bps

• Adjusted fully diluted earnings per share (‘EPS’) $0.15 (versus $0.14 at HY 2018)

• Proposed interim dividend payable in October 2019 of 4.4 cents per share

• Continued strong cash generation with Unlevered Free Cash Flow up 20.0% to $230.4m and Levered Free Cash Flow up 29.9% to $200.2m

• Net debt / LTM (‘last twelve months’) Adjusted EBITDA at 2.4x at half year

• On a statutory basis, Revenue up from $388.6m to $425.4m, Operating profit up from $109.7m to $161.9m, fully diluted EPS at $0.11.

OPERATIONAL AND STRATEGIC HIGHLIGHTS

• Desktop operating KPI’s tracked positively, with customers5 up 1.8% to 12.41m, APPC6 up 2.3% to 1.43 and ARPC7 2.3% to $50.38

• The core Consumer Direct Desktop business continued to power the Group’s performance. Strong growth was driven from the cross-selling of Privacy products such as VPN and AntiTrack, and Performance products such as Cleanup and Driver Updater

• Growth to customer numbers and penetration has been delivered in both traditional territories and new target countries, with localisation of more products, sales flows and partnerships

• Traditional AV has benefited from the further optimisation of comprehensive Smart Scans to support up-selling

• Avast’s Internet of Things (‘IoT’) project reached two important milestones: in the period, the carrier-based solution went live with the operator WindTre in Italy; in July, the direct-to-consumer product 'Omni' was released to Avast users in the US market

• A strategic partnership for the analytics business Jumpshot was announced in July to help capture additional growth opportunities

($’m) H1 2019 H1 2018 Change % Change %

(excluding FX)

Adjusted Billings 459.6 430.2 6.8 10.1

Discontinued Business 5.0 9.0 (44.2) (43.1)

Disposal Managed Workplace (SMB) 0.0 4.7 n/a n/a

Adjusted Billings excl. Discontinued Business and Disposals 454.6 416.5 9.2 12.5


(excluding FX)

Adjusted Revenue 426.8 403.3 5.8 6.8


Disposal Managed Workplace (SMB) 0.0 4.7 n/a n/a

Adjusted Revenue excl. Discontinued Business and Disposals 421.7 389.6 8.3 9.2

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($’m) H1 2019 H1 2018 Change %

Adjusted EBITDA 236.5 222.1 6.5

Adjusted EBITDA Margin % 55.4 55.1 0.4 ppts

Adjusted Net Income 148.2 130.2 13.8

Net Debt 8 1,104.6 1,305.7 (15.4)

Statutory Results:

($’m) H1 2019 H1 2018 Change %9

Revenue 425.4 388.6 9.5

Operating profit 161.9 109.7 47.6

Net Income 112.6 160.2 (29.7)

Net Cash Flows from operating activities 176.5 166.1 6.3

Ondrej Vlcek, Chief Executive of Avast, said: “We are pleased to report a strong set of group results for the first half of 2019, in line with the Board’s expectations. Group Adjusted Revenue increased by 9.2% on a like-for-like basis, driven by double-digit growth in our Consumer Direct Desktop business. We also sustained high levels of profitability with Adjusted EBITDA margin at 55.4%. “The strategic advantage of our global consumer platform model shows clearly in these results, with strong revenue growth driven by cross-sell promotions within the installed user base. I am delighted to see Avast reap the benefit of its investment in innovation and the customer experience. Strong demand for Avast’s value-added solutions, such as VPN, Utilities and AntiTrack, has been accompanied by a resilient performance from our traditional anti-virus products. While the mobile carrier channel was below our expectations, elsewhere in the consumer business there was good momentum in both customer conversion and retention rates. “Avast reached an important strategic milestone in the first half of 2019 with the release of direct-to-consumer and carrier-based IoT solutions. Using cutting-edge technology, these products will protect users’ entire digital lives. We are very excited about the opportunity ahead. “The Group’s first half performance underpins a strong full year outlook. We now expect like-for-like FY2019 revenue growth to be at the upper end of the previously stated high single-digit percentage range.” PRESENTATION OF RESULTS There will be a live webcast presentation and conference call of the results to analysts and investors at 9:00 AM BST today (14 August 2019). Please register to participation at the Company website https://investors.avast.com. A Q&A facility will be available for conference call participants. ENQUIRIES Investors and analysts: Peter Russell, Director of IR [email protected] Media: Stephanie Kane, VP PR and Corporate Communications [email protected] Tavistock +44 20 7920 3150

https://investors.avast.com/

mailto:[email protected]

mailto:[email protected]

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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 Growth rate excluding currency impact calculated by restating H1 2019 actual to H1 2018 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. 2 As the company is exiting its toolbar-related search distribution business, which had previously been an important contributor to AVG’s revenues (referred to above and throughout the Half Year Report, with the Group’s browser clean-up business, as ‘Discontinued Business’), the growth figures exclude Discontinued Business, which the Group expects to be negligible by the end of 2020. The Discontinued Business does not represent a discontinued operation as defined by IFRS 5 since it has not been disposed of but rather it is being continuously scaled down and is considered to be neither a separate major line of business, nor geographical area of operations. 3 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 nowresells 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.. 4 Adjusted EBITDA margin percentage is defined as Adjusted EBITDA divided by Adjusted Revenue. 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 The Group applied the IFRS 16 standard as of 1 January 2019 using the modified retrospective approach and did not restate comparative amounts for the year prior to first adoption. Net Debt as of 30 June 2019 includes the balance of IFRS 16 lease liabilities. No lease liabilities are included in the Net Debt as of 30 June 2018. 9 ’Fav’ in change % represents favorable growth rate figure over 100 per cent, ‘Unf’ represents unfavorable decline greater than negative 100 per cent.

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CHIEF EXECUTIVE OFFICER’S REVIEW The Group has delivered another strong half of topline growth and high levels of profitability. On a like-for-like basis, the Group’s Adjusted Billings increased year-on-year 12.5% excluding the currency impact, and 9.2% in actual rates from $416.5m to $454.6m. New product launches in the first half of FY 2018 in both Consumer Direct Desktop and Consumer Indirect contributed to the strong Billings growth in the first half of the current year. The Group’s Adjusted Revenue increased year-on-year 9.2% excluding the currency impact, and 8.3% in actual rates, from $389.6 to $421.7m. The Consumer and SMB segments contributed $395.9m and $25.9m respectively. The first half performance gives us confidence for a strong full year outcome. We expect like-for-like FY 2019 revenue growth to be at the upper end of the previously stated high single-digit percentage range. Consumer


(excluding FX)



Adjusted Billings excl. Discontinued Business 430.2 391.1 10.0 13.3


(excluding FX)



Adjusted Revenue excl. Discontinued Business 395.9 362.2 9.3 10.3

SMB


(excluding FX)

Adjusted Billings 24.4 30.1 (18.9) (16.5)

Disposal Managed Workplace 0.0 4.7 n/a n/a

Adjusted Billings excl. Disposal 24.4 25.4 (3.8) (0.9)


(excluding FX)

Adjusted Revenue 25.9 32.2 (19.5) (19.0)


Adjusted Revenue excl. Disposal 25.9 27.4 (5.6) (5.0)

All three key operating metrics—End of Period Customers, Average Revenue Per Customer, and Average Products per Customer—are tracking in line with full year growth guidance of low single digit, mid single digit and mid single digit respectively. Consumer Direct Desktop Operational KPIs

30 June 2019 31 December

2018 Change %

Number of customers 12.41m 12.19m 1.8

Average Products Per Customer 1.43 1.40 2.3

Average Revenue Per Customer $50.38 $49.24 2.3

Consumer Products We have continued to add materially to the scale and capability of our products. The first half of 2019 saw the launch of Avast’s IoT router-based solution via the Italian operator Wind Tre, the first of our carrier partners worldwide to add the security, based on Avast’s Smart Life platform. In addition, after period close in July, Avast started to offer its IoT product Omni directly to our US user base through in-product messaging. These new

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home network protection solutions are being combined with Avast’s on-device protection and parental controls so that people can have security and privacy everywhere they go. Following the success of Avast AntiTrack, AVG AntiTrack has been added to the consumer portfolio to meet demand for privacy protection. Avast Cleanup and AVG TuneUp, products that help optimise device performance, have both benefited from upgrades to boost functionality. Business Unit Performance Consumer Direct Desktop


(excluding FX)



• The core Consumer Direct Desktop business has continued to drive Group performance, benefiting from our platform model that effectively monetises the installed user base. A focus on product and technology capability, as well as the customer experience, has enabled good momentum in both customer conversion and retention rates.

• There has been sustained strength in customer demand for value-added products that has generated strong growth in cross-selling, in particular of Privacy type products, led by VPN and AntiTrack, and Performance products such as Cleanup and Driver Updater.

• Consumer Direct Desktop has seen resilience in the AV business, which has benefited from the further optimisation of comprehensive Smart Scans to support up-selling.

• Strong customer conversion rates in the Piriform (CCleaner) installed base have been enabled by the sophistication of the Avast monetisation platform and the release of a new CCleaner Professional version.

