Avast plc annual report 2020
Empowering
digital citizens
for safer online
experiences
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Strategic report Governance Financial statements
Avast plc annual report 2020
Driving growth and
creating value
In this report
Strategic report
Introducing Avast
Chair’s letter
Markets & threat landscape
Company strategy
Investment case
Business model
CEO’s review
Our technology
CFO’s review
Risk management
People and culture
Social responsibility
and sustainability
Section 172 statement
1
9
12
20
23
25
30
36
42
58
64
75
82
Governance
Board of Directors
Corporate governance statement
Audit and Risk Committee report
Nomination Committee report
Directors’ remuneration report
Directors’ report
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
88
90
97
103
107
129
136
146
153
193
195
199
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Financial KPIs
Adjusted billings
$922.0m
+7.1% organic growth
+1.2% actual growth
Adjusted EBITDA
$495.5m
+2.6%
Adjusted revenue
$892.9m
+7.9% organic growth
+2.3% actual growth
Adjusted net income
$360.2m
+11.8%
Unlevered free cash flow
Net debt/LTM adjusted EBITDA
$451.1m
+6.2%
Statutory revenue
$892.9m
+2.5%
1.5x
Statutory net income
$169.6m
-31.8%
Operational KPIs
Revenue per desktop customer
Product per desktop customer
$53.34
+4.5%
1.5
+2.8%
Number of desktop customers
13.62m
+7.9%
Strategic report Governance Financial statements
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01
Our purpose
We protect people’s
digital lives
Avast believes in an open and connected world where people
everywhere have the right to access the same information, ideas
and experiences. Our role is to make the online world a safer place so
that digital citizens are free to enjoy safe and private connected lives.
Our primary purpose is to keep people
safe and private online, and never has
this been more important than in 2020.
In a year when cybercriminals exploited
the fear and confusion around COVID-19,
people, businesses, and frontline healthcare
services turned to technology to maintain
their lives and their work. Ensuring internet
access and usage have been secure and
private has become mission-critical.
We have been proud to play a meaningful
role in supporting our key stakeholders,
non-governmental organisations (NGOs),
and the scientific community as
the world battled COVID-19.
Avast safeguards more than 435 million
people worldwide, protecting their digital
data, identity, and privacy.
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About us
Avast is a world leader
in consumer cybersecurity
435m+ 1.5bn+
attacks and over 200m new files blocked
each month on average in 2020
users1 worldwide
Our brands:
33m+
phishing attacks and nearly 3m unique
phishing URLs blocked each month on
average in 2020
User defined as a unique device that has one of more
Avast free or paid products installed and has been in
contact with our servers in the last 30 days.
4m+
ransomware attacks blocked each
month on average in 2020
~100,000
organic installs of Avast Antivirus every day
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Our comprehensive offering
protects and enhances our
users’ online experiences
SMB
security
Consumer
security
Protection
Data
breaches
Control
Smart
home
Family
safety
Continuing our
growth as a FTSE
100 company
Avast was officially admitted to the FTSE
100 index in June 2020. Our promotion
marks another milestone in our growth and
recognises our success in providing award-
winning products that keep people safe and
private in a fast-evolving digital world.
Attractive investment profile
High level of recurring
revenues, with strong cash
generation and a robust
balance sheet.
Diversified revenue streams
by customer, geography
and product.
Consistent delivery
on financial guidance.
See the Investment case section, p23
Privacy
Users
Software
updates
Identity
protection
Online
anonymity
Performance
PC
maintenance
Speed
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About us continued Strategic report Governance Financial statements
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Our pandemic response
Backing science
and technology
for a better world
Avast’s commitment to keeping
people safe reaches far beyond
the online world. We have
always believed in the power of
technology to change the world
for the better.
In 2020, we provided financial
support and resources to a
considerable range of scientific,
technological, and community-
based initiatives to help fight
COVID-19 and back the
people, businesses, and
organisations directly impacted
by the pandemic.
$25m
donated to support global R&D initiatives
focused on COVID-19 testing, treatment
and vaccines
As a tech company, we believe
that a rigorous, scientific approach
provides the best exit strategy for
this crisis. A prudent, systematic
and well-funded approach to
testing, treatment, and vaccine
development will minimise
lockdowns and disruptions,
and ultimately, save lives.
Ondrej Vlcek
Chief Executive Officer
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Global support for a global crisis
Avast joined the COVID-Zero
Coalition, an initiative coordinated
by Wellcome, one of the world’s
leading independent health
research foundations.
We fully supported the coalition’s
strategic focus on research and
development (R&D) projects
that are dedicated to developing
the best testing, treatment, and
vaccines to fight the virus.
Supporting employees in a time
of change
We also moved swiftly to supply all our
colleagues with the technology and
office equipment for a smooth transition
to working from home, ensuring they
received all the support they needed and
without taking any government aid.
We embraced truly asynchronous working
to give those suddenly balancing caring
responsibilities alongside their work the
flexibility they needed. This enabled us
to continue providing our services to our
users without interruption.
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$12m
to the COVID-19
Therapeutics Accelerator
In partnership with the Bill &
Melinda Gates Foundation,
Mastercard, and Wellcome,
this initiative accelerates the
development of rapid testing
and treatments
$8m
to the Coalition for Epidemic
Preparedness Innovations (CEPI)
The Coalition makes efforts to
eliminate preventable deaths
through the pursuit of testing,
treatment, and prevention
through vaccine development
$5m
to community-based scientific efforts
Including:
$200,000 and computing
resources to Folding@home’s
supercomputing program to
find a cure for the virus.
$580,000 to Czech Technical
University for the development
and production of Corovent,
a prototype lung ventilator.
OneVoluntary contributions
to US food bank schemes.
Local activities in Czech
Republic included:
– $720,000 for one million
face masks delivered to
care organisations in the
Czech Republic.
– $44,000 to provide
1,000 hot meals a day
to key workers in Prague.
– Production of 3D printed
face masks with Czech
Technical University.
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Secure
connected
experiences
for everyone,
everywhere
People are dealing with a
lot of problems right now.
Digital security doesn’t
have to be one of them.
The pandemic proved to be an
opportunity for bad actors. With
people forced online for services
and information as restrictions and
lockdowns were implemented, we
tracked a large number of scams.
Fake shops were the most
common scam variant, selling
discounted medical equipment
such as face masks or sanitiser.
Some even claimed to sell
treatments or self-provisioned
COVID-19 tests. Anyone can set
up a shop online under almost any
name. Anyone placing orders on
these sites would never receive
the goods. We used a variety of
communication channels, such
as blogs, social media, and press
releases, to raise awareness of
these scams with the public.
Nick Viney
SVP Partner
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COVID-19 has expanded the cyberattack
surface of all these networks, with remote
working and schooling increasing our
reliance on technology to connect people
on an unprecedented scale – one that is
increasingly likely to be permanent.
The Internet of People
We consider security and privacy to be
about protecting individuals, moving away
from a device-centric approach to embrace
what we think of as the ‘Internet of People’
where individuals’ online experiences and
identities are secured.
Enabling this approach, Internet of Things
(IoT) devices are increasingly widely and
deeply integrated into our home, business,
utilities, and transportation systems.
We increasingly no longer separate online
and offline experiences as a result.
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Our impact
Helping families
in lockdown
With global lockdowns forcing
families to stay at home and
children to connect with
teachers and schools digitally,
the importance of a safe online
experience for parents and their
children has never been higher.
To help keep families safe during
the pandemic, Avast made our
parental assistance subscription
app, Avast Family Space,
available for free.
1/5
More than one in five
children under the age of
12 in the UK (21%) have
admitted to having bad
online experiences
during lockdown
72%
of these children said
they had received unkind
messages; the same number
had received unsolicited and
inappropriate content
71%
had received unwanted
contact from a stranger
58%
had
accidentally
downloaded
a computer
virus
67%
had received
an unkind
video call
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Our impact continued
Partnering to protect children
In 2020, Avast was proud to join the
Internet Watch Foundation (IWF),
a UK charity set up 24 years ago to
tackle the horrific crime of child sexual
abuse content online.
During the pandemic, the IWF identified
that girls aged 11-13 were most at risk in
lockdown, being encouraged by online
abusers to generate and share their
own content.
Working with Avast, with their
huge experience in the field,
will boost this mission and have
a very real impact on the safety
of children around the world.
Susie Hargreaves
Chief Executive, IWF
Raising
awareness of
personal safety
during lockdown
One side-effect of the pandemic
lockdowns was the escalation in
domestic violence incidents as
vulnerable people were trapped
with their abusers.
Stalkerware refers to apps that are typically
installed secretly by a person close to the
victim, such as a jealous spouse, to spy
on the person by tracking their physical
location, monitoring messages and
recording phone calls.
These apps invade the privacy of the victim,
allowing the abuser to take control over their
personal identity.
Between March and December 2020,
we observed an increase of 55% globally
in spyware and stalkerware downloads
over January and February averages.
In July, Google took the step of banning
the promotion of products or services that
are marketed or targeted with the express
purpose of tracking or monitoring another
person or their activities without their
authorisation; however, this is an ongoing
challenge the industry is tackling and many
similar apps remain available.
Avast is committed to doing all it can to
protect our users from these threats.
In addition to our security products
detecting stalkerware and alerting the user
to remove it, we have joined the Coalition
Against Stalkerware in the fight against this
disturbing covert surveillance technology.
Spyware and stalkerware apps in 2020
DEC 2020
NOV 2020
OCT 2020
SEP 2020
AUG 2020
JUL 2020
JUN 2020
MAY 2020
APR 2020
MAR 2020
14,548
11,177
10,607
10,810
9,895
10,833
11,076
11,025
11,234
9,843
FEB 2020
6,861
JAN 2020
7,445
Global apps detected by Avast throughout the year.
The IWF has an extremely
challenging job in tackling this
horrific problem which has become
more prevalent as technology
and the internet have evolved.
We hope that by working with the
IWF to block the sharing of this
content online, we can also help
prevent the re-victimisation of the
children featured. We will continue,
relentless, in our mission to protect
everyone online, especially the
most vulnerable.
Jaya Baloo
Chief Information Security Officer
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Chair’s letter
Avast has evidenced
business resilience and
financial strength
Dear shareholders
Before turning to Avast’s business
performance, I would like to
share my reflections on how
we have responded to the
COVID-19 pandemic.
The last year has been unparalleled in terms
of challenge and change for all of us. As the
pandemic unfolded, Avast moved quickly
to establish key priorities – safeguarding our
people, continuing to serve our customers,
retaining our financial strength, and
supporting our communities. Our focused
approach has enabled Avast to deliver
not just a resilient financial performance,
but, more importantly, to continue to make
progress against our longer-term strategy,
which is centered on growth and creating
value for all our stakeholders.
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Chair’s letter continued
Safeguarding our people and
supporting our communities
The dedication of our people has played a
big role in the Company’s resilient response.
I am very proud of the way in which
they have risen to the task to keep
our customers protected online and
our services unaffected.
We have worked hard to ensure that our
employees receive the support they need,
wherever they are. This includes effective
tools while working from home, wellbeing
and health services, as well as team-building
and performance management coaching.
The Group’s leadership has recognised
the advantages of the flexibility of
working remotely and, following employee
consultation, has put forward new policies
and plans to reinvent Avast’s operational
approach and use of office spaces. Working
remotely is yet another opportunity to
contribute to our sustainability roadmap,
by reducing time spent in commuting and
minimising the impact on the environment.
At Avast, we aim to make the communities
in which we operate better places to
live and work. We have kept sight of this
responsibility during the crisis, stepping
up to support major scientific projects to
fight the virus, such as the Company’s
$20 million donation to research initiatives
of the COVID-Zero Coalition programme.
An additional $5 million was donated to
other scientific initiatives.
Evidencing business resilience and
financial strength
Through the pandemic, Avast’s business
model has proved resilient and well
positioned to benefit from the accelerated
digitalisation of our economy. Working
from home trends have presented Avast
with an opportunity to attract new users
and to convert them to paying customers,
as they experience a safer and more
private online experience. With continued
investment made in our people, marketing
programmes, and partnerships, there has
been a sustained uplift in customer numbers
in both established markets and in targeted
underpenetrated regions, as Avast expands
its global footprint through a successful
localisation programme. In the past year, we
added nearly 1 million desktop customers.
To address the ever-evolving threat
landscape, we continued our expansion
into the consumer privacy category,
with the launch of BreachGuard. For
our business customers, we rolled out
next-generation antivirus plus patch
management products, as we continued
to strengthen the performance of our
Small and Mid-sized Business (SMB) unit.
We met the financial expectations we set
at the start of the year, driving growth while
also maintaining high levels of profitability.
Our sustained performance, coupled
with the effectiveness of our strategy and
business model, and the hard work of our
people, resulted in the Group’s inclusion
in the FTSE 100 index in June.
At 31 December 2020, Avast’s net
debt/LTM adjusted EBITDA was 1.5x.
Our debt reduction is enabled as a result
of the favourable cash flow dynamics
of our business and our effective capital
allocation strategy, which is underpinned
by a commitment to balance sheet
strength. The prudent management of
our capital structure provides the Group
with strategic flexibility to further enhance
competitiveness and pursue growth. We
are in a strong position to take advantage
of long-term value creation opportunities,
both organic and through acquisitions.
Given our successful performance in
FY 2020 and our confidence in our
business model in the year ahead,
the Board proposed a final dividend of
11.2 US cents per share, bringing the total
dividend for the year to 16.0 US cents per
share (total payment of $164.6 million),
a pro-rata increase of 8.8% on the prior year.
The final dividend will be paid on 18 June
2021, to shareholders on the register on
14 May 2021.
Staying at the forefront
of innovation
2020 was a year that forced changes
for everyone. In a rapidly developing
marketplace, Avast’s technical ingenuity is
a substantial competitive advantage, and
in the year ahead we will further improve
our leading defence from the ever-changing
threat landscape. Investment to maintain
leadership in our technology will be evident
in the enhancement of Avast’s core security
engine, as well as enabling innovation-
driven growth in both our consumer and
SMB businesses. Avast is positioning itself
at the forefront of the fast-growing digital
privacy market. In parallel with product
innovation, we are also committed to driving
improvements in the customer experience.
Our stated purpose as a business is evolving
to protecting individuals’ digital life,
going beyond our historical device-centric
approach. In 2021, we look forward to the
rollout of our new Avast One solution, an
all-in-one security, privacy, and performance
offering that streamlines the experience
and further expands the protection of our
customers’ digital lives.
Making a positive contribution
to all stakeholders
Avast has a proud history of giving back
to its communities, and this year we are
maintaining our commitment to social
impact initiatives based on the Pledge
1% model, to share the Company’s success.
We’ve also set up a new foundation to
administer the funds and to effectively
align our social impact initiatives with
our mission to making the online world a
better, safer place (more details can be
found on page 80).
~1m
more desktop
customers in 2020
Read more on p31
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We are committed to
making meaningful
progress on a holistic
environmental, social
and governance
programme.
Engaging with all our stakeholders
on a regular basis to understand their
expectations, needs, and concerns is part of
our ongoing commitment to sustainability.
In this regard, we are committed to making
meaningful progress on the more holistic
environmental, social and governance
(ESG) programme, revitalising how we
oversee and report on ESG topics for the
Company. While it is early days, we intend
to implement an enhanced set of internal
controls for evaluating and managing
ESG risk and opportunity, and a pledge
to develop key performance indicators
to inform our decisions in a way that is
meaningful and transparent. Work on these
objectives and key performance indicators
(KPIs) is ongoing, and more information
on their development can be found in this
report. The Group has already identified
a number of strategic priorities within its
materiality matrix, including protecting
personal data privacy and IT security,
emissions reductions, and
diversity and inclusion.
We recognise that diversity of people
and perspectives enhances governance.
For this reason, we have a focus on
improving diversity starting with the
Board. We are close to reaching a
one third female ratio for Directors.
Proportional female representation
among the Executive management team
has also risen. Under the supervision of a
newly appointed diversity and inclusion
leader, the Company is actively engaging
with employees to identify opportunities
for company-wide advancement in
multiple diversity categories.
Board changes
I am very grateful to my fellow Board
members for their wisdom and commitment
to the Company.
This year we say farewell to two long-
serving Directors. Erwin Gunst has served
on the Board for nearly nine years. His
international experience gained over a
career in the software and tech industry
has been of great value to Avast, as have
his contributions as a member of the
Audit and Risk Committee and Nomination
Committee. Since Ulf Claesson joined the
Board in 2012, Avast has benefited from
his wealth of expertise in tech innovation
and entrepreneurship. Ulf has served as
Chair of the Remuneration Committee and
as a valued member of the Audit and Risk
Committee. Erwin and Ulf will not stand for
re-election. On behalf of the Board, I would
like to thank them for their commitment,
wisdom and collaboration over the years.
It is my intention to retire as Chair of the
Group before the 2022 Annual General
Meeting. This will therefore be the last
time I have the pleasure of chairing Avast’s
AGM. Having led the Board for seven years,
through our successful listing on the LSE,
reaching the FTSE 100 benchmark and
through the succession of our CEO, we are
well positioned to appoint a new Chair.
This is an exciting time for Avast. We
have a refocused purpose and strategy,
a substantially strengthened senior
management team, and an experienced
Board. While the succession plan for
the Chair will begin soon, I remain fully
committed to the organisation.
Looking ahead
The year ahead will likely bring both
continued uncertainty and opportunity
to capitalise on the pandemic-driven
trends which have accelerated during
the past year. With the increased
digitalisation of the economy, consumers’
and businesses’ appreciation of a safe,
private online environment has never
been more evident.
Therefore, Avast’s purpose is increasingly
relevant. The Group’s financial strength
and technical excellence means we are well
positioned to seize long-term opportunities.
Our plans are to continue to invest in skills
and innovation to meet our ambitions and
further grow both our market share and
scope. Learning from the 2020 crisis, I am
confident that Avast’s vision, innovation,
focus on the customer, and internal agility
will be fundamental to our growth and
development as we navigate the dynamic
potential of the global cybersecurity and
privacy market in the years to come.
John Schwarz
Chair of the Board
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Markets & threat landscape
The world is
becoming more digital,
more quickly
In 2020, a number of trends
in digitisation emerged which
opened up avenues for growth
for the technology industry
as a whole
Digitisation of
consumer services
With the closure of many essential
and non-essential services, consumers
were forced to use technology for
everyday activities like food shopping,
banking, and socialisation.
Working from home
Offices closed and employees who
could work from home were equipped
with hardware and software to enable
secure remote working.
Home schooling
Education systems worldwide rushed
to adopt learning platforms, apps,
and online courses to serve families,
who suddenly became responsible for
teaching their children, as lockdown
lengthened school closures.
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Enhancing the need for robust
cybersecurity and data privacy
Consumer and business concerns
around online risks and the acceleration
of digital trends from the COVID-19
environment underscore the need
for robust cybersecurity and provide
structural tailwinds.
Data privacy has become a front-of-mind
issue. A combination of resorting to more
connected devices in the home, more online
services, and the birth of ‘track and trace’
apps have raised awareness of privacy
concerns. This is evidenced by consumer
reaction to the updated privacy terms
published by WhatsApp, which caused
consumers to rush to download more private
platforms such as Telegram and Signal.
Security and privacy are areas in which
there has been ever-increasing advancement
by many of the largest technology providers.
We see increased product competition from
both major players and startups offering
specific solutions to single issues in
this sphere.
Additionally, the bigger technology players
are increasingly developing operating
systems and products with built-in native
security. There is a risk that users may
either seek to have a range of offerings
from different providers rather than trust
in a single provider; equally, others may
feel more comfortable with bundles from a
single company.
We continue to watch the trends as they
develop to ensure that we are able to
identify new opportunities to increase our
relevance in a rapidly changing marketplace.
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Cybercrime
during a
pandemic
2020 was defined by the
COVID-19 virus and its impact
on the entire world, including the
cyberworld. Cybercriminals used
the pandemic to their advantage,
spreading scams and phishing
attacks to exploit people’s
weaknesses during trying times.
2020 was a year of fake news and
scams. Cybercriminals adapted
their attacks to take advantage of
the crisis, because people were
hungry for information and so were
more susceptible to falling victim.
And, given the lockdowns and other
restrictions, people were spending
more time online.
Luis Corrons
Security Evangelist
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Markets & threat landscape continued
Fighting
COVID-19 scams
and attacks
Cybercriminals exploited people’s
fears around COVID-19 through a
boom in spear phishing emails.
Via our mobile threat intelligence platform,
apklab.io, Avast has tracked and blocked
more than 3,300 malicious apps to date,
including mobile banking trojans and
spyware posing as apps that offered
COVID-19-related services.
Taking advantage of people’s desire for
new information and data about the threat
of COVID-19, a common tactic saw mass
circulation of emails with attachments, such
as an Excel spreadsheet, seemingly offering
statistics on regional or national infection
rates. Upon downloading the files, recipients
could trigger an executable file that enabled
access to the victim’s computer.
They also created malicious emails which
appear to offer a chance to make money,
find new work, or protect personal savings,
but that in fact trick the recipient into
entering personal details and even make
cash payments for ‘access’ to services.
In one week in May alone, 17,000 people
are believed to have fallen victim to
such scams.
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3,300
malicious apps were tracked and blocked
by Avast via our mobile threat intelligence
platform, apklab.io. These malicious
apps included mobile banking trojans
and spyware, posing as apps that offered
Covid-19-related services
17,000
people are believed to have fallen victim
to such scams in May
Markets & threat landscape continued
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Keeping
hospitals and
businesses safe
At the start of 2020, Avast
monitored an increase in
ransomware attacks in the early
months of the healthcare crisis.
Multiple ransomware attacks targeted
hospitals this year, despite threat actors
publicly stating they would stop
targeting hospitals.
The pandemic forced many companies
to equip employees to work from home.
Employees took their work devices home
which broadened the attack surface
for companies, as a home network
infrastructure usually isn’t as secure
as an enterprise network.
With millions of workers around the world
using Remote Desktop Protocol (RDP)
daily to remotely access their business
network, Avast monitored a rise in attacks
specifically designed to exploit RDP in order
to execute widespread ransomware attacks.
Avast’s proprietary technology, Remote
Access Shield, blocks unwanted remote
connections to prevent RDP exploits and
brute-force attacks.
Critical services protected
from ransomware
Avast was involved in helping hospitals
and other businesses infected with
ransomware; this included the Brno
University Hospital in the Czech
Republic, which is a critical testing
centre for COVID-19 and was infected
with the Defray777 ransomware strain.
20%
growth in ransomware during
March and April 2020 compared
with January and February of
the same year
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Seeking the truth
in the age of
disinformation
Deepfakes are on the verge
of becoming a significant
threat to public debate and
political discourse.
What’s real and what’s not?
Deepfakes escalated in 2020, including
explicit deepfakes of TikTok users. In a talk
at Avast’s CyberSec&AI Connected virtual
conference, Professor Hany Farid of UC
Berkeley, noted that technology is evolving
quickly, making it easier for deepfakes to
be created, and the rate at which deepfakes
can spread is also increasing due to social
media. The high quality of these tools
makes it more likely that people will
believe fakes, especially when it comes
to political deepfakes.
There are four kinds of deepfakes:
1
2
Non-consensual
The most frequently found
example is where one person’s
likeness is integrated into
a pornographic video and
distributed online.
Misinformation
campaigns
These are designed to
deceive and fuel existing
(mis)perceptions.
Deepfakes will likely reach a
quality next year where they can
be actively used in disinformation
campaigns. Conspiracy theories
about the coronavirus, such as
its alleged spread via 5G, could
be re-emphasised via deepfake
videos wrongly showing public
figures as conspirators.
Petr Somol
AI Research Director
3
4
Tampering of
legal evidence
For example, this could
be manufacturing police
misconduct that never
actually happened.
Outright fraud
This could also have criminal or
national security implications.
Phishing attacks
Phishing is a lucrative way of stealing
people’s money and personal information
and is an evergreen technique used by
cybercriminals that did not slow down in
2020. COVID-19-related phishing attacks
surged in peak lockdown periods, including
March, September, and October. While
7.9% of attacks used themes related to the
virus in the peak periods, the impact on
overall phishing numbers was small, with
less than 1% of global phishing attacks
using COVID-19 as a theme during the year.
7.9%
of attacks used themes related to
the virus in the peak periods
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Educating children to use apps safely
Three years ago, Avast
established its ‘Be Safe Online’
(BSO) safety education courses
for children which it continues
to deliver in the Czech Republic
and Slovakia.
Aimed at children, teenagers, teachers
and parents, BSO educates them for free
about online risks and how to handle them
via an online platform. It has a reporting
function that encourages students to report
potential online threats they spot to Avast.
In September 2020, one student, a 12-year
old girl, reported to Avast a number of
Android and iOS adware apps that were
promoted via TikTok and Instagram profiles.
The Avast team investigated and found
a total of seven adware scam apps
that were available on both the Google
Play Store and the Apple App Store.
The apps had been downloaded more
than 2.4 million times and are reported
to have earned their creators around
$500,000. The Avast team found at least
three profiles that were aggressively
pushing the apps on TikTok, one of
which has more than 300,000 followers.
They also found an Instagram profile with
more than 5,000 followers promoting one
of the apps. Avast reported the apps to
Apple and Google and the accounts to
TikTok and Instagram to ensure that they
were removed.
Dangerous apps are becoming
increasingly common
Developers of adware increasingly
used social media channels in
2020, like regular marketers would,
to increase the number of app
downloads. Users reported they
were targeted with ads promoting
adware apps on YouTube, and in
September we saw adware spread
via profiles on TikTok. The popularity
of these social networks makes
them an attractive advertising
platform for cybercriminals to
target a younger audience.
Jakub Vávra
Threat Analyst
Mobile Adware
Out of all Android threats Avast detected
in 2020, adware dominated with a share of
nearly 50% in Q1, over 27% in Q2 and 29%
in Q3 within all malware. The HiddenAds
family, a Trojan disguised as a safe and
useful application but instead serving
intrusive ads, stuck out in a special way, as
it continuously found its way back into the
Google Play Store over the course of the
year. Avast also found scam apps on the
Apple App Store. Avast alone found more
than 50 scam apps on the Google Play and
Apple App Stores in 2020. These were
reported to Google’s and Apple’s security
teams so they could be removed.
Scam track and trace apps
A major tool in the fight against COVID-19
by governments around the world has
been the use of track and trace apps,
built to help monitor and contact people
who have been potentially in contact with
an infected person. Avast researchers
identified several malicious versions of these
apps, infecting duped users with banker
or spyware applications, putting people’s
passwords, log-in credentials, and one-time
authentication tokens at risk.
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Markets & threat landscape continued
Looking ahead
to 2021
Threat experts at Avast foresee
more COVID-19 vaccination
scams, more abuse of weak
home office infrastructures and
enterprise VPN infrastructure and
providers, and more ransomware
attacks in 2021. We also expect
deepfake disinformation
campaigns and other malicious
campaigns generated by AI to
gain more traction; specifically for
the Android platform, we predict
further adware attacks, fleeceware
scams, and stalkerware usage.
Health and home at risk
In 2021, Avast threat intelligence experts
anticipate further ransomware, data
exfiltration and espionage attacks on
healthcare and pharmaceutical sectors.
As many employees will continue to
work from home in 2021, there is a high
likelihood that cyberattacks on enterprise
VPN infrastructure and providers will
continue, with the goal of infiltrating
business networks with targeted
attacks designed to spy on confidential
information and steal intellectual property
and customer data.
We expect to see a continuation
of ransomware attacks on
healthcare institutions and the
exfiltration of sensitive data,
with attacks specifically targeting
pharmaceutical companies
and institutions to harvest
sensitive customer information
for blackmailing and industry
espionage. Individuals, on the
other hand, should be wary of
scams, specifically around the
topic of vaccinations.
Jakub Kroustek
Threat Labs Team Lead
Fake offering: Users of this and
other scam websites in 2020
complained they never received
their COVID-19-related goods
after purchasing them.
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Keeping ahead
of predicted
threat sources
The cybersecurity sector has
a crucial role to play in fighting
threats like malicious artificial
intelligence (AI), stalkerware, and
deepfakes, and in raising public
awareness of them.
Deepfakes
Deepfakes will play a bigger role in
disinformation campaigns as their quality
has greatly improved over the last few years,
but up until now, they have only been used
in isolated cases, or as proof of concept.
How advanced the technology is today
can be seen in examples of researchers
demonstrating ’how to create deepfake
videos within five minutes’.
Adware
On mobile devices, Avast experts anticipate
the mobile threat landscape to be
dominated by aggressive adware as it is
an easy way for cybercriminals to make
money. For most of 2020, adware was
the strongest Android threat, with about
one-third of all threats being adware.
Avast experts predict that these will likely
remain dominant in 2021.
AI threats
Datasets and knowledge bases for
AI-based threats will grow further.
Malicious campaigns, targeted attacks,
and Advanced Persistent Threats generated
using AI techniques are already viable,
but to become effective, very extensive
datasets and knowledge bases are needed
and Avast AI experts anticipate these to be
developed in 2021 and beyond.
Stalkerware attacks
Following the initial surge of stalkerware
during the first wave of the pandemic, the
number of global stalkerware attacks has
remained high throughout 2020. Avast’s
mobile threat intelligence experts expect
this trend to continue.
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In 2020, the cybersecurity industry
and initiatives like Coalition Against
Stalkerware have continued to
raise awareness to try and prevent
further growth in stalkerware
attacks. We worry that, after
the hype subsides, authors and
operators will drive new campaigns.
Unfortunately, there will always
be a market for stalkerware.
Android and iOS adware, on the
other hand, is a low-risk, high-gain
business model. Adware is usually
very hard to detect as ads may
not always run immediately after
app installation, so a lot more
effort needs to go into the field of
detecting such unwanted apps.
Ondrej David
Mobile Malware Analysis Team Leader
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Company strategy
Our world
is changing
2020 was a year of change for everyone and it has
been a driver for Avast to look at the impact that some
of the emerging tech-usage trends will have in the
future, with an eye to emerging threat vectors.
4.2
hours a day is the average
time spent on mobile
devices, up 20% year
on year2
275%
growth in global time
spent in business apps
year-over-year in Q4
2020 alone2
82bn
hours spent in shopping
apps – 30% growth
from 20192
45%
increase in time spent in
finance apps during 2020
worldwide outside of China2
59%
of people on the
planet were online1
Top 10
most downloaded
social apps in 2020
are: TikTok, WhatsApp,
Facebook, Instagram,
Zoom, Messenger,
Snapchat, Telegram,
Google Meet, Netflix3
1 Global digital population as of October 2020, Statista, 27 January, 2021.
2 App Annie’s State of Mobile 2021 report: New Records Beckon, App Annie, 21 January, 2021.
3 Worldwide & US Download Leaders 2020, Appptopia, 7 January, 2021.
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Company strategy continued
Our platform for innovation
Our vision
for Avast
Avast has a unique opportunity to make
a real difference in the world. The world
has changed dramatically since we first
started out just over thirty years ago.
Our passion to help people be safer
online has not changed and our purpose
to protect individuals, their security
and privacy remains our North Star.
Now, at the turn of the decade, we are
opening a new chapter in the history of
our Company as the world becomes
more digital than ever before.
It was Abraham Lincoln who
once said, ‘the best way to
predict our future is to create it’
1
2
3
Identity and authentication
People downloaded and used more apps in the last
year than ever before. We see a growing need for people
to have a simpler way to access all of their accounts
across the web. We see this moving beyond using
password managers and beyond giving personal details
to big tech like Facebook, Apple and Google to a
frictionless, secured online experience focused on
ease of access rather than authentication.
Simple, complete coverage
In the next 18-24 months, people will be habituated to
increasingly digital experiences and expect brands to
deliver a seamless engagement from real-world to online.
Supporting this trend is a shift towards protecting the
individual rather than their devices or individual services
– this will be enabled by subscriptions. Customers will
appreciate less marketing and selling with a more intuitive,
personalised experience that follows them around.
Digital transformation to the cloud
Continuing the megatrend of digital transformation,
businesses forced rapidly to adapt to required home
or out of office working in 2020, will be better positioned
to take advantage of powerful cloud technologies.
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Company strategy continued
Our five step approach
1
2
Customers
We are focusing on our customer
experience to ensure that all our users
continue to have a consistent and
positive interaction with our brand.
With the shift to online living and
working in 2020, we have been carefully
reviewing and refining how we interact
with our customers, challenging
ourselves to constantly find ways to
improve the customer’s experience.
We will reduce friction in the customer
experience and seek to continually
improve our relationship NPS scores
over time and customer retention
rates. Delivering best-in-class customer
experience remains a priority into 2021
and beyond, as more people use online
and social channels in particular to
make purchasing decisions.
SMB
We see this as a growing area of our
business. Avast already partners
with specialist managed security
distributors and providers to provide
integrated endpoint and cloud
solutions. We also work directly with
small to mid-size businesses and
carriers to provide bespoke security
solutions that can be tailored for
insights or subscriber purchase.
Security and privacy became
mission-critical for companies in
2020 and we will continue to invest
in producing the best solutions
for our partners and customers.
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3
Innovation
Cybersafety continues to be our core
focus. Our technical ingenuity in the
backend will be enhanced to give us
unprecedented visibility into the ever-
changing threat landscape. This will help
us further understand, analyse and predict
threats better and faster. In addition to
our dynamic enhancement of our security
capabilities, we will be increasing our
depth of offerings in online privacy. We will
maintain our strong innovation programme
to enhance security engine efficacy and
future-proof our technology. Additionally,
this year, we introduced some key products
as part of our roadmap for personalised
privacy and identity protection including
Avast BreachGuard and Avast Secure
Browser for iOS, and we are committed
to expanding our portfolio in the future.
4
Brand
Who Avast is and what we stand for is our
North Star, guiding all of our action. Our
brand expresses our true purpose and
values, and our purpose and values express
our brand. We will continue efforts to bring
to life through our brand how we live and
breathe digital security and privacy in all
that we do. We are building a culture that
is flexible in today’s uncertain world, one
that uses values, culture and expertise
as its foundation. In 2020, we laid the
foundations for deepening meaningful
brand engagement including through M&A
and Public Affairs strategies, highlighting
our commitment to be a principled
corporate citizen in an increasingly
digital-first world. Additionally, we are
committed to growing our employees
through performance-focused
development, identifying skills-based
training requirements and ensuing
satisfaction at work. We believe this will
make us more resilient for the future.
5
Optimisation
New issues in cybersecurity are a huge
challenge, as our field evolves from
protecting individual devices to protecting
entire digital lives and digital experiences.
To ensure we continue to deliver on our
mission, we are reinventing ourselves to
meet the changing needs of our customers.
We have simplified our organisational
structure, establishing multi-disciplinary,
autonomous teams that are focused
on specific areas and deliverables such
as commercial and product, which are
driven by performance and measured by
clear metrics. In this way, we will build
momentum for the future and enable
growth across our consumer, SMB and
carrier business through a focus on
increasing organic installs and meeting
sales targets. We are also focusing on
managing tightly cyber, compliance and
regulatory risk within our business.
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Investment case
In an era of heightened
cyber risks, Avast’s
strategy provides
multiple avenues for
long-term growth
Long-term growth potential
Favourable structural trends from the
acceleration of the digital economy.
Diversified revenue streams by customer,
geography and product.
Expansion into strong growth markets,
privacy and identity.
High level of recurring revenues,
with strong cash generation.
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Large, attractive, and expanding
global market opportunity...
Avast is well positioned to capitalise on
global trends affecting the industry and
consumer, opening 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. Consumer
concerns around online risks and the
acceleration of digital trends from the
COVID-19 environment underscore
the need for robust cybersecurity and
provide structural tailwinds.
