Creating a safe and
private world for everyone
Avast annual report 2019
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Avast annual report 2019
We are growing
and profitable
Adjusted billings
$911.0m
+ 10.2%
+5.7%
organic growth
actual growth
Adjusted revenue
$873.1m
+9.1% organic growth
+5.6%
actual growth
Adjusted EBITDA
Adjusted net income
$483.0m
+7.9%
Unlevered free cash flow
$424.6m
+7.9%
Statutory revenue
$871.1m
+7.8%
$322.3m
+19%
Net debt/
LTM adjusted EBITDA
1.8x
Statutory net income
$248.9m
+3.2%
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Financial statements
Independent Auditor’s report
108
Consolidated financial statements 116
Notes to the consolidated
financial statements
Company financial statements
Notes to the Company
financial statements
Glossary
123
166
168
171
In this report:
Strategic report
Introducing Avast
Chairman’s statement
Markets & threat landscape
Business model
Investment case
CEO’s strategic review
Our technology
CFO's review
Risk management
People and corporate
social responsibility
Section 172(1) statement
Governance
Board of Directors
1
8
10
16
20
22
28
35
48
51
60
66
Corporate governance statement 68
Audit and Risk Committee report 74
Nomination Committee report
Directors’ remuneration report
Directors’ report
80
84
100
Strategic report Governance Financial statements
Avast annual report 2019 01
We make the world
a safer place
Truly innovative cybersecurity
sets people free, keeping them
safe and private online.
It’s hard to imagine life without our
favourite devices, apps and online
experiences. Our devices don’t just help
us communicate, work, bank, shop, and
relax; they capture the special moments
and memories we treasure forever.
Avast’s users rely on us to keep
safe that which is irreplaceable.
Across all their devices, in the home,
and on the go, our users expect us to
protect their most valued moments
in time, secure their private activities,
and allow them to keep control of their
personal information.
We are committed to providing our
435 million users across the world
with next-generation security and
privacy tools – keeping their most
precious online experiences private
and secure from ever-present,
ever-changing cyberthreats.
The future of the online world depends on users being safe and free.
Our mission is to build such a world.
Our impact, page 04
Our purpose underlies our strategy, and is enabled by our values and culture.
Read more on page 22
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Our purpose Strategic report Governance Financial statements
Avast annual report 2019 02
We have the right approach, scale,
and technology to create long-term value
We protect millions of users from billions of attacks
Our platform model underpins our business growth and success
users worldwide1435m+
1.5bn
monthly attacks
prevented by Avast
200m
new files analysed
each month
Our brands:
50%
of our employees
are in research and
development roles
Smart
home
Consumer
security
SMB security
Protection
Family safety
Data
breaches
?
Online
anonymity
Users
Privacy
Performance
Software
updates
1 User is defined as a unique device that has one or more Avast free or paid products installed and has
been in contact with our servers in the last 30 days.
Identity
protection
PC maintenance
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About us Strategic report Governance Financial statements
Avast annual report 2019 03
We deliver products which
consistently win awards
and industry recognition.
This is one reason we
substantially outperformed
the FTSE 250 in 2019.
Industry-leading margins,
cash flow, and balance sheet
We delivered on FY 2019 guidance
Adjusted revenue
$m
Adjusted EBITDA
%
827.0
873.1 9.1% organic
5.6% actual
54.1
55.3 +119bps
2018
2019
2018
2019
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Avast annual report 2019 04
Our impact
PRIVACY
Giving users control
of their privacy
Our products let users design their online privacy their way.
Avast SecureLine VPN
What you do online is your business.
Our virtual private network makes
sure it stays that way.
Avast Secure Browser
Modern life moves fast. Our browser
has been built to prioritise security
and privacy without compromising
on performance.
Avast AntiTrack
Keep your digital footprint hidden.
Take back your privacy by disguising
your online activity, and blocking
attempts to track you.
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Our impact
FAMILY SAFETY
Putting families first
Today’s children are true digital natives.
Parents naturally want to protect them
from the dark corners of the web,
while ensuring they are safe and free to
enjoy educational, fun, and interesting
content online.
Avast protects users’ digital lives,
not just their devices. We give parents
control, helping them to set healthy
digital boundaries.
Avast Family Space
Avast Family Space helps families live
safely online. Parents can set filters
to keep their children safe from harmful
content online, and add safe physical
locations like home, school, and clubs
for added peace of mind.
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Avast annual report 2019 06
Our impact
SMART HOME
Smarter living for
modern families
Connecting home appliances and
electronics to the internet can make
modern life more convenient, but
Internet of Things (IoT) devices
often lack any security and
privacy safeguards.
Our plug-and-play product,
Avast Omni, makes managing the
smart home simple and gives
control back to consumers.
Avast Omni
Released in summer 2019 to Avast users
in the U.S., the new Avast Omni secures
the connected home. It sends alerts if
unusual behaviour is detected on users’
IoT devices, blocks access to potential
threats, and delivers robust parental
controls to help families manage their
digital habits.
Wind Family Protect
In September 2019, Italian operator,
Wind Tre, introduced router security to
its offering for Wind brand subscribers.
Based on Avast’s Smart Life platform,
subscribers can protect their smart
homes with features such as safe
browsing, anomaly detection, and user
alerts when unusual device behaviour
is detected.
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Avast annual report 2019 07
Our impact
SMALL TO MID-SIZED BUSINESSES
Safer solutions
for business
Our new Avast Business Patch
Management service helps SMBs
manage required security updates
more efficiently. With 55% of installed
software on PCs worldwide out
of date, our new service enables
SMBs to effectively prioritise, manage,
and deploy critical security updates.
Digital transformation helps small
to mid-sized businesses (SMBs)
differentiate themselves and reach
new markets. SMBs using new digital
technologies must ensure they retain
customers’ trust, but often do not have
the extensive internal and external
technical resources larger companies
can draw on.
In 2019, we launched a new portfolio
of enterprise-class layered security
solutions designed for the needs
of growing businesses including its
new Avast Business Secure Web
Gateway and Avast Business
Secure Internet Gateway.
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Avast annual report 2019 08
Another strong year
Overview
2019 was another strong year for Avast as we continued
to create value by delivering consistent and sustainable
financial results. Our technology leadership enabled Avast
to take advantage of market opportunities to execute on our
strategy of driving growth while also maintaining high levels
of profitability. Revenues in our core Consumer Desktop
business once again grew strongly, performance in the
Indirect business accelerated, and the restructuring in
the Small to Mid-size business advanced well.
Our performance is testimony to our employees’ passion and
commitment to Avast and I would like to once again thank
them for their contribution during the year. Our success is of
course also tied to the loyalty of our customers. We greatly
value the feedback from our more than 435 million users
and draw on this data to continually improve our service to
them. We believe this user base represents a massive future
business opportunity.
“ As an industry leader in
consumer cybersecurity,
Avast is in a great position
to serve its customers.”
John Schwarz
Chairman of the Board
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Avast annual report 2019 09
Total FY 2019 dividend
14.7 US cents per share
Shareholder returns
We are pleased that our share price reflected our progress.
In 2019, Avast substantially outperformed the FTSE 250
index. While we plan to continue investing in our core
areas to ensure mid- and long-term growth, we also remain
committed to returning value to our shareholders. Based on
the performance we delivered in 2019, the Board of Directors
is recommending a final dividend for the year of 10.3 US cents
per share. This results in a total dividend for the year of 14.7 US
cents per share (total payment of $147.8m), a pro-rata increase
of 8.1% on 2018. The final dividend will be paid on 24 June
2020 to shareholders on the register on 22 May 2020.
Our approach to capital allocation is based on a framework
that reflects our priorities for uses of cash. This is underpinned
by our commitment to maintaining a strong balance sheet.
At 31 December 2019, Avast’s net debt/LTM adjusted EBITDA
was 1.8x, down from 3.9x immediately prior to IPO. Our debt
reduction is a testament to the favourable cash flow dynamics
of our business and our prudent capital allocation strategy.
Leadership and strategy
We welcomed Ondrej Vlcek to the role of CEO on 1 July 2019.
In Ondrej, Avast has a leader with a detailed understanding of
our businesses and an outstanding track record of delivering
growth. His expertise in Artificial Intelligence-based security
and vision for reinventing how we protect people online bring
a tremendous advantage to our business. Ondrej is also a
champion of Avast’s entrepreneurial and customer-centric
culture. Early in his tenure as CEO, we have all been inspired
by his energy and personal commitment to promoting integrity,
transparency, diversity, and openness. He has sharpened our
focus on Avast’s values to support the longer-term ambition
of our business and stakeholders.
the spectrum of protection, performance, and privacy.
We are building the future of Avast on unique competencies
and well-established brands, and are successfully adapting
to a range of market changes. But there are always untapped
opportunities. Our leadership team continues to thoughtfully
pursue organic opportunities manifest in new and improved
technology and products, new partnerships, and new
territories. At the same time, we recognise the potential in
selective acquisitions and other strategic opportunities
that serve markets complementary to ours.
Data risk management
Global software companies are increasingly being targeted
for disruptive attacks and cyber-espionage. At Avast, we
constantly work hard to stay ahead of this threat. As part of
our risk monitoring process, in September 2019 we identified
suspicious behaviour on our network and instigated an
immediate, extensive investigation. In parallel with this,
we planned and carried out proactive measures to protect our
end users and ensure the integrity of both our product build
environment as well as our release process. We have been
committed to being as transparent as possible throughout the
process. From the insights we have gathered, it is clear that
this was an extremely sophisticated attempt. However, there
is no evidence of harm to our users, network, or partners.
Jumpshot
In January 2020, we decided to terminate the provision of data
to Avast’s data analytics business, Jumpshot. We reached this
difficult decision because we no longer believed that the data
collection business was consistent long term with our privacy
priorities as a global cybersecurity company.
We take seriously the responsibility to balance user privacy
with the necessary use of data for our core security products.
Protecting people is our top priority and we are working to
ensure going forward it is embedded in everything we do in
our business and in our products.
well supported by the members of the Board. The work of
our Board and its Committees during the year, along with the
assessment of their performance, is set out in the Corporate
governance report.
The composition of our Board continued to evolve in
2019, with the appointment of two additional independent
Directors: Ms Maggie Chan Jones, formerly CMO of SAP;
and Ms Tamara Minick-Scokalo, formerly President, Growth
Markets at Pearson plc. Our Directors reflect a broad range of
experiences and skills to support management. Our overall
aim is to continue to refresh the Board while ensuring stability
and continuity, particularly in the context of the recent CEO
change. We continue to monitor diversity on the Board and
in the business, recognising the value and benefit diversity
brings to every organisation.
I thank all the Board members for their valuable contribution
as we continue to maintain oversight of the strategic,
operational, and governance risks across the Group,
and define our path to success.
Looking ahead
The Group has a platform to deliver long-term, sustainable
value. Avast operates globally, in large and attractive markets.
As the cybersecurity threat landscape becomes infinitely
more complex, our core addressable segments of consumer
and small business security provide multiple avenues and
adjacencies for growth. Ultimately, the strength of our
organisation is based on the innovators and people that lead
our businesses. The Board is confident that the Group has the
right strategy, plans, and people in place to succeed. I trust
you share my excitement about Avast’s growth record and
our prospects for a promising future. Thank you all for your
continuing support.
As an industry leader in cybersecurity, Avast is in a great
position to serve its customers. We offer one of the most
complete portfolios of consumer security technology across
Governance and diversity
One of my key responsibilities as Chairman is to set the tone
for Avast and ensure good governance. In this I have been
John Schwarz
Chairman of the Board
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10
Cybercrime is an increasing
threat to our world
As more aspects of our lives move online,
the risks associated with banking, shopping,
and socialising continue to rise. Global
cybercrime damages are now predicted to
cost $6 trillion annually, double the $3 trillion
impact measured in 2015. This is big business.
Nonetheless, adoption of new technology is growing and IoT
is reshaping the places we live. Our homes are filling up with
smart devices that provide convenience and delight.
From smart speakers and entertainment systems, to a wide
variety of home safety products such as video doorbells,
smart locks, security cameras, baby monitors, and fire safety
systems, many electronic devices we bring into our homes
today can now be connected to the internet.
The Avast Smart Home report identified 16 million smart home
networks of which 40% had over five connected devices,
and 41% contained at least one vulnerable device. The most
common devices are media boxes, network hubs, printers,
security cameras and network attached storage.
The rise of the smart home
In 2020 there are:
1.39bn
connected devices
314m
smart homes
Two-thirds of people in North America and one-quarter
of people in Europe have at least one IoT or connected
device at home.
By 2022 there will be:
2.29bn
connected devices
597m
smart homes
Source: ABI Research, Internet of Everything forecast 2019, Q1 2019
But insufficient security leaves
these connected homes vulnerable
Homes worldwide with at least one vulnerable
connected device
Homes worldwide with at least one connected device
59%
41%
Of the vulnerable devices, 69% were at risk due to
default or weak access credentials, allowing hackers
access to the devices. One vulnerable device
can compromise the security of the whole home
network and allow access to personal data, sensitive
information, and even live video and audio.
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Vulnerable Homes
In October 2019, hackers successfully attacked
Google Home and Amazon Alexa smart assistants
to eavesdrop on user conversations without their
knowledge, or to deploy phishing attacks that
tricked people into sharing personal information.
Popular Ring cameras have also been shown to
have been infiltrated by hackers allowing them
to view and speak with children in their homes.
Over 40%
of all smart homes worldwide, have at least one
vulnerable connected device which puts the entire
smart home at risk.
“ There remains a lack of
safeguards in place assuring
the privacy and security
of IoT in the home.”
Galina Alperovich
Senior Researcher, AI and Network Security
Vulnerable businesses
It’s not just homes that are at risk; businesses
are vulnerable too. In April 2019, the Russian
hacking group Strontium (also known as Fancy
Bear) was discovered to have attacked and
enslaved voice-over-IP phones, office printers,
and video decoders in several customer locations to
target computer networks.
The same group was also believed to be behind
the infection of 500,000 consumer routers in
54 countries the previous year.
90%
of IoT devices on the market are made by just 100 vendors,
but no standards exist to govern their security.
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Privacy is the new security
Two years of high-profile data breaches at major companies
have put privacy onto the front pages of the newspapers and
into the minds of consumers. While this awareness has made
privacy one of the biggest societal challenges of our time,
consumers still lack understanding of how their data can
be abused and the full implications of it being breached.
There are technologies today that have been developed
specifically to collect online user data surreptitiously and
misuse it through the unauthorised (and potentially insecure)
storage and sharing of that data.
Therefore, what starts as a privacy threat often results in a
Therefore, what starts as a privacy threat often results in a
corresponding security risk. Cybersecurity today already
corresponding security risk. Cybersecurity today already
includes privacy as a natural extension to traditional security,
includes privacy as a natural extension to traditional security,
shielding users from data harvesting and loss, identity theft,
shielding users from data harvesting and loss, identity theft,
financial loss, and online harassment, among other harms.
financial loss, and online harassment, among other harms.
Avast offers products, including its Avast SecureLine
Avast offers products, including its Avast SecureLine
VPN, Avast Secure Browser, and intelligent Avast AntiTrack
VPN, Avast Secure Browser, and intelligent Avast AntiTrack
solution, which prevent online information gathering
solution, which prevent online information gathering
and fingerprinting as part of its growing portfolio of
and fingerprinting as part of its growing portfolio of
privacy-first offerings.
privacy-first offerings.
The enhancement of surreptitious digital tracking methods is
The enhancement of surreptitious digital tracking methods is
an emerging category of threat we have tracked through the
an emerging category of threat we have tracked through the
Avast APKlab.io platform launched in 2019. Working with Apple
Avast APKlab.io platform launched in 2019. Working with Apple
and Google app stores, Avast Threat Intelligence exposed
and Google app stores, Avast Threat Intelligence exposed
and stopped multiple ‘stalkerware’ apps which are often used
and stopped multiple ‘stalkerware’ apps which are often used
against some of the most vulnerable members of society.
against some of the most vulnerable members of society.
Stopping stalkerware apps using
Avast Threat Intelligence
Stalkerware apps operate differently to the useful
parental controls and family protection apps
that help parents and children to set age limits
and access boundaries for safe online activities.
Once downloaded onto the device, a stalker
app will generally not be visible to the device
owner, allowing a person to track someone else’s
mobile phone activity and location without their
knowledge. Stalker apps are not only a major
privacy violation, but are a personal danger to
some of those least able to protect themselves.
Major security breaches in 2019
2bn
1.5bn
885m
218m
11.9m
Orvibo: an open database
exposed over 2 billion records
for more than two weeks. The IoT
platform provider’s database held
usernames, passwords and emails
of individuals and businesses.
WhatsApp: in May 2019, hackers
were able to install surveillance
technology on the phones of
WhatsApp users who answered
their phone calls through the app.
WhatsApp has 1.5 billion users.
First America: the largest
US real estate title insurance
company leaked documents
on transactions and mortgages
back to 2003.
Zynga Games: a hacker accessed
user account information on
certain games.
Quest Diagnostics: patient data
records were accessed by an
unauthorized user.
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“ Security is the only domain
where there is a true adversary,
and today, that adversary
also has AI.”
Rajarshi Gupta
Head of AI
Artificial intelligence for
good and evil
The rapid growth of connected devices is hugely attractive to
bad actors and has exponentially increased the number and
speed of threats targeting them. The constant battle between
cybersecurity companies and the cybercriminals is waged in
real time, with the latest artificial intelligence (AI) technology
being deployed both in attack and defence.
Keeping people safe online relies on AI to analyse huge
volumes of threat data to detect threat patterns and
behaviours that cannot be identified by human intervention
alone. To prevent attacks and get ahead of new unknown
threats, our AI engine processes data from attacked devices
to understand everything from the attack’s origins to its
possible purpose.
Phishing remains the most successful attack vector for
consumers and businesses. We battle it by applying
intelligence to the analysis of web addresses to identify
and block bad or fake sites before even one user clicks on
them. Avast protects more than 400 million users through
our AI-based global threat intelligence network.
People are losing trust in online content
The fake news phenomenon remained mainstream
news in 2019 through discussions of content
fixing for users of social media, and for its more
insidious threat, the deepfake. Using technology
increasingly available to anyone, deepfakes are
falsely constructed videos that look authentic. So
convincing is the technology, people’s faces and
voices can be manipulated to make them appear to
say or do something which is not in fact real.
These fakes have begun to erode user trust online
and, as their sophistication increases, AI can
help separate fact from fiction by looking into the
technical source and construction of the content.
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Trends for 2020
Avast Threat Intelligence predicts
four threat trends for this year.
Email under threat
Email is still the most common way for
malware to spread. However, methods are
evolving to spread threats more efficiently
using email and also through improved
exploit kits, via supply chain attacks, and
by abusing remote access to PCs.
“ Cybercriminals are
constantly innovating
and looking for new
ways to circumvent
today’s powerful
personal and
business security
solutions.”
Jakub Kroustek
Head of Threat Intelligence Systems
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Mobile security under threat
Getting malicious apps onto the Google
Play Store and the Apple App Store is
not easy. To make money, cybercriminals
are shifting towards subscription scams
and fake apps integrated with aggressive
adware. Security researchers will continue
to look for risks on the Apple platform,
following the discovery of unpatchable
iOS ‘jailbreak’ vulnerabilities.
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15
Privacy under threat
Privacy is the new frontier for security.
We see the practical applications of AI
algorithms, including differential privacy,
to enable profit from big data insights
as currently happens today, but with the
concealment of private information. Our goal
is to allow individuals to take back control
of their own data, by deciding whether
(and which) companies can harness their
data, and what data they can use.
IoT security under threat
Devices and even physical locations will
become smart – or even smarter than
they already are – to be used by vendors
to collect more data about users in order
to learn and predict their behaviour.
Cybercriminals will continue adding
obfuscation to their IoT malware and build
upon older, already established, malware
families to widen their IoT attack surface
with newly released exploits.
“ We expect malware
authors will adopt
other security
practices to make
their botnets
more robust.”
Daniel Uhricek
Security Researcher, AI & Network Security
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We work every day to keep
the world safe online
We use our expertise to educate
and empower people to keep
themselves and their families
safe online.
Our markets and structure
Headquartered in the Czech Republic, Avast has users in
almost every country in the world. Our largest markets are
the US and Canada, Brazil, France, UK, Russia, and Germany.
Our 1,700+ employees serve consumers and clients from
offices across 12 countries. Avast offers products in two
segments: consumer products, which generate direct
and indirect revenue streams; and products for the
corporate market.
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What sets us apart
Our resources and relationships
Value created for our stakeholders
Unrivalled scale
Security is a data-driven business. With over 435 million
installed users, Avast has access to one of the largest
consumer security platforms, giving it access to an unrivalled
database of online activity that is required to provide effective
protection. These large amounts of data enhance the quality
of threat detection and support product development.
Advanced next-generation security engine
We have developed a next-generation security engine which
uses a combination of behavioural detection, cloud-based
machine-learning capabilities, and signature-based detection
to drive best-in-class protection. Our proprietary scanning
engine scans for previously unknown viruses and malware,
as well as new variants of known viruses, and malware
undetectable with normal definitions and virus signatures.
Sophisticated consumer monetisation platform
Avast’s platform uses contextual messaging to convert,
up-sell, and cross-sell to the user base, efficiently targeting
users at the most appropriate moment to provide quality
products. Marketing campaigns are shaped through
predictive modelling to optimise price, maximise the
effectiveness of messages, and predict churn.
Leading consumer brand
The Group enjoys high brand awareness among users.
Our high-quality and free-to-use products have fostered a
sense of brand loyalty difficult to replicate in paid-for platforms.
Attractive financial profile
Avast’s cost-effective, go-to-market approach results in
superior profitability, while the subscription-based business
model provides a high degree of cash and revenue visibility.
This allows us to invest in innovation and technology,
and seize growth opportunities, generating sustainable
returns for our shareholders.
People and culture
Avast’s innovative approach comes from some of the most
talented and experienced security engineers on the planet.
We attract the best and the brightest with over 50% of our
employees in R&D. Our growth is fuelled by our passionate
culture of wanting to win and beat the bad guys. A large
majority of the Company’s R&D personnel is based in the
Czech Republic, a benefit for our cost-efficient model.
Technology and data
Powerful technology, together with the large collections of
online data, drives our business. Avast’s security engine
provides for industry-leading detection rates and scanning
speeds while using minimal resources and contains
components that run both locally on the device as well as in
the Group’s bespoke internet cloud. This results in constant
updates of new detections and continuous protection
against the latest threats.
Data integrity and security
The integrity and security of data handling are a top priority
for us. Avast deploys sophisticated physical and electronic
security protections and policies, procedures, and protocols
to protect against attacks and to help identify suspicious
activity. We continually protect data no matter what form it
takes, what technology is used to process it, who handles it,
and in what stage of its life cycle it may be.
Our customers
We are dedicated to creating a world that provides safety
and privacy for all, no matter who you are, where you are,
or how you connect. We always take a customer-first
approach, staying responsive and adaptable to create an
atmosphere where everyone’s voice counts.
Our communities
One of our fundamental values is to give back to the
community. Our practical outreach includes education for
children, teachers, and parents on how to be safe online.
We organise hackathon and, tech meetups, and support
cutting edge research in threat detection technology –
moving the field forward every day. Through our Foundation,
we create programmes that support the elderly, those living
with disabilities, and the terminally ill, as well as furthering
education on human rights.
See the Corporate responsibility section, p56
Our people
As cybersecurity pioneers, we take great pride in our
innovation. We invest in our employees’ creativity by
encouraging them to push boundaries and recognising
great performance. We also partner with universities and
non-profits to help cultivate talented people and educate
the cybersecurity experts of the future.
See the People section, p51
Our shareholders
Avast generates shareholder value through a combination of
consistent growth, high profitability, and strong cash flow.
See the CFO’s Review, p35
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How our business is structured
Consumer Direct
Customers pay us directly
for a product
$708.3m
FY 2019 adjusted revenue
81%
Consumer Indirect
Partners pay us for distribution
and access to our user base
$115.5m
FY 2019 adjusted revenue
13%
What we do
How we make money
What we do
How we make money
Our products secure not just the devices
of users, but also their data, networks,
homes, and families. We offer security
software under the Avast and AVG
brands, in the form of both free and
paid-for products. We also provide popular
applications that enhance performance,
such as CCleaner, and improve privacy.
The rapid growth of connected devices
has created new security and privacy
threats, which we have developed
products to address.
How we do it
Avast’s antivirus solutions use AI and
machine learning to conduct behavioural
analysis and improve detection abilities.
With both local and cloud-based deep
learning capabilities, Avast’s security
engine is powered by a continuous data
loop of inputs from our users, who act as
a geographically dispersed global threat
detection system.
Avast monetises its user base by up-selling
users of its free antivirus software to paid
antivirus software with advanced features.
We also cross-sell adjacent, non-antivirus
paid products, such as VPN access or
PC optimisation tools.
Our strengths
Avast runs a highly efficient, low-cost
distribution platform that directly
engages hundreds of millions of users.
Sales are primarily subscription-based,
enhancing the predictability and visibility
of revenue streams. Our focus on R&D
means our malware detection capability
is among best in class. It means also that
we are well positioned to solve the
cyber security problems of tomorrow.
Avast leverages its user base to partner
with third-party vendors. Products and
services include secure web browsing,
distribution of third-party software, an
e-commerce tool, and mobile advertising.
In January 2020, Avast decided to
terminate the provision of anonymised
data to its data analytics business,
Jumpshot, having concluded that the
business was not consistent long term
with the Group’s privacy priorities as a
global cybersecurity company.
How we do it
Avast’s Secure Web Browser helps users
to stay safe online and achieve better
control of their personal online footprint.
Through our partnership with Google,
we distribute the Chrome browser to
our user base.
Avast Secure Browser typically
earns a share of ad revenue based
on user search.
In mobile advertising, Avast serves
up ads to its free mobile user base.
Google Chrome is distributed into
Avast’s user base in exchange for a fee.
In return for delivering traffic to
e-commerce partners, Avast earns
revenues reflecting value received
from sales and user acquisition.
Advertisers pay Avast for innovative ad
formats served up to its mobile users.
Our strengths
As with our other revenue streams,
the key is our broad reach, based on a
massive global user base that trusts Avast
to keep them secure. Access to this user
base is an attractive proposition for our
carefully vetted partners.
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SMB
Business customers either pay us directly
for a product, or buy from one of our partners
$49.2m
FY 2019 adjusted revenue
6%
What we do
How we make money
We offer endpoint and network security
solutions to protect small to mid-sized
businesses (SMBs) against the most
advanced threats.
How we do it
We have moved towards a unified,
cloud-based solution for our security
services. This means we can meet
increasingly complex security demands,
in a cost-effective way. Avast Business
Secure Web Gateway and Secure
Internet Gateway are delivered in
partnership with Zscaler. We work
with different types of partners,
including licence resellers, distributors,
and value-added resellers (VARs).
We sell to businesses directly online, and
via our channel partner networks. Business
customers either pay us directly for a
product, or buy from one of our partners.
There is a growth opportunity inherent
in the large-scale transition of network
security from on-premise equipment to
more convenient and flexible Software-as-
a-Service (SaaS), cloud-based solutions.
Our strengths
Our antivirus endpoint platform is
well-known and respected in the
security industry. By introducing tailored
applications and our unified endpoint and
network security solution, we can offer
enhanced security and target larger firms,
increasing our total addressable market.
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Avast’s products secure not just the
devices of users, but also their data,
networks, homes and offices.
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Growth and competitive advantage
Our proven strategy, including our freemium business model
and diversified product portfolio with exposure to highly profitable
segments, provides multiple avenues for long-term growth.
Large, attractive, and growing
global market opportunity
Our strategic advantages as a global
leader in consumer cybersecurity position
us to capitalise on long-term global
trends affecting the industry. As the world
becomes more technologically advanced,
cybersecurity services only become
even more significant. Avast has multiple
avenues for growth. The Company is
driving a sustained increase in its number
of customers and revenue per customer,
achieved through intelligent monetisation
and a focus on innovation to target exciting
new segments such as smart home and IoT.
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Protection
Users
Privacy
Performance
Leading global consumer platform
underpinned by distinctive ability
to market software to consumers
Avast benefits from strong levels of brand
awareness. Its brands are widely recognised
and respected by consumers, as well as
the influential online security community.
The Company has built a massive network
of global users, into which is sold value-
added protection, privacy, and performance
solutions. This differentiated platform model is
underpinned by a highly effective and efficient
direct sales approach.
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Investment case
Differentiated cybersecurity
technology supported by three
decades of innovation
Avast’s best marketing tool is the quality of
its products, enabled by its cybersecurity
talent and big data. An experienced team
of 750+ engineers and 60+ dedicated data
scientists and threat researchers work
around the clock to assess, protect and
respond. The Company’s next-generation
antivirus uses artificial intelligence and
employs machine-learning algorithms
to continually improve performance.
750+
engineers including 60+
dedicated data scientists
and threat researchers
Consistent growth, high revenue
visibility, strong profitability and
cash flow
Avast has delivered consistent good growth
at scale. The Company’s subscription-based
business model provides a high degree of
cash and revenue visibility, while a highly
cost-effective go-to-market approach results
in superior profitability. Cash generation
has been used to rapidly deleverage, and
been a driver for ongoing organic growth,
complemented by disciplined M&A.
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We make the world
a safer place
We are committed to ensuring everyone is
safe and private online. Our mission has never
wavered and our potential has never been
greater as new technology increases the
cyberattack surface and more people are
at risk from widespread online threats.
I had the honour this year to take the helm of Avast as CEO,
having worked at the Company for over two decades in a
number of technical and management roles.
In 2019, we delivered another year of good performance,
in line with company guidance. Organic revenue saw high-
single digit growth with sustained high levels of profitability.
We continue to expect healthy growth in 2020 and remain
confident in the long-term prospects for the business.
“ Our value is keeping
our customers free,
safe, and private online.”
Ondrej VIcek
Chief Executive Officer
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2019 milestones
Growth
With more than 435 million users,
Avast is one of the largest global
cybersecurity companies. Our growth
has been driven by our efficient platform
model which offers a cost-efficient,
viral distribution mechanism. We have
12.62 million paying customers, and are
continuing to expand into new markets
and extend our reach through new
product offerings. We grew average
revenue per customer by 3.6% and
average number of products per
customer by 4.2%.
Innovation
In consumer, we launched our IoT
security product, Avast Omni, in May
2019 to our user base in North America.
Our first combined software and
hardware offering, Avast Omni protects
users and their families online, wherever
they are, and on any device. It does
this through ‘in’ and ‘out of the home’
protection combined with advanced
parental controls. Avast Omni was
awarded ‘Best of Cybersecurity and
Privacy’ at CES 2020.
12.62m
paying customers
+4.2%
average number of
products per customer
+3.6%
average revenue
per customer
We enhanced the Anti-Fingerprinting
technology in Avast Secure Browser and
added the Webcam Guard feature to
give people even greater protection and
control over their privacy online. To give
us better insights into mobile threats, we
launched APKlab.io, a new intelligence-
driven threat hunting platform for the
security analyst community.
In business, we released a new Avast
Business Patch Management service.
Our new offering automatically identifies
critical patches, prioritises their
deployment, and monitors the outcome
to maintain security integrity.
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Partnerships
We partnered with Chronicle,
an Alphabet company focused
on cybersecurity, to support the
delivery of its enterprise-level analytics
platform, Backstory. Avast was an
inaugural Insight Partner at launch and,
through its massive global consumer
threat detection network, provides
analysis from its AI-driven threat engine
to help protect enterprises against the
biggest cybersecurity threats today.
Business
We launched two enterprise-class
services for small and mid-sized
businesses. Avast Business Secure
Web Gateway and Avast Business
Secure Internet Gateway offer
advanced protection, flexibility,
and ease of use combined with
Avast’s global comprehensive threat
intelligence networks.
Avast Business Secure Web Gateway
provides flexible and scalable
enterprise-grade web security
delivered within a cloud service (SaaS).
Avast Secure Internet Gateway is our
cloud-based solution that offers a
global network of always-on security
gateways to eliminate common SMB
security protection gaps.
In the carrier market, we deepened
our existing relationship with Wind Tre,
a top Italian mobile operator and one
of the main operators in the fixed-line
market. Together, we rolled out a new
router security service based on Avast
Smart Life, our IoT mobile security
platform. Wind Tre is now the first of
our carrier partners worldwide to add
router security to its offering – helping
its subscribers protect their connected
homes and IoT devices.
We extended our global footprint
through two strategic partnerships
during 2019. We entered into a master
reseller agreement with Barracuda
Networks. This has enabled us to
extend the reach of our endpoint
security products into the Barracuda
managed security provider (MSP) base.
Additionally, Avast Business and EET
Group, a specialised IT distributor
to businesses, signed a strategic
partnership agreement to scale
distribution of the Avast Business
portfolio in Norway, Denmark, Finland,
and Sweden.
CEO’s strategic review Strategic report Governance Financial statements
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Rebuilding trust
In the second half of 2019, Avast faced two significant
challenges which we continue to manage today.
We identified suspicious behaviour on our network in
September and further investigation uncovered an attempt to
gain access to our network. Evidence indicated that this was
likely a supply chain attack on CCleaner, which had previously
been targeted this way prior to our acquisition of the business.
We took proactive measures to protect all our end users on all
our products and to ensure the integrity of both our product
build environment and our release process.
We are confident that the measures we have put in place
to ensure our product builds and business environment are
secure prevented any harm to our network, users or partners.
The additional scrutiny we applied to all product releases
as part of best practice security did impact the release
schedule of our products in Q4 2019. We were pleased that
testing organisations continued to award our products as
top performers in their reviews. We are returning to normal
release cycles in Q1 2020.
At the end of 2019, Avast also came under media scrutiny
for the data handling practices of our Jumpshot subsidiary.
Jumpshot helped businesses to better compete with the
tech giants who dominate in search and e-commerce. It was
our belief that we could leverage our tools and resources to
do this more securely than the countless other companies
that were collecting data.
We put in place safeguards to ensure the data was de-
personalised and enabled the subsidiary to run independently
with its own management team and technical experts.
Despite this, it became clear that no matter the steps we
took internally to strip the data of personal information,
and no matter how much the search engine optimisation
(SEO) world valued Jumpshot, ultimately, the data collection
business was not aligned with privacy priorities as a company.
We announced the decision to wind down Jumpshot on
30 January 2020.
“ We continue to enhance our core
security products while innovating
in new categories including privacy,
browsing and performance.”
Ondrej VIcek
Chief Executive Officer
We recognise that we must now focus on rebuilding the
trust of our loyal users, partners, and stakeholders. It is a
brand priority for 2020 and we will soon be sharing next
steps on our commitment to our users’ privacy.
Enabling safer online lifestyles
At Avast, we have always believed in freedom, democracy
and choice, and we will invest further in user experience to
increase their trust. Photos, videos, chats, emails, and social
interactions are increasingly driven through our devices
and users want to know these are secure, backed up, and
protected from attacks like ransomware. Security has moved
from being an important and practical consideration to being
critical to protecting some of the most valuable moments
captured in people’s lives.
Today, we are tackling some of the greatest tech challenges of
our time: online privacy, a threat landscape expanding through
consumer connected devices, and holistic network security
for businesses. For consumers and small businesses alike,
this is an increasingly complicated world. Next-generation
technologies such as AI give cybercriminals more access
than ever to vulnerable populations who are more likely to fall
victim to socially engineered, AI-generated phishing attacks
and other attacks.
Avast grew its global footprint and reputation through our
award-winning free and paid-for antivirus products, and in our
global markets, we are delivering new innovative products to
loyal and new users to meet their evolving security needs.
The closure of Jumpshot gives us immense opportunity to
build out our privacy portfolio and we are gearing innovation
efforts towards this for 2020.
Innovating to support evolving technology
We see the increasing personalisation of devices and services,
family tech, and more connected things overall in our lives as
key trends. Personal assistants, doorbell cameras, and fitness
watches are just three examples of popular personal tech that
bring both great convenience and an inherent security risk.
Security and privacy have a critical role here – the future of
connected technology necessarily requires that technology
to be secure so people can use it with confidence and peace
of mind. Hidden voice recording capabilities in personal
assistants make us wonder just who is listening. Cameras
at front doors gather and share a lot more information than
we would reasonably expect from such a functional device.
In 2019, Avast Threat Intelligence discovered that the most
popular GPS trackers all required invasive permissions
requirements to function and have no in-built security features.
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When it comes to family tech, parents and children are more
aware of the risks of going online and we have seen significant
growth in parental controls and screen time monitoring apps.
These tools, such as Avast Family Space which enables
parents to control how their children use the internet, and the
full-featured parental controls available in Avast Omni, help to
manage family online life in a healthy and interactive way.
Avast’s focus for 2020 will be on helping to simplify security
and privacy, and make it more convenient and useful for
users. Devices enable people to get online and access
services but what we are seeing is the shift from the device
to the individual. We are increasingly focused on securing
the experience and online lives of people as many use their
browser as their main gateway to the online world.
We are also extending our offerings into adjacent categories
including dedicated privacy offerings with VPN products and
our popular Avast AntiTrack product. We are developing our
portfolio of performance products to add lifestyle features –
including photo cleaning and storage options – to help users
keep on top of their digital memories, a key function of many
mobile devices today.
Our product brand portfolios have been a focus for us in
2019. We enhanced and streamlined the AVG range of
security and privacy products, including AVG Secure Browser
and AVG AntiTrack.
CCleaner introduced a new user interface to provide a better,
tailored experience for both technical and non-technical users,
and introduced a simple Health Check feature for consumers
who want it to be easy and simple to maintain their PC. HMA
enhanced its reputation as one of the top VPNs on the market
with the release of its highly competitive HMA version 5 in
May 2019.
We will also be adding innovative new features to existing
products and releasing new products for all our brands in
2020 to make it easier for Avast users to choose and manage
the products they like and need.
Ensuring continued success
Avast was founded in 1988 at a time of great change in Central
and Eastern Europe, and our passionate belief in personal
freedom, democracy, and choice still drives us today.
Technology over these three decades has evolved at an
increasingly rapid pace. Constant new threats to the security
of users’ devices and data have caused us to be focused
on delivering value by enabling our customers to have safe,
enjoyable online lives.
I am committed to a rigorous growth strategy that will
deliver innovative products for our users and returns to our
stakeholders. Avast already has all of the key elements in
place and for 2020, we are focused on maximising them to
deliver continued success.
It is for this reason, I have embarked on an internal
transformation programme in three areas:
1
2
3
Purpose and core values: enthuse and drive
an even greater sense of purpose and core
values to actively support innovation and
entrepreneurialism across the Company.
Growth and innovation: ensure proper capital
allocation, enabling investments that support
our long-term growth aspirations.
Focus: place focus on
our core strengths, developing products
and services that are highly relevant to
our users’ lives.
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1
Purpose and core values
2
Growth and innovation
3
Focus
In my new role, I have taken the opportunity to revisit our
Company values to ensure that we are focusing on the right
elements to serve our customers to the best of our ability.
I believe the way we operate as a business and the internal
values we hold fuel how our employees represent what Avast
is, the experience our customers have, and the wider external
perception of our brand.
In our fourth decade as a global business, we will address
our culture to rediscover who we are and what we stand
for, and build an agile organisation that can adapt to the
fast-paced technology sector to the benefit of our users.
I began this process in July 2019 with announcing changes
in our executive bench to put in place the right team to take
the Company forward.
We appointed a new Chief Technology Officer, Michal
Pechoucek, who is focused on R&D in big data, AI and
cybersecurity. We created a new position, Chief Information
Security Officer, and hired industry-recognised top performer,
Jaya Baloo, to the role. Vita Santrucek was appointed General
Manager of Avast Business. In early 2020, we also added
Julio Bezerra, Chief Strategy and Transformation Officer,
and Rebecca Grattan, Chief People and Culture Officer,
completing our team.
I am confident that this new team will be the driving force
behind our 2020 strategy. In this new Avast, we will have a
laser focus on customer-centricity, innovation, and growth.
This is our path to competitive advantage and future success.
To capture and better articulate this, we are developing a
Culture Book with our employees that will capture all the
values that we live by. This will be our guide for 2020 and
beyond, supporting our transformation strategy to enable
further innovation and growth.
In 2019, our platform model powered our growing penetration
levels and cross-sell into adjacent products. Desktop remained
the main distribution channel for our products. Growth in non-
antivirus (non-AV) was 23.2% organic, or 20.1% in actual rates,
representing 52% of total desktop billings
Our long-term objective is to accelerate Avast’s innovation
programme to address the new challenges technology
is creating. Beyond VPN, we need an answer to private
browsing, and Avast Secure Browser fulfils this user need.
New areas of concern, such as fake news and fake videos,
became prominent in 2019 as AI-based tools enabled bad
actors to become creative in causing disruption. These are
not traditional security threats but new, pervasive challenges
to a healthy online economy. These are some of the tech-age
problems that we are turning our minds to now.
We are approaching these challenges in two ways.
We will evolve our successful platform model. It has
underpinned our success for over 30 years and powered our
revenue stream by enabling the diversification of our portfolio
through cross-sell and up-sell opportunities. Our focus is
on delivering products and services with simplicity and
convenience for the user, something which is increasingly
critical as the range of technologies we secure becomes
more complicated than ever.
We will invest significantly more in innovation. This is also
an important opportunity to build on our reputation and
enhance our brand perception. We need to balance the
short-term needs of today’s users with planting the seeds for
future development in three years, five years, and beyond.
We are focused on delivering the products and services that
align to our Company mission to make the online world safer.
We will innovate to address the rapidly emerging threats
against users, and to anticipate and prevent new threats,
attacks, and online harms. It is for this reason we partnered
with Barracuda to divest our the remote monitoring and
management portfolio, which enable us to focus more strongly
on our core security products.
This focus ensures that customers always come first in
everything that we do. From the day we first offered free
security to users all over the world, we committed to providing
every user with security and peace of mind because we
believed it is the right of everyone to be safe online.
World-class customer experience is our goal and we will
continue to evolve the customer-centric approach that will
underpin the success of our global platform model and our
ability to cross-sell additional customer solutions across the
entire customer journey.
While providing the technology to stop attacks and such
online harms has never been more important, the complexity
of the threat landscape means we have a responsibility to
educate our users. The Avast blog keeps our users up to
date on the latest security and privacy news, and provides
guidance for consumers and businesses on topics such as
IoT, cyberattacks, data breaches, parental controls, and best
practice security tips. In Czech Republic, we have a children’s
online safety programme called Be Safe Online where Avast
experts team up with a YouTube influencer and teachers to
hold workshops in schools.
We are constantly reviewing the user experience of all
our products, and respond to user feedback by making
further improvements.
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Our north star
Avast set out to make the world a better place, a safer
place, and we transformed the cybersecurity industry.
We believe that everyone has the right to be safe and private
online and this was the mentality behind us introducing the
first free antivirus 20 years ago. This same belief is what drives
us today. It underpins how we value user privacy and how we
are focused on delivering products that empower our users to
take control of their security and make the privacy choices that
are right for them.
We are focused on ensuring our products and practices are
aligned with our values as a leader in the privacy community.
Everything we do going forward will be to demonstrate our
commitment to our users’ security and privacy. We have been
an industry pioneer in privacy for almost a decade and we
have further exciting privacy products under development
for 2020.
As we look ahead at 2020, our ambition to keep challenging
the status quo and innovating for good continues to drive us.
We have a global team of passionate, engaged employees
who believe in the work that we do, who want us to change
the world, and who hold us to account to do so.
I am confident that we will be stronger going forward, for
having made some hard decisions and dealt with these issues
with transparency. We have a great opportunity and the right
strategy to build on the consistent growth delivered in 2019
to continue to perform strongly in 2020.
This is a time of change for Avast as we overcome
the challenges of the last few months and rediscover
our strengths.
Our purpose
Our values
Innovation
Security expertise
Our commitment to privacy
Ondrej Vlcek
CEO, Avast
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Innovation is
embedded
in our
technology
and in our
mindset
For over three decades, our cybersecurity experts have been
continuously developing our threat detection network built on
millions of sensors across the globe. One of the largest in the
world, this platform has five critical components:
Our global user base
which provides immense
quantities of real-time
security data shared by
hundreds of millions of
devices across the
globe, allowing us to detect
and defend against varied
and highly sophisticated
cyberattacks
A large operational
cloud infrastructure
provides our world-class
threat labs operation with
the scale, speed, and
accuracy to quickly
discover, classify, and
protect against any
new threat
A robust
protection engine
with six layers of defence
ensures our users remain
protected at all times
AI and
machine learning
technologies
operating at scale process
the security data from our
user base to eliminate
known threats and identify
unknown threats
A dedicated team
of data scientists, threat researchers, and machine learning experts focused
on delivering market-leading IoT and network security
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Our global scale and sophisticated technology
puts us ahead of competitors
The largest network
A look inside our security engine
10,000 servers
serving as a global threat
detection network
60 million
concurrent connections
50 petabytes of data transmitted
205 gigabits/second peak
download speed
265,000 simultaneous VPN connections
2.5 trillion URLs analysed per year
Machine learning
Cloud
Machine learning and cloud
1
2
3
Web Shield
embedded in our security products, this
analyses URLs to protect against phishing,
malware, and other web-based threats.
Static Scanner
uses algorithms and a host of other
techniques to check all executable code
to classify files as benign or malicious.
Emulators
replicate the real PC environment to test for
any previously unknown zero-day malware
or new variants of known exploits and stop
malicious execution.
4
5
6
DeepScreen
uses machine learning within a safe sandbox
clone of the operating system to identify any
similarities with known malware families.
CyberCapture
sends unusual and potentially harmful files to
a cloud-based clean room for analysis with
advanced algorithms. Over 20,000 such files
are processed every day.
Behaviour Shield
identifies any unusual behaviour or
suspicious activities on a device and
prevents them doing any harm. This shield
was instrumental in stopping WannaCry
in 2017.
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We set the benchmark
for artificial intelligence
in cybersecurity
Today, Avast provides security, privacy, and performance products
to more than 435 million users online. The vast quantities of threat
data shared from our users’ devices base power our security
platform which is based on machine learning technologies.
Providing real-time threat data into our security engine for
immediate analysis enables us to eliminate known malware and
identify attack patterns of previously unknown ‘zero day’ threats.
We rely on artificial intelligence (AI) to analyse huge volumes of
threat data to detect threat patterns and issues in ways that
would be impossible for human agents.
For AI to be effective, it requires large amounts of data to identify
and validate patterns – which is why Avast’s huge user base is a
significant competitive advantage. This allows us to understand
how the user’s device was attacked, where the attack originated,
hallmarks of the attack including its purpose, and what kind
of operating system the user was running when the malware
attacked, all of which help us identify why the user was targeted.
Advanced techniques such as deep convolutional neural networks
(Deep CNN) are also applied to enhance our malware detection
models. Combined, these technologies help us to protect our
users from the most challenging cyberattacks and stay ahead
of bad actors.
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Avast annual report 2019
31
Advancing excellence in
AI research
In 2019, we welcomed as our Chief
Technology Officer Michal Pechoucek,
a renowned professor at the highly regarded
Czech Technical University (CTU) in Prague.
In addition to leading our Technology and
Innovation Group, Michal has been charged
with responsibility for forging a stronger
collaboration with academia in the fast-
moving field of applied AI research. Michal
led the Department of Computer Science
in the Faculty of Electrical Engineering,
and the Artificial Intelligence Center which
he founded nearly 20 years previously, and
is behind the new partnership of Avast and
CTU which has created the Avast AI and
Cybersecurity Laboratory (AAICL).
“ The power of
this cooperation
is to share
groundbreaking
research and
its real-world
application.”
Michal Pechoucek
Chief Technology Officer
“ AI-based adversarial attacks
on cybersecurity’s malware
detectors are already
happening in the wild.”
Sadia Afroz
Senior Data Scientist, AI & Network Security
Cybersec & AI Prague 2019
Security is AI’s biggest challenge,
and AI is security’s best opportunity.
Speakers and presenters from 11
nations explored the intersection
of cybersecurity and AI at the first
Cybersec & AI Prague conference
on 25 October 2019, organised by
Avast. Topics discussed by academics
from across the world included new
advancements in adversarial AI in the
domain of security, security as a unique
challenge for AI, use of AI in consumer
security (PC, mobile, IoT), and security
of AI (model training and evaluation
techniques for maximum protection).
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Avast annual report 2019 32
Setting new standards for
threat intelligence and research
Between 2017 and 2018, we tracked a
375% growth in adware as a malware category
and this now makes up more than 52% of all
mobile threats today.
Aggressive adware is malware that pushes or spams user
devices with a large number of advertisements. We also saw
an increase of 78% year on year in the category of mobile
banking threats; these try to trick the user into giving up
their bank account details by pretending to be a legitimate
banking application.
To help tackle this alarming uptick in mobile threats, in 2019
we created and launched APKlab.io. This is our intelligence-
driven Android mobile threat hunting platform aimed at the
security analyst community and is the first platform of its kind.
APKlab.io collects and makes available intelligence from
Avast’s global network of more than 145 million mobile users
to help researchers fight the growing threat of mobile malware.
All together, these apps had been
installed more than
140,000 times
The most installed apps being Spy Tracker,
and SMS Tracker (both with more than
50,000 installs)
Android apps on Google Play
Store come with a nasty surprise
Avast detected seven apps on the Google Play
Store that were designed to allow people to
stalk employees, romantic partners, or kids.
We detected and reported the apps, which
we suspect were created by a Russian developer,
to Google which subsequently removed them
from the Play Store.
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Avast annual report 2019 33
Partnering with the international security
community to beat the bad guys
Retadup
In August 2019, Avast partnered with the
Cybercrime Fighting Centre (C3N) of the
French National Gendarmerie to neutralise
over 850,000 unique infections of Retadup,
a malicious worm affecting Microsoft Windows
machines throughout Latin America that was
capable of mining cryptocurrency, distributing
ransomware, and stealing passwords.
Retadup’s Command and Control (C&C)
infrastructure was mostly located in France, so we
collaborated with the C3N of the French National
Gendarmerie. C3N replaced the malicious C&C
server with a prepared disinfection server that
made connected instances of Retadup self-
destruct, protecting all users including Avast
users, without any action required from their side.
Some parts of the C&C infrastructure were also
located in the U.S. The Gendarmerie alerted the
FBI who took them down, and on 8 July 2019 the
malware authors no longer had any control over
the malware bots.
“ We helped protect
not just Avast users
but also the rest of the
world from malware
on a massive scale.”
Jan Vojtesek
Reverse Engineer
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Avast annual report 2019 34
Geost
A chain of small security mistakes from a
criminal syndicate led to the discovery of
Geost, an Android botnet that amassed
millions of euros from the bank accounts of
more than 800,000 victims. Researchers
from Avast, Czech Technical University and
UNCUYO University worked together to
expose Geost, which has been in circulation
since 2016.
In addition to a poor choice of anonymisation
platform to hide their tracks, the botmasters
failed to encrypt their communications. In
one conversation, a member of the ring
wanted to leave the group but the leader
encouraged him to stay, saying, “Alexander,
really, if we started together we need to finish
it. Because for now this is working and we
can earn money.”
The leader was also engaged in
conversations about money laundering
and payments using popular systems
among Russian cybercriminals, with
the group potentially controlling millions
in currency.
“ We really got
an unprecedented
view into how
an operation like
this functions.”
Anna Shirokova
Researcher, AI and Network Security
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“ This is a highly
modular and complex
malware supporting
a wide range of
functionalities.”
Adolf Streda
Malware Researcher, Threat Labs
Guildma
This malware started its crime spate by
targeting users and services in Brazil and
Avast protected almost 27,000 users.
We then noticed it was spreading more
widely and targeting more than 130
banks and 75 other web services, such
as Netflix, Facebook, Amazon, and Google
Mail (although it was avoiding computers
running in English).
The malware included a remote access
tool (RAT), spyware, as well as password
stealing, and banking Trojan capabilities
and spread via targeted phishing emails,
posing as invoices, tax reports, invitations,
and similar types of messages. The emails
were personalised to address their victims
by name.
Our technology Strategic report Governance Financial statements
Avast annual report 2019 35
A good financial performance
in line with expectations
Group overview
The Group’s adjusted billings increased by $48.8m
to $911.0m in the year ended 31 December 2019,
mostly driven by the core Consumer Direct Desktop
business. This represented a 5.7% increase at actual rates
and organic growth1 of 10.2%. Subscription billings
represented 83.4% of the Group’s total adjusted billings
in FY 2019 (85.0% in FY 2018).
“ In line with our expectations,
the Group has achieved
good growth and maintained
high levels of profitability.”
Phil Marshall
Chief Financial Officer
1 Organic growth rate excludes the impact of FX, acquisitions, business disposals, and discontinued business.
It excludes current period billings and revenue of acquisitions until the first anniversary of their consolidation.
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The Group’s adjusted revenue increased by $46.1m to $873.1m
in the year ended 31 December 2019, which represents a
5.6% increase at actual rates and organic growth of 9.1%.
Adjusted revenue included $387.6m from the release of
prior-period deferred revenue. The adjusted deferred revenue2
balance at the end of the period excluding Jumpshot was
$467.8m, comprising $413.6m that will be recognised within
12 months of the balance sheet date. Including Jumpshot,
it was $476.3m and $422.1m respectively. This compares to
$439.0m, comprising $387.6m respectively, at the same time
last year. The average subscription length in the year ended
31 December 2019 was 14 months, flat versus FY 2018.
The Group’s reported billings increased by $48.8m to $911.0m
in the year ended 31 December 2019, which represents a
5.7% increase. The Group’s reported revenue increased by
$62.8m to $871.1m, which represents a 7.8% increase. It should
be noted that the difference between the Group’s statutory
revenue of $871.1m and adjusted revenue of $873.1m in
2019 is diminishing as the magnitude of non-cash historical
adjustments arising from the AVG acquisition decreases
(for the reconciliations, please refer to ’Presentation of Results
and Definitions’). These adjustments are expected to be
zero after 2019.
Profitability was driven by the Group’s scale and operating
leverage. Adjusted EBITDA increased 7.9% to $483.0m, 8.6%
excluding FX, resulting in adjusted EBITDA margin3 of 55.3%
(including c.1pt upside from IFRS 16 adoption in 2019). This is
in line with full year guidance of broadly flat adjusting for the
IFRS 16 impact (54.1% EBITDA margin in FY 2018).
The reported operating profit increased by $96.3m to
$344.6m. The increase was driven by a more modest impact
from the deferred revenue haircut from the AVG acquisition
of $13.7m, increase in adjusted EBITDA of $35.3m, lower
exceptional items of $23.8m, lower depreciation and
amortisation of acquisition and non-acquisition intangibles
of $33.4m, and the lower impact of other adjustments of
$1.2m, partially offset by higher share-based payments
costs including related employer’s costs of $(11.1)m.