• Billings and customer volumes have been supported by the continued development of the e-commerce engine. This includes the implementation of one-click checkout functionality to reduce ecommerce friction and increase conversion.

• There have been ongoing enhancements to the customer experience, not least improvements to post-purchase engagement in order to ease subscription management and recommend best-fit products.

• Growth to customer numbers and penetration has been delivered in both traditional territories and new target countries, with localisation of more products, sales flows and partnerships.

• The strong performance in the first half of this core business means that we raise our expectations for FY 2019 Consumer Direct Desktop from high single-digit to low double-digit revenue growth excluding the impact of FX.

Consumer Direct Mobile


(excluding FX)



• Within the Mobile segment there has been continued double-digit growth in the direct-to-consumer channel, led by the subscription business. In addition, good initial signs of success have been observed from the adoption of desktop pricing strategies, such as first purchase discounting.

• The direct-to-consumer channel has benefited from a positive trend in uptake of Avast Mobile Security for iOS, which has become a contributor to sales after its recent FY 2018 market release.

• As anticipated, in the mobile operator channel, performance in the first half was adversely affected by the carry-over impact from the 2017 Sprint loss, partially offset by recent family safety product launches.

• There has been good growth in multi-device licenses that enable a seamless journey for customers between desktop and mobile. Since these licenses are predominantly sold and accounted for within Consumer Direct Desktop, their extensive use via the mobile channel is not reflected in the mobile segment’s performance. This trend is likely to continue as multi-device licensing becomes a larger part of Avast’s sales activity.

• A bolstered sales team and strengthened presence in different geographies has spurred the development of carrier relationships. However, there is no shortcut to navigating the operator channel’s inherently lengthy sales cycle.

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• The release in the first half of mobile security and parental controls products with three carriers originating from the Veon relationship is anticipated to offer support to Consumer Mobile performance in the current year. Further out, Avast’s own label product suite is also set to profit from development of solutions in the fast-growing Privacy product line.

• Avast‘s carrier-based IoT solution went live in June with the operator Wind Tre in Italy. We are optimistic about the opportunities in IoT, and remain confident that our carrier-based solution will become a key driver of the anticipated uplift in Consumer Mobile in the medium term.

• The lengthening sales cycle within the mobile operators channel has adversely impacted the full year outlook. We now expect FY 2019 Consumer Direct Mobile revenue to experience mid single-digit percentage decline versus previous guidance of broadly flat growth.

Consumer Indirect This business unit includes Avast Secure Browser (‘ASB’), distribution of third party software, Jumpshot analytics, and advertising within mobile applications.


(excluding FX)



Adjusted Billings excl. Discontinued Business 50.3 39.4 27.7 29.0


(excluding FX)



Adjusted Revenue excl. Discontinued Business 50.0 39.6 26.3 27.7

• The Avast Secure Browser Platform has continued to see strong active user momentum, achieved through new installs from Avast product cross-sells and improved activation of its legacy SafeZone base. With the release in June 2019 of CCleaner Browser, which integrates performance functionality, the Platform is now also penetrating the new CCleaner user base.

• In addition to strong organic adoption as the multi-platform brand strategy builds market interest, future active user growth of the Browser will be derived from expansion to additional platforms such as MAC, targeted for late 2019, with Android and iOS to follow.

• Chrome distribution continued to soften in line with expectations. In April 2019, Avast successfully extended the right to distribute Chrome offers to users of CCleaner by unifying the contract with the larger Avast contract which covers Chrome offers to Avast and AVG branded product sets, thereby extending the CCleaner rights through to March 2020.

• Avast’s data analytics business, Jumpshot, performed well, continuing its expansion program to deliver strong double-digit growth rates. In July 2019 Jumpshot announced a strategic partnership, whereby the UK information company Ascential plc acquired a 35% minority stake in the business. The partnership is expected to further accelerate Jumpshot’s growth through additional customer relationship and product development opportunities.

• The discontinued AVG toolbar business, as well as the legacy Avast browser clean-up business, are decreasing at a slower rate than expected due to slower than expected churn. Previously, this business was expected to disappear by the end of 2019 but, given the slower decline, it will likely extend and wind down in 2020.

• For FY 2019 we expect Consumer Indirect to continue its strong performance. Underpinned by the strong billings momentum in the first half driven by the Browser and Jumpshot, we raise guidance to double-digit revenue growth, excluding the impact of Discontinued Business and FX.

SMB


(excluding FX)



Adjusted Billings excl. Disposal 24.4 25.4 (3.8) (0.9)

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(excluding FX)



Adjusted Revenue excl. Disposal 25.9 27.4 (5.6) (5.0)

• The SMB business has performed in line with expectations provided at full year.

• After extensive preparation and training, in April we were able to effectively redirect resellers to the new Avast Order Management System (‘OMS‘), and overall feedback has been positive. The process of migrating distributors from legacy systems to the new OMS is also nearing completion.

• Further to Avast’s partnership agreement with Zscaler, Secure Web Gateway fully launched in mid-February to all channels and territories. This has enabled the pipeline to be built around endpoint and network gateway product integration. While sales activity is well underway, it will take time for early stage customer engagements to become revenue generating.

• As part of Avast’s layered security protection, the Patch Management solution went live in June and has to date matched initial sales projections

• The divestiture of the Managed Workplace business to Barracuda, announced in January, has completed.

• We anticipate further progress through the year, supported by completion of migrations to OMS. In FY 2019 our expectations remain for mid single-digit revenue decline, largely as a result of the decline in billings during 2018, excluding the impact of FX and the recent disposal of the Managed Workplace business.

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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 $29.4m to $459.6m in the half year ended 30 June 2019, driven by the core Consumer Direct Desktop business. This represented a 10.1% increase excluding FX or 6.8% in actual rates. Excluding Discontinued Business and the disposal of Managed Workplace, the Group’s Adjusted Billings increased by $38.1m to $454.6m. This represented a 12.5% increase excluding FX or 9.2% in actual rates. Subscription billings represented 84.7% of the Group’s total Adjusted Billings in HY 2019 ended 30 June 2019, benefiting from both deferred revenue strength and FY 2019 new billings performance. Excluding Discontinued Business and the disposal of Managed Workplace business, the Group’s Adjusted Revenue increased by $32.2m to $421.7m, representing a 9.2% increase excluding FX or 8.3% in actual rates. Adjusted Revenue in the period of $426.8m included $260.0m from the release of prior-period deferred revenue. The Adjusted Deferred Revenue9 balance at the end of the period was $471.3m, comprising $417.1m that will be recognised within 12 months of the balance sheet date. This compares to $427.7m, comprising of $378.6m respectively, at the same time last year. The average subscription length at the half year ended 30 June 2019 was 14 months, flat versus FY 2018. The Group’s statutory Billings increased by $29.4m to $459.6m in the half year ended 30 June 2019, which represents a 6.8% increase. The Group’s statutory Revenue increased by $36.8m to $425.4m, which represents a 9.5% increase. It should be noted that the difference between the Group’s statutory Revenue of $425.4m and Group’s Adjusted Revenue of $426.8 in H1 2019 is diminishing as the magnitude of non-cash historical adjustments arising from the AVG acquisition decreases. These adjustments are expected to be negligible after 2019.

Profitability was driven by the Group’s scale and operating leverage. Adjusted EBITDA increased 6.5% to $236.5m, resulting in Adjusted EBITDA margin of 55.4% (including c.1pt upside from IFRS 16 adoption in 2019). This is in line with half year guidance of a slight year-on-year decrease adjusting for the IFRS 16 impact, due to carry over of 2018 investments (55.1% EBITDA margin in HY 2018). Full year outlook remains flat (excluding IFRS 16). (For IFRS 16 adoption see ‘4.2. New standards, interpretations and amendments adopted by the Group‘) The Statutory Operating Profit increase of $52.2m was driven by a more modest impact from the deferred revenue haircut from the AVG acquisition of $10.7m, an increase in Adjusted EBITDA of $14.4m, lower exceptional items of $20.9m, lower depreciation and amortisation of acquisition and non-acquisition intangibles of $13.1m and the lower impact of other adjustments of $0.9m, partially offset by higher share-based payments costs of $(7.8)m. The table below presents the Group’s Adjusted Billings and Adjusted Revenue for the periods indicated:


(excluding FX)


Consumer 435.2 400.1 8.8 12.1

Direct 379.9 351.7 8.0 11.6

Indirect (excl. Discontinued Business) 50.3 39.4 27.7 29.0


SMB 24.4 30.1 (18.9) (16.5)


SMB excl. Disposal 24.4 25.4 (3.8) (0.9)

Adjusted Billings excluding Discontinued Business and Disposals

454.6 416.5 9.2 12.5


Consumer 400.9 371.1 8.0 9.0

Direct 345.9 322.6 7.2 8.2

Indirect (excl. Discontinued Business) 50.0 39.6 26.3 27.7


SMB 25.9 32.2 (19.5) (19.0)

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SMB excl. Disposal 25.9 27.4 (5.6) (5.0)

Adjusted Revenue excluding Discontinued Business and Disposals

421.7 389.6 8.3 9.2

Costs

($’m) H1 2019 H1 2018 Change Change %

Cost of revenues (107.5) (120.6) 13.1 10.9

Share-based payments 0.2 0.0 0.2 Fav

Amortisation of acquisition intangible assets 48.8 65.0 (16.2) (24.9)

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

4.3 4.4 (0.1) (1.7)

COGS deferral adjustment (0.1) (0.9) 0.8 87.5

Gross-up Adjustment (0.1) (1.1) 1.0 90.4

Exceptional items 0.2 0.4 (0.2) (54.9)

Adjusted Cost of revenues (excluding D&A) (54.2) (52.8) (1.4) (2.7)

The increase in the Group’s Adjusted Cost of Revenues reflects higher sales commissions and licence fees of $(2.0)m related to the increase in Adjusted Revenue, offset by a positive FX impact of $0.6m. Adjusted Cost of Revenues represent the Group’s cost of revenues adjusted for depreciation and amortisation charges, share-based payments charges, exceptional items, COGS deferral adjustment and gross-up adjustment. The Group’s statutory Cost of revenues decreased by $13.1m to $(107.5)m primarily due to the lower amortisation of acquisition intangibles. The amortisation of acquisition intangibles represents intangible assets acquired through business combinations.