$53.34
average revenue per desktop customer
…with growth augmented by
expansion into adjacencies
such as privacy and IoT…
Data privacy has become a top-of-mind
issue for consumers, particularly in light
of high-profile breaches, making this an
attractive and high-growth segment in
the medium to long term. Further, growth
in smart home devices combined with
high levels of vulnerability make IoT cyber
protection the next must-have. Avast’s
penetration into these segments with
launches such as Avast BreachGuard
(privacy) and Avast Omni (IoT) further
broadens the product offering and
cross-selling potential.
…and an expanding
geographical footprint
Through its localisation programme, which
drives customisation of Avast’s product
and customer experience based on local
needs and preferences, the Company is
successfully deepening its presence in
existing markets and increasing
its penetration in underserved regions
to diversify revenues worldwide.
Leading global consumer platform
underpinned by distinctive ability
to market software to consumers
Avast benefits from strong levels of brand
awareness, driven by its freemium strategy,
new product launches, and subsequent
monetisation. Its brands are widely
recognised and respected by consumers,
as well as the influential online security
community, which enables it to scale new
launches more quickly. The Company
has built a massive network of global
users, into which is sold popular solutions.
This differentiated platform model is
underpinned by a highly effective and
efficient direct sales approach.
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 engineers, data scientists, and threat
researchers work around the clock to assess,
protect, and respond to cyberattacks
and new threats. The Company’s next-
generation antivirus uses AI and employs
machine-learning algorithms to continually
improve performance.
Consistent growth, high revenue
visibility, strong profitability,
and cash flow
Avast has delivered consistent good
growth at scale. Through the pandemic,
the Company evidenced business resilience
and financial strength. Avast’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 has been a driver for
ongoing organic growth, complemented
by disciplined M&A.
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Business model
Our purpose
is clear and
actionable
We provide digital security
and privacy to everyone
by being people-powered
and science-driven.
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, the UK,
Russia, and Germany. 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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Technology and innovation
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 it 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.
What sets us apart
People-centric security
Avast protects users’ digital lives, not just
their devices. As modern-day users consume
digital services and content in more ways
than ever, protection needs to keep up with
their online behaviour. At Avast, we deliver
an accessible, user-centric experience that
secures comprehensively, no matter the
type of connection or device. What is more,
the wide and complex range of threats
means that it’s critical to stay tuned to who
needs to be protected and why. Avast’s
over 435 million active users enable an
immensely rich view of online behaviour and
vulnerabilities, enhancing the quality of our
threat detection and 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. To stay
ahead of the cyberthreats of tomorrow,
Avast continues to invest in ground-breaking
technologies like AI, differential privacy,
and post-quantum encryption.
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. These levers
significantly enhance the Company’s ability
to continue growing the paying customer
base and overall revenue per customer.
The Group also benefits from indirect
monetisation through third-party
product distribution.
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. Through the COVID-19
pandemic, Avast’s business resilience and
financial strength enabled it to continue to
build its capabilities and skills for the long
term, while remaining committed to its
dividend payout to shareholders.
Our resources and relationships
Data security and privacy
From research and policy to product
portfolio expansion, Avast has taken
important steps in 2020 to strengthen its
commitment to privacy and data protection.
In October, we welcomed a new Chief
Privacy Officer to drive the Company’s
privacy-by-design approach (see pages
33 and 39). Through partnership with the
Future of Privacy Forum (see page 33), we
promote transparency, user control, and the
advancement of responsible data practices.
Avast takes seriously the responsibility to
balance user privacy with the necessary
use of data for services: as a technology
company, we are focused on further
enhancing our accountability, security,
and ability to ensure that we process as
little data as necessary. 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.
People and culture
Our investment in people begins within the
organisation. Avast fosters innovation and
inclusivity. We focus on creating a high-
performance environment that empowers
employees and boosts performance and
productivity. The Company’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 49% of our employees
in R&D.
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Driving value for all stakeholders
through ESG
Avast recognises the importance of
business sustainability to create value for all
stakeholders. How the Company manages
ESG factors is critical to driving sustainability
and generating benefits for our employees,
customers, communities, business partners,
and shareholders. This year, Avast has
initiated a programme to introduce new
controls and processes that will build on
our capability to consistently evaluate and
report ESG-related risks and opportunities.
For information on the actions that Avast is taking
to develop ESG initiatives, see p76
Our people
As cybersecurity pioneers, we take great
pride in our innovation. We invest in our
employees’ creativity by encouraging
a healthy amount of autonomy and
boundaries to be pushed. We recognise
great performance in order to foster the
kind of confidence and creativity that a
business needs to grow and truly compete
in its industry. Like many this year, Avast
employees had to quickly transition to a
work-from-home model in response to
COVID-19. Recognising the opportunity
for empowering its people to work where
they are personally most productive, the
Company has introduced a permanent
Work from Anywhere option.
See the People section, p64
Our shareholders
Avast generates shareholder value through
a combination of consistent growth,
high profitability, and strong cash flow.
See the CFO’s review, p42
Value created for our stakeholders
We understand the importance
of what we’re protecting.
Our customers
At any time, cybercrime can have serious
consequences for its victims: individuals,
families, and organisations alike. From
online banking and shopping, to email and
social media, Avast takes important steps
to prevent cybercriminals getting hold of
people’s accounts, data, and devices.
During the pandemic, Avast worked harder
than ever as the effects of new online
behaviours increased the risk of data
breaches, scams, and abusive practices.
Our communities
One of our fundamental values is to give
back to the community. Avast has a history
of delivering programmes that support the
elderly, those living with disabilities, and the
terminally ill, as well as furthering education
on human rights. This year, we have made
the commitment to base our social impact
initiatives on the Pledge 1% movement
(pledging 1% of our profit, time, and products)
to share the Company’s success. We have
also set up a brand-new foundation to help
us effectively channel our giving and
expertise to make the greatest difference
to the greatest number. This involves focusing
many of our social impact initiatives directly
in alignment with the Company mission:
digital safety and privacy.
See the Social responsibility and sustainability
section, p75
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28
How our business is presented
The Group presents its business under three main units: Consumer
Direct, Consumer Indirect and SMB. Consumer Direct has been
further divided into Desktop and Mobile. Presentation of the
Group’s historical FY 2020 operating and financial performance
adheres to this format.
For comparison, the Group’s billings
and revenue performance in the revised
presentation format are disclosed later
in this document for the year ended
31 December 2020 and the comparative
reporting periods for FY 2019 and FY 2018.
The reporting change has no impact on
the overall Group result. There is no change
to the operating segments, which are
reported as Consumer and SMB.
Reporting change
For the period beginning FY 2021,
Avast has adjusted billings and revenue
reporting within existing segments to
reflect the de facto convergence in desktop
and mobile platform use by consumers as
reflected in the rise of Avast’s multi-device
subscriptions. Consequently, the direct-
to-consumer mobile subscription business
will be reported together with the desktop
business within Consumer Direct.
The carrier channel is renamed Partner,
as we emphasise the relationship aspect
of this business and seek to both develop
the product proposition and expand the
scope of future partnership opportunities.
Partner will sit within Consumer Indirect
alongside the Group’s other B2B2C
businesses: Avast Secure Browser and
Chrome distribution. To retain an equivalent
level of information disclosure, the revenue
line for Partner will also be reported.
Consumer Direct
Customers pay us directly
for a product.
What we do
Our products secure not just the PC and
mobile devices of users, but also their
data, networks, homes, and families.
The rapid growth of connected devices
has created new security and privacy
threats, which we have developed
products to address. We offer security
software under the Avast and AVG
brands, in the form of both free and
paid-for products. Privacy has become
one of the biggest social challenges of
our time, and Avast’s growing privacy
portfolio includes Avast SecureLine
VPN, Avast AntiTrack and Avast
BreachGuard solutions, which prevent
online information gathering and monitor
for breaches. We also provide popular
applications that enhance performance,
such as CCleaner.
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.
How we make money
Avast monetises its user base by
up-selling users of its free antivirus
software to paid antivirus software with
advanced features, and cross-selling
adjacent, non-antivirus paid products
such as privacy enhancement and
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 also means
that we are well positioned to solve the
cybersecurity problems of tomorrow.
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Consumer Indirect
Partners pay us for distribution
and access to our user base.
What we do
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. Avast also partners
with organisations, Internet Service
Providers (ISPs), and mobile carriers
to offer IoT protection, on-device
security and parenting solutions.
How we do it
Avast Secure 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.
How we make money
Avast Secure Browser typically
earns a share of ad revenue based
on user search.
Google Chrome is distributed into
Avast’s user base in exchange for a fee.
We co-brand or white label our
security and privacy solutions for
carriers and ISPs.
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.
SMB
Business customers either pay
us directly for a product, or buy
from one of our partners.
What we do
We offer endpoint and network security
solutions to protect SMBs, from the
single office to global companies,
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
cybersecurity services are easily
managed and delivered through our
cloud-based security platform, Avast
Business CloudCare. We work with
different types of partners, including
licence resellers, distributors, and
value-added resellers (VARs).
How we make money
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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CEO’s review
Securing and
empowering
people online in a
locked-down world
2020 was a year in which we demonstrated
business resilience during the
unprecedented COVID-19 pandemic.
Ensuring the safety of our colleagues while
continuing to serve our customers and
communities was uniquely challenging.
Our mission to keep people safe and private
online became more vital than ever as
cybercriminals looked to exploit the chaos
and confusion generated by COVID-19.
Despite the continuing uncertainty ahead,
Avast remains well positioned. The business
is robust, strongly cash-generative, and is
already pivoting to harness valuable growth
opportunities as they emerge.
In my first full year as CEO of
Avast, I feel immensely proud of
the way our business responded
to the many challenges of 2020,
maintaining service to our
customers while undertaking
significant voluntary relief efforts
and making financial contributions
to help beat COVID-19.
Ondrej Vlcek
Chief Executive Officer
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2020
milestones
Avast continues to be one of
the largest cybersecurity
businesses in the world, with
over 435 million active users in
200 markets. In 2020, we grew
average revenue per desktop
customer by 4.5% and average
number of products per desktop
customer by 2.8%.
Consumer Direct
In the US we launched Avast BreachGuard,
which gives people control over their
personal data that resides on the
internet and who has access to it. Avast
BreachGuard detects and notifies users of
data breaches affecting their credentials,
assists in the removal of personal
information from unwanted third-party
databases, and analyses online accounts
for privacy vulnerabilities.
1.5
average products per
desktop customer
$53.34
average revenue per
desktop customer
13.62m
paying desktop customers
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Consumer Indirect
With the launch of an iOS version of our free
Avast Secure Browser (ASB), we achieved
our ambition to become a multi-platform
browser, which already includes support for
Windows, Mac and Android. ASB’s ongoing
focus is to converge security and privacy
services to enable a safer, more private and
faster browsing experience across devices
and operating systems.
Our carrier partner team launched Avast
Smart Life for 5G, our first smart home
security solution for 5G, delivered as a
virtualised network function (VNF). Avast
Smart Life for 5G enables operators to
protect their subscribers’ smart home and
all connected devices at the virtual router
level, based on Avast’s AI-driven threat
detection technology. The solution scans
traffic and immediately blocks security
risks on every customer device, both inside
the home and on the go.
We have also partnered with Scottish
Premier League football club, Hibernian
FC, to provide supporters with offers on our
flagship security products. This allows fans
and their families to get protection from
cyberthreats as they use the internet to
stream football matches during lockdowns
and ongoing pandemic restrictions.
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Avast Business
With many small businesses forced by
the pandemic to adopt remote working
for the first time, securing their network
has become mission-critical. Meeting
the needs of customers, we launched
our new Avast Business Secure Private
Access (SPA) product, providing zero trust
network access to medium- and large-sized
companies via managed security service
providers (MSSPs) and managed service
providers (MSPs).
The new Avast Business Small Office
Protection was also released in 2020, which
provides robust, real-time cyber protection
for small businesses and entrepreneurs that
is easy to install and cost-effective.
We also partnered with BCN Telecom
to protect its customers with Avast
Business Secure Internet Gateway (SIG)
full-protocol managed firewall services.
BCN serves thousands of business
customers throughout North America
with enterprise-wide communication
technology solutions.
We have incorporated the Ivanti Security
Controls Advanced SDK into Avast Business
CloudCare to offer patch management
functionality to Managed Solution Providers
to automate and simplify the patch
remediation process.
Industry engagement
Avast joined Intel and Borsetta, an AI
software-defined secure computing
hardware services company, in founding
the Private AI Collaborative Research
Institute. The collaboration’s sole purpose
will be to advance and develop technologies
that strengthen privacy and trust for
decentralised AI. It will encourage and
support fundamental research which will
result in solving real-world challenges for
society, and will be dedicated to taking
an ethical approach to AI development.
For more than a decade, Avast has
partnered with the Shadowserver
Foundation, a non-profit security
organisation working behind the scenes
to make the internet more secure for
everyone. In September, we answered their
call for financial support, with a $500,000
donation to continue their necessary work.
The partnership is based on the belief that
combining forces is paramount in fighting
against bad actors, cybergangs, and
nation-states from spreading their malware.
$500,000
donation to Shadowserver to
make the internet more secure
for everyone
To support the mission of non-profit browser
Tor – that internet users should have private
access to an uncensored web – Avast joined
the Tor Project Membership Program as a
Founding Member. This has been created
by the Tor Project, the nonprofit developers
of the Tor network and Tor Browser,
to allow non-profit and private sector
organisations supportive of Tor’s mission
to financially support Tor’s work. This
support will increase Tor’s ability to grow
their development processes to allow for
more innovation and solve issues in existing
products at a faster rate.
Avast is also proud to have joined the
Internet Watch Foundation (IWF) as a
supporter of the valuable work they do
globally to take down child abuse content
and helping raise awareness with parents
and children at risk from exploitation online.
In this increasingly digitally enabled world,
the IWF identified that young girls aged
11–13 were most targeted by abusers to
develop and share their own explicit content
during the pandemic. Extending our support
to this initiative further supports our goal to
keep everyone safe online.
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Our commitment
to privacy
Consumer awareness of privacy
issues has significantly heightened
as people downloaded track
and trace apps to help manage
the spread of COVID-19,
handing over more detailed
and sensitive data than ever
before to the government.
435m
users worldwide are our
priority when designing
best practice in privacy
Additionally, we have taken proactive
measures which include partnering with
industry-leading privacy advisers to
ensure that we are both learning from and
contributing to best practices in privacy
across the tech industry. This includes
working with TrustArc, through which
we have earned the TRUSTe privacy
certification for our Privacy Policy. We have
also worked closely with OneTrust, the
Future of Privacy Forum, and the Tor Project
– whose co-founder Roger Dingledine spoke
at our CyberSec&AI Connected event on
the topic of privacy.
Through our partnership with the Future
of Privacy Forum (FPF), we engage with
academics, advocacy groups, and industry
players who are serious about promoting
a privacy-centric approach. Our Chief
Privacy Officer represents Avast on the
FPF advisory board, which provides input
in support of transparency, user control,
and the advancement of responsible
data practices.
Avast looks at privacy from the European
perspective, which is that privacy is a
fundamental human right. Our products
currently give people the means to make
decisions on what they share online and
help them keep control of their personal
data. We see great potential in the growing
understanding among wider audiences that
being cyber safe increasingly means privacy
as well as security.
We invested heavily in privacy in 2020.
We made the promise when we closed
Jumpshot that we would reaffirm our
existing commitment to keep our users’
data safe and private. As such, we
welcomed on board Shane McNamee as
our Chief Privacy Officer, a new role which is
in addition to and complements the existing
Data Protection Officer, Jakub Hruska,
and Chief Data Officer, Miroslav Umlauf.
We launched a new privacy microsite
(www.avast.com/privacy) with the goal of
providing the public with further information
on Avast’s privacy values and how they are
applied in the work we do. We’re also in the
process of redesigning our data governance
approach to ensure that we have an even
clearer picture of how we use data, and to
further enhance our accountability, security,
and ability to ensure that we process as little
data as necessary. On an ongoing basis,
we will review and redesign any policies,
information, or resources that are aimed
at providing users with this transparency,
to ensure that they remain up to date, clear,
and honest, and in a format that is concise,
easily accessible, easy to understand, and
presented in clear and plain language.
We’ve also reached out to policymakers
in the EU and US, offering our support
and experience on cybersecurity, privacy,
and data protection. We’ve had discussions
about privacy and security frameworks,
international data transfers, encryption,
and the responsible regulation of
emerging technologies such as AI –
as well as how these technologies can be
utilised to enhance privacy and security
– with representatives from the European
Commission, the European Parliament,
and the US government. We’ve also
promoted, and will continue to promote,
the development of robust and consistent
privacy law across the world, and tackled
issues like surveillance and systemic
privacy risks.
These actions are part of enhancing our
privacy-by-design approach focused on
our core mission of making the online world
a better, safer place.
See our approach to privacy, p39
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CEO’s review continued
The future of
the workplace
When we shut our offices down
back in March 2020, few of us
imagined that we wouldn’t be
returning before the year’s end.
It gave us the opportunity to consider what
could we do differently to offer colleagues
more agility, greater flexibility, and more
options to choose from when it comes to
when, where, and how they work in the
future, however unpredictable it may be.
Although we managed to switch to a fully
remote mode of working very quickly,
it hasn’t always been easy. We focused
on supplying necessary equipment to all
new home workers, and providing training
courses on remote team management.
We also provided mental health support,
and dedicated help for families juggling
full-time jobs with critical caring
responsibilities. Even with the most
up-to-date tools for online meetings, it was
clear all of us were missing live interactions
with our colleagues, and more broadly, our
friends and families. This provided us with
a unique opportunity to rethink our overall
approach to how we work. Our ambition
is to provide the best possible experience
for our people, striving to make Avast the
best place to work. The result is a complete
overhaul of how we will work at Avast,
starting in 2021.
Introducing the new Avast Whole
Life Flexibility framework
The increasing convergence of our online
and offline lives has shown us the need for
simpler, more agile, working arrangements.
Our colleagues are dedicated and deserve
our trust – they have repeatedly proven that
they do the right thing by our Company.
This guided our decision to allow them
to integrate work into their lifestyle in
a way that meets their whole-life needs
and aspirations.
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Setting the right context will be crucial to
make it work – we’re committed to working
with our people to ensure that there are no
unwanted side effects, as we’re confident it
will lead to a more productive environment
and ultimately, happier customers.
It is our belief that by providing flexibility
across all areas of our team members’
lives, they will lead more fulfilling lives,
provide better service to our customers,
and improve business results. Whole Life
Flexibility means empowering our people
to choose where, when and how they work.
We will measure the contribution of all
our people based on the achievements
and outcomes they deliver against a set
of agreed goals rather than the hours
they work or the location in which they
are accomplished.
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Our new Whole Life Flexibility framework
rolls out early in 2021 and is an approach
designed to allow people to bring their
best selves to work and grow their careers
in harmony with their personal lives,
ambitions, and dreams – and I can’t wait
to see it in action.
Ondrej Vlcek
Chief Executive Officer
Our new framework
There are four kinds of deep fakes:
Unlimited Personal Time Off (PTO)
This is for employees to relax or make
personal arrangements while still
being paid, with manager approval.
This concept goes beyond the established
leave policies defined by local laws
and regulations.
Choosing between Work from Office
(WFO) and Work from Anywhere (WFA)
This is available to all Avastians. This
flexible arrangement supports colleagues
who anticipate spending the majority of
their time either in the office or away from
the office, and receiving the appropriate
equipment and support for their choice.
Working from Another Country
This is now an option we enable,
although at present, due to complex
tax, immigration and labour code
implications there are still some
limitations to our long-term vision.
A Stake in the Company
This new scheme begins in 2021 and
provides eligible employees with a
one-time Restricted Stock Unit (RSU)
grant, equivalent in value to 40% of
their annual base salary and capped
at 10,000 units. I strongly believe it is
the right thing to do for us; at its core,
this is all about aligning the interests of
all our stakeholders and ensuring that
everyone has ’skin in the game’. This new
program is incremental to our long-term
incentive program (LTIP) RSU grants and
cash bonuses.
The future of the workplace
When it comes to employee experience,
Avast has never shied away from pioneering
new ways of working. This year’s health
pandemic has uprooted our long-held
beliefs and forced us to rethink the entire
proposition. We realised that what matters
more is whether people believe in what they
do, are surrounded by great colleagues,
and have the freedom to unleash their
passions and potential. Additionally, it’s our
customers who will benefit the most.
The 5A Principle
Our new working arrangements provide a
lot of freedom but these, understandably,
need to be accompanied by personal
responsibility to make it work. We have
created a new ’5A’ principle that talks
about how we all work together, cementing
elements that were already in our culture
pre-COVID-19:
Adult relationships based on mutual trust,
transparency and maturity.
Accountability.
Achievement-focused.
Autonomy.
Asynchronous working.
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Our technology
Committed
to excellence in
innovation
The difficulty of defending half a billion users from cyberthreats has
dramatically increased in recent years. But, as the threats have evolved
in complexity and in volume, our expert teams at Avast have responded.
Intellectual diversity, both within our
organisation and from our cooperation and
partnership with world-leading academic
institutions, is critical to maintaining our
ability to adapt to the ever-changing threat
landscape and strengthening Avast’s
reputation as an innovation powerhouse.
Our 2021 technology aspirations and
objectives focus on:
Security
We are continuing to build on our threat
defence capabilities. In addition to
developing faster scanning capabilities,
we are also extending APKLab.io., our very
successful open platform for mobile threats.
Privacy
We are investing in research in privacy
threat identification and management.
We plan major research projects in
differential privacy in 2021 and will also
explore the concept of identity, in particular
the expansion of user privacy beyond
individual services and devices to develop
a holistic approach for the future.
AI
Having been a founding partner of the Intel
Private AI Consortium, through this initiative
we will explore research concepts such as
federated learning and private AI.
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Committed
to excellence in
innovation
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Our platform for innovation
Rising threats
Number of new malware samples processed
in Avast’s virus lab by year:
192m
2017
203m
2018 (+6% YoY)
379m
2019 (+86% YoY)
503m
2020 (+32% YoY)
Our global user base
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 that 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.
Sweet success
Avast’s ‘honeypot email networks’
attracted and intercepted:
42m
malicious emails
313,000
unique malicious
attachments
A dedicated team
of data scientists, threat researchers, and machine learning experts focused
on delivering market-leading security for homes and businesses.
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Our global scale and leading technology ensures
that we stay one step ahead of the competition
A global network
A look inside our security engine
11,759 servers
serving as a global threat
detection network
56.4 petabytes
of data transmitted monthly
302 Gbps
peak download speed
463,000
simultaneous VPN connections
3.97 trillion
URLs analysed per year
Machine learning
Cloud
Machine learning and cloud
1
2
3
Web Shield
embedded in our security products,
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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Putting privacy values into practice
Avast considers privacy from the
European perspective: privacy is a
fundamental human right. Online
interactions which involve people’s
personal data aren’t just economic
transactions, but instead are
inextricably linked to digital
identity or personality, and the
freedom of the individual to have
control (self-determination) over
their own (digital) life and identity.
This is a key component of Avast’s approach
to privacy, and one of the many reasons why
the user is at the centre of Avast’s whole
business philosophy.
One of the key ingredients to respecting
users’ fundamental rights and ensuring
that they remain aware and in control of
how their personal data is used is to ensure
that the processing of that data is done in a
lawful, fair, and transparent manner.
This transparent approach should permeate
everything that’s done with personal data.
It’s particularly important for ensuring we
take a data-protection-by-design-and-by-
default approach.
Privacy rule of THUMB
We have defined our ’privacy rule of THUMB’ as follows:
T
H
U
M
B
Transparency
If we need to collect
personal data (and we
try to avoid it where
we can), we’ll explain
clearly why and how
it will be used.
High security
Any data we do need
to process will be
protected by the
highest security
standards. We’ll also
give you the tools to
keep your files, data,
and browsing habits
secure anywhere.
User control
We want to put you in
control of how your data
is used, via easy-to-use
tools. This goes for your
interactions with Avast,
as well as with anyone
else in the digital world.
Minimisation
We’ll only use the
minimum amount of
data needed for a
specific purpose.
We won’t collect or
store your personal
data ’just in case’ it
comes in handy later.
Benefit
When we do collect
data, we will use it to
benefit you by making
your online experience
better, such as by
improving our online
threat detection and
prevention capabilities.
By focusing on each of these areas when
we design a new product, or evaluate a new
internal procedure, we can ensure that our
privacy values are reflected in our work.
Asking these questions regularly and making
choices based on how they might impact
user privacy is a key way we can demonstrate
what a belief in privacy as a fundamental
right or the importance of user control looks
like in practice.
We have worked hard in 2020 to define
how to embed our fundamental privacy
values into our business. We work to both
respect these rights in our own work, as
well as giving users the tools to vindicate
their rights in practice in the online world.
These are rights, not privileges.
Shane McNamee
Chief Privacy Officer
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Advancing
research
in artificial
intelligence
and machine
learning
From the pandemic to elections,
recent global events have
thrust the issues of AI, privacy,
and cybersecurity firmly to
the front of the news and
political agenda.
The topics of privacy, AI, and security
are increasingly becoming a key part
of mainstream news, business, and
politics. As the reach of technology
expands further into people’s daily
lives, and becomes more critical to the
functioning of government and business,
issues that were once primarily the topic
of discussion among academics and
professionals have shifted to the front
page of newspapers and the top stories
on the evening news.
AI is the biggest opportunity and
the biggest threat for cybersecurity.
The dangerous part is the data that
algorithms predict. The whole segment
of tech that makes our lives more
convenient can also lock us into online
echo chambers that make us easier
to manipulate.
It’s dangerous to be insulated within
our own world of ideas and preferences
calibrated to suit us. Those predictions
seem so right and can be very
convenient, but they can also cut us
off from opposing ideas and hurt our
ability to think critically. In cybersecurity,
AI doesn’t show us what we want to
see. Rather, it seeks out and finds
vulnerabilities and ways to make our
systems stronger. We can use AI to make
us better, not just to suit our preferences
and make life more convenient.
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We are building and testing new
training networks and predictors
to help us explore and run different
attack scenarios to improve threat
detection and mitigation.
Michal Pechoucek
Chief Technology Officer
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Tackling bias
in AI
The topic of bias in AI was
the subject at the second
CyberSec&AI Connected
conference, organised with
our partner Czech Technical
University in Prague (CTU),
which took place in October
2020. With COVID-19
restricting global travel,
the event was redesigned
as a virtual event, with the
overall theme of exploring and
debating AI application for
enhanced privacy and security.
During conference panel discussions,
there was an agreement that complexity
arises in this area as bias isn’t a simple
parameter. There are two main categories
– societal and technological – and they
feed into social mores. Organisations,
governments and people need to be
cautious of algorithmic injustice which
can lead to violations of human dignity
such as predictive policing or airport
security random checks on people.
The conference debates also examined
how technological biases are simpler
to fix, for example, by using a wider
dataset for a category to introduce more
diversity. Algorithms can mask racist
and sexist behaviour unintentionally
and can exclude certain groups without
any obvious effect, an unintended
consequence. The conference speakers
and panellists concluded that there is a
need to clearly define training and test
sets to provide the most appropriate
context for ethical decision-making.
AI is going to be increasingly
involved in our daily lives.
That means whoever is behind
it will have great influence on our
lives, whether we want it or not.
Fabrizio Biondi
AI Scientist
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Avast plc annual report 2020
42
CFO’s review
Another year of strong
topline organic growth,
profitability and cash
flow generation
Group overview
The Group’s adjusted billings increased
by $11.0m to $922.0m in the year ended
31 December 2020, mostly driven by
the core Consumer Direct business. This
represented a 1.2% increase at actual rates
and organic growth1 of 7.1%. Subscription
billings represented 87.8% of the Group’s
total adjusted billings in FY 2020 (87.2% in
FY 2019, excluding Jumpshot).
Avast continues to build on its
track record of delivering results
and creating value.
Phil Marshall
Chief Financial Officer
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43
The table below presents the Group’s adjusted billings and adjusted revenue for the
periods indicated:
The Group’s adjusted revenue increased by $19.8m to
$892.9m in the year ended 31 December 2020, which
represents a 2.3% increase at actual rates and organic
growth of 7.9%. Adjusted revenue included $413.6m from
the release of prior-period deferred revenue. The deferred
revenue balance at the end of the period was $496.5m,
comprising $458.8m that will be recognised within
12 months of the balance sheet date. This compares
with $466.3m, of which $412.0m was to be recognised
within 12 months, at the same time last year, excluding
Jumpshot’s deferred revenue. The average subscription
length in the year ended 31 December 2020 was 14 months,
flat versus FY 2019.
The Group’s billings increased by $11.0m to $922.0m in
the year ended 31 December 2020, which represents a
1.2% increase. The Group’s reported revenue increased by
$21.7m to $892.9m, which represents a 2.5% increase. It
should be noted that there is no difference between the
Group’s reported revenue and Group’s adjusted revenue or
between the Group’s billings and Group’s adjusted billings
in FY 2020 as the non-cash historical adjustments arising
from the AVG acquisition have come to an end (for the
reconciliations of comparatives, please refer to ‘Presentation
of Results and Definitions’).
($’m)
Adjusted billings
Consumer
Acquisitions
Direct (excl. acquisitions)
Discontinued Business4
Indirect (excl. Discontinued Business)
SMB
Disposal Managed Workplace5
SMB excl. disposal
Adjusted billings excl. acquisitions, disposals, and Discontinued Business
Adjusted revenue
Consumer
Acquisitions
Direct (excl. acquisitions)
Discontinued Business
Indirect (excl. Discontinued Business)
Profitability was driven by the Group’s scale and operating
leverage. Adjusted EBITDA increased 2.6% to $495.5m,
3.9% excluding FX, resulting in adjusted EBITDA margin2 of
55.5%. This is in line with full-year guidance of broadly flat.
SMB
Disposal Managed Workplace
SMB excl. disposal
Adjusted revenue excl. acquisitions, disposals, and Discontinued Business
The reported operating profit decreased by $(9.2)m to
$335.4m. The decrease was driven by higher costs of
$(30.9)m partially offset by higher reported revenue
of $21.7m. Increase in costs was driven by increase in
exceptional items of $(48.1)m, including Jumpshot
wind-down costs of $(25.4)m and donations on research
and development initiatives related to COVID-19 of
$(25)m, partially offset by lower amortisation of
acquisition intangibles of $22.6m and lower
share-based payment costs of $2.2m.
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FY 2020
FY 2019
Change %
922.0
873.6
0.1
911.0
865.0
0.0
801.4
745.6
1.2
1.0
n/a
7.5
Change %
(excluding
FX)3
1.8
1.6
n/a
8.1
4.2
67.9
48.4
0.0
48.4
917.7
892.9
844.8
0.2
48.9
70.6
45.9
1.0
45.0
861.1
873.1
823.9
0.0
771.7
708.3
5.1
67.9
48.0
0.0
48.0
887.6
45.0
70.6
49.2
1.0
48.3
827.2
(91.4)
(3.8)
(91.4)
(3.6)
5.4
n/a
7.7
6.6
2.3
2.5
n/a
8.9
5.3
n/a
7.6
7.1
2.8
3.2
n/a
9.6
(88.6)
(88.6)
(3.8)
(2.4)
n/a
(0.5)
7.3
(3.7)
(2.2)
n/a
(0.3)
7.9
CFO’s review continued Strategic report Governance Financial statements
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44
CFO’s review continued
Business unit
performance
Consumer Direct Desktop
Adjusted billings
$m
Adjusted revenue
$m
668.3
727.4
699.7
632.9
2019
2020
2019
2020
Growth
Growth
Actual rates
Actual rates
+8.8%
+10.6%
Organic
Organic
+9.5%
+11.3%
Number of
customers m
+7.9%
Average products
per customer
Average revenue
per customer $
+2.8%
+4.5%
12.62
13.62
1.45
1.50
51.02
53.34
2019
2020
2019
2020
2019
2020
Trading performance
The core Consumer Desktop business continued to
perform strongly. Adjusted billings of $727.4m were up
9.5% on an organic basis and up 8.8% at actual rates.
Adjusted revenue of $699.7m grew 11.3% on an organic
basis, with actual rates up 10.6%, ahead of guidance of
high single-digit organic revenue growth.
End of Period Customers6 increased strongly by 7.9%.
Average Products per Customer7 and Average Revenue
Per Customer8 tracked in line with growth guidance of
low single-digit and mid-single-digit respectively.
As anticipated, after a spike in installations and
transactions in the first half of FY 2020 owing to the initial
lockdown, trends normalised to pre-COVID levels early
in the second half of the year. The temporary uplift and
sequentially lower H2 growth in product demand was
most evident in the Company’s antivirus solutions. In the
latter part of the year, there was downward pressure on
billings as the Group intentionally started transitioning
away from heavily discounted multi-year subscriptions to
single-year subscriptions in order to drive an increase in
customer lifetime value.
Quality of installed users
In response to sustained lower value returns from
users generated via PPI, the business is focused on
consolidating its user base around higher quality
organically installed users, effecting a reduction in the
total number of desktop users. The Group has deepened
its investment and activity to further improve direct
customer acquisition, driving traffic flow to Avast’s
customer site. Promotional strategies and search engine
optimisation have increased discoverability, while further
refinement of the online store experience through
improved navigation and product recommendation has
helped monetisation. We also integrated an account
creation step in the checkout flow, allowing personal
and payment information to be pre-populated for
subsequent purchase, reducing friction.
Customer retention strategies
Avast also maintained its focus on customer retention
strategies. The continued expansion of the product
portfolio has offered more choice, facilitating an increase
in multi-product customers with associated higher levels
of retention. Up-sell and cross-sell performance has
been supported by higher levels of intelligent contextual
targeting to reach the most relevant customers and
create a more seamless experience. During the year,
implementation started on a more comprehensive
programme of customer lifecycle communications,
including subscription renewal messaging to reinforce
customer loyalty and retain the most profitable
renewal business.
As part of Avast’s customer-centric approach, a new
Customer Success team was launched during the
year to provide higher-touch guidance to customers.
Through in-product communications and other digital
channels, the team educates on product value to
maximise product use and help drive retention. This has
been complemented by initiatives to further raise levels
of customer responsiveness and embed Net Promoter
Scores in more customer touchpoints.
Localisation
Through our localisation programme, we have continued
to promote and scale the business in markets identified
as priorities. We’ve sharpened our focus with more region-
dedicated resource. To deepen relationships with local
partners and influencers, we’ve expanded the Company’s
on-the-ground presence, now locally active in key target
markets, including Mexico, Russia, Japan, and South East
Asia. Overall, there has been an aggregate 16% increase in
customer numbers in 2020 from target underpenetrated
markets. In both developed and developing markets,
a step up in in-country content marketing campaigns
has been used to educate, increase share of voice, and
strengthen local brand awareness.
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Strategic report Governance Financial statements
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45
Product development
Avast enhanced and expanded its product set to combat
increased threats arising from a surge in pandemic-related
attacks and new ways of working. The Company added
Ransomware Shield, previously only available on Avast
Premium Security, to its popular Avast Free Antivirus,
and introduced the brand new Remote Access Shield
to Avast Premium Security to mitigate remote desktop
vulnerabilities. Additional augmented features for
Avast Free Antivirus include USB drive protection and
botnet protection.
Avast continued to invest significantly in privacy at a time
when consumer awareness of privacy issues markedly
increased as track and trace apps were downloaded to
manage the spread of COVID-19. Further to the launch
of AntiTrack in 2019 and as part of our roadmap for
personalised privacy and identity protection, Avast
released BreachGuard in the US in the second quarter
with rollout into Europe and expansion onto the Mac
platform during the second half.