The table below presents the Group’s adjusted billings and adjusted revenue for the periods indicated:
($’m)
Adjusted billings
Consumer
Acquisitions
Direct (excl. Acquisitions)
Discontinued Business5
Indirect (excl. Discontinued Business)
SMB
Disposal Managed Workplace6
SMB (excl. Disposal)
Adjusted billings excl. Acquisitions, Disposals, and Discontinued business
Adjusted revenue
Consumer
Acquisitions
Direct (excl. Acquisitions)
Discontinued Business
Indirect (excl. Discontinued Business)
SMB
Disposal Managed Workplace
SMB (excl. Disposal)
FY 2019
FY 2018
Change %
Change %
(excluding FX)4
911.0
865.0
1.4
744.1
8.9
110.6
45.9
0.0
45.9
900.7
873.1
823.9
1.4
706.9
8.9
106.7
49.2
0.0
49.2
862.1
801.7
0.0
698.4
15.5
87.8
60.5
10.5
50.0
836.2
827.0
763.7
0.0
662.5
15.5
85.8
63.3
10.5
52.7
5.7
7.9
n/a
6.5
(42.6)
26.1
(24.0)
n/a
(8.1)
7.7
5.6
7.9
n/a
6.7
(42.6)
24.3
(22.2)
n/a
(6.7)
7.7
8.1
10.3
n/a
9.2
(41.7)
26.9
(22.3)
n/a
(6.0)
10.2
7.0
9.3
n/a
8.2
(41.7)
25.2
(21.4)
n/a
(5.8)
9.1
Adjusted Revenue excl. Acquisitions, Disposals, and Discontinued business
862.8
801.0
2 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.
3 Adjusted EBITDA margin percentage is defined as adjusted EBITDA divided
by adjusted revenue.
4 Growth rate excluding currency impact calculated by restating 2019 actual
to 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.
5 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 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.
6 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 (MSP). This business was not core to our
SMB strategy, which focuses on securing the workplace. Barracuda, which
has a large existing MSP base but did not offer an RMM solution, provides
a better long-term solution for this business. In addition, Barracuda has
signed a reseller agreement with Avast under which it now resells Avast’s
business security solutions to MSPs. In the year ended 31 December 2018
the asset generated low teen revenue (USD million) with a materially lower
margin profile than the Group.
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Business unit performance
Consumer Direct Desktop
Adjusted billings
$m
Adjusted revenue
$m
613.9
668.3
580.0
632.9
2018
2019
2018
2019
Growth
+8.9% in actual rates
Growth
+9.1% in actual rates
Organic
Organic
Number of
customers7 m
Average products
per customer8
Average revenue
per customer9 $
12.19
12.62
1.40
1.45
49.24
51.02
2018
2019
2018
2019
2018
2019
7 Users who have at least one valid paid Consumer Direct Desktop
subscription (or licence) at the end of the period.
8 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.
9 ARPC defined as the Consumer Direct Desktop revenue for the financial
period divided by the simple average number of customers during the
same period.
The largest component of the Avast business, Consumer
Direct Desktop, performed strongly in the year. Adjusted
billings of $668.3m were up 8.9% at actual rates, with organic
growth of 11.7%. Adjusted revenue of $632.9m grew 9.1%
at actual rates, with organic growth of 10.7%, in line with
guidance of low double-digit growth.
The number of multi-device subscriptions purchased on
Consumer Direct Desktop has continued to increase.
Mobile-enabled VPN and Password Manager products
have led the trend, and the introduction of multi-device
compatibility for other products is set to accelerate
the convergence.
Customer retention rates have increased to 67%, driven
by lower churn in paid antivirus and CCleaner products,
and growth in average products per customer. All three
key operating metrics – end of period customers,
average products per customer, and average revenue
per customer – tracked in line with growth guidance of
low-single digit, mid-single digit and mid-single digit
respectively. While the number of users has remained within
a consistent range, we have started to see lower value
returns from our pay per install (PPI) investments, and expect
that trend to continue.
The consumer monetisation platform remains a key driver
of growth, effectively promoting up-sells and cross-sells of
products, in particular privacy products led by VPN
and AntiTrack.
The performance of the antivirus business has proved
resilient, benefiting from enhanced product features
and a reworked value proposition, built around a more
streamlined product line.
In July 2019, Avast released its IoT direct-to-consumer
product ‘Omni’ to users in the US market. The product was
named a Best of Innovation Honoree in the prestigious CES
Innovation Awards. While volumes remain modest, initial
customer feedback has been positive and assimilated to
advance product positioning.
Additional investments have been made in engagement
strategies to both strengthen customer care and build
customer lifetime value. Deeper analysis of processes and
data has helped optimise content, frequency, and context
of communications, driving an improvement in support
Net Promoter Score and retention rates.
There has been continued strong execution on the
localisation programme, with a sustained uplift in customer
numbers and penetration rates in new target countries from
Malaysia in South East Asia to Poland in Europe. This is in
addition to continued good growth in customer numbers in
traditional markets such as the US.
In FY 2020, we expect Consumer Direct Desktop to deliver
mid-single digit organic revenue growth.
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Consumer Direct Mobile
Adjusted billings
$m
Adjusted revenue
$m
84.6
77.3
82.5
75.4
2018
2019
2018
2019
Growth
-8.6% in actual rates
Growth
-8.6% in actual rates
Organic
Organic
Consumer Indirect
Adjusted billings
$m
Adjusted revenue
$m
119.5
103.2
115.5
101.2
2018
2019
2018
2019
Growth
+15.8% in actual rates
Growth
+14.1% in actual rates
Organic
Organic
+25.2%
Adjusted billings of $77.3m were down 8.6% at actual rates,
representing an organic decline of 8.9%. Adjusted revenue of
$75.4m was down 8.6% at actual rates, an organic decline of
9.2%, behind the guidance of mid-single digit decline.
Sustained double-digit growth in the direct-to-consumer
subscription business has been driven by product promotion
and high renewal rates. The channel has also benefited from
a positive trend in the uptake of Avast Mobile Security for
iOS. The product has become a contributor to sales after its
release last year and more recently benefited from enhanced
privacy features.
Multi-platform subscriptions sold through desktop continue
to negatively impact mobile, which is a trend we expect to
further dampen growth in the mobile segment.
While adversely affected by the carry-over impact from the
2017 Sprint loss, performance in the carrier channel has also
been affected by lower marketing investments by US carriers
and subsequent weaker product performance. This resulted
in weaker than expected sales in the carrier channel,
notably in the second half of 2019.
After strengthening its salesforce and presence in
different geographies at the start of the year, Avast has
since made progress in deepening new carrier relationships.
The Company is involved in several late-stage tenders and
discussions around the provision of IoT and other customer
security solutions.
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. Avast has further developed and
commenced customisation of its IoT solutions in response to
carriers’ stated needs.
We remain cautious of the headwinds in the carrier channel,
and therefore expect mid-single digit organic revenue
decline in the mobile business overall in 2020.
This business unit includes Avast Secure Browser (ASB),
distribution of third-party software, Jumpshot analytics,
and advertising within mobile applications.
Within Consumer Indirect, adjusted revenue was $115.5m,
up 14.1% at actual rates, with organic growth of 25.2%,
in line with double-digit growth guidance. The business unit
excluding Jumpshot delivered 8.6% organic revenue growth.
ASB, focused on internet security and privacy, has performed
strongly in the year, benefiting from organic demand
including from beyond the Avast and AVG user base. At year
end, the Secure Browser had 35 million active monthly users.
Monetisation has continued to increase at a growing rate.
Avast expects the Secure Browser to be the key driver in
Consumer Indirect in the medium term.
Chrome distribution continued to soften in line with
expectations. The current Avast contract to distribute
Chrome to Avast, AVG and CCleaner branded product
sets extends to March 2020, and renewal is currently
under consideration.
Avast’s data analytics business, Jumpshot, delivered
double-digit growth rates. In January 2020, Avast decided
to terminate the provision of anonymised data to its data
analytics business, Jumpshot, having concluded that the
business was not consistent long term with the Group’s
privacy priorities as a global cybersecurity company.
In FY 2020, we expect the organic revenue growth
in Consumer Indirect (excluding Jumpshot) to be
high-single digit.
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SMB
Adjusted billings
$m
Adjusted revenue
$m
60.5
45.9
63.3
49.2
2018
2019
2018
2019
Growth
-24.0% in actual rates
Growth
-22.2% in actual rates
Organic
-6.0%
Organic
The SMB business has performed in line with expectations of
mid-single digit organic revenue decline provided at half year.
Further to the launch of Secure Web Gateway in the first
half of the year, in October we introduced Secure Internet
Gateway (SIG). SIG is an advanced cloud security solution,
set to replace hardware-based gateway solutions, with better
scalability. It is especially suited to larger SMBs and MSPs.
Early progress in Secure Web and Internet Gateway sales
pipeline development has been encouraging.
As part of Avast’s layered security protection, our new
Patch Management Solution (PMS) went live in June 2019.
This was followed by its fourth-quarter release on the
CloudCare platform, which specifically services MSPs.
In December, we additionally launched a PMS version for the
Business Console platform, adding improved functionality
based on customer requests. PMS is expected to become
a meaningful revenue contributor within SMB over time.
As part of the transition plan, the new SMB leadership
team is now in place. The business has also exited
several low-performing countries.
The aforementioned product initiatives are at an early stage.
As the SMB business continues its transition to integrated
endpoint and network security, in FY 2020 we expect
low-single digit organic revenue decline.
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Avast annual report 2019 40
Group outlook
The Group expects to deliver healthy growth during
FY 2020, with organic mid-single digit revenue growth.
Organic billings growth for FY 2020 will be broadly in
line with organic revenue growth, albeit slightly weighted
towards the second half of the financial year because of
the Group’s deferral of product upgrades and releases
in the first half of the year. This is due to the rebuild of the
product environment that was undertaken to proactively
harden and further secure this infrastructure, after the
attempted attack late last year.
Adjusted Group EBITDA margin is expected to be broadly
flat versus FY 2019. Jumpshot is expected to incur
approximately $5m of operating costs, with negligible
associated revenue, as the business is wound down.
Incremental expense released from Jumpshot will be
reinvested into the business to support long-term
growth initiatives.
In relation to termination of the provision of data to
Jumpshot, the Group expects to incur a one-time
exceptional cash cost in the range of $15-$25m in
FY 2020 to cover closure costs, asset write-down, and
employee restructuring. Avast will return the investments
made by Ascential plc into the business, along with
associated exit costs, amounting to $73m.
Costs
($’m)
Cost of revenues
Share-based payments (incl. employer’s costs)
Amortisation of acquisition intangible assets
Depreciation and amortisation (excl. amortisation of acquisition intangible assets)
Gross-up and other adjustments
Exceptional items
Adjusted cost of revenues (excluding D&A)
FY 2019
FY 2018
Change Change %
(210.7)
(241.4)
30.7
12.7
Fav10
0.2
0.3
127.5
(39.2)
(30.7)
9.4
(2.6)
0.6
(0.5)
2.3
(5.0)
90.3
(0.5)
(78.8)
0.5
88.3
8.9
(0.3)
0.1
(113.2)
(106.3)
(6.9)
(6.5)
The increase in the Group’s adjusted cost of revenues reflects higher sales commissions and licence fees of $(4.1)m related
to the increase in adjusted revenue, increase in costs for distribution of digital content of $(1.1)m, and investment into personnel
costs of $(1.9)m, offset by a positive FX impact and other costs of $0.2m. Adjusted cost of revenues represent the Group’s
cost of revenues adjusted for depreciation and amortisation charges, share-based payments charges, exceptional items, and
other adjustments.
The Group’s reported cost of revenues decreased by $30.7m to $(210.7)m, primarily due to the lower amortisation of acquisition
intangibles. The amortisation of acquisition intangibles represents intangible assets acquired through business combinations.
($’m)
Operating costs
Share-based payments (incl. employer’s costs)
Depreciation and amortisation (excl. amortisation of acquisition intangible assets)
Exceptional items
Adjusted operating costs (excluding D&A)
FY 2019
FY 2018
Change Change %
(315.8)
(318.6)
2.8
24.4
12.7
13.7
6.8
10.7
5.9
0.9
77.9
87.8
1.7
25.0
(23.3)
(93.2)
(276.9)
(273.0)
(3.9)
(1.4)
The increase in the Group’s adjusted operating costs excluding the positive impact of IFRS 16 implementation of $8.5m was
$(12.5)m. The increase was caused by investment into R&D of $(11.0)m, sales and marketing of $(6.9)m, offset by lower bad debt
costs, and other costs of $5.4m. 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 reported Operating costs of $2.8m, from $(318.6)m to $(315.8)m, reflects the lower exceptional items,
partially offset by higher share-based payments and higher depreciation and amortisation of non-acquisition intangibles driven
primarily by amortisation of right-of-use assets. The net impact of IFRS 16 implementation on reported operating costs including
impact on amortisation is a decrease in costs of $0.8m.
10 ’Fav’ in change % represents favourable growth rate figure over 100%, ‘Unf’ represents unfavourable decline greater than negative 100%.
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41
Exceptional items
Exceptional items are income or expenses that arise from
events or transactions that are clearly distinct from the
ordinary activities of the Group. The Group believes that
these non-recurring items should be separately disclosed
to show the underlying business performance of the Group
more accurately. Once an item is disclosed as exceptional,
it will remain exceptional through completion of the event
or programme. Exceptional items in 2019 consist primarily
of legal fees and restructuring costs related to the disposal
of a subsidiary and related business operation (Managed
Workplace business of SMB segment) and to the acquisition
of TrackOFF and Tenta (see Note 6 Exceptional items). The
portion of the exceptional items directly related to the disposal
of a business operation was included in the investing cash
flow, and costs related to the acquisition were included in
operating cash flow. The net gain on disposal of a business
operation of $17.5m (see Note 16 Disposal of business
operation) was treated as exceptional and is not included in
adjusted net income. Exceptional items in 2018 related mainly
to IPO costs.
Finance income and expense
Adjusted finance expense on a net basis was $(61.4)m
in 2019, $30.9m lower compared with $(92.3)m in 2018.
Excluding the negative impact of the implementation of
IFRS 16 of $(2.3)m, the adjusted finance costs decreased by
$33.2m. The decrease was driven by lower total loan interest
costs of $29.3m resulting from the repayment of $300m debt
post IPO in 2018 and the additional repayment of $297.4m in
2019 (see Note 27 Term loan), positive FX impact of $3.8m,
and decrease in other finance costs of $0.1m.
The Group’s statutory net finance costs decreased by
$18.4m to $(47.5)m in 2019 resulting from the decrease in
adjusted finance costs described above, offset by the lower
unrealised foreign exchange gains in 2019 from the euro
denominated debt.
($’m)
FY 2019
FY 2018
Change Change %
Finance income and
expenses, net
Unrealised FX
(gain)/loss on EUR
tranche of bank loan
Adjusted finance income
and expenses, net
(47.5)
(65.9)
18.4
27.9
(13.9)
(26.4)
12.5
47.4
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 $(77.8)m for FY 2019, resulting in
an adjusted effective tax rate of 19.4% (FY 2018: 20.2%).
The adjusted effective tax rate is the adjusted income tax
percentage of adjusted profit before tax of $400.1m (defined
as adjusted net income of $322.3m before the deduction of
adjusted income tax of $(77.8)m).
(61.4)
(92.3)
30.9
33.5
($’m)
Income tax
FY 2019
FY 2018
Change Change %
(65.7)
58.7
(124.3)
Unf
Income tax
In the year ended 31 December 2019, the Group reported an
income tax expense of $(65.7)m, compared with the income
tax benefit of $58.7m in the year ended 31 December 2018.
The income tax benefit in 2018 was primarily driven by the
transfer of AVG E-comm web shop to Avast Software B.V.
(Avast BV) on 1 May 2018 (IP transfer). 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 benefit of the
foreign exchange movements on intercompany loans arising
in the statutory accounts of the subsidiary concerned of
$0.4m (tax benefit of $9.8m in 2018) and the recognition of
previously unrecognised tax losses related to the previous
periods of $4.7m.
Tax impact of FX difference
on intercompany loans
Tax impact of IP transfer
Tax impact of COGS
deferral adjustment
Tax impact of disposal
of business operations
Tax impact on
adjusted items
Adjusted income tax
(0.4)
6.3
(9.8)
9.4
(99.2)
105.5
96.3
Fav
–
0.3
(0.3)
Unf
2.3
–
2.3
n/a
(20.3)
(18.5)
(77.8)
(68.4)
(1.9)
(9.3)
(10.4)
(13.7)
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CFO’s review Strategic report Governance Financial statements
Avast annual report 2019 42
Cash flow
Unlevered free cash flow represents the amount of cash
generated by operations after allowing for capital expenditure,
taxation, and working capital movements. Unlevered free
cash flow provides an understanding of the Group’s cash
generation and is a supplemental measure of liquidity in
respect of the Group’s operations.
Levered free cash flow represents amounts of incremental
cash flows the Group has after it has met its financial
obligations (after interest and lease repayments) and is
defined as unlevered free cash flow less cash interest
and lease repayments.
($’m)
FY 2019
FY 2018
Change Change %
Adjusted cash EBITDA
519.4
476.8
42.6
8.9
Net change in working
capital (excl. change in
deferred revenue and
deferred COGS)
Capex
Cash tax (excl. Dutch
exit tax)
(10.0)
13.8
(23.8)
Unf
(29.9)
(16.8)
(13.1)
(77.7)
The working capital movement in 2018 comprised a positive
movement in receivables driven by the renegotiation of
payment terms with payment providers. Adjusted for the
impact of renegotiation of payment terms with payment
providers, the cash conversion in FY 2018 would be 78%.
In line with guidance, capex represents 3% of adjusted
revenue in 2019, which is a slight increase versus 2018
(2%), due to investment into network infrastructure.
The cash tax included in the calculation of unlevered free cash
flow excludes a $49.4m Dutch exit tax paid in March 2019 as
this was treated as an exceptional item. The decrease in the
adjusted cash tax is driven by the Czech Republic true-up
system, where a company is obliged to make quarterly income
tax advances based on its last known tax liability. Upon filing a
tax return, tax advances paid during the year for which the tax
return is filed offset the final tax liability. As the taxable income
for 2017 was significantly higher than the taxable income for
2018 due to unrealised FX gain on intercompany loans, the
reported cash tax in 2018 was higher by the amount of the
true-up. No such true-up payment occurred in 2019.
($’m)
FY 2019
FY 2018
Change Change %
(54.8)
(79.8)
Unlevered free cash flow
424.6
394.0
Cash interest
(45.1)
(67.6)
Lease repayments
(9.2)
(1.5)
(7.6)
Levered free cash flow
370.4
324.9
45.5
Cash conversion11
82%
83%
25.0
30.7
22.5
31.3
7.9
33.2
Unf
14.0
Net cash flows from
operating activities
Net cash used in
investing activities
Net cash flows from
financing activities
399.1
376.0
23.1
6.1
(16.7)
(28.8)
12.1
42.0
(440.9)
(254.0)
(186.9)
(73.6)
The following table presents a reconciliation between the
Group’s adjusted cash EBITDA and net cash flows from
operating activities as per the consolidated statement of
cash flows.
($’m)
FY 2019
FY 2018
Change Change %
Adjusted cash EBITDA
519.4
476.8
42.6
8.9
Net change in working
capital (excl. change in
deferred revenue and
deferred COGS)
Cash tax (excl. Dutch
exit tax)
Dutch exit cash tax
Movement of provisions
and allowances
Exceptional items
(excl. transaction costs)
Employer’s costs on
share-based payments
FX gains/losses and other
non-cash items
Net cash flows from
operating activities
(10.0)
13.8
(23.8)
Unf
(54.8)
(79.8)
(49.4)
–
25.0
(49.4)
31.3
n/a
5.9
3.5
2.4
68.6
(1.5)
(25.6)
24.1
94.1
(4.2)
–
(4.2)
n/a
(6.3)
(12.7)
6.4
50.4
399.1
376.0
23.1
6.1
11 Cash conversion is defined as unlevered free cash flow divided by adjusted cash EBITDA.
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CFO’s review Strategic report Governance Financial statements
Avast annual report 2019 43
The Group’s net cash flow from operating activities increased
by $23.1m, primarily due to higher adjusted cash EBITDA of
$42.6m, lower cash tax of $25.0m, lower exceptional items
(excl. transaction costs) of $24.1m, positive impact of the
movement in provisions and allowances of $2.4m, and positive
change in FX gains/losses and other financial expenses and
non-cash gains of $6.4m, 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
$(23.8)m, and employer’s costs on share-based payments of
$(4.2)m (see Note 35 Share-based payments). The portion
of the exceptional items directly related to the disposal of
business operation of $(0.3)m was included in cash flows
from investing activities.
The Group’s net cash outflow from investing activities of
$(16.7)m was comprised of capex of $(29.9)m, consideration
paid for TrackOFF and Tenta acquisitions net of cash acquired
of $(14.8)m (see Note 15 Business combinations), settlement of
contingent consideration of $(0.2)m, proceeds from the sale
of a business operation net of cash disposed and transaction
costs of $26.7m (see Note 16 Disposal of a business operation),
and interest received of $1.5m. The Group’s net cash outflow
from investing activities in 2018 of $(28.8)m was comprised of
capex of $(16.8)m, consideration paid for InLoop acquisition
net of cash acquired of $(4.2)m (see Note 15 Business
combinations), payment of the remaining portion of the
consideration for the acquisition of AVG Technologies B.V.
of $(8.0)m, and interest received of $0.3m.
The Group’s net cash outflow from financing activities
includes $(83.7)m final dividend paid in respect of 2018,
$(43.2)m interim dividend paid in respect of 2019, $(297.4)m
net voluntary repayment of borrowings, $(63.0)m mandatory
repayment of borrowings, interest paid of $(45.1)m, transaction
costs related to borrowings of $(0.9)m, lease repayments of
$(9.2)m, proceeds from the exercise of options of $47.2m,
and net proceeds from transactions with non-controlling
interest, $54.3m (see Note 34 Non-controlling interest).
The full amount of lease repayments in FY 2019 of $(9.2)m
relates to IFRS 16 implementation and the comparable amount
of cash outflow in FY 2018 was included under cash flows
from operating activities. The Group’s net cash outflow from
financing activities in 2018 included net proceeds from the
issue of shares of $195.8m, proceeds from exercise of options
in 2H 2018 of $0.9m, offset by the voluntary repayment
of borrowings of $(300.0)m, the mandatory repayment of
borrowings of $(78.5)m, interest paid of $(67.6)m, transaction
costs related to borrowings of $(3.1)m, and lease repayments
of $(1.5)m.
Financing
The Group reduced its term loan by the repayment of
$400m from USD tranche in March 2019, while executing
an incremental €177.5m ($202.6m) add-on to EUR tranche,
and voluntarily repaid another $100m from USD tranche in
October 2019 (see Note 27 Term loan). As of 31 December
2019, the total gross debt12 of the Group was $1,101.1m and
the total net debt13 was $884.5m. The decrease in gross debt
since 31 December 2018 is attributable to $297.4m voluntary
repayment of borrowings, $63.0m mandatory repayment of
borrowings, $6.9m decrease in lease liabilities, and a positive
unrealised FX gain of $13.9m on the EUR tranche of the loan.
The Group adopted IFRS 16 as of 1 January 2019 using the
modified retrospective approach and did not restate for the
year prior to first adoption. The balance of lease liabilities as
of 31 December 2018, shown in the table below, has been
presented as if adjusted for opening balance of IFRS 16 impact.
In April 2019, the Group applied for the margin reduction by
0.25% p.a. on both tranches due to a favourable leverage ratio
and, in October 2019, the Group further reduced the margin
on the EUR tranche by 0.25% p.a. (see Note 27 Term loan).
Margin
USD LIBOR
plus 2.25%
EURIBOR
plus 2.25%
USD LIBOR
plus 2.25%
($’m)
USD tranche
principal
EUR tranche
principal
Revolver/
overdraft
Lease liabilities
31
December
2019
31
December
2018
31 December
2018 incl. IFRS
16 impact
336.5
864.7
864.7
699.8
545.8
545.8
–
64.8
–
–
–
71.7
Gross debt
1,101.1
1,410.5
1,482.2
Cash and cash
equivalents
(216.6)
(272.3)
(272.3)
Net debt
884.5
1,138.2
1,209.9
Net debt/
LTM adjusted
EBITDA
1.8x
2.5x
2.7x
12 Gross debt represents the sum of the total book value of the Group’s loan obligations (i.e. sum of loan principals) and lease liabilities. Net debt indicates gross debt netted by the company’s cash and cash equivalents. Both gross debt and
net debt exclude the amount of capitalised arrangement fees on the balance sheet as of 31 December 2019 of $8.7m and accrued interest of $(0.1)m (31 December 2018: $19.1m and $(0.1)m).
13 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 31 December 2019 includes the balance of
IFRS 16 lease liabilities. No lease liabilities are included in the net debt as of 31 December 2018. Net debt as of 31 December 2018 adjusted for opening balance of IFRS 16 lease liabilities would be $1,209.9m.
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CFO’s review Strategic report Governance Financial statements
Avast annual report 2019 44
Principal exchange rates applied
The table below summarises the principal exchange rates
used for the translation of foreign currencies into US dollars.
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.
FY 2019
average
FY 2018
average
0.6966
0.7479
Earnings per share
Basic adjusted earnings per share (EPS) 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 EPS
amounts consider the weighted average number of shares
of common stock outstanding during the year adjusted for the
effect of dilutive options. On a statutory basis, fully diluted
EPS was $0.24 (see Note 14 for the statutory EPS).
0.2545
0.2757
($’m)
0.7524
0.7720
1.0061
1.0228
0.0437
0.0461
1.1212
1.1814
1.2757
1.3357
0.2797
0.2784
0.1139
0.1230
Adjusted net income attributable
to equity holders
Basic weighted average
number of shares
Effects of dilution from share
options and restricted share units
Dilutive weighted average
number of shares
Basic adjusted EPS ($/share)
Diluted adjusted EPS ($/share)
FY 2019
FY 2018
322.1
270.8
973,788,157 914,567,949
44,313,005
62,120,397
1,018,101,162 976,688,346
0.33
0.32
0.30
0.28
($:1.00)
AUD
BRL
CAD
CHF
CZK
EUR
GBP
ILS
NOK
Dividend
The Directors propose to pay a final dividend of 10.3 cents
per share in respect of the year ending 31 December 2019
(payment of $104.6m). Combined with the interim dividend of
4.4 cents per share paid in October 2019 (payment of $43.2m),
this gives a total dividend for the financial year of 14.7 cents
(total payment of $147.8m), which represents 40% of the
Group’s levered free cash flow for the period in accordance
with the Company’s dividend policy. Subject to shareholder
approval, the final dividend will be paid in US dollars on 24
June 2020 to shareholders on the register on 22 May 2020.
There will be an option for shareholders to elect to receive the
dividend in pounds sterling and such an election should be
made no later than 8 June 2020. 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 11 June
2020 and announced shortly thereafter.
Proposed dividend timetable
Ex-dividend date: 21 May 2020
Record date: 22 May 2020
Last date for currency election: 8 June 2020
Payment: 24 June 2020
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CFO’s reviewCFO’s review Strategic report Governance Financial statements
Avast annual report 2019 45
Presentation of results and definitions
This full 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, organic growth, adjusted EBITDA, adjusted cash
EBITDA, adjusted net income and unlevered free cash
flow as defined and reconciled below.
These non-IFRS financial measures and other metrics are
not measures recognised under IFRS. The non-IFRS financial
measures and other metrics, each as defined herein, may not
be comparable with similarly titled measures presented by
other companies as there are no generally accepted principles
governing the calculation of these measures, and the criteria
upon which these measures are based can vary from company
to company. Even though the non-IFRS financial measures and
other metrics are used by management to assess the Group’s
financial results and these types of measures are commonly
used by investors, they have important limitations as analytical
tools, and investors should not consider them in isolation or
as substitutes for analysis of the Group’s position or results
as reported under IFRS. The Group considers the following
metrics to be the KPIs it uses to help evaluate growth trends,
establish budgets, and assess operational performance
and efficiencies.
‘Adjusted’ and ‘underlying’ numbers were presented in the
full year report for the year ended 2018. Many of the adjusting
items were common to both and the values were similar.
As presenting a large number of similar APMs can increase
complexity to users, the Group limited the metrics to ‘adjusted’
measures, which is consistent with those used in the business.
Organic growth APMs were introduced in this full year report
to present the change in revenue and billings resulting from
continuing Group operations. Besides these changes, the definitions of non-GAAP measures in the year ended 31 December 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 year ended 31 December 2019 ($’m)
REVENUES
Cost of revenues
GROSS PROFIT
Gross profit margin
Sales and marketing
Research and development
General and administrative
Total operating costs
EBITDA
EBITDA margin
Depreciation and amortisation14
EBIT
Finance income and expenses
PROFIT BEFORE TAX
Income tax
NET INCOME
Net income margin
Net income attributable to:
– equity holders of the parent
– non-controlling interest
Earnings per share (in $ per share):
Basic EPS
Diluted EPS
Year ended
31 December
2019
Year ended
31 December
2018
873.1
(113.2)
759.9
87.0%
(123.1)
(76.7)
(77.0)
(276.9)
483.0
55.3%
(21.6)
461.5
(61.4)
400.1
(77.8)
322.3
36.9%
322.1
0.2
0.33
0.32
827.0
(106.3)
720.7
87.1%
(116.3)
(65.7)
(91.0)
(273.0)
447.7
54.1%
(16.2)
431.6
(92.3)
339.3
(68.4)
270.8
32.7%
270.8
–
0.30
0.28
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14 Depreciation and amortisation included in adjusted net income excludes amortisation of acquisition intangibles.
CFO’s review
Strategic report Governance Financial statements
Avast annual report 2019 46
Adjusted billings
Adjusted billings represent the full value of products and
services being delivered under subscription and other
agreements and include sales to new end customers plus
renewals and additional sales to existing end customers.
Under the subscription model, end customers pay the Group
for the entire amount of the subscription in cash upfront upon
initial delivery of the applicable products. Although the cash
is paid upfront, under IFRS, subscription revenue is deferred
and recognised rateably over the life of the subscription
agreement, whereas non-subscription revenue is typically
recognised immediately. Adjusted billings represents the
Group’s reported billings.
Adjusted revenue
Adjusted revenue represents the Group’s reported revenue
adjusted for the deferred revenue haircut reversal15 and
gross-up adjustment.16 These historical adjustments are
expected to be zero from 2019. The following is a reconciliation
of the Group’s reported revenue to the Group’s adjusted
billings and Group’s reported revenue to the Group’s
adjusted revenue:
($’m)
Revenue
Net deferral of revenue
Adjusted billings
FY 2019
FY 2018
Change Change %
871.1 808.3
62.8
7.8
39.9
911.0
53.9
(14.0)
(26.0)
862.1
48.8
5.7
Revenue
871.1 808.3
62.8
7.8
Deferred revenue haircut
reversal/other
Gross-up adjustment
1.8
0.1
17.2
1.5
(15.4)
(89.3)
(1.3)
(91.2)
Adjusted revenue
873.1
827.0
46.1
5.6
Adjusted EBITDA
Adjusted earnings before interest, taxation, depreciation, and amortisation (adjusted EBITDA) is defined as the Group’s operating
profit/loss before depreciation, amortisation of non-acquisition intangible assets, share-based payments including related
employer’s costs, exceptional items, amortisation of acquisition intangible assets, the deferred revenue haircut reversal, and the
COGS deferral adjustments.17
Adjusted cash EBITDA
Cash earnings before interest, taxation, depreciation, and amortisation (adjusted cash EBITDA) is defined as Adjusted EBITDA
plus the net deferral of revenue, the net change in deferred cost of goods sold, and the reversal of the COGS deferral adjustments.
The following is a reconciliation of the Group’s reported operating profit to adjusted EBITDA and adjusted cash EBITDA:
($’m)
Operating profit
Share-based payments (incl. employer’s costs)
Exceptional items
Amortisation of acquisition intangible assets
Deferred revenue haircut reversal/other
COGS deferral adjustments
Depreciation
Amortisation of non-acquisition intangible assets
Adjusted EBITDA
Net change in deferred revenues including FX re-translation/other
Net change in deferred cost of goods sold
Reversal of COGS deferral adjustment
Adjusted cash EBITDA
FY 2019
FY 2018
Change Change %
344.6
248.3
96.3
88.4
127.5
(39.0)
(30.6)
24.9
1.8
13.9
25.6
1.8
(0.1)
18.8
2.8
17.2
(1.1)
13.4
2.8
38.0
36.6
(1.8)
0.1
(8.7)
1.1
38.8
79.5
11.1
(23.8)
(92.8)
(15.4)
(89.3)
1.0
5.5
(0.1)
1.4
6.9
89.1
41.0
(2.1)
7.9
3.9
78.7
(1.0)
(90.1)
483.0
447.7
35.3
519.4
476.8
42.6
8.9
15 Under IFRS 3, Business Combinations, an acquirer must recognise assets acquired and liabilities assumed at fair value as of the acquisition date. The process of
determining the fair value of deferred revenues acquired often results in a significant downward adjustment to the target’s book value of deferred revenues.
The reversal of the downward adjustment to the book value of deferred revenues of companies the Group has acquired during the periods under review is
referred to as the deferred revenue haircut reversal.
16 The gross-up adjustment refers to the estimated impact of the additional amount of 2015 and 2016 revenue and expenses and their deferral that would have
been recognised by Avast had the contractual arrangements with certain customers qualified to have been recognised on a gross rather than a net basis prior
to 2017 (AVG had historically recognised billings and revenues on a gross basis, whereas Avast recognised them on a net basis). Both businesses recognise
revenue on a gross basis since 2017.
17 There was no deferred cost of goods sold (COGS) balance consolidated by the Group in the acquisition balance sheet of AVG in 2016 and thus no subsequent
expense was recorded as the revenue in respect of pre-acquisition date billings was recognised. The COGS deferral adjustments refers to an adjustment to
reflect the recognition of deferred COGS 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 COGS.
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CFO’s review Strategic report Governance Financial statements
Avast annual report 2019 47
Adjusted net income
Adjusted net income represents statutory net income plus the deferred revenue haircut reversal, share-based payments,
exceptional items, amortisation of acquisition intangible assets, unrealised foreign exchange gain/loss on the EUR tranche of
the bank loan, the COGS deferral adjustments, the tax impact from the unrealised exchange differences on intercompany loans,
and the tax impact of the foregoing adjusting items and IP transfers, less gain on disposal of business operation. The following
is a reconciliation of the Group’s reported net income to adjusted net income:
($’m)
Net income
Deferred revenue haircut reversal/other
Share-based payments
Exceptional items
Amortisation of acquisition intangible assets
Unrealised FX gain/(loss) on EUR tranche of bank loan
Tax impact from FX difference on intercompany loans
COGS deferral adjustments
Tax impact of COGS deferral adjustment
Tax impact on adjusted items
Tax impact of IP transfer
Gain on disposal of business operation
Tax impact from disposal of business operation
Adjusted net income
FY 2019
FY 2018
Change Change %
249.0
241.2
7.8
3.2
1.8
24.9
1.8
88.4
17.2
13.9
25.6
127.5
(15.4)
(89.3)
11.1
79.5
(23.8)
(92.8)
(39.1)
(30.6)
(13.9)
(26.4)
12.5
(0.4)
(0.1)
–
(9.8)
(1.1)
0.3
(20.3)
(18.5)
9.4
1.0
(0.3)
(1.8)
6.3
(99.2)
105.5
(17.5)
2.3
–
–
322.3
270.8
(17.5)
2.3
51.5
47.4
96.3
89.1
Unf
(9.8)
Fav
n/a
n/a
19.0
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. Cash tax excludes a $49.4m Dutch exit tax
paid in March 2019 as this was treated as an exceptional item.
Levered free cash flow
Represents amounts of incremental cash flows of the Group
after it has met its financial obligations (after interest and lease
repayments) and is defined as unlevered free cash flow less
cash interest and lease repayments.
Rounding
Due to rounding, numbers presented throughout this
document may not add up precisely to the totals provided;
however, growth rates are calculated based on precise
actual numbers.
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The Board adopts a measured and disciplined
approach to managing risk
The Audit and Risk Committee supports the Board by
overseeing the Group’s risk management framework,
evaluating its principal and horizon risks, and assisting
the Executive Management team with developing and
implementing the operational plans required to strategically
manage those risks.
The emerging and principal risks facing the Group are
monitored and reassessed on an ongoing basis, including
horizon planning, aided by continuous dialogue between
the Board and management. In monitoring the risks facing
the Group, the Audit and Risk Committee identify five broad
categories of risk which encompass 26 specific individual risks.
The Board recognises that risk is embedded in all business
decisions it makes. In determining whether a risk is appropriate
to take, the Board considers a number of factors, including
the gravity and probability of the risk, as well as the potential
impact it could have on the Group’s reputation or extent it may
conflict with its core values. Following this assessment, the
Board reviews the adequacy of the controls and contingency
plans in place to manage those risk events. Where necessary,
the Board will direct changes to be made to the Group’s
controls and contingency plans.
Steering committees comprising members of the Executive
Management team regularly meet with both internal and
external subject matter experts to monitor, review, and
evaluate the risk prevention and mitigation plans. Periodic
updates are provided by management to the Board on the
progress in executing those plans.
The Board categorises risks facing the Group in terms of
those which are emerging and those which are imminent.
Imminent risks require immediate and special attention from
the Board and management. During the year, the Group faced
two such events: first, when a third party attempted to attack
Avast’s internal network, and second, when Mozilla, Opera
and Chrome temporarily removed several of the Group’s
browser extensions from their stores due to rules which they
considered to have been breached. More details in relation
to these events are set out below.
In September 2019, we identified suspicious behaviour
on our network, prompting an immediate and extensive
investigation. A steering committee was established to
manage the situation and the Board was regularly updated.
We identified that a third party had infiltrated our network,
with a view, we believe, to targeting the supply chain of the
CCleaner business. A series of additional security measures
were immediately taken to ensure the integrity of the Group’s
build environments and the security of its data and network.
While the Group did not find evidence that its customers
and users had been compromised, it nevertheless would
develop a new build environment for its products, and
implement a host of new security processes to protect its
network and data. We also hired a third-party forensics adviser
to better understand the profile and activity of the attacker.
Throughout the incident, we collaborated with the Security
Information Service (BIS), which is the Czech government
counterintelligence agency which has responsibility for
identifying activities by foreign powers and their agents in
the Czech Republic. While Avast was not legally required to
disclose the attack, it decided to announce the attack to its
users online for the purposes of full transparency, and in an
effort to promote wider industry collaboration.
In December 2019, Mozilla, Opera, and Chrome suspended
four of the Group’s browser extension products from their
stores based on the manner in which Avast collected and
used browsing data from users through the products.
Management promptly notified the Board of this development
and investigated claims by the store owners that the collection
methods did not comply with store rules. The Company then
modified its practices after which the browser extensions
were readmitted to the Mozilla, Opera and Google Chrome
stores. In response to this incident, the Group took two actions:
first, additional procedures were put in place to ensure that
store rules are subject to increased internal scrutiny in future;
and second, the Board undertook an in-depth review of the
Group’s data handling practices. Following this review, the
Board decided to immediately discontinue the data feed
provided by the Group to Jumpshot, Inc., its data analytics
business. The decision to terminate the provision of data to
Jumpshot was made in the best long-term interest of the
Group and its shareholders. While we believe that the Group
acted in accordance with privacy regulations and strived to
implement responsible privacy practices, the Board decided
the data collection business was ultimately incompatible with
the Group’s core security mission. In order to implement a
swift and orderly wind down of the Jumpshot business,
Avast repurchased the entire 35% equity interest held
by Ascential plc in Jumpshot. The Board expects to have
substantially completed the wind down of Jumpshot by the
end of 2020. Further details of the risk management and
internal control systems are included in the Audit and Risk
Committee Report on pages 74 to 79.
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The Board has identified five principal risks facing the Group, which remain broadly unchanged from last year.
The risks fall into the following categories:
Description
Movement
Impact
Strategy
If we do not offer products and services that appeal to users,
our free user base may materially decline and/or we will fail to
monetise our products and services.
Our strategy to address this risk and achieve long-term strategic objectives
is to invest in product innovation, product management, quality assurance,
and customer care.
Offering
The risk is that our product and
service offerings stop appealing
to users.
People
The risk is talented people leave or
do not join our workforce.
If we cannot attract or retain a talented workforce, we will not
remain competitive in our industry.
We believe we need to create an exciting brand; provide attractive and
internationally competitive compensation; provide our people with global
mobility; recruit from a broad pool of candidates; promote based on
diversity of backgrounds, skills, cultures, gender, and ethnicity; and provide
effective training for personal and professional growth in order to achieve
long-term strategic objectives.
We strive for strong, effective, and comprehensive data and systems
security and governance. As a result, we have implemented a host of new
security processes and measures to protect the data we store, the systems
that store such data, and the updates we provide to provision our products
and services. We develop products and services designed for security and
privacy, and believe this helps us maintain an ethical culture in which people
are concerned about and committed to securing and protecting data.
Data and our security systems
The risk is that the data we store,
such as customer data, and the
systems that store, manage,
and process this data
become compromised.
Failing to protect the data we store and the systems that store
this data could have a material adverse impact on our reputation,
and our ability to provision services and updates, potentially
resulting in a material decline in our user base, negative
financial consequences, and investigations, fines and censure
by governmental and regulatory bodies.
Regulatory
We operate a digital business
globally, and the scale and
complexity of new laws, including
regarding data protection,
auto-renewal billing, and tax,
are increasing as the digital
economy becomes the backbone
of global economic growth.
Concentration
Our products rely on our users being
able to easily find and install them.
New laws may impose restrictions and obligations on the Group
that negatively impact the Group’s profitability and ability to grow.
We monitor global legal developments and participate in
industry-wide lobbying.
We face exposure and risks from large vendors, such as Microsoft,
Google, Apple, Facebook, Digital River, and telecommunication
carriers, who may take actions that restrict our users from being
able to access and use our products.
We develop deep partner relationships with these vendors; however, we
continually seek out additional strategic partnerships and growth through
organic initiatives.
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Viability statement
The Directors have assessed the viability of the Group over
a three-year period, taking into account the Group’s current
position and the potential impacts of the principal risks
documented on pages 49 to 50 of the Annual Report.
Based on this assessment, the Directors confirm that they
have a reasonable expectation that the Group will be able
to continue to operate and meet its liabilities over the next
three years, through to 31 December 2022.
The Group annually prepares, and updates on a rolling basis,
a three-year strategic plan, whose foundation is the more
detailed one-year budget (also prepared annually for review
by the Board). The output of this three-year plan is used to
perform debt and associated covenant headroom profile
analysis, which includes sensitivity to business-as-usual risks
impacting EBITDA.
Following assessment of the planning process, the Directors
have determined that three years is an appropriate period
over which to assess the Group’s viability. Progress against
the strategic plan is reviewed regularly by the Board through
presentations from senior management on the performance
of their respective business units. While the Directors have
no reason to believe that the Group will not be viable over
a longer period, the period of three years has been chosen
as this matches the term of the majority of the Group’s sales
(typically one to three years in duration, with a weighted
average contract life of around 14 months) which therefore aids
the accuracy of planning with a single renewal cycle, thereby
providing a greater degree of certainty over the forecasting
assumptions used and, in the view of the Directors, still
provides an appropriate long-term outlook.
In making this viability statement, the Board carried out a
robust assessment of the principal risks facing the Group,
including those that would threaten its business model,
future performance, solvency, or liquidity. The strategic plan
has been tested for a number of scenarios which assess the
potential impact of severe but plausible risks to the long-term
viability of the Group. The scenarios, and their effect on
EBITDA and on the ability to meet financial covenants, were
considered both individually and in combination.
The scenarios responded to the principal risks facing the
business as well as considering the potential impact of Brexit.
They included reductions in certain revenue streams, forex
volatility and new initiatives not materialising. The scenario
with the most significant individual impact was a sustained
mid-single digit year-on-year decline in revenues from the
Consumer Desktop business.
The Directors reviewed and discussed the process undertaken
by management, and also reviewed the results of reverse
stress testing performed to provide an illustration of severe
contraction in revenue of the largest business unit, that would
be required to break the Group’s covenants or exhaust all
available cash. The process of identifying, assessing, and
managing principal risks is set out above in this section
on pages 49 to 50. The Directors consider that this
stress-testing-based assessment of the Group’s prospects
is reasonable and the Group’s business model has proven
to be strong and defensive in the long term.
Additional considerations
Evolving consumer security industry
The Board believes that the consumer security industry is
becoming more competitive and complex, in particular the
gradual dominance of Microsoft’s Windows Defender antivirus
solution. The Board considers that the evolution of the
consumer security market could potentially pose a material risk
to the Group’s future performance, including the risks outlined
under the Offering and Concentration categories listed above.
The Board and management regularly monitor these risks,
and implement strategies to protect the Group’s business.
Brexit
Following the UK’s withdrawal from the European Union
(Brexit), the Directors have continued to keep under
consideration the impact of Brexit on the Group. The Group
operates internationally with a diverse geographic spread.
While negative downward pressure on sterling post-Brexit
may negatively impact the USD functional results of the Group,
the impact is mitigated by the fact that only 9% of our global
billings are sourced in either the UK or in sterling. The exact
nature of the trading arrangements between the UK and
the EU following the UK’s withdrawal from the EU currently
remains uncertain and as a consequence the Directors have
considered a number of scenarios and the Group’s potential
responses to them. This scenario planning has included
anticipating changes to the operations of the Group and its
supply chain, which are not considered to be significant or
pose a heightened risk to the Group. The impact of Brexit on
the current and future employees has also been considered
and while there may be some disruption or changes in the UK,
these are not currently anticipated to materially affect one of
the Group’s principal risks, the recruitment and retention of
key personnel.
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51
Avast is proud of its involvement with
communities through a wide range of
philanthropic and charitable activities.
These activities fall into areas that are
related to the Company’s core business
areas of cybersecurity and technology,
as well as other important social causes.
Driven by our values
Avast’s values inform our approach to doing business. They underpin our employee
relationships with each other, the communities we are part of, and our stakeholders.
Customer comes first
Think big
No BS, ever
Give back
Social Responsibility
Framework
The Company is involved in a wide range of philanthropic and charitable causes,
both related to its core business areas of cybersecurity and technology, as well as
other social and community-related activities.
Engaged people
1
We believe that Avast’s culture
and its people are among our
competitive advantages.
Thriving
communities
Our commitment to social responsibility
starts with the way we do business,
but it doesn’t end there.
2
3
Environmental
stewardship
Avast is committed to operating in an
environmentally responsible manner
and reducing its overall environmental
impact, practising good stewardship, and
mitigating any negative environmental
effects that may stem from our global
business operations.
These three parts of our framework are explained in more detail on the following pages.
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“ We are building a world-class
people experience to attract, grow
and retain a diverse and talented
team of colleagues.”
Rebecca Grattan
Chief People and Culture Officer
1
Engaged people
We believe that Avast’s culture and its people are among
our competitive advantages. Our employees, who work
daily to keep more than 435 million users safe online, are
passionate, talented, and dedicated. Avast works hard to
build and maintain workforce engagement by empowering
our employees with opportunities to grow and develop
themselves, while contributing to Avast’s success.
In 2019, we took the opportunity to revisit the way in which
we articulate our culture. We believe that four Values best
express who we are today and what we stand for. These four
Values together with a set of Behaviours that we are still in
the process of developing will be incorporated into a Culture
Book that we intend to publish in 2020 following a wider
consultation with employees.
Employee engagement
Engaged employees feel strongly connected to the Company
and its mission, customers, and social purpose. They put in
discretionary effort, work diligently to advance the Company’s
strategy and goals, and are committed to promoting the
Company as an employer and a brand.
Avast’s Your Voice survey tracks employee engagement
year over year, providing insights into areas for improvement
that will help to raise employees’ sense of connection and
commitment to the organisation. At the end of 2018, our
engagement was 64%. Across the organisation in 2019,
actions taken in response to the survey included refining
structures within departments to better support strategic
initiatives and goals, instituting broader reward and recognition
programmes, putting in place programmes for high-potential
employees, and establishing the Avast Careers programme
to encourage and support internal mobility and career growth
within the organisation.
Customer comes first: our customers (free and paid) are central
to everything we do. We take the time to deeply understand
their needs, and take their views into account when deciding
what functionality we build, how our interfaces look, and how
we package and price our solutions.
After a year of change, including the appointment of
Ondrej Vlcek as CEO and the addition of new members
to the Executive Management team, Avast’s 2019
employee engagement, measured in December 2019,
was 73%, a 9% increase over 2018.
Think big: Avast is committed to innovation. This year,
we made a significant increase in investment in innovation
and we expect to continue to grow our investment in 2020.
No BS, ever: we have no room in our company for politics or
excessive bureaucracy. We embrace constructive honesty and
candour, and our decisions are data-driven and fact-based.
Give back: we believe in giving back to the communities where
we live and work. In 2019, we made substantial contributions
through the Avast Foundation to innovative programmes in
the areas of palliative care, early childhood intervention, and
innovative education. We also provided financial support
to more than 80 projects nominated by our employees
and coordinate many different community volunteering
opportunities for our people.
Avast will continue to measure employee engagement
annually at the end of each year to track our progress and
set priorities and a roadmap for continued improvement in
the following year.
Board involvement
Our Board plays an active role both in relation to the
relaunching of our corporate culture and in monitoring and
managing workforce engagement. We make regular reports
to the Nomination Committee or Board on the continued
progress of our corporate culture initiative, including the
employee consultation process. The Board has assigned
to the Nomination Committee responsibility for measuring
compliance with the culture once the Avast Culture Book has
been finalised. In the area of workforce engagement, one of
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our directors, Company co-founder Pavel Baudis, has taken on
the role of Designated Non-Executive Director for Workforce
Engagement. In that capacity, Mr Baudis visits our offices to
meet with employees and address their concerns. In 2019,
Mr Baudis visited our London office and in January
and February 2020, he visited our Brno, Belgrade, and
Zilina offices. Mr Baudis will provide his insights and any
recommendations to management and to the Board,.
Benefits philosophy
Our compensation and benefits are tailored in each market
to attract and retain the best employees. At the same
time, Avast strives to maintain a consistent Company-wide
approach to work – life balance and flexibility, participation in
opportunities such as the Avast Foundation’s Together with
Employees programme and the Employee Share Matching
Plan, and learning and development opportunities. We aim
to create comfortable working environments where
employees are recognised and rewarded, have opportunities
to develop, and are enabled to contribute their best work to
the Company’s success.
Avast Careers
We strive to be the best place for our people to grow, offering
an environment that nurtures talent and rewards achievement.
The 2018 employee engagement results revealed that
our employees sought more opportunities for personal
and professional development and were eager to identify
pathways for growing their careers at Avast. To support this,
we launched programmes for high-potential employees in
order to give them additional exposure to senior management
and to empower these ambitious leaders to take on greater
responsibility and challenges. A total of 24 employees have
participated thus far, and the programme will continue.
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Working together
Great environments spark creativity
and collaboration. Whether in London,
Prague, Emeryville, or elsewhere,
our offices are designed to enable
our people to do their best work.
People and corporate social responsibility Strategic report Governance Financial statements
Avast annual report 2019 54
Additionally, in February 2019, we launched the Avast Careers
internal mobility programme. Through the programme, internal
vacancies are regularly shared with all employees, along
with content encouraging applications, and success stories
of individuals who have moved into new roles as part of their
career journey. Because internal mobility forms part of our
broader professional development framework, all internal
applicants have the opportunity to speak to our Recruitment
and HR teams about their suitability for the role and to be
interviewed by the hiring manager. Those who are not
successful in their application receive valuable feedback as
to how they can develop themselves towards similar roles
in the future and gain access to existing learning and
development resources to help them grow.
Since the programme launched, 224 individuals have applied
for internal vacancies. Of those who have applied, 109 have
successfully moved into new roles (57 into higher positions and
44 laterally), and another 13 are still in the application process.
In addition to supporting employees’ career goals and
encouraging engagement, the internal mobility programme
helps to fill important roles with employees who are invested
in the Company’s success and already a good fit for the
Company and culture. It helps to develop individuals who
have a greater understanding of the business as a whole,
and to break down silos between teams.
Learning and development
The fast pace of changes on the outside continues to bring
new challenges our leaders have to be prepared to meet.
That’s why we put a substantial effort into developing our
people at all levels of the organisation and provide them
with the skills and knowledge they need to lead their teams
to success and to make an impact on our business.
Throughout 2019, 56 leaders in Europe and 25 leaders
in the US have participated in the senior management
development programme launched at the end of last year
and aimed at developing their leadership skills and
improving their ability to lead self-regulating teams.
At Avast, we place a great importance on the ability of our
people to operate with a growth mindset, in line with our core
Company Value of ‘thinking big’. That’s why we encourage
employees to participate in trainings that develop not only their
technical acumen but also soft and interpersonal skills. To that
end, we have run a total of 57 sessions across Europe and the
US attended by more than 1,000 people.
Our virtual university, developed in partnership with Coursera
and launched in 2018, allows employees to choose from a rich
offering of both technical and soft skills curriculums regardless
of their location. More than 500 people have enrolled in an
online course and taken the opportunity to develop their skills
in their chosen area at their own pace.
Recognising that diversity is an important part of our culture
and a driver of our future growth; we encourage our people
in their language education to enhance their ability to
understand and nurture intercultural differences within
Avast. More than 360 students enrolled in the language
classes with nine languages on offer.
In Q4, we have laid a foundation to a comprehensive
mentoring programme, sponsored by our CEO Ondrej Vlcek,
to be launched in 2020. Through the programme we aim
to connect experienced, senior executives and leaders as
mentors with high-potential individuals within the organisation.
Awards and recognition
In 2019, Avast ranked second in the Top 5 Tech Employers in
the Czech Republic, based on an independent survey of over
10,000 university students and recent graduates. Avast also
ranked as the sixth most attractive Czech employer, according
to the 2019 Randstad Awards, which looks at the country’s
largest 150 employers in the private sector based on a survey
of nearly 5,000 individuals from the general public.
Diversity
Diversity of thought is an important cornerstone of innovation
and creativity. At Avast, we recognise that our customers are
best served by a workforce that is both diverse and inclusive,
where people from many backgrounds hold a variety of
viewpoints that they feel comfortable advancing to the benefit
of the Company, our customers, and our stakeholders. Our
Code of Conduct states our commitment to creating respectful
and inclusive workplaces in which all employees can thrive,
regardless of their background or identity, and our Diversity
and Recruitment policies ensure that we apply best practices
in hiring diverse talent and providing equal opportunities for
learning and development and career advancement to all
our employees.
We believe attending to diversity in leadership will help
us attract the best talent, bring us closer to our customers,
and build an increasingly diverse, inclusive, and innovative
workforce over time. In 2019, we have focused on gender
diversity, although Avast strongly believes that diversity
is broader than gender and that fostering an environment
of inclusion for all types of people is critical to building the
workforce of the future. Our CFO Phil Marshall has been
appointed to be our executive sponsor for diversity and to
define and set our goals in this area.
In 2019, we added two experienced women leaders to
our Board of Directors, Maggie Chan Jones and Tamara
Minick-Scokalo, demonstrating our dual commitments to
improving the ratio of women on our board and to filling our
leadership ranks with a qualified team bringing to bear a
variety of industry experiences and backgrounds to guide
the company. In 2019, we also added a new Chief Information
Security Officer role to the Executive Management team in
recruiting to the Company Jaya Baloo, an industry-recognised
CISO at the top of her game. She is well-known for her work
in the telecommunications industry, and brings a wealth of
experience in developing and implementing best practice
security. She also lectures on quantum computing at the
Singularity University.
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As of December 2019, across our 20 global offices, we have
people from over 49 nationalities, with the population in the
headquarters representing over 50 countries. Our employee
population at the end of December 2019 is 27% female and
73% male.