Operating costs (156.0) (158.3) 2.3 1.5


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

6.5 3.3 3.2 96.3


Adjusted Operating costs (excluding D&A) (136.0) (128.4) (7.6) (5.9)

The increase in the Group’s Adjusted Operating costs excluding the positive impact of IFRS 16 implementation of $4.3m was $(11.9)m. The increase was caused by investment into personnel costs of $(6.6)m, office costs and equipment of $(0.7)m, marketing and paid search of $(4.2)m, consultancy and outsourced services of $(0.2)m, IT services and maintenance costs of $(1.1)m, sales commissions of $(0.5)m, higher travel and training spend of $(0.7)m, carry over impact of PLC costs of $(1.9)m and other costs and FX of $4.0m. Adjusted Operating costs represent the Group’s operating costs adjusted for depreciation and amortisation charges, share-based payments charges and exceptional items. The decrease in the Group’s statutory Operating costs of $2.3m, from $(158.3)m to $(156.0)m, reflects lower exceptional items, partially offset by higher share-based payments and higher depreciation and amortisation of non-acquisition intangibles. 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 material and 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, regardless the materiality of the residual impact in a future period.Exceptional items in 2019 consist 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 (see Note 8 Exceptional items). Portion of the exceptional items directly related to the disposal of business operation was included in the investing cash flow, costs related to the acquisition were included in operating cash flow. The net gain on disposal of business operation of $17.5m (see Note 3 Disposal of business operation) was treated as exceptional and it is not included in the Adjusted Net income. Exceptional items in 2018 related mainly to IPO costs.

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Finance income and expense Adjusted finance expense on a net basis was $(39.8)m in 2019, $11.9m lower compared to $(51.7)m in H1 2018. Excluding the negative impact of the implementation of IFRS 16 of $(1.2)m, the adjusted finance costs decreased by $13.1m. The decrease was driven by lower total loan interest costs of $15.3m resulting from the repayment of $300m debt post IPO and the additional repayment of $197.4m in 2019 (see Note 16 Term Loan), partially offset by the negative impact of revaluation of derivatives and other finance costs. The Group’s statutory net finance costs increased by $(1.2)m to $(35.5)m in 2019 resulting from the decrease in adjusted finance costs described above, offset by the lower unrealised foreign exchange gains in 2019 from the Euro denominated debt.


Finance income and expenses, net (35.5) (34.3) (1.2) (3.6)

Unrealized FX (gain)/loss on EUR tranche of bank loan (4.3) (17.4) 13.2 75.6

Adjusted Finance income and expenses, net (39.8) (51.7) 11.9 23.1

Income tax In the half year ended 30 June 2019, the Group reported an Income tax expense of $(31.3)m, compared to the income tax benefit of $84.8m in the half year ended 30 June 2018. The income tax benefit in 2018 was primarily driven by transfer of AVG E-comm web shop to Avast Software B.V. (“Avast BV”) on 1 May 2018. Subsequently, the former Dutch AVG business from Avast BV (including the web shop) was sold to Avast Software s.r.o. 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. Income tax was further impacted by the tax expense of the foreign exchange movements on intercompany loans arising in the statutory accounts of the subsidiary concerned of $1.0m (tax benefit of $(9.4)m in H1 2018) and the recognition of previously unrecognised tax losses carried forward of subsidiaries Piriform Inc. and Remotium Inc.of $4.7m related to the previous periods. 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 $(37.7)m for HY 2019, resulting in an adjusted effective tax rate of 20.3% (H1 2018: 20.0%). The Adjusted effective tax rate is the Adjusted Income tax percentage of Adjusted Profit before tax of $186.0m (defined as Adjusted Net Income of $148.2m before the deduction of Adjusted Income tax of $(37.7)m.)


Income tax (31.3) 84.8 (116.1) Unf

Tax impact of FX difference on intercompany loans 1.0 (9.4) 10.4 Fav

Tax impact of IP transfer 3.1 (94.4) 97.5 Fav

Tax impact of COGS deferral adjustment - 0.2 (0.2) Unf

Tax impact of disposal of business operations 2.3 - 2.3 n/a

Tax impact on adjusted items (12.8) (13.7) 0.9 6.6

Adjusted Income tax (37.7) (32.5) (5.2) (16.0)

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.

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Adjusted Cash EBITDA 268.2 246.4 21.7 8.8

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

(10.0) 0.1 (10.1) Unf

Capex (3.2) (5.0) 1.8 35.7

Cash Tax (excl. Dutch exit tax) (24.6) (49.4) 24.9 50.3

Unlevered Free Cash Flow 230.4 192.2 38.2 20.0

Cash Interest (26.1) (36.5) 10.4 28.4

Lease Payments (4.1) (1.5) (2.5) Unf

Levered Free Cash Flow 200.2 154.2 46.0 29.9

Cash conversion 10 86% 78%

The working capital movement in H1 2018 comprised a positive movement in payables driven by outstanding unpaid IPO expenses at the end of June 2018. Lower capex in H1 2019 was caused by the timing of internal projects mainly to H2 2019. The cash tax included in the calculation of Unlevered Free Cash Flow excludes a $49.4m Dutch exit tax paid in March 2019 as this was treated as an exceptional item. 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. As the taxable income for 2017 was significantly higher than the taxable income for 2018 due to unrealized FX gain on intercompany loans, the reported cash tax in H1 2018 was higher by the amount of the true up. No such true up payment occurred in 2019.


Net cash flows from operating activities 176.5 166.1 10.4 6.3

Net cash used in investing activities 13.3 (5.0) 18.3 Fav

Net cash flows from financing activities (325.4) (187.0) (138.4) (74.0)

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.



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

(10.0) 0.1 (10.1) Unf

Cash Tax (excl. Dutch exit tax) (24.6) (49.4) 24.9 50.3

Dutch exit cash tax (49.4) - (49.4) n/a

Movement of provisions and allowances 0.9 (1.8) 2.7 Fav

Exceptional items (excl. transaction costs) (1.3) (22.5) 21.2 94.2

Employer’s costs on share-based payments (1.5) - (1.5) n/a

FX gains/losses and other financial expenses and non-cash gains included in operating cash flows

(5.8) (6.7) 0.9 13.4

Net Cash Flows from operating activities 176.5 166.1 10.4 6.3

The Group’s net cash flow from operating activities increased by $10.4m primarily due to higher Adjusted Cash EBITDA of $21.8m, lower cash tax of $24.9m, lower exceptional items (excl. transaction costs) of $21.2m, positive impact of the movement in provisions and allowances of $2.7m and positive change in FX gains/losses and other financial expenses and non-cash gains of $0.9m, offset by Dutch exit tax paid of $(49.4)m, negative impact of working capital movement (excl. change in deferred revenue and deferred COGS) of $(10.1)m and employer’s costs on share-based payments of $(1.5)m (see Note 7 Share-based payments). Portion of the exceptional items directly related to the disposal of business operation of $(0.3)m was included in the cash flows from investing activities. The Group’s net cash inflow from investing activities of $13.3m was comprised of capex of $(3.2)m, consideration paid for TrackOFF acquisition net of cash acquired of $(11.2)m (see Note 2 Business combinations), proceeds from the sale of a business operation net of cash disposed and transaction costs of

13

$26.7m (see Note 3 Sale of a business operation) and interest received of $1.0m. The Group’s net cash outflow from investing activities in H1 2018 consisted solely of capex of $(5.0)m. The Group’s net cash outflow from financing activities includes $(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. Increase in lease repayments in H1 2019 was driven by implementation of IFRS 16. The Group’s net cash flows from financing activities in 2018 included $195.8 net proceeds from the issue of shares, $(300)m voluntary repayment of borrowings in 2018, $(41.7)m mandatory repayment of borrowings, $(3.1)m transactions costs related to borrowings, $(36.5)m interest paid and $(1.5)m lease repayments. Financing The Group further reduced its term loan by the repayment of $400m from USD tranche on 29 March 2019, while executing an incremental €177.5m ($202.6m) add-on to EUR tranche (see Note 16 Term Loan). As of 30 June 2019, the total Gross debt11 of the Group was $1,244.0m and the total Net debt11 was $1,104.6m. The decrease in gross debt since 31 December 2018 is attributable to $197.4m voluntary repayment of borrowings, $33.5m of mandatory repayment of borrowings, $3.0m decrease in lease liabilities and a positive unrealised FX gain of $4.3m on the EUR tranche of the loan. The Group adopted IFRS 16 as of 1 January 2019 using the modified retrospective approach and did not restate for the year prior to first adoption. The balance of lease liabilities as of 31 December 2018, shown in the table below, have been presented as if adjusted for opening balance of IFRS 16 impact.