Consumer Direct Mobile
Adjusted billings
$m
Adjusted revenue
$m
77.3
74.1
75.4
72.1
2019
2020
2019
2020
Growth
Growth
Actual rates
Actual rates
-4.1%
Organic
-3.8%
-4.4%
Organic
-4.4%
In the Consumer Direct Mobile business, adjusted billings
of $74.1m were down 3.8% on an organic basis, and down
4.1% at actual rates. Adjusted revenue of $72.1m was
down 4.4% on an organic basis, with actual rates also
down 4.4%, ahead of the guidance of high single-digit
organic revenue decline.
There has been continued good growth in the mobile
direct-to-consumer subscription business, despite the
cross-platform nature of a large portion of desktop-
transacted subscriptions. Our acquisition, monetisation,
and retention were buoyed by further development
of the experience on both Android and iOS platforms.
This included a particular focus on enhancing app usability
and evidencing value in the initial lifecycle phase.
Avast Mobile Security for iOS has benefited from enriched
features such as Web Protection that blocks malicious
websites to prevent intrusions and VPN auto-connect for
unsecured Wi-Fi networks.
The carrier channel remained challenging through the
course of the year. There is a continued structural shift in
the US of worsening commercial terms for the provision of
apps such as family safety apps. Carriers have additionally
sought to offset the adverse impact of pandemic
disruption. The new contractual terms that reflect this
tougher environment were not yet in full effect for Avast
in FY 2020, contrary to the Group’s expectations at the
half-year interval. Consequently, this created a temporary
financial benefit in the second half of the year relative
to guidance. The impact of new commercial terms will
become more apparent in the current year to act as a drag
on performance.
The Company launched Avast Smart Life for 5G, as the
next of its iteration of its smart home offering, securing
devices both inside the home and on the go. The solution
enables operators to protect their subscribers’ smart
home and all connected devices at the virtual router level,
based on Avast’s AI-driven threat detection technology.
Mobile partnerships remain one part of Avast’s go-to-
market strategy. The Company has continued to pursue
a number of opportunities with major operator groups
worldwide to sell its converged smart home solutions.
More work has been done internally to position the
business for related sales and marketing activity. This
included renewed focus and resource optimisation in
account planning to enable better market responsiveness
and swifter alignment with customer demand.
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CFO’s review continued
Consumer Indirect
In FY 2020, this business unit included Avast Secure
Browser (ASB), the distribution of third-party software,
and advertising within mobile applications. The data
analytics business Jumpshot was discontinued in
January 2020.
Adjusted billings
$m
Adjusted revenue
$m
48.9
70.6
4.2
67.9
45.0
70.6
5.1
67.9
2019
2020
2019
2020
Excluding Discontinued Business
Discontinued Business
Growth
Growth
Actual rates
Actual rates
-3.8%
Organic
-3.6%
-3.8%
Organic
-3.7%
* excluding Discontinued Business.
In the Consumer Indirect unit, adjusted billings excluding
Discontinued Business of $67.9m were down 3.6% on an
organic basis and down 3.8% at actual rates. Adjusted
revenue excluding Discontinued Business of $67.9m
declined 3.7% on an organic basis, with actual rates
down 3.8%, behind guidance of mid-single-digit organic
revenue growth.
The pandemic’s impact on global advertising reverberated
throughout the year on Avast Secure Browser’s
financial performance, which monetises through search
advertising. Advertising spend, which similarly underlies
Avast’s mobile app business, has been slower to recover in
the second half of the year than anticipated, and created
an increased drag on growth expectations. While revenue
of these businesses weakened, user engagement with
Avast Secure Browser in particular remained robust, with
search volumes by the browser’s 35 million monthly active
users up by 29% in the year.
In addition to the market release of the iOS version for
Avast Secure Browser, the Company enabled real-time
synchronisation between platforms (PC, Android, and
iOS), allowing users to seamlessly switch between
devices, while securely retaining such personal assets
as bookmarks and browsing history.
After a temporary increase in Chrome distribution revenue
associated with new user installations during the first wave
of the pandemic, there was a reversion from early in the
second half of the year to the previous trend of decline.
During the year, the Company also made the decision to
change the way Chrome is offered and moved to a revised
Accept/Decline offer layout when it’s promoted with our
products. While there was an unavoidable trade-off for
volume of Chrome installations, the move exemplifies
the Group-wide emphasis on more transparency and
improved customer choice. The current Avast contract
to distribute Chrome extends to March 2021, and renewal
is presently under consideration.
SMB
Adjusted billings
$m
Adjusted revenue
$m
45.9
48.4
49.2
48.0
2019
2020
2019
2020
Growth
Growth
Actual rates
Actual rates
+5.4%
Organic
+7.6%
-2.4%
Organic
-0.3%
* excluding Disposals.
SMB adjusted billings of $48.4m were up 7.6% on an
organic basis and up 5.4% at actual rates. Adjusted
revenue of $48.0m declined slightly 0.3% on an organic
basis, with actual rates down 2.4%, ahead of guidance
of low single-digit organic revenue decline.
After a return to positive billings growth in the second
quarter of FY 2020, SMB delivered a double-digit billings
increase in the second half of the year, driven in particular
by strong demand in the direct to business online channel.
The widespread adoption of remote working has served as
a tailwind to performance. Avast’s overall competitiveness
was strongly advanced in FY 2020 with scheduled new
product launches and features, further improvements
to the user experience, and effective implementation of
revised sales strategy.
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47
The new Avast Business Small Office Protection was
released in 2020, providing robust, real-time cyber
protection for small businesses that’s easy to install and
cost-effective. Securing up to 10 business devices, the
product is targeted at entrepreneurs and home offices.
As businesses were forced to secure networks for
increased levels of remote access, a timely addition to
the Avast business suite was the Business Secure Private
Access (SPA) product, providing zero trust network access
to medium-sized and larger companies via managed
security service providers (MSSPs) and managed service
providers (MSPs). Built with both the end user and
MSSP/MSP in mind, the solution takes both a user
and application-centred security approach in which
authorised users are granted access to applications,
but never the network.
Our cloud-based platform was enhanced with the
integration of Premium Remote Control. The feature
empowers IT admins to quickly and securely connect
to a user’s device anywhere and troubleshoot issues.
Avast significantly upscaled its distribution network
for SMB products and services, with a partner
agreement (finalised in January 2021) with the leading
UK distributor Westcoast to reach thousands of active
resellers, the majority of which represent brand-new
trading opportunities.
Near-term business priorities
In the year ahead, we will continue to invest in the business
for growth.
Building on the progress achieved this year, Avast will
focus on further improving the customer experience as we
seek to delight customers with the product proposition
and strengthen customer trust. Our objective is that these
initiatives, in addition to those to effectively demonstrate
product value and maximise product use, will help drive
an increase in retention. The favourable impact on first
purchases from the lockdown has provided additional
impetus and opportunity to foster loyalty in the Avast brand.
We are committed to the ongoing modernisation of
our products and services across the categories of
security, privacy, and performance. In particular, privacy
protection will be evolved to provide customers with more
choice (enhanced privacy settings on third-party sites),
automation (VPN auto-activation during sensitive activity),
and information (a data inventory to understand where
information sits and how to remove it). Product development
will be underpinned by continued tech innovation and
investment in Avast’s security engine, moving threat defence
capabilities further into privacy and identity.
In December 2020, we introduced the new Avast One
concept, a single integrated solution with predefined broad
functionality. Avast One eliminates existing functional
overlaps and the need for multiple subscriptions. It increases
the number and depth of touch points and over time is
expected to help drive lifetime customer value. Currently
being trialled in Australia, we anticipate rollout in selected
markets in the second half of the year. Existing products
will continue to be offered on a stand-alone basis.
Last year, Avast continued to make strong gains as a result
of our localisation programme. This approach will remain
central to our strategy with incremental investments being
made in people, marketing programmes, and partnerships.
As we continue to enrich the product offering, we are also
broadening the scope of our partnerships, notably within
the Consumer Indirect business. Currently these are
concentrated in the carrier and ISP market with the provision
of family safety and parental control solutions. However,
Avast is actively pursuing opportunities to additionally
leverage its competencies, including in IoT, for businesses in
other industry sectors with a line of sight to consumers who
can benefit from enhanced digital security. Post period end,
we’ve signed several small initial partnerships. This includes
a framework agreement with Green Marbles, a US B2B tech
supplier, to offer our Omni solution to their customer base
that includes retailers and appliance distributors, as well as
OEMs. We’ve also reached agreement with Pmovil, a LatAm
billings integrator, to help secure its direct carrier billings,
a remote payment method allowing users to pay for online
and quasi physical goods.
In SMB we will complete the work on streamlining
the product portfolio and balance maintenance of the
existing channel base with building more strategic
channel partnerships.
Finally, one of our operational goals this year is to start
migrating our systems and infrastructure from on-premises
to the public cloud. With cloud migration, Avast will have
the ability to reshape its infrastructure and workloads to
accommodate the needs of tomorrow without being chained
to the equipment and assets that made sense in the past.
The improved agility will allow us to focus on our commercial
strengths and reduce the amount of capital tied up in data
centre facilities.
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While tailwinds are favourable overall, there remains
near-term uncertainty affecting certain parts of the business.
The Indirect segment, which now includes the Partner
business (previously Carriers), has been most adversely
affected by the pandemic. Advertising spend, affecting both
Avast Secure Browser and mobile apps, remains slower to
recover than previously anticipated. Also, as stated above,
the commercial environment for certain existing carrier
partnerships has become tougher. Yet, the most significant
adverse impact on FY 2021 performance, particularly in the
first half, will result from the change in the way that Chrome
is offered. These factors mean that, in the current year,
we expect a mid-single-digit decrease in organic revenue.
Owing to the success of restructuring initiatives and focused
investment, last year the SMB business built good early
momentum, in particular in the direct online channel.
While this gives us optimism, we are also conscious that
the prolonged nature of the pandemic increases the
risk to many small businesses in the near term. In FY 2021,
we expect SMB to deliver a mid-single-digit increase in
organic revenue.
CFO’s review continued
Reporting change
For the period beginning FY 2021, Avast has adjusted
billings and revenue reporting within existing segments to
reflect the de facto convergence in desktop and mobile
platform use by consumers as reflected in the rise of Avast’s
multi-device subscriptions. Consequently, the direct-to-
consumer mobile subscription business will be reported
together with the desktop business within Consumer Direct.
The carrier channel is renamed Partner, as we emphasise the
relationship aspect of this business and seek to both develop
the product proposition and expand the scope of future
partnership opportunities. Partner will sit within Consumer
Indirect alongside the Group’s other B2B2C businesses:
Avast Secure Browser and Chrome distribution. To retain
an equivalent level of information disclosure, the revenue
line for Partner will also be reported.
For comparison, the Group’s billings and revenue
performance in the revised presentation format are
disclosed later in this document for the year ended
31 December 2020 and the comparative reporting periods
for FY 2019 and FY 2018. The reporting change has no
impact on the overall Group result. There is no change to
the operating segments, which are reported as Consumer
and SMB.
FY 2021 financial outlook
The COVID-19 pandemic continues to create uncertainty;
however, we believe that the performance of the business
through the pandemic to date demonstrates the resilience
of our business model and relevance of our company
purpose. We anticipate that Avast is in a good position to
withstand any ongoing challenges presented by the crisis.
Furthermore, the global PC market backdrop is robust, with
the pandemic not only fuelling demand but also creating
opportunities that have resulted in market expansion.
At Group level, we remain confident that the fundamental
strengths of the business model and culture of driving
performance will sustain our track record of delivering
good growth and profitability.
Underpinned by a strong prior-year billings performance that
will be supportive of revenue in the first half of the current
year, we expect to deliver FY 2021 organic revenue growth
in the range of 6% to 8%. Organic billings growth for the year
is expected to be at the lower end of this range and heavily
weighted towards the second half, due in part to the strong
baseline comparison in the second quarter of last year.
The Group’s transition to one-year subscriptions to increase
customer lifetime value will also exert downward pressure
on billings, particularly in the first half.
The Group has started to experience higher wage inflation in
some of its geographies, notably the Czech Republic, which
we expect to continue through 2021. There will also be an
increase to operating costs from the Company’s planned
on-premises to cloud migration. Despite these additional
costs and continued R&D investment, the Group’s inherent
operating leverage means that Adjusted Group EBITDA
margin is expected to remain broadly flat versus FY 2020.
The Group will sustain strong organic cash generation,
with benefits to cash flow anticipated from reduced capex
requirements on data centres, and lower interest costs
following additional loan repayment last year.
In the Consumer segment, we anticipate continued
strong execution on the localisation programme to drive
customer penetration in both established markets and
new target countries. Growth will be supported by more
up-sells and cross-sells, enabled in part by recent additions
to the product portfolio that will gain traction as the year
progresses, and by enhancements to the overall customer
experience. The gradual rollout of the new Avast One
product anticipated later in the year is expected to make
only a modest contribution to the segment’s financial
performance in the current year. On the whole, in FY 2021
we expect Consumer Direct to deliver high single-digit
organic revenue growth.
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Avast plc annual report 2020
49
The table below presents the Group’s adjusted billings and adjusted revenue for the periods indicated in the new structure:
($’m)
Adjusted billings
Consumer Direct
Consumer Indirect
Discontinued Business
SMB
Adjusted revenue
Consumer Direct
Consumer Indirect
out of this Partner/Carriers
Discontinued Business
SMB
FY 2020
FY 2019
FY 2018
Organic
growth %
FY 2020
Organic
growth %
FY 20199
922.0
759.3
110.1
4.2
48.4
892.9
730.1
109.6
41.8
5.1
48.0
911.0
698.2
117.9
48.9
45.9
873.1
661.6
117.3
46.7
45.0
49.2
862.1
641.4
122.6
37.7
60.5
827.0
605.5
122.7
57.0
35.5
63.3
7.1
9.4
(6.5)
n/a
7.6
7.9
11.1
(6.5)
(10.7)
n/a
(0.3)
8.3
11.7
(4.1)
n/a
(6.0)
7.3
10.9
(4.6)
(19.9)
n/a
(5.8)
FY 2020
892.9
730.1
109.6
5.1
48.0
Costs
($’m)
FY 2020
FY 2019
Change Change %
Cost of revenues
(196.0)
(210.7)
14.8
7.0
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)
0.8
0.5
0.3
Fav10
65.3
88.3
(23.0)
(26.1)
9.0
8.9
(0.0)
3.4
(0.3)
0.1
0.1
0.2
3.3
1.2
Fav
Fav
(117.5)
(113.2)
(4.3)
(3.8)
The increase in the Group’s adjusted cost of revenues
reflects higher sales commissions, licence fees, and
distribution of digital content costs of $(5.3)m related
to the increase in adjusted revenue and investment into
personnel costs of $(1.2)m, negative FX impact, and other
costs of $(0.5)m, partially offset by lower Jumpshot’s cost
of revenues of $2.7m. Adjusted cost of revenues represents
the Group’s cost of revenues adjusted for depreciation
and amortisation charges, share-based payments charges,
exceptional items, and other adjustments.
The table below presents reconciliation between current and new reporting structure:
Current structure ($’m)
Adjusted revenue
Consumer Desktop
Consumer Mobile
Consumer Indirect
Discontinued Business
SMB
FY 2020
892.9
699.7
72.1
67.9
5.1
48.0
Partner/
carriers
Mobile
subscription New structure ($’m)
Adjusted revenue
30.3 Consumer Direct
(30.3)
(41.8)
41.8
Consumer Indirect
Discontinued Business
SMB
The table below presents the Consumer Direct operational KPIs adjusted for change in reporting structure:
($’m)
Number of customers
Average Products Per Customer
Average Revenue Per Customer
FY 2020
FY 2019
FY 2018
16.47m 15.55m 15.15m
1.41
1.36
1.32
$45.60
$43.11
$41.30
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The Group’s reported cost of revenues decreased by
$14.8m to $(196.0)m primarily due to the lower amortisation
of acquisition intangibles. The amortisation of acquisition
intangibles represents intangible assets acquired through
business combinations.
($’m)
FY 2020
FY 2019
Change Change %
Operating costs
(361.5)
(315.8)
(45.7)
(14.5)
Share-based
payments (incl.
employer’s costs)
Depreciation
and amortisation
(excl. amortisation
of acquisition
intangible assets)
Amortisation
of acquisition
intangible assets
Exceptional items
Adjusted
operating costs
(excluding D&A)
21.8
24.4
(2.6)
(10.5)
12.8
12.7
0.1
0.9
0.5
46.5
0.0
1.7
0.5
44.8
Fav
Fav
(279.8)
(276.9)
(3.0)
(1.1)
The increase in the Group’s adjusted operating costs
was caused by investment into R&D personnel costs of
$(3.9)m, sales and marketing of $(9.3)m, new strategic
initiatives of $(4.4)m, other personnel costs and other costs
of $(6.9)m and negative FX impact of $(1.3)m, offset by
decrease in Jumpshot costs of $22.8m. Adjusted operating
costs represent the Group’s operating costs adjusted
for depreciation and amortisation charges, share-based
payments charges, and exceptional items.
The increase in the Group’s reported operating costs of
$(45.7)m, from $(315.8)m to $(361.5)m, reflects primarily
the increase in exceptional items driven by Jumpshot
wind-down operating costs of $(22.0)m (additional
$(3.4)m in Cost of revenues) and donations on R&D
initiatives related to COVID-19 of $(25)m.
Exceptional items
Exceptional items are income or expenses that arise from
events or transactions that are clearly distinct from the
ordinary activities of the Group. The Group believes that
these non-recurring items should be separately disclosed
to show the underlying business performance of the Group
more accurately. Once an item is disclosed as exceptional,
it will remain exceptional through completion of the event or
programme. Exceptional items in FY 2020 consist primarily
of donations on R&D initiatives related to COVID-19 and
personnel and non-personnel costs related to Jumpshot
wind-down (see Note 6 Exceptional items). Related cash
flows have been included in the net cash flows from
operating activities. Additional non-cash exceptional costs
are represented by unrealised FX loss on Euro denominated
loan and tax exceptional items. In FY 2019, exceptional costs
consisted 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 business operation in
FY 2019 was included in investing cash flows, and costs
related to the acquisition were included in operating cash
flows. The net gain on disposal of a business operation of
$17.5m was treated as exceptional as well and therefore not
included in adjusted net income.
Finance income and expense
Adjusted finance expense on a net basis was $(37.0)m in
FY 2020, $24.3m lower compared with $(61.4)m in FY 2019.
The decrease was driven by lower total loan interest costs of
$22.8m resulting from the repayment of debt of $200.0m
and $297.4m on top of mandatory repayments in 2020
and in 2019 respectively, and $1.5m decrease in other net
finance costs including FX impact.
The Group’s reported net finance costs increased by
$51.7m to $(99.1)m in FY 2020 primarily driven by
unfavourable non-cash FX from translation of Euro
denominated tranche of the term loan, partially offset by
the decrease in adjusted finance costs described above.
($’m)
FY 2020
FY 2019
Change Change %
Finance income and
expenses, net
Unrealised FX
(gain)/loss on EUR
tranche of bank loan
Adjusted finance
income and
expenses, net
(99.1)
(47.5)
(51.7)
(108.8)
62.1
(13.9)
76.0
Fav
(37.0)
(61.4)
24.3
39.7
Income tax
In the year ended 31 December 2020, the Group reported
an income tax expense of $(66.7)m, compared with
the income tax expense of $(65.7)m in the year ended
31 December 2019.
Income tax was impacted by the tax expense from the
foreign exchange movements on intercompany loans arising
in the statutory accounts of the subsidiary concerned of
$4.4m (tax benefit of $0.4m in FY 2019).
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51
The tax impact of IP transfer represents amortisation of
the net tax impact of the transfer of AVG E-comm web
shop to Avast Software B.V. (’Avast BV’) on 1 May 2018
(’IP transfer’), when the former Dutch AVG business of Avast
BV (including the web shop) was sold to Avast Software s.r.o.
The total net impact of this transaction was $94.4m, which
was treated as an exceptional item in 2018. The transferred
IP is amortised for tax purposes over 15 years.
The tax impact of other adjusted items represents the tax
impact of amortisation of acquisition intangibles, deferred
revenue haircut reversal11 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 $(76.4)m for FY 2020, resulting in
an adjusted effective tax rate of 17.5% (FY 2019: 19.4%).
The adjusted effective tax rate is the adjusted income
tax percentage of adjusted profit before tax of $436.7m
(defined as adjusted net income of $360.2m before the
deduction of adjusted income tax of $(76.4)m.)
($’m)
Income tax
FY 2020
FY 2019
Change Change %
(66.7)
(65.7)
(1.0)
(1.6)
4.4
(0.4)
4.8
Fav
6.3
6.3
0.0
0.0
–
2.3
(2.3)
Unf
Tax impact of
FX difference on
intercompany loans
Tax impact of
IP transfer
Tax impact of
disposal of a
business operations
Tax impact of
donations
Tax impact on
adjusted items
Adjusted income tax
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)
Adjusted
cash EBITDA
Net change in
working capital
(excl. change in
deferred revenue
and deferred COGS)
Capex
Cash tax
(excl. Dutch exit tax)
COVID-19 donations
Unlevered free
cash flow
Cash interest
Lease repayments
Levered free
cash flow
FY 2020
FY 2019
Change Change %
522.7
519.4
3.4
0.7
19.9
(15.1)
(10.0)
(29.9)
29.9
14.8
(52.0)
(24.5)
451.1
(27.5)
(9.2)
(54.8)
2.8
–
(24.5)
424.6
(45.1)
(9.2)
26.5
17.6
0.0
Fav
49.6
5.1
Unf
6.2
39.1
0.3
414.3
370.4
43.9
11.9
During the period, the Group recorded $(25.4)m exceptional
costs related to the Jumpshot wind-down, which were
largely paid by our Jumpshot subsidiary. Given these cash
outflows represented one-off M&A activity, these costs
were not included in unlevered free cash flow.
Capex investment represents only 1.7% of adjusted
revenue in 2020. That represents a decrease versus 2019
(FY19: 3.4%), when the Group carried out a significant
investment into network infrastructure.
The decrease in the adjusted cash tax is driven by the
Czech Republic true-up system, where a company is obliged
to make quarterly income tax advances based on its last
known tax liability. Upon filing a tax return, tax advances
paid during the year for which the tax return is filed offset
the final tax liability. The cash tax included in the calculation
of unlevered free cash flow in FY 2019 excluded a $49.4m
Dutch exit tax paid in March 2019, as this was treated
as an exceptional item. No cash tax has been treated as
exceptional in FY 2020.
($’m)
FY 2020
FY 2019
Change Change %
Net cash flows from
operating activities
Net cash used in
investing activities
Net cash flows from
financing activities
456.5
399.1
57.4
14.4
(16.4)
(16.7)
0.3
1.8
(484.2)
(440.9)
(43.3)
(9.8)
(4.7)
–
(4.7)
n/a
Cash conversion11
86%
82%
(15.7)
(76.4)
(20.3)
(77.8)
4.6
1.3
22.6
1.7
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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)
Adjusted
cash EBITDA
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
FY 2020
FY 2019
Change Change %
522.7
519.4
3.3
0.6
19.9
(10.0)
29.9
Fav
(52.0)
–
(54.8)
(49.4)
2.8
49.4
(5.1)
Fav
14.5
5.9
8.6
Fav
(49.9)
(1.5)
(48.4)
Unf
(0.8)
(4.2)
3.4
81.0
2.0
(6.3)
8.3
Fav
456.5
399.1
57.4
14.4
The Group’s net cash flow from operating activities
increased by $57.4m primarily due to exceptional Dutch
exit tax payment included in the baseline of $49.4m,
higher adjusted cash EBITDA of $3.3m, lower cash tax of
$2.8m, positive impact of the movement in provisions
and allowances of $8.6m, positive change in FX gains/
losses and other financial expenses and non-cash costs
of $8.3m, positive impact of working capital movement
(excl. change in deferred revenue and deferred COGS)
of $29.9m, lower employer’s costs paid on share-based
payments of $3.4m (see Note 35 Share-based payments)
offset by higher exceptional items of $(48.4)m. The portion
of the exceptional items in FY 2019 directly related to the
disposal of business operation of $(0.3)m was included in
cash flows from investing activities.
The Group’s net cash outflow from investing activities
of $(16.4)m comprised capex of $(15.1)m, settlement
of contingent consideration related to Inloop and Tenta
acquisitions of $(3.9)m, TrackOFF holdback consideration
release of $(0.8)m, contingent consideration received for
disposal of Managed Workplace of $3.0m and interest
received of $0.4m. The Group’s net cash outflow from
investing activities in 2019 of $(16.7)m comprised 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 financing activities
includes $(105.4)m final dividend paid in respect of
2019, $(49.3)m interim dividend paid in respect of
2020, $(200.0)m voluntary repayment of borrowings,
$(61.9)m mandatory repayment of borrowings, interest paid
of $(27.5)m, lease repayments of $(9.3)m, proceeds from
the exercise of options of $34.0m, and net proceeds from
transactions with non-controlling interest $(64.8)m (see
Note 34 Non-controlling interest). The Group’s net cash
outflow in 2019 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).
Financing
The Group further reduced its term loan by the repayment
of $200m from the USD tranche in June and September
2020 (see Note 27 Term loan). As of 31 December 2020,
the total gross debt12 of the Group was $901.0m and the
total net debt12 was $725.6m. The decrease in gross debt
since 31 December 2019 is attributable to $(200.0)m
voluntary repayment of borrowings, $(61.9)m of mandatory
repayment of borrowings, and $(0.3)m decrease in lease
liabilities, offset by negative unrealised FX loss of $62.1m
on the EUR tranche of the loan.
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Avast plc annual report 2020
53
($’m)
31 December
2020
31 December
2019
USD tranche principal
113.8
336.5
EUR tranche principal
722.7
699.8
Margin
USD LIBOR
plus 2.25%
EURIBOR
plus 2.25%
Principal exchange rates applied
The table below summarises the principal exchange rates
used for the translation of foreign currencies into USD.
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.
Revolver/overdraft
Lease liabilities
Gross debt
Cash and
cash equivalents
Net debt
Net debt/
LTM adjusted EBITDA
–
64.5
901.0
USD LIBOR
plus 2.25%
–
64.8
1,101.1
(175.4)
(216.6)
725.6
884.5
1.5x
1.8x
($:1.00)
AUD
BRL
CAD
CHF
CZK
EUR
GBP
ILS
NOK
FY 2020
average
FY 2019
average
0.6876 0.6966
0.1975 0.2545
0.7444 0.7524
1.0624
1.0061
0.0431 0.0437
1.1384
1.1212
1.2860
1.2757
0.2905 0.2797
0.1063
0.1139
Earnings per share
Basic adjusted earnings per share amounts are calculated
by dividing the adjusted net income for the period by the
weighted average number of shares of common stock
outstanding during the year. The diluted adjusted earnings
per share amounts consider the weighted average number
of shares of common stock outstanding during the year
adjusted for the effect of dilutive options. On a statutory
basis, fully diluted EPS was $0.16 (see Note 14 for the
statutory earnings per share).
($’m)
FY 2020
FY 2019
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 earnings
per share ($/share)
Diluted adjusted earnings
per share ($/share)
360.28
322.1
1,022,001,218
973,788,157
14,815,576
44,313,005
1,036,816,794 1,018,101,162
0.35
0.35
0.33
0.32
Dividend
The Directors propose to pay a final dividend of 11.2 cents
per share in respect of the year ending 31 December 2020
(payment of $115.3m). Combined with the interim dividend
of 4.8 cents per share paid in October 2020 (payment of
$49.3m), this gives a total dividend for the financial year of
16.0 cents (total payment of $164.6m), 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
USD on 18 June 2021 to shareholders on the register on
14 May 2021. 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 28 May 2021.
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 3 June 2021 and announced
shortly thereafter.
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Avast plc annual report 2020
54
Organic growth APMs were introduced in FY 2019 to
present the change in revenue and billings resulting from
continuing Group operations. Organic growth rate excludes
the impact of FX, acquisitions, business disposals and
Discontinued Business. It excludes current period billings
and revenue of acquisitions until the first anniversary of their
consolidation. The definitions of non-GAAP measures in the
year ended 31 December 2020 are consistent with those
presented in the report for FY 2019 and there have been no
changes to the bases of calculation.
CFO’s review continued
Proposed dividend timetable
Ex-dividend date: 13 May 2021
Record date: 14 May 2021
Last date for currency election: 28 May 2021
Payment: 18 June 2021
Additional financial guidance
In addition to the main full year 2021 guidance elements
referenced in this document, additional supplementary
points are provided below.
Adjusted depreciation
and amortisation
2021 guidance
c. 3% of adjusted revenue
Capex
c. 2% of adjusted revenue
Adjusted finance cost and
lease repayments
Adjusted effective tax rate
Cash tax
Net change in working capital
(excl. change in deferred
revenue and deferred COGS)
Basic weighted average
number of shares
Dilutive weighted average
number of shares
Exceptional items:
Share-based payments
(incl. employer’s costs)
Amortisation of acquisition
intangible assets
$30m P&L/
$32m cash flow
18%
in line with adjusted
income tax
$10m outflow
1,034m
1,048m
$54m
$23m
PRESENTATION OF
RESULTS AND DEFINITIONS
This full year report contains certain non-IFRS financial
measures to provide further understanding and a clearer
picture of the financial performance of the Group. These
alternative performance measures (APMs) are used for the
assessment of the Group’s performance and this is in line
with how management monitors and manages the business
day to day. It is not intended that APMs are a substitute
for, or superior to, statutory measures. The APMs are not
defined or recognised under IFRS, including adjusted
billings, adjusted revenue, organic growth, adjusted EBITDA,
adjusted cash EBITDA, adjusted net income, and unlevered
free cash flow as defined and reconciled below.
These non-IFRS financial measures and other metrics are
not measures recognised under IFRS. The non-IFRS financial
measures and other metrics, each as defined herein, may
not be comparable to similarly titled measures presented
by other companies as there are no generally accepted
principles governing the calculation of these measures
and the criteria upon which these measures are based
can vary from company to company. Even though the
non-IFRS financial measures and other metrics are
used by management to assess the Group’s financial
results and these types of measures are commonly used by
investors, they have important limitations as analytical tools,
and investors should not consider them in isolation
or as substitutes for analysis of the Group’s position or
results as reported under IFRS. The Group considers the
following metrics to be the KPIs it uses to help evaluate
growth trends, establish budgets, and assess operational
performance and efficiencies.
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Avast plc annual report 2020
55
CONSOLIDATED STATEMENT OF ADJUSTED PROFIT AND LOSS
FOR THE YEAR ENDED 31 DECEMBER 2020 ($’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 & amortisation13
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
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Year ended 31
December 2020
Year ended 31
December 2019
892.9
(117.5)
775.4
86.8%
(122.5)
(71.1)
(86.2)
(279.8)
495.5
55.5%
(21.8)
473.7
(37.0)
436.7
(76.4)
360.2
40.3%
360.2
–
0.35
0.35
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
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. The invoicing
timing may slightly vary through the year with immaterial
impact, as part of our usual renewal offers testing. 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 reversal14 and
gross-up adjustment15. These historical adjustments are zero
from 2020. The following is a reconciliation of the Group’s
reported revenue to the Group’s adjusted billings and
Group’s reported revenue to the Group’s adjusted revenue:
($’m)
Revenue
Net deferral
of revenue
Adjusted billings
FY 2020
FY 2019
Change Change %
892.9
871.1
21.7
2.5
29.2
922.0
39.9
911.0
(10.7)
(26.8)
11.0
1.2
Revenue
892.9
871.1
21.7
2.5
Deferred
revenue haircut
reversal/Other
Gross-up adjustment
–
–
1.8
0.1
Adjusted revenue
892.9
873.1
(1.8)
(0.1)
19.8
Unf
Unf
2.3
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Adjusted EBITDA
Adjusted earnings before interest, taxation, depreciation, and amortisation (‘adjusted EBITDA‘) is defined as the Group’s
operating profit/loss before depreciation, amortisation of non-acquisition intangible assets, share-based payments including
related employer’s costs, exceptional items, amortisation of acquisition intangible assets, the deferred revenue haircut
reversal, and the COGS deferral adjustments16.
Adjusted cash EBITDA
Cash earnings before interest, taxation, depreciation, and amortisation (‘adjusted cash EBITDA‘) is defined as adjusted
EBITDA plus the net deferral of revenue, the net change in deferred cost of goods sold, and the reversal of the COGS
deferral adjustments. The following is a reconciliation of the Group’s reported operating profit to adjusted EBITDA and
adjusted cash EBITDA:
($’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 2020
FY 2019
Change Change %
335.4
344.6
22.7
49.9
65.8
–
–
19.7
2.1
24.9
1.8
88.4
1.8
(0.1)
18.8
2.8
495.5
483.0
29.2
(1.9)
–
38.0
(1.8)
0.1
522.7
519.4
(9.2)
(2.2)
48.1
(2.7)
(9.1)
Fav
(22.6)
(25.6)
(1.8)
0.1
0.9
(0.7)
12.5
(8.9)
(0.1)
(0.1)
3.4
Unf
Fav
4.7
(23.8)
2.6
(23.3)
(2.3)
Unf
0.7
Adjusted net income
Adjusted net income represents statutory net income (profit after tax) 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, IP transfer and donations, less gain on disposal of
business operation. The following is a reconciliation of the Group’s reported net income to adjusted net income:
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($’m)
FY 2020
FY 2019
Change Change %
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
donations
Tax impact on
adjusted items
Tax impact of
IP transfer
Gain on disposal of
business operation
Tax impact from
disposal of
business operation
169.6
248.9
(79.2)
(31.8)
–
1.8
(1.8)
Unf
22.7
49.9
24.9
1.8
(2.2)
48.1
(9.1)
Fav
65.8
88.4
(22.6)
(25.6)
62.1
(13.9)
76.0
Fav
4.4
(0.4)
4.8
Fav
–
(0.1)
0.1
Fav
(4.7)
–
(4.7)
n/a
(15.7)
(20.3)
4.6
22.6
6.3
6.3
–
–
(17.5)
17.5
Fav
–
–
Adjusted net income
360.2
322.3
2.3
(2.3)
37.9
Unf
11.8
CFO’s review continued
Strategic report Governance Financial statements
Avast plc annual report 2020
57
Unlevered free cash flow
Represents adjusted cash EBITDA less capex, plus cash
flows in relation to changes in working capital (excluding
change in deferred revenue and change in deferred cost of
goods sold as these are already included in adjusted cash
EBITDA) and taxation. Changes in working capital are as per
the cash flow statement on an unadjusted historical basis
and unadjusted for exceptional items. In 2019, cash tax
excluded a $49.4m Dutch exit tax paid as this was treated
as an exceptional item. In 2020, the $25.4m Jumpshot
wind-down costs were treated as an exceptional item,
thus excluded from the unlevered free cash flow.
Levered free cash flow
Represents amounts of incremental cash flows of the Group
after it has met its financial obligations (after interest and
lease repayments) and is defined as unlevered free cash flow
less cash interest and lease repayments.
Rounding
Due to rounding, numbers presented throughout this
document may not add up precisely to the totals provided;
however, growth rates are calculated based on precise
actual numbers.
Notes:
1 Organic growth rate excludes the impact of FX, acquisitions, business disposals and Discontinued Business. As such, organic revenue refers to revenue
normalised as described here.
2 Adjusted EBITDA margin percentage is defined as adjusted EBITDA divided by adjusted revenue.
3 Growth rate excluding currency impact calculated by restating 2020 actual to 2019 FX rates (see ’Principal exchange rates applied’). Deferred revenue is
translated to USD at the date of invoice and is therefore excluded when calculating the impact of FX on revenue.