Within the technology industry, and specifically within
cybersecurity, gender disparities remain. Avast engages
on the issues of women and diversity in tech in multiple ways.
We have continued to work with organisations taking direct
steps to bring more women and girls into tech. For instance,
in the UK, we have partnered with the organisation Learning
People, whose mission is to make education and entry into the
tech sector accessible to people of all backgrounds. We have
also joined the Learning People’s Advisory Board, which aims
to open opportunities in the tech industry to more people of
all backgrounds and to establish a better understanding of the
skills required by IT companies in order to help close the gap.
We have also had our women leaders speaking at public
events, for example, our CMO, Robin Selden spoke on
career planning at the Women in Business forum in the UK
and our new CISO, Jaya Baloo, spoke at an Avast women’s
networking event at London’s Science Museum. These are
just a few avenues for using our platform to promote the
importance of diversity and the visibility of women within IT
generally and cybersecurity in particular. We work to highlight
the achievements of our women engineers and researchers
through profiles on our Avast blog, speaking engagements,
and participation in events that target women and girls in the
tech sector.
Unique perspectives. Universal commitment to
making the world a safer place.
To carry out our mission, we need a diversity of thoughts,
backgrounds, and perspectives. These differences trigger
bold ideas and collectively make us grow. That’s why we
value and nurture each person’s unique talent.
At Avast, everyone plays a role in creating an environment
where people feel respected and free to be who they are.
We embrace our differences to create a workplace as
colourful as the world we are protecting.
Employee category*
Men Women
% Men % Women
Board gender diversity
Executive management**
gender diversity
9
11
3
1
Staff gender diversity***
1,315
477
75%
25%
91%
73%
9%
27%
* Numbers as of 31 December, 2019.
** Members of the Executive Management team. (This excludes Board
members.) As at the date of this report, executive management has two
female members, resulting in women making up 15% of the team. More
details in relation to the Group’s efforts to increase diversity can be found
on page 54.
*** Employees excluding the Executive Management team.
“ We are focused on creating the
right environment at Avast for
everyone to succeed.”
Zuzana Janeckova
HR Business Partner
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“ Educating school children about
how to keep safe online is the
best part of my job.”
Julia Szymanska
Corporate Social
Responsibility
Specialist
2
Thriving communities
Creating social value wherever we do business
Our commitment to social responsibility starts with the way
we do business, but it doesn’t end there. We create social
value through our engagement with communities, support
for social causes, and the personal dedication of our
employees to making the world a better place. The Executive
Management team ultimately bears responsibility for ensuring
that all staff have access to and are able to comply with the
policies that govern our business practices and our approach
to the communities in which we operate and to which we
are connected. Our Code of Conduct documents these
principles, and ensures that all Avast employees, contractors,
and those doing business on our behalf are aware of and
follow these commitments.
Respect for human rights
Avast deeply respects and upholds the principles of human
rights in line with international standards, such as the United
Nations Guiding Principles on Business and Human Rights
(UNGP), the Universal Declaration of Human Rights (UDHR),
and the International Labour Organization Declaration on
Fundamental Principles and Rights at Work (ILO Declaration).
Our commitment to human rights is reflected in our business
practices, charitable outreach, and community engagement,
and is documented in our Code of Conduct and related
corporate policies: Suppliers’ Guidelines; Sanctions,
Anti-Money Laundering and Counter Terrorist Financing
Policy; Whistleblowing Policy; Avast Grievance Procedure;
Avast Recruitment Policy, and Modern Slavery Policy.
Transparency and anti-corruption
We do not tolerate corruption or bribery in our business
operations and have policies in place to disclose and mitigate
all potential conflicts of interest. Our commitment to these
principles is outlined in our Code of Conduct, Anti-Corruption
Policy, Related Party Transactions Policy, and Conflict of
Interest Policy.
Avast Foundation
The Avast Foundation is the primary vehicle for Avast’s
charitable outreach, and Avast directly funds the Foundation’s
annual operating budget. Working through partner
organisations to develop and implement programmes in
five strategic categories, the Foundation has been recognised
as one of the most innovative and respected charitable
foundations in the Czech Republic.
Together until the end: focuses on implementing systemic
changes in end-of-life care.
Start together: empowers disabled children and supports
families of disabled children to live full lives and access
appropriate resources and services.
Learn together: aims to improve educational systems,
bringing modern and relevant practices to the classroom,
and supporting Avast’s aim to cultivate the next generation
of cybersecurity experts.
Together with trust: works with local community
organisations that are enriching people’s lives in education,
sports, the arts, and more.
Together with employees: extends the Foundation’s reach
globally, by providing grants to charitable projects nominated
by employees in any of our global offices. Members of
the Avast Foundation Board of Trustees and employee
representatives awarded grants totalling $227,000 to
131 organisations in 2019.
In addition to these programmes, Avast directly or through the
Foundation routinely supports a variety of other causes in the
arts, human rights, and humanitarian efforts.
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“ In 2019, we expanded the
Foundation’s work into new areas
aligned with employee interests.”
Martina Brenova
Director of Programs
and Development,
Avast Foundation
Bud Safe Online
Bud Safe Online (Be Safe Online, BSO) is a non-commercial
educational outreach programme aimed at children
aged 9 to 13. Originally begun by Avast employees as
an experimental, voluntary project, BSO has grown into
a widely respected and well-recognised educational
campaign across the Czech Republic. Combining Avast’s
cybersecurity experts, original research into how children
engage online, and the social media presence of YouTuber
Jirka Kral, a popular gamer/influencer among Czech
children, the campaign engaged more than 3,000 children
at 22 school-based events in 2019. The BSO Instagram,
Facebook, and YouTube channels, all of which publish
original content about online threats and safety tips that are
relevant to children and parents, have over 34, 000 total
followers, while the BSO blog promotes content for parents
and teachers.
As the campaign has gained traction among students,
it’s also been widely recognised for its creativity and
impact. In 2019, BSO garnered several awards in the
Czech Republic, including the Sustainable Development
Goals Main Award in the Business category; third place in
the 2019 Internet Effectiveness Awards in the Non-profit/
Community sector; 2019 Bronze Medal at the Czech Effie
Awards; and first place at the WebTop100 Awards.
Together with employees
One of the key ways in which the Foundation directly
engages Avast employees is through its ‘Together with
employees’ programme, in which Avast employees have
the unique opportunity to direct a part of the Foundation’s
funding toward a cause that they support. All employees
are eligible to nominate an organisation, and organisations
based in any country in which Avast has an office are
eligible to receive funds, including organisations which
support projects overseas in countries where Avast does
not operate. In 2019, 139 projects by organisations in the
Czech Republic, Germany, Serbia, Slovakia, the UK, and the
US were supported.
Together with: Leonora Fleming, PR Manager
(Redwood City, US)
Leonora’s involvement with the She’s the First organisation
goes back to her college days. She’s the First is a non-profit
fighting gender inequality through education. It supports
girls who are the first in their families to graduate high
school across 11 low-income countries and trains students
across 200+ campuses to be global leaders.
“I’ve been involved with She’s the First since my
sophomore year of college, when a group of classmates
and I established the non-profit’s third college chapter
shortly after its founding, holding numerous volunteer roles
out of the organisation’s headquarters.
“Today, STF is represented on more than 200 college
and high school campuses worldwide, a true testament to
the drive of its team, the success of its model, and global
importance of its mission. I’ve learned so much about
gender inequality through my work with this group, which
directly translates to the corporate social responsibility
initiatives my team is working on here at Avast (i.e. Girls
Who Code partnership in Redwood City and volunteer
workshops that create pathways for young women
entering the male-dominated field of cybersecurity).”
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“ Aligning culture to strategy is a
priority at Avast, and the foundation
for building high-performing teams.”
Paul Yung
VP Products, CCleaner
Social and community engagement
The Board and Executive Management team support
and champion employee-led efforts to give back to their
local communities.
In 2019, this included a long standing tradition to raise money
for the Movember Foundation in Czech Republic as well as the
beginning of a new cooperation with the Demelza Children’s
Hospice in London. Avast has been the most generous donor
to the Czech Movember Foundation for the last four years,
with 46 employees participating to raise money – including
from our Board members and executives – for programmes
that support men’s mental and physical health and address
the serious issues of suicide and cancer.
Our cooperation with Demelza Children’s Hospice began
through CEO Ondrej Vlcek’s donation of his director’s fee
to the UK charity, and has grown through a volunteering
programme with Avast’s London-based employees.
Two groups of employees participated in gardening and
warehouse organisation activities to support the hospice
during the autumn of 2019. Additionally, the London team
changed their traditional ‘Secret Santa’ activity around the
Christmas tree into a ‘Giving Tree’ opportunity where each
employee picked one or more labels of items needed by
Demelza for the children from the tree and purchased
those items as gifts.
Education
Cybersecurity awareness and education are clearly critical
skills for the future, and the industry needs a strong pipeline
of motivated, talented young people who are ready to address
the challenges of security, online safety, and privacy – both
in their own lives as well as through their careers. Avast
supports cybersecurity education and research, introducing
young people to the cybersecurity sector through a variety
of initiatives.
In the UK this year, Avast participated as a principal sponsor
of a new exhibition at the Science Museum, London, called
‘Top Secret: From Cyphers to Cyber Security’. This exhibition
celebrated 100 years of GCHQ which was founded to establish
excellence in security and, today, oversees cybersecurity.
Running from 9 July 2019 through to 23 February 2020,
visitors learn about the history of code breaking, security today
including IoT threats, and the future of cybersecurity through
quantum computing and AI enhancements. The goals of the
exhibition are to educate the general public on the importance
of securing their devices and homes, and to inspire people to
consider a career in cybersecurity, which complement Avast’s
own activities in the UK.
Academic and research collaborations: advancing basic
research in malware detection, AI, and IoT technologies is
a priority for Avast. To that end, we cooperate closely with
research and academic institutions through both direct
collaboration and research funding. In 2019, we continued
to work with long-time partners at Stanford, the University of
California Irvine, Berkeley, and the Czech Technical University
(CTU), among others. We continue to advise the University of
California Irvine Cybersecurity Policy & Research Institute,
and sponsored the UC Irvine high-school cybersecurity
curriculum programme, aiming to educate our cybersecurity
experts of the future.
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Our long-standing collaboration with the CTU has been
extended in 2019 through the establishment of a joint
laboratory between the institutions. Through the Avast
AI and Cybersecurity Lab (AAICL) at CTU, Avast will fund
applied research in AI and machine learning in the context of
cybersecurity with a $1 million investment over five years.
The AAICL is expected to deliver groundbreaking research in
AI and cybersecurity, to help advance the technology behind
Avast’s threat detection engine, and to serve as a model for
further fruitful collaboration between industry and academia in
critical research areas.
Coding for kids: Avast has continued its partnership with
MakeITtoday, a woman-owned Czech organisation providing
coding courses for children aged 8 to 12, with subsidised
courses for children of Avast employees held in the Prague
and Brno offices. We have also provided a donation to
subsidise courses at the International School of Prague (ISP),
one of which was just for girls. Parents of participants in these
ISP courses paid an additional nominal fee to MakeITtoday to
support the organisation’s ability to educate students outside
of ISP without the ability to pay in full.
In the Czech Republic, we have a long-standing partnership
with Czechitas, a woman-led non-profit offering courses for
children and for women re-educating themselves to enter
the IT sector mid-career. We have partnered with them to
create courses, provide mentorship to students, and to create
a recruitment pipeline. In the US, we run Cyber Pathways
workshops in coordination with after-school programmes
and clubs such as Girls Who Code, to introduce high school
students to careers in cybersecurity. These events include
practical challenges and hands-on hacks prepared by Avast
threat experts, as well as discussion and presentations by
some of Avast’s leading technical women. Our Slovak office
in Zilina participated in the national Girl’s Day event, which
encourages businesses, especially in the IT sector, to host
young women in the offices for a day to help them learn more
about what it’s really like to work within the tech industry.
3
Environmental stewardship
Avast is committed to operating in an environmentally
responsible manner and reducing its overall environmental
impact, practice good stewardship, and mitigate any
negative environmental effects that may stem from our
global business operations. We have appointed Jaya Baloo,
CISO, and Michal Pechoucek, CTO, as joint executive sponsors
of our ESG (Environmental, Social & Governance) programme
to advise us on how we can reduce our carbon footprint and
help the planet.
Our primary impact on the environment comes from the
office facilities in which we house our employees and our
data centres. Avast’s two largest offices, located in Prague
and Brno, Czech Republic, are both housed within BREEAM
Excellent certified buildings. These two offices hold over
50% of Avast’s employee base. Our operations in these offices
are PET-free, and the buildings are equipped with waste
separation, recycling programmes, light and climate control
to reduce energy consumption, and in Prague, chargers for
electric vehicles, with dedicated parking allotted to those
employees who drive electric vehicles.
With respect to our data centres, in 2019, Avast primarily used
infrastructure in 12 data centres located in the US and Europe,
while using some Amazon Web Services and smaller data
centre capacity as needed. Of our 12 primary data centres,
seven operate on green energy only. Six of these are Equinix
data centres; Equinix is committed to sustainability and is
a leading provider of data centre services that are run on
renewable energy and green by design.
We continue to identify and implement incremental changes
to reduce our environmental impact.
Greenhouse gas calculation
The Avast operations that primarily release greenhouse
gases (GHG) include electricity consumption at our leased
offices and data centres in which we have owned hardware.
Our 2019 data covers our leased office premises worldwide.
Calculations for office space were based on known data
from our offices in Prague and Brno, Czech Republic; Zilina,
Banska Bystrica, Poprad and Bratislava, Slovak Republic;
London and Maidenhead, UK; and Emeryville and Charlotte,
US, accounting for 95% of known data. The other 5% was
extrapolated as an average for each office based on the
known data. Calculations for our data centres were based on
actual electricity consumption for those data centres in which
we have owned hardware and for which we pay directly for
energy consumption and on maximum allowable consumption
for data centres in which we pay for consumption up to a
certain limit. Rented data centre infrastructure is considered
out of scope.
Calculations were made according to the Greenhouse Gas
Protocol Corporate Standard, using the UK Government’s
DEFRA conversion factor guidance for 2019.
Scope
Scope 1
Usage of fuel and operations
of buildings
Scope 2
2019 tCO2e
2018 tCO2e
14.5
4.0
Emissions from electricity
2,549.4
2,497.5
Total (Scope 1 and 2)
Intensity ratio (tCO2e/m$
adjusted revenue)
2,564.0
2,501.5
2.94
3.02
* recalculated base on additional data obtained after reporting day.
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Stakeholder
engagement
Avast operates in a fast-moving, complex
industry, which involves engagement with a
rich network of stakeholders based all around
the world.
The Board understands that its relationships with these
stakeholders are dynamic, and that its stakeholders’ interests
may change over time. In response to this, the Board keeps
itself apprised of its key stakeholders’ interests through a
combination of both direct and indirect engagement.
The Board has regard to these interests when discharging
its duties. The Board has identified its key stakeholders as
its customers, shareholders, employees, suppliers, and the
communities in which it operates.
This section describes how the Board engages with its key
stakeholders, and how it considers their interests when
making its decisions. Further, it demonstrates how the Board
takes into consideration the long-term impact of its decisions,
and its desire to maintain a reputation for high standards of
business conduct.
Customers
Shareholders
The customer comes first
Avast is a customer-centric business, which operates on the
principle that the customer comes first. Customer loyalty
is important to the business, and therefore the Board has
particular regard to the long-term impact its decisions have
on customers.
Frequent feedback
The Board receives regular reports from management
based on market trends and customer feedback. The Board
encourages the business to maintain multiple channels and
methods of communication with customers to engender a
meaningful and honest dialogue, including customer
surveys, customer telephone support, social media,
and company-run forums.
Reconciling interests
The Board is responsible for approving material business
transactions and key strategic changes. Prior to making
these decisions, the Board considers the potential impact on
customers. The Board is mindful of the fact that counterparties
to commercial and corporate transactions may have conflicting
interests to Avast, some of which may not be beneficial to the
Group’s customers. The Board considers if, and how, these
divergent interests can be reconciled. If the Board is not
comfortable that these issues can be addressed satisfactorily,
it will not grant its approval.
Equitable treatment
The Board’s primary objective in exercising its duties is
to promote the success of the Group for the benefit of its
shareholders as a whole. The Board is mindful of treating all
shareholders fairly, and this involves ensuring that decisions
are made for the collective good rather than in the interest
of a small number of large shareholders.
Open dialogue
As described in more detail on page 71, the Board spends a
considerable amount of time engaging with shareholders
to understand their interests and any concerns they may
have. As part of this effort, the Chairman holds meetings
with shareholders throughout the year, and the Board solicits
feedback from the Company’s major shareholders in advance
of making decisions that will materially impact the Group.
A more rigorous approach
The Board understands that shareholders place great
importance on the Group having a robust corporate
governance framework in place. The Board has developed its
corporate governance practices during the year in response
to the evolving needs of shareholders and to build on the
framework implemented at the time of the Company’s listing in
May 2018. More details of the Group’s corporate governance
framework can be found on pages 68 to 73.
Equally, shareholders are taking a deeper interest in
the social and environmental impact of the businesses in
which they invest. As discussed elsewhere in this section,
the Board is committed to being a responsible corporate
citizen and having a positive impact on the communities in
which it operates. The Board listens to the issues that are
important to its shareholders when shaping its focus on
fulfilling this commitment.
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61
Employees
Suppliers
Communities
Key to our strategy
Avast’s employees are its biggest asset. Maintaining a happy
and engaged workforce is key to the Board’s strategy to attract
and retain top talent in the technology industry. More details
on the Group’s efforts in relation to this can be found on
pages 51 to 55.
Taking the pulse
Avast’s employees are passionate about protecting customers’
digital lives, and they truly value being consulted on the
Group’s decisions. While the Board cannot directly consult with
employees on all decisions it makes, it apprises itself of their
opinions in a variety of different ways. Page 63 sets out in more
detail how the Board engages with employees, including via its
dedicated Employee Engagement Director, Pavel Baudis.
Careful decision-making
The Board understands that any decisions it makes may
impact employees’ performance, engagement, and work
satisfaction. The Board has made monitoring and developing
corporate culture based on certain key values a key initiative.
The Board is mindful that any decisions it makes, as well as
the manner in which they are made, will inform the culture of
the business. The Board seeks to lead by example in order to
ensure that high standards of business conduct are maintained
by its employees.
Our people,
page 52
An extensive supply chain
Avast’s success is tied to the performance of its suppliers.
From providers of software to hardware, from landlords to data
centres, Avast’s supply chain plays an important part in its
mission to protect the digital lives of its customers. Avast aims
to build mutually beneficial and long-term relationships with
its material suppliers, and the Executive Directors and other
members of the Executive Management team, as appropriate,
engage with material suppliers to understand any risks or
matters of interest relating to the supplier arrangement.
Beyond price
The Board approves and implements policies based on ethical
and legal minimum standards, which it requires the business to
adhere to when engaging suppliers. Suppliers commit to these
standards, including in relation to modern slavery, anti-bribery,
anti-money laundering, privacy, and information security. More
details in relation to these policies can be found on page 56.
The Board recognises in implementing these policies that the
most economic supplier will not always be engaged by the
Group. The Board requires the Group to look beyond price as
the sole factor in choosing suppliers. Key considerations also
relate to whether suppliers pay their workforce a fair wage,
and engage in a lawful and ethical manner.
Maintaining standards
The failure by a supplier to comply with the Group’s standards
may result in the business relationship being terminated.
During the year, the Board approved the termination of a
material supplier relationship on its belief that the supplier
could no longer meet the Group’s minimum standards.
The Board takes into consideration the impact that its
decisions will have on the wider community, including
the example Avast sets as a global leader in the
cybersecurity industry.
The Board takes into consideration the interests of the
communities it impacts through its approach to corporate
taxation. The Group operates a transparent and fair tax policy,
and avoids using contrived tax structures that are intended for
tax avoidance, lack commercial substance, and do not meet
the spirit of local or international law. Avast’s commitment to
being a responsible corporate citizen was recognised by the
Czech government when it was listed as being one of the top
tax payers in the country during tax year 2018.
It is important to the Board that the Group gives back to
the communities in which it operates. The Board considers
these communities when deciding how to allocate the
Group’s capital, and also in determining the corporate culture
it wishes to promote. As part of this, the Company funded
the Avast Foundation with CZK100.0m ($4.4m) for the
year ended 31 December 2019. More details on the Avast
Foundation, and the CSR activities carried out during the year,
can be found on page 56.
The Board also takes into consideration the impact that its
decisions have on the environment. The Board has agreed
with Executive Management that plans will be implemented to
reduce the Group’s carbon emissions, and that any emissions
resulting from the Group’s activities will be offset through
tree-planting initiatives. More details in relation to the Group’s
carbon emissions can be found on page 59.
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Lenders (material supplier): the CFO engaged
with the Group’s lenders prior to the Group’s
decision to voluntarily pre-pay an additional
$297.4m of its outstanding loan. The Group
maintained a dialogue with lenders in the
debt market throughout the year to keep
apprised of any potential loan repricing
opportunities that may be available.
Customers: the Board took into consideration
the interests of customers in determining
the way in which the Group would seek
to achieve its objectives. Listening to
customers, and understanding their interests
and the trends in the markets, informed the
Board when making decisions about the
appropriate balance between organic and
inorganic growth initiatives.
Below are examples of how the Board took into consideration its stakeholders’ interests when making its principal decisions.
Disposal of Managed Workplace
During the year, Avast sold Managed
Workplace, its remote monitoring and
management software business, to
Barracuda Networks, a leading security,
application delivery and data protection
solutions provider. In considering whether
to approve the transaction, the Board had
regard to the interests of the business’s
shareholders, customers, and employees.
Shareholders: the Board believed that the
transaction was in the best interest of its
shareholders. The Board determined that
the price paid for the business was fair, and
that the resulting capital could be allocated
more effectively. The Board also believed
that exiting the remote monitoring and
management market would allow Avast
to focus on developing its core security
business, something which would be
beneficial to shareholders over the long
term. Shareholders had shared the view
that management should take appropriate
action regarding low-yielding assets, and the
rationale for this divestment aligned with
that sentiment.
Customers: the Board knew that its
customers would want continuity of service
following the disposal, as well as assurances
that a high quality of service would be
provided under new ownership.
The Board was satisfied that the transition
services agreement entered into between
Avast and Barracuda would ensure
continuity of service for a period of time
following closing, and it was confident that
Barracuda would be an excellent partner for
the managed service providers based on
discussions with Barracuda’s management
about their future plans for the business.
Employees: the Board understood that the
employees would appreciate transparency
in relation to the process, and that they
would be apprehensive about the move
to a new employer. Given the confidential
nature of the transaction, the employees
could not be informed in advance of
signing a definitive agreement; however,
a small number of senior employees in the
business were consulted at the early stages
of the transaction as a proxy for the wider
workforce. Between signing and completion,
Avast and Barracuda met with employees
to discuss the transaction in more detail, as
well as addressing any concerns they had.
The Board was satisfied through this process
that the employees’ interests were taken into
consideration, and adequately addressed.
Capital allocation
The Board seeks to allocate the Group’s
capital in a way which offers significant
returns to shareholders in line with the
Company’s dividend policy, while also
ensuring that the Group retains flexibility
to continue to deploy capital towards
profitable growth.
During the year, the Group allocated
$29.9m to capex investments, $360.4m
to debt repayment, $14.8m to M&A, and
$127m to shareholders through dividends.
In determining the appropriate balance,
the Board engaged with its significant
shareholders, lenders, and customers.
Shareholders: members of the Board and
Investor Relations met with the Group’s
significant shareholders to understand their
interests in, and expectations of, Avast,
which the Board took into consideration
when making decisions about the methods
it used to achieve its growth and profitability
objectives. Significant shareholders gave
support to the Group’s strategy to initially
prioritise debt repayment in order to bring
its leverage ratio towards 2.0x, while also
emphasising the need for the Group to
maintain its growth investments, primarily
through organic initiatives, but also
supported by inorganic opportunities.
More information about how the Directors have discharged their duty under Section 172
of the Companies Act 2006 is available in the Strategic report.
Strategic report, pages 1 to 64
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Employee engagement
Employee Engagement Director
Pavel Baudis, Avast co-founder and Board member, was this
year appointed to the role of Employee Engagement Director.
He is now personally involved in the onboarding process of
new employees and hosting meetings with employees in many
of our offices around the world, to increase interaction and
engagement between employees and Avast management.
CEO Slack channel
Ondrej Vlcek, Avast’s CEO, engages with employees
through a number of Slack channels. This internal social
network includes dedicated channels for CEO and Company
updates, and provides an accessible platform to inform
employees about important decisions, events or plans,
and to discuss issues or opportunities with the aim of gathering
employee opinion.
Employees’ voices matter
The Board and Executive Management team consider
Avast employees to be key stakeholders. The voice of our
employees is very important and we provide multiple channels
through which employees can share opinions and insights.
Engagement survey
Engaged employees feel strongly connected to the Company
and its mission, customers, and social purpose. They put in
effort above and beyond the day-to-day requirements, work
diligently to advance the Company’s strategy and goals, and
are committed to remaining with the Company and promoting
it as an employer and a brand.
Avast’s Your Voice survey tracks employee engagement year
over year, providing insights into areas for improvement that
will help to increase employee connection and commitment
to the organisation. At the end of 2018, our engagement was
64%. Across the organisation in 2019 we undertook a number
of actions in response to the survey which included refining
structures within departments to better support strategic
initiatives and goals, instituting reward and recognition
programmes, putting in place programmes for high-potential
employees, and establishing the Avast Careers programme
to encourage and support internal mobility and career growth
within the organisation.
After a year of change, including notably the appointment
of Ondrej Vlcek as CEO, and the addition of new members
to the Executive Management team, Avast’s 2019 employee
engagement, measured in December 2019, was 73%, a 9%
increase over 2018.
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This section of the strategic report constitutes the Company’s non-financial information statement.
Reporting Requirements
Policies & Statements which govern our approach
Due Diligence & Outcomes
Environmental matters
Environmental, Social & Governance
(ESG) programme
Environmental stewardship, page 58
Employees
Social matters
Respect for human rights
Our Values
Cultural & workforce engagement, page 52-54
Social Responsibility Framework
Thriving communities, page 56-59
Respect for human rights, page 56
Code of Conduct; Sanctions,
Anti-Money Laundering and
Counter Terrorist Financing Policy
Whistleblowing Policy
Avast Grievance Procedure
Avast Recruitment Policy Modern Slavery Policy
Anti-corruption & bribery
Code of Conduct Anti-Corruption Policy,
Transparency & anti-corruption, page 56
Related Party Transactions Policy
Conflict of Interest Policy
Business model
How our business is structured
Our business model, page 18
Non-financial KPIs
Avast measures four non-financial areas of its business:
1. Employee engagement:
We track employee engagement year over year using
Avast’s Your Voice survey. This providing insights into areas
for improvement that will help to raise employees’ sense of
connection and commitment to the organisation.
2. Brand awareness:
We conduct annual brand awareness surveys using
quantitative interviews with a panel of respondents in
12 key regions including the United States and the United
Kingdom, measuring prompted and unpromoted awareness.
3. Customer satisfaction:
We measure customer satisfaction via net promoter score
measures for Avast antivirus, AVG antivirus, Avast Business
and customer service.
4. Customer churn:
We calculate this by measuring the number of customers at the
last year end and measuring how many from those customers
are customers by the current year end.
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Strategic report approval
The Strategic report on pages 1 to 64 was approved
by the Board on 25 February 2020 and signed on its
behalf by:
Ondrej Vlcek
Chief Executive Officer
Non-financial information statement Strategic report Governance Financial statements
Avast annual report 2019 65
Governance
Board biographies
Corporate governance statement
Audit and Risk Committee report
Nomination Committee report
Directors’ remuneration report
Directors’ report
66
68
74
80
84
100
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1 John Schwarz1
Chairman of the Board
3
Maggie Chan Jones1
Independent Non-Executive Director
John Schwarz has been a member of our Board of Directors
since 2011 and the Chairman since 2014. He is currently the
co-founder, Chairman, and CEO of Visier, Inc., a business
analytics software firm. Previously, he served on the executive
board of SAP AG from 2008 to 2010, and as CEO of Business
Objects S.A. from 2005 through to its acquisition by SAP in
2008. Mr Schwarz has also served as the President and COO
of Symantec Corporation from 2001 to 2005. Mr Schwarz
previously worked at IBM Corporation for 25 years, ultimately
as the General Manager of IBM’s Industry Solutions division.
Mr Schwarz has served as a Board Director at Synopsys
Corporation since 2007, and at Teradata Corporation since
2010. Mr Schwarz holds degrees or diplomas from the
Canadian universities of Manitoba, Toronto, and Dalhousie.
2
Pavel Baudis
Non-Executive Director
Pavel Baudis is one of our co-founders and has served as one
of our Directors from the incorporation of AVAST Software
a.s. in 2006 until 2014. In 1988, Mr Baudis wrote the original
software program from which our current portfolio of security
solutions was developed. Since 1991, Mr Baudis has played
a leading role in the development of our business with our
predecessor entity, ALWIL Software partnership. Prior to
co-founding Avast, Mr Baudis was a graphics specialist at the
Czech Computer Research Institute (VUMS). Mr Baudis holds
an MS in Information Technology from the Prague School of
Chemical Engineering.
Maggie Chan Jones joined the Board of Directors in March
2019. She is a widely recognised industry thought leader in
marketing and technology. Named one of the world’s most
influential CMOs by Forbes, Ms Chan Jones broke new ground
as the first woman to be appointed CMO at the world’s largest
enterprise application software provider, SAP. She specialised
in brand and cloud transformation, and held leadership roles
at Level 3 Communications (now CenturyLink) and Microsoft.
Ms Chan Jones founded and is currently CEO of Tenshey, a
leadership development company with a mission to advance
gender diversity through executive coaching. Ms Chan Jones
holds an Executive MBA from Cornell University and a BS in
Business Management from Binghamton University.
4
Ulf Claesson2
Independent Non-Executive Director
Ulf Claesson joined the Board of Directors in October 2012.
Since 2009, Mr Claesson has been a Partner at BLR & Partners
AG, a private equity and advisory firm. From 2002 to 2006,
he was Co-Founder and Chairman of Silverwire Group; on its
acquisition by Hewlett-Packard Company, he built and ran one
of HP’s product divisions. A serial tech entrepreneur, several of
his startups have been acquired by HP, ESRI, Husqvarna and
others. Mr Claesson is a board member of the Swiss Federal
Commission for Technology and Innovation, and teaches
Technology Entrepreneurship at ETH, the Swiss Federal
Institute of Technology. He holds an MSc from Chalmers
University of Technology.
1 Member of the Remuneration Committee and the Nomination Committee.
2 Member of the Audit and Risk Committee and Chairman of the
Remuneration Committee.
3 Member of the Remuneration Committee and Chairman of the
Nomination Committee.
4 Member of the Audit and Risk Committee and member of the
Nomination Committee.
5 Member of the Audit and Risk Committee.
6 Chairman of the Audit and Risk Committee.
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5 Warren Finegold3
Senior Independent Non-Executive Director
8 Philip Marshall
Chief Financial Officer
Warren Finegold joined the Board of Directors in February
2015. He was formerly a member of the Vodafone Group
Executive Committee where he served as Group Strategy
and Business Development Director. Previously, he was a
Managing Director of UBS Investment Bank, where he also
held several senior positions, most recently as Head of the
Technology Team in Europe. Mr Finegold has also served
as an independent non-executive Director of UBM plc and
Inmarsat PLC. As of 1 March 2020, Mr Finegold will take up
a position as an independent non-executive Director on
the Board of Ceres Power Holdings plc. He holds an MA in
Philosophy, Politics and Economics from Oxford University
and an MBA from the London Business School.
6 Erwin Gunst4
Independent Non-Executive Director
Erwin Gunst joined the Board of Directors in October 2012.
From 2008 to 2010, Mr Gunst served as COO and a member of
the Executive Board of SAP AG, where he was responsible for
global operations, information technology, human resources,
and the management of all SAP Labs worldwide. Mr Gunst
started his career in audit, finance, and controlling. He was
SAP’s Managing Director in various countries and was its
Regional President for EMEA before joining the SAP Board.
Mr Gunst holds an MS in Commercial Engineering from the
Free University (Solvay) in Brussels, Belgium.
7 Eduard Kucera
Non-Executive Director
Eduard Kucera, one of our co-founders, served as Chairman
of the Avast Board from the incorporation of AVAST Software
a.s. in 2006 until 2014. Prior to that, Dr Kucera was responsible
for the activities of the predecessor entity, ALWIL Software
partnership. He also served as our CEO, directing day-to-
day operations that included the transition to a free software
distribution model in 2002. Dr Kucera holds a PhD in
Experimental Physics from the Charles University, Prague.
Philip Marshall has served as the CFO and Director of Avast
since February 2018. Prior to Avast, Mr Marshall served as
CFO for Exova Group PLC before helping take the company
back into private hands. Prior to this, Mr Marshall served as
CFO for Wood Mackenzie under private equity ownership, and
for General Electric (GE) for 17 years across multiple business
units in both a CEO and CFO capacity. He has also served
on the boards of several companies, and currently holds a
supervisory board membership of Waberer’s International.
Mr Marshall holds a BA in Accounting Studies from the
University of West London.
9 Tamara Minick-Scokalo5
Independent Non-Executive Director
Tamara Minick-Scokalo joined the Board of Directors in
March 2019 and is an experienced non-executive director
board member. Most recently, she was President of Growth
Markets and a member of the Executive Committee at
Pearson plc in London. She also co-founded high-tech
unicorn Trax Retail and was CEO, then Chairman, of
this category-leading, image recognition tool for shelf
management. Previously, she served as President of
Chocolate Europe, leading change management following
the integration of the Kraft/Cadbury business. Her deep
experience in consumer brands includes Elizabeth Arden,
Proctor & Gamble, E&J Gallo Winery Europe, and Coca-Cola.
Ms Minick-Scokalo holds a BS in Chemical Engineering from
Lehigh University in Bethlehem, Pennsylvania.
10 Belinda Richards6
Independent Non-Executive Director
Belinda Richards joined the Avast Board in June 2018. She is
an experienced non-executive director and currently sits on
the boards of Wm Morrisons Supermarkets plc, The Phoenix
Group plc, The Monks Investment Trust plc, and The Schroder
Japan Growth Fund plc. Prior to this, Ms Richards had a 30-
year career in finance, M&A, and strategy. She served as a
senior Corporate Finance Partner at Deloitte LLP, where she
was a Vice Chairman of the Firm and Global Head of Merger
Integration and Separation Services. She has a First Class
Honours degree from the University of Kent at Canterbury,
a PhD from University College London and was a Visiting
Scholar at the University of California at Berkeley.
11 Lorne Somerville
Independent Non-Executive Director
Lorne Somerville, Managing Partner, joined CVC in 2008.
Mr Somerville is Co-Head of the Strategic Opportunities Fund
and is based in London. Prior to joining CVC, he worked for
UBS where he was Joint Global Head of Telecommunications
and Head of the European Communications Group, and
formerly Swisscom AG as Head of Swisscom International.
Mr Somerville serves on the Boards of eTraveli AB and Sebia
SA. Mr Somerville holds an MA in Computer Sciences from the
University of Cambridge and an MBA from IMD, Lausanne.
12 Ondrej Vlcek
Chief Executive Officer
Ondrej Vlcek was appointed CEO of Avast in July 2019.
Together with his senior management team, he executes
on Avast’s vision to deliver people-centric security and
spearheads the Company’s product innovation programme
for emerging consumer technology categories, including the
Internet of Things and 5G security. Previously, Mr Vlcek was
President of Avast Consumer, the largest business within the
Company, and led Avast’s transformation from a traditional
PC antivirus vendor to the leading provider of a full portfolio of
protection, privacy, and performance products for consumers,
and served as an Executive Director on the Board. Mr Vlcek
was also a key member of the executive team that took the
company public on the London Stock Exchange in May 2018.
Formerly, he held the combined position of Executive Vice-
President & General Manager, Consumer, and CTO. Mr Vlcek
holds an MS in Mathematics from Czech Technical University
in Prague.
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Corporate governance
statement
“ As a company
which serves
hundreds of millions
of people around
the globe, we view
governance and social
responsibility as key
pillars in developing
a successful and
sustainable business.”
John Schwarz
Chairman
Board composition
In respect of the period between 1 January 2019 and the
date of this report, the following persons were Directors of
the Company:
Matters reserved for the Board
The Board has collective responsibility to its shareholders
and oversees the operational management of the Group.
Key areas reserved for the Board include:
Name
John Schwarz
Ondrej VIcek
Philip Marshall
Warren Finegold
Title
Appointment
Date
Independent Chairman 9 May 2018
Chief Executive Officer*
9 May 2018
The Group’s strategy
The Group’s corporate structure and capitalisation
Approval of financial reports
Chief Financial Officer
9 May 2018
Risk management
Senior Independent
Non-Executive Director
9 May 2018
Approval of expenditures and material transactions including
mergers and acquisitions
Pavel Baudis
Non-Executive Director
9 May 2018
Board composition
Eduard Kucera
Non-Executive Director
9 May 2018
Lorne Somerville
Belinda Richards
Maggie Chan Jones
Tamara Minick-
Scokalo
Ulf Claesson
Erwin Gunst
Independent
Non-Executive Director
Independent
Non-Executive Director
Independent
Non-Executive Director
Independent
Non-Executive Director
Independent
Non-Executive Director
Independent
Non-Executive Director
9 May 2018
8 June 2018
13 March
2019
13 March
2019
9 May 2018
9 May 2018
Vincent Steckler
Chief Executive Officer* 9 May 2018 –
30 June 2019
* Mr Steckler retired as CEO and Executive Director on 30 June 2019.
Biographies of the Directors can be found on pages 66 to 67.
Determining the remuneration policy for Executive Directors
Oversight of governance, including approval of the
Group’s applicable corporate policies
Approval of equity awards to employees and
executive management
Board focus during 2019
Reviewed and identified Avast’s principal risks
Oversaw and supported Avast’s succession planning for the
Executive Management team, including the appointment of
its new CEO, Ondrej VIcek
Approved material transactions including mergers and
acquisitions in support of the Group’s strategy
Reviewed and approved the Company’s financial reports,
including the payment of interim and final dividends
Undertook an evaluation of the performance and
effectiveness of the Board, its Committees, and its Directors
Reviewed and monitored the Group’s long-term business
strategy and objectives
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Strategic report Governance Financial statements
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UK Corporate Governance Code compliance
The Company is subject to the UK Corporate Governance
Code 2018 ('the Code') which is available at www.frc.org.uk.
The Board is aware of the Code’s new emphasis on
businesses engaging effectively with their workforce,
building strong stakeholder relationships, and establishing a
culture that is aligned with the Company’s purpose, values,
and strategy. Throughout this report we describe how we
have applied these principles and complied with the
provisions of the Code.
The Code requires that at least half of the Board of Directors
of a UK-listed company, excluding the Chairman, comprise
Non-Executive Directors determined by the Board to be
independent in character and judgement, and free from
relationships or circumstances which may affect, or could
appear to affect, the Directors’ judgement. For the period
between 1 January 2019 and 12 March 2019, the Company
was not compliant with this requirement; however, following
the appointment of Ms Chan Jones and Ms Minick-Scokalo
on 13 March 2019, the Company is now in compliance.
The Code requires companies to develop a formal policy for
post-employment shareholding requirements encompassing
both unvested and vested shares. We do not currently have in
place post-employment guidelines for the reasons set out on
page 88 of this report. The Company will continue to keep this
approach under review in light of evolving market practices
and shareholder sentiment.
With these exceptions, the Company complied with all of the
provisions of the Code for the period under review.
The Code requires a company to state its reasons if it
determines that a Director is independent, including where
a Director participates in the Company’s share option or
performance-related pay scheme. During the year, Warren
Finegold, Erwin Gunst and Ulf Claesson held options over
shares in the Group which were granted to them prior to the
IPO under the Group’s share option plans. Notwithstanding
this, the other Directors have concluded that the judgement,
experience, and challenging approach of each of them should
ensure that they make a significant contribution to the work
of the Board and its Committees, and that independence has
been maintained. The Directors all exercised their options
during the year, with the effect that no Non-Executive Directors
in the Company now hold options over shares in the Group.
The Group has no intention to award any Non-Executive
Director any new equity grants.
Lorne Somerville was appointed to the Board in 2014, where
he acted as the appointee Director of Sybil Holdings S.à r.l.
('Sybil') (a company controlled by funds managed by CVC
Capital Partners), one of the Group’s major shareholders
at the time. In September 2019, Sybil disposed of its entire
shareholding in the Company. Notwithstanding this, the Board
decided to ask Mr Somerville to remain as a Director of the
Company, recognising the value that his deep experience
could add. Following the sale of Sybil’s entire shareholding in
the Company, the Board has determined that Mr Somerville is
now an Independent Non-Executive Director of the Company.
In coming to this conclusion, the Board considered the fact
that Mr Somerville is a Managing Partner and Co-Head of
the Strategic Opportunities fund at CVC Capital Partners,
and the fact certain funds managed by the wider CVC group
act as lenders in the Group’s debt syndicate ('CVC Debt
Funds'). The Board has satisfied itself that Mr Somerville is
not involved in the operation of, or otherwise interested in,
the CVC Debt Funds. Given the overall size of CVC Capital
Partners and its funds, and the lack of substantive nexus
between Mr Somerville and the CVC Debt Funds, the Board
has determined that Mr Somerville is independent for the
purposes of the Code.
Division of roles
The roles of the Chairman and the CEO are distinct and the
division of responsibility between these roles has been agreed
by the Chairman, the CEO, and the Board. The Chairman is
responsible for the overall effectiveness of the Board and
ensuring that it meets its duties. The CEO is responsible
for the Group’s day-to-day operations, the management of
the Executive Management team, and for establishing the
leadership for the Group.
The Non-Executive Directors are responsible for scrutinising
management’s performance. They constructively challenge
and assist in the development of strategy, as well as ensuring
that the Group’s financial reporting and it’s systems of risk
management are robust, and the Group is meeting its strategic
objectives. The Chairman meets with the Non-Executive
Directors before or after every Board meeting with the
Executive Directors present.
The Chairman and CEO meet regularly to discuss operational,
reputational, and organisational issues. The Chairman was
independent when he became a Director of Avast Holding
B.V. in 2014 and also of Avast Plc in 2018. The Chairman was
deemed to be independent this year.
Conflicts of interest
The Company has procedures in place to review and
manage any potential or actual conflicts of interests arising
from Directors’ current or proposed roles, which Directors
may undertake. Internal controls are in place which require
Directors to notify the Company and disclose any potential
or actual conflicts of interest to the Company for review.
The Board has the right under the Company’s Articles of
Association to waive such conflicts of interest. If a Director
becomes aware that they, or any of their associated parties,
have an interest in an existing or proposed transaction with
the Company they are required to notify the Board. Note
36 of the Financial statements describes the related party
transactions between certain Directors and the Group which
have been considered and approved by the Board of Avast
Holding B.V., if it was entered into prior to the IPO or the Board
of the Company, if it was entered into after the IPO. The Board
consider these procedures to be working effectively.
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Board operations
The Chairman, supported by the Company Secretary and the Senior Independent Director, leads the Board’s functions and ensures its effectiveness. Members of the Executive Management
team regularly attend Group Board meetings and support the Board’s engagement on the Group’s strategy, financial results, and business reviews. The governance structure of the Board is set
out below and comprises the Board and a number of committees the Board delegates certain of its duties to:
Board of Directors
The Board is responsible for the long-term success of the Group. In order to deliver this, the Board directs and oversees the implementation of the Group’s strategy and objectives by way of a
robust corporate governance framework. The Board discharges some of its responsibilities directly and others it delegates to its committees as described further below.
Committees
Audit and Risk
Belinda Richards (Chair);
Tamara Minick-Scokalo; Erwin Gunst*; and
Ulf Claesson
The Audit and Risk Committee assists the Board in reviewing the Group’s annual and half year financial statements, and internal
and external audits and controls. It is also responsible for overseeing the risk management framework; scope of the annual audit
and non-audit work undertaken by external auditors; and the effectiveness of the internal controls in place within the Group
Nomination
Warren Finegold (Chair); John Schwarz;
Erwin Gunst; and Maggie Chan Jones
The Nomination Committee assists the Board in reviewing the structure, size, performance, and composition of the Board.
It is also responsible for reviewing succession plans for the Directors, including the Chairman and CEO, and other senior executives
Remuneration
Ulf Claesson (Chair); John Schwarz;
Maggie Chan Jones; and Warren Finegold
The Remuneration Committee recommends the Group’s policy on executive remuneration, recommends the levels of
remuneration for Executive Directors, the Chairman and other senior executives, grants awards under the Group’s incentive plans,
and prepares an annual remuneration report for approval by the shareholders at the Annual General Meeting
* Mr Gunst was Chair of the Audit Committee from 1 January to 22 May 2019 , when Mr Gunst stepped down as Chair, and Ms Richards was appointed as the new Chair.
Further details in relation to the:
Audit and Risk Committee are set out on pages 74 to 79;
Nomination Committee are set out on pages 80 to 83; and
Remuneration Committee are set out on pages 98 to 99.
The Group also has a Disclosure Committee, which is responsible for managing the disclosure of information by the Group in compliance with its obligations under the Market Abuse Regulations,
the Financial Conduct Authority’s Listing Rules, and the Disclosure Guidance and Transparency Rules. The Disclosure Committee comprises the CEO, Ondrej VIcek, the CFO, Phil Marshall,
as well as the Group’s Chief of Staff and Company Secretary, Director of Investor Relations, and General Counsel. The Disclosure Committee considered matters when appropriate during 2019.
The Executive Management team comprises the CEO, CFO and ten other individuals who are responsible for the key operational planning and management of the Company. A full list of the
Executive Management team as well as their biographies can be found on the Company’s website at investors.avast.com.
In 2019, the Board held 12 meetings. The Audit and Risk and Nomination Committees held four meetings, and the Remuneration Committee held seven meetings. Meetings are generally held
in London. During 2019, the Board’s meetings included reviewing the Group’s latest financial results, business unit execution, principal risks, the Group’s strategy, and its technology. The Board
delegates the ordinary day-to-day operational responsibility to the Executive Management team.
The Chairman and Non-Executive Directors regularly hold sessions without the attendance of the Executive Directors or other members of the Executive Management team. Additionally, the
Chairman ensures that the Directors take independent professional advice where they judge it necessary in order to discharge their responsibilities. The Company Secretary is also available to
provide advice for every Director.
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Shareholder engagement
The Board maintains a dialogue with shareholders to help
enable a mutual understanding. The Board’s primary contact
with shareholders is through the Executive Directors, but the
Chairman and the Non-Executive Directors also engage with
and are available to major shareholders periodically and in
advance of the Annual General Meeting to understand their
views on the Group. Feedback is shared with the Board to
help inform the Group’s strategy and governance framework.
In addition to this, the Chairman and Senior Independent
Director will host an event in February for ESG professionals
and fund managers from institutional investment firms and
proxy agencies. The purpose of the event is to more deeply
engage with stakeholders on ESG matters, provide details
on the Company’s position and ESG processes, and hold a
Q&A session.
The Group has a comprehensive investor relations (IR)
programme through which the CEO, CFO, and Director of
Investor Relations engage regularly with the Company’s
shareholders and potential investors to discuss strategic
and other issues. This includes presentations on the Group’s
results and participation at various conferences hosted
by brokers to ensure that a wide variety of shareholders,
including those from different geographies, have access to
management. Current and historical financial information,
including trading statements, news releases, financial results’
presentations, and a wealth of other information regarding
Avast can be found on the Investors section of the website
at https://investors.avast.com. The Group makes use of
webcast technology for results presentations. Avast offers
all its shareholders the opportunity to register to receive
shareholder communications – such as the annual report,
notice of meeting and related forms of proxy – electronically.
Board effectiveness and evaluation
Annual Board evaluation
The Board undertakes an internal evaluation of its
performance and effectiveness annually, in accordance
with best practice and the requirements of the Code.
In keeping with last year’s process Avast engaged Lintstock,
an independent external advisory firm, to assist with the
FY 2019 Board evaluation. Lintstock has no other connection
with Avast.
Evaluation process
Lintstock engaged with the Chairman and Company
Secretary to set the context for the evaluation and tailor
the survey content to the specific circumstances of Avast
Board members were invited to complete an online
survey addressing the performance of the Board and
its Committees
The Independent Non-Executive Directors considered,
without the Chairman present, the Chairman’s performance,
the results of which were discussed between the Senior
Independent Director and the Chairman
Board members conducted a self-evaluation on their
individual performance and contribution to the Board,
as well as their training requirements; the results were
discussed on an independent basis with the Chairman
Lintstock produced reports regarding the performance of
the Board, the Committees, and the Chairman which were
considered by the Board
Focus areas for 2020
Better oversight of strategy that is based on a firm
understanding of the markets in which the Company
operates and its competitors
More insight into risks facing the Company, and
especially the extent to which the Company has deployed
appropriate mitigations
Operational improvements to Board meetings and
processes, including well targeted Board materials and
the right number of meetings
Overall evaluation findings
The Board noted improvements from last year’s
Board evaluation, including continued engagement
and greater interactions between the Board and senior
management, as well as increased training opportunities
for Board members.
The Board recognised improvements can be made in the
oversight of succession planning, increased diversity on the
Board, and noted that risk must continue to be a primary
Board priority.
On the whole the performance of the Board, its Committees,
and its Chairman was rated highly with progress noted in
each of the development areas identified during last year’s
Board evaluation.
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Annual General Meeting
The Annual General Meeting (AGM) will be held on 21 May
2020. The notice of AGM will be sent to all shareholders who
have requested a physical copy and can also be found on the
website at investors.avast.com. The notice of AGM sets out
the business to be conducted at the meeting and explanatory
notes in relation to proposed resolutions. Separate resolutions
are proposed in respect of any other substantive issue, other
than ordinary business, which is to be considered at or on
the same day as the AGM. The Directors will review specific
matters raised by shareholders throughout the year and meet
with investors and shareholders. The Chairs of the Committees
will be available to discuss any matters which are addressed in
the Chairman’s AGM statement.
Key evaluation findings and Board actions for 2020
Annual Board evaluation findings
Board actions for 2020
Group strategy
Ensure continued focus is given to developing
and executing a long-term Group strategy,
with greater input from the Board to review
progress and delivery of the strategy
Board composition
Appropriateness of the current
Board composition
Increase diversity on the Board
Continue to provide Directors with
training opportunities
The Board will continue to support the CEO and engage with senior
management teams to develop, review, and implement the Group strategy,
and agree further developments to the long-term strategy
Continued focus will be given to increasing the proportion of women on the
Board, further developing relationships between Board members and the
Executive Management team, and ensuring Directors receive appropriate
training to address any skills gaps
Risk management
Ensure continued focus on risk identification
and risk management
The Board will continue to prioritise the identification and assessment of
risks facing the Group to ensure all relevant risks are managed effectively in
order to meet the Group’s strategic objectives
Customer engagement
Increase the Board’s engagement
with customers
The Board will drive the Group’s customer-centric focus and deepen its
insights into the Group’s customer base with a view to broadening its
understanding of the market and the evolving needs and perspectives
of customers
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Board meeting attendance
Board meeting
John Schwarz
Vincent Steckler*
Ondrej VIcek
Philip Marshall
Pavel Baudis
Eduard Kucera
Lorne Somerville
Warren Finegold
Ulf Claesson
Erwin Gunst
Belinda Richards
Tamara Minick-Scokalo**
Maggie Chan Jones**
17 Jan 2019 28 Feb 2019 12 Mar 2019 9 April 2019 17 April 2019 22 May 2019 11 July 2019 19 July 2019 13 Aug 2019
3 Oct 2019 17 Oct 2019 20 Nov 2019
X
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* Mr Steckler resigned from the Board on 30 June 2019.
** Ms Minick-Scokalo and Ms Chan Jones were appointed to the Board on 13 March 2019.
Refer to page 98 for the Remuneration Committee attendances; page 81 for the Nomination Committee attendances; and page 74 for the Audit and Risk Committee attendances.
The Corporate governance statement includes the Audit and Risk Committee report, the Nomination Committee report, certain aspects of the Directors’ remuneration report, and incorporates
the Takeover Directive disclosures in the Directors’ report. Stakeholder engagement disclosures can be found in the Strategic report. This Corporate governance statement was approved by the
Board on 25 February 2020 and signed by order of the Board.
By order of the Board
Alan Rassaby
Company Secretary
25 February 2020
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Audit and Risk
Committee report
“ We are committed to
assisting the Board on
matters of governance,
risk management,
and internal control
practices of the Group.”
Belinda Richards
Chairman
Introduction
Dear Shareholder
I am pleased to present to you the Audit and Risk Committee
report for the financial year ended 31 December 2019. In this
report, we provide you with an overview of the Committee’s
priorities and performance during the year, in addition to
details regarding the audit and risk management policies
approved by the Committee for implementation throughout
the Group.
The Audit and Risk Committee assists the Board with the
discharge of its responsibilities in relation to the Group’s
financial reporting, controls, and risk management systems.
The Committee reviews the Group’s annual and half-year
financial statements, accounting policies and significant
reporting judgements; oversees the Group’s risk management
framework, evaluates the Group’s key business risks on an
annual basis; and reviews the effectiveness of the Group’s
internal controls, including cybersecurity controls and
readiness, whistleblowing processes and fraud systems.
The Committee also reviews and monitors the scope of the
annual audit and its effectiveness, including the independence
and objectivity of the external auditor, and provides
recommendations to the Board on the appointment of
external auditors.
Throughout the year, the composition of the Committee
underwent a number of changes, as part of which
Tamara Minick-Scokalo was appointed to the Committee,
and I became Chairman. I look forward to working closely
together with the other members of the Committee throughout
the coming year, and building on the successes we achieved
in 2019.
Belinda Richards
Chairman
Committee membership
Committee member
No. of meetings
attended
(No. of meetings
convened while
a member)
Date of
appointment
Belinda Richards* (Chairman)
7 June 2018
Tamara Minick-Scokalo
Ulf Claesson
Erwin Gunst*
22 May 2019
10 May 2018
10 May 2018
4(4)
3(3)
4(4)
4(4)
* With effect from 22 May 2019, Mr Gunst stepped down as Chair,
Ms Richards, was appointed as the new Chair, and Ms Minick-Scokalo
was appointed as a member of the Committee.
Committee composition
The Committee is chaired by Ms Richards who has significant
financial experience, being a former corporate finance
partner at Deloitte LLP. Ms Richards also currently sits as
audit committee chair at two other FTSE 350 companies.
The Committee comprises four Independent Non-Executive
Directors, including the Chairman Ms Richards. As a result,
the Company complies with the requirements of the Code
that all members of the Audit and Risk Committee be
Non-Executive Directors, independent in character and
judgement, and free from any relationship or circumstance
which may, could, or would be likely to, or appear to, affect
their judgement, and that one such member has recent and
relevant financial experience.
Full biographies of the Committee’s members can be found
on pages 66 to 67.
From time to time, the Committee may invite others to join their
meetings, where it considers their expertise and knowledge
to be relevant and necessary to the subject matter under
consideration. To date, this has included the CEO, CFO,
Chief of Staff & Company Secretary, Vice President of Finance,
Director of Internal Audit, and the Group’s General Counsel,
who acts as secretary to the Committee.