($’m) 30 June 2019

31 December 2018

31 December 2018

incl. IFRS 16 impact Margin

Term loan (USD tranche) 447.8 864.7 864.7 USD LIBOR plus 2.25%

Term loan (EUR tranche) 727.6 545.8 545.8 EURIBOR plus 2.50%

Revolver/Overdraft - - - USD LIBOR plus 2.25%

Lease liabilities 68.6 - 71.7

Cash and cash equivalents (139.4) (272.3) (272.3)

Gross debt 1,244.0 1,410.5 1,482.2

Net debt 1,104.6 1,138.2 1,209.9

Net debt / LTM Adjusted EBITDA 2.4x 2.5x 2.7x

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 2019 average

H1 2018 Average

AUD 0.7089 0.7716 BRL 0.2600 0.2933 CAD 0.7474 0.7832 CHF 1.0017 1.0353 CZK 0.0440 0.0475 EUR 1.1327 1.2109 GBP 1.2983 1.3765 ILS 0.2745 0.2843 NOK 0.1163 0.1262

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. See Note 12 for the statutory earnings per share.

14

($’m) H1 2019 H1 2018

Adjusted Net Income 148.2 130.2

Basic weighted average number of shares 959,745,088 875,252,749

Effects of dilution from share options and restricted share units 49,628,110 75,062,326

Dilutive weighted average number of shares 1,009,373,198 950,315,075

Basic Adjusted earnings per share ($/share) 0.15 0.15

Diluted Adjusted earnings per share ($/share) 0.15 0.14

Dividend On 13 August 2019, the Directors declared an interim dividend of 4.4 cents per share payable in October 2019. This represents one third of 40% of the Group’s levered free cash flow in 2018, in accordance with the Company’s dividend policy. This will be paid in US dollars on 11 October 2019 to shareholders on the register on 13 September 2019. 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 20 September 2019. 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 26 September 2019, and announced shortly thereafter. In accordance to the Company’s dividend policy, the Group aims to pay a final dividend in Q2 2020 based on the Group’s final 2019 levered free cash flow (c.40% of levered FCF less interim dividend).

Proposed Dividend Timetable Ex-dividend Date: 12 September 2019 Record Date: 13 September 2019 Last Date for Currency Election: 20 September 2019 Payment: 11 October 2019 Notes: 9 Adjusted deferred revenue represents the balance of deferred revenue excluding the effects of the fair value revaluation of the acquiree’s pre-acquisition deferred revenues and including the impact of gross-up adjustment. 10 Cash conversion is defined as Unlevered Free Cash Flow divided by Adjusted Cash EBITDA. 11 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 2019 of $10.6m and accrued interest of $(0.3)m (31 December 2018: $19.1m and $(0.1)m).

15

PRINCIPAL RISKS AND UNCERTAINTIES 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 set out in the last annual report and financial statements dated 9 April 2019 remain valid at the date of this report. These risks and uncertainties are:

Risk Impact Mitigation

Our product and service offerings do not appeal 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 is to invest in product innovation, product management, quality assurance, and customer care.

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 people with global mobility; recruit from a broad pool of candidates and promote based on diversity of backgrounds, skills, cultures, gender, and ethnicity; and provide effective training for personal and professional growth.

Our data is compromised.

Failing to protect our data could have major customer, financial, reputational, and regulatory impact in all markets in which we operate.

We strive for strong, effective, thorough data security and good data governance. We produce products designed for security and privacy, and believe this helps us maintain an ethical culture in which people who are concerned about and committed to securing and protecting data.

We operate a digital business globally and the scale and complexity of new laws are increasing as the digital economy becomes the backbone of global economic growth.

New laws that challenge growth, including data protection, consumer laws, auto-billing, and digital tax laws.

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

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 telco 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.

16

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 statutory measures. The APMs are not defined or recognised under IFRS including Adjusted Billings, Adjusted Revenue, Adjusted EBITDA, Adjusted Cash EBITDA, Adjusted Net Income and Unlevered Free Cash Flow 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. The definition of non-GAAP measures in the six months ended 30 June 2019 are consistent with those presented 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 2019 ($'M)

Six-months ended Six-months ended

30 June 2019 (Unaudited)


REVENUES 426.8 403.3

Cost of revenues (54.2) (52.8)

GROSS PROFIT 372.6 350.5

Gross profit margin 87.3% 86.9%

Sales and marketing (62.0) (55.1)

Research and development (35.8) (31.9)

General and administrative (38.2) (41.4)

Total operating costs (136.0) (128.4)

EBITDA 236.5 222.1

EBITDA margin 4 55.4% 55.1%

Depreciation & Amortisation (10.8) (7.7)

EBIT 225.7 214.4

Finance income and expenses (39.8) (51.7)

PROFIT BEFORE TAX 186.0 162.7

Income tax (37.7) (32.5)

NET INCOME 148.2 130.2

Net Income margin 34.7% 32.3%

Earnings per share (in $ per share):

Basic EPS 0.15 0.15

Diluted EPS 0.15 0.14

17

Adjusted Billings Billings represent the full value of products and services being delivered under subscription and other agreements and include sales to new end customers plus renewals and additional sales to existing end customers. Under the subscription model, end customers pay the Group for the entire amount of the subscription in cash upfront upon initial delivery of the applicable products. 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 represent the Group’s reported without adjusting items in 2019 half year and likewise in the comparative period. Adjusted Revenue Adjusted Revenue represents the Group’s reported adjusted for the Deferred Revenue Haircut Reversal12 and Gross-Up Adjustment13. These historical adjustments are negligible from 2019. The following is a reconciliation of the Group’s statutory Revenue to the Group’s Adjusted Billings, Group’s statutory Revenue to the Group’s Adjusted Revenue:


Revenue 425.4 388.6 36.8 9.5

Net deferral of revenue 34.3 41.6 (7.3) (17.6)


Revenue 425.4 388.6 36.8 9.5

Deferred Revenue Haircut reversal / Other 1.3 13.7 (12.4) (90.6)

Gross-Up Adjustment 0.1 1.1 (0.9) (90.4)


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, exceptional items, amortisation of acquisition intangible assets, the Deferred Revenue Haircut Reversal12 and the COGS Deferral Adjustments14. 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 Adjustments14.The following is a reconciliation of the Group’s statutory Operating profit to Adjusted EBITDA and Adjusted Cash EBITDA:


Operating profit 161.9 109.7 52.2 47.6




Underlying Operating profit 224.5 201.6 22.9 11.4


COGS Deferral Adjustments (0.1) (0.9) 0.8 87.5

Depreciation 9.5 6.4 3.1 48.9

Amortisation of non-acquisition intangible assets 1.4 1.4 0.0 0.1

Adjusted EBITDA 236.5 222.1 14.4 6.5

Net change in deferred revenues including FX re-translation / Other 33.0 27.9 5.1 18.2

Net change in deferred cost of goods sold (1.5) (4.6) 3.0 67.0

Reversal of COGS deferral adjustment 0.1 0.9 (0.8) (87.5)


18

Adjusted Net income Adjusted Net Income represents statutory net income plus the Deferred Revenue Haircut Reversal12, 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 Adjustments14, 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 statutory Net income to Adjusted Net Income:


Net Income 112.6 160.2 (47.6) (29.7)





Unrealised FX gain/(loss) on EUR tranche of bank loan (4.3) (17.4) 13.2 75.6

Tax impact from FX difference on intercompany loans 1.0 (9.4) 10.4 Fav

COGS Deferral Adjustments (0.1) (0.9) 0.8 87.5

Tax impact of COGS deferral adjustment - 0.2 (0.2) Unf

Tax impact on adjusted items (12.8) (13.7) 0.9 6.6

Tax impact of IP transfer 3.1 (94.4) 97.5 Fav

Gain on disposal of business operation (17.5) - (17.5) n/a

Tax impact from disposal of business operation 2.3 - 2.3 n/a

Adjusted Net Income 148.2 130.2 18.0 13.8

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. 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. 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: 12 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‘. 13 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. 14 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.