4 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 in the long term with the Group’s privacy priorities as a global cybersecurity company. As the company is also exiting its toolbar-related
search distribution business (which had previously been an important contributor to AVG’s revenues) and the browser clean-up business, the growth figures
exclude all of these (referred to above and throughout the report as ’Discontinued Business’). These revenues were negligible by the end of 2020 in line with
expectations. The Discontinued Business does not represent a discontinued operation as defined by IFRS 5 since either it has not been disposed of but it is
being continuously scaled down, or it is considered to be neither a separate major line of business nor a geographical area of operations.
5 On 1 February 2019, Avast plc sold the non-core asset of Managed Workplace, its remote monitoring and management product, to Barracuda Networks,
Inc. (‘Barracuda’). Managed Workplace was Avast’s solution in the Remote Monitoring and Management (RMM) space, which is sold to Managed Service
Providers (‘MSPs’). This business was not core to our SMB strategy, which focuses on securing the workplace. Barracuda, which has a large existing MSP
base but did not offer an RMM solution, provides a better long-term solution for this business. In addition, Barracuda has signed a reseller agreement with
Avast under which it now resells Avast’s business security solutions to MSPs. In the year ended 31 December 2018, the asset generated low teen revenue
(USD million) with a materially lower margin profile than the Group.
6 Users who have at least one valid paid Consumer Direct Desktop subscription (or licence) at the end of the period.
7 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.
8 ARPC defined as the Consumer Direct Desktop revenue for the financial period divided by the simple average number of Customers during the
same period.
9 Organic growth excludes billings and revenues of Jumpshot, which are considered part of Discontinued Business.
10 ’Fav’ in change % represents favourable growth rate figure over 100%, ‘Unf’ represents unfavourable decline greater than negative 100%.
11 Cash conversion is defined as unlevered free cash flow divided by adjusted cash EBITDA.
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 2020 of $2.6m and accrued interest of $(0.1)m (31 December 2019: $8.7m and $(0.1)m).
13 Depreciation and amortisation included in adjusted net income excludes amortisation of acquisition intangibles.
14 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.
15 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.
16 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.
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Avast plc annual report 2020
58
Risk management
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 emerging risks, setting the
risk appetite and assisting the
Executive Management team with
developing and implementing
the operational plans required to
strategically manage those risks.
The principal and emerging risks facing
the Group are monitored and reassessed
on an ongoing basis, including by horizon
scanning, aided by continuous dialogue
between the Board and management.
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 business model viability, future
financial performance, liquidity, solvency,
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.
They have also tested the Group’s financial
plans for severe but plausible scenarios
related to certain principal
risks materialising.
The Board categorises risks facing the
Group in terms of those which are emerging
(recognised as those which are newly
developing risks that cannot be fully
assessed but that could, in the future, effect
the viability of the company’s strategy)
and those which are imminent (being
those which require immediate and special
attention from the Board and management).
Apart from the businesses’ response
to COVID-19 there were no additional
imminent risks identified this year.
Changes to the principal risks
in the year
In August 2020, the Audit and Risk
Committee carried out an in-depth review
of the emerging risks and principal risks
and uncertainties facing the Group, and
this was discussed again at the November
2020 meeting. As a result of this and
the continuous risk assessment process
undertaken by the Group, the Board
has identified six broad categories of
risk (increased from five last year) which
encompass 32 specific individual risks
(increased from 26 last year).
Over the course of the year, the Board’s
assessment of the principal risks affecting
the business has been extended to cover
the risks associated with the impact of
COVID-19. A number of changes have also
been made to the descriptions of risks and
mitigations in the other principal risks, to
reflect the impact that COVID-19 has had
on the other principal risks. Avast’s recurring
and subscription-based revenues, and
strong liquidity position gives the business
a resilient operational and financial position.
However, the impact of the pandemic still
remains uncertain, and the Board continues
to closely monitor developments in order
to adapt and respond accordingly.
In addition, the Board has included
Competition risk within the six categories
of risk. The Board believes that the
consumer security industry is becoming
more competitive and complex, in particular
due to the inroads Microsoft is making with
its Windows Defender antivirus solution.
In addition, there is an ever-increasing
advancement into security and privacy
related areas by the biggest technology
companies in the market, including
Microsoft, Google and Apple. As well as
increasing product specific competition,
such companies are increasingly developing
operating systems with native security built
in, so not only is there a risk that users may
favour competitor’s products over Avast’s
products, there is an increasing risk that
users may accept bundled products and
solutions provided by such companies
rather than separately purchasing the
Company’s products and solutions.
Concentration risk has reduced with the
continued growth of the Company and is
therefore seen as a lower risk within the
overall risk framework and so has been
removed from the list of principal risks
and uncertainties facing the Group.
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Risk management
Strategic report Governance Financial statements
Avast plc annual report 2020
59
The principal risks and uncertainties which could have a material adverse effect on the Group’s business, results of operations, financial condition and/or prospects are:
Description of Risk
Movement
Potential Impacts
Mitigation and Strategy
Global Pandemic
An infectious disease spread on
a global scale can lead to the
imposition of Government controls
on the movement of people
with the associated cessation
of large parts of the economy
for a significant period of time.
This brings a considerable level
of uncertainty in terms of the
potential widespread economic
downturn and/or our employees’
ability to continue working.
Competitors
The consumer security industry
is becoming more competitive
and complex, in particular there
is a progressive advancement of
Microsoft’s Windows Defender
antivirus solution.
Additional new competitive
threats may emerge. Technological
developments from current and
new competitors can develop
quickly and disrupt the market.
Current and new competitors may
limit access to standard product
interfaces and thereby inhibit
our ability to develop products
on their platforms.
Future financial performance.
Solvency.
Liquidity.
In particular:
The low level of business activity and reduced customer
demand can lead to reduced revenues which may impact
the liquidity and ultimately solvency of the business.
Key employees or a large proportion of employees might
not be able to continue to work.
Employees may not be able to be deployed to where they
are needed.
Business model viability.
Future financial performance.
Future operational performance.
Reputation.
In particular:
An increase in competition could result in lost business,
reduced revenue and reduced profitability impacting our
future financial and operational performance.
New entrants into the security software industry, including
those in emerging markets, may become our direct competitors
and erode our market share. Our results of operations will be
materially and adversely affected if our competitors succeed
in marketing products with better performance, functionality
or at lower prices than our products. This may also have an
impact on our reputation in the market.
Maintenance of a strong balance sheet able to withstand a sustained
period of lower business activity.
Investment into information technologies and well-being and safety of
all employees to ensure business continuity while working from home.
Succession planning at the Board and senior executive level to ensure
business continuity in the event of disruption to the Board and senior
leadership team.
We track the activities of our competitors through our business
development and product functions and this insight is used to adapt
our strategy.
We continue to enhance our product portfolio through internal
development and partnering and acquisition.
We maintain a strong focus on our core target markets and work with
partners to extend our reach in our chosen verticals.
As part of our strategy, we aim to develop new services and products
which are complementary rather than in direct competition to our
competitors and move into new spaces.
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60
Principal risks and uncertainties continued
Description of Risk
Movement
Potential Impacts
Mitigation and Strategy
Offering
The risk is that our product
and service offerings stop
appealing to users.
Business model viability.
Future financial performance.
Solvency.
Liquidity.
Reputation.
In particular:
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, this will impact our
business model viability.
Our revenues, competitive position and reputation could be
materially and adversely affected if our new products and
product upgrades fail to achieve widespread acceptance
and do not appeal to users.
People
The risk is that talented
people leave or do not join
our workforce.
Future financial performance.
Future operational performance.
Solvency.
Liquidity.
Reputation.
In particular:
Our performance largely depends on the talents and efforts of
highly skilled individuals, so our future success depends on our
continuing ability to identify, hire, develop, motivate, and retain
highly skilled personnel for all areas of our organization.
Competition in our industry for qualified employees is intense.
If we cannot attract or retain a talented workforce, we will not
remain competitive in our industry.
Failure to attract and retain key capabilities across the business
could have a detrimental impact on our ability to meet our
strategic objectives.
Additionally, the success of our business is dependent to a large
degree on the continued services of our directors and executive
officers and our other key personnel who have extensive
experience in our industry. If we lose the services of any of
these integral personnel and fail to manage a smooth transition
to new personnel, our business could suffer.
Our strategy to address this risk and achieve long term strategic
objectives is to invest in product innovation, product management,
quality assurance, and customer care. The COVID-19 environment has
not halted our continued investment.
We carry out considerable market research around the viability of a
new product before launch to ensure we provide the right products
to the right consumers.
We have simplified our organisational structure, establishing
multi-disciplinary, autonomous teams that are focused on specific
areas and deliverables to ensure we can meet the changing needs
of our customers.
We continue to develop a clearly defined people strategy.
The Company has established a Diversity & Inclusion Committee
which aims to create a culture that attracts, develops and empowers
diverse talent and make Avast an attractive place to work.
We believe we need to create an exciting brand; provide attractive and
competitive compensation; provide our people with global mobility;
recruit from a broad pool of candidates; promote based on diversity
of backgrounds, skills, cultures, gender, and ethnicity; and provide
effective training for personal and professional growth in order to
achieve long term strategic objectives.
Employee engagement is monitored formally every six months
through a Group-wide survey and the results are used to focus on
improvement activities.
We monitor attrition rates by business function and location in order
to identify issues and, where necessary, take restorative action.
In response to COVID-19 we developed a program of employee
development, support and wellbeing as well as remote work training
with self-care help and performance management coaching.
COVID-19 provided the catalyst to rethink our overall working
approach and resulted in our Whole Life Flexibility offering to
employees. See pages 34 and 68 for further details.
Gross Change since last year before controls.
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Avast plc annual report 2020
61
Description of Risk
Movement
Potential Impacts
Mitigation and Strategy
Data privacy and our
security systems
The risk is that the data we store,
such as customer data, and the
systems that store, manage
and process this data become
compromised. The Group’s data
and systems risk has increased as
a result of higher levels of online
activity during COVID-19 as well
as due to increased cyber
disruption and threats.
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.
Business model viability.
Future financial performance.
Future operational performance.
Solvency.
Liquidity.
Reputation.
In particular:
Failing to protect the data we store and the systems that
store this data could:
– have a material adverse impact on our reputation, our ability
to provide services and updates, potentially resulting in a
material decline in our user base;
– result in increased litigation (including class actions),
investigations, fines and censure by governmental
and regulatory bodies, resulting in negative financial
consequences; and
– impact management time and resources.
Business model viability.
Future financial performance.
Future operational performance.
Reputation.
In particular:
New laws or changes in the interpretation or application of
existing laws may impose restrictions and obligations on the
Group that negatively impact the Group’s ability to operate
or compete effectively, its profitability and ability to grow.
Failing to comply with regulatory requirements could result in
increased litigation (including class actions), investigations,
fines and censure by governmental and regulatory bodies,
resulting in negative financial consequences.
Impact on management time and resources.
We strive for strong, effective, and comprehensive data and systems
security and governance. As a result, we continue to implement a host
of new security processes and measures to protect the data we store,
systems that store such data, and the updates we provide to provision
our products and services.
Embedded fundamental privacy values into the business through the
’rule of THUMB’ when we design a new product or evaluate a new
internal procedure. See page 39 for further information.
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.
We ensure sufficient resources and employees with appropriate
experience are hired.
We continue to focus on the enhancement of internal controls around
data governance through the Data Office, an internal team responsible
for ensuring data security, privacy, integrity and quality for all Avast data.
We have built a ’red’ team as part of the Information Security function
responsible for finding weaknesses within the Group’s systems and
technologies before bad actors can.
We are initiating the migration of our systems and infrastructure from
on-premises to the public cloud to meet increasingly complex security
demands in a cost-effective way.
We actively monitor global legal developments to identify and meet
our regulatory obligations and respond to emerging requirements.
We participate in industry-wide lobbying.
The Group maintains appropriate oversight and reporting,
supported by training, to provide assurance that it is compliant
with regulatory requirements.
The Group continues to make resource investments in line with its
strategy of being the market leading security company, having recently
appointed a Chief Privacy Officer to proactively work with regulators
across multiple jurisdictions.
Gross Change since last year before controls.
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Avast plc annual report 2020
62
The impact of Brexit on the current and
future employees: 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.
The Board will continue to assess the impact
of the post-Brexit EU-UK relationship on
the different aspects of the business as
the relationship evolves and the detail is
further understood.
Principal risks and uncertainties continued
Brexit
In June 2016, voters in the United Kingdom
approved the withdrawal of the United
Kingdom from the European Union
(’Brexit’). In March 2017, the UK government
initiated the exit process under Article
50 of the Treaty of the European Union
and on 17 October 2019 entered into the
EU-UK Article 50 withdrawal agreement
which established the terms of the United
Kingdom’s orderly withdrawal from
the EU. Under the terms of the ratified
EU-UK Article 50 withdrawal agreement,
a transition period was agreed which
ended on 31 December 2020. During
that transition period, most EU rules and
regulations continued to apply to the
Group in the UK.
Following the end of the transition period,
the UK and the EU have agreed a number
of new agreements governing their
relationship, including a new trade deal to
govern their trading relationship (The EU-UK
Trade and Cooperation Agreement).
Additional considerations
The Board monitors potential future
risks that may increase in importance, in
particular, there can be no assurance that
third parties will not assert that our products
and intellectual property infringe, or may
infringe, their proprietary rights. Any such
claims, regardless of merit, could result in
litigation, which could result in substantial
expenses, result in the Group having to
pay substantial damages (directly or on
an indemnity basis), divert the attention
of management, cause significant delays,
materially disrupt the conduct of our
business and have a material and adverse
effect on our financial condition and
results of operations.
Climate change
Environmental mismanagement could
lead to failure across interdependent
networks, disruption to power networks,
flooding and reputational damage, while
improvements could provide opportunities
for increased business efficiencies in the
medium to long term. As part of a program
to embed structured ESG processes into the
organisation, Avast is committed to taking
steps to mitigate environmental impacts of
the business, including improving tracking
of emissions data and minimising emissions.
The impact of Brexit and the new trade deal
on all key aspects of the business, including
on the corporate structure, sales, tax,
IT infrastructure and payment processing
has been considered. Whilst there may be
additional administrative burdens, the Board
considers that Brexit and the new trade deal
will have a limited impact on the Company
and its business.
The impact of Brexit on the transfer of
data: The EU-UK Trade and Cooperation
Agreement extends the transition period
during which transfers of personal data
to and processing of personal data in the
UK is treated like data processing in the
EU until 30 April 2021. This transition
period will automatically be extended by
further two months, unless each of the
EU or UK objects to such an extension.
It is expected that before the expiry
of the transition period, the European
Commission will decide on adequacy of
the UK allowing the free flow of personal
data to the UK to continue. In the event
that there is no adequacy decision by
the European Commission, the UK will
be regarded as a third country. In such a
case, the Group is ready to implement the
necessary contractual documentation
(such as data transfer agreements based
on standard contractual clauses) and
other necessary measures to ensure that
personal data can be transferred to our
group companies and partners located
in the UK.
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63
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 59 to 62 of the
Annual Report. This included consideration
of the potential impact of the current
COVID-19 environment on the business as
well as the impact of increased competition
risk. Whilst the impact of COVID-19 on
the business persists, the business’s
long-term strategy remains unchanged.
As discussed in the CFO Review section,
the initial lockdown brought a temporary
uplift in installations and transactions,
which normalised to pre-COVID levels
early in the second half of the year. This
spike contributed to higher revenue in
the second half of the year. As such, the
pandemic environment presents not only
risk, but also an opportunity for the Group
as it contributes to the market expansion.
Despite the continued uncertainty, we
believe that the performance of the
business through the pandemic to date
demonstrated the resilience of our business
model and relevance of our purpose.
Based on our assessment, the Directors
confirm that they have a reasonable
expectation that the Company will be able
to continue to operate and to meet its
liabilities as they fall due over the three
years to 31 December 2023. The Group
prepares annually, and on a rolling basis,
a three year strategic plan, whose
foundation is the more detailed one year
budget (also prepared annually for review
with the Board). The output of this three
year plan is used to perform liquidity 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 a three-year period 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.
Whilst 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
longest of the Group’s sales commitments
(typically one to three years in duration,
with a weighted average contract life of
around fourteen 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, liquidity 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. While there might
be additional administrative burden, Brexit
has not had any material impact on Group
as the United Kingdom represents only
a single-digit share of Group’s revenue.
Other risks included reductions in certain
revenue streams driven by increased
competition risk or 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 Customer
Desktop business. Based on the downside
scenarios applied to the base case forecast,
individually and in combination, there
would be no forecast liquidity issue or
covenant breach during the going concern
assessment period. In addition to the
principal risks, the group’s term loan is due
for repayment within the viability period.
The group does not anticipate any issues
in refinancing this debt prior to repayment
being due.
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 the material contraction in revenue
of the largest business unit that would
be required to break the Group’s covenants
or exhaust all available cash. The Directors
concluded that the breach of the Financial
Covenants could be only possible in the
extreme situation of approx. 40% year-on-
year billings contraction (or approx. 75%
over 3 years), with no meaningful mitigating
actions, and while still paying dividends.
The process of identifying, assessing and
managing principal risks is set out in the
Audit and Risk Committee Report on pages
99 to 101. 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, robust and defensive in both short
and long term.
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64
People and culture
Home becoming the
new workplace for
our people
2020 proved to be the year in
which the people side of business
showed its critical importance.
As the COVID-19 pandemic forced
businesses around the globe to change
their operations and rethink their processes
overnight, the home became the new
workplace for many. Businesses became
more vulnerable as their workplaces
became more distributed, and scammers
and hackers seized every opportunity
to capitalise on the chaos and confusion
created by the pandemic. Those
circumstances also reinforced the enormous
responsibilities that we have in keeping
people safe and secure online. Even as we
saw our purpose become more salient than
ever, Avastians found themselves dealing
with pandemic-imposed restrictions,
upheaval to their personal lives, and the
uncertainty that was the hallmark of 2020.
Avastians responded to 2020’s difficult
circumstances with determination,
dedication, and empathy. As we adjusted
to a new normal that saw everyone working
from home, we became accustomed
to showing up in each other’s homes,
meeting each other’s children, and we
became increasingly mindful of maintaining
connections with colleagues and finding
ways to take care of each other and our
workforce. That spirit extended beyond
Avast, as well. Our colleagues participated
in numerous local relief efforts to
alleviate the impact of COVID-19 in their
communities, and helped raise hundreds
of thousands of dollars for COVID relief
through an employee matching programme.
As a business, we also recognised the
opportunity to reflect on the most important
aspects of our culture, to examine in greater
depth how we support our people to do their
best work, and to make important decisions
about how the organisation is structured
and what kind of world-class people
experience will enable Avast to succeed
and grow.
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COVID-19 and
the new normal
Our people have risen to
the challenges presented by
COVID-19, not least by readily
adapting to the changes in
working conditions required by
the pandemic.
In March 2020, we closed our offices
worldwide to protect staff health and safety
and to ensure that we did not contribute
further to community transmission. As we
closely monitored the situation around the
globe throughout the year, we concluded
that keeping our offices closed was one of
the most important things we could do to
continue to support the health of our wider
community as well as our workforce.
Like every other business in 2020, Avast
was deeply impacted by the COVID-19
pandemic, effectively switching to an
entirely remote setup overnight in mid-
March. Differing restrictions across each
of our 19 global offices and the rapidly
changing medical and governmental
guidance around COVID-19 forced our
entire workforce to become more flexible,
adaptable, and resilient. COVID response
teams in each of our locations in the
Czech Republic, US, UK, Germany, Serbia,
Slovakia, and Switzerland supported
Avastians with up-to-date information
about changing government restrictions
and local news about safety measures.
Our global facilities management team
worked with local coordinators to manage
safe and limited access to office premises
for employees who needed to retrieve
equipment or belongings. They also
enabled the delivery of office furniture
and equipment to people’s homes, and
in cases where working from home was
exceptionally difficult, we worked with
employees to find space in safe coworking
centres or to purchase appropriate furniture
or equipment to enable the remote set up.
Setting up workspaces was only one aspect
of our support, however. Managers were
encouraged to be flexible with respect
to working hours and schedules, and our
communication team set up a variety of
channels to enable people to share their
experiences, tips, and stories of working
from home to help Avastians cope and
build a strong sense of community.
Supporting our partners,
caring for customers
The switch to working from home not
only impacted our employees, but also
external partners who provide customer
care and support services around the
clock and across the globe. While at least
some remote working was common to
many Avastians prior to the pandemic,
this was not the case for our main partners
Sitel and Winco, which operated from the
usual large open spaces in their contact
centres. These teams provide more than
80% of our customer care network capacity
and employ over 450 people serving
customers on our behalf.
Our partners are a
natural extension of the
Avast Care family and
the Avast brand, we all
share and live by the
same value of Customer
Comes First.
Nigel Bowman
VP, Customer Success
Avast’s care team assisted the partner
centres in deploying work-from-home
solutions across the network. In just
six weeks, we adjusted all the required
processes and provided the equipment
to fit the remote work setup while
remaining compliant with relevant data
security standards. This unprecedentedly
quick change in operations required the
cooperation and major effort from many
teams, including Avast’s in-house customer
care teams, who took over a portion of
the support volume normally covered by
partners in order to minimise disruption to
customer service. We assured continuity
of our customer support throughout
this challenging period and maintain
transactional NPS scores above 20 for
Avast and above 40 for AVG.
The business continuity plan and operating
model have been revised to reflect the
new normal of a post-COVID world and
measures are now in place to ensure that
we will be able to flexibly adapt in case of
further external disruptions.
Wellbeing support services
While we were able to pivot our workforce
quickly to working from home and to
consistently provide needed material
support, we also recognised the toll that this
unexpected change – and its long duration
– were bound to take on employees, and
we increased wellbeing support for all
Avastians, which could be accessed at
any time.
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People and culture continued
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
We began to offer free online medical
consultations with physicians and specialists
for all Avastians and their families through
two third-party providers. Although
the launch of this service was tied to
the circumstances of the pandemic,
we will continue to offer this as a
permanent benefit.
Recognising the importance of mental
health, we worked with several external
providers to offer online programming,
including workshops ranging from webinars
on resilience to movement and meditation
courses, anonymous counselling services,
and personal and professional coaching
sessions. Avastians participated in 260
individual consultations with three external
coaches, 160 people joined 15 mental
resilience sessions and 156 people joined
seven physio webinars.
We also engaged with our customer care
partners, who enacted additional measures
to protect their staff’s health and safety,
including alternate accommodation and
private transportation to enable employees
in heavily impacted areas to continue
working safely, as well as compensation
to those objectively unable to work due
to the pandemic.
156
people joined seven
physio webinars
Mobilising
our people
Drawing on the lessons of 2020,
Avast leadership recognised the
need to adapt for a future that
will require more flexibility,
greater resilience and agility
than ever before.
In clarifying our Company purpose and long-
term strategy, we also took the opportunity
to more strongly align our organisational
structure, employee value proposition,
culture, and incentives to our long-term
vision. Our five-step approach to reaching
that vision is a laser focus on our customers,
technological innovation, growing our B2B
segment, bringing our brand to life, and
optimising our structure for simplicity
and growth.
Simplification and optimisation
In October, Avast reorganised to simplify
the Company structure and support future
growth, resulting in changes to leadership
roles and the departure of just over 10%
of staff.
Peter Turner was appointed to a new role
as Chief Commercial Officer, with all
sales, acquisition, and product marketing
functions reporting into him. Vita Santrucek
took on the role of Chief Product Officer,
responsible for all product development
and engineering functions.
The IT function was decentralised into the
teams led by Vita Santrucek, Chief Product
Officer, and Jaya Baloo, Chief Information
Security Officer (CISO), resulting in the
departure of our Chief Information Officer,
Detlef Steinmetz, at the end of the year.
Across the organisation, we have created
new, multi-disciplinary teams that can work
autonomously, focussing on specific areas
and deliverables, driven by performance
and measured by clear metrics.
Change Engagement Group
Following the announcement of the
reorganisation to support our simplified
structure and growth, Avast instituted
a new employee feedback platform,
the Change Engagement Group (CEG).
It comprises a representative set of
employees from around the business,
and is led by Ondrej Vlcek, Rebecca
Grattan, Chief People and Culture
Officer (CPCO) and the Designated
Non-Executive Director for Employee
Engagement, Pavel Baudis. The CEG
met weekly during the last quarter of
2020 to provide feedback about how
the transformation was being received
and to make recommendations to
leadership based on that feedback.
Seen as a critical platform for engaging
employees and representing their
concerns to leadership, the CEG will
continue to meet throughout 2021 to
provide insights and recommendations
to management.
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Avast culture
In 2019, we had already begun a journey to
rearticulate and strengthen Avast’s culture.
Four key values – Customer Comes First;
Think Big; No BS, Ever; and Give Back –
were developed to support a culture of
responsibility, innovation, and autonomy.
In 2020, we continued this journey through
engagement with our workforce, although
the form was different than expected. In
April, over 600 Avastians participated in
webinars to learn about the initiative and
many provided their feedback on the ’beta
version’ of the Avast Culture Book. While
engagement with the exercise was high, as
the pandemic wore on, we saw an increasing
need to reflect on the changes necessary
to ensure Avast’s culture is aligned to a
radically different post-COVID reality,
putting the culture initiative as such on
hold in favor of company-wide discussions
around the future of work.
Ultimately, Avast leadership articulated the
following principles, which describe the
culture that we are committed to forging
within the Company.
These principles underpin the concept of
Whole Life Flexibility that was introduced
at the end of 2020, and will be the basis
for continued work on our culture
throughout 2021.
Our principles
Avast Board involvement in
Avast culture and engagement
Our Board plays an active
role in monitoring workforce
engagement and culture.
One Board meeting per year focuses
specifically on people and culture,
looking at the outcomes of the prior
year employee survey and plans for
addressing the results. Rebecca Grattan,
CPCO, regularly updates the Board on
workforce engagement and culture,
which are monitored in several ways.
In 2020, the Board had sight into both
the annual employee engagement
survey, and Growth Mindset survey,
which provide insight into global
attributes of culture and areas for
improvement and growth.
Further, the succession planning
exercise undertaken by the Nomination
Committee included an assessment
against a capability and cultural matrix.
Pavel Baudis, Designated Non-
Executive Director for Workforce
Engagement, participates in initiatives
to connect with employees and better
understand engagement concerns.
He conducted site visits in early
2020, prior to the pandemic travel
restrictions, and presents at monthly
employee onboarding sessions.
Mr Baudis is a member of the Avast
Diversity Committee and the Change
Engagement Group. Throughout 2020,
he also participated in consultations
with employees on the Future of Work
agenda, and reports regularly to the
board on engagement and culture,
based on his contact with employees.
We work in ways that are mature and
adult (based on mutual trust and
transparent, open communication)
We hold each of us accountable
We promote an environment
that’s achievement-focused,
not input focused
We encourage everyone to
behave autonomously
We work effectively asynchronously
In order to assist colleagues in understanding
the behaviours that support these principles
and the culture we are seeking to achieve,
all Avastians were invited to participate
in a Growth Mindset survey. Designed in
collaboration with the Chemistry Group,
a talent strategy consultancy, the survey
measured growth mindset in the context
of Avast’s existing values and behaviours.
Over 1,300 Avastians participated in the
voluntary survey. Each participant received a
detailed individual feedback report showing
them how to embrace these concepts in
their daily work and development planning.
Webinars to help colleagues understand and
interpret their individual results were held in
November and development interventions
for managers and colleagues are built
into our 2021 organisational learning and
development planning. In addition, we
will continue to incorporate the Growth
Mindset and associated behaviours in our
people processes and culture development
throughout 2021.
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People and culture continued
COVID-19 and the Future of Work
During the first weeks of the COVID-19
crisis, we addressed the immediate needs
of safety, stability, and security to help
Avastians transition to remote working.
With COVID-19 response teams in place,
Rebecca Grattan, CPCO, provided timely
updates and resources for the workforce
in the form of ’Our New Normal’ weekly
newsletter. A dedicated communications
team also created additional intranet
resources and updates via dedicated Slack
channels to keep colleagues up to date
with the rapidly changing situation in each
1,300
Avastians participated in the
voluntary survey
location. These solutions helped to stabilise
the organisation in the short term. However,
the ongoing pandemic and the move to
long-term working from home necessitated
a search for solutions to meet the future
needs and individual circumstances of
Avast’s workforce.
In June, the Future of Work project was
established to seek feedback and input from
Avastians across the globe and to accelerate
the creation of well-tailored solutions
for a world-class employee experience,
regardless of external circumstances.
Over 120 staff joined the project to work
directly with the People and Culture team
leadership to gather and provide input
from employees throughout the business.
Their feedback and proposals informed
our decision to implement the Whole Life
Flexibility policies, which we expect will
become a strong enabler of employee
engagement, organisational productivity,
and talent attraction.
Whole Life Flexibility
We believe that when you ask people to
give their best – which we expect at Avast
– then you must do everything possible to
enable them to do so and to reward them
when they do. In a year of remote working,
our colleagues have more than proved
their dedication, ability, and desire to
get things done even in the most difficult
circumstances. When they needed to
reimagine the structures of their days to
accommodate for work, home schooling,
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and new caring responsibilities, Avastians
showed that they were more than capable
of organising their lives to meet their
needs and those of the Company and our
customers. Although it became a de facto
way of operating in 2020, this ’everyday
flexibility’ will be the official policy of
Avast, effective from 1 January 2021.
Empowering our people by removing any
strict requirements on specific work start or
end times, number of daily working hours,
or taking time off in the middle of the day to
fulfill other responsibilities will enable them
to be more productive and engaged.
We also support Whole Life Flexibility in
two additional groundbreaking ways. First,
Unlimited Personal Time Off (PTO) will
become standard for our employees in all
jurisdictions, allowing them to make the
right choices when it comes to taking days
off for mental wellbeing, spending time
with family, relaxing, and pursuing personal
passions, provided they are able to meet
the obligations of their role, and subject to
manager approval. Second, employees can
choose between two working modes: Work
from Office (WFO) or Work from Anywhere
(WFA). Those who choose WFO will have
their dedicated desk and equipment set up
for them in their local office, while still being
able to occasionally and at their discretion
work from home.
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People and culture continued
Those who choose WFA will have standard
equipment set up for them in their home
office, be able to work remotely from
anywhere (in compliance with our WFA
policy), and still have access to hot desks
and shared working/collaborative spaces
within our local offices. While managing
these arrangements adds a layer of
complexity to operations, we are committed
to working with employees on a case by
case basis to forge a truly global workforce
and unlock the benefits that come from
providing this level of flexibility and support.
Offices are rapidly becoming less important
as locations for dedicated working, but if
2020 has taught us anything, it is that a
balance between physical and remote work
is important. In 2021, Avast offices will be
redesigned to provide different types of
working environments, to enable focused
work, group collaboration and co-creation,
and socialising to spark creativity and create
connection among our colleagues.
Finally, we are committed to making all
Avast employees shareholders and creating
an alignment between their long-term
compensation and Avast’s strategic goals.
Beginning in 2021, eligible employees will
receive a one-time RSU grant, equivalent
in value to 40% of their annual base salary,
and capped at 10,000 units. Through the
Employee Share Matching Plan, employees
will continue to be able to receive one free
share for every three purchased shares after
a two-year holding period, and Avast will
continue to grant additional RSUs to a select
group of high-performing and high-potential
employees each year as a part of its existing
long-term incentive plan.
Learning and development
Avast supports our people to grow
personally and professionally. Training and
people development resources went entirely
online for most of 2020, as we adapted
to our remote working environment. In
addition to providing our normal offerings
virtually, we introduced several additional
modules around change management and
resilience to help employees and managers
gain the skills they needed to navigate the
tumultuous year.
We emphasise leadership development
through focused training and programmes
for middle managers and people leaders.
In 2020, 43 managers attended the
First Line Leadership Academy, which
prepares leaders for the challenges of a
rapidly evolving business environment.
An additional 63 managers deepened their
skills through the Advanced Leadership
courses, which emphasise recognising
and developing talent. Our emphasis on
leadership development continues in 2021,
ensuring our leaders are well equipped to
support Avast’s culture and deliver on the
Company’s long-term strategy.
43
managers attended the First Line
Leadership Academy
Self-directed learning is available to all
Avastians through online learning platforms
offering technical training courses, language
training, and personal development on
demand. The Avast Virtual University
provides on-demand and live, interactive
online training, certifications, and resources
in a range of technical and professional
areas, through a third-party online platform.
During 2020, there were 350 active learners
on the platform; they accessed 1,710 pieces
of content, watched 37,000 minutes of
training and attended 89 live webinars.
Avast learners are also engaged in
on-demand and live online tutoring and
courses in English, French, German, and
Czech, as required by business needs.
Employee engagement
Engagement with our employees in 2020
took on multiple forms, with a focus on
increasing communication from leadership
and providing additional feedback channels
for employees. These channels included
our COVID-19 response teams, as well as
open discussions with Avastians about our
Company culture and values, and our annual
Your Voice employee survey.
Your Voice engagement survey
Avast measures employee engagement at
the end of each year through the Company-
wide Your Voice survey. The survey is
launched in December and closes in early
January, in order to capture engagement
at the end of the calendar year. For 2020,
engagement was 65%, based on the
participation of 81% of our workforce.
This compares with an engagement score
of 73% and participation of 89% in 2019.
Given the tumultuous year that our
employees have endured, as well as the
strategic restructuring during the last
quarter of 2020, management expected to
see a decrease in employee engagement.
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People and culture continued
While Avast has endured the impact of
COVID-19 well, there has been an inevitable
toll on our workforce. Many employees are
weary of uncertainty, but the majority are
motivated by the Company’s vision and just
cause: 74% are proud to work for Avast and
70% say they feel like they belong at the
Company. In comments, Avastians revealed
that they believe we can do even more to
focus on customers and listen to employee
feedback. We value our colleagues’ candour
and willingness to share their insights about
what needs to be improved, and a detailed
analysis of the survey results to identify key
concerns is already under way.
Even with the challenges our colleagues
faced this year, there is a lot of optimism.
Employees’ responses indicate that we
have the building blocks of a highly aligned,
high-performance culture, and that Avast
is primed well for longer-term sustainable
growth. Questions around teamwork and
ownership, for instance, are 84% positive,
and management is rated at 83% positive.
Employee engagement and cultural
alignment is always an ongoing project.
Avast management is committed to
responding to employee concerns,
increasing and improving communication,
and stabilising the organisation to elevate
engagement levels in 2021.
84%
positive responses on teamwork
and ownership
A new position of Global Engagement &
Culture Partner was established at the end
of 2020 to increase engagement in order
to drive better business outcomes, and
ensure that we become more inclusive, and
give everyone a voice by creating a culture
of two-way communication and feedback
between all leaders and employees.
A practical and simple action plan to
address the issues raised will be released
in Q1, and this person will work closely
with leaders throughout the year to
implement changes and follow up on
employee concerns.
I’m excited to bring my
product background
to this role and to show
leaders how high employee
engagement correlates
strongly with better
business outcomes,
like increased revenue,
innovation, quality,
and retention.
Paul Yung
Avast’s first Global Engagement
& Culture Partner
Internal communication
Effective internal communication is the
backbone of employee engagement. Driven
initially by the pandemic and the demands
of remote working on our workforce,
we have increased the focus on internal
communication throughout 2020. We have
focused both on increasing the volume and
regularity of substantive communication
from our leadership through All Hands
meetings, Ask Me Anything and Q&A
sessions with leadership, and executive
communications via email and Slack.