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Principal activities
The Committee sets an annual forward agenda based on
the scope of its responsibilities under its terms of reference.
In addition, the Committee considers any other relevant
ad-hoc matters which require its review.
During 2019, the Committee afforded particular focus to the
following matters:
Assessing and overseeing the Group’s risk
management framework
Evaluating the Company’s key business risks
Reviewing the risk ratings assigned to the individual risks
within the Group
Assessing the internal controls and risk management of
the Group, including reviewing and monitoring the Group’s
account reconciliation processes, revenue recognition,
and security policies, including plans to further bolster
order to cash (OTC) controls and implementing an
automated reconciliation and tracking system
Reviewing and approving the 2018 and 2019 full-year
financial results of the Group for public release
Evaluating the external auditor’s independence and
objectivity, and the effectiveness of the audit process
Reviewing and approving the Group’s external audit and
tax advisory fees for 2019 and 2020
Reviewing the 2019 half-year results of the Group, and
approving changes to the viability statement of the Group
Overseeing the consolidation of the Company’s US
tax group
Reviewing significant accounting judgements
Considering the EU Commission’s proposals on the
taxation of the digital economy and reviewing digital tax
proposals in EU member states
Assessing the potential Brexit impacts and key risks to
the Company
Reviewing the 2018 and 2019 audit reports, together with
the Group’s external auditor
Reviewing the Company’s dividend policy and proposed
dividend distribution
Significant issues relating to the accounts
The issues considered by the Committee that are deemed
to be significant to the Group’s accounts are set out below:
Revenue recognition
The Group transitioned to the IFRS 15 revenue recognition
standard from 1 January 2018 and consistently applied
its revenue recognition policy during 2019. No significant
accounting judgements relating to revenue recognition
were made in 2019. The revenue recognition policies of the
Group are described in Note 2.
Having provided appropriate challenge to management
and the external auditors, the Committee has concluded
that the revenue recognition for the Group is appropriate,
and the Group’s revenue recognition policy has been
applied consistently.
Income and deferred taxes
The Group operates in multiple tax jurisdictions and entered
into multiple significant transactions pre- and post-IPO.
The Group reported deferred tax assets of $167.6m as at
31 December 2019 (Note 13), primarily as a result of transfers
of intellectual property within the Group in 2018 and unused
tax losses in the US.
The deferred tax recognised as a result of the intragroup IP
transfer will be recovered as a tax deduction from Avast’s
Czech entity, Avast Software s.r.o., over a period of 15 years.
The carrying value of the deferred tax asset in relation to the
IP transfer as at 31 December 2019 is $122.9m, as described in
Note 13.
Avast Software s.r.o. has reported substantial taxable income
in the Czech Republic in both the preceding and current
financial year. From the forecasted results, it is likely that future
taxable profits will allow benefits of the recognised deferred
tax asset to be fully utilised in the future.
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Internal controls
The Board is responsible for the Company’s risk management
and internal control systems. The Committee is responsible
for monitoring and keeping under review the adequacy and
effectiveness of these systems.
The Group maintains risk management and internal control
systems and processes which accord with the FRC's Guidance
on Risk Management, Internal Control and Related Financial
and Business Reporting, and these remained in place from
1 January 2019 up to the date of this report. The Committee
is satisfied that there are no significant weaknesses in
these systems and that the Group’s internal controls are
operating effectively.
Internal controls relating to financial reporting form an integral
part of the Group’s corporate governance and enterprise
risk management policy. The Group’s internal controls over
financial reporting are in line with the COSO framework
for internal controls. The internal controls processes of the
Group are based on the following five key principles: control
environment, risk assessment, control activities, information
and communication, and monitoring, each of which is
explained in more detail below. It is a process designed to
provide reasonable assurance regarding the achievement of
objectives relating to operations, reporting, and compliance.
The Group recognised a deferred tax asset of $45.6m as at
31 December 2019, arising from unused tax losses in the US,
mainly as a result of deductions from stock option exercises.
In accordance with US tax laws, deferred tax assets fully
recognised as tax losses and generated after January 2018
can be carried forward indefinitely. As such, the Group
assesses that future taxable profits will be sufficient to
recover the full amount of allowable tax deductions.
The Committee and the Group’s external auditors reviewed
the appropriateness of significant decisions made by the
Group regarding the recognition and measurement of the
deferred tax assets.
In addition, the Committee also reviewed the Group’s
assessment of the potential impact of the EU Commission’s
proposals on the taxation of the digital economy and
similar proposals by individual member states, in particular,
the Czech Republic and France.
Financial Reporting Council feedback on the
annual report
On 17 September 2019, the Group received a letter from
the Financial Reporting Council (FRC) in relation to the
independent review of the Group’s annual report for the
year ended 31 December 2018, requesting further details
on term loans and deferred taxes. The FRC required
no changes be made to the accounting treatment, but
recommended disclosures on term loans and deferred taxes
and other minor areas be improved. The Committee accepted
the FRC’s recommendations and these are reflected in this
annual report.
The FRC performed its review in accordance with Part 2 of the
Committee’s operating procedures. The scope of the FRC’s
review is based solely on the annual report and the financial
statements, and not on the bases of detailed knowledge of
a company’s business or an understanding of the underlying
transactions entered into by the Company. It is, however,
conducted by those who have an understanding of the
relevant accounting and reporting requirements.
Impairment of goodwill and intangibles
At each reporting date, the Group assesses whether there
is an indication that an asset may be impaired. Management
has provided the Committee with the results of the annual
goodwill and intangible assets impairment analysis for 2019.
The analysis indicates that the assets were not impaired
and no reasonable change in input factors has resulted in
an impairment.
Having provided appropriate challenge to management and
the external auditors, the Committee has concluded that the
result of analysis is appropriate and there is no impairment of
either goodwill or intangible assets as of 31 December 2019.
Leases (IFRS 16)
The Group adopted IFRS 16 on 1 January 2019. The Group
recognised a right of use (ROU) asset and a corresponding
financial liability to the lessor based on the present value of
future lease payments. In the consolidated statement of profit
or loss, IFRS 16 replaces the straight-line operating lease
expense by amortisation of the ROU asset (included within
operating costs) and an interest expense on the lease liability
(included within finance costs).
The Committee and the Group’s external auditors reviewed
the adoption of IFRS 16 and subsequent lease accounting,
including accounting judgements made by the Group,
namely discount rates applied and the treatment of lease
extension options, and concluded that lease accounting
was appropriately adopted in accordance with IFRS 16.
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Internal Audit
The primary purpose of the Group’s Internal Audit function
is to enhance and protect organisational value by providing
an independent, objective assurance and consulting activity
designed to add value and improve the Group’s operations,
control, and governance processes. In order to ensure
independence, the Internal Audit function has a reporting
line to the Audit and Risk Committee.
The Committee reviewed, and approved the internal audit
plan for the year ending 31 December 2019, which was created
using a risk-based approach. In 2019, Internal Audit focused on
validating the effectiveness of the internal control framework,
monitoring activities within the Group, including the account
reconciliation process, controls over revenue, payroll, and
travel and expense processes, and mitigating identified
operational and compliance risks.
Whistleblowing Policy
The Group has in place a Whistleblowing Policy, which enables
employees to report any concerns relating to misconduct and
serious breaches of Avast policy or ethical guidelines without
fear of retribution. The Group has established a dedicated
hotline and email address to handle all such reports. Ethical
questions or concerns raised by employees are investigated
and all findings and remedial actions are reported in detail in
periodic reports prepared for and reviewed by the Committee.
COSO framework
Control environment
The Group’s control environment serves as a foundation
for its internal control process. Management at all levels is
responsible for ensuring that the Group, and its employees,
comply with the Group’s internal policies, including its
Code of Conduct and other internal policies relating to,
among others, financial processes, human resources, legal,
information security, and IT.
The financial shared services of the Group support
harmonised and standardised financial accounting
processes and controls.
Risk assessment
The Group takes a risk-based approach towards internal
controls. During the year, the Committee, on behalf of the
Board, carried out an assessment of the principal risks
facing the Group, including those that would threaten its
business model, future performance, solvency, and liquidity.
A description of the principal risks facing the Group and how
these were reviewed to assess the Group’s viability can be
found on page 50.
Control activities
Control activities are designed to prevent or detect material
misstatements in the financial statements and reporting.
To manage these risks, the Group has established control
activities. Key processes in relation to control activities,
including related risks and key controls, have been
implemented and documented in the Group’s internal
control framework.
Information and communication
Internal policies and directions, including requirements
relating to the implementation of internal controls as well
as accounting and reporting, are communicated to all
relevant employees through internal communication
channels such as the intranet, training sessions, and email.
Monitoring
The Group implemented a process for the monitoring of the
performance of internal control activities through periodic
control self-certification and compliance reviews by the
internal audit function. The Group maintains an ongoing and
transparent dialogue with its employees regarding internal
controls and the performance of control activities. Control
owners are encouraged to disclose any issues related to the
performance of control activities in order to ensure that any
issues in the process can be addressed in their infancy.
The Committee receives reports directly from both external
and internal auditors. The reports are considered and
discussed in detail by the Committee in meetings at which
both the external and internal auditors are present.
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Financial reporting – internal controls and
risk management
The Group’s internal controls over financial reporting are
designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation
of published financial statements in accordance with the
relevant applicable laws and procedures and pursuant to the
requirements of the Code.
The key elements of the control environment, in addition to
the risk management processes outlined on pages 48 to 50
of this report, are:
A clear schedule of matters which require approval at
Board level
A policy in relation to delegation of authority and the
limitations which apply
Comprehensive annual budgets prepared for the Group,
and individual business units
Ongoing monitoring of the performance of the Group, and
individual business units, against budgets with reports given
to the Board on a regular basis
Internal audit assessments, both with respect to financial
matters and business matters, discussed with management
and the Committee together with corrective actions agreed
and monitored
A centralised financial reporting system and close process,
with controls and reconciliation procedures designed to
facilitate the production of the consolidated accounts
Assessment of accounting standard changes with both the
external auditor and the Committee
Documented policies made widely available to employees
in relation to anti-bribery and corruption, anti-money
laundering, export controls, and whistleblowing
An ongoing review of the principal risks which face the
Group, in addition to the assessment undertaken by the
Committee in preparing the viability statement
Regular reports in relation to finance, tax, and treasury
given to the Committee
Effectiveness of internal control and
risk management
During the year, the Committee, on behalf of the Board,
reviewed the effectiveness of the internal control and
risk management systems of the Group, and reported its
conclusions to the Board. The Committee believes that the
risk management processes and internal controls of the Group
are effective. In coming to this conclusion, the Committee
considered a number of factors, including:
Management’s self-certification of the Group’s internal
controls and risk management systems, including against the
2013 COSO Framework, as monitored by the Committee
Approved audit plan for the year ended 31 December 2019
relating to financial, control, business, and operational audits
Work carried out by the internal and external audit function
during the year ended 31 December 2019, including an
assessment of the functional personnel and the annual
internal audit work plan
Reports it received from, and meetings it held with, the
Group’s internal and external auditors
Business updates provided by management in relation to
work carried out by external advisers with respect to security
and regulatory matters
Detailed assessment of the risk ratings assigned to the
individual risks within the business
Measures the Group has in place to mitigate the principal
risks it faces (more details of which can be found on pages
49 to 50)
The Committee is satisfied that there is an ongoing process for
identifying, evaluating, and managing the principal risks faced
by the Group. The systems in place are regularly reviewed by
the Committee.
During the year, the Internal Audit Director reported to the
Committee on areas where it had carried out key control
reviews, including the Group’s account reconciliations and
security policies.
The Board is satisfied that there are no significant weaknesses
in these systems and that the Group’s internal controls are
operating effectively.
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External auditor
The Committee makes recommendations to the Board on
the appointment, remuneration, and removal of the Group’s
external auditor.
In accordance with the mandatory re-tendering rules
implemented by the UK Competition and Markets Authority,
at least once every ten years the audit services contract will
be put out to tender to enable the Committee to compare
the quality and effectiveness of the services provided by the
incumbent auditor with those of other audit firms.
The Committee oversees and supervises any competitive
tender process undertaken by the Group for the provision of
external audit services. The last tender of audit services was
undertaken in 2016, with the next tender due in 2026.
Ernst & Young LLP was appointed as external auditor of the
Company on 23 May 2019 for the year ended 31 December
2019, following its reappointment at the Company’s 2019
AGM. Prior to this, Ernst & Young s.r.o. acted as external
auditor to the underlying group since the year ending
31 December 2007.
The Company was in compliance with the Statutory
Audit Services for Large Companies Market Investigation
(Mandatory Use of Competitive Processes and Audit
Committee Responsibilities) Order 2014 during the year.
The Committee safeguards the independence and objectivity
of the external auditor in a number of ways, including through
an annual review of the auditors’ independence and by
monitoring that no conflicting non-audit services are provided.
Non-audit services
In order to ensure the ongoing independence of the
external auditor, the Group maintains a Non-Audit Services
Policy which defines the rules under which the Group
can use the external auditor for non-audit services. The
Group’s procedures for procuring non-audit services from
external sources specifically prohibit Ernst & Young LLP from
undertaking certain types of services. The external auditors
may perform certain non-audit services for the Group which
are not prohibited. Any such non-audit services require
pre-approval by the Audit and Risk Committee, must be in the
best interests of the Company, and are only permitted to the
extent allowed by relevant laws and regulations. The Policy
complies with the FRC’s guidelines on the 2018 UK Corporate
Governance Code and Ethical Standards.
During the financial year, with the exception of the half-year
review, no non-audit services were provided by the external
auditor on behalf of the Group.
The ratio of fees for audit:non-audit services provided during
2019 was 10:1. Refer to Note 7 for further details regarding the
Group’s audit and non-audit fees.
Effectiveness of external auditors
The Committee reviewed the effectiveness of the external
auditor for the financial year ended 31 December 2019.
The Committee considered a number of factors when
undertaking this assessment, including:
The independence and objectivity of the external auditor
The external auditor’s qualifications, expertise, and
resources, and the effectiveness of the audit process
Its meetings and discussions with the external auditor,
including in relation to the auditor’s findings and reports on
the annual audit and interim review, and the quality of the
auditor’s work in relation to financial judgements made
The tenure of the external auditor, and whether it would
be appropriate to put the audit services contract out to tender
The transparency reports of the external auditor for 2019
Upon completion of its review of the effectiveness of the
external auditor, the Committee recommended to the Board
that a resolution to reappoint Ernst & Young LLP be proposed
at the next AGM.
Performance evaluation
The Audit and Risk Committee’s effectiveness for 2019 was
considered as part of the annual Board evaluation process.
The performance of the Committee was evaluated in
accordance with the process set out on page 71. The specific
areas assessed were:
Internal and external audit
Internal controls relating to financial reporting
Control environment processes
Risk management systems
Overall, the Committee’s performance was rated highly. It was
noted that it would be beneficial for the Board to be updated
more regularly on the work carried out by the Committee in
relation to its review of the risks facing the Group.
The Committee has reflected on the findings of the report,
together with the suggestions offered in relation to how the
Committee can operate more effectively.
By order of the Board
Belinda Richards
Chairman
25 February 2020
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Nomination
Committee report
“ Our mission is to
ensure that we have an
experienced, diverse
and appropriately
skilled leadership
team at Board and
management level.”
Warren Finegold
Chairman
Introduction
Dear Shareholder
I am pleased to introduce our Nomination Committee report
for the financial year ended 31 December 2019. In this
report, we provide you with an overview of the Committee’s
responsibilities and performance during the year.
The Committee is responsible for assisting the Board in
evaluating the structure, size, performance, and composition
of the Board and its Committees, and more broadly reviewing
succession plans at Board Director and senior management
level. The Committee is focused on ensuring that the Board
comprises individuals with the requisite independence,
knowledge, skills, diversity, and experience to discharge its
responsibilities effectively. As part of this, the Committee’s
decisions relating to the appointment of Directors follows
a formal appointment and induction process.
During the year, the Committee oversaw a number of
changes to the Board, its Committees, and the Executive
Management team, details of which are further described in
the report below.
Looking ahead, the Board is committed to having a diverse
and inclusive leadership team and the Committee will continue
to appoint on merit while maintaining its focus on succession
planning, talent management, and increasing diversity on
the Board.
Warren Finegold
Chairman
Principal activities
The Committee sets an annual forward agenda based
on the scope of its responsibilities under its terms of
reference. In addition, the Committee considers any other
relevant ad-hoc matters which require its review. During
the year, the Committee paid particular attention to the
following matters:
Recruitment of new Non-Executive Directors to
the Board
Succession plans for the Board and members of
the Executive Management team
Tenure of the current Chairman
Appointment of a new CEO
Reorganisation of the Committees
Appointment of a Director responsible for
workforce engagement
Monitoring compliance with corporate culture
Annual Board evaluation
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Committee membership
Committee member
Number of
meetings
attended
(No. of meetings
convened while a
member)
Date of
appointment
Warren Finegold (Chairman)
10 May 2018
John Schwarz
Erwin Gunst
Maggie Chan Jones*
Belinda Richards*
10 May 2018
10 May 2018
22 May 2019
7 June 2018 –
22 May 2019
4(4)
4(4)
4(4)
3(3)
1(1)
* With effect from 22 May 2019, Ms Richards, Independent Non-Executive
Director of the Company stepped down from the Committee and
Ms Chan Jones was appointed as a member of the Committee.
Committee composition
The Committee is chaired by Warren Finegold, the Senior
Independent Non-Executive Director of the Company,
and comprises three other Non-Executive Directors.
Full biographies of the Committee’s members can be
found on pages 66 to 67.
The Group’s General Counsel is secretary to the Committee.
From time to time, the Committee may invite others to join the
meetings, where it considers their expertise and knowledge
to be relevant and necessary to the subject matter under
consideration. During the year, this included the CEO,
and Chief of Staff & Company Secretary.
The Company complies with the requirements of the Code
that a majority of the Nomination Committee be Non-Executive
Directors, independent in character and judgement, and free
from any relationship or circumstance which may, could,
or would be likely to, or appear to, affect their judgement.
Succession planning
Succession planning is carried out with a view to strengthening
the Company’s organisational capabilities and ensuring our
Board and Executive Management team possess the requisite
skills, experience, and diversity. As part of our succession
planning, the Company reviews the risk rating of the senior
executives on an annual basis and discusses the succession
plans for each of them. The successors are given a readiness
status and their development is discussed. The Company
seeks to promote from within the Group, where possible,
and recruit externally if required, in order to ensure the best
candidates are retained. Throughout the year, the composition
of the Executive Management team underwent a number of
changes, as further set out below
Search and appointment of new CEO
Following a succession planning process, with assistance
from executive search firm Russell Reynolds (a signatory to
the Voluntary Code of Conduct for Executive Search Firms,
which also assisted the Company in the appointment of
its Independent Non-Executive Directors), the Committee
oversaw the search and appointment of Ondrej VIcek as
successor to Vince Steckler. Mr VIcek was unanimously
elected and appointed by the Board, with effect from
1 July 2019, following an extensive assessment undertaken
by the Committee which included the evaluation of both
internal and external candidates. Mr VIcek has more than
20 years of experience with the Group leading its technology
transformation from a traditional PC antivirus vendor to a
leading global provider of AI-based security solutions.
Prior to his appointment as CEO, Mr VIcek served as President
of the Consumer Business, was an Executive Director on the
Board, and was part of the Executive Management team that
took the Company public on the London Stock Exchange in
May 2018.
Appointment of senior executives
The Company welcomed a number of senior executives
in various roles throughout the latter half of 2019, and the
beginning of 2020.
Michal Pechoucek joined the Group as CTO in September
2019. Mr Pechoucek leads the core technology and R&D
teams. He is also responsible for the Group’s scientific
research in the fields of AI, machine learning, and
cybersecurity, and brings a wealth of experience and
knowledge in those fields to the Group.
In October 2019, we welcomed Jaya Baloo as CISO. Ms Baloo
is recognised within the list of top 100 CISOs globally and
ranks among the top 100 security influencers worldwide.
In 2019, she was selected as one of the 50 most inspiring
women in the Netherlands by Inspiring Fifty, a non-profit
which aims to raise diversity in technology. Ms Baloo has
significant experience in the information security industry,
with a particular focus on secure network architecture.
Ms Baloo sits on a number of advisory boards and is a
member of EU Quantum.
In January 2020, Julio Bezerra joined the Group as Chief
Strategy and Transformation Officer. Mr Bezerra is responsible
for developing, communicating, and executing the Company’s
strategy, including leading major transformation projects,
corporate development, and M&A transactions. Mr Bezerra
has significant experience in fast-moving technology,
consumer markets, and change management.
In February 2020, we welcomed Rebecca Grattan as Chief
People and Culture Officer. Ms Grattan is responsible for
the human resources and facilities functions within the
Group. Ms Grattan brings extensive global HR experience
and has a particular interest in creating organisational climates
where people thrive and where underrepresented groups can
be supported to achieve their potential. Throughout her career,
she has championed programmes to highlight and tackle
gender, LGBTQ+, mental health, and wellbeing and has been
involved in a range of women in tech initiatives.
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Appointment of Independent
Non-Executive Directors
As part of its succession planning, the Board, and specifically
the Committee encouraged the emergence and consideration
of female appointees to the Board. With assistance from
executive search firm Russell Reynolds, we were fortunate
to identify two outstanding female Non-Executive Directors,
Ms Maggie Chan Jones and Ms Tamara Minick-Scokalo, who
were appointed to the Board. Ms Chan Jones brings extensive
experience in the US technology sector, while Ms Minick-
Scokalo brings deep experience in the consumer sector.
Independent Directors
The Code recommends that at least half of the board of
directors of a UK-listed company, excluding the Chairman,
comprise non-executive directors determined by the board
to be independent in character and judgement, and free
from relationships or circumstances which may affect, or
could appear to affect, the directors’ judgement. Eight out of
12 Directors are independent following the appointment of
Ms Chan Jones and Ms Minick-Scokalo. Further details on
the classification of Directors are included in the Corporate
governance statement on page 69. As a result, the Company
is compliant with the requirement of the Code.
Board appointments
Pursuant to the requirements of the Code, prior to being
appointed to the Board, the commitments of Non-Executive
Directors are assessed. Upon appointment, Directors are
required to allocate sufficient time to the Company in order
to discharge their responsibilities effectively and meet the
expectations of their role. Internal controls are in place which
require Directors to notify the Board before accepting any
additional commitments which may affect this.
Reorganisation of Committees
During the year, the Committee oversaw a number of changes
to the composition of the Audit and Risk, Remuneration and
Nomination Committees, which are further described below.
Audit and Risk Committee
Ms Belinda Richards was appointed Chair of the Audit
and Risk Committee, replacing Mr Erwin Gunst. Ms Richards
has significant financial experience being a former senior
corporate finance partner at Deloitte LLP. Ms Richards
also currently sits as audit committee chair at two FTSE
350 companies.
Ms Minick-Scokalo was also appointed as a member of the
Audit and Risk Committee and her extensive international
experience in fast-moving consumer goods and change
management means she is well placed to assist the Committee
in monitoring and assessing the effectiveness of the
Company’s internal controls and risk management processes.
Nomination Committee
Ms Chan Jones was appointed as a member of the Nomination
Committee. Due to her appointment as Chair of the Audit and
Risk Committee, Ms Richards stepped down as a member of
the Nomination Committee.
Ms Chan Jones brings a fresh and varied perspective to the
Committees due to her significant experience in technology,
particularly in brand and cloud transformation, and to her
professional role in advancing gender diversity through
executive coaching.
Remuneration Committee
Ms Chan Jones was also appointed as a member of the
Remuneration Committee.
Evaluation of the Board’s structure, size,
performance, and composition
The performance of the Nomination Committee for 2019
was evaluated in accordance with the process set out on
page 71. The specific areas assessed were:
Composition of the Board
Selection and appointment of new Directors
Succession planning for Executives and Non-Executives
The performance of the Committee in selecting and
appointing new Directors was rated highly, and its
review of Board composition and succession planning
for Non-Executives were rated positively overall. It was
noted that greater visibility around succession planning
and Board composition could serve to improve operations
of the Committee.
The Committee has reflected on the findings of the report,
together with the suggestions offered in relation to how the
Committee can operate more effectively.
Diversity Policy
The Board is committed to increasing diversity among gender,
race, culture, education, skills, and experience. The Board
currently comprises members from six different nationalities,
with experience across a diverse range of disciplines and
industries. The Board seeks leaders who embrace the Group’s
culture and values, and believes that, in order to provide
effective strategic leadership, the Board must comprise
individuals with a broad and diverse range of perspectives,
along with the requisite skills, knowledge, and experience.
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The Board, and specifically the Committee, require that all
lists of candidates for new Board positions include a diverse
set of candidates. As of the date of this report, the proportion
of women on the Board is 25%. The Board is mindful of the
recommendations set out in the Hampton-Alexander Review
and the Board remains committed to reaching its minimum
33% target for female representation on the Board. The
Board's strategy for achieving diversity on the Board during
2020 and beyond includes increasing the proportion of
women on the Board through the natural attrition of existing
male Directors.
In 2019, the representation of women on the combined
executive management committee and their direct reports
was 26.4%. This decreased to 24.1% following the departure
of CMO, Robin Selden from the Group on 29 November
2019; however, it increased back to 26.4% following Rebecca
Grattan, the Group’s new Chief HR Officer, joining the Group
on 1 February 2020. The Board is committed to increasing
the representation of women in executive management and
improving diversity in an industry which is traditionally very
male dominated. Further details are set out on pages 54 to 55.
Company culture
The CEO is leading a culture initiative, as further set out in
the Strategic report. The culture initiative is still in development
and wider employee consultation is currently being
undertaken to ensure the Company engages more effectively
on culture in 2020. This will include development of the Avast
Culture Book, which incorporates the Company’s mission
statement, values, and behaviours. The Board has delegated
the responsibility of measuring compliance with the Group’s
culture initiative to the Nomination Committee.
John Schwarz’s tenure as Chairman
The Code introduced a new rule, effective as of 1 January
2019, which provides that the Chair of a FTSE 350 company
should not remain in the post beyond nine years from the date
of their first appointment to the board. The Code allows for a
limited extension beyond this period where the Chair has been
a Non-Executive Director for a significant amount of time prior
to becoming Chair, and their continued appointment supports
the company’s succession plan and diversity policy.
The Company’s Chairman, John Schwarz, will have
been on the Board for nine years as of December 2020.
Mr Schwarz was a Non-Executive Director from 2011 prior to
his appointment as Chair in 2014. The Company’s preference
is that Mr Schwarz remains as Chairman beyond 2020
for a limited time. With the recent change in CEO, and the
introduction of new Board members this year, Mr Schwarz’s
continuation as Chairman will provide much needed stability
and continuity. The Company plans to consult with its largest
institutional shareholders in Q1 2020 to explain the rationale
for the proposed extension and to obtain their feedback.
By order of the Board
Warren Finegold
Chairman
25 February 2020
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Nomination Committee report Strategic report Governance Financial statements
Avast annual report 2019 84
Directors’
remuneration report
Structure
Chair’s letter
Annual remuneration report for 2019
Summary of Remuneration Policy and
implementation for 2020
Directors’ remuneration for 2019
Directors’ shareholdings
Remuneration Committee overview
84
85
85
90
95
98
“ We are pleased
that our Directors’
Remuneration Policy
was approved by
nearly 95% of our
shareholders at the
AGM during the year.”
Mr Ulf Claesson
Chair of the Remuneration Committee
Remuneration Committee Chair’s letter
Dear Shareholder
Welcome to our second Directors’ remuneration report
published since the Company listed on the London Stock
Exchange in May 2018. At our first AGM on 23 May 2019,
the Committee put forward our Directors’ remuneration Policy
for shareholder vote. I am pleased to report that this Policy
was supported by 94.7% of our shareholders. Our Directors’
Remuneration Policy has been designed to incorporate the
best practice features of the typical UK pay model while setting
reward levels, particularly long-term incentive opportunities,
at a level that recognises that we source talent in a global
market and in particular from the US where pay models are
different to the UK.
Remuneration arrangements for the CEO
As disclosed in last year’s report, Mr Vincent Steckler stepped
down from the board and as CEO on 30 June 2019 and
Mr Ondrej Vlcek took over as CEO from 1 July 2019. On 2 July
2019, we announced that Mr Ondrej Vlcek had notified the
Board of his intention to indefinitely waive his annual salary
and bonus (not including the portion related to his Board fee)
for a nominal annual salary of $1. He also notified the Board
of his decision to donate 100% of his Board Directors’ fee
($100,000 per annum) to charity. These arrangements are in
effect from 1 July 2019. He will continue to receive an annual
LTIP award, calculated as a multiple of his (waived) base salary.
The Board reviewed and accepted Mr Ondrej Vlcek’s proposal
to waive his annual salary and annual bonus, and is satisfied
that he continues to be appropriately incentivised through
existing long-term equity-based incentive arrangements and
through his 2% shareholding in Avast.
Implementation of remuneration arrangements
for 2020
Other than the changes outlined for the CEO, it is intended that
during 2020 remuneration arrangements will continue to be
implemented in line with our published remuneration policy.
There are no changes to our annual bonus and LTIP award
levels. Annual bonuses for 2020 will be based on revenue
(35%), unlevered free cash flow (35%), customer satisfaction
(15%) and strategic KPIs (15%) with LTIP awards being based on
revenue and EPS growth.
The Committee reviewed base salaries with effect from 1 April
2020 and decided that no increase would be awarded to the
CFO at this time and his salary will remain at $600,000. The
CEO’s ‘headline’ salary on which his LTIP award level is based
will remain at $700,000.
UK Corporate Governance Code
The Committee continues to learn from and adopt new
developments in corporate governance and best practices,
in the UK and globally.
Pay outcomes for 2019
2019 was a successful year for Avast as we continue to
execute our growth strategy delivering both revenue and
profit growth during the year.
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Strategic report Governance Financial statements
Avast annual report 2019 85
The annual bonus for 2019 was based on adjusted revenue,
unlevered free cash flow, and strategic measures. Organic
revenue grew by 9.1%. Performance against the adjusted
revenue plan was above the target. Unlevered free cash flow
grew by 7.9% and was just above target performance. This
resulted in a bonus payout of 52.7% of maximum in respect
of the adjusted revenue component (37.5% weight), and
54.3% of maximum in respect of the unlevered free cash
flow component (37.5% weight). The Committee reviewed
individual performance carefully against the strategic KPIs
set for each Executive Director, and awarded the Executive
Directors as a percentage of target (25% weight) relative to the
performance component: i) Mr Philip Marshall as CFO – 26.7%
and Mr Ondrej Vlcek as President Consumer – 23.7%. Further
details are set out on page 92. The Committee determined
that this outcome was appropriate in the context of underlying
performance and the experience of shareholders and
other stakeholders during the period and no discretion
was therefore exercised.
Other Board changes
During the year Ms Maggie Chan Jones and Ms Tamara
Minick-Scokalo joined the Board as non-executive directors.
I am pleased to welcome Ms Chan Jones as a member of the
Remuneration Committee.
This Directors’ remuneration report will be submitted to
shareholders for an advisory vote at the AGM on 21 May
2020 and I look forward to our ongoing dialogue on this
important topic.
By order of the Board
Mr Ulf Claesson
Chair of the Remuneration Committee
Annual remuneration report 2019
The annual remuneration report that follows has been
prepared in accordance with the provisions of the 2018
UK Corporate Governance Code (‘the Code’), the Listing
Rules, the Large and Medium-sized Companies and Groups
(Accounts and Reports) (Amendment) Regulations 2013, and
the Companies Act 2006. It will be subject to an advisory
shareholder vote at the 2019 AGM on 21 May 2020.
Summary of key elements of Remuneration
Policy and implementation for 2020
Our Remuneration Policy for Directors (‘the Policy’) was put
to shareholders for approval at the AGM on 23 May 2019
and applies to payments made from this date. The following
provides a summary of the Policy along with details of how
the Policy will be implemented during 2020. No changes to
the Policy are being proposed at this point. For full details of
the Policy approved by shareholders please refer to the 2018
annual report and accounts which can be found on our website
under the investor section (investors.avast.com/investors/
results-reports-and-presentations/).
The Group’s overall philosophy on remuneration is based
on the approach that remuneration should be simple while
being clearly linked to the performance and behaviour of
the individual, business results, and shareholder outcomes.
This approach to remuneration, which cascades down
through the organisation, is designed to:
reward achievement of short and long-term financial
objectives and support delivery of the business strategy
and sustainable long-term returns to shareholders;
provide competitive, transparent, and fair rewards; and
align the interests of employees and shareholders through
appropriate levels of employee share ownership.
Reward levels are set to attract, retain, and engage high-
calibre talent to support the business strategy while being
aligned with our culture, purpose, and values. The Group’s
remuneration policy is regularly assessed against market
practice in the countries where we compete for talent as well
as against internal practice to ensure it remains appropriate.
A significant proportion of potential total reward for our
Executive Directors is performance-related, aligning pay with
business success. Award levels are capped with payout linked
to performance against a limited number of measures which
are well linked to our strategy. The high performance hurdles
that we set ourselves ensure that the reward received by the
executives through the incentive plans aligns with shareholder
outcomes while taking into account our overall risk appetite.
The Committee retains the discretion to adjust payouts where
this is considered appropriate.
Furthermore, our Remuneration Policy and the long-term
nature of our incentive plans promote sustainable financial
performance and ensure appropriate safeguards are in
place to avoid rewarding failure (such as malus and clawback
provisions, shareholding guidelines, and holding periods).
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Avast annual report 2019 86
BASE SALARY
Overview
Base salary levels are determined by the Committee,
taking into account the role, responsibilities, performance,
and experience of the individual, market data for comparable
roles in the global market, and pay and employment
conditions elsewhere in the Group.
Salaries are typically reviewed annually, with any changes
normally taking effect from 1 April each year.
Maximum opportunity
While there is no maximum salary level or maximum
increase that may be offered, salary increases will normally
be in line with typical increases awarded to other employees
in the Group.
Performance measures
n/a
BENEFITS
Overview
Benefits currently include private health cover (for the
individual and family members), life insurance, flexible benefit
scheme, and car allowance.
Maximum opportunity
There is no maximum limit on the value of the benefits
provided but the Committee monitors the total cost of the
benefit provision.
Executive Directors can access Avast products and are
eligible to participate in any all-employee share plans on the
same terms as offered to other employees.
Performance measures
n/a
PENSION
Overview
Executive Directors do not currently participate in pension
arrangements in line with practice for other employees.
If the Company were to introduce pension arrangements
or similar for other employees in the Group then Executive
Directors may be provided with a pension or pension
allowance at the same rate as other employees.
Maximum opportunity
n/a
Performance measures
n/a
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Implementation for 2020
On 2 July 2019, the CEO (Mr Ondrej Vlcek) waived his
salary and annual bonus (excluding his Board fee). He will
continue to receive his Board Directors’ fee ($100,000 per
annum) which he will donate to charity. From 1 July 2019,
Mr Ondrej Vlcek will receive a nominal annual salary of
$1 only in addition to his Board fee. This is revocable with
30 days’ notice.
His notional salary (for determining LTIP awards) is $700,000
(inclusive of the $100,000 Board director’s fee element).
The salary of the CFO (Mr Philip Marshall) will not be
increased from 1 April 2020 and therefore will continue
at $600,000.
Implementation for 2020
The CEO (Mr Ondrej Vlcek) does not receive private health
cover or a car allowance.
The CFO will continue receiving benefits, including the
car allowance.
Implementation for 2020
No change.
Directors’ remuneration report Strategic report Governance Financial statements
Avast annual report 2019 87
The Committee believes that these measures are appropriate
as they incentivise executives to drive top-line financial
results to deliver our growth strategy while also incentivising
them to increase profitability and convert this profit into cash
returns. Customer satisfaction has been introduced as a
performance measure for 2020 to incentivise and reward
executives for delivering a superior customer experience.
Strategic KPIs are included to ensure a rounded assessment
of performance and to incentivise management to deliver
against our strategic milestones so that we continue to lay
the foundations for future success.
The specific targets for 2020 are considered commercially
sensitive. However, the Committee intends to disclose these
retrospectively in the 2020 Directors’ remuneration report to
the extent that they do not remain commercially sensitive.
Implementation for 2020
As noted above, the CEO (Mr Ondrej Vlcek) has waived his
annual bonus.
The maximum annual bonus opportunity for the CFO
(Mr Philip Marshall) will continue to be 200% of salary.
ANNUAL BONUS
Overview
Annual bonuses are based on performance over one
financial year.
Annual bonuses are normally paid in cash following the year
end. Where an executive has not met (or is not on course
to meet) the executive shareholding guideline within the
timeframe set out, 50% of any bonus earned will normally
be deferred into shares.
Any deferred shares would normally vest on the second
anniversary of grant.
The Committee retains the discretion to adjust the bonus
award if it does not consider that it reflects underlying
Company performance or for any other reason it
considers appropriate.
Recovery and withholding provisions apply (see below).
Maximum opportunity
Maximum annual bonus is 200% of salary.
Target bonus payout is set at 50% of the maximum.
No more than 12.5% of the maximum will pay out for
meeting threshold performance.
Performance measures
The annual bonus for 2020 will be based on the following
performance measures:
35.0% on organic revenue performance excluding FX;
35.0% on unlevered free cash flow (as defined on
page 172);
15% on customer satisfaction; and
15% on strategic KPIs.
LTIP
Overview
LTIP awards normally vest based on performance over a
three-year period.
Maximum opportunity
The maximum award is normally 500% of salary for the
CEO and 450% of salary for the CFO.
The Committee retains the discretion to adjust the
vesting of LTIP award if it does not consider that it reflects
underlying Company performance or for any other reason
it considers appropriate.
Any shares vesting under the LTIP (net of tax) will be subject
to a two-year holding period.
Recovery and withholding provisions apply (see below).
No more than 7% of maximum opportunity will be paid for
meeting threshold levels of performance under each of the
performance measures (i.e. 14% of the aggregate award).
55% of the award will normally vest for target performance
and 100% of the award will normally vest for maximum
performance. There is a straight-line vesting between the
performance points.
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Avast annual report 2019 88
LTIP (continued)
Performance measures
2020 LTIP will be subject to the following performance
measures:
50% based on basic (undiluted) EPS growth; and
50% on organic revenue growth.
Performance targets for the 2020 awards are set out
below this table.
SHARE MATCHING PLAN
Overview
All employees, including the Executive Directors and
members of the Executive Management team, are eligible
to participate in the SMP.
SHAREHOLDING GUIDELINES
Overview
Executive Directors are normally expected to build a
minimum shareholding in the Company.
Maximum opportunity
In-employment: guideline is 200% of salary.
The Committee believes that the combination of organic
revenue and profit incentivises management to grow the
value of the Group over the long term and is strongly aligned
to the execution of the business strategy.
The Committee believes that there are sufficient safeguards
in place to ensure that incentives do not encourage
management to deliver organic revenue which is not in
the long-term interests of the Group.
The Committee is mindful that organic revenue is used as
a measure in both the annual bonus and LTIP; however, it
considers that, given that organic revenue growth is a critical
part of our long-term strategy, this is appropriate.
Implementation for 2020
The CEO will continue to receive an LTIP award of 500% of
salary based on his headline salary of $700,000.
The CFO will continue to receive an award of 450% of salary.
Maximum opportunity
Participants can voluntarily invest up to $34,000 per year to
acquire shares (via deductions from their base remuneration
or quarterly bonus). The Company will award the participant
a number of matching shares up to a maximum of one share
per one purchased share. The current holding period is
two years and the current matching is one share per three
purchased shares.
Performance measures
n/a
Implementation for 2020
No changes.
The CFO participated in the SMP during 2019.
Post-employment: we do not have a formal policy on post-
employment shareholding in place at the moment; however,
the Committee reviewed the approach during 2019 taking
into account market practice and continues to believe that
the leaver provisions currently in place along with existing
shareholdings ensure the alignment of the interests of our
Executive Directors and our shareholders post-cessation
of employment. The Committee will continue to keep this
approach under review in light of evolving market practice
and shareholder sentiment.
Performance measures
n/a
Implementation for 2020
If an individual subject to the guideline does not meet the
guideline, or is not on course to meet this guideline, up to
50% of any bonus earned will normally be required to be
deferred into shares as a deferred bonus award, and will
be expected to retain at least half of the net shares vesting
under the Company’s discretionary share-based employee
incentive schemes until the guideline is met.
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Avast annual report 2019 89
Performance targets for the 2020 LTIP awards
The following sets out the Group basic EPS (undiluted)
growth and Group organic revenue growth targets over the
three-year performance period to 31 December 2022:
Threshold
14% vesting
Target
55% vesting
Maximum
100% vesting
Group basic EPS
(undiluted) growth
50%
weighting
Group organic
revenue growth
50%
weighting
5% p.a.
growth
5% p.a.
growth
8% p.a.
growth
7% p.a.
growth
12% p.a.
growth
12% p.a.
growth
There is straight-line vesting between the performance points.
Recovery and withholding provisions
Annual bonus payments may be recovered for a period
of three years from the date of payment. Recovery and
withholding provisions apply under the Deferred Bonus Plan
(DBP), within three years from the date on which any DBP
award is granted. Recovery and withholding provisions apply
under the LTIP at any time prior to the third anniversary of the
date on which awards vest following the end of performance
period. The circumstances in which recovery/withholding
provisions may apply are:
a) a material misstatement of the Group’s financial results;
b) an error in assessing the achievement of any bonus or
performance conditions; and
Executive Directors’ service agreements
Each of the Executive Directors has a service contract,
which is available for inspection on request. Details of the
notice periods currently included in services contracts of the
Executive Directors are summarised in the table below:
Ondrej Vlcek
Philip Marshall
Date of contract
Notice period
9 May 2018
6 months
9 May 2018
6 months
The details of the policy on payments for loss of office
are available in the 2018 annual report and accounts
(page 81) which can be found on our website under the
investor section (investors.avast.com/investors/results-
reports-and-presentations/).
Non-Executive Directors’ fees
Our Non-Executive Director fees policy is to pay an annual
basic fee for membership of the Board and additional fees
for the Senior Independent Director (SID), the Chair of each of
its Committees, and the members of each of its Committees
to take into account the time commitment of these roles.
The Chairman is paid a single consolidated fee. There have
been no changes to the Non-Executive Director or Chairman’s
fees with effect from 1 April 2020.
Chair fee
$350,000 (inclusive of
Committee fees)
c) discovery of serious misconduct by the participant prior
Non-Executive Director base fee
$100,000
An additional allowance of $5,000 per meeting is payable
where transatlantic travel is required. Additional fees or other
payments may be made to reflect additional responsibilities,
roles, and contributions.
Non-Executive Directors’ letters of appointment
Non-Executive Directors all serve under letters of appointment
(effective from 9 May 2018) for periods of three years.
The Non-Executive Directors (including the Chairman) have a
notice period of one month, although the Company may elect
to make a payment in lieu of notice. The terms and conditions
of appointment for Non-Executive Directors are available for
inspection upon request.
Remuneration Policy for other employees and
how employees’ views are taken into account
The Committee took into account the Company’s approach
to remuneration and related policies for the wider workforce
when determining the Policy for Executive Directors. The
majority of our employees are able to share in the success
of the Group through participation in a quarterly bonus
plan. Executive Directors, other members of the Executive
Management team, and key employees are also eligible for
participation in a long-term incentive plan and all employees
including the Executive Directors are eligible to participate
in a share matching plan. The Committee did not directly
consult with employees when setting the Policy but it took
into account general feedback on employee engagement
provided to the Board.
to vesting.
Additional fees:
Senior Independent Director
Audit and Risk Committee Chair
Audit and Risk Committee member
Remuneration Committee Chair
Remuneration Committee member
Nomination Committee Chair
Nomination Committee member
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$15,000
$15,000
$7,500
$15,000
$7,500
$15,000
$7,500
How shareholders’ views are taken into account
The Committee is committed to an open and ongoing
dialogue with shareholders. The Committee will consider
any shareholder feedback received throughout the year and
at the AGM in shaping the application remuneration policy
and when it undertakes the annual remuneration review.
It is the Committee’s intention to consult with major
shareholders in advance of making any material changes
to remuneration arrangements.
Directors’ remuneration report Strategic report Governance Financial statements
Avast annual report 2019 90
Remuneration received by Directors for the year ended 31 December 2019 (audited)
Directors’ remuneration for the year ending 31 December 2019 and for the period from 9 May 2018 (the date Directors were appointed prior to the IPO on 15 May 2018) to 31 December 2018 was
as follows:
Salary and fees1
Benefits2
Pensions3
Annual bonus
Long-term
incentives
Total
Executive
Ondrej Vlcek4
Philip Marshall
Vincent Steckler5
Non-Executive
John Schwarz
Erwin Gunst
Pavel Baudis
Eduard Kucera
Lorne Somerville10
Ulf Claesson
Warren Finegold
Belinda Richards11
Maggie Chan Jones12
Tamara Minick-Scokalo13
Total
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2019
(H1) as President Consumer
(H2) as CEO
2018
2019
2018
2019
2018
$275,001
$225,000
$50,001
$288,653
$562,500
$336,653
$400,000
$512,653
$350,000
2019
$225,807
2018
$117,913
2019
$79,032
2018
$100,057
2019
$82,732
2018
$100,062
2019
$78,706
2018
$108,103
2019
$55,623
2018
$122,500
2019
$79,032
2018
$137,500
2019
$88,709
2018
$115,000
2019
$64,869
2018
$89,422
2019
–
2018
$84,850
2019
–
2018
2019 $2,562,906
$1,892,469
2018
–
–
–
–
–
–
–
$13,700
$7,385
$6,315
$6,923
$62,019
$18,443
$11,285
$18,443
$20,000
$15,000
$12,929
$8,227
$13,004
$8,287
$20,000
$152,937
$75,323
$235,4876 $6,409,2238
$235,4876
$6,933,411
$467,872
$06 $6,409,2238 $6,465,539
$355,7667 $2,376,2459 $3,027,587
$642,0776
$1,266,596
$316,5247
$671,620
$06
$411,285
$632,6277 $6,336,6729 $7,500,395
$08
$370,000
$240,807
$117,913
$79,032
$112,986
$90,959
$113,066
$86,993
$108,103
$55,623
$122,500
$79,032
$137,500
$88,709
$115,000
$64,869
$109,422
–
$84,850
–
$877,564 $6,409,223 $10,002,630
$8,712,917 $11,985,626
$1,304,917
Directors’ remuneration report Strategic report Governance Financial statements
Avast annual report 2019
91
Salary
Vincent Steckler was CEO for the period 1 January 2019 to
30 June 2019 and his salary was $800,000 per annum.
Ondrej Vlcek was appointed to the role of CEO from 1 July
2019 and his salary was set at $700,000. Mr Vlcek has elected
to waive his salary (not including his Board fee) and annual
bonus from this date. Mr Vlcek continues to receive his Board
Directors’ fee ($50,000 for the period) which he donated to
charity. From 1 July 2019, Mr Vlcek received a nominal annual
salary of $1 only in addition to his Board fee. For the period
1 January 2019 to 30 June 2019 Mr Vlcek’s salary was
$450,000 per annum in his role of President Consumer.
For the period 1 January 2019 to 30 June 2019 Philip Marshall’s
salary was $525,000 per annum. His salary was increased to
$600,000 per annum from 1 July 2019 reflecting his increase
in responsibilities following Mr Steckler stepping down from
the Board.
Notes to the single figure
1 Aggregate salary for Executive directors includes an amount for Board fee and salary.
2 Benefits for Executive Directors include life insurance, health insurance, flexible benefit scheme, and car allowance. Benefits include allowance for
Non-Executive Directors who travel intercontinentally.
3 Executive Directors do not receive a pension contribution.
4 Mr Ondrej Vlcek was appointed to the role of CEO from 1 July 2019. His remuneration in 2019 is therefore shown in two lines – for the part of the year when
he served as President Consumer (H1) and for the part when he served as CEO (H2). Mr Ondrej Vlcek elected to waive his salary (not including his Board fee)
and annual bonus from his appointment as CEO. He continues to receive his Board Director’s fee ($50,000 for the period) which he donated to charity.
From 1 July 2019, Mr Ondrej Vlcek received a nominal annual salary of $1 only in addition to his Board fee.
5 Mr Vincent Steckler stepped down from the Board and as CEO on 30 June 2019. He was not eligible to receive an annual bonus for 2019.
6 The bonus for the year ending 31 December 2019 was paid 100% in cash as the Committee judged that all Executive Directors had met their shareholding
guideline or were on progress to meet the shareholding guideline in the required time period. Mr Ondrej Vlcek’s annual bonus relates to the period 1 January
2019 to 30 June 2019 when he was President Consumer and was calculated based on the annual salary in effect at the end of H1, i.e. on 30 June 2019
($450,000). This amount also includes a payment of $1,458 in respect of filing a patent under the Company wider Patent Award programme in which all
employees are eligible to participate. As noted above, from 1 July 2019 (i.e. for H2) Mr Ondrej Vlcek elected to waive his annual bonus. Mr Philip Marshall’s
annual bonus was calculated based on the annual salary in effect at year end, i.e. on 31 December 2019 ($600,000).
7 Relates to the payment of annual bonus for the year ending 31 December 2018. The amount shown is for the period 9 May 2018 through 31 December 2018.
This bonus was paid 100% in cash as the Committee judged that all Executive Directors had met their shareholding guideline or were on progress to meet the
shareholding guideline in the required time period.
8 Prior to the IPO in April 2017, Mr Vincent Steckler and Mr Ondrej Vlcek were granted an award of performance based stock options (Mr Ondrej Vlcek received
2,039,042 options and Mr Vincent Steckler received 3,624,969 options at the option price of £1.360, and Mr Ondrej Vlcek received 1,019,396 options and
Mr Vincent Steckler received 1,812,264 options at the option price of £0.880). A portion of these options (99% of the target amount) vested on 13 March 2019
based on the achievement of EBIT performance to 31 December 2018 (described in more detail in Note 9 below). The remaining portion of these awards (100% of
maximum) vested on 6 September 2019 following the achievement of the performance condition. This performance condition was based on the achievement of
a full sell down of CVC’s pre-IPO shareholding (which took place on 4 September 2019) and the price at which this sell down was achieved. For Mr Ondrej Vlcek,
1,366,159 options with the option price of £1.360 and 682,996 options with the option price of £0.88 vested. For Mr Vincent Steckler, 1,830,610 options with the
option price of £1.360 and 915,193 options with the option price of £0.88 vested. The awards have been valued based on the share price on the date of vesting
of £3.74 and the exchange rate on this date of $1.23/£1. These awards were structured as market value options and therefore the proportion of the value that
has been disclosed that is attributable to share price growth is 100%. Awards for Mr Vincent Steckler vested following him stepping down from the Board and
therefore are not shown in the single figure above. The value for single figure purposes would have been $8,588,158.
9 As noted above, in April 2017 Mr Vincent Steckler and Mr Ondrej Vlcek were granted an award of performance-based stock options (option price of £1.360 and
£0.88) prior to the IPO. A portion of these awards vested in March 2019 based on the achievement of EBIT performance for the year ending 31 December 2018
(the EBIT target was set at $432m and the EBIT achieved for 2018 was $431.6m resulting in 99% of the awards vesting). For Mr Ondrej Vlcek, 672,883 options
with the option price of £1.360 and 336,400 options with the option price of £0.88 vested. For Mr Vincent Steckler, 1,794,359 options with the option price of
£1.360 and 897,071 options with the option price of £0.88 vested. In the 2018 report these awards were valued based on the average share price for the period
1 October 2018 to 31 December 2018 of £2.786. These shares vested on 13 March 2019 and the value has been updated to reflect the share price on the date
of vesting of £2.98 and the exchange rate of that date of $1.32/£1. The values disclosed in 2018 were $5,496,127 for Mr Vincent Steckler and $2,061,041 for
Mr Ondrej Vlcek. These awards were structured as market value options and therefore the proportion of the value that has been disclosed that is attributable to
share price growth is 100%.
10 Mr Lorne Somerville donated the fee paid to him by the Company (net of national insurance and taxes) to charity. In Q1 2019, he received a correction payment for
a post-IPO underpayment in Q2 2018, equal to $8102.71 with FX as of 9 May 2018 (£1 = $1.3577).
11 Ms Belinda Richards was appointed to the Board on 7 June 2018 and remuneration shown is from this date.
12 Ms Maggie Chan Jones was appointed to the Board on 13 March 2019 and remuneration shown is from this date.
13 Ms Tamara Minick-Scokalo was appointed to the Board on 13 March 2019 and remuneration shown is from this date.
14 No discretion has been exercised by the Committee to adjust incentive outcomes in respect of 2018 or 2019.
15 Where relevant figures have been translated from their currency of payment into USD, the exchange rates used by Payroll teams at the times of the payments
were applied.
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Annual bonus for the year ended 31 December 2019 (audited)
The annual bonus for the year under review was based on adjusted revenue, unlevered free cash flow, and strategic KPIs
as follows:
Weighting
Threshold
Target
Maximum
12.5% payout
50% payout
100% payout
Performance
achieved
Performance at
budget FX rate1
The above performance resulted in the following payments:
Executive
Ondrej Vlcek
% of maximum
Philip Marshall
2019 bonus
payment % of maximum
$234,0291
$642,077
52.0
53.5
Adjusted revenue
Unlevered free cash flow
37.5%
37.5%
$791.7m
$375.6m
$879.7m
$1,055.6m
$417.4m
$500.9m
$873.1m
$424.6m
$889.3m
n/a
52.7
54.3
Notes
1 Actuals at target FX rates exclude currency impact calculated by restating 2019 actuals to 2019 planning rates, and are used for bonus payout
calculation purposes.
25% of the bonus was based on performance against individual strategic KPIs as described below.
Notes
1 This amount does not include a payment of $1,458 in respect of filing a
patent under the Company wider Patent Award programme in which all
employees are eligible to participate.
The bonus for Mr Ondrej Vlcek relates to the period 1 January
2019 to 30 June 2019 when he was undertaking the role of
President Consumer. From 1 July 2019, Mr Ondrej Vlcek has
decided to waive his annual bonus.
Committee’s assessment
of pay out
94.8% of target
Mr Vincent Steckler stepped down as CEO and from the Board
on 30 June 2019. He was not eligible to receive a bonus in
respect of the year.
When considering the level of annual bonus payout, the
Committee also considered the underlying performance of
the Group over the performance period, taking into account
performance against key financial and non-financial indicators,
the performance of the individual, the share price performance
and the experience of shareholders and other stakeholders.
The Committee also considered whether there had been
a significant negative event (such as an ESG event) which
would warrant an adjustment. The Committee concluded the
proposed pay-out outcomes detailed above to be appropriate.
Executive
Performance achieved
Ondrej Vlcek
H1 (1 January 2019 – 30 June 2019) – as President Consumer
Successfully launched Smart Home
Improved Consumer Division organizational effectiveness
Achieved budgeted numbers of PC and Mobile users
H2 (1 July 2019 – 31 December 2019) – as CEO
125.0% of target1
Successfully managed transition from previous CEO
Filled key vacancies in the Executive Management team
Achieved high employee engagement levels
Philip Marshall
Successfully managed public investors and diversification of shareholding base
106.8% of target
Effectively partnered with leaders of Consumer and Corporate Division
Ensured smooth functioning of the Executive Management team and assumed increasing
responsibility for operating decisions
Notes
1 No bonus will be paid to Mr Ondrej Vlcek for H2 (1 July 2019 to 31 December 2019), as Mr Ondrej Vlcek had decided to waive his annual bonus following his
appointment as CEO.