19

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 9 April 2019 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 2019 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 4, 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

20

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 2019 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 13 August 2019 13 August 2019

21

CONSOLIDATED STATEMENT OF PROFIT AND LOSS FOR THE SIX-MONTHS ENDED 30 JUNE 2019 ($'M)


Note 30 June 2019 (Unaudited)


REVENUES 6 425.4 388.6

Cost of revenues (107.5) (120.6)

GROSS PROFIT 317.9 268.0

Sales and marketing (68.4) (58.6)

Research and development (38.6) (33.1)

General and administrative (49.0) (66.6)

Total operating costs (156.0) (158.3)

OPERATING PROFIT 161.9 109.7

Analysed as:

Underlying Operating profit 224.5 201.6

Share-based payments 7 (12.2) (4.4)

Exceptional items 8 (1.6) (22.5)

Amortisation of intangible assets acquired through business combinations

9 (48.8) (65.0)

Net gain on disposal of a business operation 3 17.5 -

Interest Income 10 1.0 -

Interest Expense 10 (35.6) (49.7)

Other finance income and expense (net) 10 (0.9) 15.4

PROFIT BEFORE TAX 143.9 75.4

Income tax 11 (31.3) 84.8

PROFIT FOR THE PERIOD 112.6 160.2

Earnings per share (in $ per share):

Basic EPS 12 0.12 0.18

Diluted EPS 12 0.11 0.17

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

22

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE SIX-MONTHS ENDED 30 JUNE 2019 ($'M)




Profit for the period 112.6 160.2

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 0.5 -

Total other comprehensive gains 0.5 -

Comprehensive income for the period 113.1 160.2


23

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 30 JUNE 2019 ($'M)


Note 30 June 2019

(Unaudited) 30 June 2018

(Unaudited) 31 December 2018

(Audited)

ASSETS

Current assets

Cash and cash equivalents 139.4 151.6 272.3

Trade and other receivables 81.5 97.6 82.9

Capitalised contract costs 13 32.8 28.9 31.2

Prepaid expenses 9.6 12.3 8.5

Inventory 0.3 0.5 0.5

Tax receivables 14.6 5.4 7.3

Financial assets 1.6 0.7 0.4

279.8 297.0 403.1

Non-current assets

Property, plant and equipment 24.3 26.6 29.3

Right-of-use assets 4 66.2 - -

Intangible assets 231.4 328.9 267.3

Deferred tax asset 195.0 210.3 204.1

Financial assets 0.8 2.4 0.7

Capitalised contract costs 13 4.5 2.7 4.6

Prepaid expenses 2.2 0.1 2.0

Goodwill 1.982.8 1,986.7 1,993.7

2,507.2 2,557.7 2,501.7

TOTAL ASSETS 2,787.0 2,854.7 2,904.8

SHAREHOLDERS’ EQUITY AND LIABILITIES

Current liabilities

Trade and other payables 57.5 79.2 64.0

Lease liability 4 6.6 0.1 0.4

Provisions 9.2 6.3 9.1

Income tax liability 4.0 38.2 40.4

Deferred revenues 15 415.0 371.6 384.3

Term loan 16 61.8 74.1 73.4

Financial liabilities 17 - 1.1 -

554.1 570.6 571.6

Non-current liabilities

Lease liability 4 62.0 3.0 2.6

Provisions 0.9 1.0 0.9

Deferred revenues 15 54.1 48.5 51.2

Term loan 16 1,103.3 1,360.3 1,318.1

Financial liabilities 17 2.6 - 1.0

Other non-current liability 1.5 1.2 4.3

Deferred tax liability 42.0 59.8 54.7

1,266.4 1,473.8 1,432.8

Shareholders’ equity

Share capital 131.9 128.9 129.0

Share premium, statutory and other reserves 303.5 446.2 275.9

Translation differences 0.2 1.3 (0.3)

Retained earnings 529.8 232.9 494.8

Equity attributable to equity holders of the parent 965.4 809.3 899.4

Non-controlling interest 1.1 1.0 1.0

966.5 810.3 900.4

TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES 2,787.0 2,854.7 2,904.8

24

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE SIX-MONTHS ENDED 30 JUNE 2019 ($'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 2017 371.7 0.9 2.4 1.3 57.9 434.2 0.9 435.1

Result of the six-months - - - - 160.2 160.2 - 160.2

Other comprehensive income

- - - - - - - -

Comprehensive income for the period

- - - - 160.2 160.2 - 160.2

Primary proceeds 8.0 191.8 - - - 199.8 - 199.8

Group re-organization (250.8) (0.9) 251.7 - - - - -

Share issue expenses - (4.0) - - - (4.0) - (4.0)

Share-based payments - - 4.3 - - 4.3 0.1 4.4

Share-based payments deferred tax

- - - - 14.8 14.8 - 14.8

At 30 June 2018 128.9 187.8 258.4 1.3 232.9 809.3 1.0 810.3



- - - (1.6) - (1.6) - (1.6)

Comprehensive income (loss) for the period

- - - (1.6) 81.0 79.4 - 79.4

Primary proceeds - - - - - - - -

Group re-organization - - - - - - - -

Capital reduction - (180.6) - - 180.6 - - -

Other movements - - - - 0.3 0.3 - 0.3

Net exercise of options at IPO

- 7.4 (7.4) - - - - -

Share issue expenses - - - - - - - -

Share-based payments - - 9.5 - - 9.5 - 9.5

Exercise of options 0.1 0.8 - - - 0.9 - 0.9

At 31 December 2018 129.0 15.4 260.5 (0.3) 494.8 899.4 1.0 900.4



- - - 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


25

CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE SIX-MONTHS ENDED 30 JUNE 2019 ($'M)

Six-months ended

(Unaudited

Six-months ended

Note 30 June 2019

(Unaudited)

30 June 2018

(Unaudited)

Cash flows from operating activities

Profit for the financial period 112.6 160.2

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

Income tax 11 31.3 (84.8)

Depreciation 9 9.5 6.4

Amortisation 9 50.2 66.4

Gain on disposal of a business operation 3 (17.5) -

Movement of provisions and allowances 0.9 (1.8)

Interest income 10 (1.0) -

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

10 37.7 48.5

Shares granted to employees 7 10.7 4.4

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

(2.7) (1.2)

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

(3.3) (19.5)

Working capital adjustments:

Increase in trade and other receivables (4.0) (12.6)

Increase/(decrease) in trade and other payables (7.5) 8.2

Increase in deferred revenues 33.6 41.3

Income tax paid

(74.0) (49.4)

Net cash flows from operating activities 176.5 166.1

Cash flows from investing activities

Acquisition of property and equipment (2.1) (4.0)

Acquisition of intangible assets (1.1) (1.0)

Investment in a subsidiary, net of cash acquired

2 (11.2) -

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

3 26.7 -

Interest received 1.0 -

Net cash used in investing activities 13.3 (5.0)

Cash flows from financing activities

Proceeds from issue shares - 199.8

Transaction costs related to the issue of shares - (4.0)

Dividend paid 18 (83.7) -

Exercise of options 19.9 -

Repayment of borrowings 16 (433.5) (341.7)

Proceeds from borrowings 16 202.6 -

Transaction costs related to borrowings 16 (0.5) (3.1)

Interest paid 16 (26.1) (36.5)

Lease repayments

4 (4.1) (1.5)

Net cash flows from financing activities (325.4) (187.0)

Net decrease in cash and cash equivalents (135.6) (25.9)

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

2.7 1.2

Cash and cash equivalents at beginning of period 272.3 176.3

Cash and cash equivalents at end of period 139.4 151.6


26

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 13 August 2019 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 2018 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. BUSINESS COMBINATIONS

On 24 May 2019, Avast Software, Inc. purchased a 100% stake in the American company TrackOFF, Inc. (‘TrackOFF’), a developer of tools to protect users’ identities and personal lives. The Group has acquired TrackOFF due to the further development of Avast’s Anti-tracking products and other products that help users maintain their privacy online. The interim condensed consolidated financial statements include the results of TrackOFF for the one-month period. The transaction was implemented through a legal merger between a subsidiary of Avast Software, Inc. and TrackOFF, following which Avast Software, Inc. became the sole shareholder of the surviving company. The fair value of the consideration at the acquisition date was determined by the Group to be $12.8 million for 100% ownership. The consideration given was paid in cash. The fair value of assets acquired and liabilities incurred on the acquisition date was determined on provisional basis as follows: ($'m)

Fair Value

24 May 2019

Assets

Cash and cash equivalents 0.6

Trade and other receivables* 0.4

Intangible assets* 13.2

Total Assets 14.2

Liabilities

Deferred revenues* 1.4

Total Liabilities 1.4

Net assets 12.8

Consideration

12.8

Goodwill* -

*The valuation of trade receivables, intangible asset and deferred revenues acquired had not been completed by the date the interim financial statements were approved for issue by the Board of Directors. Thus, fair values may need to be subsequently adjusted, with a corresponding adjustment to goodwill prior to 24 May 2020 (one year after the transaction).

The business combination resulted in the recognition of intangible asset in the amount of $13.2 million on the provisional basis that represents the intellectual property of TrackOFF, and will be amortised over the estimated useful life of 3 years.

27

Analysis of cash flows on acquisition:

($’m) 1 January 2019

Cash consideration (12.8)

Net cash acquired with the business (included in cash flow from investing activities) 0.6

Holdback consideration payable in 12 months 1.0

Net cash flow on acquisition (11.2)

Transaction costs of $0.2 million have been expensed and are included in General and administrative expenses in the statement of profit and loss as an exceptional item and are part of operating cash flows in the statement of cash flows. Revenues of the Group for the six-months period ended 30 June 2019 would not have been materially different had the acquisition occurred at the beginning of the reporting period (1 January 2019). The net profit of the Group for the six-months period ended 30 June 2019 would have been a net profit of $110.8 million had the transaction occurred at the beginning of the reporting period (1 January 2019).