In addition, we have introduced additional
mechanisms, such as the Future of Work
initiative and the Change Engagement
Group, to increase cross-functional
communication and collaboration,
and increase feedback and bottom up
communication. At the end of 2020, at
the recommendation of the CEG, we have
also begun a series of open conversations
specifically on improving and maintaining
good internal communication to better
support our business objectives. This work
will continue in 2021, as we embrace the
changes to our ways of working engendered
by the Whole Life Flexibility platform: more
hybrid, asynchronous and flexible working,
with some employees returning to offices
as the situation with COVID-19 evolves
and many others globally distributed and
continuing to work from home.
Diversity and
inclusion
The Avast Board and management
are responsible for ensuring that
Avast meets its diversity targets
and fosters the appropriate
inclusive culture to attract, retain,
and advance diverse talent.
Avast believes that diversity in all its
dimensions is critical to organisational
success, and we actively work to
remove bias from all internal processes
and practices. Avast’s Diversity Policy
documents our commitment to ensuring
that all recruitment, promotion, and access
to training and resources are done without
bias and are free from discrimination. The
policy also states that it is the responsibility
of all Avastians for fostering an inclusive and
safe working environment for all colleagues.
In 2020, Avast appointed its first Diversity,
Inclusion and Communities Director, Dita
Formankova, to set the Company’s strategy
for recruiting and retaining female talent,
connecting with diverse communities,
and creating an inclusive culture to foster
innovation. Dita previously founded and
was the CEO of Czechitas, a Czech NGO
inspiring, educating, and empowering new
talent into IT with a community of over
25,000 alumni.
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The diversity and inclusion (D&I) team and
agenda are advised by the Diversity and
Inclusion Committee, which meets every
two months and is chaired by Chief Financial
Officer Philip Marshall. Rebecca Grattan,
CPCO, Jaya Baloo, CISO, Pavel Baudis,
NED and Chair for Workforce Engagement,
and Maggie Chan Jones, Independent
NED are also on the Committee, along
with Dita Formankova and employee
representatives from across the business.
Within our industry, gender diversity is
sorely lacking, and we have a responsibility
to improve the representation of women
within leadership and technical roles. We
have therefore concentrated on making
measurable improvements to gender
diversity at the board and executive
levels, and will focus on increasing the
representation of women in technical and
leadership roles in 2021. Signalling his
personal commitment, Ondrej Vlcek joined
the 30% Club, a global campaign of CEOs
and chairpersons which aims to increase
female representation at the board and
executive level to at least 30% through
voluntary action. The Company aims to
reach 33% or higher representation on our
Board and Executive Management team by
the end of 2021.
Employee Category Women
Men
%
Women
%
Men
Board
Executive
Management
team*
Senior
management
(active
employees)**
Staff (active
employees)**
3
3
8 27% 73%
8 27% 73%
17
48 26% 74%
454 1234 27% 73%
Numbers as of 31 December 2020
*
Executive Management team includes CEO and
his direct reports
** Senior management excludes administrative support
staff reporting to the executive team
*** Staff excludes Executive Management team, but
includes senior management
Board diversity
At the end of 2020, Avast’s 11-member
Board comprised three women and four
men as independent Directors and four male
non-independent Directors (Avast’s CEO,
CFO, and two Company founders). Two of
Avast’s long-serving independent Directors,
Ulf Claussen and Erwin Gunst, will be
leaving the Avast Board following the next
Annual General Meeting (May 2021) as their
tenure expires. With their departure, we are
actively recruiting one new independent
Non-Executive Director and the board size
will be reduced to 10. With 10 members,
Avast’s Board composition will be at least
30% female.
Further information about the Board’s
diversity policy can be found in the
Nomination Committee report on
page 103.
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Executive diversity
The gender balance of Avast’s Executive
Management team improved from 9%
to 27% over the course of 2020 as the
composition of the team changed. At the
beginning of 2020, Avast’s Executive
Management team comprised one woman
and nine men, following the departure of
Robin Selden, Chief Marketing Officer
(CMO), at the end of November 2019.
Two women, Rebecca Grattan, CPCO,
and Lisa Carey, CMO, joined in H1 2020,
along with Julio Bezzera, Chief Strategy
Officer. Gagan Singh, Chief Product Officer,
and Alan Rassaby, Chief of Staff, left the
organization in H1. Detlef Steinmetz,
Chief Information Officer, left at the end
of 2020. Thus, at the beginning of 2021,
the Executive Management team comprises
30% women.
Additional changes to the Executive
Management team in 2021 will bring the
gender diversity to 40% female. Kelby
Barton, General Counsel and Corporate
Secretary, will leave Avast in April, to be
replaced in the role by Trudy Cooke,
who joined Avast on 1 March, bringing
extensive experience across both private
and public markets.
Together we are creating
an attractive environment
where everyone is treated
fairly and respected.
We focus on supporting
communities, educating
new talent, creating
visibility for our experts,
and removing barriers so
no one is burdened by any
prejudices against their
background, age, gender
identity, sexual orientation,
disability, or appearance.
Dita Formankova
Director, Diversity & Inclusion
and Communities
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People and culture continued
Gender pay equity
A detailed gender-based analysis of
salaries at each staff level across the entire
organisation was conducted as part of
the annual salary review. The exercise
and outcome demonstrated our serious
approach to equal pay and revealed that
we do not have a material pay-equity issue.
While our overall organisational gender
pay gap analysis yielded a difference of
around 24% in favour of male employees,
this difference is driven exclusively by
the greater number of men at senior and
executive levels, a situation that we are
working to remedy by focusing on increasing
women in leadership. The analysis
compared peers, accounting for region,
function, salary band, and type of role.
In total, only 86 employees (36 women and
50 men) needed their salaries to be levelled
up to bring them in line with the expected
pay for their role. We will continue this
practice yearly to ensure that any pay gaps,
gender-related or otherwise, are rectified in
a timely manner.
As part of our Whole Life Flexibility
approach, all Avast employees will receive
one-off RSU grants equivalent to 40% of
their annual salary. With the full support
of the Board, we have ensured that those
on maternity and parental leave will also
receive these grants.
Being a part of the D&I
team means constantly
thinking about how to
improve the experiences
of our customers and
employees. It’s all about
the people.
Bianca Grassi
Senior Visual Designer and
D&I Champion, Prague
Foundations of D&I
2020 was the first year in which Avast
had a dedicated D&I function, and
activities were focused on creating a solid
foundation from which to launch strategic
initiatives to foster an inclusive culture
and improve the hiring and retention
of diverse candidates in the long term,
while focusing in the immediate term
on increasing the number of women in
leadership and technical positions.
For 2021, in addition to targeting 33%
female representation for the Executive
Management team and the Avast Board,
Avast aims to increase the proportion of
female employees within Avast by 4%
over 2020 by creating an inclusive culture
focused on equality of opportunity.
The D&I programme is built around
five strategic areas:
Data: knowing our people;
Advocacy and awareness: building
knowledge of D&I among Avast staff
and increasing our external visibility
on D&I issues;
Education: building IT skills capacity
for women in Avast and sponsoring
IT education for diverse communities;
Partnerships: extending our reach
to diverse communities through
expert partners;
Internal Policies and Practices:
ensuring that we apply a D&I lens
to all people-related practices.
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Diversity and inclusion
programmes
As knowing our people is one of the
foundations of our D&I strategy, the D&I
team began a series of focus groups for
Avastians from different backgrounds.
Over 30 women participated in six focus
groups on women in leadership and
women in technical positions, revealing
that the greatest opportunities for making
Avast a more inclusive environment rest
with leadership development, improving
awareness of unconscious biases and
the benefits of diversity in general, and
greater representation of employees
from different backgrounds.
Additional focus groups are planned in
2021 for employees from the LGBTQ+,
people of colour/BAME, disability and
other underrepresented communities.
We build awareness internally and externally
in a variety of ways. The D&I agenda is
visibly supported by Avast leadership both
through engagement with our employees,
partners, and press, and through events.
D&I Champions in each of Avast’s major
locations coordinate local activities to
raise awareness and engagement in
D&I initiatives.
D&I content will be incorporated in 2021
through leadership training, HR and hiring
manager training, and unconscious bias
and other learning resources will be made
available for all staff over the course of the
year. Presence at women-focused recruiting
events and creating additional awareness
of Avast’s D&I initiatives will be priorities
during 2021.
We work with partners to improve our
outreach to diverse communities and
become more active in bringing women
and girls into IT, thus investing in building
a pipeline of female candidates. Four
partnerships were established in 2020.
In the Czech Republic, we have become
the General Partner sponsoring the
diversitytalentpool.cz platform launched by
OPIM, which connects diverse candidates
or those from minority or underrepresented
backgrounds to companies that value
diversity and create inclusivity.
30+
participated in six focus groups on
women in leadership and women
in technical positions
We also continue our longstanding
partnership with Czechitas to support
Digital Academies and requalification
courses for women in data analytics, web
development, and testing. In Slovakia, we
have partnered with Aj Ty v IT to support
their academies and a long-term course
introducing women to IT security. In the UK,
we are sponsoring women into Code First
Girls courses and nano-degree programmes.
This organisation serves a community of
over 20,000 women, 50% of whom come
from a black or minority ethnic background.
Fostering diversity and including
marginalised groups goes beyond
addressing issues of gender representation,
and Avast is proud to support additional
initiatives to increase our outreach to new
communities and create an inclusive culture.
We joined the Pride Business Forum in the
Czech Republic and signed the Charta
Diverzity in Slovakia this year, signalling our
commitment to the LGBTQ+ community
and to inclusivity generally.
It’s humbling to be able
to propel change in
Avast by establishing
D&I partnerships that
support underrepresented
groups in tech.
Janine Luk
Software Engineer and
D&I Champion, London
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People and culture continued
Our people,
going above
and beyond
From the very start of the
pandemic, Avastians around the
world volunteered their time,
technology, and expertise to help
the fight against COVID-19.
1,000
hot meals
a day were provided
to key workers
in Prague
Food bank
schemes
backed in US cities
such as Sacramento
and Alameda.
Translating
vital
medical
materials
Avast language
experts helped
translate vital
medical materials
from different
languages for use
in local hospitals.
3D printed face masks
produced for use by medical professionals
(in collaboration with the Czech Technical
University in Prague)
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Employee volunteering
and initiatives
In addition to volunteering time and
resources toward COVID-19 relief,
Avastians engaged in other community
service projects.
Despite the ongoing lockdown in the UK,
the Avast team participated in volunteer
activities with the Demelza Hospice Care
for Children to help keep the sites looking
beautiful, and wrapped presents and sorted
clothes and other items in their stores and
warehouse. The Avast cooperation with
Demelza began in 2019, when CEO Ondrej
Vlcek decided to donate his Directorship
fee to the hospice’s sibling, family support,
and expert nursing care services. An Avast
team also supported the hospice with
technical expertise during lockdowns,
providing information on online safety and
security for families, and ensuring access
for virtual events.
We also worked around restrictions in
the Czech Republic to deliver a unique
pilot programme for individuals with
autism spectrum disorder (ASD) seeking
employment in the IT sector. Six employee
volunteers were trained and then mentored
three individuals with ASD to help
them improve their IT skills, raise their
confidence level, and provide structured
social interaction.
In November, a group of dedicated
employees injected a bit of fun into their
virtual meetings with Avast Movember,
which has become a Company tradition
to raise funds for men’s health, including
cancer research, mental health, and suicide
prevention. The Avast team raised over
CZK 880,000 (approx. $40,000), including
matching donations from our Founders,
former CEO Vince Steckler, and CEO
Ondrej Vlcek. Proceeds went directly to
the Men Against Cancer foundation in
the Czech Republic.
Avast Donation Matching Programme
Over the summer, Avast employees
called for additional ways to help in their
communities. Through a new employee
donation matching programme, Avast
matched each dollar donated by
Avastians fivefold. In total, $735,000
was donated to 10 organisations in
the Czech Republic, Slovakia, the UK,
the US, Germany, and Serbia, tackling
issues ranging from developing quality
patient care for COVID-19 survivors,
supporting caregivers, providing
meals for essential workers and food
aid to vulnerable communities, and
supporting victims of domestic violence
affected by the pandemic lockdowns.
In response to Black Lives Matter
protests and social unrest following
the killing of George Floyd in the US,
donations were also made to the
American Civil Liberties Union, an
organisation defending and preserving
individual rights and liberties.
People and culture continued
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Social responsibility and sustainability
Building a robust
business that delivers
shareholder value
while creating positive
social impact
Simply put, we believe that it is
possible to do well by doing good
– and to do good by doing well.
Since its very early days, Avast has operated
in a way that allows us to responsibly
meet the needs of our stakeholders,
avoid excessive environmental impact,
and create positive change in the wider
society. In this exceptional year, we
recognised many opportunities to give
back, and as always, have acted with the
best interests of our people, customers,
and communities in mind.
While the COVID-19 pandemic has had
global repercussions, we know that there
are many other pressing challenges that
require our attention.
Giving back through social impact
programmes remains a cornerstone of our
social responsibility initiatives. However,
there is also a need to respond to the
climate crisis, and other concerns of key
stakeholders, more holistically.
Over the course of 2021, we will be
creating a comprehensive Environment,
Social, and Governance (ESG) programme
and reporting frameworking, including a
new sustainability strategy built on
the standards of the Taskforce for
Climate-related Financial Disclosures
(TCFD), the Sustainability Accounting
Standards Board (SASB) metrics for the
software sector, and the Global Reporting
Initiative (GRI) framework.
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Environment,
social and
governance –
Towards a more
holistic approach
As part of its broader corporate
responsibility, Avast has a
significant role to play in
coherently addressing the social,
economic, and environmental
factors impacting our business,
our employees, our customers, and
our communities. We recognise
the important distinction from
traditional social responsibility
programmes: the impact of ESG
factors on company performance
and value.
We are committed to making meaningful
progress on a holistic ESG programme,
advancing our management of, and
reporting of these issues. We have started
to look at where we are today and the
direction we want to take. While it’s early
in the process, within the next 12 months
we intend to implement an enhanced
set of internal controls throughout the
organisation for evaluating and managing
ESG risk and opportunity, and develop
key performance indicators to inform
our decisions in a way that is meaningful
and transparent.
Our actions will be informed directly by
stakeholders and with reference to GRI
Standards and the SASB software sector
guide and references, as well as the TCFD
and the Carbon Disclosure Project (CDP)
frameworks. Consequent learnings are
expected to touch on Avast’s business,
strategy and financial planning.
An important initial step is identification
of strategic and material priorities; the
principal factors that could create or destroy
value in our business. Later this year, the
Company will present a more detailed
roadmap as part of the implementation of
the new ESG programme, but the priorities
that we’ll address include: data privacy and
protection, environmental responsibility,
diversity and inclusion, and social impact.
Customers entrust us to manage one of
their most precious assets – their data.
Earning trust as a data authority is not
limited to products and services, but also
encompasses our own operations as we
fulfill information security and privacy
requirements, and best practices. Our
priorities will focus on maintenance and
ongoing improvement of capabilities to
safeguard data and protect privacy.
Managing our natural resources
responsibly is a duty we owe to all
stakeholders. We have completed our
first independent audit of GHG
emissions to assess our Company-wide
footprint. We now intend to expand
our measurement and reporting on
environmental sustainability in support
of continual improvement.
At Avast, fostering an environment that
celebrates diverse perspectives and
thinking is a top priority. Under
the supervision of a newly appointed
diversity and inclusion leader, the
Company is actively engaging with
employees to identify opportunities
for Company-wide advancement in
multiple diversity categories.
Avast is relaunching the Avast Foundation
with a new mandate focused on digital
citizenship and digital freedom in 2021.
The Group is committed to maintaining its
commitment to social impact initiatives
based on the Pledge 1% model, through
which 1% of profit, time, and product are
contributed annually to charitable causes.
In developing the ESG programme, we are
committed to providing a clear definition
of the sustainable processes within the
business to identify risks and opportunities,
as well as explanation of management’s
ongoing assessments and the Board’s
oversight role.
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Environmental
disclosures
Avast is committed to operating
in an environmentally responsible
manner, and has committed
to transparent disclosure of
emissions data, alongside a clear
intention to offset remaining
emissions and reduce Avast’s
overall environmental footprint.
In 2020, Avast completed its first scored
CDP questionnaire. CDP is a non-profit
organisation that runs the global disclosure
system for investors and companies to
better manage their environmental
impacts, and is aligned to the TCFD
reporting framework. Our C rating indicates
that, although we have opportunities to
improve our environmental and climate
programme, we have an appropriate
awareness and some existing mechanisms
for monitoring and improving our operations
and business practices to reduce our
environmental footprint.
At the end of 2020, Avast commissioned an
external audit to review our prior emissions
calculations, investigate whether the
main drivers of our environmental impact
are accurately captured, and provided
additional recommendations for reducing
our emissions, especially in light of the
new Work from Anywhere policies that will
fundamentally change the way in which we
use our offices. The audit was conducted
by ENVIROS, a leading Prague-based
consultancy specialising in business,
environmental, and energy services.
Greenhouse gas emissions
calculation and methodology
Avast has a viable programme for collecting
relevant data from suppliers, data centres,
and landlords in order to calculate its
carbon emissions. Since first implementing
our greenhouse gas (GHG) emissions
calculation activities, we have been able
to capture a greater percentage of
measured data each year, thereby reducing
the need to estimate or extrapolate.
We are consistently looking for ways to
refine and improve the accuracy of our
calculations and better understand our
GHG emissions and carbon footprint.
Based on recommendations from the audit
conducted on our past disclosures (2018,
2019) and current process, we have decided
to make adjustments to our 2020 and future
calculations. Thus, our calculations are made
according to the Greenhouse Gas Protocol
Corporate Standard, and we have used the
UK government’s DEFRA conversion factor
guidance for 2020 for worldwide energy
consumption, excluding the Czech Republic,
for which we have applied conversion factor
guidance from the 2018 Yearly Report on
the Operation of the Czech Electrical Grid
by the Energy Regulatory Office, UNFCCC
Czech Republic. The emission factor for the
Czech Republic is significantly higher than
that for the UK, due to the higher use of
solid fossil fuel (coal) in the Czech electricity
mix. We also changed the calculation of
scopes 1 and 2, including data on gaseous
substances in scope 1 and heat and steam in
scope 2. The net result is a higher emissions
number that more accurately captures our
GHG emissions.
To make it possible to compare this data
year on year, we have recalculated past
years according to these more accurate
parameters, demonstrating that we
continue to be committed to reducing
our emissions and taking responsibility for
our operations.
2020 greenhouse gas calculation
Operational responsibility for Avast’s
environmental impact generally rests
with our facilities and IT infrastructure
leadership. Our primary environmental
impact comes from the office facilities in
which we house our employees and our data
centre operations. Changing from office-
based working to home-based working for
the greater part of 2020 meant that our
facilities-based emissions were lower in
2020 than in 2019. In addition, the complete
restriction in business travel due to the
pandemic meant that our emissions due to
travel were greatly reduced. Data on the
impact of reduced employee commuting
and the distributed impact of employees
working from home could not be captured
under our current reporting framework,
and so we have not attempted to
incorporate these changes into our
calculations. Overall, our emissions from
electricity (scope 2) were reduced by
12.5%, while our emissions from fuel and
the operation of buildings (scope 1)
dropped by 25.4%.
In 2020, Avast primarily used infrastructure
in 12 data centres located in Europe and
the Americas, while using some Amazon
Web Services and smaller data centre
capacity as needed. Of our 12 main data
centres, six of these are Equinix data centres
which operate on renewable energy only
and account for 28.5% of our energy use
from 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.
Calculations for facilities were based on
measured data from our offices in Europe,
the UK, Asia, and the USA, accounting for
over 97% of the data. The remainder 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.
6 out of 12
of our main data centres are
Equinix data centres which operate
on renewable energy only and
account for 28.5% of our energy
use from data centres
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with dedicated parking allotted to those
employees who drive electric vehicles. As
we change our ways of working in 2021 and
beyond to accommodate for more flexible
working and home office working based
on the Work from Anywhere concept, we
are also envisioning how we can use these
two flagship offices for collaboration and
community spaces and examining how
these changes in use can support our goal
to become more energy efficient.
As a first step, Avast will purchase green
energy for its offices in Prague and Brno,
Czech Republic, beginning in 2021. We are
also reviewing the feasibility of additional
suggestions proposed through the audit
process, and whether or not to implement
such changes in 2021 or beyond.
GHG emissions (for the year ended 31 December 2020)
Scope
Scope 1
2020
tCO2e
2019*
tCO2e
2018*
tCO2e
Usage of fuel and operation of buildings
57.9
77.6
96.1
Scope 2
Emission from electricity
Total
(Scopes 1 & 2)
Intensity ratio (tCO2e/m$ adjusted revenue)
3,886.1 4,443.6 4,395.8
3,944.0 4,521.2 4,491.9
4.42
5.18
5.42
2019* and 2018* calculated based on updated methodology including Czech-specific conversion factor and
addition of gas data to scope 1 and heat and steam to scope 2.
A small proportion of our combined scope 1 and 2 emissions are generated within the UK.
The UK represents less than 1% of our scope 2 emissions (electricity, heat, and steam), but
33.7% of our Scope 1 emissions (diesel and gas). Details are provided in the tables below.
UK vs offshore
Other (non-UK)
Offshore UK
UK
Grand Total
Scope 2
Sum of
tCO2
3,849.4
0.00
36.7
3,886.1
Country
UK vs offshore
Scope 2
EE in
KWh
Scope 2
Steam in
KWh
Scope 2
Heat in
KWh
Scope 1
Fuel (diesel)
in kWh
2020
Scope 1
Sum of
tCO2
38.4
0.00
19.5
57.9
2020
Scope 1
Gas in
KWh
Other (non-UK)
7,255,239.2
436,388.9
802,872.0
21,497.9
180,611.5
Offshore UK
UK
Total
0.0
151,478.1
0.0
0.0
0.0
8,034.8
0.0
0.0
0.0
106,133.0
7,406,717.3
436,388.9
810,906.8
21,497.9
286,744.5
Carbon offsetting and emissions
reduction activities
As part of the climate change and carbon
management strategy, Avast chose to
use purchases of carbon credits to offset
its scope 1 and 2 emissions beginning in
2019. The Group is committed to better
understanding our scope 3 GHG emissions
in the future and investigating opportunities
to reduce all GHG emissions.
In 2019, we offset 2,777 tCO2e through
a Gold Standard portfolio of programmes,
and in 2020, we offset 2,200 tCO2e, based
on initial assumptions of our scope 1 and
2 emissions. Based on the recalculated
emissions conducted following the audit we
commissioned, our combined scope 1 and
2 emissions for 2019 and 2020 are 4,521.2
tCO2e and 3,944.0 tCO2e, respectively.
This means that our total offset for these
two years falls short by 3,488.2 tCO2e.
We will therefore offset this amount in
addition to our calculated 2021 scope 1
and 2 emissions. In the future, we aim to
continue to improve the accuracy of our
calculations and to base our offsetting on
calculated emissions, while investigating
other measures to improve our efficiency
and reduce our overall emissions.
Avast’s two largest offices, located in
Prague and Brno, Czech Republic, are
both housed within buildings awarded
BREEAM Excellent – New Construction
certifications. 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,
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Ethical
business
The Executive Management team
is responsible for ensuring that all
staff have access to and comply
with the policies governing our
business practices, community
engagement, and charitable
activities. All Avastians are
required to follow the principles
outlined in the Avast Code
of Conduct and associated
policies in order to uphold our
commitments to ethical business
practices, human rights, and social
responsibility. Avast also obtains
assurance from its suppliers,
contractors, and those doing
business on its behalf that they
comply with certain ethical,
social and legal standards.
Human rights
Avast deeply respects and upholds the
principles of human rights as articulated
in the United Nations Guiding Principles
on Business and Human Rights, the
Universal Declaration of Human Rights,
and the International Labour Organization
Declaration on Fundamental Principles
and Rights at Work.
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 commitments to human rights,
transparency and anti-corruption are
reflected in our business practices,
charitable outreach, and community
engagement, and documented in our
Code of Conduct, annual Modern Slavery
Transparency Statement, and related
corporate policies, including: Suppliers’
Guidelines; Sanctions, Anti-Money
Laundering and Counter Terrorist Financing
Policy; Anti-Corruption Policy; Related
Party Transactions Policy; Conflict of
Interest Policy; Whistleblowing Policy;
Avast Grievance Procedure; Avast
Recruitment Policy; and Modern
Slavery Policy.
These policies are available for consultation
to all employees via our intranet, and all
employees must certify that they have read
and understood these policies following
mandatory training. Avast’s comprehensive
Supplier Guidelines are published on our
website, and cover our expectations for our
supply chain with respect to labour, working
conditions, occupational health and safety,
business conduct and ethics, environment,
conflict minerals, and management systems
and adherence to international standards
of conduct. Prior to signing contracts with
any service providers, Avast requires that
suppliers acknowledge these guidelines
and agree to adhere to them. Avast has also
implemented processes for our existing
suppliers to agree with these principles.
Avast employees and the public can report
any perceived violations of these policies
through the Avast Whistleblowing hotline,
which is operated by a third-party provider
to ensure confidentiality. All reports are
assessed and where necessary, formal
investigations are undertaken. Periodic
summary updates are provided to the
Audit Committee of the Avast Board.
Avast complies with all applicable export
control laws, as outlined in our Sanctions,
Anti-Money Laundering and Counter
Terrorist Financing Policy. Adherence
is maintained through various internal
processes and controls, as well as those of
our partners, suppliers and resellers. User
information is compared against lists of
restricted parties published by relevant
governmental agencies, including: the
U.S. Department of Commerce Denied
Persons List; the U.S. Department of
Treasury’s Specially Designated Nationals
List; U.S. Government export exclusion
lists; Consolidated list of financial sanctions
targets in the UK; and Consolidated list of
persons, groups and entities subject to
EU financial sanctions. Avast has
implemented processes to prevent users
based in sanctioned and embargoed
territories from downloading, purchasing,
operating, or updating our products
and services.
All of Avast’s policies are periodically
reviewed and updated to ensure that they
provide the appropriate framework for
upholding our commitments to ethical
business practices and that they accurately
describe the business process which
they govern.
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Social impact
Giving back is in Avast’s DNA
For the last decade, the Avast Foundation
has been the Company’s primary vehicle
for giving back. It has been a remarkably
successful change agent in social issues
such as palliative care, early childhood
education, and supporting families of
children with disabilities in the Czech
Republic. At the beginning of 2020, the
desire to see a greater global impact and
increase the alignment of our social impact
and charitable giving with Avast’s core
purpose prompted a deep examination
of the Avast Foundation and its future. We
are proud that the Avast Foundation will be
re-launched in 2021 with new leadership, a
global mandate and a focus on developing
programmes within the core areas of Digital
Citizenship and Digital Freedom. Avast will
maintain its annual, estimated $5 million,
commitment to social impact initiatives
based on the 1% of profit model.
We have also seen this year that the
unprecedented circumstances of the
pandemic have required extraordinary
actions by companies, governments, and
citizens alike. On top of funding the Avast
Foundation’s entire $4.3 million operating
budget through its regular annual donation,
Avast made an exceptional donation of
$25 million USD to various efforts to fight
COVID-19 and enabled the use of Avast
infrastructure and expertise to support
relief efforts.
Our ability to respond meaningfully to crises
and pressing social needs is a product of
our sound business operations and the
unequivocal value placed on giving back,
with impact, and we are proud that our
people also embody this spirit through their
community involvement.
Avast Foundation: Building on
10 years of impact
The Avast Foundation will focus from 2021
onwards on programmes in the areas of
digital freedom and digital citizenship,
areas more closely aligned to the Company’s
business and core expertise. Shane
Ryan, former Deputy Director of the UK
National Lottery Community Fund, joined
as the Avast Foundation Global Executive
Director in February 2021. He brings with
him a wealth of global experience leading
non-profit and charitable organisations,
with a demonstrated history of social and
community impact.
A new Czech entity, Abakus, was
established to continue the important work
of the outgoing foundation under its existing
leadership. We are very proud of the long
history and programmes that the Avast
Foundation undertook in its first decade.
Funded entirely by donations from
Avast, totalling over CZK 1 billion CZK
($50 million) over 10 years, it focused
primarily on systemic issues and programme
delivery through long-term partnerships
and coalition building in the areas of
palliative care, early childhood education,
and support for families of children with
disabilities. Avast employees also played an
active role in the foundation’s giving through
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Be Safe Online
Be Safe Online (BSO) is a non-commercial
educational outreach programme built
for pre-teens and early teens. Initially
reliant on a collaboration with local
influencers and built on a model of
visiting schools directly, the programme
was transformed in early 2020 from a
roadshow of local lectures into a scalable,
self-serve educational platform with
content available in both the Czech
Republic and Slovakia.
Through its interactive online course
covering various topics on security,
privacy, online communication and
digital wellbeing, BSO has educated over
30,000 children in the Czech Republic,
earning an NPS score of 79%; 4,000
children in Slovakia have so far taken
the online course.
30,000
children educated in the Czech Republic,
earning an NPS of 79%
The BSO social media channels have over
40,000 followers. We work with local
influencers to shape our messaging and
reach broader audiences, capitalising on
their influence, the knowledge of Avast’s
cybersecurity experts, and original
research into how children act online to
deliver relevant and timely content that
is engaging for children and trusted by
parents and educators.
In 2020, BSO was awarded with a Silver
Effie and recognised by WebTop100 for
its educational campaigns. Additionally,
thanks to the community of children who
proactively report various threats via the
BSO Instagram account, Avast experts
recognized serious threats, including
fake apps on TikTok and a WhatsApp
scam. These stories and others gained
international media attention.
the annual Together with Employees
programme. In 2020, the campaign resulted
in support for 157 projects, 119 of which
were in the Czech Republic and 38 of which
were international, with a total of $461,500
being donated. Over the eight years of
Together with Employees, Avastians have
been able to support over 650 projects
in domains ranging from education and
culture, to environmental clean-up,
healthcare and disease prevention, with a
total of almost CZK 35 million in funding.
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As we reestablish the mission of the Avast
Foundation, we will continue to support
Abakus and its beneficiaries through a
new arrangement. From 2021 until 2024,
Avast will both fund the re-launched Avast
Foundation and be the sole corporate
partner to Abakus, providing a decreasing
amount of funds each year to ensure
programme continuity and ongoing benefit
to communities and partners. From 2025,
the full annual commitment will be donated
to the Avast Foundation.
650+
employee-nominated projects in
domains ranging from education and
culture, to environmental clean up,
healthcare and disease prevention
COVID-19 prevention and
cure research
As the widespread and potentially
devastating effects of the COVID-19
pandemic became clear, Avast management
decided to put $25 million toward the fight
against COVID-19, because we know that
timely investment can drive necessary
innovation and accelerate social impact.
We therefore sought organisations taking
a rigorous, scientific, and systematic
approach to testing, treatment, and vaccine
development, ultimately choosing to join
the Wellcome-coordinated COVID-Zero
Coalition, as it aligned with our vision.
$20 million was donated to two projects
to accelerate vaccine and treatment
research and development. The COVID-19
Therapeutics Accelerator, coordinated
by the Bill & Melinda Gates Foundation,
Wellcome, and Mastercard, received
$12 million USD to support research into
the prevention and cure of the virus through
rapid testing and the development of new
treatments, including vaccines.
Another $8 million went to the Coalition
for Epidemic Preparedness Innovations
(CEPI), where our donation went directly
into vaccine research and development,
including both pretrial research and
manufacturing of nine vaccines in the
testing stage. This large donation enabled
CEPI to make key investments as part of
their strategy to eliminate preventable
deaths by pursuing testing, treatment,
and prevention through the timely
development of vaccines.
The remaining $5 million went to a variety
of additional initiatives, such as local efforts
to fight COVID-19 impacts, an employee
donation matching programme, and an
extensive collaboration with Folding@
home, one of the world’s largest computer
networks dedicated to finding cures for
various diseases.
Dozens of Avastians across the globe
volunteered time and expertise to efforts to
combat the spread of the virus and search
for a cure, as well as to support members of
their communities, frontline health workers,
and local businesses. Activities ranged
from sewing masks to creating prototypes
for safe social distancing in restaurants
to 3D printing face shields, developing
open-source ventilators, apps to track
social contact, providing food to healthcare
workers, and more.
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Partnerships
Avast is proud to work with partners
whose missions align with our own. In
2020, we deepened our commitments to
organisations fighting for digital freedom,
privacy, and online safety.
For over a decade, Avast has partnered
with the Shadowserver Foundation by
sharing threat intelligence, and in 2020,
we made a $500,000 donation to further
support their important work revealing
security vulnerabilities, combating malicious
activities, and helping victims of cybercrime.
Avast shares a common goal with Tor,
empowering people with strong privacy,
protection, and freedom online. We became
a founding member of the Tor Project
Membership Program to demonstrate
our commitment to privacy as well as to
support Tor’s ongoing development.
The Internet Watch Foundation (IWF)
finds and removes images and videos of
child sexual abuse from the internet. Avast
became a member of the IWF and will work
with the organisation to filter out webpages
identified as hosting child abuse imagery,
helping to crack down on the creation
and sharing of such content, as well as
protecting unsuspecting browsers from
exposure to disturbing and illegal content.
Avast joined Intel and Borsetta in
launching the Private AI Collaborative
Research Institute. The sole purpose of the
collaboration will be to advance and develop
technologies that strengthen privacy and
trust for decentralised AI. The institute will
encourage and support fundamental
Folding@home collaboration
Avast’s collaboration with Folding@
home (F@h) exemplifies the innovation,
collaboration and giving back that we
champion at Avast. F@h’s distributed
computing platform harnesses the
power of millions of individual machines
to conduct innovative research to drive
cures for myriad diseases. Several of
our employees decided early on in the
pandemic to donate their personal
devices’ computing power to the
network. Quickly, however, an idea
took root: Avast has the technology
and the expertise to greatly magnify
F@h’s capacity, and we have a user
network of millions of people who might
also be lend their devices to efforts to
elucidate the structure and mechanisms
of the COVID-19 virus and contribute
to a cure. Ultimately, in addition
to a donation of $200,000 USD,
two Avast servers were deployed to
provide additional resources for F@h’s
distributed computing coordination,
while we also promoted the initiative
via in-product messaging directly to
our users, encouraging them to join
the fight against COVID-19 with the
F@h platform.
research which will result in solving such
real-world challenges for society, and will be
dedicated to taking an ethical approach to
AI development.
Social responsibility and sustainability continuedSocial responsibility and sustainability continued Strategic report Governance Financial statements
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Section 172 statement
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. For this reason,
the Board actively engages with its
stakeholders to keep informed of
their interests and expectations.
The Board is considerate of its stakeholders’
interests when making decisions, including
any potential long-term impact of those
decisions. The Board’s vision to create
long-term value for its stakeholders is
underpinned by Avast’s strategy, described
on page 20, which it believes will drive
growth and profitability as we adapt to
emerging trends.
In this section, we describe how the Board
engages with its key stakeholders, and some
of the ways it has considered their interests
when making its decisions.
Customers
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 always
considers the potential long-term impact its
decisions may have on customers.
Primary interests:
Customers want:
To be secure in their digital lives, whatever
they are doing online.
To know their data is being kept private.
To see transparency around how their data is
collected and used.
How we engage
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 promote a meaningful and honest dialogue,
including customer surveys, customer telephone
support, social media, and company-run forums.
The Board also tracks customer satisfaction
through various metrics, including Avast’s
relationship NPS and the average number of
Avast products per customer. To incentivise
meaningful engagement with customers,
a portion of the Executive Directors’ annual
bonus is based on overall customer satisfaction.