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Total pension entitlements (audited)
During the year under review, the Executive Directors did not receive any pension contribution or pension allowance.
LTIP awards made during the year (audited)
On 14 March 2019, the following awards were granted to Executive Directors:
Executive
Type of award
Basis of award granted (maximum)
Details of award granted
Face
value of
award
(£000)
Face
value of
award
($000)2
% of face
value that
would vest
at threshold
performance3
Share
price (£)1
Number
of shares
granted
Vesting determined by
performance over
Ondrej
Vlcek
Philip
Marshall
Conditional
share
Conditional
share
350% of salary of $450,000 £2.959 401,602 £1,188.1 $1,575.0
350% of salary of $525,000 £2.959 468,535 £1,386.2 $1,837.5
Three financial years to
31 December 2021
Three financial years to
31 December 2021
14%
14%
Notes
1 The share price used to determine the number of shares awarded based on the share price at date of grant.
2 Exchange rate used to present the face value of the award in USD is the rate on the day of the grant of £1/$1.3256.
3 No more than 7% of maximum opportunity will be paid for meeting threshold levels of performance under each of the financial measures
(i.e. 14% of the aggregate award).
As disclosed in last year Directors’ remuneration report, on 3 July 2019, the following additional awards were granted to
Executive Directors to reflect increases in salaries and LTIP award levels on 1 July 2019, consistent with Mr Ondrej Vlcek’s
promotion to CEO and the expansion in the scope and responsibilities of Mr Philip Marshall’s role following the retirement of
Mr Vincent Steckler and the reduction in the number of Executive Directors from three to two.
LTIP vesting for the year ended 31 December
2019 (audited)
Mr Vincent Steckler and Mr Ondrej Vlcek were granted stock
options prior to the IPO in April 2017 with exercise prices of
£1.36 and £0.88 per share. A portion of these awards (99% of
target) vested in March 2019 based on the achievement of
EBIT performance for the year ending 31 December 2018.
This gave rise to 2,691,430 vested options for Mr Vincent
Steckler (1,794,359 options with an exercise price of £1.36 and
897,071 options with an exercise price of £0.88 per share) and
1,009,283 vested options for Mr Ondrej Vlcek (672,883 options
with an exercise price of £1.36 and 336,400 options with an
exercise price of £0.88 per share). The remaining portion of
these options (100% of maximum)vested in September 2019
following the achievement of the performance condition.
This performance condition was based on the achievement
of a full sell down of CVC’s pre-IPO shareholding (which took
place on 4 September 2019) and the price at which this sell
down was achieved. This gave rise to a further 2,745,803
vested options for Mr Vincent Steckler (1,830,610 options with
an exercise price of £1.36 and 915,193 options with an exercise
price of £0.88 per share) and 2,049,155 vested options for
Mr Ondrej Vlcek (1,366,159 options with an exercise price of
£1.36 and 682,996 options with an exercise price of £0.88 per
share). These options are now fully vested.
Overall, the Committee considers that the Remuneration Policy
has operated as it intended during 2019.
Share matching plan
During the year Mr Philip Marshall participated in the
Company’s Share Matching Plan. Under this plan, participants
are able to invest up to $34,000 per annum in the purchase
of company shares. If the participant continues to retain these
shares at the end of the two year holding period, then they will
receive one matching share for every three shares purchased.
The value of these matching shares will be included in the
single figure on the date of award at the end of the two year
holding period.
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Executive
Type of award
Basis of award granted (maximum)
Ondrej
Vlcek
Conditional
share
Additional award such that aggregate award
for the period 1 July to 31 December 2019 is
500% of a salary of $700,000
Philip
Marshall
Conditional
share
Additional award such that the aggregate
award for the period 1 July to 31 December
2019 is 450% of a salary of $600,000
Details of award granted
Face
value of
award
(£000)
Face
value of
award
($000)2
% of face
value that
would vest
at threshold
performance3
Share
price (£)1
Number
of shares
granted
£3.136 406,309 £1,274.2 $1,604.2
14%
£3.136 182,048
£570.9
$718.8
14%
Vesting determined
by performance over
Three financial
years to
31 December 2021
Three financial
years to
31 December 2021
Notes
1 The share price used to determine the number of shares awarded based on the share price at date of grant.
2 Exchange rate used to present the face value of the award in USD is rate on the day of the grant of £1/$1.2590.
3 No more than 7% of maximum opportunity will be paid for meeting threshold levels of performance under each of the financial measures
(i.e. 14% of the aggregate award).
Mr Vincent Steckler was not granted an LTIP award in respect of 2019.
The performance condition for these awards is set out below:
Group basic EPS (undiluted) growth (50% weighting)
Group adjusted revenue growth (50% weighting)
Threshold
14% vesting
Target
55% vesting
Maximum
100% vesting
5% CAGR
8% CAGR
12% CAGR
5% CAGR
7% CAGR
12% CAGR
7% of the award for each of the two financial criteria will vest for threshold performance (i.e. 14% of the total award), 55% shall vest
for target performance, and 100% of the award shall vest for maximum performance. There’s a straight-line vesting between the
performance points.
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Directors’ shareholding and share interests (audited)
Share ownership plays a key role in the alignment of our executives with the interests of shareholders. Our Executive Directors are expected to build up and maintain a 200% of salary shareholding
in the Company.
The table below sets out the number of shares held or potentially held by Executive Directors (including their connected persons where relevant) as at 31 December 2019.
Beneficially
owned shares
at 31 December
20191
% shareholding
guideline achieved2 Award description
Number of
unvested options/
awards as at
31/12/2018
Number of vested
options/awards
as at 31/12/2018
Option price
Granted
Exercised
Lapsed
Number of
unvested options/
awards as at
31/12/2019
Number of vested
options/awards
as at 31/12/2019
Ondrej Vlcek
19,345,987
more than 200% Performance Options Apr 2017
Performance Options Apr 2017
Time Based Options Apr 2017
Time Based Options Apr 2017
Performance Stock Units 2018
Performance Stock Units 2019
Performance Stock Units 2019
Philip Marshall
315,364
more than 200% Time Based Options Feb 2018
Time Based Options Mar 2018
Performance Stock Units 2018
Performance Stock Units 2019
Performance Stock Units 2019
Vincent
Steckler4
31,329,910
more than 200% Performance Options Apr 2017
Performance Options Apr 2017
Time Based Options Apr 2017
Time Based Options Apr 2017
Share Options April 2017
Share Options April 2017
Performance Stock Units 2018
Replacement Options
£0.88
£1.36
£0.88
£1.36
n/a
n/a
n/a
£2.13
£2.37
£–
n/a
n/a
£1.36
£0.88
£1.36
£0.88
£1.36
£0.88
n/a
£0.15
1,019,396
2,039,042
436,884
873,875
538,707
n/a
n/a
4,907,904
1,942,325
1,165,471
627,960
n/a
n/a
3,735,756
3,624,969
1,812,264
1,553,558
776,684
0
0
0
0
0
n/a
n/a
0
0
0
0
n/a
n/a
0
0
0
0
0
0
0
2,589,260
1,294,466
1,366,120
0
0
9,382,872
9,133,595
13,266,598
n/a
n/a
n/a
n/a
n/a
401,602
406,309
807,911
n/a
n/a
n/a
468,535
182,048
650,583
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
0
0
0
0
0
0
n/a
n/a
0
485,581
0
0
n/a
n/a
485,581
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
18,125
9,061
0
0
0
0
0
0
0
0
0
0
1,019,396
2,039,042
436,884
873,875
538,707
401,602
406,309
1,346,618
1,456,744
1,165,471
627,960
468,535
182,048
3,900,758
0
0
0
4,369,197
0
0
0
0
0
0
1,812,485
1,794,359
906,132
776,779
388,342
0
0
1,366,120
0
897,071
776,779
388,342
2,589,260
1,294,466
0
17,123.149
17,123,149
27,186
5,249,858
Includes shares owned by connected parties.
Notes
1
2 Calculated based on the share price on 31 December 2019 of £4.53.
3 On IPO, share options were rolled over to equivalent share options of
Avast Plc and have been included in share holdings and share interests.
4 Mr Vincent Steckler stepped down from the Board and as CEO on 30 June
2019 and his shareholding are shown as that date. Between 1 July 2019 and
31 December 2019, he exercised 15,001,000 options. Between 1 January
2020 and 25 February 2020, he exercised a further 3,000,000 options.
5 Between 31 December 2019 and 25 February 2020, Mr Philip Marshall
purchased 4,511 shares through the company share matching plan.
Furthermore, 485,581 time based options from the February 2018 grant
(with option price of £ 2.13) vested on 1 February 2020 for Mr Philip Marshall.
There were no other changes in share interests between 31 December 2019
and 25 February 2020.
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The table below sets out the number of shares held or potentially held by Non-Executive Directors (including their connected persons where relevant) as at 31 December 2019.
John Schwarz
Erwin Gunst
Pavel Baudis
Eduard Kucera
Lorne Somerville
Ulf Claesson
Warren Finegold
Beneficially
owned
shares at
31 December
20191
Award
description
0
Number of
unvested options/
awards as at
31/12/2018
Number of vested
options/awards
as at 31/12/2018
Option price
Granted
Exercised
Lapsed
Number of
unvested options/
awards as at
31/12/2019
Number of vested
options/awards
as at 31/12/2019
0 Share Options Mar 2016
Share Options May 2015
£0.65
£0.69
257,182,165
99,793,912
0
1,710,098
108,132 Share Options April 2015
Share Options Mar 2016
Share Options April 2017
£0.65
£0.69
£1.36
0
0
0
0
0
0
302,371
388,318
690,689
51,224
388,318
233,034
672,576
n/a
n/a
n/a
n/a
n/a
n/a
n/a
302,371
388,318
690,689
51,224
388,318
233,034
672,576
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Belinda Richards
Maggie Chan Jones
Tamara Minick-Scokalo
0
0
0
Includes shares owned by connected persons.
Notes
1
2 The interests in shares are a result of the vested options owned by the Non-Executive Directors.
3 There were no changes in share interests between 31 December 2019 and 25 February 2020.
4 Ms Maggie Chan Jones and Ms Tamara Minick-Scokalo were appointed to the board on 13 March 2019
On 13 November 2015, Mr Ulf Claesson was granted 75,000 options over ordinary shares in Jumpshot, Inc. under the Company’s option plan at an exercise price of $0.30 each in connection
with his role as Director of Jumpshot, Inc. Mr Claesson has exercised these options in full (the remaining tranche of 18,750 options was exercised on 18 December 2019 at the share price of $4.53,
and sold on 30 December 2019). On 30 January 2020, it was announced that Jumpshot, Inc. would be closed down.
Mr Erwin Gunst and Mr Warren Finegold were granted options prior to the Company’s IPO. All of these options had vested before 2019 and Mr Erwin Gunst and Mr Warren Finegold exercised all of
their outstanding pre-IPO options during 2019, as shown in the shareholding table above. The Company’s policy is that Non-Executive Directors will not be granted share options in the future.
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Directors’ remuneration report
Strategic report Governance Financial statements
Avast annual report 2019 97
Leaving arrangements for
Vincent Steckler (audited)
As set out in last years’ Directors’ remuneration report,
Mr Vincent Steckler stepped down from the board and as
CEO on 30 June 2019. He was paid his salary for this period
but was not eligible for an annual bonus for 2019.
Mr Vincent Steckler remains available to the business in an
advisory capacity until 30 June 2020 to ensure a smooth
transition process. During the period, he will receive a fee
of $400,000 per annum to reflect the expected time
commitment of the role. Mr Vincent Steckler receives, in line
with his employment agreement, health benefits for a period
of 24 months. The cost of the health benefits for the period
from 1 July 2019 to 31 December 2019 amounted to $17,043.
The LTIP award granted in 2018 will continue on a pro-rata
basis for the period he served as CEO and will remain subject
to the performance targets over the normal vesting period to
31 December 2020. Awards will continue to remain subject to
a post-vesting holding period for two years until April 2023.
The final portion of performance option awards granted prior
to IPO in April 2017 vested in September 2019. Further details
are provided on page 93. Time-based options granted in
April 2017 vested in April 2019 and in September 2019.
Mr Vincent Steckler did not receive any payment in lieu of
notice under his contract.
Mr Vincent Steckler was also paid for reasonable expenses
arising from his relocation back to his home in Singapore.
Total expenses related to the relocation amounted to $5,632.
Given Mr Vincent Steckler’s significant shareholding in the
business and the interest in incentive awards following
his retirement, the Committee did not consider that it
was necessary to apply a formal post-employment
shareholding guideline.
No payments were made to any other Directors in respect
of loss of office during the year.
Payments to past directors (audited)
There were no payments to past directors during the year.
External appointments
Executive Directors are permitted to hold Non-Executive
Director positions in other companies where it is considered
appropriate and subject to approval by the Board. Disclosure
of any associated income is required to be made to the
Board, to shareholders, and in the annual report and financial
statements. For the year ended 31 December 2019, none of
the Executive Directors held or received payment for any
external directorship.
TSR based to 100 at 10 May 2018
Performance graph
The graph below illustrates the Company’s total shareholder
return (TSR) performance relative to the constituents of
the FTSE 250 index excluding investment companies from
the admission date on 15 May 2018 to 31 December 2019.
This index has been selected as it is a broad market index
of which the Company is a constituent. The graph shows
performance of a hypothetical £100 invested and its
performance over that period.
Avast
FTSE 250
250
200
150
100
50
0
Source: Datastream.
10 May 2018
31 December 2018
31 December 2019
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The total remuneration for the CEO in 2019, since the
Company became the holding company of the Group,
is shown below, along with the value of bonuses paid and
long-term incentive awards vesting, as a percentage of the
maximum opportunity.
2018
20192
CEO total remuneration
$6,659,850
VS –
$411,285
OV –
$6,465,539
Annual bonus (% of maximum)
Share award (% of maximum)
61.8%
n/a1
n/a3
n/a4
Notes
1 No LTIP share awards vested based on performance to 31 December
2018. Pre-IPO options vested in March and September 2019 as described
on page 93.
2 Mr Vincent Steckler served as CEO from admission to 30 June 2019.
Mr Ondrej Vlcek was appointed as CEO from 1 July 2019. From this date,
Mr Ondrej Vlcek waived his salary (not including Board fee) and annual
bonus and opted to receive a nominal amount of $1 in addition to his
Board fee which he donated to charity.
3 Mr Vincent Steckler was not eligible to receive a bonus in respect
of 2019. Mr Vlcek has decided to waive his annual bonus from his
appointment as CEO on 1 July 2019.
4 No LTIP share awards vested based on performance to 31 December
2019. Pre-IPO options granted in April 2017 vested during 2018 and 2019,
see Notes 8 and 9 to the single figure table on page 91.
CEO to all employee pay ratio
Avast Plc has fewer than 250 employees in the UK and
therefore is not required to disclose the CEO to all employee
pay ratio.
Relative importance of the spend on pay
The following table shows the Company’s actual spend on pay
for all employees compared with distributions to shareholders
for 2019 compared with 2018.
Percentage change in CEO’s remuneration
The table below shows the percentage change in the
remuneration of the CEO from the prior year compared
with the average percentage change in remuneration for a
comparator group of other employees.
Total employee remuneration in the Group (including
Executive Directors) increased by 7.5% in 2019 (from $184.5m
to $198.3m1).
Total spend on pay
$184.5m1 $198.3m1
7.5%
2018
2019
Change
Distributions to
shareholders by way
of dividend and
share buyback
$0m $127.0m
n/a
Notes
1 Personnel expenses as described on page 136.
Salary
Benefits
Bonus
Comparator
group of
employees3
11.0%
0%
13.0%
CEO2
-12.2%
-4.6%
-100%
Notes
1 Personnel expenses as described on page 136.
2 Aggregate of what was paid to Mr Vincent Steckler for 1 January 2019
to 30 June 2019 and to Mr Ondrej Vlcek for 1 July 2019 to 31 December
2019 compared with what was paid to Mr Vincent Steckler for 2018, as
shown in the single total figure table. The negative change in the CEO
remuneration is also influenced by Mr Ondrej Vlcek’s waiver of a part
of his salary and of his cash bonus, as outlined in the earlier part of
this report.
3 Defined as employees of Avast Software s.r.o. (Czech Republic) between
January 2018 and December 2019. This comparator group has been
chosen based on the location of the CEO.
Membership of the Remuneration Committee
The Remuneration Committee comprises four independent
Non-Executive Directors and is chaired by Mr Ulf Claesson.
Each director was appointed to the Committee on 9 May 2018
apart from Mrs Maggie Chan Jones who was appointed to
the Committee on 22 May 2019. There were seven meetings
during the year.
Members’ attendance in the year is set out in the table below.
Ulf Claesson
John Schwarz
Warren Finegold
Maggie Chan Jones1
Attendance
7/7
7/7
7/7
4/4
Notes
1 Mrs Maggie Chan Jones attended all meetings since her appointment to
the Committee.
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The Committee’s principal role is to determine Remuneration
Policy for Executive Directors and to set remuneration for the
Chair, Non-Executive Directors, and other senior executives.
In determining Remuneration Policy, the Committee takes into
account pay and reward for the wider workforce to ensure
policy is appropriate in the context of this and our culture.
In 2019, the meetings of the Committee covered the following
key areas:
finalising our Directors’ Remuneration Policy and Directors’
remuneration report for shareholder approval at the
2019 AGM;
agreeing retirement arrangements for Mr Vincent Steckler
and agreeing remuneration arrangements for Mr Ondrej
Vlcek and Mr Philip Marshall from 1 July 2019;
review of remuneration outcomes for 2019;
consideration of remuneration arrangements for 2020; and
review of corporate governance developments and
shareholder guidance.
The Remuneration Committee terms of reference are available
on the Company’s website at investors.avast.com/investors/
corporate-governance/. These have been updated to reflect
the provisions of the 2018 Code.
External advisers
The Remuneration Committee has access to independent
advice where it considers it appropriate. The Committee
received advice from Deloitte LLP. The fee paid to Deloitte LLP
for providing advice in relation to executive remuneration was
£21,550. Fees charged were on a time and expenses basis.
Note – the 2018 fees paid to Deloitte LLP of $497,000 were
incorrectly disclosed. Fees for advice in relation to directors’
remuneration policy in respect of 2018 were £11,500.
The Committee reviewed the potential for conflicts of interest
and judged that there were appropriate safeguards against
such conflicts.
The Committee consider that the advice received from the
advisers is independent, straightforward, relevant, and
appropriate, and that it has an appropriate level of access
to them and has confidence in their advice.
Deloitte LLP is one of the founding members of the
Remuneration Consulting Group. The Committee ha been
fully briefed on their compliance with the voluntary code
of conduct in respect of the provision of remuneration
consulting services. Separate teams within Deloitte LLP
also provided advisory services in respect of share schemes
and corporate employment.
The CEO, the CFO, the Chief of Staff, and the CHRO have
attended certain Committee meetings and provided advice to
the Committee during the year. They were not in attendance
when matters relating to their own compensation or contracts
are discussed.
Statement of shareholder voting
The remuneration policy and the remuneration report were last approved by shareholders at our AGM on 23 May 2019. Details of
voting are shown below.
Number of votes
% Number of votes
% Number of votes
For
Against
Withheld
Approval of the Directors’ remuneration report –
AGM 2019
Approval of the Directors’ Remuneration Policy –
AGM 2019
707,039,929
85.36% 121,297,987
14.64%
3,181,635
787,114,401
94.66% 44,405,150
5.34%
0
Approval
This Directors’ remuneration report, including both the Policy and annual remuneration report has been approved by the
Board of Directors.
Signed on behalf of the Board of Directors.
Mr Ulf Claesson
Chairman of the Remuneration Committee
Date: 25 February 2020
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1. Corporate details
The Company was incorporated under the Companies Act
2006 (as amended) on 7 January 2010 as a private company
limited by shares under the name Avast Limited under the
registered number 07118170.
On 3 May 2018, the Company re-registered as a public
company under the name Avast Plc.
2. Directors and Directors’ interests
In respect of the period between 1 January 2019 and the
date of this report, the following persons were Directors of
the Company:
Name
Role
John Schwarz
Non-Executive Director
and Chairman
Appointment date
9 May 2018
Warren Finegold Non-Executive Director and
Senior Independent Director
9 May 2018
Ondrej VIcek
Chief Executive Officer*
Philip Marshall
Chief Financial Officer
Pavel Baudis
Non-Executive Director
Eduard Kucera
Non-Executive Director
Lorne Somerville Non-Executive Director
Ulf Claesson
Non-Executive Director
Erwin Gunst
Non-Executive Director
9 May 2018
9 May 2018
9 May 2018
9 May 2018
9 May 2018
9 May 2018
9 May 2018
Belinda Richards Non-Executive Director
8 June 2018
Tamara
Minick-Scokalo
Maggie
Chan Jones
Non-Executive Director
Non-Executive Director
Vincent Steckler Chief Executive Officer*
13 March
2019
13 March
2019
9 May 2018 –
30 June 2019
* Mr VIcek was appointed Chief Executive Officer of the Company on
1 July 2019, following Mr Steckler’s retirement on 30 June 2019.
The Directors have the benefit of a qualifying third-party
indemnity from the Company (the terms of which are in
accordance with the Companies Act 2006) each of which was
in force throughout the year and remains in force at the date
of this report. The Company has not provided an indemnity to
any person acting as a director of an associated undertaking.
In addition, the Company has in place appropriate directors’
and officers’ liability insurance. This cover also extends to
employees of the Group who serve on the boards of the
Company’s subsidiaries.
Related party transactions relating to the Directors are detailed
in Note 36 of the financial statements.
Details of Directors’ interests in shares, options, and LTIPs
are set out on pages 95 and 96 of the Directors’ remuneration
report. The only changes in Directors’ interests since year-end
related to the purchase of shares through the company’s
share matching plan and the vesting of time-based options
in February 2020, in each case as further described in Note 5
on page 95.
3. Dividend
The Group’s dividend policy focuses on providing significant
returns to shareholders, while also ensuring that the Group
retains the flexibility to continue to deploy capital towards
profitable growth. There can be no guarantees that the
Company will pay future dividends. The determination of the
level of future dividends, if any, will depend upon the Group’s
results of operations, financial condition, capital requirements,
contractual restrictions, business prospects, and any other
factors the Board may deem relevant. The Group currently
expects to maintain dividend payments of approximately
40% of levered free cash flow in the short to medium term.
Dividend payments will be made on an approximate
one-third:two-thirds split for interim and final dividends,
respectively.
2018 final dividend
During the year, the Board recommended a final dividend in
the amount of 8.6 US cents in respect of financial year ended
31 December 2018, which was approved by its shareholders at
the Company’s AGM on 23 May 2019. The dividend was paid
to shareholders on 17 June 2019.
2019 interim dividend
On 14 August 2019, the Board declared an interim dividend in
the amount of 4.4 US cents per share. The dividend was paid
to shareholders on 11 October 2019.
Proposed 2019 final dividend
The Directors propose to pay a final dividend of 10.3 US cents
per share in respect of the year ending 31 December 2019
(total payment of $105.0m). Combined with the interim
dividend of 4.4 US cents per share paid in October 2019
(total payment of $43.2m), this represents a total dividend for
the financial year of 14.7 US cents (total payment of $148.3m),
which represents 40% of the Group’s levered free cash flow for
the period in accordance with the Company’s dividend policy.
Subject to shareholder approval, the final dividend will be paid
in US dollars on 24 June 2020 to shareholders on the register
on 22 May 2020. There will be an option for shareholders
to elect to receive the dividend in pounds sterling and such
an election should be made no later than 8 June 2020. 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 11 June 2020 and announced shortly thereafter.
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101
7. Share capital
Share capital structure
As at 31 December 2019, the entire issued share capital of
the Company comprised 1,008,020,035 ordinary shares of
£0.10 each.
Significant holdings
As at 31 December 2019, the following persons held interests
in shares carrying 3% or more in voting rights:
Name
PaBa Software s.r.o
Pratincole Investments Limited
% of total
voting rights
25.51%
9.9%
Google Distribution Agreement
Promotion and Distribution Agreement dated 1 July 2012,
entered into between Avast Software s.r.o. and Google
Ireland Limited.
Under this agreement, Avast Software s.r.o. agrees to bundle
the Google Chrome and Google Toolbar products with
distributions of its consumer antivirus products under the
Avast and AVG brand names, and certain utility applications
as approved by Google from time to time. Google Ireland
Limited in turn agrees to pay Avast Software s.r.o. monthly
fees in connection with offering users the Google Chrome
browser and Google Toolbar.
A takeover of the Company may trigger a change of control
under the Google Distribution Agreement which would
permit Google to immediately terminate the contract upon
written notice.
In addition, in the event of a takeover of the Company, the
Board may, at its discretion, elect to accelerate unvested
awards under the Company’s long-term incentive plan.
More details in relation to this are set out in the Remuneration
Policy approved by the shareholders at the AGM in 2019.
4. Political donations
The Group did not make any political donations, or incur any
political expenditure, in the year ended 31 December 2019.
5. Research and development
Avast places a substantial focus on the continuous
development and improvement of technology, with over
50% of its employees working in research and development
(R&D). We believe this focus on R&D strongly contributes to
the fact that the Group’s products are consistently ranked
among the highest-rated antivirus solutions by both users
and editors on leading download and review websites, as well
as in popular media globally.
6. Significant agreements
Below are the only significant agreements that would take
effect, alter, or terminate on change of control of the Company
following a takeover:
Credit Agreement
Credit Agreement dated 30 September 2016, entered
into between Avast Software B.V., Sybil Software LLC,
Avast Software s.r.o., Avast Holding B.V., and Credit
Suisse International.
A takeover of the Company may trigger a change of control
under the Credit Agreement which is an event of default
thereunder and would permit Credit Suisse International as
administrative agent under the Credit Agreement (with the
consent or at the request of the ‘Required Lenders’ under
Credit Agreement) to immediately accelerate full repayment
of the outstanding debt.
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Relationship agreements
The Company has entered into relationship agreements
with its most significant shareholders to help ensure that the
Company will be capable of operating and making decisions
independently for the benefit of shareholders as a whole.
On 10 May 2018, the Company entered into a relationship
agreement (Founder Relationship Agreement) with each
of Pavel Baudis and Eduard Kucera and their respective
investment vehicles, PaBa Software s.r.o. and Pratincole
Investments Ltd (collectively, ‘the Founders’) pursuant to
which, among other things, the Founders are jointly entitled to
appoint: (i) one natural person to be a Non-Executive Director
of the Company for so long as the Founders and/or their
associates hold in aggregate 10% or more (but less than 20%)
of the voting rights attaching to the issued share capital of the
Company; and (ii) two natural persons to be Non-Executive
Directors for so long as the Founders and/or their associates
hold 20% or more of the voting rights attaching to the issued
share capital of the Company.
During the year, the Company was also party to a relationship
agreement with Sybil Holdings S.à.r.l. (‘Sybil’), an entity owned
by funds advised by affiliates of CVC Capital Partners Advisory
Company (Luxembourg) S.à.r.l.; however, this agreement
terminated upon Sybil disposing of its entire shareholding in
the Company on 4 September 2019. During the period this
agreement was in force, the following terms applied: Sybil was
entitled to appoint one natural person to be a Non-Executive
Director of the Company for so long as Sybil and/or certain of
its affiliates held in aggregate 10% or more of the voting rights
attaching to the issued share capital of the Company.
The Board confirms that through the applicable periods:
the Company has complied with the independence
provisions of the Founder Relationship Agreement and the
Sybil Relationship Agreement;
as far as the Company is aware, each of the Founders and
Sybil, and their respective associates have complied with the
agreement’s independence provisions; and
as far as the Company is aware, each of the Founders and
Sybil has procured the compliance of non-signing controlling
shareholders with the agreement’s independence provisions.
Restriction on transfer of shares
The Board may refuse to register any transfer of any share
which is not a fully paid share, provided that such discretion
may not be exercised in a way which the Financial Conduct
Authority or the London Stock Exchange regards as preventing
dealings in the shares of the relevant class or classes from
taking place on an open and proper basis.
The Board may also refuse to register a share where the
instrument of transfer is:
in favour of more than four persons jointly;
not left at the registered office of the Company, or at such
other place as the Board may from time to time determine,
accompanied by the certificate(s) of the shares to which the
instrument relates and such other evidence as the Directors
may reasonably require to show the right of the transferor to
make the transfer; and
the instrument of transfer is in respect of more than one
class of share.
In addition, pursuant to the Listing Rules of the Financial
Conduct Authority, Directors of the Company and persons
discharging managerial responsibility are required to
obtain prior approval from the Company to deal in the
company’s securities, and are prohibited from dealing
during close periods.
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Voting rights
On a poll, votes may be given personally or by proxy.
Subject to any rights or restrictions attached to any class or
classes of shares and to any other provisions of the Articles
of Association:
if a vote is taken on a show of hands, every member or proxy
present in person shall have one vote; and
if a vote is taken on a poll, every member present in person or
by proxy shall have one vote for each share held by him.
All resolutions put to the members at electronic general
meetings will be voted on by a poll. All resolutions put to the
members at a physical general meeting will be voted on a
show of hands unless a poll is demanded:
by the Chairman of the meeting; or
by at least five members present in person or by proxy and
having the right to vote on the resolution; or
by any member or members present in person or by proxy
and representing not less than one-tenth of the total voting
rights of all the members having the right to vote on the
resolution; or
by a member or members present in person or by proxy
holding shares in the Company conferring a right to vote on
the resolution being shares on which an aggregate sum has
been paid up equal to not less than one-tenth of the total sum
paid up on all shares conferring that right.
As far as the Board is aware, there are no agreements
between shareholders that may restrict transfer of securities
or voting rights.
The below are the only special control rights attaching to any
of the Company’s issued share capital:
Pursuant to the Founder Relationship Agreement:
(i) the Founders are jointly entitled to appoint: (a) one natural
person to be a Non-Executive Director of the Company
for so long as the Founders and/or their associates hold in
aggregate 10% or more (but less than 20%) of the voting
rights attaching to the issued share capital of the Company;
and (ii) two natural persons to be Non-Executive Directors
for so long as the Founders and/or their associates hold
20% or more of the voting rights attaching to the issued
share capital of the Company; and
(ii) for so long as the Founders hold in aggregate 10% or more
of the voting rights attaching to the issued share capital
of the Company, one of the Directors appointed by the
Founders is permitted to attend as an observer at the
Board’s Nomination Committee, Audit and Risk Committee,
and Remuneration Committee.
Appointment and replacement of Directors
There is no maximum number of Directors who can serve
on the Board, but the number of Directors cannot be less
than two.
Directors may be appointed by ordinary resolution of
shareholders or by the Board. No person other than a Director
retiring at a general meeting will, unless recommended by the
Directors, be eligible for appointment to the office of Director
at any general meeting unless a member notifies the Company
in advance in accordance with the Articles of Association of his
or her intention to propose such person for appointment, and
also notice in writing signed by that person of his willingness to
be appointed.
Under the Articles of Association, a Director is required to
retire at an AGM if he or she was a Director at each of the
preceding two AGMs and was not appointed or reappointed
by the Company in a general meeting at, or since, either
such meeting. Notwithstanding this, and in compliance with
the Code, each Director is subject to election at the first
AGM following their appointment, and re-election at each
subsequent AGM.
The Company may by ordinary resolution remove any
Director before the expiration of his period of office provided
special notice has been given in accordance with the
Companies Act 2006.
Articles of Association
The Articles of Association of the Company were adopted by
special resolution on 9 May 2018.
Any amendment to the Articles of Association of the Company
may be made in accordance with the provisions of the
Companies Act 2006, by way of special resolution.
Power of the Company’s Directors
The business of the Company is managed by the Directors,
who may exercise all the powers of the Company subject to
the provisions of the Articles of Association, the Companies
Act 2006, and such directions as may be given by the
Company at a general meeting by special resolution.
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8. Authority to purchase its own shares
The Company is permitted – pursuant to the terms of its
Articles of Association – to purchase its own shares subject
to shareholder approval. At its AGM held on 23 May 2019,
the Company was given authority to make market purchases
(within the meaning of section 693(4) of the Companies
Act 2006) up to a limit of 95,451,252 of its ordinary shares.
The minimum price that must be paid for each ordinary share
is its nominal value, and the maximum price is the higher
of (i) 105% of the average middle market quotations for an
ordinary share as derived from the London Stock Exchange for
the five (5) business days immediately before the purchase is
made, and (ii) an amount equal to the higher of the price of the
last independent trade of an ordinary share and the highest
current independent bid for an ordinary share on the trading
venues where the purchase is carried out.
This authority will expire at the earlier of, the conclusion of the
Company’s 2020 AGM, and 30 June 2020.
The Company did not repurchase any of its shares during the
2019 financial year.
9. Authority to issue shares
The Company is permitted – pursuant to the terms of its
Articles of Association – to allot, grant options over, offer,
or otherwise deal with or dispose of shares in the Company
to such persons at such times, and generally on such terms
and conditions as they may determine.
At its AGM held on 23 May 2019, the Company was given
authority to allot shares and grant rights to subscribe for, or
convert any security into, shares in the Company, up to:
(i) an aggregate nominal amount of £31,813,902.32
(less the nominal amount of any shares or rights to
subscribe for or convert any security into shares in the
Company granted under sub-paragraph (ii) below in
excess of £31,813,902.32); and
(ii) comprising equity securities (as defined in section 560
of the Companies Act 2006) up to an aggregate nominal
amount of £63,637,349.78 (less any allotments or grants
made under sub-paragraph (i) above) in connection with
or pursuant to an offer by way of a rights issue,
in each case subject to the conditions set out in the
AGM notice. This authority will expire at the earlier of,
the conclusion of the Company’s 2020 AGM, and 30 June
2020. The Company did not allot any new shares, other than
those shares allotted pursuant to the Group’s share option
and long-term incentive plans.
10. Going concern
As described on page 168, 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
consolidated financial statements.
11. Financial risk management
Details of financial risk management and financial instruments
are disclosed in Note 31 of the Group financial statements.
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12. Additional disclosures
The Strategic report is a requirement of the UK Companies
Act 2006 and can be found on pages 1 to 60 of this report.
The Company has chosen, in accordance with section
414 C(11) of the Act, to include the following matters in its
Strategic report that would otherwise be disclosed in this
Directors’ report:
Section
Likely future developments
Greenhouse gas emissions, energy
consumption, and energy efficiency
Post balance sheet events
Stakeholder and employee
engagement disclosures
Page
25
59
163
52 to 64
Information required by the Financial Conduct Authority’s
Listing Rules can be located as follows:
Listing Rule
Section
LR 9.8.4(2)
Publication of unaudited
financial information
LR 9.8.4(5)
and (6)
Details of waived
Director emoluments
Page
35 to 47
84
LR 9.8.4R(10)
and (11)
LR 9.8.4(14)
Related party contracts
162 and 163
Independence of
controlling shareholders
102
13. Disclosure of information to auditors
The Directors confirm that:
(i) so far as the Directors are aware, there is no relevant audit
information of which the Company’s auditor is unaware; and
(ii) the Directors have taken all the steps that they ought to
have taken as directors to make themselves aware of
any relevant audit information and to establish that the
Company’s auditor is aware of that information.
14. Statement of Directors’ responsibilities
in respect of the annual report and the
financial statements
The Directors are responsible for preparing the annual report
and the financial statements in accordance with applicable law
and regulations.
The UK Companies Act 2006 requires the Directors to prepare
financial statements for each financial period that give a true
and fair view of the financial position of the Group and the
Parent Company and the financial performance and cash flows
of the Group for that period. Under that law, the Directors have
prepared the Group financial statements in accordance with
International Financial Reporting Standards (IFRSs) as adopted
by the European Union and in accordance with applicable law,
and have elected to prepare the Parent Company financial
statements in accordance with UK Generally Accepted
Accounting Practice (UK Accounting Standards and applicable
law), including Financial Reporting Standard 102 (FRS 102).
In preparing these financial statements, the Directors are
required to:
select suitable accounting policies and then apply
them consistently;
make judgements and estimates that are reasonable
and prudent;
present information, including accounting policies, in a
manner that provides relevant, reliable, comparable, and
understandable information;
in respect of the Group financial statements, state whether
IFRSs as adopted by the European Union have been
followed, subject to any material departures disclosed
and explained in the financial statements;
provide additional disclosures when compliance with the
specific requirements in IFRSs are insufficient to enable users
to understand the impact of particular transactions, other
events, and conditions on the Group’s financial position and
financial performance;
in respect of the Parent Company financial statements,
state whether applicable UK Accounting Standards,
including FRS 102, have been followed, subject to any
material departures disclosed and explained in the financial
statements; and
prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company and/
or the Group will continue in business.
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The Directors are responsible for keeping adequate
accounting records that are sufficient to show and explain
the Company’s and Group’s transactions and disclose with
reasonable accuracy at any time the financial position of the
Company and the Group, and enable them to ensure that the
financial statements comply with the Companies Act 2006
and, with respect to the Group financial statements, Article 4 of
the IAS Regulation. They are also responsible for safeguarding
the assets of the Company and Group and hence for taking
reasonable steps for the prevention and detection of fraud
and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a strategic report, Directors’ report,
Directors’ remuneration report, and corporate governance
statement that comply with that law and those regulations.
The Directors are responsible for the maintenance and
integrity of the corporate and financial information included
on the Company’s website. Legislation in the UK governing
the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
15. Responsibility statement of the Directors in
respect of the annual financial report
The Directors confirm, to the best of their knowledge, that:
the Group financial statements, prepared in accordance with
IFRS as adopted by the European Union and in accordance
with applicable law, give a true and fair view of the assets,
liabilities, financial position, and profit of the Company and
the undertakings included in the consolidation taken as a
whole; and
the Strategic report and Directors’ report include a fair review
of the development and performance of the business and
the position of the Company and the undertakings included
in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that
they face.
The annual report and the financial statements, taken as a
whole is fair, balanced, and understandable, and provides
the information necessary for shareholders to assess the
Group’s position and performance, business model, and
strategy. The Directors’ report on pages 100 to 106 was
approved by the Board on 25 February 2020 and signed
by order of the Board.
By order of the Board:
Alan Rassaby
Company Secretary
25 February 2020
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107
Financial
statements
Independent Auditor’s Report
Consolidated financial statements
Notes to the consolidated
financial statements
Company financial statements
Notes to the company
financial statements
Glossary
108
116
123
166
168
171
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Independent Auditor’s Report
to the members of Avast Plc
Opinion
In our opinion:
Avast Plc’s Group financial statements and Parent Company
financial statements (the “financial statements”) give a true
and fair view of the state of the Group’s and of the Parent
Company’s affairs as at 31 December 2019 and of the Group’s
profit for the year then ended;
the Group financial statements have been properly prepared
in accordance with IFRSs as adopted by the European Union;
the Parent Company financial statements have been properly
prepared in accordance with United Kingdom Generally
Accepted Accounting Practice; and
the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006, and,
as regards the Group financial statements, Article 4 of the
IAS Regulation.
We have audited the financial statements of Avast Plc
which comprise:
Group
Consolidated statement of financial
position as at 31 December 2019
Consolidated statement of profit
and loss for the year then ended
Consolidated statement of
comprehensive income for
the year then ended
Parent company
Company statement of
financial position as at
31 December 2019
Company statement of
changes in equity for
the year then ended
Related notes 1 to 12 to
the financial statements,
including a summary
of significant
accounting policies
Consolidated statement of changes
in shareholders’ equity for the
year then ended
Consolidated statement of cash
flows for the year then ended
Related notes 1 to 40 to the financial
statements, including a summary of
significant accounting policies
The financial reporting framework that has been applied in
the preparation of the Group financial statements is applicable
law and International Financial Reporting Standards (IFRSs)
as adopted by the European Union. The financial reporting
framework that has been applied in the preparation of the
Parent Company financial statements is applicable law and
United Kingdom Accounting Standards, including FRS 102
“The Financial Reporting Standard applicable in the UK and
Republic of Ireland” (United Kingdom Generally Accepted
Accounting Practice).
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law.
Our responsibilities under those standards are further
described in the Auditor’s responsibilities for the audit of
the financial statements section of our report below. We are
independent of the Group and Parent Company in accordance
with the ethical requirements that are relevant to our audit of
the financial statements in the UK, including the FRC’s Ethical
Standard as applied to listed public interest entities, and we
have fulfilled our other ethical responsibilities in accordance
with these requirements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
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Overview of our audit approach
Key audit matters
Revenue recognition, including risk of management override, in particular:
– Licence revenue: Improper revenue recognition due to management’s incentive to accelerate earnings
through manipulation of the licence term – Cut-off risk.
– Licence, platform, and other revenue: Improper revenue recognition due to management’s incentive to
accelerate earnings through manual manipulation of the timing of revenues or due to an error.
Complexity of income and deferred tax: The Group operates in multiple tax jurisdictions and has a complex
process for consolidating the group tax position. There is a risk that income tax accounts, including
deferred tax, in both the consolidated statement of financial position and the consolidated statement of
profit and loss will contain misstatements.
Audit scope
We performed an audit of the complete financial information of two components and audit procedures on
specific balances for a further seven components.
The components where we performed full or specific audit procedures accounted for 97% of PBT adjusted
for exceptional items and deferred revenue haircut measure used to calculate materiality, 92% of Revenue,
and 96% of Total assets.
Materiality
Overall Group materiality of $15.0m which represents 5% of PBT adjusted for exceptional items and
deferred revenue haircut.
Conclusions relating to principal risks,
going concern and viability statement
We have nothing to report in respect of the following
information in the annual report, in relation to which the
ISAs (UK) require us to report to you whether we have
anything material to add or draw attention to:
the disclosures in the annual report set out on page 49
that describe the principal risks and explain how they are
being managed or mitigated;
the directors’ confirmation set out on page 50 in the annual
report that they have carried out a robust assessment of the
principal risks facing the entity, including those that would
threaten its business model, future performance, solvency
or liquidity;
the directors’ statement set out on page 104 in the financial
statements about whether they considered it appropriate
to adopt the going concern basis of accounting in preparing
them, and their identification of any material uncertainties
to the entity’s ability to continue to do so over a period
of at least 12 months from the date of approval of the
financial statements;
whether the directors’ statement in relation to going concern
required under the Listing Rules in accordance with Listing
Rule 9.8.6R(3) is materially inconsistent with our knowledge
obtained in the audit; or
the directors’ explanation set out on page 50 in the annual
report as to how they have assessed the prospects of the
entity, over what period they have done so and why they
consider that period to be appropriate, and their statement as
to whether they have a reasonable expectation that the entity
will be able to continue in operation and meet its liabilities as
they fall due over the period of their assessment, including
any related disclosures drawing attention to any necessary
qualifications or assumptions.
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Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of
resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in our opinion thereon,
and we do not provide a separate opinion on these matters.
Key observations
communicated to the
Audit Committee
We conclude that the
revenue recognised
during the year and
deferred revenue as
at 31 December 2019
are materially correct.
Risk
Our response to the risk
Risk of inappropriate revenue recognition
$871.1m (2018: $808.3m)
In particular, the risks are:
1) Licence revenue: Improper revenue recognition due
to management’s incentive to accelerate earnings
through manipulation of the licence term – Cut-off risk.
2) Licence, platform, and other revenue: Improper
revenue recognition due to management’s incentive to
accelerate earnings through manual manipulation of
the timing of revenues or due to an error.
Misstatements that occur in relation to this risk would
impact the revenue recognised in the income statement
as well as deferred revenue. Revenue recognition is
a key driver for the group’s profitability which impacts
management and employee bonuses and has an indirect
impact on the value of share-based compensation paid
to key management personnel. Therefore, we assess
that overstatement of revenue presents a higher risk
and key audit matter.
The overall risk of revenue recognition has remained
consistent compared to the prior year.
Refer to the Audit Committee Report (pages 74 to 79);
Accounting policies (pages 123 to 130); and Note 5 of the
Consolidated financial statements (pages 133 to 135).
We have reviewed and walked through the process over the approval and recognition of revenue across the group.
We have walked through and assessed the design effectiveness of key management controls over data input and IT.
We have performed revenue transaction testing in order to ensure that revenue is recognised in line with the
group’s revenue recognition policy and IFRS 15 and has been appropriately recorded in the current year income
statement and the balance sheet as appropriate. This was achieved by selecting a sample of transactions and:
performing testing to validate delivery of individual licences and correct cut-off through application of correct
licence term;
obtaining evidence that the licence has been delivered to customers prior to revenue recognition;
reviewing contract terms for any conditions that would impact timing of revenue recognition and deferred revenue;
agreeing revenue transactions to customer reports to validate occurrence; and
tracing a sample of billings to cash received.
We selected a risk-based sample of manual revenue journals and assessed the appropriateness of the journal by
checking to supporting evidence and ensuring compliance with IFRS 15 and the group’s revenue recognition policy.
The sample was selected on a risk-based criteria, including but not limited to manual journals, those close to period
end and, postings made by people where the nature of the journal is inconsistent with their roles and responsibilities.
We performed an overall recalculation of deferred revenue with specific focus on the split of sales in a one, two and
three-year period for appropriateness based upon contract terms.
We obtained customer confirmation of a selected sample of accounts receivable and unbilled revenue.
We sampled significant resellers to confirm contract terms and conditions.
We performed disaggregated analytical procedures over revenue on a monthly basis at a segment level.
We performed full and specific scope audit procedures over this risk area in four locations, which covered 92% of the
risk amount. We also performed specified procedures over the revenues in one location, which covered 3% of the
risk amount. For the remaining items we performed other analytical procedures.
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Risk
Our response to the risk
Complexity of income and deferred tax
Income tax expense: -$65.7m (2018: $58.7m)
Deferred tax assets (net): $167.6m (2018: $149.4m)
We obtained the Group’s tax consolidation and focused our detailed testing of the current and deferred income tax
positions for four regions, including verification of completeness and accuracy of tax effects of significant one-off
transactions, consolidation, and IFRS adjustments recorded by the Group.
Our specific risk areas include:
In addition, in order to respond to our risk, we:
1. Management uses judgement to determine
recoverability of deferred tax assets and has
recovery periods in excess of 20 years.
engaged tax specialists for the Czech Republic, Netherlands, USA, and the United Kingdom to support the
audit teams audit of complex areas, including accounting for tax on share options. Further, our specialists were
consulted to independently assess the assumptions in management’s DTA assessment;
2. The Group operates in multiple tax jurisdictions
which may require specialist knowledge.
obtained and audited management’s prospective financial information (PFI) to support the recoverability of the
significant deferred tax assets. We challenged the underlying assumptions, including:
3. Further, management makes use of manual calculations
in order to arrive at the consolidated tax provision for
the Group, which gives rise to a higher risk of error.
Refer to the Audit Committee Report (pages 74 to 79);
Accounting policies (pages 123 to 130); and Note 13 of
the Consolidated financial statements (pages 137 to 139).
– applicability of local tax laws to deferred tax recoverability;
– assessing against the groups historic forecasting accuracy; and
– recoverability period by comparison to historic performance, group and industry-wide performance;
recalculated and reconciled management’s manual tax tools for computing consolidated tax figures;
used tax specialists to challenge management’s technical merits relating to uncertain tax positions (including the
impact of IFRIC 23) and transfer pricing arrangements.
Key observations
communicated to the
Audit Committee
We highlight the
recoverability of
deferred tax assets
for a period in
excess of 20 years,
requires significant
judgement, however,
conclude this is
supportable and
appropriately
disclosed.
We conclude that the
current and deferred
tax amounts reported
as at 31 December
2019 and for the
year then ended are
materially correct.
For regions outside of those we have classified as significant, we have performed analytical review procedures and
tested consolidation adjustments to mitigate the risk of material misstatement.
We also evaluated the adequacy and completeness of the disclosures provided by the Group in relation to tax
balances and activity.
In the prior year, our auditor’s report included the same Key Audit Matters as noted above.
An overview of the scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality
and our allocation of performance materiality determine our
audit scope for each entity within the Group. Taken together,
this enables us to form an opinion on the consolidated
financial statements. We take into account size, risk profile,
the organisation of the Group and presence of Group-wide
controls, and changes in the business environment when
assessing the level of work to be performed at each entity.
In assessing the risk of material misstatement to the Group
financial statements, and to ensure we had adequate
quantitative coverage of significant accounts in the financial
statements, of the 33 reporting components of the Group,
we selected nine components covering entities within the
Czech Republic, Netherlands, United Kingdom and USA,
which represent the principal business units within the Group.
Of the nine components selected, we performed an audit
of the complete financial information of two components
(“full scope components”) which were selected based on
their size or risk characteristics. For the remaining seven
components (“specific scope components”), we performed
audit procedures on specific accounts within that component
that we considered had the potential for the greatest impact
on the significant accounts in the financial statements, either
because of the size of these accounts or their risk profile.
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Changes from the prior year
The Group has been undergoing a group simplification
exercise, including merging and liquidating entities and
transfers of trade to centralised entities. As such, our total
number of full scope components is reduced from the prior
year. However, we believe our overall coverage is comparable
and continues to be appropriate for the risk of the business.
Integrated team structure and involvement
with component teams
The overall audit strategy is determined by the senior
statutory auditor. The senior statutory auditor is based
in the UK, however, since group management and many
operations reside in the Czech Republic, the Group audit
team (“integrated audit team”) includes members from both
the UK and Czech Republic, including tax, IT, and valuations
professionals in both countries, as well as tax professionals in
the Netherlands.
Members of the audit team in both jurisdictions work together
as an integrated team throughout the audit process. All audit
work performed for the purposes of the 2019 annual report
and accounts was undertaken by the integrated audit team.
The senior statutory auditor visited the Czech Republic six
times during the current year’s audit. While in the Czech
Republic, the senior statutory auditor focused his time on the
significant risk and judgemental areas of the audit, interactions
with management and the integrated audit team. He reviewed
key working papers and met with key representatives of the
integrated audit team physically located in the Czech Republic
to direct and supervise the audit approach and resolve issues
arising from the integrated audit team’s work. This, together
with the additional procedures performed at Group level,
gave us appropriate evidence for our opinion on the Group
and stand-alone financial statements.
The reporting components where we performed audit
procedures accounted for 97% (2018: 100%) of the Group’s
PBT adjusted for exceptional items and deferred revenue
haircut measure used to calculate materiality, 92% (2018: 94%)
of the Group’s revenue and 95% (2018: 97%) of the Group’s
total assets. For the current year, the full scope components
contributed 98% (2018: 97%) of the Group’s PBT adjusted for
exceptional items and deferred revenue haircut measure used
to calculate materiality, 83% (2018: 76%) of the Group’s revenue
and 35% (2018: 37%) of the Group’s total assets. The specific
scope components contributed -1% (2018: 3%) of the Group’s
PBT adjusted for exceptional items and deferred revenue
haircut measure used to calculate materiality, 9% (2018: 18%) of
the Group’s revenue and 60% (2018: 60%) of the Group’s total
assets. The audit scope of these components may not have
included testing of all significant accounts of the component
but will have contributed to the coverage of significant
accounts tested for the consolidated financial statements.
We also performed specified procedures over certain aspects
of revenue and additions of assets for two components.
Of the remaining 24 components that together represent
2% of the Group’s PBT adjusted for exceptional items and
deferred revenue haircut, none are individually greater
than 5% of the Group’s PBT adjusted for exceptional items
and deferred revenue haircut. For these components, we
performed other procedures, including analytical review,
testing of consolidation journals, intercompany eliminations,
and foreign currency translation recalculations to respond
to any potential risks of material misstatement to the Group
financial statements.
The charts below illustrate the coverage obtained from the
work performed by our audit teams.
Adjusted PBT
98% Full scope components
(1%) Specific scope components
3% Other procedures
Revenue
Total assets
83% Full scope components
9% Specific scope components
8% Other procedures
35% Full scope components
60% Specific scope components
5% Other procedures
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Independent Auditor’s ReportStrategic report Governance Financial statements Our application of materiality
We apply the concept of materiality in planning and performing
the audit, in evaluating the effect of identified misstatements
on the audit and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that,
individually or in the aggregate, could reasonably be
expected to influence the economic decisions of the users
of the financial statements. Materiality provides a basis for
determining the nature and extent of our audit procedures.
We determined materiality for the Group to be $15.0m (2018:
$11.2m), which is 5% (2018: 5%) of PBT adjusted for exceptional
items and deferred revenue haircut. We believe that PBT
adjusted for exceptional items and deferred revenue haircut
provides us with the most relevant measure of underlying
performance of the Group.
We determined materiality for the Parent Company to be
$32m (2018: $32m), which is 1% (2018: 1%) of total equity,
which is greater than that of the Group as a result of its
investment in Avast Holdings B.V.
Performance materiality
The application of materiality at the individual account
or balance level. It is set at an amount to reduce to an
appropriately low level the probability that the aggregate
of uncorrected and undetected misstatements
exceeds materiality.
On the basis of our risk assessments, together with our
assessment of the overall control environment, our judgement
was that performance materiality should be set at 50% (2018:
50%) of our planning materiality, namely $7.5m (2018: $5.6m).
We have set performance materiality at this percentage
to ensure that the total uncorrected and undetected audit
differences in all accounts did not exceed our materiality.
Audit work at component locations for the purpose of
obtaining audit coverage over significant financial statement
accounts is undertaken based on a percentage of total
performance materiality. The performance materiality set for
each component is based on the relative scale and risk of the
component to the Group as a whole and our assessment of
the risk of misstatement at that component. In the current year,
the range of performance materiality allocated to components
was $1.5m to $6.7m (2018: $1.1m to $4.2m).
Starting basis
Adjustments
Materiality
Profit before tax $314.6m
Add back $1.8m exceptional
items (as disclosed in note 6
to the financial statements)
and deferred revenue haircut
of $1.8m
Deduct $17.5m relating
to the gain on disposal of
business operation
(as disclosed in note 6
to the financial statements)
Totals $300.7m of PBT
adjusted for exceptional items
and deferred revenue haircut
Materiality of $15.0m
(5% of PBT adjusted for
exceptional items and
deferred revenue haircut)
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Avast annual report 2019
113
Reporting threshold
An amount below which identified misstatements are
considered as being clearly trivial.
We agreed with the Audit Committee that we would report to
them all uncorrected audit differences in excess of $0.75m
(2018: $0.56m), which is set at 5% of planning materiality,
as well as differences below that threshold that, in our view,
warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the
quantitative measures of materiality discussed above and in
light of other relevant qualitative considerations in forming
our opinion.
Other information
The other information comprises the information included in
the annual report set out on pages 1 to 106, including Strategic
Report and Governance Report, other than the financial
statements and our auditor’s report thereon. The directors are
responsible for the other information.
Our opinion on the financial statements does not cover the
other information and, except to the extent otherwise explicitly
stated in this report, we do not express any form of assurance
conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing
so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge
obtained in the audit or otherwise appears to be materially
misstated. If we identify such material inconsistencies
or apparent material misstatements, we are required to
determine whether there is a material misstatement in the
financial statements or a material misstatement of the other
information. If, based on the work we have performed,
we conclude that there is a material misstatement of the
other information, we are required to report that fact.
We have nothing to report in this regard.