3. DISPOSAL OF A BUSINESS OPERATION

On 30 January 2019, the Group sold all activities of Managed Workplace business, its remote monitoring and management product, to Barracuda Networks, Inc (‘Barracuda’). The transaction consisted of the sale of a subsidiary AVG Technologies Canada, Inc. (‘AVG CAN’) owned by Avast Software B.V., the sale of intellectual property (‘IP’) owned by Avast Software s.r.o. and the sale of other assets, notably receivables, by Avast Deutschland GmbH, Avast Switzerland AG, AVG Technologies Norway A/S and AVG Distribuidora de Tecnologias do Brasil LTDA .. The total selling price for the transaction was $30.0 million, on a cash-free, debt-free basis, of which $3.0 million was withheld in escrow for a 12-month period to satisfy any potential indemnity claims against the Group under the applicable share and asset purchase agreement entered into between the parties. As a result, the Group derecognised all assets and liabilities of the sold subsidiary AVG CAN. Because the sale of subsidiary is part of a single transaction of the sale of a part of the business, the Group presents the result of the whole transaction (except for tax impacts) within a single line in the statement of comprehensive income, including the sale of IP and other assets. The carrying amounts of assets and liabilities as of the date of sale were as follows: ($'m)

30 January 2019

Cash and cash equivalents 6.0

Trade and other receivables 1.3

Prepaid expenses 0.2

Current assets 7.5

Tangible assets 1.4

Deferred tax assets 0.8

Non-current assets 2.2

Total assets 9.7

Trade and other payables 0.2

Lease liability 0.2

Deferred revenues 0.9

Other current liabilities 0.2

Current liabilities

1.5

Lease liabilities 0.7

Non-current liabilities 0.7

Total liabilities 2.2

Net assets 7.5

28

Because the sold business was part of the group of CGUs to which the goodwill was allocated, a portion of the goodwill has to be disposed as part of the transaction. The Group have determined that the appropriate amount of goodwill disposed of is $11.0 million. The resulting gain on disposal of a business operation is shown in the table below: ($'m)

30 January 2019

Consideration received or receivable:

Cash 33.0

Receivable - holdback 3.0

Total 36.0

Carrying amount of net assets sold

(7.5)

Gain on disposal of a business operation 28.5

Other adjustments:

Goodwill disposal (11.0)

Net gain on disposal of a business operation 17.5

Analysis of cash flows on disposal:


Cash received 33.0

Net cash sold of the business (included in cash flow from investing activities) (6.0)

Transaction costs paid (0.3)

Net cash flow on disposal 26.7

Transaction costs of $0.3 million have been expensed and are included in General and administrative expenses in the statement of profit or loss as an exceptional item.

4. 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 2019 have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union and the Disclosure and Transparency Rules of the Financial Conduct Authority. The Interim Condensed Financial Statements should be read in conjunction with the Annual Report and Consolidated financial statements for the year ended 31 December 2018, which have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (‘IFRS’). The Directors have reviewed the projected cash flow and other relevant information and have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, the Directors continue to adopt the going concern assumption in preparing the Interim Condensed Financial Statements.

The Group uses the direct method of consolidation, under which the Interim Condensed Financial Statements are translated directly into the presentation currency of the Group, the US Dollar (‘USD’). The consolidation of a subsidiary begins when the Group obtains control over the subsidiary, and continues to be consolidated until the date when such control ceases. All intra-group balances, transactions, unrealised gains and losses resulting from intra-group transactions and dividends are eliminated in full on consolidation. 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 2018, except for the adoption of new standards effective as of 1 January 2019. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

29

The Group applies, for the first time, IFRS 16 Leases. As required by IAS 34, the nature and effect of these changes are disclosed below. Several other amendments and interpretations apply for the first time in 2019, but do not have an impact on the interim condensed consolidated financial statements of the Group. IFRS 16 Leases

IFRS 16 supersedes IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model. The Group acts mainly as a lessee. The Group has lease contracts related primarily to office buildings. The Group adopted IFRS 16 using the modified retrospective method of adoption with the date of initial application of 1 January 2019. Under this method, the standard is applied retrospectively with the cumulative effect of initially applying the standard recognised at the date of initial application. The Group elected to use the transition practical expedient allowing the standard to be applied only to contracts that were previously identified as leases applying IAS 17 and IFRIC 4 at the date of initial application. The Group also elected to use the recognition exemptions for lease contracts that, at the commencement date, have a lease term of 12 months or less and do not contain a purchase option (‘short-term leases’), and lease contracts for which the underlying asset is of low value (‘low-value assets’). Right-of-use assets were measured at the amount of the lease liability on adoption (adjusted for any prepaid or accrued lease expenses and assessed for impairment at the date of initial application). The right-of-use asset is depreciated on a straight-line basis over the lease term or, if it is shorter, over the useful life of the leased asset.

The amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is re-measured if there is a modification or a change in the lease term. The adjustment to the new carrying amount is recognised in equity, with a corresponding adjustment to the right-of-use asset. The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised. The Group has the option, under some of its leases, to lease the assets for additional terms of up to ten years. The Group applies judgement in evaluating whether it is reasonably certain to exercise the option to renew and therefore considers all relevant factors for it to exercise the renewal. The impact of the initial recognition on 1 January 2019 is as follows:


Right-of-use assets 69.7

Prepaid expenses (2.0)

Accrued leased payments 4.0

Lease liabilities (71.7)

Net assets impact -

The Group also uses the following practical expedients permitted by the standard:

• the use of a single discount rate to a portfolio of leases with reasonably similar characteristics • the adjustment of the right-of-use asset for any recognised onerous lease provisions, instead of

performing an impairment review • applied the short-term leases exemptions to leases with lease term that ends within 12 months at the

date of initial application • the exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial

application, and • the use of hindsight in determining the lease term where the contract contains options to extend or

terminate the lease.

30

The lease liabilities as at 1 January 2019 are reconciled to the operating lease commitments as of 31 December 2018 as follows:

($ 'm)

Operating lease commitments as at 31 December 2018 87.6

Recognition exemption:

Commitments relating to short-term leases (0.5)

Other commitments (0.3)

Net operating lease commitments as at 31 December 2018 86.8

Effect from discounting at the incremental borrowing rate as of 1 January 2019 (15.1)

Lease liabilities as at 1 January 2019 71.7

The lease liabilities were discounted at the borrowing rate as at 1 January 2019. The weighted average discount rate was 3.3%. Set out below, are the carrying amounts of the Group’s right-of-use assets and lease liabilities and the movements during the period:

($ 'm) Right-of-use assets Lease liabilities

At 1 January 2019 69.7 71.7 Additions 0.3 0.3 Depreciation expense (3.8) - Interest expense - 1.2 Payments - (4.1)

Foreign currency exchange difference - (0.5)

At 30 June 2019 66.2 68.6

5. ALTERNATIVE PERFORMANCE MEASURES

Underlying operating profit, Underlying EBITDA, Underlying Net Income and Underlying Cash EBITDA

To supplement its historical financial information, which is prepared and presented in accordance with IFRS, the Group uses the following non-GAAP financial measures that are not defined or recognised under IFRS: Underlying operating profit, Underlying earnings before interest, taxation, depreciation and amortisation (‘Underlying EBITDA’), Underlying Net Income and Underlying Cash EBITDA. Underlying Operating Profit, Underlying EBITDA, Underlying Net Income and Underlying Cash EBITDA provide supplemental measures of earnings that facilitates a review of operating performance on a period-over-period basis by excluding non-recurring and other items that are not indicative of the Group's underlying operating performance. Underlying Operating Profit is defined as the Group’s operating profit before: (i) amortisation charges of intangible assets recognised as part of a business combinations; (ii) share-based payments expenses; and (iii) exceptional items.

31

Underlying EBITDA is defined as the Group’s operating profit before: (i) depreciation and amortisation charges; (ii) deferred revenue haircut reversal; (iii) share-based payments expenses; and (iv) exceptional items.

($’m)

Note

Six-months ended 30 June 2019

(Unaudited)


(Unaudited)

Operating profit 161.9 109.7

Share-based payments 7 12.2 4.4

Exceptional items 8 1.6 22.5

Amortisation of acquisition intangible assets 9 48.8 65.0

Underlying operating profit 224.5 201.6

Deferred revenue haircut reversal 6 1.3 11.9

Depreciation 9 9.5 6.4

Amortisation of non-acquisition intangible assets 9 1.4 1.4

Underlying EBITDA 236.7 221.3

Underlying Net Income represents profit for the financial period before the effect of business combination accounting (the fair value revaluation of pre-acquisition deferred revenue), share-based payments, exceptional items, amortisation of acquisition intangible assets, the unrealised foreign exchange loss on the EUR tranche of the bank loan (see Note 16), net gain on disposal of business operation, the tax impact from the unrealised exchange differences on intercompany loans (see Note 10) and the tax impact of the foregoing adjusting items and IP sale. The Group believes that Underlying Net Income is an appropriate supplemental measure that provides useful information to the Group and investors about the Group’s underlying business performance.