The Board is responsible for approving material
business transactions and key strategic changes,
as part of which customers’ interests are at
the fore. The Board is mindful of the fact that
counterparties to commercial and corporate
transactions may pursue strategies and
outcomes which may conflict with interests of
the customers. The Board considers if, and how,
these divergent interests can be reconciled.
Impact on Board decisions
The Board is attuned to the growing concern
among customers for their privacy, both in
terms of keeping their data safe online and
the ways in which companies they trust with
their data use it. The Board oversaw the
appointment of Avast’s first Chief Privacy
Officer during the year, in an effort to
further embed a privacy-by-design culture
within Avast and to promote a resilient
and transparent data protection strategy
across the business, its policies, products,
and service.
In January 2020, the Board decided to close
Avast’s data analytics business, Jumpshot.
The Board listened to the concerns of its
customers regarding Jumpshot, and, in
particular, the perceived conflict between
Avast’s role as a leader in the cybersecurity
industry and the data collection business.
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Impact on Board decisions
Following consultation with Avastians:
The Board approved the implementation
of a new Future of Work Initiative, as part of
which employees were given more flexibility to
perform their jobs in the way that best suited
them. Employees are now offered Unlimited
Personal Time Off, and the ability to Work from
Anywhere. This initiative is described in further
detail on pages 35 and 68.
The Board agreed to grant new and existing
Avastians a one-time RSU grant, making
them investors in Avast, and further aligning
their interests with those of the Group’s
shareholders. More details in relation to this
RSU grant are set out on pages 35 and 69.
Shareholders
Avastians
The Board’s primary objective in exercising its
duties is to promote the success of the Group
for the benefit of its shareholders. The Board
seeks to treat 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.
Primary interests
Shareholders want:
Strong financial performance.
Effective execution of the Group’s organic
and inorganic growth strategy.
Implementation of meaningful environment,
social and governance policies.
Efficient and appropriate allocation of the
Group’s capital.
How we engage
As described in more detail on page 91,
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, members of the Board
attend meetings with shareholders, and solicit
feedback from major shareholders in advance
of making decisions that will materially impact
the Group.
Frequent updates are also provided to investors
about the business through press releases,
regulatory announcements, and periodic
financial announcements.
Impact on Board decisions
Given the COVID-19-related restrictions in
place in the UK in May, the Board was forced to
reconsider the plans it had in place for its 2020
AGM at short notice. In line with government
advice, the Board took the decision to hold its
AGM in private, with shareholders represented
by two proxies attending the meeting on
their behalf. Shareholders were given the
opportunity to attend the meeting by webinar,
and to ask questions of the Board in advance.
In February, the Chair and Senior Independent
Director hosted an event for institutional
investment firms and proxy agencies to discuss
Avast’s approach to ESG matters, as well to
respond to any questions the attendees had.
The Board has overseen the strengthening
of Avast’s ESG policies throughout the
year, including through developing its
understanding of shareholder expectations
with respect to ESG reporting, and enhancing
the Company’s ESG risk and opportunity
evaluation processes for 2021. More details
on the Company’s ESG programme can be
found on page 76.
In advance of the Company’s 2020 AGM,
the Board notified significant shareholders
and proxy agencies of its preference for
John Schwarz to remain as Chair of the Board
beyond 2020 for a limited period of time,
notwithstanding the fact he would have
sat on the Board for more than nine years.
Significant shareholders and proxy agencies
were given the opportunity to speak with the
Board’s Senior Independent Director regarding
their views on this matter. Following this
engagement, the Board was comfortable with
Mr Schwarz continuing to act as Chair for a
limited period until his successor was found.
More details in relation to this are set out on
page 105.
Avast’s employees, ’Avastians’, 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.
The Board appreciates that any decisions it
makes may impact on Avastians’ performance,
engagement, and work satisfaction.
Primary interests
Avastians want:
A culture of autonomy and responsibility.
To work for a leader in the industry,
with opportunities for personal growth and
career development.
Competitive benefits and remuneration.
How we engage
Avastians are passionate about protecting
customers’ digital lives, and truly value playing a
part in the decisions made affecting the Group.
The Board consults with Avastians through a
variety of direct and indirect channels described
in more detail on page 67, including through
its dedicated Employee Engagement Director,
Pavel Baudis.
The Board has made monitoring and developing
corporate culture a key initiative, and, as
described in further detail below, oversaw a
significant transformation of the way Avastians
carry out their work during the year.
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Suppliers
Communities
The performance of Avast’s suppliers is integral
to Avast’s success. From providers of software to
hardware, from landlords to data centres, Avast’s
supply chain plays a critical role in its mission to
protect the digital lives of its customers. Avast
aims to build mutually beneficial, long-term
relationships with its material suppliers.
Primary interests
Suppliers want:
The Group to meet its payment obligations
on time.
To build a long-term, mutually beneficial
relationship.
To interact with professional and respectful
counterparts at Avast.
How we engage
The Executive Directors, together with members
of the Executive Management team, engage
collaboratively with material suppliers to discuss
matters of mutual interest, including any risks
which may need to be addressed.
The Board is given updates from management, as
appropriate, regarding the Group’s relationships
with its material suppliers, including with respect
to any material risks, performance issues or
potential future changes.
As part of the Group’s standard engagement
process, suppliers are required to accept the
Group’s Supplier Guidelines, which act as
an acknowledgement that they meet certain
minimum ethical and legal standards approved
by the Board, including in relation to modern
slavery, anti-bribery and anti-money laundering.
More details in relation to these policies can be
found on page 79.
Impact on Board decisions
The Board approved and oversaw the
implementation of a new comprehensive
strategy to identify the risk of modern slavery
and forced servitude in the Group’s supply
chain. This included an assessment of
the Group’s suppliers to understand their
individual risk profiles with respect to modern
slavery, and to address issues identified,
particularly those in a high-risk jurisdiction or
industry. As part of this, the Board approved an
update of the terms to the Supplier Guidelines
which all suppliers are required to sign.
In determining the Group’s readiness for
Brexit, the Board, through the Executive
management team, engaged with the
Group’s payment processors to understand
any additional cost or administrative burdens
that they may experience following the end
of the UK’s transition period, and any actions
that needed to be taken to ensure continuity
of service to customers.
It is important to the Board, and all Avastians,
that the Group gives back to the communities it
operates in. The Board takes into consideration
the impact that its decisions will have on the
wider community, including through the
example Avast sets as a global leader in the
cybersecurity industry.
Primary interests
Communities care about:
The Group’s tax strategy.
The Group’s carbon footprint.
The Group’s efforts to promote worthy
causes within the community.
How we engage
During the year, the Board engaged with
communities through the Avast Foundation and
its employees. The Avast Foundation operates
as Avast’s ’boots on the ground’, and allows the
Group to most effectively deal with worthwhile
causes in the community. Avast’s employees are
encouraged to nominate matters which matter
to them, which the Group donates to through
the Foundation.
In addition, the Board monitors initiatives
addressing global issues impacting the world
to understand how Avast can help through
its position as a cybersecurity leader.
The Board seeks to transparently disclose the
Group’s carbon emissions, and the ways it
achieves status as a carbon neutral business.
More concerning Avast’s carbon emissions
can be found on page 77.
Impact on Board decisions
The Board approved the funding of
CZK90.0 million ($4.0 million) to the
Avast Foundation for the year ended
31 December 2020.
The Board oversaw the implementation of
a transparent and fair tax policy that 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.
The Board committed to 1% of employees’ time
being devoted to volunteering and 1% of Avast
products being distributed to worthy causes.
More details relating to Avast’s corporate social
responsibilities are set out on page 75.
Below are examples of how the Board took into
consideration its stakeholders’ interests when
making its principal decisions.
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COVID-19 response
Capital allocation
Community: The Board was determined that Avast should
play its part in helping with the global response to the
pandemic. Avast participated in numerous initiatives
in an effort to help (more details of which are set out on
page 5), and, significantly, donated $25 million to science
and technology initiatives to help combat COVID-19,
offering critical financial and practical support to the
global scientific and technology community focussed on
the development of testing, treatments and vaccines to
minimise disruption and save lives. The Board engaged
with certain of its major shareholders to ensure that they
were supportive of the donation.
The Board seeks to allocate the Group’s capital in a way
that 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 $15.1 million to capex investments,
$261.9 million to debt repayment, and $154.7 million to
shareholders through dividends.
Shareholders: Members of the Board and Investor
Relations met with the Group’s significant shareholders
to understand their interests in, and expectations
of, Avast, with respect to growth, profitability, and
dividends and to ensure alignment with respect to the
Group’s capital allocation decisions.
Customers: In making its capital allocation decisions,
the Board also seeks to understand customers’ interests
and evolving needs, which enables it to make informed
decisions about the appropriate balance between
organic and inorganic growth plans.
The COVID-19 pandemic presented a momentous
challenge for Avast and its stakeholders during the year
and required a fundamental shift in the way Avast’s
employees and customers operated on a day-to-day basis.
Employees: The Board supported management’s swift
decision to close its offices in March, with the primary
purpose of keeping its workforce and their families safe.
The Board oversaw employees’ transition to working from
home which involved providing employees with suitable
home office equipment, health and safety assessments,
and appropriate support. Employees were periodically
asked to participate in surveys about how they were
coping with the changes and how the Group could further
support them from both a professional and personal
perspective. The Board was apprised of the results of the
surveys, and through this process understood the desire
of many employees to have greater flexibility with respect
to their work life, including once the pandemic ends.
The Board oversaw the formal engagement with
employees regarding their views on the Future of Work
initiative, which resulted in numerous changes being made
to work life at Avast. More details in relation to the Future
of Work Initiative can be found on page 68.
Suppliers: When considering the temporary closure
of the Group’s offices during the year in response to
the COVID-19 pandemic, the Board was aware that
third-party catering staff serving the canteen in its
Prague headquarters would be adversely impacted
by the decision. It was decided to continue to engage
the services of the supplier during the first wave of
the pandemic, and to distribute the meals they made
to frontline workers in the Czech Republic.
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Non-financial information statement
This section of the strategic report constitutes the Company’s non-financial information statement.
Reporting Requirements
Policies & Statements which govern our approach
Details of Policies, Statements, Due Diligence & Outcomes
Environmental matters
Environment, Social & Governance (ESG) programme
Employees
Avast Culture Book
Diversity Policy
Whole Life Flexibility
Avast Code of Conduct
5A Principle
Environmental Disclosures, page 77
Environment, Social & Governance, page 76
Mobilising our People, page 66
Whole Life Flexibility, page 68
Learning and Development, page 69
Diversity and Inclusion, page 70
The 5A Principle, page 35
Social matters
Social Responsibility and Sustainability
Ethical Business, page 79
Respect for human rights Whistleblowing Policy
Transparency & Anti-Corruption, page 79
Anti-corruption & bribery
Avast Grievance Procedure
Avast Recruitment Policy
Modern Slavery Policy
Suppliers’ Guidelines
Sanctions, Anti-Money Laundering and Counter Terrorist
Financing Policy
Anti-Corruption Policy
Related Party Transactions Policy
Conflict of Interest Policy
Transparency & Anti-Corruption, page 79
Business model
How our business is presented
Business model, page 25
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
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.
Strategic report approval
The Strategic report on pages 1 to 86 was approved by
the Board on 2 March 2021 and signed on its behalf by:
Ondrej Vlcek
Chief Executive Officer
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Governance
Board of Directors
Corporate governance statement
Audit and Risk Committee report
Nomination Committee report
Directors’ remuneration report
Directors’ report
88
90
97
103
107
129
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1
3
5
7
9
11
2
4
6
8
10
AC Audit Committee
NC
Nomination Committee
RC
Remuneration Committee
Committee Chair
1 John Schwarz
Chair of the Board NC RC
3 Philip Marshall
Chief Financial Officer
Philip Marshall has served as the Chief Financial Officer
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.
4 Warren Finegold
Senior Independent Non-Executive Director NC RC
Warren Finegold joined the Board of Directors in February
2015. He was 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 formerly
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 and is currently Chairman of Ceres Power
Holdings plc. He holds an MA in Philosophy, Politics and
Economics from Oxford University and a Master’s degree in
Business Administration from the London Business School.
John Schwarz has been a member of our Board of Directors
since 2011 and the Chair since 2014. He is currently the
co-founder and Chair, of Visier Inc., a business analytics
software firm. Previously, he served on the executive board
of SAP AG from 2008 to 2010, and as Chief Executive
Officer of Business Objects S.A. from 2005 through to its
acquisition by SAP in 2008. Mr Schwarz has also served
as the President and Chief Operating Officer of Symantec
Corporation from 2001 to 2005. Mr Schwarz previously
worked for 25 years at IBM Corporation, ultimately as
the General Manager of IBM’s Industry Solutions division.
Mr Schwarz has served on the boards of Synopsys
Corporation since 2007, and at Teradata Corporation
since 2010. Mr Schwarz holds degrees from the Canadian
universities of Manitoba, Toronto, and Dalhousie.
2 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, in which role he 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. 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 Chief Technology
Officer. Mr Vlcek holds an MS in Mathematics from the
Czech Technical University in Prague.
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5 Pavel Baudis
Non-Executive Director
7 Ulf Claesson
Independent Non-Executive Director AC RC
10 Tamara Minick-Scokalo
Independent Non-Executive Director AC RC
Pavel Baudis is one of our co-founders and 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 has 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.
6 Maggie Chan Jones
Independent Non-Executive Director NC RC
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
Chief Marketing Officer at the world’s largest enterprise
application software provider, SAP. She specialised in
brand and cloud transformation at Level 3 Communications
(now CenturyLink) and Microsoft. Ms Chan Jones founded
and currently is CEO of Tenshey, a leadership development
startup with a mission to advance gender diversity through
executive coaching. Ms Chan Jones sits on the Board
of Open Systems. She holds an executive MBA from
Cornell University and a BS in Business Management
from Binghamton University.
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, and Husqvarna. 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.
8 Erwin Gunst
Independent Non-Executive Director AC NC
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 degree in Commercial Engineering from the
Free University (Solvay) in Brussels, Belgium.
9 Eduard Kucera
Non-Executive Director
Eduard Kucera, one of our co-founders, served as Chair
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 Doctorate of Natural Sciences in experimental
physics from the Charles University, Prague.
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, 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
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.
11 Belinda Richards
Independent Non-Executive Director AC
Belinda Richards joined the Board of Directors in June 2018.
Ms Richards’ background includes a 30-year career in
finance, strategy, and M&A. Most recently, Ms Richards
served as a Senior Corporate Finance Partner at Deloitte
LLP where she held the position of Global Head of Deloitte’s
Merger Integration and Separation Advisory Services
business and was a Vice Chairman of the firm. Currently,
Ms. Richards sits on the Boards of Phoenix Group Holdings
Plc, The Monks Investment Trust Plc, and Schroder Japan
Growth Fund Plc. She is a former member of FRC’s Advisory
Group of Audit Committee Chairmen and is the Audit Chair
of Youth Sport Trust. She has a first class honours degree
from the University of Kent at Canterbury and a PhD from
University College, London.
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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
Chair
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 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. We outline how we have applied these principles
and complied with the provisions of the Code below and
throughout this report.
The Code requires that the chair should not remain in post
beyond nine years from the date of their first appointment
to the board (Provision 19). As of December 2020, the
Company’s Chair, Mr Schwarz, has served on the Board
for more than nine years, having been a member of
the Board since 2011 and Chair since 2014. The Board
considers Mr Schwarz’s continuation as Chair desirable for
a limited period of time, to provide stability and continuity
following Board and executive changes, including the
upcoming retirement of Ulf Claesson and Erwin Gunst as
Non-Executive Directors. Significant shareholders and
proxy agencies were given the opportunity to speak with the
Board’s Senior Independent Director regarding their views
on the matter. The Company will soon commence with the
succession plan for the Chair.
The Code also requires companies to develop a formal
policy for post-employment shareholding requirements
encompassing both unvested and vested shares
(Provision 36). The Company does not currently have in
place post-employment guidelines for the reasons set
out on page 115 of this report. The Company intends to
incorporate such guidelines into its new Remuneration
Policy to be approved by shareholders in 2022.
With these exceptions, the Company complied with all of
the provisions of the Code for the period under review.
1 Board leadership and Company purpose
An effective Board
The Board has collective responsibility to its shareholders
and oversees the operational management of the Group.
In addition, it is responsible for the long-term sustainable
success of the Company, generating value for shareholders,
and contributing to wider society. The key activities
undertaken by the Board during 2020 included:
Identified and reviewed Avast’s principal risks
Oversaw the closure of Jumpshot
Reviewed and monitored the Company’s response
to COVID-19, including the impact on employees,
changes to work practices, and culture
Oversaw the Avast Foundation’s donation to science and
technology initiatives
Oversaw and supported Avast’s succession planning for
the Executive Management team
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
The CFO’s review on pages 42 to 57 sets out how we have
generated value for our shareholders. The importance to
the Board of contributing to the wider society is outlined
on pages 75 to 81.
Values, strategy, and alignment with culture
The Board sets the Company’s purpose, values, and strategy
and ensures that these are aligned with the Company’s
culture. The interaction of these are embedded in the
Company’s vision as detailed further on pages 22 and 66.
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Company performance and risk management
The Board also ensures that the necessary financial and
human resources are in place for the Company to meet
its objectives, and measures performance against them.
This was shown by the steps taken by the Board to ensure
business continuity in light of the COVID-19 pandemic as
detailed further from page 65.
As part of the Group’s controls environment, there is a clear
schedule of matters reserved for the Board, which include:
The Group’s strategy and organisation development
The Group’s corporate structure and capitalisation
Approval of financial reports
Risk management
Approval of expenditure and material transactions
including M&A
Board composition and succession
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 the
Executive Management team
The Board sets the risk appetite and evaluates principal risks
for the Company. Since the IPO, the Board has continued to
revise its principal and emerging risks to reflect the changes
affecting the business and the markets in which it operates.
This has resulted in a reassessment of the principal and
emerging risks as detailed on page 58.
The Board, through its Audit Committee, monitors the
Company’s risk management and internal control systems.
During the year, the Company appointed Deloitte LLP
to complete an internal control benchmarking exercise in
order to support the Company’s management to assess the
maturity of existing governance, risk management, internal
controls, and monitoring practices. See pages 99 to 100 for
further information about the Company’s internal audit and
internal controls processes.
The Company has procedures in place to review and
manage any potential or actual conflicts of interests arising
from Directors’ current or proposed external roles. Internal
controls are in place which require Directors to report any
potential or actual conflict of interest to the Company
for review. A register of actual and potential conflicts of
interest is maintained by the General Counsel and Company
Secretary and reviewed periodically. 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 immediately.
Note 36 to the financial statements describes the related
party transactions between certain Directors and the Group
which have been considered and, as appropriate, approved
by the Board or, if the transaction was entered into prior to
the IPO, the Board of Avast Holding BV. The Board considers
these procedures to be working effectively.
Stakeholder engagement and participation
In order for the Company to meet its responsibilities to
shareholders and stakeholders, the Board is required
to ensure effective engagement with, and encourage
participation from, these parties.
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 Chair 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. The Director of Investor Relations
attends Board meetings when appropriate and feedback is
shared with the Board to help inform the Group’s strategy
and governance framework.
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 corporate brokers to ensure that a wide variety of
shareholders, including those from different geographies,
have access to management. While it has not been possible
to hold physical conferences this year due to COVID-19
restrictions, the Company has made a strong effort to
ensure that these continue in a virtual environment.
The Chair and Senior Independent Director hosted an event
in February 2020 for ESG professionals and fund managers
from institutional investment firms and proxy agencies.
The purpose of the event was 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. For further information relating to the
Company's ESG programme, see page 76.
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 and Avast offers all
of its shareholders the opportunity to register to receive
shareholder communications, such as the annual report,
notice of meeting, and related forms of proxy, electronically.
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Workforce policies and practices
Policies in relation to the workforce are approved by the
Board. As part of its review, it ensures that such policies
and practices are consistent with the Company’s values
and support the Company’s long-term sustainable success.
There are various initiatives designed to engender workforce
engagement. Mr Baudis, the designated Non-Executive
Director for workforce engagement, engages with
employees globally to address their concerns. The Change
Engagement Group enables two-way communication
between the workforce and the Board, providing an
additional channel for matters to be escalated to the Board.
In addition, Mr Baudis and Ms Chan Jones sit as members
on the Diversity & Inclusion (D&I) Committee, which aims to
create a culture that attracts, grows, and empowers diverse
talent. Further information about the Change Engagement
Group, D&I Committee, workforce engagement, policies,
and practices can be found on pages 64 to 74.
2 Division of responsibilities
The role of the Chair
The Chair, supported by the General Counsel and Company
Secretary and the Senior Independent Director, leads
the Board’s functions and ensures its effectiveness. The
Chair was independent when he became a Director of
Avast Holding BV in 2011 and also of Avast plc in 2018.
Notwithstanding the fact that, as of December 2020, more
than nine years has elapsed since the Chair was appointed
to the Board, the Chair was deemed to be independent
this year on the basis that no other circumstances existed
which would call into question his independence and that his
judgement, experience, and challenging approach ensured
that he made a significant contribution to the work of the
Board and its Committees and that his independence
was maintained.
The roles of the Chair and the CEO are separate and the
division of responsibility between these roles has been
agreed by the Chair, the CEO, and the Board. The Chair 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
strategic leadership of the Group.
Role of the Senior Independent Director
The Senior Independent Director has responsibilities to
shareholders, the Chair, and the other Directors. The Senior
Independent Director is to be available to shareholders
if they have concerns which contact through the normal
channels of the Chair, CEO, or Executive Directors has
failed to resolve. The Senior Independent Director, together
with the Chair, has a responsibility to ensure effective
communication by the Group with its shareholders, which
includes the discussion of governance, remuneration and
strategy with major shareholders. In addition, the Senior
Independent Director chairs the Nomination Committee,
provides a sounding board for the Chair, meets other
Non-Executive Directors at least once a year to appraise
the Chair’s performance, and provides feedback to the
Board on the views of the Independent Non-Executive
Directors on certain matters.
Role of Non-Executive Directors
The Non-Executive Directors are responsible for scrutinising
management’s performance. They constructively challenge
and assist in the development of strategy, as well as ensure
that the Group’s financial reporting and its systems of risk
management are robust, and that the Group is meeting
its strategic objectives. The Chair meets with the Non-
Executive Directors before or after certain Board meetings
where appropriate without the Executive Directors present.
The Chair and CEO meet regularly to discuss operational,
reputational, and organisational issues.
Composition of the Board
In respect of the period between 1 January 2020 and the
date of this report, the following persons were Directors of
the Company:
Name
Title
Appointment Date
John Schwarz
Independent Chair
Ondrej VIcek
Chief Executive Officer
Philip Marshall Chief Financial Officer
Warren Finegold Senior Independent
Non-Executive Director
9 May 2018
9 May 2018
9 May 2018
9 May 2018
Pavel Baudis
Non-Executive Director
9 May 2018
Maggie Chan
Jones
Ulf Claesson
Erwin Gunst
Independent
Non-Executive Director
Independent
Non-Executive Director
Independent
Non-Executive Director
13 March 2019
9 May 2018
9 May 2018
Eduard Kucera Non-Executive Director
9 May 2018
Tamara Minick-
Scokalo
Independent
Non-Executive Director
13 March 2019
Belinda
Richards
Lorne
Somerville
Independent
Non-Executive Director
Independent
Non-Executive Director*
8 June 2018
9 May 2018
* Mr Somerville retired as Independent Non-Executive Director on
21 May 2020.
Biographies of the Directors can be found on pages 88
to 89.
Members of the Executive Management team regularly
attend Avast plc Board meetings and support the Board’s
engagement on the Group’s strategy, financial results,
and business reviews.
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Board process and the role of the Company Secretary
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 whereas some responsibilities are delegated to its Committees as described further below.
Committees
Audit and Risk
Nomination
Remuneration
Belinda Richards (Chair),
Tamara Minick-Scokalo,
Erwin Gunst, and Ulf Claesson
Warren Finegold (Chair),
John Schwarz, Erwin Gunst,
and Maggie Chan Jones
Ulf Claesson (Chair), John Schwarz,
Maggie Chan Jones, Warren Finegold,
and Tamara Minick-Scokalo
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, and evaluates the Group’s key business risks on an annual basis; develops and implements the Group’s
policy on non-audit services and reviews the effectiveness of the Group’s internal controls, including cybersecurity
controls and readiness, whistleblowing processes, and fraud systems. The terms of reference setting out the roles and
responsibilities of the Audit and Risk Committee can be found at https://investors.avast.com/media/1399/audit-and-
risk-committee-terms-of-reference.pdf
The Nomination Committee assists the Board in reviewing the structure, size, performance, and composition (including
the skills, knowledge, experience and diversity) of the Board. It is also responsible for reviewing succession plans for
the Directors, including the Chair and CEO, and other senior executives, as well as reviewing the results of the Board
performance evaluation process. The terms of reference setting out the roles and responsibilities of the Nomination
Committee can be found at https://investors.avast.com/media/1397/nomination-committee-terms-of-reference.pdf
The Remuneration Committee recommends the Group’s policy on executive remuneration; recommends the levels of
remuneration for Executive Directors, the Chair, 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.
The terms of reference setting out the roles and responsibilities of the Remuneration Committee can be found at
https://investors.avast.com/media/1270/remuneration-committee-terms-of-reference.pdf
Please refer to pages 97 to 102 for further details in relation to the Audit and Risk Committee; pages 103 to 106 for further details in relation to the Nomination Committee; and pages 107 to
128 for further details in relation to the Remuneration Committee.
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 UK Market Abuse
Regulation, the Financial Conduct Authority’s Listing Rules, and the Disclosure Guidance and Transparency Rules. The Disclosure Committee comprises the CEO, CFO, General Counsel and
Company Secretary, and Director of Investor Relations. The Disclosure Committee considered matters when appropriate during 2020.
The Executive Management team comprises the CEO, CFO, and eight 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 https://investors.avast.com.
In 2020, the Board held 12 meetings. The Audit and Risk Committee and Remuneration Committee each held four meetings, and the Nomination Committee held five meetings. Meetings
are generally held in London, but due to the restrictions imposed in response to the COVID-19 pandemic, all meetings after February were held virtually. During 2020, 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 Chair and Non-Executive Directors regularly hold sessions without the attendance of the Executive Directors or other members of the Executive Management team. Additionally,
the Chair ensures that the Directors take independent professional advice where they judge it necessary in order to discharge their responsibilities. The General Counsel and Company
Secretary is also available to provide advice for every Director.
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The Board is supported by the General Counsel and Company Secretary, who ensures that the Board has the policies, processes, information, time, and resources it needs in order to function
effectively and efficiently.
Board meeting attendance
Board meeting
John Schwarz
Ondrej VIcek
Philip Marshall
Pavel Baudis
Eduard Kucera
Lorne Somerville*
Warren Finegold
Ulf Claesson
Erwin Gunst
Belinda Richards
Tamara Minick-Scokalo
Maggie Chan Jones
* Mr Somerville resigned from the Board on 21 May 2020
23 Jan 2020 29 Jan 2020 25 Feb 2020 7 April 2020 15 April 2020 20 May 2020 14 July 2020 11 Aug 2020 18 Sep 2020 20 Oct 2020 19 Nov 2020 21 Dec 2020
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Please refer to page 99 for the Audit and Risk Committee attendances; page 103 for the Nomination Committee attendances; and page 127 for the Remuneration Committee attendances.
3 Composition, succession and evaluation
Appointments to the Board
The Nomination Committee assists the Board in reviewing the structure, size, performance, and composition of the Board. It ensures a formal, rigorous, and transparent procedure for the
appointment of new Directors. It is also responsible for reviewing succession plans for the Directors, including the Chair and CEO, and the Executive Management team.
A detailed overview of the activities of the Nomination Committee in succession planning can be found in the Nomination Committee report on page 104.
Evaluation
Annual Board evaluation
The Board undertakes an 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 2020 Board evaluation. Lintstock has no other connection with Avast.
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Evaluation process
Lintstock engaged with the Chair and General Counsel
and Company Secretary to set the context for the
evaluation and tailored 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 Chair present, the Chair’s performance,
the results of which were discussed between the
Senior Independent Director and the Chair
Board members conducted a self-evaluation of their
individual performance and contribution to the Board,
as well as their training requirements; the results were
discussed on an independent basis with the Chair
Lintstock produced reports regarding the performance
of the Board, the Committees, and the Chair which
were considered by the Board
Focus areas for 2021
Making improvements to the meeting cycle,
agenda and papers
Evolving the dynamic between the Board
and management
Addressing Board composition
Overall evaluation findings
The performance of the Board and its Committees received
a mixed rating, primarily as events since last year’s Board
evaluation, including the COVID-19 pandemic, have
amplified the need to make a number of changes in the
governance model.
The performance of the Audit and Risk Committee and
Remuneration Committee was rated highly. The Nomination
Committee was rated high overall with priorities for 2021
identified, including greater reporting back to the Board.
A summary of the evaluation of the performance of each of the Committees can be found on pages 102 (Audit and
Risk Committee,106 (Nomination Committee), and 128 (Remuneration Committee).
Key evaluation findings and Board actions for 2021
Annual Board evaluation findings
Board actions for 2021
Board composition
Appropriateness of the current Board composition
Chair succession
Board dynamics
Increase in Board involvement in key initiatives
Develop closer relationships with the Executive
Management team
Strategic oversight
Ensure that the key business priorities are agreed
and tracked on a consistent basis to improve the
Board’s visibility of operational execution
Develop a more systematic approach to
understanding the Company’s market and
competitive positioning
Focus will be given to agreeing how the composition of the Board
should evolve going forward, including the skills set that should
be targeted in the next Non-Executive Director to be appointed.
The Board will consider the merits of undertaking a skills mapping
exercise to help clarify priorities for future recruitment processes.
The Chair’s succession will be a key focus over the coming 12 to
18 months.
The Board will ensure that clear expectations are set around its
level of involvement with the Executive Management team and will
determine an annual cycle of meetings and less formal interactions to
support an ongoing, collaborative dialogue and guide the Executive
Management team in their engagement on key issues.
The Board will continue to support the CEO and engage with the
Executive Management team to agree key business priorities and
develop processes to track operational execution of strategy. The
Board will work with the Executive Management team to further
understand the Company’s market and competitive positioning.
Management and focus of meetings
Have fewer topics on each Board meeting agenda,
devote more time to discussing critical issues
and ensure Board papers are more concise and
focused on key issues
The Board will work to develop a timetable to increase the annual
number of Board meetings and ensure that the allocation of time
within them is optimised. The Board will also develop appropriate
reporting of key business priorities and ensure Board materials are
aligned with the Board’s needs.
Risk management and internal control
Key risks should receive greater attention at
the Board periodically
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
and devote increased time in the Board calendar to consider key risks,
in particular security risk.
Succession planning and human resource management
Strengthen the level of senior operational leadership
The Board will continue to develop succession plans for the
Executive Management team and oversight of talent and
management and development processes.
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4 Audit, risk and internal control
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, the scope of the annual audit and non-audit work
undertaken by external auditors, the effectiveness of the
internal controls in place within the Group, ESG matters and
cybersecurity. For further detail, please refer to the Audit
and Risk Committee report on pages 97 to 102.
The Board is responsible for the presentation of a fair,
balanced, and understandable assessment of the Company’s
position and prospects. This is a key consideration when
preparing all financial information issued. The coordination
and review of the annual report is conducted in parallel with
the formal audit process undertaken by the external auditors
and the review by the Board and its Committees. The Board
is satisfied that the current policies and procedures in place
ensure the independence and effectiveness of the internal
and external audit functions. The Audit and Risk Committee
is responsible for reviewing key judgements within the
Group’s financial statements and narrative reporting, with
the aim of maintaining the integrity of the Group’s financial
reporting. The Board is responsible for carrying out a robust
assessment of the Company’s emerging and principal risks.
The Board, through the Audit and Risk Committee,
has monitored the Company’s risk management and
internal control systems and, at least annually, carries out a
review of their effectiveness and reports on that review in
the annual report.
5 Remuneration
The Remuneration Committee recommends the Group’s
policy on executive remuneration, recommends the levels of
remuneration for Executive Directors, the Chair, 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 (AGM).
The Directors’ remuneration report, on pages 107 to 128,
sets out the work of the Remuneration Committee, its
activities during the year, and further details on how the
Remuneration Policy is implemented.
The Company has a formal and transparent procedure
for developing the Remuneration Policy, and no Director
is involved in deciding their own remuneration. The
Remuneration Committee is working with the Executive
Directors to revise the Remuneration Policy to ensure that
executive remuneration remains aligned with the Company’s
purpose and values, and is clearly linked to the successful
delivery of the Company’s long-term strategy. The updated
Remuneration Policy will be put to shareholders for approval
at the 2022 AGM. Executive remuneration is set with regard
to the wider workforce and through market benchmarking.
The Remuneration Committee is supported by remuneration
consultant Deloitte LLP. For further detail, please refer to the
Remuneration Committee overview on pages 127 to 128.
The Remuneration Committee comprises four Non-
Executive Directors to ensure independent judgement
with regard to remuneration outcomes. The Remuneration
Committee considers remuneration on an annual basis and
determines outcomes by assessing executive performance
against performance criteria, details of which can be
found in the Directors' remuneration report on pages
107 to 128. This states how our Remuneration Policy has
been applied and sets out details of any adjustments
made or discretions exercised.
Annual General Meeting
The 2021 AGM will be held on 6 May 2021. The notice of
AGM will be sent to all shareholders who have requested
a physical copy and can also be found on the Company’s
website at https://investors.avast.com. The notice of AGM
sets out the business to be conducted at the meeting and
explanatory notes in relation to the 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 Chair’s AGM statement.
The Corporate Governance statement includes the Audit
and Risk Committee report, the Nomination Committee
report, and 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 2 March 2021 and signed by order of the Board.
By order of the Board
Kelby Barton
Company Secretary
2 March 2021
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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
Chair of the Audit and Risk Committee
Introduction
Dear Shareholder
I am pleased to present to you the Audit and Risk Committee
report for the financial year ended 31 December 2020.
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, develops and implements
the Group’s policy on non-audit services, 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.
The last year has been unprecedented in terms of challenge
and change. A priority for the Committee has been ensuring
that the Company’s reporting, controls, assurance, and risk
management systems have remained resilient in light of the
restrictions imposed in response to the COVID-19 pandemic
and its impact on operations globally.
I look forward to working closely together with the other
members of the Committee throughout the coming year,
including any successor to each of Mr Claesson and
Mr Gunst following their retirement from the Board at the
AGM on 6 May 2021, and building on the successes we
achieved in 2020.
Belinda Richards
Chair of the Audit and Risk Committee
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Committee composition and attendance
The Committee comprises four Independent Non-Executive
Directors in compliance with the Code. Also, for the
purposes of the Code, the Board has determined that the
Committee’s Chair, Ms Richards, has recent and relevant
financial experience, being a former corporate finance
partner at Deloitte LLP.
Principal activities
The Committee sets an annual forward agenda based on
the scope of its responsibilities under its terms of reference
available on the website here: https://investors.avast.com/
media/1399/audit-and-risk-committee-terms-of-reference.
pdf. In addition, the Committee considers any other relevant
ad hoc matters which require its review.
Full biographies of the Committee’s members can be
found on pages 88 to 89, which details the qualifications
of the Committee’s members.
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. The Committee meetings
are routinely attended by the CEO, CFO, Vice President
of Finance, Director of Internal Audit, Chief Security
Information Officer, and General Counsel and Company
Secretary.
The Committee held four meetings in 2020 and the
Committee members’ attendance is set out in the
table below.