Independent Auditor’s ReportStrategic report Governance Financial statements Avast annual report 2019
114
In this context, we also have nothing to report in regard to our
responsibility to specifically address the following items in
the other information and to report as uncorrected material
misstatements of the other information where we conclude
that those items meet the following conditions:
Fair, balanced and understandable set out on page 106 –
the statement given by the directors that they consider the
annual report and financial statements taken as a whole
is fair, balanced, and understandable, and provides the
information necessary for shareholders to assess the Group’s
performance, business model, and strategy, is materially
inconsistent with our knowledge obtained in the audit; or
the information about internal control and risk management
systems in relation to financial reporting processes and about
share capital structures, given in compliance with rules 7.2.5
and 7.2.6 in the Disclosure Rules and Transparency Rules
sourcebook made by the Financial Conduct Authority (the
“FCA Rules”), is consistent with the financial statements
and has been prepared in accordance with applicable legal
requirements; and
the information about the company’s corporate governance
code and practices and about its administrative,
management and supervisory bodies and their committees
complies with rules 7.2.2, 7.2.3 and 7.2.7 of the FCA Rules.
Audit committee reporting set out on pages 74 to 79 –
the section describing the work of the Audit Committee
does not appropriately address matters communicated
by us to the Audit Committee; or
Directors’ statement of compliance with the UK Corporate
Governance Code set out on page 69 – the parts of the
directors’ statement required under the Listing Rules
relating to the company’s compliance with the UK Corporate
Governance Code containing provisions specified for review
by the auditor in accordance with Listing Rule 9.8.10R(2) do
not properly disclose a departure from a relevant provision
of the UK Corporate Governance Code.
Opinions on other matters prescribed by the
Companies Act 2006
In our opinion, the part of the directors’ remuneration report to
be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of
the audit:
the information given in the strategic report and the directors’
report for the financial year for which the financial statements,
are prepared is consistent with the financial statements
and those reports have been prepared in accordance with
applicable legal requirements;
Matters on which we are required to report
by exception
In the light of the knowledge and understanding of the Group
and the Parent Company and its environment obtained
in the course of the audit, we have not identified material
misstatements in:
the strategic report or the directors’ report; or
the information about internal control and risk management
systems in relation to financial reporting processes and about
share capital structures, given in compliance with rules 7.2.5
and 7.2.6 of the FCA Rules.
We have nothing to report in respect of the following matters
in relation to which the Companies Act 2006 requires us to
report to you if, in our opinion:
adequate accounting records have not been kept by the
Parent Company, or returns adequate for our audit have not
been received from branches not visited by us; or
the Parent Company financial statements and the part of
the Directors’ Remuneration Report to be audited are not in
agreement with the accounting records and returns; or
certain disclosures of directors’ remuneration specified by
law are not made; or
we have not received all the information and explanations
we require for our audit; or
a Corporate Governance Statement has not been prepared
by the company.
Responsibilities of directors
As explained more fully in the directors’ responsibilities
statement set out on pages 105 and 106, the directors are
responsible for the preparation of the financial statements and
for being satisfied that they give a true and fair view, and for
such internal control as the directors determine is necessary
to enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the Group and Parent Company’s
ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either
intend to liquidate the Group or the Parent Company or to
cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the
financial statements
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and
to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is
not a guarantee that an audit conducted in accordance
with ISAs (UK) will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error
and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the
economic decisions of users taken on the basis of these
financial statements.
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115
Explanation as to what extent the audit was
considered capable of detecting irregularities,
including fraud
The objectives of our audit, in respect to fraud, are: to
identify and assess the risks of material misstatement of
the financial statements due to fraud; to obtain sufficient
appropriate audit evidence regarding the assessed risks
of material misstatement due to fraud, through designing
and implementing appropriate responses; and to respond
appropriately to fraud or suspected fraud identified during the
audit. However, the primary responsibility for the prevention
and detection of fraud rests with both those charged with
governance of the entity and management.
Our approach was as follows:
We obtained an understanding of the legal and regulatory
frameworks that are applicable to the Group and determined
that the most significant are those that relate to the
reporting framework (IFRS, FRS 102, Companies Act 2006,
the UK Corporate Governance Code, and the relevant tax
compliance regulations in the jurisdictions in which Avast Plc
operates). In addition, we concluded that there are certain
significant laws and regulations which may have an effect
on the determination of the amounts and disclosures in
the financial statements, being the Listing Rules of the UK
Listing Authority, and those laws and regulations relating to
occupational health and safety and data protection.
We understood how Avast Plc is complying with those
frameworks by making enquiries of management and legal
counsel, and those charged with governance (i.e. considering
the potential for override of controls or other inappropriate
influence over the financial reporting process, such as efforts
by management to manage earnings in order to influence the
perceptions of analysts as to the entity’s performance
and profitability).
We assessed the susceptibility of the Group’s financial
statements to material misstatement, including how fraud
might occur by meeting with management from various parts
of the business to understand where it considered there
was susceptibility to fraud. We also considered performance
targets and their influence on efforts made by management
to manage earnings or influence the perceptions of analysts.
We considered the programmes and controls that the Group
has established to address risks identified, or that otherwise
prevent, deter and detect fraud; and how senior management
monitors those programmes and controls. Where the risk
was considered to be higher, we performed audit procedures
to address each identified fraud risk. These procedures
included testing manual journals and review of accounting
estimates and judgements and were designed to provide
reasonable assurance that the financial statements were free
from fraud or error.
Based on this understanding, we designed our audit
procedures to identify non-compliance with such laws and
regulations. Our procedures involved management enquiries,
review of legal correspondence and journal entry testing.
A further description of our responsibilities for the audit of
the financial statements is located on the FRC’s website at
https://www.frc.org.uk/auditorsresponsibilities. This description
forms part of our auditor’s report.
Other matters we are required to address
We were appointed by the company on 29 July 2019 to audit
the financial statements for the year ending 31 December 2019
and subsequent financial periods.
The period of total uninterrupted engagement, including
previous renewals and reappointments, is two years, covering
the years ending 31 December 2018 to 31 December 2019.
The non-audit services prohibited by the FRC’s Ethical
Standard were not provided to the Group or the Parent
Company and we remain independent of the Group and the
Parent Company in conducting the audit.
The audit opinion is consistent with the additional report to
the Audit Committee.
Use of our report
This report is made solely to the company’s members,
as a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken so
that we might state to the company’s members those matters
we are required to state to them in an auditor’s report and for
no other purpose. To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone, other than the
company and the company’s members as a body, for our audit
work, for this report, or for the opinions we have formed.
Marcus Butler (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
25 February 2020
Notes:
1 The maintenance and integrity of the Avast Plc web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes
that may have occurred to the financial statements since they were initially presented on the web site.
2 Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
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Independent Auditor’s ReportStrategic report Governance Financial statements Strategic report Governance Financial statements
Avast annual report 2019
116
Consolidated statement of profit and loss
For the year-ended 31 December 2019
REVENUE
Cost of revenues
GROSS PROFIT
Sales and marketing
Research and development
General and administrative
Total operating costs
OPERATING PROFIT
Net gain on disposal of a business operation
Interest income
Interest expense
Other finance income and expense (net)
PROFIT BEFORE TAX
Income tax
PROFIT FOR THE FINANCIAL YEAR
Attributable to:
Equity holders of the parent
Non-controlling interest (“NCI”)
Earnings per share (in $ per share):
Basic EPS
Diluted EPS
The accompanying notes form an integral part of these financial statements.
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Note
5
8
9
16
11
11
11
13
34
14
14
Year-ended 31 December 2019
$M
Year-ended 31 December 2018
$M
871.1
(210.7)
660.4
(132.0)
(82.5)
(101.3)
(315.8)
344.6
17.5
1.5
(58.7)
9.7
314.6
(65.7)
248.9
248.7
0.2
0.26
0.24
808.3
(241.4)
566.9
(124.5)
(68.9)
(125.2)
(318.6)
248.3
–
0.3
(85.8)
19.7
182.5
58.7
241.2
241.2
–
0.26
0.25
Consolidated financial statements Strategic report Governance Financial statements
Avast annual report 2019
117
Consolidated statement of comprehensive income
For the year-ended 31 December 2019
Profit for the financial year
Other comprehensive gains/(losses):
Items that will not be reclassified subsequently to profit or loss:
– Translation differences
Total other comprehensive gains/(losses)
Comprehensive income for the year
Attributable to:
Equity holders of the parent
Non-controlling interest
The accompanying notes form an integral part of these financial statements.
Year-ended 31 December 2019
$M
Year-ended 31 December 2018
$M
248.9
0.3
0.3
249.2
249.0
0.2
241.2
(1.6)
(1.6)
239.6
239.6
–
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Consolidated financial statements Strategic report Governance Financial statements
Avast annual report 2019
118
Consolidated statement of financial position
As at 31 December 2019
Company registered number: 07118170
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Capitalised contract costs
Prepaid expenses
Inventory
Tax receivables
Other financial assets
Non-current assets
Property, plant and equipment
Right-of-use assets
Intangible assets
Deferred tax assets
Other financial assets
Capitalised contract costs
Prepaid expenses
Goodwill
TOTAL ASSETS
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Note
31 December 2019
$M
31 December 2018
$M
17
18
19
13
20
21
22
13
19
23
216.6
78.9
33.3
13.6
0.4
22.0
1.2
366.0
42.9
62.6
193.3
203.8
0.8
4.4
0.8
1,991.3
2,499.9
2,865.9
272.3
82.9
31.2
8.5
0.5
7.3
0.4
403.1
29.3
–
267.3
204.1
0.7
4.6
2.0
1,993.7
2,501.7
2,904.8
Consolidated financial statements Strategic report Governance Financial statements
Avast annual report 2019
119
Consolidated statement of financial position (continued)
As at 31 December 2019
Company registered number: 07118170
SHAREHOLDERS’ EQUITY AND LIABILITIES
Current liabilities
Trade payables and other liabilities
Lease liability
Provisions
Income tax liability
Deferred revenue
Term loan
Non-current liabilities
Lease liability
Provisions
Deferred revenues
Term loan
Financial liability
Other non-current liabilities
Redemption obligation
Deferred tax liabilities
Shareholders’ equity
Share capital
Share premium, statutory and other reserves
Translation differences
Retained earnings
Equity attributable to equity holders of the parent
Non-controlling interest
TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES
These financial statements were approved by the Board of Directors on 25 February 2020 and
signed on its behalf by:
© 2019 Friend Studio Ltd
File name: FinancialXStatements_v50
Modification Date: 25 February 2020 4:18 pm
Note
31 December 2019
$M
31 December 2018
$M
24
21
25
13
26
27
21
25
26
27
29
13
31
31,32
33
65.1
7.3
11.6
0.3
420.5
58.2
563.0
57.5
0.9
54.3
969.5
2.1
1.7
56.3
36.2
1,178.5
136.0
280.7
1.3
698.9
1,116.9
7.5
1,124.4
2,865.9
64.0
0.4
9.1
40.4
384.3
73.4
571.6
2.6
0.9
51.2
1,318.1
1.0
4.3
–
54.7
1,432.8
129.0
275.9
(0.3)
494.8
899.4
1.0
900.4
2,904.8
Philip Marshall Chief Financial Officer
The accompanying notes form an integral part of these financial statements.
Consolidated financial statements Strategic report Governance Financial statements
Avast annual report 2019
120
Consolidated statement of changes in shareholders’ equity
For the year-ended 31 December 2019
At 31 December 2017
Result of the year
Other comprehensive income
Comprehensive income for the year
Primary proceeds
Group re-organisation
Capital reduction
Other movements
Share issue expense
Share-based payments deferred tax
Share-based payments
Exercise of options
At 31 December 2018
Result of the year
Other comprehensive income
Comprehensive income for the year
Transactions with NCI – Sale of interest
Transactions with NCI – Recognition of put liability
Share-based payments deferred tax
Other movements
Share-based payments
Exercise of options
Cash dividends
At 31 December 2019
Note
31
31
31
31
13
35
31
34
29
35
31
33
Share
Capital
$M
371.7
–
–
–
8.0
(250.8)
–
–
–
–
–
0.1
129.0
–
–
–
–
–
–
–
–
7.0
–
136.0
Share premium,
statutory and
other reserves
$M
Translation
differences
$M
Retained
earnings
$M
Equity attributable
to equity holders
of the parent
$M
3.3
–
–
–
191.8
250.8
(180.6)
–
(4.0)
–
13.8
0.8
275.9
–
–
–
–
(55.7)
–
0.2
20.1
40.2
–
280.7
1.3
–
(1.6)
(1.6)
–
–
–
–
–
–
–
–
(0.3)
–
0.3
0.3
–
–
–
1.3
–
–
–
1.3
57.9
241.2
–
241.2
–
–
180.6
0.3
–
14.8
–
–
494.8
248.7
–
248.7
48.6
–
34.9
(1.1)
–
–
(127.0)
698.9
434.2
241.2
(1.6)
239.6
199.8
–
–
0.3
(4.0)
14.8
13.8
0.9
899.4
248.7
0.3
249.0
48.6
(55.7)
34.9
0.4
20.1
47.2
(127.0)
1,116.9
Non-controlling
interests
$M
0.9
–
–
–
–
–
–
–
–
–
0.1
–
1.0
0.2
–
0.2
5.7
–
–
–
0.6
–
–
7.5
Total
equity
$M
435.1
241.2
(1.6)
239.6
199.8
–
–
0.3
(4.0)
14.8
13.9
0.9
900.4
248.9
0.3
249.2
54.3
(55.7)
34.9
0.4
20.7
47.2
(127.0)
1,124.4
The accompanying notes form an integral part of these financial statements.
© 2019 Friend Studio Ltd
File name: FinancialXStatements_v50
Modification Date: 25 February 2020 4:18 pm
Consolidated financial statements Strategic report Governance Financial statements
Avast annual report 2019
121
Consolidated statement of cash flows
For the year-ended 31 December 2019
Cash flows from operating activities
Profit for the financial year
Non-cash adj. to reconcile profit to net cash flows:
Income tax
Depreciation
Amortisation
Gain on disposal of a business operation
Gain on disposal of property, plant and equipment
Movement of provisions and allowances
Interest income
Interest expense, changes of fair values of derivatives and other non-cash financial expense
Shares granted to employees
Effect of exchange rate changes on cash and cash equivalents held in foreign currencies
Unrealised foreign exchange gains and losses and other non-cash transactions
Working capital adjustments:
(Increase)/decrease in trade and other receivables and inventories
Increase/(decrease) in trade and other payables
Increase in deferred revenues
Income tax paid
Net cash flows from operating activities
Note
Year ended 31 December 2019
$M
Year ended 31 December 2018
$M
13
12
12
16
11
11
34
26
248.9
65.7
18.9
91.1
(17.5)
(0.2)
5.9
(1.5)
59.6
20.7
(2.8)
(13.8)
(10.4)
(1.2)
39.9
(104.2)
399.1
241.2
(58.7)
13.4
130.3
–
(0.2)
3.5
(0.3)
85.5
13.9
(2.8)
(32.0)
4.1
1.0
56.9
(79.8)
376.0
© 2019 Friend Studio Ltd
File name: FinancialXStatements_v50
Modification Date: 25 February 2020 4:18 pm
Consolidated financial statements Strategic report Governance Financial statements
Avast annual report 2019
122
Consolidated statement of cash flows (continued)
For the year-ended 31 December 2019
Cash flows from investing activities
Acquisition of property and equipment
Acquisition of intangible assets
Investment in subsidiary, net of cash acquired
Settlement of contingent consideration
Proceeds from sale of a business operation, net of cash disposed
Interest received
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue shares
Transaction costs related to the issue shares
Transaction with NCI, net of fees
Exercise of options
Dividend paid
Repayment of borrowings
Proceeds from borrowings
Transaction costs related to borrowings
Interest paid
Lease payments interest
Lease payments principal
Net cash used from financing activities
Net increase/(decrease) in cash and cash equivalents
Effect of exchange rate changes on cash and cash equivalents held in foreign currencies
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
The accompanying notes form an integral part of these financial statements.
© 2019 Friend Studio Ltd
File name: FinancialXStatements_v50
Modification Date: 25 February 2020 4:18 pm
Note
20
22
15
16
31
31
34
31
33
27
27
27
27
21
21
17
Year ended 31 December 2019
$M
Year ended 31 December 2018
$M
(26.3)
(3.6)
(14.8)
(0.2)
26.7
1.5
(16.7)
–
–
54.3
47.2
(127.0)
(562.9)
202.6
(0.9)
(45.1)
(2.3)
(6.8)
(440.9)
(58.5)
2.8
272.3
216.6
(13.5)
(3.4)
(4.2)
(8.0)
–
0.3
(28.8)
199.8
(4.0)
–
0.9
–
(378.5)
–
(3.1)
(67.6)
(1.5)
(254.0)
93.2
2.8
176.3
272.3
Consolidated financial statements Strategic report Governance Financial statements
Avast annual report 2019
123
Notes to the consolidated financial statements
1. General information
Avast Plc, together with its subsidiaries (collectively,
“Avast”, “the Group” or “the Company”), is a leading global
cybersecurity provider. Avast Plc is a public limited company
incorporated and domiciled in the UK, and registered under
the laws of England and Wales under company number
07118170 with its registered address at 110 High Holborn,
London WC1V 6JS. The ordinary shares of Avast Plc are
admitted to the premium listing segment of the Official List
of the UK Financial Conduct Authority and trade on the
London Stock Exchange plc’s main market for listed securities.
2. Significant accounting policies
The accounting policies used in preparing the historical
financial information are set out below. These accounting
policies have been consistently applied in all material respects
to all periods presented except for the changes described in
Note 4.
Basis of preparation
The audited consolidated financial statements of the Group
have been prepared in accordance with International Financial
Reporting Standards as adopted by the European Union (IFRS).
The consolidated financial statements have been prepared
on a historical cost basis and are presented in US dollars.
All values are rounded to the nearest 0.1m ($m), except where
otherwise indicated.
Under section 408 of the Companies Act 2006, the Parent
Company is exempt from the requirement to present its own
profit and loss account.
The Group uses the direct method of consolidation, under
which the 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.
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 consolidated financial statements.
Revenue recognition
Revenue is measured based on the fair value of consideration
specified in the contract with a customer and excludes
taxes and duty. The Group recognises the revenue when it
transfers control over a product and service to a customer.
Each contract is evaluated to determine whether the Group is
the principal in the revenue arrangements.
Revenues from individual products and services are
aggregated into the following categories:
Consumer
Direct
The principal revenue stream of the Group is derived from
the sale of its software and related services for desktop and
mobile which protect users’ security, online privacy, and
device performance. Licence agreements with customers
include a pre-defined subscription period during which the
customer is entitled to the usage of the products, including
updates of the software. The typical length of a subscription
period is 1, 12, 24, or 36 months. Antivirus software requires
frequent updates to keep the software current in order for it
to be beneficial to the customer and the customer is therefore
required to use the updated software during the licence
period. This provides evidence that the licence grants the
right to access the software over time and therefore revenue is
recognised evenly over the term of the licence. The software
licence, together with the unspecified updates, forms a single
distinct performance obligation.
The Group mainly sells software licences through direct sales
(mainly through e-commerce services providers, including
Digital River and the Group’s e-shop) to customers. However,
the Group also sells a small portion through indirect sales via
the Group’s retailers and resellers.
Deferred revenue represents the contract liability arising
from contracts with customers. The portion of deferred
revenues that will be recognised as revenue in the 12 months
following the balance sheet date is classified as current,
and the remaining balance is classified as non-current.
Deferred revenue also materially represents the transaction
price relating to sales of software licences that is allocated to
future performance obligations. Some of the Group’s products
can be used on a one-time basis (VPN and Utilities), in which
case sales are recognised immediately as revenue.
The Group uses a practical expedient not to adjust the
promised amount of consideration for the effects of a
significant financing component if the Group expects, at
contract inception, that the period between when the Group
transfers a promised good or service to a customer and
when the customer pays for that good or service will be
one year or less.
© 2019 Friend Studio Ltd
File name: FinancialXStatements_v50
Modification Date: 25 February 2020 4:18 pm
Notes to the consolidated financial statements Strategic report Governance Financial statements
Avast annual report 2019
124
2. Significant accounting policies (continued)
When the Group concludes that it has control over the
provided product or service before that product or service
is transferred to the customer, the Group acts as principal
and revenues for satisfying the performance obligations are
recognised on a gross basis (before deduction of resellers’
commissions, payment provider fees, and the third party
costs). Otherwise, revenues are recognised on a net basis.
The Group accounts for sales of products through
e-commerce partners on a gross basis before the deduction of
the e-commerce partner’s commissions and fees. The Group’s
e-commerce service providers fulfil administrative functions,
such as collecting payment and remitting any required sales
tax. The Group’s e-commerce service providers collect the
fees and transfer cash payments to the Group on a monthly
basis within 30 days after the end of the month with respect
to which payment is being made. The Group sets the retail list
prices and has control over the licences before transferring
them to the customer.
The Group also sells subscription software licences through
an e-shop directly to end customers in cooperation with
certain payment gateways providers. Revenue from sales
through the e-shop is accounted for on a gross basis before
the deduction of payment gateways fees. The Group sets the
final retail prices and fully controls the revenue arrangement
with the end customers.
Location Labs, Inc. (Location Labs) provides mobile security
solutions that partner with Mobile Network Operators (MNOs)
providing locator, phone controls and drive safe products
to their customers. Once the product is developed by Avast
based on the MNO’s requirements, the product is then sold
to the end customer via the MNO’s subscription plans. The
revenues generated by these arrangements are based on
revenue share percentages as stated in the MNO agreements.
Revenue is recognised on a net basis, after deduction of
partners` commissions, based on the delivery of monthly
services to the end customers of the MNOs. Avast has no
control of the product and no discretion to set the final prices.
The Group also sells a limited amount of physical CDs
through its distributors which then sell the Group’s products
(Internet Security and Antivirus Software) to retail stores.
The retail revenue is recognised on a gross basis, before
the deduction of distributors commissions, ratably over the
subscription period.
The Group reduces revenue for estimated sales returns.
End users may return the Group’s products, subject to varying
limitations, through resellers or to the Group directly for refund
within a reasonably short period from the date of purchase.
The Group estimates and records provisions for sales returns
based on historical experience. The amount of such provisions
is not material.
Indirect
Consumer indirect revenues arise from several products and
distribution arrangements that represent the monetisation
of the user base. These arrangements are accounted for on
a net basis in an amount corresponding to the fee the Group
receives from the monetisation arrangement. The contracted
partner in the arrangement is the customer rather than the end
customer. The most significant sources of revenues are:
Google – The Group has two distribution arrangements
with Google Ireland Limited (“Google”) pursuant to which
the Group is paid fees in connection with the Group’s offers
to users of Google Chrome or Google Toolbar. The Group
recognises revenue from Google in full in the month they
are earned as the Group has no subsequent performance
obligations after the date of sale.
Secure Browsing – The Group’s Secure browser earns the
Group a share of advertising revenue generated by end user
search activity. Revenue is recognised immediately as the
Group has no performance obligation after the date of sale.
Advertising – Other Consumer Indirect derived revenues are
comprised of advertising fees and product fees. Advertising
fees are earned through advertising arrangements the
Group has with third parties whereby the third party
is obligated to pay the Group a portion of the revenue
they earn from advertisements to the Group’s end users.
Amounts earned are reflected as revenue in the month the
advertisement is delivered to the end user. The Group also
receives product fees earned through arrangements with
third parties, whereby the Group incorporates the content
and functionality of the third party into the Group’s product
offerings. Fees earned during a period are based on the
number of active clients with the installed third-party content
or functionality multiplied by the applicable client fee.
Analytics – The Group offered big data and marketing
analytics through its entity, Jumpshot Inc. (“Jumpshot”),
generating mostly recurring subscription revenue.
Subscriptions were recognised ratably over the subscription
period covered by the contract. Subsequent to year end,
the Group decided to wind down the Jumpshot business
as further described in Note 39.
Small and Medium-sized business (SMB’)
SMB includes subscription revenue targeted at small and
medium-sized businesses. Revenue is generated through
the sale of security software and other IT managed solutions
(including CloudCare). CloudCare is a cloud-based security
suite designed for SMBs and third party managed service
providers who can use this tool to manage security on behalf
of their clients. Licences are provided in conjunction with
hosting services as the customers have no control over the
software independently. The licence is not distinct and would
be combined with the hosting service as a single performance
obligation. The performance obligation is typically satisfied
over the subscription term, beginning on the date that service
is made available to the customer. Revenues from sales of
CloudCare are recognised on a gross basis, before deduction
of the payment gateways fees.
© 2019 Friend Studio Ltd
File name: FinancialXStatements_v50
Modification Date: 25 February 2020 4:18 pm
Notes to the consolidated financial statements Strategic report Governance Financial statements
Avast annual report 2019
125
2. Significant accounting policies (continued)
Cost of revenues
Expenses directly connected with the sale of products and the
provision of services, e.g. commissions, payments, and other
fees and third party licence costs related to the subscription
software licences, are recognised as cost of revenues.
Capitalised contract costs
The Group pays commissions, third party licence, costs and
payment fees to resellers and payment providers for selling the
subscription software licences to end customers. Capitalised
contract costs are amortised over the licence period and
recognised in the cost of revenues. Capitalised contract costs
are subject to an impairment assessment at the end of each
reporting period. Impairment losses are recognised in profit
or loss.
Taxes
Current income tax assets and liabilities recognised are the
amount expected to be recovered from or paid to the taxation
authorities. The tax rates and tax laws used to compute the
amount are those that are enacted or substantively enacted
at the reporting date in the country where the Group operates
and generates taxable income.
Deferred tax is recognised for all temporary
differences, except:
where the deferred tax arises from the initial recognition
of goodwill or of an asset or liability in a transaction that is
not a business combination and, at the time of the
transaction, affects neither the accounting profit nor
taxable profit or loss; and
in respect of taxable temporary differences associated
with investments in subsidiaries, associates and interests
in joint ventures, where the timing of the reversal of the
temporary differences can be controlled and it is probable
that the temporary differences will not reverse in the
foreseeable future.
Deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available, whereby the
deductible temporary differences and the carry forward of
unused tax credits and unused tax losses can be utilised.
rates prevailing at the balance sheet date and the income
statements are translated at the average exchange rate for
each month of the relevant year. The resulting net translation
difference is recorded in other comprehensive income.
The carrying amount of deferred tax assets is reviewed at
each reporting date and reduced to the extent that it is no
longer probable that sufficient taxable profit will be available
to allow all or part of the deferred tax asset to be utilised.
Unrecognised deferred tax assets are reassessed at each
reporting date and are recognised to the extent that it has
become probable that future taxable profits will allow the
deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax
rates that are expected to apply in the year when the asset is
realised or the liability is settled, based on tax rates (and tax
laws) that have been enacted or substantively enacted at the
reporting date for the respective tax jurisdiction.
Deferred tax items are recognised with respect to the related
underlying transaction either in other comprehensive income
or directly in equity. Deferred tax assets and deferred tax
liabilities are offset if a legally enforceable right exists to set
off current tax assets against current income tax liabilities and
the deferred taxes relate to the same taxable entity and the
same taxation authority.
Foreign currency translation
The Group’s historical financial information is presented in
US dollars (USD or $). The functional currencies of all Group
entities are presented in the table opposite. Each entity in the
Group (including branch offices not representing incorporated
entities) determines its own functional currency, and items
included in the financial statements of each entity are
measured using that functional currency. For the purposes of
inclusion in the historical financial information, the statement
of financial position of entities with non-USD functional
currencies are translated into USD at the exchange
The functional currencies of the Group’s main entities are
as follows:
Company or branch
Avast plc
Avast Holding B.V.
Avast Operations B.V.
Avast Software B.V.
Avast Software s.r.o.
Avast Software, Inc.
Avast Corporate Services B.V.
Avast Deutschland GmbH
AVG Technologies UK Limited
AVG Technologies USA, Inc.
FileHippo s.r.o.
InloopX s.r.o.
Location Labs, Inc.
Piriform Group Limited
Piriform Limited
Piriform Software Limited
Piriform, Inc.
Privax Limited
TrackOFF, Inc.
Jumpshot s.r.o.
Jumpshot, Inc.
Functional
currency
USD
USD
USD
USD
USD
USD
USD
EUR
GBP
USD
CZK
EUR
USD
GBP
GBP
GBP
USD
USD
USD
CZK
USD
© 2019 Friend Studio Ltd
File name: FinancialXStatements_v50
Modification Date: 25 February 2020 4:18 pm
Notes to the consolidated financial statements Strategic report Governance Financial statements
Avast annual report 2019
126
2. Significant accounting policies (continued)
Transactions in foreign currencies are initially recorded by
the Group entities at their respective functional currency rates
prevailing at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are recalculated
at the functional currency spot rate of exchange valid at the
reporting date. All differences are recorded in the statement
of profit and loss as finance income and expenses.
Non-monetary items that are measured in terms of historical
cost in a foreign currency are translated using the exchange
rates at the dates of the initial transactions.
Business combinations and goodwill
Business combinations are accounted for using the acquisition
method. The cost of an acquisition is measured as the
aggregate of the consideration transferred measured
at acquisition date fair value and the amount of any
non-controlling interests in the acquiree. For each business
combination, the Group elects whether to measure the
non-controlling interests in the acquiree at fair value or at the
proportionate share of the acquiree’s identifiable net assets.
Acquisition-related costs are expensed as incurred and
included in administrative expenses.
When the Group acquires a business, it assesses the financial
assets and liabilities assumed for appropriate classification
and designation in accordance with the contractual terms,
economic circumstances, and pertinent conditions as at the
acquisition date. If the business combination is achieved in
stages, any previously held equity interest is re-measured at
its acquisition date fair value and any resulting gain or loss
is recognised in profit or loss. It is then considered in the
determination of goodwill.
Any contingent consideration to be transferred will be
recognised at fair value at the acquisition date. Contingent
consideration is measured at fair value with changes in fair
value recognised in profit or loss. Contingent consideration
that is classified as equity is not re-measured and subsequent
settlement is accounted for within equity.
Goodwill is initially measured at cost, being the excess of the
aggregate of the consideration transferred and the amount
recognised for non-controlling interests, and any previous
interest held, over the net identifiable assets acquired and
liabilities assumed. If the fair value of the net assets acquired
is in excess of the aggregate consideration transferred, the
Group reassesses whether it has correctly identified all of
the assets acquired and all of the liabilities assumed, and
reviews the procedures used to measure the amounts to be
recognised at the acquisition date. During the measurement
period, which may be up to one year from the acquisition date,
the Group may record adjustments to the assets acquired and
liabilities assumed with the corresponding offset to goodwill.
Upon the conclusion of the measurement period or final
determination of the values of assets acquired or liabilities
assumed, whichever comes first, any subsequent adjustments
are recorded to the Consolidated statement of profit and loss.
After initial recognition, goodwill is measured at cost less
any accumulated impairment losses. For the purpose
of impairment testing, goodwill acquired in a business
combination is, from the acquisition date, allocated to each
of the Group’s cash-generating units that are expected to
benefit from the combination, irrespective of whether other
assets or liabilities of the acquiree are assigned to those units.
Intangible assets
Intangible assets acquired separately are measured on initial
recognition at cost. The cost of intangible assets acquired
in a business combination is their fair value as at the date
of acquisition.
Intangible assets are carried at cost less accumulated
amortisation and accumulated impairment losses.
Intangible assets with finite lives are amortised over their
useful economic life and assessed for impairment whenever
there is an indication that the intangible asset may be impaired.
The amortisation period for an intangible asset with a finite
useful life is reviewed at least at the end of each reporting
period. The amortisation expense on intangible assets with
finite lives is recognised in the Consolidated statement of profit
and loss in the expense category consistent with the function
of the intangible assets.
Indefinite lived intangibles are not amortised but are tested
for impairment annually and for impairment indicators on a
quarterly basis. The assessment of indefinite life is reviewed
annually to determine whether the indefinite life assumption
continues to be appropriate.
The useful economic lives of intangible assets are as follows:
Developed technology
Avast Trademark
Piriform Trademark
AVG Trademark
Customer relationships and user base
Other licensed intangible assets
Years
4–5
Indefinite
10
6
4
3–5
Research and development costs
Research costs are expensed when incurred when the
criteria for capitalisation are not met. Development
expenditures are recognised as an intangible asset when
the Group can demonstrate:
the technical feasibility of completing the intangible asset so
that the asset will be available for use or sale;
its intention to complete and its ability and intention to use or
sell the asset;
how the asset will generate future economic benefits;
the availability of resources to complete the asset; and
the ability to measure reliably the expenditure
during development.
Development expenditure incurred on minor or major
upgrades, or other changes in software functionalities does
not satisfy the criteria, as the product is not substantially new
in its design or functional characteristics. Such expenditure
is therefore recognised as an expense in the Consolidated
statement of profit or loss as incurred.
© 2019 Friend Studio Ltd
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Modification Date: 25 February 2020 4:18 pm
Notes to the consolidated financial statements Strategic report Governance Financial statements
Avast annual report 2019
127
2. Significant accounting policies (continued)
Goodwill
Goodwill is assessed as having an indefinite useful life and is
tested for impairment annually.
Property, plant and equipment
Property, plant and equipment are carried at cost less
accumulated depreciation and accumulated impairment
losses. Cost comprises the aggregate amount paid and the
fair value of any other consideration given to acquire the
asset and includes costs directly attributable to making the
asset capable of operating as intended.
Repairs and maintenance costs are charged to the
Consolidated statement of profit and loss during the
accounting period during which they are incurred.
Depreciation is recorded on a straight-line basis over the
estimated useful life of an asset, as follows:
Leasehold improvements
Machinery and equipment
Years
Over the
lease term
2–5
Gains or losses arising from the de-recognition of property,
plant and equipment are measured as the difference between
the net disposal proceeds and the carrying amount of the
asset and are recognised in the Consolidated statement of
profit and loss when the asset is de-recognised.
Impairment
The Group assesses at each reporting date whether there is
an indication that an asset may be impaired. If any indication
exists, or when annual impairment testing for an asset is
required, the Group estimates the asset’s recoverable amount.
An asset’s recoverable amount is the higher of an asset’s or
cash-generating unit’s (CGU) fair value less costs of disposal
or its value in use and is determined for an individual asset,
unless the asset does not generate cash inflows that are
largely independent of those from other assets or groups
of assets.
Where the carrying amount of an asset or CGU exceeds its
recoverable amount, the asset is considered impaired and is
written down to its recoverable amount. In assessing value
in use, the estimated future cash flows are discounted to
their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and
the risks specific to the asset. In determining fair value less
costs of disposal, recent market transactions are taken into
account, if available. If no such transactions can be identified,
an appropriate valuation model is used.
Impairment losses of continuing operations are recognised in
the Consolidated statement of profit and loss in those expense
categories consistent with the function of the impaired asset.
For assets excluding goodwill, an assessment is made at
each reporting date as to whether there is any indication that
previously recognised impairment losses may no longer exist
or may have decreased. Any reversal of previously recognised
impairment is limited so that the carrying amount of the asset
does not exceed the lower of its recoverable amount or the
carrying amount that would have been determined, net of
depreciation, had no impairment loss been recognised for
the asset in prior years. Such reversal is recognised in the
Consolidated statement of profit and loss.
Goodwill and intangible assets with indefinite useful lives
are tested for impairment annually as at 31 December at the
operating segment level, which is the smallest group of CGUs
to which the goodwill and intangible assets with indefinite
useful life can be allocated. Goodwill is allocated to the groups
of CGUs that correspond with operating segments (Consumer
and SMB) according to the allocation from past business
combinations – see Note 23. Intangible assets with indefinite
useful lives are all allocated to the Group of CGUs that
corresponds to the Consumer operating segment.
Leases
For any new contracts entered into on or after 1 January
2019, the Group considers whether a contract is, or contains,
a lease. That is, if the contract conveys the right to control
the use of an identified asset for a period of time in exchange
for consideration.
On transition to IFRS 16, the Group elected to apply the
practical expedient to grandfather the assessment of which
transactions are leases. The Group applied IFRS 16 only to
contracts that were previously identified as leases. Therefore,
the definition of a lease under IFRS 16 was applied only to
contracts entered into on or after 1 January 2019.
The Group applies a recognition exemption 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’). Short-term
lease payments are recognised as operating expenses in the
Consolidated statement of profit and loss on a straight-line
basis over the lease term.
Right-of-use assets
The Group recognises right-of-use assets at the
commencement date of the lease. Right-of-use assets are
measured at cost, less any accumulated depreciation
and impairment losses, and are subsequently adjusted
(where appropriate) for any re-measurement of lease liabilities.
The cost of right-of-use assets includes the amount of lease
liabilities recognised, initial direct costs incurred, and lease
payments made at or before the commencement date less
any lease incentives received.
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 Group currently applies the lease term for
depreciation of all right-of-use assets (see Note 21). Related
expense is presented within depreciation, allocated to general
and administrative expenses. The Group also assesses the
right-of-use asset for impairment when such indicators exist.
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2. Significant accounting policies (continued)
Lease liabilities
At the commencement date of the lease, the Group
recognises lease liabilities measured at the present value of
lease payments to be made over the lease term. The lease
payments include fixed payments less any lease incentives
receivable, variable lease payments that depend on an index
or a rate and lease payments within extension option periods
for which the Group considers it likely that the extension option
will be utilised.
In calculating the present value of lease payments, the
Group uses the incremental borrowing rate at the lease
commencement date because the interest rate implicit in
the lease is not readily determinable.
The amount of lease liabilities is increased to reflect the
accretion of interest and reduced for the lease payments
made. Lease interest is presented within interest expenses.
In addition, the carrying amount of lease liabilities is
re-measured if there is a reassessment of the lease term
(using a revised discount rate at the date of the reassessment)
or a change in the variable lease payments that depend on an
index or rate (using the original discount rate). In such cases,
there is a corresponding adjustment to the right-of-use asset.
Operating leases (accounting policy applied prior
to 1 January 2019)
Under IAS 17 (prior to transition to IFRS 16), leases where the
lessee did not obtain substantially all the risks and rewards of
ownership of the asset were classified as operating leases.
Operating lease payments, other than contingent rentals, were
recognised as an expense in the Consolidated statement of
profit and loss on a straight-line basis over the lease term.
Employee stock option plans
Employees of the Group receive remuneration in the form
of share-based payment transactions whereby employees
render services as consideration for equity instruments
(equity-settled transactions).
Equity-settled transactions
The cost of equity-settled transactions is determined based on
the fair value of the share-based payment award at the date
when the grant is made, taking into account the market and
non-vesting conditions, using an appropriate valuation model.
Non-market vesting conditions are not taken into account in
determining the fair value of the award. The cost is recognised,
together with a corresponding increase in other capital
reserves in equity, over the period in which the performance
or service conditions are fulfilled. The cumulative expense
recognised for equity-settled transactions at each reporting
date until the vesting date reflects the extent to which the
vesting period has expired and the Group’s best estimate of
the number of equity instruments that will ultimately vest.
The Consolidated statement of profit and loss expense or
credit for a period represents the movement in cumulative
expense recognised as at the beginning and end of that
period and is recognised in compensation expense.
No expense is recognised for awards that do not ultimately
vest, except for equity-settled transactions where vesting is
conditional upon a market or non-vesting condition, which are
treated as vesting irrespective of whether or not the market
or non-vesting condition is satisfied, provided that all other
performance and/or service conditions are satisfied.
When the terms of an equity-settled transaction are modified,
where the modification increases the total fair value of the
share-based payment transaction, or is otherwise beneficial
to the employee as measured at the date of modification,
additional expense is recognised. When an equity-settled
award is cancelled other than by forfeiture, it is treated as
if it vested on the date of cancellation, and any expense not
yet recognised for the award is recognised immediately.
This includes any award where non-vesting conditions within
the control of either the entity or the employee are not met.
However, if a new award is substituted for the cancelled award,
and designated as a replacement award on the date that it is
granted, the cancelled and new awards are treated as if they
were a modification of the original award. The dilutive effect of
outstanding options is reflected in the computation of diluted
earnings per share.
Payments for settlement of equity-settled awards are taken
to equity up to the fair value of the award at the time of
settlement (with any excess recognised in profit or loss).
Deferred tax assets are recognised in connection with granted
stock option in the amount of the expected tax deduction
available on exercise, measured using the share price at
the end of the period and multiplied by the expired portion
of the vesting period. The cumulative related tax benefit
is recognised in profit and loss to the extent of the tax rate
applied to the cumulative recognised share-based payments
expense, with the excess (if any) recognised directly
through equity.
Employee benefits
Pension obligations
Contributions are made to the government health,
retirement benefit and unemployment plans at statutory
rates applicable during the period and are based on gross
salary payments. The arrangements of the government
health, retirement benefit and unemployment plans qualify
as defined contribution plans. The Group has no further
payment obligations once the contributions have been paid.
The expense for the contributions is charged to profit and loss
in the same period as the related salary expense. As a benefit
for employees, the Group also makes contributions to defined
contribution schemes operated by external (third-party)
pension companies. These contributions are charged to
profit and loss in the period to which the contributions relate.
Defined contribution plans
The Group maintains a defined contribution 401(k) retirement
savings plan for its US employees. Each participant in the
401(k) retirement savings plan may elect to contribute a
percentage of his or her annual compensation up to a
specified maximum amount allowed under US Internal
Revenue Service regulations. The Group matches employee
contributions to a maximum of 4% of the participant
annual compensation.
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2. Significant accounting policies (continued)
Redundancy and termination benefits
Redundancy and termination benefits are payable when
employment is terminated before the normal retirement or
contract expiry date. The Group recognises redundancy
and termination benefits when it is demonstrably committed
to have terminated the employment of current employees
according to a detailed formal plan without possibility of
withdrawal. Benefits falling due more than 12 months after
the balance sheet date are discounted to present value.
There are currently no redundancy and termination benefits
falling due more than 12 months after the balance sheet date.
Key management personnel
The Group discloses the total remuneration of key
management personnel (KMP) as required by IAS 24
Related party disclosures. The Group includes within KMP
all individuals who have authority and responsibility for
planning, directing, and controlling the activities of the Group.
KMP include all members of the Board and the Executive
Management team of the Group. Other related parties include
family members if applicable. See Note 36 for more details.
Financial instruments
Financial assets and liabilities are recognised on the Group’s
Consolidated statement of financial position when the
Group becomes a contractual party to the instrument.
When financial instruments are recognised initially, they
are measured at fair value, which is the transaction price
plus, in the case of financial assets and financial liabilities
not measured at fair value through profit and loss, directly
attributable transaction costs.
All assets and liabilities for which fair value is measured or
disclosed in the financial statements are categorised within the
fair value hierarchy, described as follows, based on the lowest
level input that is significant to the fair value measurement as
a whole:
Level 1 – Quoted (unadjusted) market prices in active markets
for identical assets or liabilities;
Level 2 – Valuation techniques for which the lowest level
input that is significant to the fair value measurement is
directly or indirectly observable; and
Level 3 – Valuation techniques for which the lowest
level input that is significant to the fair value measurement
is unobservable.
Trade and other receivables
Trade receivables are at initial recognition recorded at the
original invoice amount, including value-added tax and other
sales taxes. At subsequent reporting dates, the carrying
amount is decreased by the expected lifetime loss allowance
attributable to the receivable or group of receivables based
on a credit assessment of the counterparty or estimate for
relevant group of receivables respectively.
The Group uses the expected credit loss model for impairment
of receivables. The Group applies practical expedients when
measuring the expected credit loss. The Group applies a
simplified approach and recognises expected lifetime loss
allowances for trade receivables and contract assets.
The expected lifetime loss is calculated using the provision
matrix, which assigns provision rates to classes of receivables
based on number of days they are overdue, based on the
Group’s historical credit loss experience adjusted for forward-
looking development. The classes of receivables are stratified
by types of customer and by operating segments between the
Consumer and SMB receivables.
Bad debts are written off in the period in which they are
determined to be completely irrecoverable.
Cash and cash equivalents
For the purpose of the Consolidated statement of cash flows,
cash and cash equivalents consist of cash at bank, cash in
hand and short-term deposits with an original maturity of
three months or less.
The Group´s Consolidated statement of cash flows is prepared
based on the indirect method from the Consolidated
statement of financial position and Consolidated statement of
profit and loss.
Pledged or restricted assets
Financial assets transferred to third parties as collateral,
assets that are pledged and assets as to which the Group
has otherwise restricted dispositions are classified as other
long-term receivables, if the period until which the restriction
ends or return of the assets in question will take place is more
than 12 months from the balance sheet date.
Trade payables and other liabilities
Trade payables and other liabilities are recognised at their
amortised cost which is deemed to be materially the same as
the fair value.
Loans
Loans are initially recognised at their fair value net of
transaction costs and subsequently measured at amortised
cost using the effective interest method. The effective interest
rate is the rate that exactly discounts the estimated future cash
payments or receipts over the expected life of the financial
instrument or a shorter period, where appropriate, to the net
carrying amount of the financial liability.
Derivative financial instruments
Derivatives are initially recognised at fair value at the date
a derivative contract is entered into and are subsequently
re-measured at fair value at the end of each reporting
period. The resulting gain or loss is recognised in profit and
loss immediately.
A derivative embedded within a host contract containing a
financial asset host is not accounted for separately.
The financial asset host together with the embedded
derivative is required to be classified in its entirety as a
financial asset at fair value through profit or loss.
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2. Significant accounting policies (continued)
De-recognition of financial instruments
A financial asset or liability is generally de-recognised
when the contract that gives right to it is settled, sold,
cancelled or expires.
When an existing financial liability is replaced by another
from the same lender on substantially different terms, or the
terms of an existing liability are substantially modified, such an
exchange or modification is treated as a de-recognition of the
original liability and the recognition of a new liability, and the
difference in the respective carrying amounts is recognised in
the Consolidated statement of profit and loss.
Provisions
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event, it
is probable that an outflow of resources embodying economic
benefits will be required to settle the obligation and a reliable
estimate can be made of the amount of the obligation.
Onerous contracts
If the Group has a contract that is onerous, the present
obligation under the contract is recognised and measured as a
provision. However, before a separate provision for an onerous
contract is established, the Group recognises any impairment
loss that has occurred on assets dedicated to that contract.
An onerous contract is a contract under which the unavoidable
costs (i.e. the costs that the Group cannot avoid because it has
the contract) of meeting the obligations under the contract
exceed the economic benefits expected to be received under
it. The unavoidable costs under a contract reflect the least net
cost of exiting from the contract, which is the lower of the cost
of fulfilling it and any compensation or penalties arising from
failure to fulfil it.
Interest income and expense
Interest income consists of interest income on deposits.
Interest expense consists of interest expense on term loans
including amortisation of arrangement fees, and interest
expense on leases.
Other finance income and expense
Other financial income and expenses consist of realised and
unrealised foreign exchange gains and losses, changes in fair
value of derivatives, unwinding of discounts on non-current
provisions, and other liabilities discounted to net present value
and other financial expense.
Exceptional items
Exceptional items are material or non-recurring items of
income and expense which the Group believes should be
separately disclosed to show the business performance of the
Group more accurately. Such items are separately disclosed in
the Notes to the Consolidated financial statements. Examples
of such items include legal and advisory costs related to
acquisition, disposals, integration, strategic restructuring
program costs, and cost of impairment.
3. Significant accounting judgements,
estimates, and assumptions
Significant judgements
Leases – Extension options
When the Group has the option to extend a lease,
management uses its judgement to determine whether or
not an option would be 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 including long-term business strategy,
conditions of the lease, availability of alternative options,
and potential relocation costs for it to exercise the renewal.
Potential future cash outflows of $7.4m have not been included
in the lease liability because it is not reasonably certain that the
lease will be extended (or not terminated).
Impairment testing
Significant management judgement and estimates are
required to determine the individual cash-generating units
(CGUs) of the Group, the allocation of assets to these CGUs
and the determination of the value in use or fair value less
cost to sell of these individual assets. Management has
concluded that the operating segments used for segment
reporting represent the lowest level within the Group at which
the goodwill is monitored. Therefore, the operating segments
correspond to groups of CGUs at which goodwill is tested
for impairment.
Loans
The terms of the Credit Agreement offer the Company
significant flexibility, allowing it to prepay, reprice, refinance,
substitute or replace any drawn loans without penalty
(except within a six-month period following issue or a repricing,
a term intended to provide a degree of protection to the
lenders’ income). The terms also provide for the Company
to be able to request a reduction in the interest rate margin
payable. Although any such reduction would, as a matter of
form, be made through renegotiation, the agreement was
drawn up on the understanding by both the Company and the
lenders that the Company would routinely make such requests
where it was supported by appropriate evidence (that market
perception of the credit risk of the company had improved) and
that such requests would generally be granted (as has been
the experience in 2017 to 2019 – see Note 27). If not granted,
the Company would be able to obtain replacement financing at
the reduced market price, repay the original loan at par and the
lenders would lose their income stream.
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3. Significant accounting judgements,
estimates, and assumptions (continued)
Consequently, management’s judgement is that the term
loan is in substance a floating rate loan for which the
interest margin is reset every six months to the market rate,
provided it is favourable to the Company. The reduction in
margin is accounted for as a change in effective interest rate
prospectively from the moment the change in estimate takes
place rather than by treating it as a modification of terms.
Significant estimates
Deferred tax
Deferred tax assets are recognised for unused tax losses
to the extent that it is probable that taxable profit will be
available against which the losses can be utilised. Significant
management judgement is required to determine the amount
of deferred tax assets that can be recognised, based upon the
likely timing and the level of future taxable profits.
The Group recognises substantial deferred tax assets from
unused tax losses in its US-based subsidiaries, excluding
Jumpshot, Inc. The management assesses that these deferred
tax assets are recoverable, with key elements of judgement
being the fact that US tax losses carry over indefinitely, and the
significant business presence of the Group in the US market
gives the Group the ability to generate sufficient taxable profit
for the foreseeable future.
Based on expectations of future profitability, management
expects to recover the deferred tax asset over a 20-year
time frame. The recovery period is sensitive to the level of
profitability of the underlying business; however, there are
no significant assumptions which would impact our
expectation of recovery.
The Group also recognises substantial deferred tax assets
from the 2018 transfer of intellectual property to the Czech
Republic, which is being recovered linearly over a 15-year
period. The management assesses that this deferred tax asset
is recoverable, with key elements of judgement being that the
major portion of the Group’s profit is generated in the Group’s
Czech entity and this structure is expected to remain for the
foreseeable future.
Share-based payments
Estimating fair value for share-based payment transactions
requires determination of the most appropriate valuation
model, which depends on the terms and conditions of
the grant. This estimate also requires determination of the
most appropriate inputs to the valuation model including
the volatility and dividend yield and making assumptions
about them. The Group initially measures the cost of equity-
settled transactions with employees using a Black-Scholes
model. In addition, at each reporting date before vesting,
management uses the best estimate of the performance
achievement of the number of equity instruments that
will ultimately vest. The vesting of these awards is conditioned
upon the achievement of the Group’s basic EPS and
adjusted revenue growth targets over the three-year period.
The movements resulting from the estimates are recognised
in the Consolidated statement of profit or loss, with a
corresponding entry in equity.
Redemption liability
The management believed that the estimated exercise value
of the redemption liability described in Note 29, as at the end
of the period, was best estimated by the original transaction
price. The exercise price was at the higher of the original cost
and market value. The redemption liability was remeasured
to the present value of the estimated exercise price at each
period end until expiry or exercise.
Due to the subsequent closure of the Jumpshot business
in January 2020, as described in Note 39, the redemption
obligation is void and will be reversed in 2020.
4. Application of new and revised
IFRS standards
Newly adopted standards
IFRS 16 Leases
IFRS 16 Leases 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 and the only significant
lease contracts are leased 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,
without any restatement to comparatives. 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’).
The Group does not have any significant short-term or low-
value assets.
Right-of-use assets were measured at the amount of the lease
liability on adoption using the incremental borrowing rate
at the date of initial application (adjusted for any prepaid or
accrued lease expenses and assessed for impairment).
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4. Application of new and revised
IFRS standards (continued)
The impact of the initial recognition on 1 January 2019 is
as follows:
The lease liabilities as at 1 January 2019 are reconciled to
the operating lease commitments as of 31 December 2018
as follows:
($’m)
Right-of-use assets
Prepaid expenses
Accrued leased payments
Lease liabilities
Net assets impact
Application of IFRS 16 does not have any material impact
on the Group’s net profit or EPS comparability with the prior
period. The impact is limited to differences in presentation –
lease expenses are replaced by right-of-use asset amortisation
and lease interest expense.
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
the use of hindsight in determining the lease term where the
contract contains options to extend or terminate the lease
1 January
2019
Operating lease commitments as at
31 December 2018
69.7
(2.0)
4.0
(71.7)
–
Recognition exemption:
Commitments relating to short-term leases
Other commitments
Net operating lease commitments as at
31 December 2018
Effect from discounting at the incremental
borrowing rate as of 1 January 2019
Lease liabilities as at 1 January 2019
($m)
87.6
(0.5)
(0.3)
86.8
(15.1)
71.7
The lease liabilities were discounted at the incremental
borrowing rates as at 1 January 2019. The weighted average
discount rate was 3.3%.
IFRIC Interpretation 23 Uncertainty over
income tax treatment
The Interpretation addresses the accounting for income
taxes when tax treatments involve uncertainty that affects the
application of IAS 12 Income taxes. It does not apply to taxes
or levies outside the scope of IAS 12, nor does it specifically
include requirements relating to interest and penalties
associated with uncertain tax treatments. The Interpretation
specifically addresses the following:
whether an entity considers uncertain tax
treatments separately
the assumptions an entity makes about the examination
of tax treatments by taxation authorities
how an entity determines taxable profit (tax loss), tax bases,
unused tax losses, unused tax credits, and tax rates
how an entity considers changes in facts and circumstances
Upon adoption of the Interpretation, the Group considered
whether it had any uncertain tax positions, particularly
those relating to transfer pricing. The Company’s and the
subsidiaries’ tax filings in different jurisdictions include
deductions related to transfer pricing, and the taxation
authorities may challenge those tax treatments. The Group
determined, based on its tax compliance and transfer pricing
study, that it is probable that its tax treatments (including
those for the subsidiaries) will be accepted by the taxation
authorities. The Interpretation did not have an impact on the
Consolidated financial statements of the Group.
Standards issued but not yet effective and
not early adopted
IFRS 3 Business combinations (Amendments)
The IASB issued amendments in Definition of a business
(Amendments to IFRS 3) aimed at resolving the difficulties
that arise when an entity determines whether it has acquired
a business or a group of assets. The Amendments are
effective for business combinations for which the acquisition
date is in the first annual reporting period beginning on or after
1 January 2020 and to asset acquisitions that occur on or after
the beginning of that period, with earlier application permitted.
IAS 1 Presentation of financial statements and IAS 8
Accounting policies, changes in accounting estimates and
errors: Definition of ‘material’ (Amendments)
The Amendments are effective for annual periods beginning
on or after 1 January 2020 with earlier application permitted.
The Amendments clarify the definition of material and how
it should be applied. The new definition states that,
“Information is material if omitting, misstating or obscuring
it could reasonably be expected to influence decisions
that the primary users of general purpose financial statements
make on the basis of those financial statements, which
provide financial information about a specific reporting entity”.
In addition, the explanations accompanying the definition have
been improved. Management has assessed no significant
impact from the implementation of this amendment is
expected by the Group.
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5. Segment information and other disclosures
Management monitors operating results in two customer
segments: consumer products (which generate direct and
indirect revenue streams) and products for the SMB market.