($’m) Note


(Unaudited)


(Unaudited)

Profit for the year 112.6 160.2

Deferred revenue haircut reversal 6 1.3 11.9

Share-based payments 7 12.2 4.4

Exceptional items 8 1.6 22.5

Amortisation of acquisition intangible assets 9 48.8 65.0

Unrealised FX gain on EUR tranche of bank loan (4.3) (17.4)

Net gain on disposal of business operation 3 (17.5) -

Tax impact of IP transfer 3.1 (94.4)

Tax impact from foreign exchange difference on intercompany loans 1.0 (9.4)

Tax impact from disposal of business operation 2.3 -

Tax impact on adjusted items (12.8) (13.7)

Underlying Net Income 148.3 129.1

The tax impact of the adjusted items has been calculated by applying the tax rate that the Group determined to be applicable to the relevant item.

Cash earnings before interest, taxation, depreciation and amortisation (‘Cash EBITDA’) is defined as Underlying EBITDA plus the increase in deferred revenue (net of impact from foreign exchange and business combination accounting) less the net increase in prepaid expenses related to cost of revenue.

($’m) Six-months ended



(Unaudited)

Underlying EBITDA 236.7 221.3

Net change in deferred revenue 33.0 29.7

Change in prepaid expenses - cost of revenue (1.5) (4.6)

Underlying Cash EBITDA 268.2 246.4

32

6. SEGMENT INFORMATION AND OTHER DISCLOSURES

For management reporting purposes, two operating segments of Consumer and Small and Medium-sized business (‘SMB’) have been identified based on the nature of the business and how the business is managed. Billings is one of the important metrics used to evaluate and manage operating segments. Billings represent the full value of products and services being delivered under subscription and other agreements and include sales to new end customers plus renewals and additional sales to existing end customers. Under the subscription model, end customers pay the Group for the entire amount of the subscription in cash upfront upon initial delivery of the applicable products. Although the cash is paid up front, under IFRS, subscription revenue is deferred and recognised rateably over the life of the subscription agreement, whereas non-subscription revenue is typically recognised immediately. Billings is not defined or recognised under IFRS and considered as a non-IFRS financial measure used to evaluate current business performance. The management of the Group reviews financial information that is principally the same as that based on the accounting policies. Management also reviews the underlying operating profit of the segment. Total segment underlying operating profit is derived from underlying revenues and decreased by cost of revenues and operating costs directly attributable to the relevant segment. Underlying revenues are adjusted for the effects of the fair value revaluation of the acquiree’s pre-acquisition deferred revenues (‘Deferred revenue haircut reversal’). The following tables present summarised information by segment reconciled from the underlying operating profit of the segment to consolidated operating profit (excludes depreciation and amortisation, share-based payments, exceptional items, corporate overhead costs and the effect of the deferred revenue haircut):

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 underlying 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 underlying 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 (12.2)

Consolidated operating profit 161.9

33

Six-months ended 30 June 2018 (Unaudited) ($’m)

Consumer SMB Total

Billings 400.1 30.1 430.2

Deferral of revenue (39.5) (2.1) (41.6)

Revenues 360.6 28.0 388.6

Deferred revenue haircut reversal 8.1 3.8 11.9

Segment underlying revenue 368.7 31.8 400.5

Segment cost of revenues (35.7) (4.0) (39.7)

Segment sales and marketing costs (33.0) (10.4) (43.4)

Segment research and development costs (20.7) (3.7) (24.4)

Segment general and administrative costs (1.9) - (1.9)

Total Segment underlying operating profit 277.4 13.7 291.1

Corporate overhead (69.8)

Deferred revenue haircut reversal (11.9)

Depreciation and amortisation (72.8)

Exceptional items (22.5)

Share-based payments (4.4)

Consolidated operating profit 109.7

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, these costs are excluded in the total Segment underlying operating profit above:




(Unaudited)

Consumer 50.4 66.5

SMB 0.1 0.3

Corporate overhead 9.2 6.0

Total depreciation and amortisation 59.7 72.8

The following table presents revenue of subsegments:




(Unaudited)

Consumer Direct Desktop 307.0 271.5

Consumer Direct Mobile 38.2 40.5

Consumer Indirect 50.0 39.6

SMB 25.1 28.0

Other 5.1 9.0

Total 425.4 388.6

The following table presents Underlying revenue attributed to countries based on the location of the end user:

Six-months ended



(Unaudited)

($’m) (in %) ($’m) (in %)

United States 175.7 41.2% 172.7 43.1% United Kingdom 37.0 8.7% 33.7 8.4% France 32.6 7.6% 30.1 7.5%

Germany 28.1 6.6% 25.2 6.3% Other countries* 153.3 35.9% 138.8 34.7%

Total 426.7 100.0% 400.5 100.0%

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

34

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




(Unaudited)

Revenues realised through online resellers:

Digital River 246.4 161.2

7. SHARE-BASED PAYMENTS

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

($ 'm) Six-months ended



(Unaudited)

Avast Option Plan 3.9 4.3

Long Term Incentive Plan (‘LTIP’) 6.7 -

Jumpshot Option Plan 0.1 0.1

Total share-based payments expense 10.7 4.4

The Group also recognised additional $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 underlying operating profit amounted to $12.2 million (H1 2018: $4.4 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)


Number (Unaudited)


WASP (£ pence) (Unaudited)


Number (Unaudited)


WASP (£ pence) (Unaudited)

RSU 1,729,581 296.8 1,873,551 219.6

PSU 870,137 295.9 6,309,881 219.6

Total 2,599,718 296.5 8,183,432 219.6

8. EXCEPTIONAL ITEMS The following table presents the exceptional items by activities:




(Unaudited)

Exceptional items in the operating profit (1.6) (22.5)

Net gain on disposal of business operation 17.5 -

Exceptional items in the operating profit During the period, the Group incurred $0.3 million of legal and professional fees related to the disposal of a subsidiary and related business operation (Note 3) and $0.2 million of legal fees related to the TrackOFF acquisition (Note 2). Remaining costs relate to recent acquisition activities, minor integration and restructuring costs. During 2018, the Group incurred costs in the amount of $18.5 million related to one-time advisory, legal and other professional service fees of the IPO that occurred in May 2018. The total cash impact of IPO related costs was $14.3 million for the six-months ended 30 June 2018. The tax credit on the exceptional items of $1.6 million (H1 2018: $22.5 million) is $0.2 million (H1 2018: $1.5 million).

35

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 (Note 3).

9. DEPRECIATION AND AMORTISATION

Amortisation by function:




(Unaudited)

Cost of revenues 48.8 65.0

Total amortisation of acquisition intangible assets 48.8 65.0

Cost of revenues 0.9 1.0

Sales and marketing 0.1 0.1

Research and development - -

General and administration 0.4 0.3

Total amortisation of non-acquisition intangible assets 1.4 1.4

Total amortisation 50.2 66.4

Depreciation by function:




(Unaudited)

Cost of revenues 3.5 3.5 Sales and marketing 0.1 0.2 Research and development 0.4 0.6 General and administration* 5.5 2.1

Total depreciation 9.5 6.4

*$3.8 million is attributable to the depreciation of right-of-use assets (see Note 4)

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

10. FINANCE INCOME AND EXPENSES

Interest income:

($ 'm) Six-months ended 30

June 2019 (Unaudited)


(Unaudited)

Interest on bank deposits 1.0 -

Total finance income 1.0 -

Interest expense:




(Unaudited)

Term loan interest expense (34.4) (49.7)

Lease interest expense (1.2) -

Total interest expense (35.6) (49.7)

36

Other finance income and expense (net):




(Unaudited)

Changes of fair values of derivatives (1.0) 3.1 Revolving loan - commitment fee and other fees (0.6) (0.6) Foreign currency gains and losses, net (3.1) (3.1) Unrealised foreign exchange gains and losses on borrowings, net 4.3 17.4 Other financial expense (0.5) (1.4)

Total other finance income and expense (net) (0.9) 15.4

11. INCOME TAX

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




(Unaudited)

Current income tax (30.4) (63.0) Deferred tax (0.9) 147.8

Total income tax (31.3) 84.8

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




(Unaudited)

Profit before tax 143.9 75.4

Group effective income tax rate (20%* in 2018 and 2019) (28.8) (15.1) Recurring adjustments

Non-deductible expenses (1.3) (4.2) Share-based payments (2.1) (0.9) FX effect on Intercompany loans (1.0) 9.4

Non recurring adjustments

AVG IP transfer net tax benefit - 94.4 Current year deferred tax assets not recognised (0.1) (0.5) Effect of changes in tax rates on deferred taxes (1.1) - Recognition of previously unrecognized deferred tax assets 4.7 -

Remaining impact of tax rate variance and other effects (1.6) 1.7

Total income tax (31.3) 84.8

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

12. EARNINGS PER SHARE

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

Underlying basic earnings per share is calculated by dividing the underlying net profit for the period attributable to equity holders by the weighted average number of ordinary shares outstanding during the period.