Committee member
Belinda Richards (Chair)
Tamara Minick-Scokalo
Ulf Claesson
Erwin Gunst
No. of meetings
attended
(No. of meetings
convened
while a member)
4(4)
4(4)
4(4)
4(4)
Date of
appointment
7 June 2018
22 May 2019
10 May 2018
10 May 2018
During 2020, the Committee afforded particular focus to
the following matters:
Assessing and overseeing the Group’s risk
management framework
Evaluating and updating the Company’s key business risks
Reviewing the local risk registers and considering the
appropriateness of the current review process
Assessing the internal controls and risk management of
the Group, including overseeing an exercise to increase
awareness and training of Company policies, conducting
a third-party review of the Company’s control environment
and assessing the effectiveness of licensing systems,
reviewing and monitoring data governance, disaster
recovery planning, tax, treasury, and PPE (plant, property,
and equipment) controls, and targeted assurance
Reviewing the 2019 audit report and 2020 audit plan,
together with the Group’s external auditor
Reviewing the 2019 full-year and 2020 half-year
financial results of the Group
Evaluating the external auditor’s independence and
objectivity, and the effectiveness of the audit process
Reviewing the internal audit plans for the years ending
31 December 2020 and 31 December 2021
Reviewing and approving the Group’s external audit
and tax advisory fees for 2020 and 2021
Overseeing the closure of Jumpshot
Implementing and overseeing developments in the
data governance environment, cybersecurity and ESG
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
Reviewing the Company’s dividend policy and proposed
dividend distribution
Assessing the Company’s principal and emerging risks,
going concern, and viability statements, including the
impact of COVID-19
Assessing the impact of Brexit on the business
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 has continued to
consistently apply its revenue recognition policy during
2020. This year, the external auditors focused on the key
risks associated with recognition of licence revenue and
the risk of management override on all revenue streams.
No new significant accounting judgements relating to
revenue recognition were made in 2020. The revenue
recognition policies of the Group are described in Note 2.
Having provided appropriate challenge to management and
the external auditors, and undertaken further investigation
of the sampling methodology employed, the Committee
has concluded that the revenue recognition for the Group
is appropriate, and the Group’s revenue recognition policy
has been applied consistently.
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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 $197.1m as at
31 December 2020 (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 2020 is $119.8m, 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 years. 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.
The Group recognised a deferred tax asset of $49.9m
(USD) as at 31 December 2020, 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 particular, the Committee reviewed
the current profitability of the Group’s US entities and future
projections, noted that losses had a lifetime use in the US,
and concluded that the appropriateness of the accounting
in relation to deferred tax assets was in order.
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.
Going concern
The Committee oversaw the process used by the Board to
assess the going concern and viability of the Group and the
preparation of the viability statement which is set out on
page 63. As part of this process, the Committee reviewed
the detailed going concern review and analysis which was
undertaken by management due to the uncertainty arising
from Covid-19, which included financial forecasting and
reverse stress testing. The Committee also considered
and monitored the procedures and actions in place to
alert the Board to any changes which might impact the
working capital of the Group.
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 2020.
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 the analysis is appropriate and there is
no impairment of either goodwill or intangible assets as
of 31 December 2020.
Jumpshot
At the beginning of 2020, following an in-depth review of
the Group’s data handling practices, the Board decided
to immediately discontinue the data feed provided by the
Group to Jumpshot, Inc., its data analytics business. Over
the course of the year, the Company has proceeded to
wind-down the business, which included the immediate
cessation of product sales, settlement and termination of
contracts, redundancies, office closure, and commercial
settlements. Management has provided the Committee
with regular updates on the status of the wind-down, which
is substantially complete, and continues to receive updates
in relation to developments with regard to the ongoing
communications with relevant regulators and authorities in
respect of certain data protection matters. Any potential
future claims or liabilities arising out of communication with
relevant regulators or authorities cannot at this time be
quantified. For further details of the provisioning in relation
to Jumpshot and the wind down, see page 178.
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 2020 up to the date of this report.
While the risk management and internal control systems
environment is an area continuously under review and which
the Company is looking to improve, particularly in light of the
Company’s growth and promotion to the FTSE 100 index,
the Committee is satisfied that there are no significant
weaknesses in these systems and that the Group’s key
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,
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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.
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 Committee.
The Committee assessed the effectiveness of Internal Audit
and satisfied itself that the quality, experience, and expertise
of the function is appropriate for the business. In performing
this assessment, the Committee reviewed the annual
internal audit plan and considered the performance against
that plan along with any variations to it, met with the Head
of Internal Audit to review the audit results and management
responses regularly, and held meetings with the Head
of Internal Audit, including in the absence of Executive
Management. The Head of Internal Audit has a direct line of
communication with and support of the Committee.
The Committee reviewed and approved the internal
audit plans for the years ending 31 December 2020 and
31 December 2021, which were created using a risk-based
approach. In 2020, 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.
As a result of this assessment and reflecting the growing
regulatory environment and competitor developments, the
principal risks were modified. A description of the principal
risks and how these were reviewed to assess the Group’s
viability can be found on pages 58 to 63.
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.
During 2020, the Committee oversaw an external review
of the Group’s control activities, and management is
taking certain recommendations coming out of the
external review forward.
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. During the year, the Company appointed a new
vendor to deliver mandatory training to improve the
process of monitoring the compliance of legally required
training and achieve 100% completion of such mandatory
training globally, and ultimately increase awareness of the
Company’s internal policies.
Monitoring
The Group has 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
relating to the performance of control activities in order to
ensure that any issues in the process can be addressed in
their infancy.
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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.
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 58 to
63 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
Approved internal audit plan for the year ended
31 December 2020 relating to financial, control,
business, and operational audits
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
Meetings of the Disclosure Committee, when appropriate,
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
Effectiveness of internal control and
risk management
Through a series of stakeholder interviews, control
walkthroughs, and a documentation review, Deloitte LLP
assessed the Company’s control framework against FTSE
100 index peers and good practice with reference to
COSO. A report on opportunities for improvement identified
through this exercise was presented to the Committee
and the Committee requested the CFO be responsible for
taking forward all high and medium priority observations.
Also 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 key 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
Work carried out by the internal and external audit
functions during the year ended 31 December 2020,
including an internal 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 59 to 61)
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,
data governance, and disaster recovery planning.
The Board is satisfied that there are no significant
weaknesses in these systems and that the Group’s key
internal controls are operating effectively.
Financial Reporting Council feedback on the
annual report
On 15 September 2020, the Group received a letter from the
Financial Reporting Council (FRC) in relation to its thematic
review of companies’ reporting relating to the application
of, and disclosures made under, IFRS 15 ’Revenue from
Contracts with Customers’. I am pleased to report that
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the FRC had identified the disclosures made by Avast in
its annual report and accounts to 31 December 2019 as an
example of better practice in providing clear description of
the nature of performance obligations, associated contract
terms, and why the control over software licences transfers
over time.
External auditor
The Committee makes recommendations to the Board on
the appointment, remuneration, and removal of the Group’s
external auditor. The current lead external audit partner
is Marcus Butler and 2020 was the third year of his term,
having held the role since 2018.
In accordance with the mandatory re-tendering rules
implemented by the UK Competition and Markets Authority,
at least once every 10 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 reappointed as external auditor
of the Company on 21 May 2020 for the year ended
31 December 2020, following its reappointment at the
Company’s 2020 AGM. Prior to this, Ernst & Young s.r.o.
has acted as external auditor to the underlying group since
the year ended 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
2020 was 11:1. 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 2020.
The Committee considered a number of factors when
undertaking this assessment, including:
The professional scepticism, independence,
and objectivity of the external auditor
The quality of the external auditor’s communication
and interaction
The external auditor’s qualifications, expertise, and
resources, and the effectiveness of the audit process
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 2020
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 2020 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 95.
The specific areas assessed were:
Reviewing the work of internal and external audit
Overseeing financial reporting
Assessing the control environment
Monitoring risk management systems
Overall, the Committee’s performance was rated highly.
It was noted that it would be worth reviewing the delegation
of responsibility between the Committee and the Board,
(particularly in terms of risk) and that more time should
be dedicated to Committee meetings. It was also noted
that whilst the Committee had overseen improvements in
the quality of risk and control systems in place since last
year, driving forward the maturity of the risk and control
environment would remain a key focus for 2021.
The Committee has reflected on the findings of the report.
By order of the Board
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
Belinda Richards
Chair of the Audit and Risk Committee
2 March 2021
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Nomination
Committee report
Our mission is to recruit,
develop, and retain a
world-class leadership
team at Board, Executive
Management, and senior
management level.
Warren Finegold
Chair of the Nomination Committee
Introduction
Dear Shareholder
I am pleased to introduce our Nomination Committee report
for the financial year ended 31 December 2020. 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. More broadly, the
Committee is responsible for reviewing succession plans
at Board, Executive Management, and senior management
level and assuring that a pipeline of suitably qualified and
capable successor candidates is in place for both emergency
and longer-term succession. 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 process.
During the year, it was announced that Ulf Claesson and
Erwin Gunst would not be standing for re-election at the
next AGM, having been Directors since 2012. A recruitment
process, led by the Nomination Committee, is currently
under way to find a replacement.
We also oversaw a number of changes to the Executive
Management team, including the retirement of Alan Rassaby
who retired having spent more than seven years as General
Counsel and Chief Human Resources Officer and latterly
as Chief of Staff and Company Secretary. The Committee
also oversaw a number of new hires to 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
Chair of the Nomination Committee
Principal activities
The Committee sets an annual forward agenda based on
the scope of its responsibilities under its terms of reference
available on the Company’s website at https://investors.
avast.com/media/1269/terms-of-reference-nomination-
committee-07062019.pdf. 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:
Succession plans for the Board and members of the
Executive Management team
Recruitment of a new Chair of the Board
Recruitment of a new Non-Executive Director to the Board
Monitoring compliance with corporate culture
External Annual Board evaluation
Director independence
Committee membership
Committee member
No. of meetings
attended
(No. of meetings
convened
while a member)
Date of
appointment
Warren Finegold (Chair)
10 May 2018
John Schwarz
Erwin Gunst
Maggie Chan Jones
10 May 2018
10 May 2018
22 May 2019
5(5)
5(5)
5(5)
5(5)
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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 88 to 89.
The Group’s General Counsel and Company Secretary
is secretary to the Committee. From time to time, the
Committee may invite others to join 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, the Chief of Staff
and Company Secretary (prior to his retirement), and the
Chief People and Culture Officer.
The Company complies with the requirements of the
Code that a majority of the Nomination Committee be
Non-Executive Directors.
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 that the best candidates are
obtained. Successor candidates’ capabilities were calibrated
in 2020 using 360 feedback, psychometric testing, and
in-depth interviewing with an executive search consultant.
This has allowed us to determine the readiness for
candidates in terms of succession. Development plans are
being supported for all successor candidates to ensure that
they are as prepared as possible for potential succession,
and external market mapping has been commissioned
for roles where there is no obvious internal successor.
Throughout the year, the composition of the Executive
Management team underwent a number of changes,
as further set out below.
In July 2020, Nick Viney joined the Group as Senior Vice
President and General Manager of Telco, IoT, and Family.
He is responsible for leading Avast’s global strategy for
the business unit and expanding its portfolio of security
products. He has held leadership positions at a number of
leading technology companies, with his experience covering
multiple channels to market, including the mobile and carrier
sector and the Internet of Things (IoT) market as well as
Original Equipment Manufacturing (OEM) and Retail.
Appointment of senior executives
The Company welcomed a number of senior executives in
various roles throughout 2020, and the beginning of 2021.
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.
In April 2020, Lisa Carey joined the Group as Chief
Marketing Officer. Ms Carey leads the marketing team.
Ms Carey brings more than 20 years of marketing expertise
to Avast, having built world-class brands and businesses
across all stages of growth.
In August 2020, Allan Thomson joined the Group as Chief
Architect Threat Defence Technology. Mr Thomson is
responsible for the technical strategy, architecture,
and product technology for threat defence products.
Mr Thomson has significant experience across network
security, threat intelligence, threat analysis, and distributed
systems technologies, having served as a technology
innovator, strategist, architect, and leader across a broad
set of products at leading-edge companies.
In September 2020, Dita Formankova joined the Group
as Director of Diversity, Inclusion and Communities.
Ms Formankova leads diversity initiatives and Group-wide,
activities and training, and works with Avast’s ambassadors
globally to jointly develop local initiatives and locally
focused programmes.
In October 2020, Shane McNamee joined the group as
Chief Privacy Officer. The Chief Privacy Officer is a new
role. Mr McNamee will work with the existing Privacy
Compliance team and Data Protection Officer to enhance
privacy compliance and focus on developing the Group’s
privacy strategy, culture, and values. Mr McNamee has
extensive experience working in both academia and national
data protection regulation, having most recently worked at
the Irish Data Protection Commission, the Irish regulator
tasked with overseeing and enforcing data protection and
privacy laws.
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In October 2020, Miroslav Umlauf assumed a newly created
role of Chief Data Officer. Mr Umlauf is responsible for
developing, communicating, and executing Avast’s data
strategy and helping Avast to find balance between data
innovation and regulation. Mr Umlauf has been with the
Company for 10 years in various data and analytics roles,
and prior to Avast he spent several years in data roles in
telecommunications. He has been teaching data skills in
business institutes and universities. He contributed to
the creation of master’s and MBA data programmes
(University of Economics in Prague).
In March 2021 we welcomed Trudy Cooke who joined as
Group General Counsel and Company Secretary. Ms Cooke
is responsible for leading the legal and company secretarial
functions within the Group. Ms Cooke brings extensive
international public and private legal, M&A and management
experience. She was recently Group General Counsel at a
UK listed satellite telecommunications company and prior
to that worked first as a corporate lawyer and then more
recently as the Chief Operating Officer and member of the
Executive Board at a leading international private equity
investment firm in London.
In addition, as part of the reorganisation of our corporate
structure and the establishment of multi-disciplinary,
autonomous teams to focus on specific areas, there have
been changes to the roles of two members of the Executive
Management team. Vita Santrucek has been appointed as
Avast’s Chief Product Officer and Peter Turner has been
appointed as Avast’s Chief Commercial Officer.
Nomination Committee report
Independent Directors
The Code recommends that at least half of the board of
directors of a UK listed company, excluding the Chair,
comprises 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.
Six out of 11 Directors are independent. Further details
on the classification of Directors are included in the
Corporate Governance statement on page 92. As a result,
the Company is compliant with the requirement of the Code.
Board appointments
All Directors are appointed by the Board following a rigorous
selection process and subsequent recommendation by the
Nomination Committee. We aim to appoint people who will
help us address the operational and strategic challenges
and opportunities facing the Company now, and in the
future, and ensure that our Board is diverse in terms of
gender, nationality, social background, and cognitive style.
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.
Mr Claesson and Mr Gunst, both Independent
Non-Executive Directors, have been members of the Board
for almost nine years. In accordance with best governance
practice and as announced on 12 August 2020, neither
Mr Claesson nor Mr Gunst will be standing for re-election at
the AGM. The Nomination Committee has instructed Russell
Reynolds to identify an appropriate candidate based on a
profile and skill set agreed by the Nomination Committee.
Russell Reynolds has no other connection with the Company.
John Schwarz’s tenure as Chair
As of December 2020, the Company’s Chair, Mr Schwarz,
has served on the Board for more than nine years.
The Code 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. However, 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 Board considers Mr Schwarz’s continuation as Chair
desirable for a limited period of time, to provide stability and
continuity following Board and executive changes, including
the upcoming retirement of Mr Claesson and Mr Gunst
as Non-Executive Directors. Significant shareholders and
proxy agencies were given the opportunity to speak with
the Board’s Senior Independent Director regarding their
views on the matter. The Company, through the Nomination
Committee, will soon commence with the succession plan
for the Chair.
Changes to the Committees
During the year, Ms Minick-Scokalo was appointed as a
member of the Remuneration Committee and her extensive
international experience in fast-moving consumer goods
and change management means she is well placed to assist
the Committee in advising the Board on remuneration
matters and ensuring that the Remuneration Policy is aligned
with the business strategy and objectives, risk appetite,
values, and long-term interests of all stakeholders.
As part of the Remuneration Committee’s succession
planning, it is intended that Ms Minick-Scokalo will succeed
Mr Claesson as Chair of the Remuneration Committee
following the AGM.
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Evaluation of the Board’s structure, size,
performance, and composition
The Nomination Committee’s effectiveness for 2020 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 95.
The specific areas assessed were:
Composition of the Board
Selection of new Directors
Succession planning for Executive and
Non-Executive Directors
The performance of the Committee was rated highly
overall. It was noted that greater reporting to the wider
Board would be beneficial, in particular in relation to
deciding how the make-up of the Board should evolve going
forward and in determining the desired attributes to be
sought in Non-Executive Director recruitment. It was noted
that increased attention needed to be given to succession
planning going forward.
A summary of the process and findings of the annual Board
evaluation can be found on page 95.
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. The Board, and specifically the Committee,
require that all lists of candidates proposed for new Board
positions include a diverse set of candidates, and work with
executive search firms that have signed up to the Voluntary
Code of Conduct for Executive Search on both gender and
diversity best practice. As of the date of this report, the
proportion of women on the Board is 27%. 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
is embedded in our succession planning and Director
recruitment process, where we aim to bring a diverse and
complementary range of backgrounds, skills, knowledge,
and experience to the Board.
In 2020, the representation of women on the Executive
Management team and their direct reports was 27%.
The Board is committed to increasing the representation of
women in the Executive Management team and improving
diversity. Recent changes to the Executive Management
team (as described on page 71) will bring the gender
diversity to 40% female. Further information about the
Group’s Diversity Policy is set out on pages 70 to 73.
The Board has met the target set by Sir John Parker and the
Parker Review Committee in 2017 that there is at least one
director from an ethnic minority background on the Board
of FTSE 100 companies by 2021.
Company culture
Throughout 2020, Avastians have demonstrated their
resilience in the face of change and uncertainty. The CEO’s
culture initiative, undertaken to clarify and codify our values
and ways of working, evolved as the Company navigated
the challenging conditions of the global pandemic. Ongoing
engagement with employees, and an understanding that
the post-COVID reality will require radically different ways
of working, prompted us to launch Avast’s new Whole
Life Flexibility concept. This set of principles empowers
employees to integrate their work and life priorities
as they see fit, through policies such as unlimited paid
time off, flexible working hours and locations, and providing
office spaces that support collaboration, creativity,
and connection. These policies and the cultural
principles underpinning them are outlined in the
CEO’s strategic report.
The vision and strategy seeks to create a customer-focused,
fast-moving company culture that enables ownership and
accountability. Avast is of the view that the right culture is
a competitive advantage and a key component of growth,
and that culture dictates a company’s level of integrity,
reputation, profitability, and shareholder value. Further
details about the importance of culture are set out on
pages 64 to 74. Throughout the year, the Board reviewed
a number of important cultural initiatives and monitors
compliance with the Company’s culture in a number of
ways. The recently established Avast Change Engagement
Group (see page 66 for further details) enables two-way
communication and serves as a forum where colleagues
can talk with members of the Executive Management
team and the Board. Additionally, the Nomination
Committee is attended by Rebecca Grattan, the Chief
People and Culture Officer, who provides feedback to the
Committee and the Board.
By order of the Board
Warren Finegold
Chair of the Nomination Committee
2 March 2021
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Directors’
remuneration report
Structure
Chair’s letter
Annual Remuneration Report 2020
– Summary of Remuneration Policy and
implementation for 2021
– Directors’ remuneration for 2020
– Directors’ shareholdings
– Remuneration Committee overview
107
110
111
118
123
127
In what has been an
extremely challenging year,
performance has been
resilient as we have adapted
our business to both protect
the health of our people
as well as to ensure that
we continue to deliver
for customers
Ulf Claesson
Chair of the Remuneration Committee
Remuneration Committee Chair’s letter
Dear shareholders
I am pleased to present to you our Directors’ remuneration
report for the year ended 31 December 2020. Following
the Company’s listing on the London Stock Exchange in
May 2018, the Committee designed our Directors’
Remuneration Policy to incorporate best practice features
of the typical UK pay model, while recognising the need
to compete for talent in a global market when setting
reward levels, particularly long-term incentive opportunities.
The policy was supported by 94.7% of our shareholders at
our first AGM on 23 May 2019, and will remain in effect for
the financial year ending 31 December 2021.
Implementation of remuneration arrangements
for 2021
We will continue to operate a bonus and long-term incentive
programme (LTIP) structure in 2021 in line with our
shareholder approved Directors’ Remuneration Policy.
There are no changes to our annual bonus and LTIP
award levels.
The Committee has, however, reviewed the measures under
the annual bonus to ensure that they continue to be aligned
with our strategy and has determined that the measures
should be simplified in order to provide greater consistency
across the organisation. Specifically, the Committee has
replaced the revenue measure with a billings measure to
align the organisation with its commercial teams, in line
with our growth aspirations and to recognise material
investments being made. Billings is defined on page 55
of the annual report. In addition, the unlevered free
cash flow (UFCF) measure will be replaced by adjusted
EBITDA to incentivise management and the rest of the
organisation to strengthen the focus on profitability.
Therefore, the annual bonus for 2021 will be based on
billings (35%), adjusted EBITDA (35%), relationship net
promoter score (NPS) (15%) and performance against
strategic key performance indicators (KPIs) (15%).
Performance measures for the 2021 LTIP award will be
based 50% on diluted adjusted EPS growth and 50% on
adjusted revenue growth. Targets remain largely unchanged
other than a slight reduction in the target for adjusted EPS
growth which has reduced from 8% to 7% CAGR.
As outlined in the 2019 Directors’ remuneration report,
following his appointment as CEO on 1 July 2019, Ondrej
Vlcek elected to waive his salary (not including his Board fee)
and annual bonus. Mr Vlcek continues to receive his Board
Director’s fee ($100,000 per annum) which he donates to
charity. Mr Vlcek receives a nominal annual salary of $1 only
in addition to his Board fee.
The Committee reviewed base salaries in effect from
1 April 2021 and decided that no increase would be awarded
at this time. As such, the CFO’s salary will remain at
$600,000. The CEO’s ‘headline’ salary on which his LTIP
award level is based will also remain the same at $700,000.
Review of Remuneration Policy
Our current Directors’ Remuneration Policy will soon have
been in place for three years and therefore we are required
to seek shareholder approval for a revised Policy at our 2022
AGM. A key area of focus for the Remuneration Committee
for the next 12 months will therefore be undertaking a
detailed review of this Policy to ensure that it continues to
support our strategy and incentivises management to deliver
value for shareholders. The Committee continues to learn
from and adopt new developments in corporate governance
and best practices, in the UK and globally. As part of this
review, the Committee will be carefully considering how our
Policy compares with best practice and will look to bring the
policy in line where appropriate. For example, as part of the
review of the Policy, the Committee will look to introduce a
formal post-employment shareholding guideline.
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Pay outcomes for 2020
2020 was another successful year for Avast as we continued
to execute our growth strategy delivering both organic
revenue and adjusted net income growth in a challenging
economic environment. It was also a year in which we
demonstrated business resilience during the unprecedented
COVID-19 pandemic, and despite the continuing uncertainty
ahead, Avast remains well positioned and continues to make
progress against our longer-term strategy.
Annual bonus
The annual bonus for 2020 was based on performance
against organic revenue and unlevered free cash flow
targets, customer satisfaction, and strategic Key
Performance Indicators (KPIs). Organic revenue grew by
7.9%. Performance against the organic revenue plan was
above target. Unlevered free cash flow grew by 6.2%
and was just below target performance, largely as a result
of the material donation made to COVID-19 related relief
efforts. This resulted in a bonus payout of 55.1% of maximum
in respect of the organic revenue component (35% weight),
and 37.5% of maximum in respect of the unlevered free
cash flow component (35% weight).
The Group made good progress on improving the customer
proposition during the year with robust change and
transformation activities. These will ultimately enable us to
deliver better products and experiences for our customers.
Based on the performance delivered, the Committee judged
that 50% of maximum for the customer satisfaction element
of the bonus should be paid.
The Committee reviewed individual performance carefully
against the strategic KPIs set for each Executive Director,
and awarded Mr Philip Marshall 53.3% of maximum for
the strategic KPI measures as CFO. His overall bonus was
therefore 47.9% of maximum. Further details are set out on
page 120.
As noted above, Mr Ondrej Vlcek elected to waive his annual
bonus opportunity for the year.
The Committee considered very carefully whether it was
appropriate to pay an annual bonus to Executive Directors
in the context of the economic and social environment.
The Committee believes the underlying performance as well
as the experience of shareholders and other stakeholders
during the year supports the payment of an annual bonus.
In coming to this judgement, the Committee considered the
following factors:
Financial performance for the year has been strong
with revenue increasing organically by 7.9% and profit
(adjusted net income) increasing by 11.8%.
The share price at the date of signing this report was
broadly flat on the start of the year compared to a fall of
c.14% for the FTSE 100 index.
We continued to pay dividends in June and October 2020
and we plan to pay a final dividend for 2020 in June 2021.
We did not furlough any employees or receive any related
government assistance.
We have not made any redundancies as a result of
COVID-19.
As a company, we made a material donation to
COVID-19 relief efforts.
Despite the strong performance, the overall bonus
for 2020 is lower than the bonus received for 2019,
driven largely by the impact of our material donation to
COVID-19 relief efforts on the unlevered free cash flow
performance against target.
LTIP
Our first award post-IPO was made under the LTIP plan
on 18 June 2018. This award vested based 50% on diluted
adjusted EPS growth and 50% on adjusted (organic) revenue
growth. Diluted adjusted EPS growth over the three financial
years to 31 December 2020 was 10.0% (CAGR) and adjusted
revenue growth (organic) over this period was 7.5% (CAGR).
This performance resulted in 67.26% of the award vesting.
The Committee believes that this level of vesting is a fair
reflection of the excellent progress the Company has made
since listing.
No discretion was exercised in relation to the annual bonus
for 2020 or the LTIP outcomes.
Broader employee reward
Like every other business in 2020, Avast was deeply
impacted by the COVID-19 pandemic, effectively switching
to an entirely remote setup overnight in mid-March. While
we were able to pivot our workforce quickly to working from
home and to provide the equipment and material support
needed, we also increased wellness support for all Avastians
ensuring that they could access these resources at any
time. To support employees’ physical health and wellbeing,
we began to offer free online medical consultations with
physicians and specialists for all Avastians and their families.
We also moved towards Whole Life Flexibility in two
important ways. First, Unlimited Personal Time Off (PTO)
will become standard for our employees in all jurisdictions.
Second, all Avastians can choose between two working
modes, Work from Office (WFO) or Work from Anywhere
(WFA). These actions and initiatives, which enable our
employees to undertake their roles while ensuring their
wellbeing, are outlined in the People section on page 64.
During the year, we have undertaken a significant change
programme to ensure that we have the right organisational
structure and culture in place to accelerate the delivery of
performance and to deliver value for shareholders.
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Other Board changes
During the year, we welcomed Ms Tamara Minick-Scokalo
as a new member of the Remuneration Committee.
After nine years on Avast’s Board I am due to step down
from the Board and as Remuneration Committee Chair
on 21 May 2021 and it is intended that Ms Minick-Scokalo
will take over as Remuneration Committee Chair from
this date.
This Directors’ remuneration report will be submitted
to shareholders for an advisory vote at the AGM on
21 May 2021 and I look forward to our ongoing dialogue
on this important topic.
Ulf Claesson
Chair of the Remuneration Committee
To recognise our employees’ commitment to Avast and to
create alignment between their long-term compensation
and Avast’s strategic goals and share in the growth of the
business as shareholders, the Company announced that
every employee below the Executive Management team will
receive an award of one-off Restricted Stock Units (RSUs) in
the value equivalent to 40% of annual base salary (capped at
10,000 units) and vesting in equal portions over a three-year
period, after the March 2021 Board meeting. Going forward,
all new joiners at this level will receive a similar award subject
to passing their probation period, to ensure that every Avast
employee is invested in the Company. These one-off RSUs
are within our maximum share dilution level commitment of
10% over a period of 10 years and we will ensure that future
RSU awards are within that limit as well.
We are very excited by the new scheme which we believe
allows employees to fully share in our success and which will
motivate them to deliver our vision and the growth plans for
the Avast of the future.
Through the Employee Share Matching Plan (SMP),
employees continue to be able to receive one free share
for every three purchased shares after a two-year holding
period, and Avast continues to grant additional RSUs
to a select group of high-performing and high-potential
employees each year.
Avast Plc has fewer than 250 employees in the UK and is
not required to disclose the CEO to all employee pay ratio.
However, in line with our commitment to openness and
transparency, the Committee has determined to voluntarily
disclose Avast’s CEO pay ratio figures in respect of the
financial year ended 31 December 2020, details of which
can be found on page 126.
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Annual Remuneration Report 2020
The Annual Remuneration Report that follows has been prepared in accordance with the provisions of the 2018 UK Corporate Governance Code (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
2020 AGM on 21 May 2021.
Summary of how our policy was implemented in 2020
Summary
BASE SALARY
No salary increases awarded in the year.
Implementation in 2020
Ondrej Vlcek – CEO
Philip Marshall – CFO
Ondrej Vlcek had waived his salary (excluding
his Board fee). He continued to receive his Board
Director’s fee ($100,000 per annum) which he
donated to charity. He received a nominal annual
salary of $1 only in addition to his Board fee.
His ‘headline’ salary was $700,000
$600,000
(this includes his Board fee of $100,000
per annum, which he donated to charity
for the April – December period)
BENEFITS
Benefits included private health cover (for the
individual and family members), life insurance,
flexible benefit scheme, and car allowance.
PENSION
Executive Directors do not receive a
pension contribution.
ANNUAL BONUS
(The CEO does not receive private health cover
or a car allowance.)
$8,732
$61,412
n/a
n/a
Maximum opportunity of 200% of salary
in 2020.
Performance measures for the 2020 annual
bonus were as follows:
The CEO has waived his annual bonus
Outturn as a percentage of maximum:
47.9%
35% on organic revenue performance.
35% on unlevered free cash flow
(as defined on page 108).
15% on customer satisfaction.
15% on strategic KPIs.
$575,023
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Summary
LTIP
In 2018, the CEO was granted an award of
350% of salary based on his salary at the time
of $450,000 in 2018 (for his role as President
of Consumer). The CFO was granted an award
of 350% of salary of $525,000.
Performance was measured over three years to
31 December 2020. Performance measures for
the 2018 award were as follows:
50% based on diluted adjusted EPS growth.
50% on adjusted (organic) revenue growth.
SHARE MATCHING PLAN
All employees, including the Executive
Directors and members of the Executive
Management team, are eligible to participate
in the SMP.
SHAREHOLDING GUIDELINES
200% of salary
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.
Implementation in 2020
Ondrej Vlcek – CEO
Philip Marshall – CFO
Percentage of award vesting: 67.26%
Percentage of award vesting: 67.26%
$2,511,919
$2,928,094
The CEO did not participate in the
Share Matching Plan in 2020.
The CFO participated in the Share
Matching Plan in 2020, and acquired
7,396 shares under the plan.
24,336% of (‘headline’) salary
386% of salary
Shareholding as at 31 December 2020 based
on the share price at that date
Shareholding as at 31 December 2020
based on the share price at that date
Summary of key elements of Remuneration Policy and implementation for 2021
Our Remuneration Policy for Directors (’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 2021. 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.
Align the interests of employees and shareholders through appropriate levels of employee share ownership.
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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 that 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 long-term nature of our incentive plans promotes sustainable financial performance and ensures that appropriate safeguards are in place to avoid
rewarding failure (such as malus and clawback provisions, shareholding guidelines and holding periods).
The Committee believes that our Remuneration Policy reflects the principles of provision 40 of the UK Corporate Governance Code, as outlined based on the principles above.
BASE SALARY
Purpose and link to strategy: Reflects the particular skills and
experience of an individual and provides a competitive base
salary compared with similar roles in similar companies.
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
Implementation for 2021
In line with the previous year, the CEO (Mr Ondrej Vlcek)
waived his salary (excluding his Board fee) and his annual
bonus. He will continue to receive his Board Director’s fee
($100,000 per annum) which he will donate to charity.
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) will not
be increased from 1 April 2021 and therefore will continue
at $700,000 (inclusive of the $100,000 Board Director’s
fee element).
The salary of the CFO (Mr Philip Marshall) will also not
be increased from 1 April 2021 and therefore will continue
at $600,000.
BENEFITS
Purpose and link to strategy: To enable the Executive
Directors to undertake their roles by ensuring their
security and wellbeing.
Overview
Benefits currently include private health cover (for the
individual and family members), life insurance, flexible
benefit scheme, and car allowance.
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.
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.
Performance measures
n/a
Implementation for 2021
The CEO (Mr Ondrej Vlcek) does not receive private health
cover or a car allowance.
The CFO will continue receiving benefits in line with the
approach for 2020, including the car allowance.
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PENSION
Purpose and link to strategy: To provide an appropriate
allowance for retirement planning.
Overview
Executive Directors do not currently participate in pension
arrangements in line with practice for other employees.
ANNUAL BONUS
Purpose and link to strategy: The annual bonus is designed
to drive effective delivery of the business strategy, reward
short-term operating performance, and promote executive
share ownership via the deferral of bonus into shares where
the shareholding guideline has not been met. The annual
bonus scheme enables the Group to flexibly control its
cost base through performance-linked reward and ensures
that Executive Director remuneration is directly linked to
business performance.
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).
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.
Performance measures
n/a
Implementation for 2021
No change.
Maximum opportunity
n/a
The specific targets for the 2021 year are considered
commercially sensitive. However, the Committee intends
to disclose these retrospectively in the 2021 Directors’
remuneration report to the extent that they do not remain
commercially sensitive.
Implementation for 2021
As noted above, the CEO (Mr Ondrej Vlcek) has waived his
participation in the annual bonus plan.
The maximum annual bonus opportunity for the CFO
(Mr Philip Marshall) will continue to be 200% of salary.
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 2021 will be based on the following
performance measures:
35% on billings (as defined on page 107).
35% on adjusted EBITDA (as defined on page 107).
15% on relationship NPS (as defined on page 107).
15% on strategic KPIs.
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.
Customer satisfaction continues to be included through
NPS in order 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.
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Implementation for 2021
The CEO will continue to receive an LTIP award of
500% of salary (maximum) based on this ‘headline’
salary of $700,000.
The CFO will continue to receive an award of 450% of
salary (maximum).
LTIP
Purpose and link to strategy: To drive long-term delivery
of the Group’s objectives, to align Directors’ interests with
those of the Company’s shareholders, and to encourage
exceptional performance.
Overview
LTIP awards normally vest based on performance over a
three-year period.
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).
Maximum opportunity
The maximum award is normally 500% of salary for the
CEO and 450% of salary for the CFO.
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.
Performance measures
2021 LTIP will be subject to the following
performance measures:
50% based on diluted adjusted EPS growth.
50% on adjusted revenue growth.
Performance targets for the 2021 awards are set out
below this table.
The Committee is satisfied that the combination of
adjusted revenue growth and diluted adjusted EPS growth
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 remains mindful that organic revenue is
used as a measure in the LTIP and billings is used as a
measure in the annual bonus; however, it considers that,
given that billings and adjusted revenue growth are a critical
part of our long-term strategy, this is appropriate. The
Committee believes that there are sufficient safeguards
in place to ensure that incentives do not encourage
management to deliver revenue or billings that are not in
the long-term interests of the Group.
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SHARE MATCHING PLAN
Purpose and link to strategy: The purpose of the SMP is to
encourage and enable all eligible employees to acquire a
stake in the Company so that they can share in the future
growth, development, and success of the Company, and
to further align the interests of such employees with the
interests of the shareholders of the Company. The SMP
allows the Company to match shares purchased
by employees in accordance with a matching ratio
determined by the Remuneration Committee.