For management reporting purposes, the operating and
reportable segments are determined to be Consumer and
Small to Mid-sized Business (SMB). This is the level
on which the Chief Operating Decision Maker decides
about the allocation of the Group’s resources.
The principal products and services offered by each segment
are summarised below:
Consumer –the Group’s consumer products include direct
revenue streams through its offerings for desktop security and
mobile device protection, and consist of free and premium
paid products for the individual consumer market. The Group
also has several value-added solutions for performance,
privacy, and other tools. The Group also focuses on monetising
the user base indirectly, via dynamic secure search solution,
including the browser toolbar, which gives users a convenient
way to access a search engine at any time.
SMB – The Group’s SMB segment focuses on delivering
high-level security and protection solutions for small and
medium-sized business customers.
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 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.
The Group evaluates the performance of its segments based primarily on billing, revenue and operating profit.
Billings are not defined or recognised under IFRS and considered as a non-IFRS financial measure used to evaluate
current business performance.
Certain costs that are not directly applicable to the segments are identified as corporate overhead costs and represent general
corporate costs that are applicable to the consolidated group. In addition, costs relating to share-based payments and exceptional
items are not allocated to the segments since these costs are not directly applicable to the segments, and therefore not included
in the evaluation of performance of the segments.
The following tables present summarised information by segment:
For the year ended 31 December 2019 ($’m)
Billings
Deferral of revenue
Revenues
Deferred revenue haircut reversal
Segment revenue
Segment cost of revenues
Segment sales and marketing costs
Segment research and development costs
Segment general and administrative costs
Total segment operating profit
Corporate overhead
Deferred revenue haircut reversal
Depreciation and amortisation
Exceptional items
Share-based payments
Employer’s taxes on share-based payments
Consolidated operating profit
Consumer
865.1
(42.2)
822.9
0.8
823.7
(84.7)
(78.7)
(57.7)
(5.4)
597.2
SMB
45.9
2.3
48.2
1.0
49.2
(5.3)
(18.9)
(4.7)
3.1
23.4
Total
911.0
(39.9)
871.1
1.8
872.9
(90.0)
(97.6)
(62.4)
(2.3)
620.6
(137.5)
(1.8)
(110.0)
(1.8)
(20.7)
(4.2)
344.6
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134
5. Segment information and other disclosures (continued)
For the year ended 31 December 2018 ($’m)
Billings
Deferral of revenue
Revenues
Deferred revenue haircut reversal
Segment revenue
Segment cost of revenues
Segment sales and marketing costs
Segment research and development costs
Segment general and administrative costs
Total segment operating profit
Corporate overhead
Deferred revenue haircut reversal
Depreciation and amortisation
Exceptional items
Share-based payments
Consolidated operating profit
Consumer
801.6
(50.7)
750.9
10.0
760.9
(74.0)
(70.6)
(44.0)
(4.7)
567.6
SMB
60.5
(3.1)
57.4
5.5
62.9
(7.2)
(23.5)
(6.6)
–
25.6
Total
862.1
(53.8)
808.3
15.5
823.8
(81.2)
(94.1)
(50.6)
(4.7)
593.2
(146.2)
(15.5)
(143.7)
(25.6)
(13.9)
248.3
Corporate overhead costs primarily include the costs of the Group’s IT, Technology (R&D), HR, Finance and Central Marketing
functions, legal and office related costs, which are not allocated to the individual segments.
The following table presents depreciation and amortisation
by segment:
($’m)
Consumer
SMB
Corporate overhead
Total depreciation and amortisation
Year ended
31 December
2019
Year ended
31 December
2018
91.6
0.2
18.2
110.0
130.5
0.4
12.8
143.7
The following table presents revenue of subsegments:
($’m)
Consumer Direct Desktop
Consumer Direct Mobile
Consumer Indirect
SMB
Other
Total
Year ended
31 December
2019
Year ended
31 December
2018
631.1
75.4
106.7
49.2
8.7
871.1
568.4
81.2
85.8
57.4
15.5
808.3
The following table presents the Group’s non-current assets,
net of accumulated depreciation and amortisation, by country.
Non-current assets for this purpose consist of property and
equipment, right-of-use assets, and intangible assets.
31 December 2019
31 December 2018
Czech Republic
UK
USA
Other countries*
($’m)
257.7
20.9
16.1
4.1
(in %)
86.2%
7.0%
5.4%
1.4%
($’m)
263.5
22.2
8.6
2.3
Total
298.8
100%
296.6
(in %)
88.9%
7.5%
2.9%
0.8%
100%
* No individual country represented more than 5% of the respective totals.
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135
5. Segment information and other disclosures
(continued)
The following table presents revenue attributed to countries
based on the location of the end user:
Year ended
31 December 2019
Year ended
31 December 2018
($’m)
358.9
75.8
66.2
56.6
313.6
871.1
(in %)
41.2%
8.7%
7.6%
6.5%
36.0%
100%
($’m)
349.6
68.6
61.1
50.7
278.3
808.3
(in %)
43.3%
8.5%
7.6%
6.3%
34.3%
100%
United States
United
Kingdom
France
Germany
Other countries*
Total
* No individual country represented more than 5% of the respective totals.
Revenues from relationships with certain third parties
exceeding 10% of the Group’s total revenues were as follows:
Year ended
31 December 2019
Year ended
31 December 2018
($’m)
(in %)
($’m)
(in %)
Revenues
realised
through online
resellers:
Digital River
521.8
59.9%
370.1
45.8%
In 2019, revenues realised through Digital River significantly
increased by $151.7m due to the transfer of part of the business
from in-house payment processing to the external vendor.
The majority of revenues from Digital River were reported
in the Consumer segment, while the remaining $12.0m of
revenues were reported in the SMB segment.
7. Auditor’s remuneration
The Group paid the following amounts to its auditors in respect
of the audit of the financial statements and for other non-audit
services provided to the Group.
Audit of the financial statements
Audit of the financial statements
of subsidiaries
Total audit fees
Other assurance services
Corporate finance services
Tax services
Total non-audit fees
Total fees
Year ended
31 December
2019
Year ended
31 December
2018
0.9
0.2
1.1
0.1
–
–
0.1
1.2
1.1
0.2
1.3
2.5
2.2
0.2
4.9
6.2
The majority of other services in 2018 related to the
Company’s IPO, including work as reporting accountant,
and related tax and other advisory work, which is an
exceptional cost. See Note 6.
6. Exceptional items
The following table presents the exceptional items by activity:
($’m)
Exceptional items in the operating
profit
Net gain on disposal of business
operation
Year ended
31 December
2019
Year ended
31 December
2018
1.8
25.6
($’m)
17.5
–
Exceptional items in operating profit
The Group incurred $1.8m of legal and professional fees
related to the various acquisitions and a disposal of a
subsidiary and related business operation that incurred during
2019. The tax impact on these exceptional items amounted to
$0.2m (2018: $1.5m).
During 2018, the Group incurred costs in the amount of $18.8m
related to one-time advisory, legal and other professional
service fees of the IPO that occurred in May 2018. The majority
of these costs were tax non-deductible. Total IPO costs
comprise $18.8m recorded to the Consolidated statement
of profit and loss in 2018, $4.1m already accrued in trade
payables in 2017, and an additional $4.0m of direct share issue
expenses recorded to equity, which gives total IPO costs of
$26.8m. The full cash impact of the IPO costs was recorded
in 2018 showing $(4.0)m under the cash flows from financing
activities as directly linked to the share issue and the remaining
$(22.8)m is included in the cash flows from operating activities.
The remaining portion of 2018 exceptional costs of $6.8m
related to the AVG integration and other programmes
implemented in prior years that were completed in 2018.
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 $17.5m as an
exceptional item (Note 16), with a tax impact of $2.3m.
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136
8. Cost of revenues
Cost of revenues consist of the following:
10. Personnel expenses
Personnel expenses consist of the following:
($’m)
Amortisation
Depreciation
Personnel costs of product support
and virus updates
Digital content distribution costs
Third-party licence costs
Other product support and virus
update costs
Commissions, payment and other fees
Total
Year ended
31 December
2019
Year ended
31 December
2018
89.9
7.2
19.1
16.4
5.3
13.2
59.6
210.7
129.4
7.4
17.3
15.4
5.2
13.9
52.8
241.4
9. Operating costs
Operating costs are internally monitored by function;
their allocation by nature is as follows:
($’m)
Wages and salaries
Social security and health insurance*
Pension costs
Social costs
Severance payments and termination benefits
Share-based payments (including employer’s costs)
Total personnel expense
Employees
135.1
27.2
0.2
8.0
2.9
24.9
198.3
Year ended
31 December 2019
Year ended
31 December 2018
Employees
Non-
Executive
Directors
Non-
Executive
Directors
0.9
–
–
–
–
–
135.2
23.5
0.5
6.7
4.9
13.7
0.9
184.5
0.8
0.1
–
–
–
0.2
1.1
* State and government pension costs of Czech employees are also included in the social security and health insurance costs.
The average number of employees by category during the period was as follows:
Year ended
31 December
2019
Year ended
31 December
2018
635
911
246
1,792
559
807
215
1,581
($’m)
Depreciation
Amortisation
Personnel expenses
Purchases of services from
third-party vendors (legal, advisory
and other services)
Gifts and charities
Other operating expenses
Total
Year ended
31 December
2019
Year ended
31 December
2018
11.7
1.2
6.0
0.9
180.1
168.3
Sales and marketing
Research and development
General and administrative
Total average number of employees
116.5
135.8
5.0
1.3
5.0
2.6
315.8
318.6
Purchases of services from third-party vendors decreased to
due adoption of IFRS 16, according to which office costs are
now being capitalised.
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137
11. Finance income and expenses
Interest income:
12. Depreciation and amortisation
Amortisation by function:
($’m)
Interest on bank deposits
Total finance income
Interest expense:
($’m)
Term loan interest expense
Lease interest expense
Total interest expense
Other finance income and expense (net):
($’m)
Changes of fair values of derivatives
Revolving loan – commitment fee
Foreign currency gains/(losses)
Unrealised foreign exchange gains/
(losses) on borrowings
Other financial expense
Total other finance income and
expense (net)
Year ended
31 December
2019
Year ended
31 December
2018
($’m)
1.5
1.5
0.3
0.3
Cost of revenues
Total amortisation of acquisition
intangible assets
Year ended
31 December
2019
Year ended
31 December
2018
(56.4)
(2.3)
(58.7)
(85.8)
–
(85.8)
Year ended
31 December
2019
Year ended
31 December
2018
Cost of revenues
Sales and marketing
Research and development
General and administration
Total amortisation of non-acquisition
intangible assets
Total amortisation
Depreciation by function:
(0.8)
(0.8)
(3.3)
13.9
0.7
1.9
(1.3)
(7.1)
26.4
(0.2)
($’m)
Cost of revenues
Sales and marketing
Research and development
General and administration*
Total depreciation
Year ended
31 December
2019
Year ended
31 December
2018
88.3
127.5
88.3
127.5
1.6
0.2
0.1
0.9
2.8
91.1
1.9
0.1
0.1
0.7
2.8
130.3
Year ended
31 December
2019
Year ended
31 December
2018
7.2
0.1
0.6
11.0
18.9
7.4
0.3
1.1
4.6
13.4
9.7
19.7
* $7.7 million is attributable to the depreciation of right-of-use assets
(see Note 22).
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.
13. Income tax
In the Consolidated statement of financial position, the
corporate income tax receivable of $17.2m (2018: $5.8m) is part
of the caption tax receivables.
The major components of the income tax in the consolidated
statement of comprehensive income are:
($’m)
Current income tax
Related to current year
Related to prior year
Current income tax total
Deferred tax
Related to current year
Related to prior year
Deferred tax total
Year ended
31 December
2019
Year ended
31 December
2018
(54.8)
(0.9)
(55.7)
(4.8)
(5.2)
(10.0)
(86.7)
(0.6)
(87.3)
145.9
0.1
146.0
Total income tax (expense)/income
through P&L
(65.7)
58.7
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138
13. Income tax (continued)
On 1 May 2018, AVG E-comm web shop was transferred to
Avast Software B.V. (‘Avast BV’) and, subsequently, the former
Dutch AVG business (including the web shop) from Avast B.V.
was sold to Avast Software s.r.o. As a result, the deferred tax
asset was increased by $143.8m. In addition, an exit charge of
$49.4m was agreed upon with the Dutch tax authorities.
The net tax effect of the transaction in the year ended
31 December 2018 was a tax benefit of $94.4m.
On 1 August 2018, intangible assets of Piriform IP were sold
to Piriform UK. As a result, a deferred tax asset of $5.6m was
recognised by the Group. The current tax expense related
to the transaction was $0.7m. The net tax effect of the
transaction in the year ended 31 December 2018 was a tax
benefit of $4.8m.
The Group generates a temporary difference relating to an
intra-Group loan denominated in USD received by Avast
Software s.r.o., a subsidiary with a USD functional currency
(but with a tax currency of CZK). This loan is subject to hedging
in its local statutory books (with the effect that current tax
relief does not cover the full period exchange differences).
The tax impact related to the loan is a deferred tax benefit of
$0.4m (2018: $9.8m) and the Group reports a deferred tax
asset of $10.1m (2018: $9.8m) related to the loan.
The reconciliation of income tax (expense)/benefit applicable
to accounting profit before income tax at the statutory income
tax rate to income tax expenses at the Group’s effective
income tax rate is as follows:
($’m)
Profit/(loss) before tax
Group effective income tax rate
(20%* in 2019 and 2018)
Recurring adjustments
Non-deductible expenses
Share-based payments
FX effect on intercompany loans
Non-recurring adjustments
Non-deductible expenses
(IPO related)
AVG IP transfer net tax benefit
Piriform IP transfer net tax benefit
Current year deferred tax assets
not recognised
Derecognition of previously
recognised deferred tax assets
Usage of previously not recognised
deferred tax assets
Effect of prior year taxes
Effect of enacted changes in
tax rates on deferred taxes
Year ended
31 December
2019
Year ended
31 December
2018
314.6
182.5
The deferred tax relates to the following temporary differences:
($’m)
Temporary differences
31 December
2019
31 December
2018
Asset/
(Liability)
Asset/
(Liability)
(62.9)
(36.5)
Fixed assets
(3.7)
(1.6)
0.4
–
–
–
(3.2)
(2.8)
9.8
(3.8)
94.4
4.8
IP transfer tax benefit
Deferred revenue and
unbilled receivables
Tax loss carryforward
Tax credits carryforward
Loans and derivatives
Carryforward of unutilised interest
Share-based payments transactions
Provisions
Tax impact from FX difference on
intercompany loans
(0.1)
(4.9)
–
(8.9)
Other
Net
4.7
(6.1)
1.6
(0.5)
0.2
(2.5)
(38.2)
122.9
3.5
45.8
4.2
2.1
2.7
5.7
0.8
10.1
8.0
(53.1)
142.9
15.9
16.6
3.7
11.0
–
–
1.8
9.8
0.8
167.6
149.4
Remaining impact of tax rate variance
and other effects
Total income tax
3.4
(65.7)
11.2
58.7
* Estimated as a Group’s blended rate across the jurisdictions where the
Group operates.
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139
13. Income tax (continued)
Tax losses carried forward as at 31 December 2019 are
recorded by the following subsidiaries:
($’m)
Avast Software Inc. (tax group
incl. Location Labs and
AVG Technologies USA)
Avast plc
Other
Total deferred tax from
tax losses carryforward
Deferred
tax from
tax losses
carryforward
44.6
0.9
0.3
45.8
Tax
jurisdiction
United
States
United
Kingdom
–
–
Tax losses carried forward in United States and
United Kingdom are related mainly to share-based
payments exercises.
As a result of share-based payments exercises there was
a $147.6m (2018: $70.0m) tax deduction in Avast Software,
Inc., Location Labs LLC, Jumpshot, Inc., Avast plc and AVG
UK that created a tax benefit of $34.2m (2018: $14.8m). A tax
benefit of $31.8m (2018: $14.8m) exceeding related cumulative
remuneration expenses is recognized directly in equity, of
which the current tax benefit is $3.4m (2018: nil) and deferred
tax benefit is $28.4m (2018: $14.8m).
Tax losses reported by Avast Software, Inc. can be utilised by
all subsidiaries incorporated in the United States (Note 40)
excluding Jumpshot, Inc. Tax credit of $4.5m from federal and
state tax losses generated during the years 2011–2017 can be
utilised over 20 years. Tax credit of $40.1m from federal and
state tax losses can be carried forward for an indefinite period
of time.
The tax deduction for share-based payments is not received
until the instruments are exercised. Therefore, a temporary
difference of $5.7m (2018: nil) arises between the tax
deduction (pro rated for the period to vesting) and the tax
effect of the related cumulative remuneration expense.
The deferred tax asset is measured as an estimated tax
deduction at the date of exercise (pro rated for the period to
vesting), based on the year end share price. As the amount
of the deferred tax asset exceeded the tax effect of the
related cumulative remuneration expense, the excess of
the associated deferred tax of $3.1m was recognised directly
in equity.
Following the transactions of IP transfer in 2018, described
above, the Group reports a deferred tax asset of $122.9m
(2018: $142.9m), of which the major part of $119.5m relates to
the transfer of the former Dutch AVG business from Avast B.V.
to Avast Software s.r.o. The temporary difference is amortised
and deducted from the tax base of Avast Software s.r.o.
registered in the Czech Republic linearly over 15 years.
The Group does not recognise the following potential deferred
tax asset of $21.1m (2018: $13.8m), mostly related to Jumpshot
tax losses for which the Group considers future recoverability
to be uncertain.
($’m)
Tax losses carried forward –
expiration 20 years
Tax losses carried forward – indefinite
Tax losses carried forward –
expiration 1–6 years
Temporary differences related to
loans and interests – indefinite
Other temporary differences –
expiration n/a
Total deferred tax asset not recognised
The movement in deferred tax balances:
($’m)
Deferred tax as at 1 January
Effect of business combination
(Note 15)
Deferred tax recognised in the
profit & loss
Deferred tax recognised in equity
Translation difference
31 December
2019
31 December
2018
Asset/
(Liability)
Asset/
(Liability)
7.2
1.8
4.5
5.2
2.4
21.1
5.6
1.9
–
6.3
–
13.8
31 December
2019
31 December
2018
Asset/
(Liability)
Asset/
(Liability)
149.4
(12.0)
(3.3)
–
(10.0)
31.5
–
146.0
14.8
0.6
Deferred tax as at 31 December
167.6
149.4
The deferred tax asset increased significantly due to tax
losses realised in 2018 and 2019 from significant share-based
payments’ exercises. Such significant share-based payments’
transactions are not expected to repeat in future periods and
management expects the underlying business to remain
profitable for the foreseeable future.
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140
14. Earnings per share
Basic earnings per share (EPS) is calculated by dividing the net
profit for the period attributable to equity holders of the Group
by the weighted average number of shares of ordinary shares
outstanding during the year.
Diluted EPS is calculated by dividing the net profit for the
period attributable to equity holders of the Group by the
weighted average number of ordinary shares outstanding
during the period plus the weighted average number of shares
that would be issued if all dilutive potential ordinary shares
were converted into ordinary shares.
Adjusted EPS is calculated by dividing the adjusted net
profit for the period attributable to equity holders by the
weighted average number of ordinary shares outstanding
during the period.
The following reflects the income and share data used in
calculating EPS:
Net profit attributable to
equity holders ($’m)
Basic weighted average
number of shares
Effects of dilution from share
options, performance and
restricted share units
Total number of shares
used in computing dilutive
earnings per share
Basic earnings per share
($/share)
Diluted earnings per share
($/share)
Year ended 31
December 2019
Year ended 31
December 2018
248.7
241.2
973,788,157 914,567,949
44,313,005
62,120,397
1,018,101,162 976,688,346
0.26
0.24
0.26
0.25
Adjusted earnings per share measures:
Year ended 31
December 2019
Year ended 31
December 2018
Management regards the above adjustments necessary to
give a fair picture of the adjusted results of the Group for
the period.
Net profit attributable to
equity holders ($’m)
Deferred revenue haircut
reversal/Other
Share-based payments
(including employer’s costs)
Exceptional items
Amortisation of acquisition
intangible assets
Unrealised FX gain/(loss) on
EUR tranche of bank loan
Tax impact from FX difference on
intercompany loans
COGS deferral adjustments
Tax impact of COGS
deferral adjustment
Tax impact on adjusted items
Tax impact of IP transfer
Gain on disposal of
business operation
Tax impact from disposal of
business operation
Adjusted net profit attributable
to equity holders ($’m)
Basic weighted average
number of shares
Adjusted basic earnings per
share ($/share)
Diluted weighted average
number of shares
Adjusted diluted earnings per
share ($/share)
248.7
241.2
15. Business combinations
2019 acquisitions
Acquisition of Emerald Cactus Ventures Inc. (‘Tenta’)
On 6 November 2019, Avast Software, Inc. purchased a
100% stake in the American company Emerald Cactus
Ventures, Inc. that has been offering the Tenta Browser
providing a privacy-first mobile web browser to hundreds of
thousands of Android users worldwide. Tenta Browser will
be paired with the current desktop-based Avast Secure
Browser with its tens of millions of active users, resulting in
a true multi-platform, people-centric solution for private and
secure web browsing.
The transaction represents a business combination with
Avast Software, Inc. being the acquirer. The fair value of the
consideration at the acquisition date was determined by the
Group to be $5.3m and comprised the following components:
Initial payment – $3.3m was paid to the owners of
Tenta on the acquisition date
Holdback amount – $0.6m will be paid in 12 months
Earn-out payment – four milestone payments of $0.4m
represents a contingent consideration payable within the
next 20 months after the acquisition date to the extent that
specific milestones of Tenta are met. As of the acquisition
date, the probability weighted value of the earn-out was
determined to be $1.4m
1.8
24.9
1.8
88.4
17.2
13.9
25.6
127.5
(13.9)
(26.4)
(0.4)
(0.1)
–
(20.3)
6.3
(17.5)
2.3
(9.8)
(1.1)
0.3
(18.5)
(99.2)
–
–
322.1
270.8
973,788,157 914,567,949
0.33
0.30
1,018,101,162 976,688,346
0.32
0.28
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Notes to the consolidated financial statements
Strategic report Governance Financial statements
Avast annual report 2019
141
15. Business combinations (continued)
The fair value of assets acquired and liabilities incurred on the
acquisition date was determined on final basis as follows:
($’m)
Intangible assets
Total assets
Deferred tax liability
Total liabilities
Net assets acquired
Consideration paid
Goodwill
Fair value at
6 November
2019
2.3
2.3
0.5
0.5
1.8
5.3
3.5
The business combination resulted in the recognition of
goodwill of $3.5m, which is allocated to the Consumer CGU
and is tested for impairment at least annually. The goodwill
of $3.5m comprises the workforce in place and the value of
expected synergies arising from the acquisition. The carrying
value of goodwill is not expected to be tax deductible.
The business combination resulted in the recognition of
intangible assets in the amount of $2.3m that represents the
intellectual property of Tenta, and will be amortised over the
estimated useful life of five years.
Analysis of cash flows on acquisition:
($’m)
Cash consideration
Holdback consideration payable in 12 months
Earn-out
Net cash flow on acquisition
31 December
2019
(5.3)
0.6
1.4
(3.3)
Transaction costs of $0.2m have been expensed and are
included in general and administrative expenses in the
Consolidated statement of profit or loss and are part of
operating cash flows in the Consolidated statement of
cash flows.
The revenues and net profit of the Group for the year ended
31 December 2019 would not have been significantly different
had the acquisition occurred at the beginning of the reporting
period (1 January 2019).
Acquisition of TrackOFF, Inc. (‘TrackOFF’)
On 24 May 2019, Avast Software, Inc. purchased a 100% stake
in the American company TrackOFF, a developer of tools to
protect users’ identities and personal lives. The Group has
acquired TrackOFF to strengthen further the development of
Avast’s anti-tracking products and other products that help
users maintain their privacy online.
The transaction represents a business combination with
Avast Software, Inc. being the acquirer. The fair value of the
consideration at the acquisition date was determined by the
Group to be $13.1m for 100% ownership. The consideration
given was paid in cash.
The fair value of assets acquired and liabilities incurred on the
acquisition date was determined on final basis as follows:
($’m)
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Total current assets
Non-current assets
Intangible assets
Deferred tax assets
Total non-current assets
TOTAL ASSETS
LIABILITIES
Trade payables
Deferred revenues
Other current liabilities
Total current liabilities
Deferred tax liability
Total non-current liabilities
TOTAL LIABILITIES
Net assets acquired
Consideration paid
Goodwill
Fair value at
24 May 2019
0.6
0.2
0.8
11.2
0.4
11.6
12.4
0.2
1.7
0.2
2.1
2.3
2.3
4.4
8.0
13.1
5.1
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Notes to the consolidated financial statements Strategic report Governance Financial statements
Avast annual report 2019
142
15. Business combinations (continued)
The business combination resulted in the recognition of
goodwill of $5.1m, which is allocated to the Consumer CGU
and is tested for impairment at least annually. The goodwill
of $5.1m comprises the workforce in place and the value of
expected synergies arising from the acquisition. The carrying
value of goodwill is not expected to be tax deductible.
The business combination resulted in the recognition of
intangible assets in the amount of $11.2m that represents
intellectual property of TrackOFF, and will be amortised
over the estimated useful life of five years.
Analysis of cash flows on acquisition:
($’m)
Cash consideration
Net cash acquired with the business
(included in cash flow from investing activities)
Holdback consideration payable in 12 months
Net cash flow on acquisition
31 December
2019
(13.1)
0.6
1.0
(11.5)
Transaction costs of $0.2m have been expensed and are
included in general and administrative expenses in the
Consolidated statement of profit or loss and are part of
operating cash flows in the Consolidated statement of
cash flows.
Revenues and net profit of the Group for the 12 month period
ended 31 December 2019 would not have been significantly
different had the acquisition occurred at the beginning of the
reporting period (1 January 2019).
2018 acquisitions
Acquisition of Inloop s.r.o. (‘Inloop’)
On 1 August 2018, Avast Software s.r.o. acquired a 100%
stake in Inloop s.r.o. (‘Inloop’) on behalf of INLOOPX s.r.o.
(‘INLOOPX’), a mobile engineering services firm based
in Slovakia. The reason for the acquisition was to obtain
the skilled team of engineers to strengthen Avast’s
Mobile business.
The transaction represented a business combination with
Avast Software s.r.o. being the acquirer. The acquisition date
was determined to be 1 August 2018. The former shareholders
of Inloop do not have ongoing involvement in the business or
with the Avast Group, following the acquisition.
The fair value of the consideration including contingent
payment at the acquisition date was determined by the
Group to be €7.3m ($8.6m).
The fair value of assets acquired and liabilities incurred on the
acquisition date was determined on final basis as follows:
($’m)
Cash
Personal property
Trade and other receivables
Total assets
Total liabilities
Net assets acquired
Consideration paid
Goodwill
Fair value at
1 August 2018
0.4
0.2
1.5
2.1
0.5
1.6
8.6
7.0
The business combination results in the recognition of
goodwill of $7.0m which is allocated to the Consumer CGU
and is tested for impairment at least annually. The large
proportion of goodwill to other identified assets is due to
Inloop not having any significant identifiable assets other than
the skilled workforce (the obtaining of which was the main
purpose of the acquisition). The carrying value of goodwill is
not expected to be tax deductible.
The revenues and net profit of the Group for the year ended
31 December 2018 would not have been significantly different
had the acquisition occurred at the beginning of the reporting
period (1 January 2018).
16. Disposal of a business operation
On 30 January 2019, the Avast 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 $30.0m, on a
cash-free, debt-free basis, of which $3.0m was withheld in
escrow for a 12-month period to satisfy any potential indemnity
claims against the Group under the applicable share and asset
purchase agreement entered into between the parties.
As a result, the Group de-recognised all assets and liabilities
of the sold subsidiary AVG CAN. Because the sale of the
subsidiary is part of a single transaction of the sale of a part
of the business, the Group presents the result of the whole
transaction (except for tax impacts) within a single line in the
statement of comprehensive income, including the sale of
IP and other assets.
© 2019 Friend Studio Ltd
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Notes to the consolidated financial statements Strategic report Governance Financial statements
Avast annual report 2019
143
16. Disposal of a business operation (continued)
The carrying amounts of assets and liabilities as of the date of
sale were as follows:
The resulting gain on disposal of a business operation is
shown in the table below:
($’m)
Cash and cash equivalents
Trade and other receivables
Prepaid expenses
Current assets
Tangible assets
Deferred tax assets
Non-current assets
Total assets
Trade and other payables
Lease liability
Deferred revenues
Other current liabilities
Current liabilities
Lease liabilities
Non-current liabilities
Total liabilities
Net assets
($’m)
30 January
2019
Consideration received or receivable:
Cash
Receivable – holdback
Total disposal consideration
Carrying amount of net assets sold
Gain on disposal of a business operation
Other adjustments:
Goodwill write-off
Net gain on disposal of a business operation
Analysis of cash flows on disposal:
($’m)
Cash received
Net cash sold of the business
(included in cash flow from investing activities)
Transaction costs paid
Net cash flow on disposal
6.0
1.3
0.2
7.5
1.4
0.8
2.2
9.7
0.2
0.2
0.9
0.2
1.5
0.7
0.7
2.2
7.5
Because the sold business was part of the group of CGUs
to which goodwill was allocated, a portion of the goodwill
has to be disposed as part of the transaction. The Group has
determined that the appropriate amount of goodwill disposed
of is $11.0m which was part of the SMB CGU.
© 2019 Friend Studio Ltd
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30 January
2019
33.0
3.0
36.0
(7.5)
28.5
(11.0)
17.5
31 December
2019
33.0
(6.0)
(0.3)
26.7
17. Cash and cash equivalents
For purposes of the statement of cash flows, cash and
cash equivalents comprise the following:
($’m)
Cash on hand and cash equivalents
Cash in bank
Total
31 December
2019
31 December
2018
1.4
215.2
216.6
2.0
270.3
272.3
18. Trade and other receivables
($’m)
Trade receivables
Unbilled revenues
Other receivables
Trade receivables, gross
Less: Expected loss allowance on
trade receivables, unbilled revenues
and other receivables
Trade receivables, net
31 December
2019
31 December
2018
30.4
48.9
6.4
85.7
35.7
49.2
4.0
88.9
(6.8)
78.9
(6.0)
82.9
Trade receivables are non-interest bearing and are generally
payable on 30-day terms. The fair value of receivables
approximates their carrying value due to their short-term
maturities. The expected loss allowance relates to trade
receivables (with only insignificant amounts relating to other
classes of receivable).
Unbilled revenues represent sold products (for which the
revenue has been deferred over the term of the product
licence) but for which an invoice has not yet been issued.
Notes to the consolidated financial statements Strategic report Governance Financial statements
Avast annual report 2019
144
18. Trade and other receivables (continued)
Other receivables represent mainly advances to,
and receivables from, employees.
19. Capitalised contract costs
($’m)
31 December
2019
31 December
2018
Amount
Capitalised contract costs at 1 January
5.3
2.7
(2.2)
0.2
6.0
1.1
(0.3)
–
6.8
Additions
Sales commissions and fees
Licence fees
Amortisation
Sales commissions and fees
Licence fees
Capitalised contract costs at 31
December
Total current
Total non-current
35.8
65.6
60.6
5.0
(63.7)
(58.4)
(5.3)
37.7
33.3
4.4
27.2
66.1
59.8
6.3
(57.5)
(52.1)
(5.4)
35.8
31.2
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.
($’m)
Allowances at 31 December 2017
Additions
Write-offs
Reversals
Allowances at 31 December 2018
Additions
Write-offs
Reversals
Allowances at 31 December 2019
Movements in the allowances described above relate mainly to
trade receivables.
As of 31 December 2018 and 2019, the nominal value of
receivables overdue for more than 360 days are $2.0m
(carrying value: $0.1m) and $4.5m (carrying value: nil),
respectively.
The ageing analysis of trade receivables, unbilled receivables
and other receivables was as follows (carrying amounts after
valuation allowance):
($’m)
Not past
due
Past
due
1–90
days
Past due
more
than
90 days
Past due
more
than
180
days
Past due
more
than
360
days
Total
31 December 2018
74.6
31 December 2019 72.5
7.2
5.9
0.9
0.4
0.1
0.1
0.1 82.9
–
78.9
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Notes to the consolidated financial statements Strategic report Governance Financial statements
Avast annual report 2019
145
20. Property, plant, and equipment
($’m)
Cost at 31 December 2017
Additions
Transfers
Net foreign currency exchange difference
Disposals
Cost at 31 December 2018
Additions
Transfers
Net foreign currency exchange difference
Disposals
Cost at 31 December 2019
($’m)
Acc. depreciation at 31 December 2017
Depreciation
Disposals
Acc. depreciation at 31 December 2018
Depreciation
Disposals
Acc. depreciation at 31 December 2019
NBV at 31 December 2018
NBV at 31 December 2019
Equipment,
furniture,
and fixtures
Vehicles
Leasehold
improvements
In progress
36.5
11.5
2.0
(0.8)
(3.3)
45.9
17.8
2.5
0.3
(4.9)
61.6
0.3
0.1
–
0.1
(0.1)
0.4
0.1
–
(0.2)
(0.2)
0.1
12.0
0.6
–
0.4
(2.7)
10.3
0.9
–
(0.2)
(1.5)
9.5
3.2
1.3
(2.0)
–
–
2.5
7.5
(2.5)
0.4
(0.2)
7.7
Equipment,
furniture,
and fixtures
Vehicles
Leasehold
improvements
In progress
(19.9)
(11.6)
3.3
(28.2)
(9.7)
4.4
(33.5)
17.7
28.1
(0.2)
(0.1)
0.1
(0.2)
(0.1)
0.2
(0.1)
0.2
–
(2.4)
(1.7)
2.7
(1.4)
(1.4)
0.4
(2.4)
8.9
7.1
–
–
–
–
–
–
–
2.5
7.7
Total
52.0
13.5
–
(0.3)
(6.1)
59.1
26.3
–
0.3
(6.8)
78.9
Total
(22.5)
(13.4)
6.1
(29.8)
(11.2)
5.0
(36.0)
29.3
42.9
There has been no impairment to the property, plant, and equipment held by the Group during the year.
There has been no individually significant addition to the property, plant, and equipment during the year.
For the information about items of property, plant, and equipment pledged as security refer to Note 27.
© 2019 Friend Studio Ltd
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21. Leases
Right-of-use assets
Set out below are the carrying amounts of the Group’s right-of-
use assets and the movements during the period. The Group
has lease contracts related primarily to office buildings.
($’m)
At 1 January 2019
Additions
Re-measurements
Impairment
Depreciation of right-of-use assets
At 31 December 2019
69.7
0.9
(0.1)
(0.2)
(7.7)
62.6
Lease liabilities
Lease liabilities are presented in the statement of financial
position as follows:
($’m)
At 1 January 2019
Additions
Re-measurements
Lease interest expense
Payments of lease liabilities
Foreign currency exchange difference
At 31 December 2019
Current
Non-current
Total
71.7
0.9
(0.1)
2.3
(9.2)
(0.8)
64.8
7.3
57.5
64.8
Notes to the consolidated financial statements Strategic report Governance Financial statements
Avast annual report 2019
146
21. Leases (continued)
Below are the terms of significant lease contracts as of
31 December 2019:
22. Intangible assets
($’m)
Significant lease
contracts
Carrying
amount ($’m)
End date
Option to
extend
Option to be
used
Cost at 31 December 2017
Enterprise
Building in
Prague,
Czech Republic*
Vlnena Office
in Brno,
Czech Republic
Office in
Emeryville,
California, USA
26.6
August
2024
24 months
two times
January
2026
60 months
two times
23.9
Yes –
in full
Yes –
in full
Additions
Transfers
Net foreign currency exchange difference
Cost at 31 December 2018
Business combination
Additions
Transfers
Net foreign currency exchange difference
Developed
Technology
Trademarks
Software
Customer
relationship
and user base
250.5
164.1
40.0
246.6
–
–
–
–
–
–
–
–
–
–
–
–
250.5
164.1
40.0
246.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Other
In progress
15.0
2.4
1.5
(0.1)
18.8
13.5
2.3
–
–
2.0
1.0
(1.5)
–
1.5
–
1.3
–
–
Total
718.2
3.4
–
(0.1)
721.5
13.5
3.6
–
–
3.5 June 2024 60 months
No
Cost at 31 December 2019
250.5
164.1
40.0
246.6
34.6
2.8
738.6
* Lease payments are subject to indexation based on changes of
consumer price index. A 1% increase in the index would not substantially
increase total lease payments.
($’m)
The following table shows the breakdown of the lease
expense between amount charged to operating profit
and amounts charge to finance costs:
($’m)
Depreciation of right-of-use assets
Short-term lease expense
Impairment
Leases of low-value lease expense
Charge to operating profit
Lease interest expense
Charge to profit before taxation for leases
For maturity of the leases, refer to Note 30.
2019
7.7
1.2
0.2
–
9.1
2.3
11.4
Acc. amortisation at 31 December 2017
Amortisation
Acc. amortisation at 31 December 2018
Amortisation
Acc. amortisation at 31 December 2019
NBV at 31 December 2018
NBV at 31 December 2019
Developed
Technology
Trademarks
Software
Customer
relationship
and user base
Other
In progress
Total
(177.2)
(51.5)
(228.7)
(16.7)
(245.4)
21.8
5.1
(18.7)
(15.0)
(33.7)
(15.2)
(48.9)
130.4
115.2
(14.2)
(8.1)
(105.7)
(52.6)
(22.3)
(158.3)
(5.0)
(27.3)
(50.1)
(208.4)
17.7
12.7
88.3
38.2
(8.1)
(3.1)
(11.2)
(4.1)
(15.3)
7.6
19.3
–
–
–
–
–
(323.9)
(130.3)
(454.2)
(91.1)
(545.3)
1.5
2.8
267.3
193.3
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Notes to the consolidated financial statements Strategic report Governance Financial statements
Avast annual report 2019
147
22. Intangible assets (continued)
The Group assesses that the Avast trademark, with a carrying
value of $70.3m, has an indefinite useful life, as it is a
well-established brand. Avast is a core brand and is expected
to be a core brand for the foreseeable future, as the
Group constantly invests into brand development and
brand awareness.
The AVG trademark, with a carrying value of $40.9m, has
a remaining useful life of 2.7 years as of 31 December 2019.
The Piriform trademark, with a carrying value of $2.8m, has a
remaining useful life of 7.5 years as of 31 December 2019.
AVG developed technology, with a carrying value of $5.1m,
has a remaining useful life of 0.7 years as of 31 December 2019.
AVG customer relationship, with a carrying value of $37.0m,
has a remaining useful life of 0.7 years as of 31 December 2019.
Piriform and FileHippo software, with a gross value of
$12.7m, has a remaining useful life of 2.5 years as of
31 December 2019.
For information about intangible assets pledged as securities,
refer to Note 27.
The Group has not capitalised development costs in the year
ended 31 December 2019 (2018: nil) as the Company believes
the criteria set out in IAS 38 has not been met. See Note 2.
23. Goodwill and impairment
($’m)
1 January
Acquisitions (Note 15)
Disposals (Note 16)
31 December
31 December
2019
31 December
2018
1,993.7
1,986.7
8.6
(11.0)
7.0
–
1,991.3
1,993.7
Goodwill was calculated as the difference between the
acquisition date fair value of consideration transferred
less the fair value of acquired net assets. See Notes 15
and 16 for further details of the allocation to individual
business segments.
Goodwill and intangible assets impairment tests
Goodwill and intangible assets with an indefinite useful life
are tested annually for impairment. The impairment test as of
31 December 2019 is performed on the basis of two groups of
cash-generating units that correspond to the two operating
segments as below:
In determining the value in use as of 31 December 2019,
the Group used the following parameters:
Projected 2020–2022 free cash flows which are based on
the most current financial plan of the Group
The perpetuity growth rate of 2% per annum after 2022 is
allocated to individual operating segments based on the
management’s expectation of the operating segments’
performance
An after-tax discount interest rate of 11.2% representing
the WACC of the Group (pre-tax discount interest rate of
12.9%). The WACC was calculated from the cost of equity
and cost of debt at a ratio typical for an industry of 70% equity
and 30% debt
The recoverable amount of tested assets exceeds their
carrying value. As the Group’s management is not aware of
any other indications of impairment and given the results of the
impairment tests, no impairment was recorded.
No reasonable possible change in the calculation assumptions
would lead to an impairment.
($’m)
Consumer
SMB
Total goodwill
31 December
2019
31 December
2018
1,978.4
1,969.8
12.9
23.9
1,991.3
1,993.7
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Notes to the consolidated financial statements Strategic report Governance Financial statements
Avast annual report 2019
148
24. Trade payables and other liabilities
($’m)
Trade payables
Accruals
Amounts owed to employees
Social security and other taxes
Other payables and liabilities
Total trade payables and
other liabilities
31 December
2019
31 December
2018
2.6
28.5
22.0
2.0
10.0
8.5
30.5
19.3
1.5
4.2
65.1
64.0
25. Provisions
The movements in the provision accounts were as follows:
($’m)
As at 31 December 2017
Additions
Utilisation
As at 31 December 2018
Additions
Utilisation
As at 31 December 2019
As at 31 December 2018
Total current
Total non-current
As at 31 December 2019
Total current
Total non-current
Accrued
vacation
provision
Provision for
restructuring
Other
Total
2.0
1.4
(2.0)
1.4
1.7
(1.4)
1.7
1.4
–
1.7
–
4.2
5.6
(4.2)
5.6
–
(3.0)
2.6
4.9
0.7
1.9
0.7
1.2
2.8
(1.0)
3.0
7.8
(2.6)
8.2
2.8
0.2
8.0
0.2
7.4
9.8
(7.2)
10.0
9.5
(7.0)
12.5
9.1
0.9
11.6
0.9
26. Deferred revenue
The Group sells consumer and corporate antivirus products
for periods of 12, 24 or 36 months with payment received at
the beginning of the licence term. Revenues are recognised
ratably over the subscription period covered by the
agreement. Deferred revenue materially represents the
transaction price relating to sales of software licences that
is allocated to future performance obligations.
The movements in the deferred revenue were as follows:
($’m)
1 January
Additions – billings
Business combination
Deductions – revenue
Disposal of a business operation
Translation and other adjustments
31 December
Current
Non-current
Total
31 December
2019
31 December
2018
435.5
911.0
0.3
378.8
862.2
–
(871.1)
(808.3)
(0.9)
–
–
2.8
474.8
435.5
420.5
54.3
474.8
384.3
51.2
435.5
Prior year current deferred revenue is recognised as revenue
in the current period.
27. Term loan
Term loan balance is as follows:
($’m)
Current term loan
Long-term loan
Total term loans
($’m)
USD tranche principal
EUR tranche principal
Total principal
31 December
2019
31 December
2018
58.2
969.5
1,027.7
73.4
1,318.1
1,391.5
31 December
2019
31 December
2018
336.5
699.8
864.7
545.8
1,036.3
1,410.5
In March 2019, the Group upsized the EUR tranche by
€177.5m ($202.6m) and paid down the USD tranche by
$400m. This resulted in the partial de-recognition of
arrangement fees of $8.7m through interest expense.
In April 2019, the Group applied for the margin reduction of
0.25% per annum on both tranches due to favourable leverage
ratio results. The repricing of the margin to market terms,
which is allowed for in the terms of the loan, was a change in
contractual variable payments to be accounted for by altering
prospectively the effective interest rate, consistent with the
requirements for floating rate loans (see Note 3).
In October 2019, the Group paid down the USD tranche
by an additional $100m. Repayment resulted in the partial
de-recognition of arrangement fees of $2.7m. Further, the
Group reduced the margin on the EUR tranche by 0.25%
per annum.
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27. Term loan (continued)
The Group re-financed its bank loan from the primary
proceeds arising from the IPO on 16 May 2018, reducing the
USD tranche by $300m and reducing the margin on both the
USD and EUR tranche by 0.25% per annum. The fees for the
reduction and repricing were $3.1m. The Group allocated the
drawing fees as of the repricing date between the $300m
repaid amount and the balance of the loan. The portion of
unamortised issue costs allocated to the repaid loan of $6.9m
was released into the Consolidated statement of profit and
loss as a non-cash interest expenses. Avast Software B.V.
may voluntarily prepay term loans in whole or in part without
premium or penalty.
Under the repricing agreement, the following terms apply to
the bank loans:
Facility
Interest
Floor
Margin
31 December
2019
Margin
31 December
2018
3-month
USD
USD tranche
LIBOR 1.00% p.a. 2.25% p.a. 2.50% p.a.
EUR tranche
3-month
EURIBOR 0.00% p.a. 2.25% p.a. 2.75% p.a.
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.
The Credit Agreement (‘CA’) requires the following mandatory
repayments in addition to the quarterly amortisation payments:
Excess Cash Flow Payment Amount (‘ECF Payment Amount’,
defined in the CA as the consolidated net increase in cash
and cash equivalents of Avast plc for the period adjusted
for potential future business combinations and the results
of Jumpshot, Inc., Jumpshot s.r.o. and Avast plc and other
adjustments) – 50% of Excess Cash Flow (as defined, and
subject to certain reductions and to the extent where ECF
Payment Amount exceeds $40m), with a reduction to 25%
and elimination based upon the achievement of Total Net First
Lien Leverage Ratios (‘Net debt ratio’) not exceeding 3.5:1 and
3.0:1, respectively. The Net debt ratio is defined as the nominal
value of debt less cash on hand as of the relevant date divided
by adjusted operating profit for the preceding four calendar
quarters. The operating profit is adjusted for amortisation
and depreciation, non-cash expenses such as share-based
payments, the effects of business combination accounting,
and other non-cash items. The Net debt ratio was 1.9:1 as of
31 December 2019 so no mandatory repayment was required.
The following pledge agreements existed as of the date of
issuance of these Consolidated financial statements:
Avast Software B.V. pledged its 100% share in Avast Software
s.r.o. and 100% share in Avast Operations B.V.
Avast Software B.V. pledged its receivables
Avast Software B.V. pledged its securities
Avast Holding B.V. pledged its 100% share in
Avast Software B.V.
Avast Operations B.V. pledged its receivables from
intra-Group loan agreements
Avast Software s.r.o. pledged its receivables from bank
accounts, trade receivables, receivables from insurance
policies, trademarks, receivables from intra-Group loan
agreements, its movable assets, domain names, source
codes, and virus databases. Since Avast Software s.r.o. forms
a substantial portion of the Group, the estimated value of the
pledged assets exceeds the total value of the term loan.
Term loan balance reconciliation
The table below reconciles the movements of the balance of
the term loan with the information on above and the statement
of cash flows.
($’m)
Term loan balance at the beginning
of period
Additional loan drawn (gross of fees)
Drawing fees
Interest expense
Interest paid
Loan repayment
31 December
2019
31 December
2018
1,391.5
202.6
(0.9)
56.4
(45.1)
1,781.3
–
(3.1)
85.8
(67.6)
(562.9)
(378.5)
Unrealised foreign exchange loss/(gain)
(13.9)
(26.4)
Total
1,027.7
1,391.5
Revolving facility
Avast Software B.V. also obtained a revolving credit facility of
$85.0m for operational purposes which has not been drawn
as of the date of these consolidated financial statements.
It is valid up to 30 September 2022. The Credit Agreement
includes a financial covenant that is triggered if at any time
$35.0m or more is outstanding under the revolving credit
agreement as of 31 December 2019. If the revolving credit
facility exceeds this threshold, then the Group must maintain,
on a consolidated basis, a leverage ratio of less than 6.5:1.
This covenant is tested quarterly at such time as it is in effect.
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28. Derivatives
The carrying amount of derivative financial instruments held by the Group was as follows:
($’m)
Type of derivative
Interest rate Cap
Total
Classified as
Non-current financial liability
Total
31 December 2019
31 December 2018
Type
Assets
Liabilities
Assets
Liabilities
Level 3
–
–
–
–
2.0
2.0
2.1
2.1
–
–
–
–
1.0
1.0
1.0
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 Consolidated statement of profit and loss.
Interest rate cap
On 20 February 2017, Avast Software B.V. entered into an interest rate cap with an effective date from 31 March 2017 until
31 March 2021 (‘Cap’). As of 31 December 2019, the three-month USD LIBOR is capped at 2.75% per annum for a notional
amount of $753.8m. The capped notional amount will gradually decrease to $709.0m by 31 March 2021. The fee for the cap is
$1.6m annually paid in quarterly instalments.
During the reporting period ended 31 December 2019 there were no transfers between the Level 2 and Level 3 fair value
measurements.
The movement in fair value of the derivatives was as follows:
($’m)
31 December 2017
Change in fair value through profit and loss
31 December 2018
Change in fair value through profit and loss
31 December 2019
Interest
rate cap
3.2
(2.2)
1.0
1.1
2.1
29. Redemption obligation
In connection with the sale of 35% fully diluted shares
of Jumpshot, Inc. to Ascential Investor (see Note 34),
the stockholders’ agreement dated 30 August 2019 gave
Ascential Investor the right (the put option) to sell back
the shares.
Due to the subsequent decision to close the Jumpshot
business in January 2020, as described in Note 39, the
put option is rendered void subsequent to the year end.
However, at the end of the period, conditions below existed.
The put option can be exercised after 30 June 2022
(end of lock-up period), only if the following events happen:
Jumpshot fails to reach a certain growth target by January
2022 (and Ascential do not deem it to be met)
Avast and Ascential Investor pursuant to negotiations fail to
agree on an extension of the lock-up period for reaching the
growth target
With respect to above, Avast recognised a redemption
obligation at the present value of the exercise price ($61.6m)
discounted by the estimated Avast annual borrowing rate of
3.6%, with a corresponding entry in equity. The exercise price
was the higher of original cost and fair value of the shares at
the time of exercise.
Below was the estimate of the present value of the
redemption liability:
($’m)
At 1 January 2019
Initial recognition of redemption obligation
Unwinding of discount
At 31 December 2019
–
55.7
0.6
56.3
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30. Financial risk management
The Group’s classes of financial instruments correspond with
the line items presented in the Consolidated statement of
financial position.
The management of the Group identifies the financial risks that
may have an adverse impact on the business objectives and
through active risk management mitigates these risks to an
acceptable level.
The specific risks related to the Group’s financial assets and
liabilities and sales and expenses are interest rate risk, credit
risk, and exposure to the fluctuations of foreign currency.
Credit risk
The outstanding balances of trade and other receivables
are monitored on a regular basis, and the aim of management
is to minimise exposure to credit risk to any single counterparty
or group of similar counterparties. The credit quality of
larger customers is assessed based on the credit rating
and individual credit limits are defined in accordance with
the assessment.
The Group did not issue any guarantees or credit derivatives.
The ageing of receivables is regularly monitored by Group
management. The Group does not consider the credit risk
related to cash balances held with banks to be material.
A significant portion of sales is realised through the Group’s
online resellers, mainly Digital River. From 2018, the Group
manages its credit exposure by receiving advance payments
from Digital River.
The Group evaluates the concentration of risk with respect
to accounts receivable as medium, due to the relatively low
balance of trade receivables that is past due. The risk is
reduced by the fact that its customers are located in several
jurisdictions and operate in largely independent markets,
and the exposure to its largest individual distributors is also
medium. Sales to customers are required to be settled upfront
by credit card or cash, thus further mitigating the risk.
Foreign currency risk
Foreign currency risk is the risk that the fair value of future
cash flows of an exposure will fluctuate because of changes
in foreign exchange rates. The Group’s exposure to the risk
of changes in foreign exchange rates relates primarily to the
Group’s operating activities (when revenue or expense is
denominated in foreign currency).
At the Parent Company level, the functional and presentation
currency is the US dollar and the Group’s revenue and
costs are reported in US dollars. The Group is exposed to
translation risk resulting from the international sales and costs
denominated in currencies other than US dollars and the
resulting foreign currency balances held on the balance sheet.
The Group is exposed to material transaction and translation
currency risk from fluctuations in currency rates between USD,
GBP, CZK, and EUR.
The following table shows payments for the Group’s products
and services by end users (either directly to Group or paid
to an e-commerce service provider) in individual currencies.
Based on agreements with the Group, e-commerce service
providers may convert billings collected on behalf of the Group
in specific currencies to a remittance currency (usually USD
and EUR) at the existing market rates, which does not remove
the underlying foreign exchange risk. The table below shows
the original currency composition of payments made by end
users to illustrate the foreign exchange risk to billings.
USD
EUR
GBP
Other
Total
Year ended
31 December
2019
Year ended
31 December
2018
49%
22%
8%
21%
49%
22%
9%
20%
100%
100%
As the majority of revenues represent sales of software
licences, the revenues are recognised over the duration of the
licence period, despite payment being received at the start of
the licence period. Because the release of deferred revenues
is performed using the exchange rates valid at the start of the
licence term, they are not subject to foreign currency risk.
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30. Financial risk management (continued)
The following table shows financial assets and liabilities in
individual currencies, net:
($’m)
USD*
EUR*
CZK
GBP
Other
Total
31 December
2019
31 December
2018
(290.1)
(714.4)
(34.3)
89.9
25.6
(644.0)
(518.8)
(32.6)
53.3
44.0
(923.3)
(1,098.1)
* The fluctuation in the currencies is mainly caused by the term loan
restructuring as further described in Note 27.
Financial assets and liabilities include cash and cash
equivalents, trade and other receivables and trade and other
payables, term loan, lease liabilities, other current liabilities,
and non-current financial assets and liabilities.
The table below presents the sensitivity of the profit before tax
to a hypothetical change in EUR, CZK, and other currencies,
and the impact on financial assets and liabilities of the Group.
The sensitivity analysis is prepared under the assumption that
the other variables are constant. The analysis against USD is
based solely on the net balance of cash and cash equivalents,
trade and other receivables, trade and other payables and
term loan.
($’m)
EUR
CZK
GBP
Other
% change
31 December
2019
31 December
2018
+/-10% (71.4)/71.4 (51.9)/51.9
+/-10% (3.4)/3.4
(3.3)/3.3
+/-10%
9.0/(9.0)
5.3/(5.3)
+/-10%
2.6/(2.6)
4.4/(4.4)
The sensitivity analysis above is based on the consolidated
assets and liabilities, i.e. excluding intercompany receivables
and payables. However, Avast Software s.r.o. has a significant
intercompany loan from Avast Operations B.V. denominated
in USD. As the functional currency of Avast Software s.r.o. is
USD but the tax basis of Avast Software s.r.o. is denominated
in CZK the income tax gains or losses of Avast Software s.r.o.
are exposed to significant foreign exchange volatility. If CZK
depreciates against USD, the corporate income tax expense
would decrease. Avast Operations B.V. is not exposed to any
similar volatilities as its functional and tax currency is the USD.
Interest rate risk
Cash held by the Group is not subject to any material interest.
The only liabilities held by the Group subject to interest rate
risk are the loan and derivatives described in Note 27 and 28.
Other liabilities and provisions themselves are not subject
to interest rate risk. The Group keeps all its available cash in
current bank accounts or term deposit contracts (see Note 17)
with a fixed interest rate and original maturity not exceeding
three months.
As at 31 December 2019, the Group has a term loan with
an interest rate of three-month USD LIBOR plus a 2.25%
per annum mark-up for USD tranche and three-month
EURIBOR plus a 2.25% per annum mark-up for EUR tranche.