37

Earnings per share:

Six-months ended



(Unaudited)

Net profit attributable to equity holders ($ 'm) 112.6 160.2

Basic weighted average number of shares 959,745,088 875,252,749

Effect of stock options and restricted stock units 49,628,110 75,062,326 Total number of shares used in computing dilutive earnings per share 1,009,373,198 950,315,075

Basic earnings per share ($/share) 0.12 0.18 Diluted earnings per share ($/share) 0.11 0.17

Supplementary earnings per share measures:

Six-months ended



(Unaudited)

Net profit attributable to equity holders ($ 'm) 112.6 160.2

Deferred revenue haircut reversal 1.3 11.9 Share-based payments 12.2 4.4 Exceptional items 1.6 22.5

Amortisation of acquisition intangible assets 48.8 65.0

Net gain on disposal of business operation (17.5) -

Unrealised FX gain/loss on EUR tranche of bank loan (4.3) (17.4) Tax impact of IP sale 3.1 (94.4) Tax impact from foreign exchange difference on intercompany loans 1.0 (9.4)

Tax impact on disposal of busines operation 2.3 -

Tax impact on adjusted items (12.8) (13.7)

Underlying net profit attributable to equity holders ($ 'm) 148.3 129.1 Basic weighted average number of shares 959,745,088 875,252,749

Diluited weighted average number of shares 1,009,373,198 950,315,075

Underlying Basic earnings per share ($/share) 0.15 0.15 Underlying Diluted earnings per share ($/share) 0.15 0.14

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

13. CAPITALISED CONTRACT COSTS

($ 'm) 30 June 2019



(Audited)

Capitalised contract costs at 1 January 35.8 27.2 27.2

Additions 32.4 31.8 66.1

Sales commissions and fees 30.0 28.8 59.8

Licence fees 2.4 3.0 6.3

Amortization (30.9) (27.4) (57.5)

Sales commissions and fees (28.3) (24.4) (52.1)

Licence fees (2.6) (3.0) (5.4)

Capitalised contract costs at 31 December 37.3 31.6 35.8

Total current 32.8 28.9 31.2

Total non-current 4.5 2.7 4.6

Capitalised contract costs include commissions and 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.

38

14. NON-CURRENT ASSETS

Intangible assets As part of the business combination (see Note 2), the Group, on a provisional basis, recognised intangible asset in the amount of $13.2 million as of the acquisition date of 24 May 2019. The useful economic life is expected to be 3 years.

The Group did not acquire any other significant intangible non-current assets during the six-months ended 30 June 2019. The amortisation expense was $50.2 million and $66.4 million for the six-months ended 30 June 2019 and 2018, respectively.

As part of the disposal of the business operation (see Note 3), the Group derecognised goodwill in the amount of $11.0 million as of the sale date of 30 January 2019. The Group has tested the goodwill, trademarks and domains and intangibles with an indefinite useful life for impairment as at 31 December 2018. As at 30 June 2019, 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 2018. Property, plant and equipment

As part of the disposal of the business operation (see Note 3), the Group derecognised tangible assets (held by subsidiary in Canada) in the amount of $1.4 million as of the sale date of 30 January 2019.

There were no significant additions or other disposals of tangible non-current assets during the six-months ended 30 June 2019. The depreciation expense was $9.5 million and $6.4 million for the six-months ended 30 June 2019 and 2018, respectively.

15. DEFERRED REVENUES

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

($ 'm) 30 June 2019



(Audited)

At 1 January 435.5 378.8 378.8 Additions – billings 459.6 430.2 862.2 Deductions – revenue (425.4) (388.6) (808.3) Translation adjustments (0.6) (0.3) 2.8

At end of period 469.1 420.1 435.5

Current 415.0 371.6 384.3 Non-current 54.1 48.5 51.2

Total 469.1 420.1 435.5

16. TERM LOAN

Term loan balance is as follows:

($ 'm) 30 June 2019 (Unaudited)


31 December 2018 (Audited)

Current term loan 61.8 74.1 73.4 Long-term term loan 1,103.3 1,360.3 1,318.1

Total term loans 1,165.1 1,434.4 1,391.5

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On 29 March 2019, the Group voluntarily paid down $400.0 million of USD tranche while executed an incremental €177.5 million ($202.6 million) add-on to EUR tranche. Along with this capital structure optimisation, the Group accelerated releasing of the capitalized debt drawing fees and posted a non-cash interest expense of $8.7 million into the statement of profit and loss.

On 23 April 2019, the Group applied the interest margin step-down by 25 bps for both tranches, which has been triggered by the below 2.5x leverage ratio result.

The following terms apply to the bank loans outstanding at 30 June 2019:

*The Group entered into interest rate cap effective until 31 March 2021. As of 30 June 2019, the 3-month USD LIBOR is capped at 2.75% p.a. for $776.3 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 2019



(Audited)

Term loan balance at beginning of period 1,391.5 1,781.3 1,781.3

Additional loan drawn (gross of fees) 202.6 - -

Drawing fees (0.5) (3.1) (3.1)

Interest expense 34.4 49.7 85.8

Interest paid (26.1) (36.5) (67.6)

Loan repayment (433.5) (341.7) (378.5)

Unrealised foreign exchange loss/(gain) (4.3) (17.4) (26.4) Other 1.0 2.1 -

Total 1,165.1 1,434.4 1,391.5

17. DERIVATIVES

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

($ 'm) Type 30 June 2019 (Unaudited)


31 December 2018 (Audited)

Type of derivative

Assets Liabilities Assets Liabilities Assets Liabilities

Interest rate Cap Level 3 - 2.6 1.1 - - 1.0

Foreign currency contracts Level 2 0.4 - - 1.1 - -

Total 0.4 2.6 1.1 1.1 - 1.0

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.

Facility Interest Margin Floor Principal ($ 'm)

USD Tranche 3-month USD LIBOR* 2.25% p.a. 1.00% p.a. 447.8

EUR Tranche 3-month EURIBOR 2.50% p.a. 0.00% p.a. 727.6

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18. ORDINARY DIVIDENDS

The Directors declared an interim dividend of 4.4 cents per share that will be paid on 11 October 2019 to those shareholders who are on the register on 13 September 2019. In accordance with IFRS, no provision for the interim dividend has been made in these financial statements. The Directors recommended a final dividend of 8.6 cents per share for the period from 15 May 2018 through 31 December 2018. This was approved at the Annual General Meeting held on 23 May 2019. Accordingly, a final dividend of 8.6 cents per share was paid on 17 June 2019 to the shareholders who were included in the register on 24 May 2019.

An analysis of dividends paid is set out below:




(Unaudited)

Final 2018 paid at 8.6 cents per share 83.7 -

19. PRINCIPAL EXCHANGE RATES

Six-months ended 30

June 2019 Six-months ended

30 June 2018 Year-ended

31 December 2018

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

Average Closing

0.0440 0.0447

0.0475 0.0448

0.0461 0.0445

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

Average Closing

1.2983 1.2694

1.3765 1.3158

1.3357 1.2802

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

Average 1.1327 1.2109 1.1814 Closing 1.1378 1.1659 1.1451

20. RELATED PARTY DISCLOSURES

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




(Unaudited)

Short term employee benefits (including salaries) 7.1 7.3 Share-based payments 5.7 3.5

Total 12.8 10.8

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 2019, Avast Software s.r.o. paid donations of CZK 100 million (c.$5 million) [H1 2018: CZK 25 million ($1.2 million)] to the Foundation.

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CVC Administration Services S.à r.l.

The Group`s subsidiaries (Avast Software B.V, Avast Operations B.V., Avast Holding B.V., Avast Corporate Services B.V., AVG Ecommerce CY B.V., Norman Data Defense Systems B.V.) signed sub-rental agreements with CVC Administration Services S.à r.l. for the lease of office premises which is automatically renewed every year. Total rent expenses for the six-months ended 30 June 2019 amounted to $8.5 thousand (2018 H1: $8.4 thousand).

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 lease will end in August 2028 and offers an option to extend for another 4 years under the same conditions.

21. SUBSEQUENT EVENTS

On 22 July 2019, the Group announced that its subsidiary, Avast Software B.V., has agreed to sell 35% of the fully diluted share capital of Jumpshot, Inc. (‘Jumpshot’) to WGSN, Inc. a wholly owned subsidiary of Ascential plc (together with WGSN, Inc., ‘Ascential’). Ascential will pay $60.8 million (adjusted on a debt-free / cash-free basis) in cash on closing for the shares. Closing is conditional on receipt of approval from German antitrust authorities, the entry by Avast Software B.V., Jumpshot and Ascential into a shareholders' agreement relating to Jumpshot and the entry by Jumpshot and Ascential into a data license agreement. Closing is currently expected to occur on or around 31 August 2019. Following this transaction, the remaining 65% of Jumpshot's fully diluted issued share capital will continue to be held by its current shareholders, comprising primarily of Avast Software B.V., and participants of Jumpshot's stock option plan, who hold minority stakes.

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Avast plc - cache.pressmailing.net · Avast PLC HALF YEAR RESULTS FOR THE SIX-MONTHS ENDED 30 JUNE 2019 First half performance underpins a strong full year outlook at the upper end