The three-month USD LIBOR and three-month EURIBOR is
subject to a 1% interest rate floor and 0% interest rate floor,
respectively. As of 31 December 2019, the three-month
USD LIBOR was 2.10% per annum and three-months EURIBOR
was -0.41%.
To reduce the interest rate risk, Avast Software B.V. entered
into an interest rate cap (‘Cap’) with certain counterparties on
20 February 2017 effective from 31 March 2017. Under the cap,
three-month USD LIBOR is limited to 2.75% per annum for a
notional amount of $844m at the beginning to $709m through
31 March 2021.
Interest rate sensitivity
A change of 100 basis points in market interest rates would
have increased/(decreased) equity and profit and loss before
tax by the amounts shown below:
Increase in interest rates
Decrease in interest rates
Year ended
31 December
2019
Year ended
31 December
2018
(10.4)
10.4
(14.1)
14.1
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30. Financial risk management (continued)
The following table shows the ageing structure of financial liabilities as of 31 December 2019:
Liquidity risk
The Group performs regular monitoring of its liquidity position
to maintain sufficient financial sources to settle its liabilities and
commitments. The Group is dependent on a long-term credit
facility and so it must ensure that it is compliant with its terms.
As it generates positive cash flow from operating activities,
the Group is able to cover the normal operating expenditures,
pay outstanding short-term liabilities as they fall due without
requiring additional financing and has sufficient funds to meet
the capital expenditure requirement. The Group considers the
impact on liquidity each time it makes an acquisition in order to
ensure that it does not adversely affect its ability to meet the
financial obligation as they fall due.
As at 31 December 2019 and 2018, the Group’s current ratio
(current assets divided by current liabilities including the
current portion of deferred revenue) was 0.65 and 0.71.
The ratio is significantly impacted by the high current deferred
revenue balance due to the sales model, where subscription
revenue is collected in advance from end users and deferred
over the licence period. The Group’s current ratio excluding
deferred revenue was 2.57 and 2.15 as at 31 December 2019
and 2018, respectively.
In 2019, Avast’s credit ratings were upgraded to Ba2 from
Ba3 with Moody’s and to BB from BB- with Standard & Poor’s
driven mainly by the voluntary debt repayment. The credit
ratings are subject to regular review by the credit rating
agencies and may change in response to economic and
commercial developments.
($’m)
Term loan
Interest payment
Trade payables and other liabilities
Derivative financial instruments
Other non-current liabilities
Lease liability
Redemption obligation
Total
Due within
3 months
Due between
3 and 12
months
Due between
1 and 5 years
Due in more
than 5 years
14.5
7.5
54.4
0.4
–
2.4
–
43.6
21.5
8.7
1.6
–
6.9
–
978.2
69.7
–
–
1.6
32.7
61.6
79.2
82.3
1,143.8
–
–
–
–
–
42.1
–
42.1
Total
1,036.3
98.7
63.1
2.0
1.6
84.1
61.6
1,347.4
While the redemption liability as per Note 29 is correctly treated as a non-current liability at the year end, the original transaction
was reversed subsequent to the year end because of the repayment to Ascential described further in Note 39. This impacts the
overall liquidity position after the year end.
The following table shows the ageing structure of financial liabilities as of 31 December 2018:
($’m)
Term loan
Interest payment
Trade payables and other liabilities
Derivative financial instruments
Other non-current liabilities
Lease liability
Total
Due within
3 months
Due between
3 and 12
months
Due between
1 and 5 years
Due in more
than 5 years
18.3
14.9
53.1
0.4
–
0.1
86.8
55.0
44.8
9.4
0.6
–
0.3
110.1
1,337.2
195.3
–
–
4.1
2.2
1,538.8
–
–
–
–
0.2
0.3
0.5
Total
1,410.5
255.0
62.5
1.0
4.3
2.9
1,736.2
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30. Financial risk management (continued)
Fair values
The fair values of financial assets and liabilities are included
at the price that would be received to sell an asset, or paid to
transfer a liability, in an orderly transaction between market
participants at the end of the reporting period. The following
methods and assumptions are used to estimate the fair values:
Cash and cash equivalents – approximates to the
carrying amount
Term loans – approximates to the carrying amount
Receivables and payables – approximates to the
carrying amount
Lease liabilities – approximates to the carrying amount
Financial assets and liabilities that are recognised at fair value
subsequent to initial recognition are grouped into Levels 1 to 3
based on the degree to which the fair value is observable.
The three levels are defined in Note 2.
In connection with the 2nd put/call option (further described
in Note 34), the Group recognised redemption obligation of
$61.6m measured at the present value of the redemption
exercise price through profit or loss. The Group classifies
the redemption liability as Level 3 liability. The fair value of the
2nd put/call option itself (as opposed to the gross exercise
price) is immaterial. Similarly, the fair value of the 1st put/call
and 3rd call options are immaterial (see Note 34).
At 31 December 2019, the Group had forward foreign
exchange contracts which were measured at Level 2 fair
value subsequent to initial recognition. The fair value of the
liability in respect of foreign exchange contracts was $0.1m
at 31 December 2019 (2018: liability of $0.2m).
The Group monitors capital using the net liability position and
gearing ratio (the net liability position divided by the sum of the
net liability position and equity). The Group includes within the
net liability position all current and non-current liabilities, less
cash and cash equivalents.
In addition, the Group had derivatives which were measured
at Level 3 fair value. See Note 28 for further information.
($’m)
31 December
2019
31 December
2018
Capital management
For the purpose of the Group’s capital management,
capital includes issued capital, share premium and all other
equity reserves attributable to the equity holders of parent.
The primary objective of the Group’s capital management is
to maximise the shareholder value.
The Group manages its capital structure and makes
adjustments to it in the light of changes in circumstances,
including economic conditions. To maintain or adjust the
capital structure, the Group may adjust the dividend payment
to shareholders, return capital to shareholders, or issue new
shares. The Group currently expects to maintain dividend
payments of approximately 40% of Group’s levered free
cash flow in the short to medium term.
Current and non-current liabilities*
1,685.2
2,004.4
Less: cash and short-term deposits
(216.6)
(272.3)
Net liability position
Equity*
Gearing ratio
1,468.6
1,172.6
1,732.1
900.4
55.6%
65.8%
* The Group excluded redemption obligation of $56.3m from current
and non-current liabilities in line with debt covenant calculation and
corresponding recognition of put liability of $55.7m from equity.
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32. Other reserves
The movements in the other reserves were as follows:
($’m)
Other reserves at 1 January
Group reorganisation (see Note 31)
Net exercise of options (see Note 31)
Redemption obligation reserve
(see Note 29)
Share-based payments1
Other movements
2019
260.5
–
–
(55.7)
20.1
0.2
2018
2.4
251.7
(7.4)
–
13.8
Other reserves at 31 December
225.1
260.5
1 The fair value of share awards granted to employees is recorded over
the vesting periods of individual options granted as a personnel expense
with a corresponding entry to other reserves. Refer to Note 35 for further
details of share-based payments.
31. Share capital and share premium
Shares issued and fully paid:
Share capital at 31 December 20171
Issuance of shares under share-based payment plans
Share capital immediately prior to IPO
Converted at IPO2
Net exercise of options at IPO2
Initial public offering3
Share issue expenses3
Group reorganisation4
Capital reduction5
Number of shares
95,514,902
5,345
95,520,247
844,058,216
49,603,491
58,977,478
–
–
–
Issuance of shares under share-based payment plans
799,114
Share capital at 31 December 2018
(ordinary shares of £0.10 each)
Issuance of shares under share-based payment plans
Share capital at 31 December 2019
(ordinary shares of £0.10 each)
953,438,299
54,581,736
1,008,020,035
Share capital
($’m)
Share premium
($’m)
371.7
–
371.7
371.7
–
8.0
–
(250.8)
–
0.1
129.0
7.0
136.0
0.9
–
0.9
0.9
7.4
191.8
(4.0)
(0.9)
(180.6)
0.8
15.4
40.2
55.6
1 Share capital at 31 December 2017 represented 52,377,659 common and 43,137,243 preferred shares. The nominal value of the 51,264,275 class A common
shares is $6.24 per share with a share premium of $0.044, and the nominal value of the 1,113,384 class B common shares is $1.57 with a nil share premium.
The nominal value of the 43,136,243 preferred shares is $1.16 with a share premium of $0.044, and the nominal value of the 1,000 management preferred
shares is $6.24 per share with a share premium of $104.76 per share.
2 Avast plc listed its shares on the London Stock Exchange on 10 May 2018. As part of the IPO, holders of equity instruments in Avast Holding received
844,058,216 shares in Avast plc. In addition, holders of options in Avast Holding net-exercised at the IPO 49,603,491 shares in Avast plc and 58,977,478
new shares were issued, bringing the total amount of shares outstanding on Admission to 952,639,185. The net exercise of options resulted in the Group
recording a share premium of $7.4m.
3 The increase in share capital and share premium of $195.8m represents the net proceeds from the IPO, less direct share issue expenses of $4m.
4 $250.8m was reclassified from share capital and $0.9m from share premium into other reserves to reflect the nominal value of 10 pence per outstanding share.
5 On 6 November 2018, the High Court of Justice in England and Wales made an order confirming the reduction of the share premium account by £138m ($180.6m)
and the cancellation of the subscriber share of the company under section 648 Companies Act 2006. The Company now will be able to apply the distributable
reserves arising from the capital reduction and the subscriber share cancellation towards the payment of dividends in line with the Company’s dividend policy
and for the purposes of future share buybacks.
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2nd put/call option: Provided certain conditions are met,
at the earliest after 30 June 2022, Ascential Investors had a
right to sell and Avast had a right to buy back the original 35%
of fully diluted share capital of Jumpshot. This option gave
rise to a redemption obligation described in detail in Note 29
3rd call option: At the earliest of 30 June 2022 (or two
years after the 1st put/call was exercised), Avast could at
its discretion give Ascential a right to buy (a call option) all
remaining Avast’s shares in Jumpshot, Inc. at fair value
No asset or liability was recognised in connection with the
1st put/call option, as the Group considered that the defined
transaction price would represent fair value of the shares at
the time of transaction. No asset or liability was recognised in
connection with the 3rd call option, as no option rights were
currently granted.
33. Dividends made and proposed
($’m)
2019
2018
Final dividend for the period
15 May 2018 to 31 December 2018
at $8.6 cents per share
Interim dividend for the period ended
30 June 2019 at $4.4 cents per share
Total cash dividend paid
83.7
43.2
127.0
–
–
–
Dividend proposed
The Directors propose to pay a final dividend of 10.3 cents per
share in respect of the year ending 31 December 2019 (total
payment of $104.6m). Combined with the interim dividend of
4.4 cents per share paid in October 2019 (total payment of
$43.2m), this gives a total dividend for the financial year of
14.7 cents (total payment of $147.8m), which represents 40% of
the Group’s levered free cash flow for the period in accordance
with the Company’s dividend policy. Subject to shareholder
approval, the final dividend will be paid in US dollars on 24
June 2020 to shareholders on the register on 22 May 2020.
There will be an option for shareholders to elect to receive the
dividend in pounds sterling and such an election should be
made no later than 8 June 2020. 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 11 June
2020 and announced shortly thereafter.
34. Non-controlling interest
In July 2019, Avast entered into an agreement with WGSN, Inc.,
a wholly owned subsidiary of Ascential plc (‘Ascential’), based
on which on 30 August 2019 Avast sold 35% of fully diluted
shares of Jumpshot Inc. to Ascential for a consideration of
$58.8m (net of $2.8m Avast transaction fees), while retaining
control of Jumpshot. Pursuant to the agreement, both Avast
and Ascential also made capital contributions to Jumpshot,
Inc. of $4.8m and $3.2m, respectively. In addition, as part of
the agreement, Avast made a capital contribution to Jumpshot,
Inc. of $6.8m which was used by Jumpshot, Inc. to repurchase
a portion of the vested share options held by employees.
Due to the decision to wind down Jumpshot in January 2020,
as described in Note 39, the below listed arrangement from
the stockholder’s agreement were rendered void and cash
was repaid to Ascential plc to fulfil the redemption obligation
subsequent to the year end. However, at the end of the period,
the following rights and obligations existed:
The stockholder’s agreement states that Ascential Investors
intended to obtain majority control over Jumpshot, Inc.
The agreement gives the following rights to Ascential
Investors and Avast:
1st put/call option: From 1 January 2021 until 30 June 2021,
Avast had a right to sell and Ascential Investors had a right
to buy an additional 16% of fully diluted share capital of
Jumpshot, provided that certain growth targets were reached
(or Ascential Investors deem that the target was reached).
The agreement specifies how the transaction prices will be
determined, and is deemed to approximate the fair value of
the shares at that time
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Notes to the consolidated financial statements Strategic report Governance Financial statements
Avast annual report 2019
157
34. Non-controlling interest (continued)
Changes in the shareholding of Jumpshot, Inc. as a result of the agreement and the transaction close are shown in the table below:
Avast
Ascential – non-controlling interest
Other – non-controlling interest
Option holders
Total
Below is the shareholding of Jumpshot, Inc. as of 31 December 2019:
Avast
Ascential – non-controlling interest
Other – non-controlling interest
Option holders
Total
Pre-close
Undiluted
Pre-close
Diluted
Post-close
Undiluted
Post-close
Diluted
97.0%
82.8%
–
3.0%
–
–
2.6%
14.6%
58.0%
39.3%
2.7%
–
52.2%
35.3%
2.5%
10.0%
100.0%
100.0%
100.0%
100.0%
Undiluted
Diluted
58.2%
39.3%
2.5%
–
52.5%
35.4%
2.3%
9.8%
100.0%
100.0%
The Group accounted for this transaction as a transaction with non-controlling interest while retaining control, with net proceeds
from the transaction as increase in total equity. The Group initially measured the non-controlling interest as proportionate amount
of net assets. As a result, the impact on Group’s equity is as follows:
The change in the non-controlling interest is as follows:
($’m)
At 1 January 2019
Sale of 35% of Jumpshot, Inc.
Share-based payments
Net profit allocated to
non-controlling interest
At 31 December 2019
2019
1.0
5.7
0.6
0.2
7.5
2018
0.8
–
0.2
–
1.0
($’m)
Equity consideration
Less: Transaction fees
Consideration received
Ascential contribution
Option repurchase
Other transaction fees
Net proceeds from the transaction
Change in the non-controlling interest
Increase in shareholder’s equity
© 2019 Friend Studio Ltd
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Modification Date: 25 February 2020 4:18 pm
31 December
2019
61.6
(2.8)
58.8
3.2
(6.8)
(0.9)
54.3
(5.7)
48.6
Notes to the consolidated financial statements Strategic report Governance Financial statements
Avast annual report 2019
158
35. Share-based payments
Existing Employee Share plan (formerly known
as Avast Holding 2014 Share Option Plan
‘Avast Option Plan’)
The Avast Option Plan was the primary share option plan of
the Group prior to the IPO under which certain employees
and Directors were granted options over A-ordinary and/or
B-ordinary shares of Avast Holding. Following the IPO, the
Avast Option Plan was adjusted such that the options granted
under the plan ceased to be options over shares of Avast
Holdings and, instead, became options over shares of the
Company of equivalent value.
No new options have been granted under the Avast Option
Plan since the IPO. Furthermore, the Company does not intend
to grant any further options under the Avast Option Plan.
Options generally vest over a four-year period in four
equal instalments. Some of the options granted to the
key management personnel are performance based.
The contractual life of all options is ten years.
Avast plc, 2018 Long Term Incentive Plan (LTIP)
Following the IPO, the Company has adopted the LTIP for
employees and Executive Directors. The purpose of the LTIP
is to incentivise employees and Executive Directors whose
contributions are essential to the continued growth and
success of the business of the Company, in order to strengthen
their commitment to the Company and, in turn, further the
growth, development and success of the Company.
The following types of awards can be granted:
Performance Stock Units (PSUs) PSUs will be granted
to Executive Directors and members of the Executive
Management team. Each PSU entitles a participant to receive
a share in the Company upon the attainment, over a three-year
performance period, of challenging performance conditions
determined by the Remuneration Committee.
Restricted Stock Units (RSUs)
RSUs will be granted to key employees of the Group who
are not Executive Directors or members of the Executive
Management team. Each RSU entitles a participant to receive a
share in the Company upon vesting of the RSU. Each award of
RSUs will ordinarily vest either in three equal proportions over
a three-year period or on the third anniversary of grant or over
such other period as the Committee may determine, provided
the participant remains in service.
Stock Options (‘Options’)
Options may be granted to key employees of the Group who
are not Executive Directors or members of the Executive
Management team. Each option entitles a participant to the
right to acquire a share of the Company upon vesting of the
option. Each option will ordinarily become exercisable either
in three equal proportions over a three-year period or on the
third anniversary of the grant, or over such other period as the
Remuneration Committee may determine.
Share Matching Plan (SMP)
The Company has adopted the Avast Share Matching
Plan (SMP) for employees and Executive Directors of the
Group. The purpose of the SMP is to encourage and enable
employees and Executive Directors to acquire a significant
stake in the Company so that they can share in the future
growth, development and success of the Company. Under this
plan, the employees will be granted one matched share for
every three purchased shares after a two-year period.
Deferred Bonus Plan (DBP)
The Company has adopted the Deferred Bonus Plan for only
Executive Directors. Where a participant is required to defer
a portion of their annual bonus into shares under the terms of
the Company’s annual bonus arrangements, the Remuneration
Committee may grant an award to acquire shares under the
DBP in order to facilitate such deferral. Awards will ordinarily
vest on the second anniversary of the date of grant. No award
under DBP was granted in 2019.
Jumpshot, Inc., 2015 Share Option Plan
(‘Jumpshot Option Plan’)
The Jumpshot Option Plan was designed in order to grant
options to purchase shares of common stock of Jumpshot,
Inc. to certain employees and directors of Jumpshot, Inc.
The purpose of the Jumpshot Option Plan is to provide
employees with an opportunity to participate directly in
the growth of the value of Jumpshot by receiving options
for shares.
Each option converts into one ordinary share of Jumpshot,
Inc. on exercise. Options that are forfeited are available to be
granted again. Options generally vest over a four-year period
in four equal instalments. Some of the options granted to the
key management are performance based. The contractual life
of all options is ten years.
Share-based payment expense
The total expense that relates to the equity-settled share-
based payment transactions during the year is as follows:
($’m)
Avast Option Plan
LTIP
Jumpshot Option Plan
SMP
Total share-based payment expense
Year ended
31 December
2019
Year ended
31 December
2018
5.8
14.2
0.6
0.1
20.7
8.5
5.3
0.1
–
13.9
The Group also recognised additional $4.2m 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 operating profit amounted
to $24.9m.
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Notes to the consolidated financial statements Strategic report Governance Financial statements
Avast annual report 2019
159
35. Share-based payments (continued)
Share options
The fair value of equity-settled share options granted is
determined, based on the several assumptions, on the date
of the grant award using the Black-Scholes option valuation
model. The following table illustrates the weighted average
inputs into the Black-Scholes model in the year:
Avast Option Plan
Number granted in year
Weighted average grant date fair value
(in $/per share)
Weighted average exercise price (in $)
Expected volatility
Weighted average expected lives
(years)
Risk free interest rate
Expected dividends
Year ended
31 December
2019
Year ended
31 December
2018
– 1,810,000
–
–
–
–
–
–
6.77
26.98
31.58%
6.25
2.67%
Nil
Jumpshot Option Plan
Number granted in year
Weighted average grant date fair value
(in $/per share)
Weighted average exercise price (in $)
Expected volatility
Weighted average expected lives
(years)
Risk free interest rate
Expected dividends
Year ended
31 December
2019
Year ended
31 December
2018
1,864,061
1,049,289
1.80
4.19
0.35
0.86
42.18%
44.88%
7.34
1.54%
Nil
6.92
2.71%
Nil
Expected volatility was determined by calculating the historical share price volatility of comparable listed companies over the
expected life of the options. The expected volatility reflects the assumption that the historical volatility is indicative of future trends,
which may not necessarily be the actual outcome. An increase in the expected volatility will increase the estimated fair value.
The expected life is the average expected period to exercise.
The number and weighted average exercise prices of, and movements in, share options of Avast Option Plan in the year is set
out below:
Year ended 31 December 2019
Year ended 31 December 2018
Outstanding – 1 January
Granted
Forfeited
Exercised
Outstanding on Admission
Converted on Admission
Forfeited
Exercised
Outstanding – 31 December
Vested and exercisable – 31
December
Number of shares
68,941,832
–
–
–
–
–
(3,055,422)
(41,129,176)
24,757,234
13,968,428
Weighted average exercise
($)
Number of shares
Weighted average exercise
($)
1.60
3.24
1.07
2.27
1.52
9,383,398
1,810,000
(74,750)
–
11,118,648
69,905,909
(234,963)
(729,114)
68,941,832
26,685,849
8.99
26.98
9.32
–
12.13
1.69
1.23
1.14
1.60
0.98
The weighted average share price for options exercised during the year was £ pence 367.94 (2018: £ pence 225.88).
Options outstanding at the end of the year had the following range of exercise prices and weighted average remaining
contractual life:
Exercise price:
$0.77 – $0.88
$1.12 – $1.84
$2.72 – $3.39
Outstanding – 31 December
31 December 2019
31 December 2018
Number of shares
outstanding
Weighted average
remaining life (years)
Number of shares
outstanding
Weighted average
remaining life (years)
2,171,117
12,006,156
10,579,961
24,757,234
4.70
7.34
8.22
7.49
23,736,711
31,141,544
14,063,577
68,941,832
6.14
8.21
9.22
7.61
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Avast annual report 2019
160
35. Share-based payments (continued)
Replacement options
Outstanding – 1 January
Exercised
Outstanding on Admission
Converted on Admission
Exercised
Outstanding – 31 December
Vested and exercisable – 31 December
The following table summarises share option activity of Jumpshot Option Plan:
Outstanding – 1 January
Granted
Repurchased
Forfeited
Exercised
Outstanding – 31 December
Vested and exercisable – 31 December
Year ended 31 December 2019
Year ended 31 December 2018
Number of shares
12,266,682
–
–
–
(11,683,247)
583,435
583,435
Weighted average
exercise ($)
Number of shares
Weighted average
exercise ($)
0.19
–
–
0.19
0.18
0.18
7,717,640
(1,118,729)
6,598,911
12,336,682
(70,000)
12,266,682
12,266,682
1.57
1.57
1.57
0.20
0.18
0.19
0.19
Year ended 31 December 2019
Year ended 31 December 2018
Number of shares
Weighted average
exercise ($)
Number of shares
Weighted average
exercise ($)
6,572,291
1,864,061
(1,615,513)
(290,001)
(962,113)
5,568,725
2,125,858
0.40
4.19
0.33
0.68
0.31
1.70
0.37
6,815,525
1,049,289
–
(1,154,152)
(138,371)
6,572,291
3,766,538
0.34
0.86
–
0.50
0.35
0.40
0.31
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Notes to the consolidated financial statements Strategic report Governance Financial statements
Avast annual report 2019
161
35. Share-based payments (continued)
Options outstanding of Jumpshot Option Plan at the end of the year had the following range of exercise prices and weighted average remaining contractual life:
Exercise price:
$0.30
$0.36
$0.56
$0.86
$1.79
$4.53
Outstanding – 31 December
31 December 2019
31 December 2018
Number of shares
outstanding
Weighted average
remaining life (years)
Number of shares
outstanding
Weighted average
remaining life (years)
2,383,225
301,525
187,813
831,476
232,709
1,631,977
5,568,725
5.18
6.45
7.58
8.54
9.20
9.77
7.35
4,653,252
583,500
358,750
976,789
–
–
6,572,291
6.18
7.45
8.45
9.55
–
–
6.92
Restricted share units
The following table illustrates the number and weighted average share price on date of award, and movements in, restricted share units granted under the LTIP:
Outstanding – 1 January
Granted
Forfeited
Vested
Outstanding – 31 December
Year ended 31 December 2019
Year ended 31 December 2018
Number of shares
Weighted average share
price (£ pence)
Number of shares
Weighted average share
price (£ pence)
4,927,332
6,130,302
(1,329,900)
(1,567,385)
8,160,349
234.97
354.05
260.99
237.21
319.76
–
5,188,917
(261,585)
–
4,927,332
–
234.94
234.29
–
234.97
The fair value of RSUs granted is measured as at date of grant using Black-Scholes model, the outcome of which is a weighted average fair value of RSUs granted during the year; which was £ pence
324.93 (2018: £ pence 219.07). Future dividends have been taken into account based on expected cash flow and dividend policy.
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Notes to the consolidated financial statements Strategic report Governance Financial statements
Avast annual report 2019
162
35. Share-based payments (continued)
Performance Share Units
The following table illustrates the number and weighted average share price on date of award, and movements in, performance share units granted under the LTIP:
Outstanding – 1 January
Granted
Forfeited
Vested
Outstanding – 31 December
Year ended 31 December 2019
Year ended 31 December 2018
Number of shares
Weighted average share
price (£ pence)
6,309,881
1,458,494
(2,410,338)
–
5,358,037
219.60
303.01
219.60
–
242.30
Number of shares
–
6,309,881
–
–
Weighted average share
price (£ pence)
–
219.60
–
–
6,309,881
219.60
The vesting of the awards under LTIP is subject to the attainment of performance conditions as described in the Directors’ remuneration report.
The fair value of PSUs granted is measured as at date of grant using Black-Scholes model, the outcome of which is a weighted average fair value of PSUs granted during the year; which was £ pence
303.01 (2018: £ pence 219.60).
Share Matching Plan
During 2019, the Group has issued 201,928 shares to the employees under the Share Matching Plan and an additional 66,914 will be issued after the matching period (which is two years). The cost of
the additional 66,914 shares is to be recognised against the other reserves over the matching period and amounted to $0.2m in total for all tranches as of 31 December 2019. The weighted average
fair value of additional shares was £ pence 289.78 for the year ended 31 December 2019.
36. Related party disclosures
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this Note.
Compensation of key management personnel (including Directors)
($’m)
Short-term employee benefits (including salaries)
Termination benefits
Share-based payments
Total
Key management personnel
Other related parties Key management personnel
Other related parties
Year ended 31 December 2019
Year ended 31 December 2018
11.9
1.2
10.0
23.1
0.1
–
–
0.1
12.7
0.5
9.3
22.5
0.1
–
–
0.1
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.
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Notes to the consolidated financial statements Strategic report Governance Financial statements
Avast annual report 2019
163
39. Subsequent events
On 30 January 2020, the Group decided to wind down the
operation of its subsidiary Jumpshot, Inc. The Group expects
to incur a one-time exceptional cash cost in the range of
$15m–$25m in the current financial year to cover closure
costs, asset writedowns and employee restructuring. As part
of the termination arrangements, Avast has returned the
investments made by Ascential plc into the business, along
with associated exit costs, in the amount of $73.0m. Because
of the repayment, the original transaction was reversed
subsequent to the year end.
In light of recent press speculation and as part of the process
to effect an orderly wind-down of Jumpshot, Avast is in
communication with relevant regulators and authorities in
respect of certain data protection matters and is cooperating
fully in respect of all regulatory enquiries. Avast expects further
communications with the regulators from time to time and
recognises that there may be possible future investigations,
disputes, claims and liabilities associated with the wind-down
of the business which at this time cannot be quantified.
This represents a non-adjusting subsequent event, therefore
it is disclosed but otherwise without impact on financial
results for the year ended 31 December 2019. Specifically,
the redemption obligation (Note 29) and non-controlling
interest (Note 34) are accounted in line with conditions and
information that existed as of the year end.
36. Related party disclosures (continued)
As a part of the IPO and Reorganisation in 2018, share
transactions occurred between Avast plc and key
management personnel and significant shareholders,
including Sybil Holdings S.a r.l. The aggregate amount of
gains made by Directors on the exercise of share options
during the year was approximately $6.4m (£5.0m) (2018:
$100m (£75m)). The aggregate amount of gains made by
the highest paid Director on the exercise of share options
during the year was $2.6m (£2.1m) (2018: $54.9m (£40.7m)).
Statutory directors’ remuneration amounted to $3.6m
(2018: $3.3m) for qualifying services to the Company during
the year. Further details about the Directors’ remuneration is
set out on pages 84 to 99.
Other related parties
Nadacni 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. Kucera and Baudis
are members of the management board of the foundation.
On 13 March 2018, the Board approved that the donation
for 2018 will be CZK100m ($5.0m). The donation is paid in
quarterly installments during the year.
During the 12 months ended 31 December 2019, Avast
Software s.r.o. made donations of CZK100.0m ($4.4m)
(2018: CZK68.4m ($3.1m)) to the Foundation. As of
31 December 2019, the Company recorded an accrual
of CZK56.6m ($2.5m) (2018: CZK41.8m ($1.9m)).
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 Avast Group, Eduard Kucera and Pavel Baudis
for $119.5m (ca. €110m). The term of lease ends in August 2024
and offers two options to extend for another 24 months under
the same conditions. The annual rent is €3.3m ($3.7m).
37. Commitments
There were no significant commitments in 2019.
Operating lease commitments – 2018
The Group leased office space which incurred $12.4m of
the lease expense for the year ended 31 December 2018.
The minimum future rentals on operating leases are as follows
as of 31 December 2018:
($’m)
Lease
Sublease income
Net lease
Less than
1 year
9.5
(0.9)
8.6
1 to 5
years
33.6
(2.2)
31.4
> 5 years
44.6
–
Total
87.7
(3.1)
44.6
84.6
38. Principal exchange rates
Translation of Czech crown into US
dollar ($:CZK1.00)
Average
Closing
Translation of sterling into US dollar
($:£1.00)
Average
Closing
Translation of euro into US dollar
($:€1.00)
Average
Closing
Year ended
31 December
2019
Year ended
31 December
2018
0.0437
0.0461
0.0442
0.0445
1.2757
1.3203
1.3357
1.2882
1.1212
1.1233
1.1814
1.1451
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Notes to the consolidated financial statements Strategic report Governance Financial statements
Avast annual report 2019
164
40. Full list of subsidiaries as of 31 December 2019
Country of incorporation
Registered office
Registered address
Netherlands
Avast Holding B.V.
Schiphol Boulevard 369, Tower F, 7th floor, 1118BJ Schiphol, the Netherlands
Avast Software B.V.
Avast Operations B.V.***
Schiphol Boulevard 369, Tower F, 7th floor, 1118BJ Schiphol, the Netherlands
Schiphol Boulevard 369, Tower F, 7th floor, 1118BJ Schiphol, the Netherlands
Avast Corporate Services B.V.***
Schiphol Boulevard 369, Tower F, 7th floor, 1118BJ Schiphol, the Netherlands
Norman Data Defense
Systems B.V.***
Schiphol Boulevard 369, Tower F, 7th floor, 1118BJ Schiphol, the Netherlands
AVG Ecommerce CY B.V.
Schiphol Boulevard 369, Tower F, 7th floor, 1118BJ Schiphol, the Netherlands
Czech Republic
Avast Software s.r.o.
Pikrtova 1737/1a, 140 00 Prague 4, Czech Republic
Jumpshot s.r.o.
FileHippo s.r.o.
Pikrtova 1737/1a, 140 00 Prague 4, Czech Republic
Pikrtova 1737/1a, 140 00 Prague 4, Czech Republic
Germany
Avast Deutschland GmbH
Otto-Lilienthal-Strasse 6, 88046 Friedrichshafen, Germany
United Kingdom
AVG Technologies UK Limited**
7th Floor, 110 High Holborn, London, England, WC1V 6JS
Privax Limited
7th Floor, 110 High Holborn, London, England, WC1V 6JS
Piriform Software Limited**
7th Floor, 110 High Holborn, London, England, WC1V 6JS
USA
AVAST Software, Inc.
2625 Broadway Street, Redwood City, County of San Mateo, CA 94063, USA
Remotium, Inc.
TrackOFF, Inc.
2625 Broadway Street, Redwood City, County of San Mateo, CA 94063, USA
3700 O’Donnell St, Baltimore, MD 21224, USA
Emerald Cactus Ventures, Inc.
1700 7th Ave STE 116 #212 Seattle, WA 98101, USA
Sybil Software LLC
Jumpshot, Inc.
Corporation Service Company, 251 Little Falls Drive, Wilmington, DE 19808, USA
329 Bryant Street, Suite 3C San Francisco, CA 94107, USA
AVG Technologies USA LLC
1313 N. Market Street, Suite 1500 Wilmington, DE 19801, USA
Location Labs LLC
Piriform, Inc.
2100 Powell St, Emeryville, CA 94608, USA
Corporation Service Company, 251 Little Falls Drive, Wilmington, DE 19808, USA
Class of
shares held
Percentage of
share held
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100%
100%
100%
100%
100%
100%
100%
58%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
58%
100%
100%
100%
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Avast annual report 2019
165
40. Full list of subsidiaries as of 31 December 2019
Country of incorporation
Registered office
Registered address
Hong Kong
AVAST Software (Asia) Limited
10/F, Guangdong Investment Tower, 148 Connaught Road Central, Hong Kong
Israel
Cyprus
Australia
Brazil
AVG Mobile Technologies Limited* 2 HaShlosha Street, Tel Aviv Yaffo 6706054, Israel (PO BOX 9244)
Piriform Group Limited
1 Constantinou Skokou St, Capital Chambers, 5th Floor, Agios Antonios, 1061 Nicosia, Cyprus
Piriform Limited
1 Constantinou Skokou St, Capital Chambers, 5th Floor, Agios Antonios, 1061 Nicosia, Cyprus
AVG Technologies AU Pty Limited Level 7, 122 Arthur Street, 2060 Sydney – North Sydney, New South Wales, Australia
AVG Distribuidora de Tecnologias
do Brasil Ltda.
Conj 38, R. Amazonas, 669 – Santa Paula, Sao Caetano do Sul – SP, 09520-070, Brazil
Norway
AVG Technologies Norway AS
Lysaker Torg 5, 1366 Lysaker, Bærum, Norway
Slovak Republic
INLOOPX s.r.o.
Veľka Okruzna 26A, 010 01 Zilina, Slovakia
Switzerland
Avast Switzerland AG
Munchensteinerstr. 43, 4052 Basel, Switzerland
Serbia
Japan
Privax d.o.o. Beograd
Bulevar Mihaila Pupina 6, 11070 Belgrade-Novi Beograd, Serbia
Avast Software Japan Godo Kaisha 1F and 2F Otemachi Building, 1-6-1 Otemachi, Chiyoda-ku, Tokyo, Japan
In liquidation.
*
** AVG Technologies UK Limited and Piriform Software Limited will take advantage of the audit exemption set out within section 479A of the Companies Act 2006 for the year ended 31 December 2019.
*** As of 1 January 2020, Avast Operations B.V., Avast Corporate Services B.V., and Norman Data Defense Systems B.V. merged into Avast Software B.V.
The Company’s directly held subsidiary is Avast Holding B.V.
All other subsidiaries are indirectly held.
Class of
shares held
Percentage of
share held
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
© 2019 Friend Studio Ltd
File name: FinancialXStatements_v50
Modification Date: 25 February 2020 4:18 pm
Notes to the consolidated financial statements Strategic report Governance Financial statements
Avast annual report 2019
166
Company statement of financial position
As at 31 December 2019
Non-current assets
Investments in subsidiary
Deferred tax assets
Total non-current assets
Current assets
Current tax receivables
Trade and other receivables:
Amounts due from related party
Prepayments
Other accounts receivable
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Trade payables and other liabilities:
Trade payables
Corporate income tax
Amounts due to related party
Total current liabilities
Net assets
Capital and reserves
Share capital
Share premium
Merger reserve
Other reserve
Retained earnings
Total equity
Notes
4
5
6
7
8
8
9
9
31 December 2019
$M
31 December 2018
$M
3,231.1
1.4
3,232.5
0.4
126.5
0.5
0.2
127.2
16.5
144.1
3,376.6
1.3
0.1
–
1.4
1.4
3,217.5
–
3,217.5
0.1
5.1
0.6
–
5.7
1.3
7.1
3,224.6
1.9
12.2
14.1
14.1
3,375.2
3,210.5
136.0
55.6
2,893.9
30.8
258.9
3,375.2
129.0
15.4
2,893.9
10.6
161.6
3,210.5
The Company has taken advantage of the exemption in section 408 of the Companies Act 2006
not to present its individual profit and loss account. The profit of the company was $223.0m
(2018 – 11 months to 31 December 2018, loss was $19.0m). These financial statements were
approved by the Board of Directors on 25 February 2020 and signed on its behalf by:
Philip Marshall Chief Financial Officer
The accompanying notes form an integral part of these financial statements.
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File name: CompanyXFinancialXStatements_v27
Modification Date: 25 February 2020 2:14 pm
Company financial statements Strategic report Governance Financial statements
Avast annual report 2019
167
Company statement of changes in equity
For the year ended 31 December 2019
Share
capital
$M
Share
premium
$M
Merger
reserve
$M
Other
reserve
$M
Retained
earnings
$M
Notes
–
–
–
–
8.0
6.7
114.2
–
–
0.1
129.0
–
–
–
–
7.0
–
–
–
–
(180.6)
191.8
7.4
–
(4.0)
–
0.8
15.4
–
–
–
–
40.2
–
–
–
–
–
–
153.6
2,740.3
–
–
–
2,893.9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
10.6
–
10.6
–
–
–
20.2
–
–
8
8
8, 9
8, 9
9
9
Total
equity
$M
–
(19.0)
(19.0)
–
199.8
167.7
2,854.5
(4.0)
10.6
0.9
–
(19.0)
(19.0)
180.6
–
–
–
–
–
–
161.6
3,210.5
223.0
223.0
1.3
–
–
223.0
223.0
1.3
20.2
47.2
(127.0)
(127.0)
136.0
55.6
2,893.9
30.8
258.9
3,375.2
At 31 January 2018
Loss for the period
Total comprehensive loss for the period
Capital reduction
Primary proceeds
Net exercise of options
Contribution of shares
Share issue expense
Share-based payments
Exercise of options
At 31 December 2018
Profit for the year
Total comprehensive profit for the year
Share-based payments deferred tax
Share-based payments
Exercise of options
Cash dividend
At 31 December 2019
The accompanying notes form an integral part of these financial statements.
© 2019 Friend Studio Ltd
File name: CompanyXFinancialXStatements_v27
Modification Date: 25 February 2020 2:14 pm
Company financial statements Strategic report Governance Financial statements
Avast annual report 2019
168
1. General
Avast plc (the ‘Company’) is a public limited company
incorporated in the UK and registered under the laws of
England & Wales. The Company’s registered address is at
110 High Holborn, London WC1V 6JS. The Company’s
registered number is 07118170.
The Company was incorporated on 7 January 2010 as a private
company limited by shares under the Companies Act 2006
(as amended) with the name Avast Limited. On 3 May 2018,
the Company re-registered as a public company under the
name Avast plc. Prior to this date, the Company was dormant.
The share capital of Avast Limited was £1 for the accounting
period ended 31 January 2018. On 8 May 2018, the Company
changed its accounting period from 31 January to
31 December. Therefore, the 2018 comparative period is
for the 11 months from 1 February to 31 December 2018.
2. Summary of significant accounting policies
Basis of preparation
The financial statements have been prepared in accordance
with Financial Reporting Standard 102 (FRS 102) and under
the historical cost accounting rules. The Company has
adopted the version of FRS 102 (March 2018) incorporating the
Triennial review 2017 amendments. Adoption of the Triennial
review 2017 amendments had no effect on the Company’s
financial statements.
The Company is a qualifying entity as it prepares consolidated
financial statements. In its individual financial statements,
the Company has applied the disclosure exemptions
available under the FRS 102 The Financial Reporting Standard
Applicable in the UK and Republic of Ireland in respect
of preparation of a cash flow statement and disclosure of
key management personnel compensation.
As the Consolidated financial statements of the Company
include the equivalent disclosures, the Company has also
taken the exemptions available under FRS 102 in respect
of disclosures in respect of share-based payments and
financial instruments.
The Company has taken the exemption not to
disclose intra-Group transactions with wholly owned
subsidiary undertakings.
The Company’s receivables qualify as basic financial
instruments under Section 11 of FRS 102 and are included
at amortised cost.
Going concern
The Company and its subsidiaries have considerable financial
resources and a large number of customer contracts across
different geographic areas and industries. The Directors
have reviewed the projected cash flows for the Group and
have a reasonable expectation that the Company is well
placed to manage its business risk successfully and has
adequate resources to continue in operational existence
for the foreseeable future, and a period of at least 12 months
from the signing of the accounts. For this reason, the Directors
have adopted the going concern assumption in preparing the
financial statements.
Investment in subsidiary
The investment in subsidiary is stated in the Company’s
separate financial statements at cost less impairment losses.
The carrying value of the investment in subsidiary is reviewed
for impairment if events or changes in circumstances indicate
that the carrying value may not be recoverable.
Cash and cash equivalents
Cash and short-term deposits in the statement of financial
position comprise cash at bank and on hand and short-term
deposits with a maturity of three months or less.
Financial instruments
Financial assets and liabilities are recognised on the Company
statement of financial position when the Company becomes a
contractual party to the instrument. When financial instruments
are recognised initially, they are measured at fair value, which
is the transaction price plus, in the case of financial assets and
financial liabilities not measured at fair value through profit and
loss, directly attributable transaction costs.
Capitalisation of share-based payments
Where the Company grants share-based awards over its
own shares in exchange for employee services rendered to its
subsidiaries, it recognises an increase to the cost of investment
equivalent to the share-based payment expense recognised
in the Consolidated financial statements and a corresponding
credit in other reserves in equity.
The Company recharges the expenses for share-based
awards relating to employees employed in US and UK
subsidiaries to the subsidiary which employs the respective
employee at an amount equivalent to the respective
share-based payment expense recognised in the consolidated
financial statements relating to those subsidiary employees.
The company recognises in its individual financial statements
an increase to amounts due from related parties and a
corresponding decrease in the cost of investment. Therefore,
the cost of investment increases by the share-based payment
expense recognised in the consolidated financial statements
net of any recharges and amounts relating to services
supplied to the company. Refer to Note 2 of the consolidated
financial statements for the accounting policy in respect of
share-based payments.
Foreign currencies
Transactions in foreign currencies are recorded using the rate
of exchange ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies are
translated using the rate of exchange valid at the balance
sheet date and the gains or losses on translation are
included in profit or loss as finance income and expenses.
Non-monetary assets and liabilities denominated in foreign
currencies are stated at historical foreign exchange rates.
© 2019 Friend Studio Ltd
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Notes to the company financial statements Strategic report Governance Financial statements
Avast annual report 2019
169
2. Summary of significant accounting policies
(continued)
Functional currency
The Company’s functional currency is US dollars.
Employee Benefit Trust
The Group has established an employee benefit trust
(‘Avast plc Employee Benefit Trust; EBT’) in 2019. The trust is
treated as an extension of the Company. During the year,
1,567,385 RSUs were issued to the EBT for the amount of the
nominal value of $0.2m and then transferred to employees.
At 31 December 2019, no shares were held by the trust.
3. Auditor’s remuneration
The figures for auditor’s remuneration for the Company,
required by regulation 5(1)(b) of the Companies (Disclosure of
Auditor Remuneration and Liability Limitation Agreements)
Regulations 2008, are not presented as the Consolidated
financial statements comply with this regulation on a
consolidated basis.
4. Investment in subsidiary
The investment in subsidiary represents the investment in
Avast Holding B.V. (‘Avast Holding’), a wholly owned subsidiary
of the Company. A full list of the Company’s direct and indirect
subsidiaries is included in Note 40 of the Consolidated
financial statements.
Investment in Avast Holding B.V.
Prior to the Company‘s Initial Public Offering (IPO), Avast
Holding B.V. (‘Avast Holding’) was the Parent Company of the
Avast Group.
On 10 May 2018, as part of a reorganisation related to the
IPO (‘Reorganisation’), the shareholders of Avast Holding
contributed their shares in the capital of Avast Holding to the
Company in exchange for which the Company issued ordinary
shares of equivalent value to each shareholder. This resulted
in the Company issuing in aggregate 844,058,216 ordinary
shares at a value of 250 pence per share.
In connection with the Reorganisation, the option plan
of Avast Holding (‘Avast Option Plan’) was adjusted in
accordance with their terms such that the options granted
under the plan ceased to be options over shares of Avast
Holding and, instead, became options over shares of the
Company of equivalent value (with an appropriate adjustment
to the per share exercise price so that there was no change
in overall value).
On 10 May 2018, holders of options under the Avast Option
Plan net-exercised certain of their options which resulted in
the Company issuing 49,603,491 shares. The Reorganisation
resulted in the Company recording an investment in Avast
Holding of £2,234.2m ($3,022.2m).
In addition, on 16 May 2018, Avast Holding issued one share to
the Company at an issue price of $186.2m, which the Company
paid for in cash.
At 31 January 2018
Investment in Avast Holding B.V.
Capitalisation of share-based payments
Cost at 31 December 2018
Capitalisation of share-based payments
Cost at 31 December 2019
$M
–
3,208.4
9.1
3,217.5
13.6
3,231.1
5. Trade and other receivables
($’m)
Amounts due from related party
Prepayments
Other accounts receivable
Total
31 December
2019
31 December
2018
126.5
0.5
0.2
127.2
5.1
0.6
–
5.7
As of 15 May 2018, the Company entered into a cash
management agreement with Avast Corporate Services
B.V., its indirect subsidiary, which operates a cash pooling
arrangement for the Group. Under this agreement, the
Company has a short-term loan receivable of $122.8m
(2018: short-term loan payable of $12.2m), repayable on
demand, with a variable interest rate based on three-month
USD LIBOR -0.5% (2018: +5.25%) assessed quarterly. The
interest income for the period ended 31 December 2019
was $0.3m (2018: interest expense $0.4m).
Included under amounts due from related party are recharges
of management services provided by the Company to
Group subsidiaries for $3.7m (2017: $5.1m).
6. Cash and cash equivalents
($’m)
Cash in bank
Total
31 December
2019
31 December
2018
16.5
16.5
1.3
1.3
7. Trade payables and other liabilities
($’m)
Trade payables
Corporate income tax
Amounts due to related party
Total
31 December
2019
31 December
2018
1.3
0.1
–
1.4
1.9
–
12.2
14.1
© 2019 Friend Studio Ltd
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Notes to the company financial statements Strategic report Governance Financial statements
Avast annual report 2019
170
8. Share capital
Shares issued and fully paid:
Share capital at 31 January 2018 (ordinary share of £1 each)1
Initial public offering2
Share issue expense2
Contribution of shares (see Note 4)
Net exercise of options3
Capital reduction4
Exercise of options
Share capital on 31 December 2018 (ordinary share of £0.10 each)
Issuance of shares under share-based payments plans
Share capital on 31 December 2019 (ordinary share of £0.10 each)
Number of
shares
Share
Capital ($ ‘m)
Share Premium
($ ‘m)
1
58,977,478
–
844,058,216
49,603,491
–
799,114
953,438,299
54,581,736
1,008,020,035
–
8.0
–
114.2
6.7
–
0.1
129.0
7.0
136.0
–
191.8
(4.0)
–
7.4
(180.6)
0.8
15.4
40.2
55.6
For proposed dividends, see Note 33 of the Consolidated financial statements.
For details of options and other share awards over the Company’s shares, see Note 35 of the Consolidated financial statements of
the Company.
1 As of 31 January 2018 and 31 January 2017, nominal value of the Company was £1 and no transactions occurred between the periods since the Company
was dormant.
2 The ordinary shares of the Company were admitted to trading on the London Stock Exchange’s main market for securities on 15 May 2018. As part of the
Company’s primary offer, it issued 58,977,478 new shares in the Company with a nominal value of 10 pence and a premium of 240 pence which resulted in
the increase in share capital of $8.0m and share premium of $191.8m. Expenses incurred in relation to the direct share issue amounted to $4.0m.
3 As described in Note 4, the net exercise resulted in the Company recording $6.7m into share capital and $7.4m into share premium, equal to the exercise price
paid by employees and remaining $153.6m into merger reserve (see Note 10).
4 On 6 November 2018, the High Court of Justice in England & Wales made an order confirming the reduction of the share premium account of the Company
by £138m ($180.6m).
9. Reserves
Merger reserve
The share-for-share exchange transaction described in Note
4 and Note 8 qualified for merger relief in accordance with
section 612 and the Company elected to record a merger
reserve. This reserve also includes the value of the options
over PLC shares that were subsequently net exercised on the
IPO, in excess of the share capital and premium arising on
exercise. The merger reserve is non-distributable.
Other reserve
The increase in other reserves of $20.2m (2018: $10.6m)
represents the expense from the share awards from the
date of the IPO. The fair value of share awards granted
to employees is recorded over the vesting periods of
individual options granted as a personnel expense (or where
appropriate, capitalised as investment in subsidiary) with a
corresponding entry to other reserves.
10. Dividend
The dividend income for the year ended 31 December 2019
was $225.0m (2018: $nil).
11. Personal expenses
Personnel expenses of the Company consist of following:
($’m)
Wages and salaries
Social security and health insurance
Social costs
Share-based payments
(including employer’s costs)
Total personnel expense
2019
4.9
0.7
0.1
4.8
10.5
2018
3.1
0.2
0.1
1.5
4.9
The average number of employees by category during the
period was as follows:
2019
2018
Sales and marketing
General and administrative
Total average number of employees
5
6
11
12. Share-based payments
The total expense that relates to the equity-settled
share-based payment transactions of employees of the
Company during the period is as follows:
($’m)
Avast Option Plan
LTIP
Total share-based payment expense
2019
0.9
0.4
1.3
6
4
10
2018
1.2
0.3
1.5
The cost of equity-settled transactions with employees is
measured by reference to the fair value at the date at which
they are granted, further details of which are given in Note 35
of the Consolidated financial statements.
As denoted in Note 40 of the Consolidated financial
statements, the Company will guarantee the debts and
liabilities of certain of its UK subsidiaries at the balance sheet
date in accordance with section 479C of the Companies Act
2006. The Company has assessed the probability of loss
under these guarantees as remote.
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Notes to the company financial statements Strategic report Governance Financial statements
Avast annual report 2019
171
Glossary
Adjusted Billings
Adjusted Billings represents the Group’s reported billings.
Adjusted Revenue
Adjusted Billings/
Revenue excluding FX
Adjusted Cash EBITDA
Adjusted Cost of
Revenues/Operating costs
Adjusted EBITDA
Adjusted Revenue represents the Group’s reported revenue
adjusted for the deferred revenue haircut reversal, the gross-up
adjustment. These adjustments are expected to be zero after 2019.
A reconciliation is included in the “PRESENTATION OF RESULTS
AND DEFINITIONS”.
Growth rate excluding exchange rate impact calculated by
restating 2019 actuals to 2018 FX rates. Deferred revenue is
translated to USD at date of invoice and is therefore excluded
when calculating the impact of FX on revenue. For the FX rates
applied, see ‘Principal exchange rates applied’.
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 reversal, and the COGS deferral adjustments.
A full reconciliation is included in the “PRESENTATION OF RESULTS
AND DEFINITIONS”.
Adjusted Cost of Revenues/Operating costs represent the
Group’s cost of revenues/operating costs adjusted for depreciation
and amortisation charges, share-based payments charges,
exceptional items, COGS deferral adjustment, and the gross-up
adjustment. A full reconciliation is included in the Costs section of
the CFO’s Review.
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
acquisition intangible assets, share-based payments, exceptional
items, amortisation of acquisition intangible assets, the deferred
revenue haircut reversal and the COGS deferral adjustments.
A full reconciliation is included in the “PRESENTATION OF RESULTS
AND DEFINITIONS”.
Adjusted EBITDA margin
Adjusted EBITDA as a percentage of adjusted revenue.
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Adjusted effective
tax rate
Adjusted EPS
Adjusted Net Income
Amortisation of
acquisition intangibles
Average Products Per
Customer (APPC)
Adjusted income tax as a percentage of adjusted profit before
tax (defined as adjusted net income before deduction of adjusted
income tax). For the adjusted income tax reconciliation see Income
Tax section of the CFO’s Review.
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. For the reconciliation see Earnings per share in the
CFO’s Review section.
Adjusted Net Income represents statutory net income plus
the deferred revenue haircut reversal, share-based payments,
exceptional items, amortisation of acquisition intangible assets,
unrealised foreign exchange gain/loss on the EUR tranche of the
bank loan, the COGS deferral adjustments, the tax impact from
the unrealised exchange differences on intercompany loans, and
the tax impact of the foregoing adjusting items and IP transfers.
For the reconciliation see “PRESENTATION OF RESULTS AND
DEFINITIONS” section.
Represents the amortisation of intangible assets acquired through
business combinations which does not reflect the ongoing normal
level of amortisation in the business.
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. See Consumer Direct Desktop Operational KPIs.
Average Revenue Per
Customer (ARPC)
ARPC defined as the Consumer Direct Desktop revenue for the
financial period divided by the average number of customers during
the same period. See Consumer Direct Desktop Operational KPIs.
Glossary Strategic report Governance Financial statements
Avast annual report 2019
172
Cash conversion
COGS Deferral
Adjustments
Deferred Revenue
Haircut Reversal
Discontinued Business
Exceptional items
Unlevered free cash flow as a percentage of adjusted cash EBITDA.
See Cash flow section of the CFO’s Review.
Gross debt
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. See “PRESENTATION OF RESULTS AND DEFINITIONS”.
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. See “PRESENTATION OF RESULTS
AND DEFINITIONS”.
As the Company is exiting its toolbar-related search distribution
business, which had previously been an important contributor to
AVG’s revenues (referred throughout the Full Year Report, with the
Group’s browser clean-up business, as Discontinued Business),
the growth figures for adjusted revenues and adjusted billings
exclude Discontinued Business, which is negligible from 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.
Exceptional items are material and non-recurring items of income
and expense which the Group believes should be separately
disclosed to show the underlying business performance of the
Group more accurately. For details see Exceptional items of the
CFO’s Review and Note 6.
Gross-Up Adjustment
Levered Free
Cash Flow
Net debt
Number of customers
Organic growth
Unlevered Free
Cash Flow
Unrealised FX on EUR
tranche of bank loan
Represents the sum of the total book value of the Group’s loan
obligations (i.e. sum of loan principals). A reconciliation is included in
the Financing section of the CFO’s Review.
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).
See “PRESENTATION OF RESULTS AND DEFINITIONS”.
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. See Cash flow section of the
CFO’s Review for reconciliation.
Net debt indicates gross debt netted by the Company’s cash and
cash equivalents. A reconciliation is included in the Financing
section of the CFO’s Review.
Users who have at least one valid paid Consumer Direct Desktop
subscription (or licence) at the end of the period.
Organic growth represents growth figures excluding the impact of
FX, acquisitions, business disposals, and discontinued business.
Excludes current period revenue of acquisitions until the first
anniversary of their consolidation.
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 and taxation are as per the cash flow statement on
an unadjusted historical basis and unadjusted for exceptional items.
See Cash flow section of the CFO’s Review for reconciliation.
In the reported financials, the Group retranslates into USD at
each balance sheet date the euro value of the EUR tranche of the
bank debt, with the unrealised FX movement going to the income
statement. This adjustment reverses this unrealised element of the
FX gain/loss.
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Contact
Brokers
Morgan Stanley & Co International plc
Ben Grindley
Alex Smart
+44 (0)207 425 8000
UBS Investment Bank
Rahul Luthra
Thomas Raynsford
+44 (0)207 567 800
Independent Auditors
Ernst & Young
1 More London Place
London SE1 2AF
Registrar
Equiniti
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