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, built over a
period of five years.
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.
Overview
All employees, including the Executive Directors and
members of the Executive Management team, are eligible
to participate in the SMP.
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.
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
2020, taking into account evolving market practice, and
continues to believe that the two-year post-vesting holding
requirement for our LTIP awards, during which time our
executives will not normally be able to sell their shares along
with existing shareholdings, ensure the alignment of the
interests of our Executive Directors and our shareholders
post-cessation of employment. The Committee will
review this approach as part of the 2022 Remuneration
Policy review.
Performance measures
n/a
Implementation for 2021
No changes.
Performance measures
n/a
Implementation for 2021
No changes.
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Performance targets for the 2021 LTIP awards
The following sets out the diluted adjusted EPS growth
and adjusted revenue growth targets over the three-year
performance period to 31 December 2023:
Threshold
14% vesting
Target 55%
vesting
Maximum
100% vesting
Executive Directors’ services 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:
50%
weighting 5% CAGR 7% CAGR
12%
CAGR
Ondrej Vlcek
Philip Marshall
Date of contract
Notice period
9 May 2018
9 May 2018
6 months’
6 months’
Diluted
adjusted
EPS growth
Adjusted
revenue
growth
50%
weighting 5% CAGR 7% CAGR
12%
CAGR
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
c) Discovery of serious misconduct by the participant prior
to vesting.
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 Director 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 Chair is paid a single consolidated fee.
There have been no changes to the Non-Executive
Directors’ or Chair’s fees with effect from 1 April 2021.
Chair fee
Non-Executive Director base fee
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
$350,000
(inclusive of
Committee fees)
$100,000
$15,000
$15,000
$7,500
$15,000
$7,500
$15,000
$7,500
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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 Chair) 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.
Base salary levels are determined based on 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. Reflective of our commitment to pay equity,
the Company made targeted salary investments in areas
where gender-related gaps had been identified.
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Avast plc annual report 2020
117
Consultation with employees
During the year, we have extended our approach to
consulting with our employees. Pavel Baudis, one of our
founders, is the ‘designated’ Non-Executive Director for
the purpose of employee engagement. During the year,
Pavel attended a number of roadshows in different locations
(prior to lockdown) and has regularly attended our employee
Change Engagement Group. The members of the Change
Engagement Group have been drawn from a range of
locations and types of roles to provide quality feedback
on some of the changes that have been made during the
year. The Change Engagement Group enables two-way
communication between the workforce and the Board,
on a range of issues including pay and benefits, providing
an additional channel for matters to be escalated to the
Board. In addition, Pavel Baudis and Maggie Chan Jones sit
as members on the D&I Committee which aims to create a
culture that attracts, grows, and empowers diverse talent.
Further information about the Change Engagement Group,
D&I Committee, workforce engagement, policies, and
practices can be found on page 64.
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 Annual General Meeting in shaping the application
of the 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 Executive Director remuneration
arrangements. During 2021, the Committee will be
undertaking a full review of our Remuneration Policy in
advance of submitting a revised Directors’ Remuneration
Policy to shareholders at the 2022 AGM. The Committee
intends to consult with our largest shareholders and the
proxy advisers in respect of the revised Policy.
In addition, the majority of our employees are able to further
share in the success of the Group through participation
in a quarterly performance bonus plan, which is based on
individual performance as well as on Company financial
performance. Executive Directors, other members of the
Executive Management team, and key employees are also
eligible for participation in a long-term incentive plan. Long-
term incentives for Executive Directors are linked to long-
term performance objectives of the Company and awarded
in the form of Performance Share Units (PSUs), while the
other members of the Executive Management team and
key employees receive RSUs. All employees including the
Executive Directors are eligible to participate in a Share
Matching Plan.
During the year, to recognise employees’ commitment to
Avast and ensure that they can share in the growth of the
business as shareholders, the Company announced that
every employee below the Executive Management team
will receive a one-time award of one-off RSUs in the value
equivalent to 40% of annual base salary (capped at 10,000
units) and vesting in equal portions over a three-year period,
after the March 2021 Board meeting. Going forward, all new
joiners at this level will receive a similar award subject to
passing their probation period.
We also adjusted the benefits for our employees in line with
our move towards Whole Life Flexibility, as outlined in the
People section on page 68.
The Committee reviewed regular employee reward
programmes, such as the annual salary review or the
annual employee RSU awards for high-potential and
high-performing employees, as well as the Share Matching
Plan to ensure that the employee programmes are in line
with the overall remuneration strategy, Company objectives,
and competitive needs. 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.
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Remuneration received by Directors for the year ended 31 December 2020 (audited)
Directors’ remuneration for the years ended 31 December 2020 and 2019 was as follows:
Salary & fees1
Benefits2
Pensions3
Total fixed
Annual bonus
Long-term
incentives
Total variable
Total
Executive
Ondrej Vlcek4
Vincent Steckler5
Philip Marshall
Non-Executive
John Schwarz
Erwin Gunst
Pavel Baudis10
Eduard Kucera10
Lorne Somerville11
Ulf Claesson
Warren Finegold
Belinda Richards
Maggie Chan Jones12
Tamara Minick-Scokalo13
Total
2020
2019
H1 – as President Consumer
H2 – as CEO
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
$100,001
$275,001
$225,000
$50,001
$400,000
$600,000
$562,500
$350,000
$350,000
$115,000
$117,913
$97,086
$100,057
$97,080
$100,062
$39,011
$108,103
$122,500
$122,500
$137,500
$137,500
$115,000
$115,000
$115,000
$89,422
$111,435
$84,850
$1,999,612
$2,562,906
$8,732
$13,700
$7,385
$6,315
$11,285
$61,412
$62,019
$5,00014
$20,000
$21,846
$12,929
$21,846
$13,004
$5,00014
$20,000
$123,836
$152,937
–
–
–
–
$108,733
$288,701
$232,385
$56,316
$411,285
$661,412
$624,519
$355,000
$370,000
$115,000
$117,913
$118,932
$112,986
$118,926
$113,066
$39,011
$108,103
$122,500
$122,500
$137,500
$137,500
$115,000
$115,000
$120,000
$109,422
$111,435
$84,850
$2,123,448
$2,715,844
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$04
$2,511,9198
$235,4877 $6,409,2239
$235,4877
$04 $6,409,2239
$09
$05
$575,0236 $2,928,0948
$642,0776
$2,511,919
$6,644,710
$235,487
$6,409,223
$3,503,118
$642,077
$2,620,652
$6,933,411
$467,872
$6,465,539
$411,285
$4,164,529
$1,266,596
$355,000
$370,000
$115,000
$117,913
$118,932
$112,986
$118,926
$113,066
$39,011
$108,103
$122,500
$122,500
$137,500
$137,500
$115,000
$115,000
$120,000
$109,422
$111,435
$84,850
$6,015,037
$8,138,485
$7,286,787 $10,002,630
$575,023
$877,564
$5,440,013
$6,409,223
Directors’ remuneration report continued
Strategic report Governance Financial statements
Avast plc annual report 2020
119
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 indefinitely 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 of $100,000 which he donated to charity.
From 1 July 2019, Mr Ondrej Vlcek received a nominal annual salary of US$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 Mr Philip Marshall met his shareholding guideline and therefore the annual bonus for the year ended 31 December 2020 has been paid in cash.
7 The bonus for the year ended 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-wide 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).
8 LTIP awards granted in June 2018 vested based on performance to 31 December 2020. The value of the award disclosed in the single figure is based on the
average share price over the last three months of the financial year ended 31 December 2020 of £4.978. This amount includes the value of additional shares
awarded in respect of dividend equivalents. Between grant and the share price used to value the award for single figure purposes, the share price had
increased to from £2.196 at the date of grant to £4.978 (3 month average to 31 December 2020) which equated to an increase in value of each vesting share
equivalent to £2.782. The proportion of the value disclosed in the single figure attributable to share price growth is 55.9%. The Remuneration Committee
did not exercise discretion in respect of the share price appreciation. Based on the performance achieved, these awards will vest at 67.26% of the maximum
opportunity and Mr Ondrej Vlcek will receive 381,901 shares (including the dividend equivalent shares) and Mr Philip Marshall will receive 445,175 shares
(including the dividend equivalent shares) upon the vesting on 19 June 2021. The 3-month average exchange rate of $1.3212/£1 was used to convert the
LTIP value from GBP to USD.
9 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 the 2019 Directors’ remuneration
report). 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.
10 Mr Pavel Baudis and Mr Eduard Kucera have contractually agreed that the portion of their fees paid by Avast Software s.r.o. (equal to $50,000 annually
for each) would be converted to CZK at the exchange rate of CZK21.319/$1 and paid in arrears in monthly payments of CZK88,830 (gross). The amounts
reported in the single figure table are based on actual exchange rates for the year.
11 Mr Lorne Somerville donated the 2019 fees (net of national insurance and taxes) and a portion of the 2020 fees (£14,381.68) paid to him by the Company
to charity. He stepped down from the Board on 21 May 2020, which was his last day as Non-Executive Director. In Q1 2019, he received a correction
payment for a post-IPO underpayment in Q2 2018, equal to $8102.71 with exchange rate as of 9 May 2018 (£1 = $1.3577).
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 Mr John Schwarz and Ms Maggie Chan Jones were paid an additional $5,000 in error in travel allowance each along with their fees for the second quarter
of the year. Since there was no face-to-face Board meeting in that quarter requiring transatlantic travel for which they would be entitled to receive the travel
allowance, this overpayment will be clawed back via payroll deduction in the first quarter of 2021.
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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120
Salary (inclusive of Board fees) (audited)
Since his appointment as CEO, Mr Ondrej Vlcek’s ‘headline’ salary was set at $700,000 (inclusive of his Board fee).
Mr Ondrej Vlcek has elected to waive his salary (not including his Board fee) and annual bonus. Mr Ondrej Vlcek continues
to receive his Board Director’s fee ($100,000) which he donated to charity. Mr Ondrej Vlcek also received a nominal annual
salary of $1 only in addition to his Board fee.
Mr Philip Marshall’s salary was $600,000 for the year. This includes his Board Director’s fee ($100,000) which he donated to
charity for the period between April 2020 and December 2020.
Annual bonus for the year ended 31 December 2020 (audited)
The annual bonus for the year under review was based on organic revenue, unlevered free cash flow, customer satisfaction
and individual strategic KPIs as follows:
Weighting
Threshold
Target
Maximum
12.5% payout
50% payout
100% payout
Performance
achieved
Performance at
budget FX rate1
% of maximum
35% $800.698M $889.664M $1,067.597M $887.588M $907.975M
55.1%
35%
$419.987M $466.652M $559.982M $451.071M
n/a
37.5%
Organic revenue
Unlevered free
cash flow2
Notes
1 Actuals at target FX rates exclude currency impact calculated by restating 2020 actuals to 2020 planning rates, and are used for bonus payout
calculation purposes.
2 Unlevered free cash flow performance was largely impacted by the material donation made to COVID-19 related relief efforts.
In assessing the 15% bonus element associated with our Customer Experience performance, the Committee considered the
progress made in 2020, the customer experience activities already delivered and the fact that more robust relationship NPS
data will only become available in 2021. In 2020, the Company has become a listening, learning and improving organisation,
with dedicated monthly executive level sessions focusing on key drivers and actions across Avast. The Company has also built
new customer experience capabilities and competencies and put the spotlight on major incidents affecting our customer’s
experience. A positive trend has been observed on the touchpoint NPS results between December 2019 and December
2020 when combining both Avast and AVG products. Based on the performance delivered, the Committee judged that
the Company met its objectives with respect to customer satisfaction in 2020 and that 50% of maximum for the customer
satisfaction element of the bonus should be paid.
15% of the bonus was based on performance against
individual strategic KPIs as described below.
Committee’s
assessment
of pay out
48.3% of
maximum1
53.3% of
maximum
Executive
Performance achieved
Ondrej
Vlcek
Philip
Marshall
Established, promoted and
championed the right Company
culture and drove positive
change in how people feel
motivated about Avast’s vision
and how they collaborate.
Defined a clear strategic vision
and a long-term strategy
plan for the Company and
communicated it throughout
the organisation.
Key product related projects
scoped, with steady progress.
Positive management
and relationships with
investors and analysts,
and further diversification
of shareholder base.
Effectively partnered with
operating leaders in delivery
of business priorities and
ongoing change agenda.
Delivered and executed
the framework for our
future diversity program,
including hiring of a new
leader and initiation of
external partnerships.
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121
The above stated performance resulted in the following payments:
Executive
Ondrej Vlcek
Philip Marshall
2020 bonus
payment
$01
$575,023
% of maximum
n/a
47.9%
Notes
1 No bonus will be paid to Mr Ondrej Vlcek following his decision to waive his annual bonus since appointment as CEO.
The Committee considered very carefully whether it was appropriate to pay an annual bonus to Executive Directors in
the context of the economic and social environment. The Committee believes the underlying performance as well as the
experience of shareholders and other stakeholders during the year supports the payment of an annual bonus.
LTIP vesting for the year ended 31 December 2020 (audited)
On 19 June 2018, Ondrej Vlcek was granted a conditional share award of 350% of salary (his salary at the date of grant
was $450,000). This grant was equivalent to 538,707 PSUs at maximum vesting level. The market value at grant was
£2.196 per share.
On 19 June 2018, the CFO, Philip Marshall, was granted a conditional share award of 350% of salary (his salary at the data
of grant was $525,000). This grant was equivalent to 627,960 PSUs at maximum vesting level.
The market value at grant was £2.196 per share.
2018 PSU awards are subject to diluted adjusted EPS growth1 over the three financial years ending 31 December 2020 and
organic revenue growth over the same period. Diluted adjusted EPS growth over the period was 10.0% (CAGR) and revenue
growth over the period was 7.5% (CAGR). Therefore, the awards will vest at 67.26% of maximum opportunity.
Weighting
Threshold
Target
Maximum
14% payout
55% payout
100% payout
Performance
achieved
% of maximum
Diluted adjusted
EPS growth1
Adjusted (organic)
revenue growth
50%
50%
5% CAGR
8.4% CAGR
12% CAGR
10.0%
74.8%
5% CAGR
7% CAGR
12% CAGR
7.5%
59.8%
Notes
1 The EPS growth performance measure was incorrectly labelled as ‘Group basic EPS (undiluted) growth’ in the 2018 and 2019 Directors’ remuneration
report. The correct label of the EPS growth performance measure applicable to the 2018 LTIP awards, 2019 LTIP awards and 2020 LTIP awards is diluted
adjusted EPS growth.
As a result, Mr Ondrej Vlcek will receive 381,901 shares (including dividend equivalent shares) and Mr Philip Marshall will
receive 445,175 shares (including dividend equivalent shares) upon vesting on 19 June 2021.
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When determining the LTIP outcome, 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 individuals, the impact of the COVID-19
pandemic, 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 vesting outcome is an appropriate
reflection of progress delivered over the period since IPO.
No discretion was exercised in relation to the annual bonus
for 2020 or LTIP outcomes.
Overall, the Committee considers that the Remuneration
Policy has operated as it intended during 2020.
Share Matching Plan (audited)
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, they will receive one matching share
for every three shares purchased. The value of these
matching shares will be included in the single figure
table on the date of the award at the end of the two-year
holding period.
Total pension entitlements (audited)
During the year under review, the Executive Directors did
not receive any pension contribution or pension allowance.
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Avast plc annual report 2020
122
LTIP awards made during the year (audited)
On 26 February 2020, the following awards were granted to Executive Directors:
Details of award granted
Executive
Ondrej Vlcek
Conditional share
Philip Marshall
Conditional share
Type of award
Basis of award granted (maximum)
Share price (£)1
Number of shares
granted
Face value of
award (£000)
Face value of
award ($000)2
500% of salary of
$700,000
450% of salary of
$600,000
£4.046
669,365
£2,708.3
$3,500.0
£4.046
516,367
£2,089.2
$2,700.0
% of face value
that would vest
at threshold
performance
14%
14%
Vesting determined by
performance over
Three financial years to
31 December 2022
Three financial years to
31 December 2022
Notes
1 The share price used to determine the number of shares awarded was £4.046 based on the closing share price on 26 February 2020.
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/$1.2923.
The performance condition for these awards is set out below:
Group diluted adjusted EPS growth1 (50% weighting)
Group organic revenue growth (50% weighting)
Threshold 14% vesting
Target 55% vesting
Maximum 100% vesting
5% CAGR
5% CAGR
8% CAGR
7% CAGR
12% CAGR
12% CAGR
Notes
1 The EPS growth performance measure was incorrectly labelled as ’Group basic EPS (undiluted) growth’ in the 2018 and 2019 Directors’ remuneration report. The correct label of the EPS growth performance measure applicable to the 2018
LTIP awards, 2019 LTIP awards and 2020 LTIP awards is diluted adjusted EPS growth.
14% of the total award shall vest for threshold performance (i.e. 7% of the award for each of the two financial criteria), 55% shall vest for target performance, and 100% of the total award shall
vest for maximum performance. Straight-line vesting between the performance points will apply.
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123
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. This shareholding guideline was met for 2020 for both Executive Directors.
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 2020.
Beneficially
owned shares at
31/12/20191
Beneficially
owned shares at
31/12/20201
% shareholding
guideline
achieved2 Award description3
Option
price
(GBP)
Number of
unvested
options/awards
at 31/12/2019
Number of
vested options/
awards at
31/12/2019
Granted
Exercised
Lapsed
Number of
unvested
options/awards
at 31/12/2020
Number of
vested options/
awards at
31/12/2020
Ondrej Vlcek 19,345,987
23,715,184
24,336% Performance Options April 2017 £0.88
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 2020
£1.36
£0.88
£1.36
n/a
n/a
n/a
0
1,019,396
0 2,039,042
0
0
436,884
873,875
538,7077
807,911
0
0
0
0
0
1,019,396
0 2,039,042
0
0
0
0
669,365
436,884
873,875
0
0
0
1,346,618
4,369,197
669,365
4,369,1974
Philip
Marshall5
315,364
322,7606
386% Time Based Options Feb 2018
£2.13
1,456,744
Time Based Options Mar 2018
£2.37
1,165,471
Performance Stock Units 2018
Performance Stock Units 2019
Performance Stock Units 2020
n/a
n/a
n/a
627,9607
650,583
0
3,900,758
0
0
0
0
0
0
0
0
0
0
516,367
516,367
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
538,707
807,911
669,365
2,015,983
0
0
0
0
0
0
0
0
971,163
485,581
582,735
582,736
627,960
650,583
516,367
0
0
0
0 3,348,808
1,068,317
Total
19,661,351 24,037,944
5,247,376
4,369,197
1,185,732
4,369,197
0
5,364,791
1,068,317
Includes shares owned by connected parties.
Notes
1
2 Calculated based on the share price on 31 December 2020 of £5.375.
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 Ondrej Vlcek exercised these options on 23 March 2020 at the price of £3.108.
5 Between 31 December 2020 and 28 February 2021, Mr Philip Marshall purchased 2,481 shares through the Company Share Matching plan, subject to matching after two-year holding period, as per the Plan rules. On 14 January 2021,
725 shares were allotted to Mr Philip Marshall under the Share Matching Plan, against the 2,175 SMP shares purchased by him after the H2 2018 Accumulation Period, as per the Plan rules. On 1 February 2021, 485,581 time based
pre-IPO options from the February 2018 grant vested. There were no other changes in share interests between 31 December 2020 and 28 February 2021.
6 Includes total of 9,270 shares purchased by Mr Philip Marshall under the Company Share Matching Plan, subject to matching after two-year holding period, as per the Plan rules, in addition to the 2,175 shares purchased through the
Company Share Matching plan, as per footnote 5. The 2,175 shares were still subject to matching on 31 December 2020.
7 Based on the performance achieved, these awards will vest at 67.26% of the maximum opportunity and Mr Ondrej Vlcek will receive381,901 shares (including dividend equivalent shares) and Mr Philip Marshall will receive 445,175 shares
(including dividend equivalent shares) upon vesting on 19 June 2021.
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124
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 2020.
Beneficially
owned shares at
31/12/20191
Beneficially
owned shares at
31/12/20201
% shareholding
guideline
achieved Award description
Option
price
(GBP)
Number of
unvested
options/awards
at 31/12/2019
Number of
vested options/
awards at
31/12/2019
Granted
Exercised
Lapsed
Number of
unvested
options/awards
at 31/12/2020
Number of
vested options/
awards at
31/12/2020
John
Schwarz
Erwin Gunst
0
0
Pavel Baudis 257,182,165 257,182,165
Eduard
Kucera
Lorne
Somerville
99,793,912 99,793,912
0
Ulf Claesson
1,710,098
1,245,324
Warren
Finegold
Belinda
Richards
Maggie
Chan Jones
Tamara
Minick-
Scokalo
Total2,3
108,132
108,132
0
0
0
358,794,307 358,329,533
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
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 2020 and 28 February 2021.
The Company’s policy is that Non-Executive Directors will not be granted share options in the future.
Payments to past Directors (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 remained available to the business in an advisory
capacity until 30 June 2020 to ensure a smooth transition process. During the period, he received a fee of $400,000 per annum to reflect the expected time commitment of the role, of which
$200,000 related to 2020. Mr Vincent Steckler received, 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 January 2020 to 30 May 2021 amounted to $14,202. No health benefits cost for the rest of 2020 was incurred.
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125
The LTIP award granted to him in 2018 continued on a pro-rata basis for the period he served as CEO and remained subject to the achievement of performance targets over the normal vesting
period to 31 December 2020. EPS growth over the period was 10.0% per annum and revenue growth over the period was 7.5% per annum. Therefore, the award will vest at 67.26% of the
prorated maximum opportunity and Mr Vincent Steckler will receive 315,735 shares (including dividend equivalent shares) upon the vesting. The awards will continue to remain subject to a
post-vesting holding period of two years.
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. Mr Philip Marshall serves as a Non-Executive Director (a member
of the Supervisory Board and Audit Committee member) of Waberer’s International and it was agreed that fees earned in connection with this appointment can be retained by him. For the
financial year, Mr Philip Marshall’s fees for this appointment were EUR 15,000.
Performance graph
The graph below illustrates the Company’s total shareholder return (TSR) performance relative to the constituents of the FTSE 100 index excluding investment companies from the admission
date on 15 May 2018 to 31 December 2020. 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.
TSR based to 100 at 10 May 2018
Avast
FTSE 100
300
250
200
150
100
50
0
Source: Datastream.
10 May 2018
31 December 2018
31 December 2019
31 December 2020
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126
The total remuneration for the CEO in 2020, since the IPO,
is shown below, along with the value of bonuses paid and
long-term incentive awards vesting, as a percentage of the
maximum opportunity.
2018
20191
2020
CEO total
remuneration
VS –
$7,500,395
VS –
$411,285
OV –
$2,620,652
CEO to all employee pay ratio
Avast plc has fewer than 250 employees in the UK and, as
such, it is not required to disclose the CEO to all employee
pay ratio. However, in line with our commitment to openness
and transparency, the Committee has determined to
voluntarily disclose Avast’s CEO pay ratio figures in respect
of the financial year ended 31 December 2020.
OV –
$6,465,539
Year
Method
25th
Percentile
pay ratio
Median pay
ratio
75th
Percentile
pay ratio
61.8%
n/a2
n/a4
2020
Option A
78:1
53:1
30:1
Annual bonus
(% of maximum)
Share award
(% of maximum)
n/a3
n/a3
67.26%5
Notes
1 Mr Vincent Steckler (VS) served as CEO from admission to 30 June
2019. Mr Ondrej Vlcek (OV) 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.
2 Mr Ondrej Vlcek has decided to waive his annual bonus from his
appointment as CEO on 1 July 2019.
3 No LTIP share awards vested based on performance to 31 December
2018 or to 31 December 2019. Pre-IPO options granted in April 2017
vested during 2019; see footnote 9 from the single figure table on
page 119.
4 Mr Ondrej Vlcek has decided to waive his 2020 annual bonus.
5 2018 PSU awards vesting in 2020 are subject to diluted adjusted EPS
growth over the three financial years ending 31 December 2020 and
organic revenue growth over the same period. Diluted adjusted EPS
growth over the period was 10.0% (CAGR) and revenue growth over
the period was 7.5% (CAGR). Therefore, the awards will vest at
67.26% of maximum opportunity.
The ratios have been calculated using Option A
methodology, as defined under the relevant regulations,
as this is considered the most statistically accurate
method under the reporting regulations. However, certain
assumptions have been made based on data availability
to ensure a fairer representation of employee pay.
Total FTE remuneration has been determined by taking into
account employees in all Avast entities both in the UK and
outside the UK for the relevant financial year. We note that
the formal requirement relates to UK employees; however,
given that the majority of our employees are outside the UK,
the Committee considered that showing the ratio based on
our full workforce was more appropriate.
The calculations are reflective of the following pay elements:
full-time equivalent salary, bonuses paid in 2020 and
restricted stock grants vested during 2020. For simplicity,
employee benefits have been omitted, as the benefit plans
were not changed in 2020.
The employees at the 25th, 50th and 75th percentiles have
been determined on the snapshot date of 31 December
2020, the last day of the financial year.
The single figure values for the three employees at 25th
percentile, median, and 75th percentile have been reviewed.
It was determined that remuneration of the individual at
the 25th percentile was not fully representative of pay at
the relevant quartile due to part-time work arrangements,
so another full-time individual, immediately above 25th
percentile, has been selected instead. No adjustments were
necessary in the case of individuals representative of the
median and 75th percentile. Each employee was a full-time
employee during the year.
Year
2020
Supporting
information
25th
Percentile pay Median pay
75th
Percentile pay
Salary
$30,780
$44,939
$78,810
Total Pay
$33,667
$49,430
$86,066
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127
Annual percentage change in remuneration of Directors and employees
The table below shows the percentage change in the remuneration paid to the Directors from the prior year compared with
the average percentage change in remuneration for employees of Avast plc.
Total employee remuneration1 in the Group (including Executive Directors) increased by 5.6% in 2020 (from $198.3 million to
$209.4 million)2.
Ondrej
Vlcek
Philip
Marshall
John
Schwarz
Erwin
Gunst
Pavel
Baudis
Eduard
Kucera
Lorne
Somerville4
Ulf
Claesson
Warren
Finegold
Belinda
Richards
Maggie
Chan
Jones5
Tamara
Minick-
Scokalo6
Employees
Group A1
Employees
Group B1
Salary
-63.6% 6.7% 0.0% -2.5% -3.0% -3.0% -63.9% 0.0% 0.0% 0.0.% 28.6% 31.3%
4.8%
6.5%
Benefits
-36.3% -1.0% -75.0%
n/a 69.0% 68.0%
Bonus
-100% -10.4%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a -75.0%
n/a
n/a
n/a
n/a
0%
0%
16.6% 10.0%
Membership of the Remuneration Committee
The Remuneration Committee comprises five independent
Non-Executive Directors and is chaired by Ulf Claesson.
Each Director was appointed to the Committee on
9 May 2018 apart from Maggie Chan Jones and Tamara
Minick-Scokalo who were appointed to the Committee
on 22 May 2019 and 22 June 2020 respectively. There were
four meetings during the year.
Members and attendance in the year is set out in the
table below.
Notes
1 Employees of Avast globally (’Group A’) and Employees of Avast Plc in the UK (’Group B’), who were employed throughout 2020.
2 Personnel expenses as described on page 167.
3 The negative change in the CEO remuneration is influenced by the change of CEO on 1 July 2019, and also 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.
4 Mr Lorne Somerville stepped down from the Board on 21 May 2020 and remuneration is shown up to this date.
5 Ms Maggie Chan Jones was appointed to the Board on 13 March 2019 and remuneration shown is from this date.
6 Ms Tamara Minick-Scokalo was appointed to the Board on 13 March 2019 and remuneration shown is from this date.
Ulf Claesson
John Schwarz
Warren Finegold
Maggie Chan Jones
Tamara Minick-Scokalo
Relative importance on the spend on pay
The following table shows the Company’s actual spend on pay for all employees compared to distributions to shareholders for
2020 relative to 2019.
Total spend on pay
Distributions to shareholders by way of dividend and share buyback
1 Personnel expenses as described on page 167.
2019
2020
$198.3m
$209.4m1
$127.0m
$154.7m
Change
5.6%
21.8%
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 that policy is appropriate in the context
of this and our culture.
In 2020, the meetings of the Committee covered the
following key areas:
Finalising our Directors’ remuneration report for
shareholder approval at the 2020 AGM.
Review of remuneration outcomes for 2020.
Consideration of remuneration arrangements for 2021.
Review of corporate governance developments and
shareholder guidance.
Consideration of the impact of the COVID-19 pandemic
on remuneration outcomes.
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Attendance from
meeting eligible
to attend
4/4
4/4
4/4
4/4
2/4
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128
Alignment of employee benefit programmes to the needs
of our people and longer-term business objectives.
All-employee RSU awards to create alignment between
their long-term compensation and Avast’s strategic goals.
The Committee also reviewed regular employee reward
programmes, such as the annual salary review or the
annual employee RSU awards for high-potential and
high-performing employees, as well as the Share Matching
Plan to ensure that the employee programmes are in line
with the overall remuneration strategy, Company objectives
and competitive needs.
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.
Performance evaluation
The Remuneration Committee’s effectiveness for 2020
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 95.
The specific areas assessed were:
Agreeing the remuneration report
Aligning pay with strategic goals
Understanding investor views on pay
Motivating senior management
Overall, the Committee’s performance was rated highly.
It was noted that sustaining the effectiveness of the
Committee through the upcoming transition in its Chair
will be a key focus over the coming year and that this would
be a good opportunity to reflect on the remuneration
structures in place, to ensure that they are adequately
aligned with the Company’s new strategic plan.
The Committee has reflected on the findings of the report.
External advisers
The Remuneration Committee has access to independent advice where it considers it appropriate. The Committee appointed
Deloitte LLP as its advisers in 2018 and received advice from Deloitte LLP during the year. The fees paid to Deloitte LLP
for providing advice in relation to executive remuneration was £26,900. Fees charged were on a time and expenses basis.
Separate teams within Deloitte also provided services in relation to risk advisory, internal audit and controls, international
mobility, corporate employment, share schemes, and payroll advice.
The Committee reviewed the potential for conflicts of interest and judged that there were appropriate safeguards against
such conflicts.
The Committee considers 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 has been fully briefed
on its compliance with the voluntary code of conduct in respect of the provision of remuneration consulting services.
The CEO, the Chief of Staff, the General Counsel, and the Chief People and Culture Officer 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 were discussed.
Statement of shareholder voting
The Remuneration Policy was last approved by shareholders at our AGM on 23 May 2019 and the remuneration report was
approved by shareholders at our 21 May AGM on 2020. Details of voting are shown below.
Approval of the Directors’ remuneration report – 2020 AGM 829,132,963
97.05% 25,202,203
Approval of the Directors’ Remuneration Policy – 2019 AGM 787,114,401
94.66% 44,405,150
2.95
5.34
664,472
0
Number of votes
% Number of votes
% Number of votes
For
Against
Withheld
Approval
This Directors’ remuneration report has been approved by the Board of Directors.
By order of the Board
Ulf Claesson
Chair of the Remuneration Committee
2 March 2021
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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 with
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 2020 and the
date of this report, the following persons were Directors of
the Company:
Name
Role
John Schwarz Non-Executive Director
and Chair
Ondrej VIcek Chief Executive Officer
Philip Marshall Chief Financial Officer
Warren
Finegold
Non-Executive Director and
Senior Independent Director
Appointment date
9 May 2018
9 May 2018
9 May 2018
9 May 2018
Pavel Baudis Non-Executive Director
9 May 2018
Maggie
Chan Jones
Non-Executive Director
13 March 2019
Ulf Claesson Non-Executive Director
Erwin Gunst Non-Executive Director
Eduard Kucera Non-Executive Director
9 May 2018
9 May 2018
9 May 2018
Tamara
Minick-Scokalo
Belinda
Richards
Lorne
Somerville
Non-Executive Director
13 March 2019
Non-Executive Director
8 June 2018
Non-Executive Director
9 May 2018*
Notes
* Resigned on 21 May 2020.
The Directors and the General Counsel and Company
Secretary (certain of who are also directors of the
Company’s subsidiaries) 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.
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 123 to 124 of the Directors’
remuneration report. The only changes in Directors’
interests since 31 December 2020 relate to the purchase
of shares and the allocation of matched shares through
the Company’s Share Matching Plan, in each case as further
described in Note 5 to the Directors' remuneration report
on page 123.
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.
2019 final dividend
During the year, the Board recommended a final dividend in
the amount of 10.3 cents in respect of financial year ended
31 December 2019, which was approved by its shareholders
at the Company’s AGM on 21 May 2020. The dividend was
paid to shareholders on 24 June 2020.
2020 interim dividend
On 11 August 2020, the Board declared an interim dividend
in the amount of 4.8 cents per share. The dividend was paid
to shareholders on 16 October 2020.
Proposed 2020 final dividend
The Directors propose to pay a final dividend of 11.2 cents
per share in respect of the year ending 31 December 2020
(total payment of $115.3m). Combined with the interim
dividend of 4.8 cents per share paid in October 2020 (total
payment of $49.3m), this represents a total dividend for
the financial year of 16.0 cents (total payment of $164.6m),
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 18 June 2021 to shareholders
on the register on 14 May 2021. 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
28 May 2021. 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 3 June 2021 and announced
shortly thereafter.
4 Political donations
The Group did not make any political donations, or incur any
political expenditure, in the year ended 31 December 2020.
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5 Research and development
Avast places a substantial focus on the continuous
development and improvement of technology, with 49% of
its employees working in research and development (R&D)
and an annual spend of $71m. 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 BV, Sybil Software LLC,
Avast Software s.r.o., Avast Holding BV, 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.
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 LTIP. More details in relation
to this are set out in the Remuneration Policy approved by
the shareholders at the AGM in 2020.
7 Share capital
Share capital structure
As at 31 December 2020, the entire issued share capital of
the Company comprised 1,028,512,742 ordinary shares of
£0.10 each.
Significant holdings
As at 31 December 2020, 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
25.01%
9.70%
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 (the 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.
The Board confirms that through the applicable periods:
the Company has complied with the independence
provisions of the Founder Relationship Agreement;
as far as the Company is aware, each of the Founders,
and their respective associates have complied with the
independence provisions of the Founder Relationship
Agreement; and
as far as the Company is aware, each of the Founders
has procured the compliance of non-signing controlling
shareholders with the independence provisions of the
Founder Relationship Agreement.
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.
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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.
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
by a show of hands unless a poll is demanded:
by the Chair 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 meetings.
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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Employee Benefit Trust
The Group has an employee benefit trust (the EBT). As at
31 December 2020, no shares were held by the trust. In the
event that shares are held by the EBT on behalf of employees
as beneficiaries, the Trustee is required to comply with
any direction from the beneficiary as to the exercise of any
voting rights carried by such shares but, unless otherwise
agreed with the beneficiary in writing, shall not be under
any obligation to seek such direction from any beneficiary.
In the absence of any such direction, the Trustee shall not
be entitled to exercise the voting rights attaching to such
shares. Subject to this, the Trustee may vote or abstain from
voting shares, or accept or reject any offer relating to shares,
in any way it sees fit without incurring any liability and
without being required to give reasons for its decision.
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 21 May 2020,
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 101,980,970 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 2021 AGM and 30 June 2021.
The Company did not repurchase any of its shares during
the 2020 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 21 May 2020, 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 £33,990,257.27
(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 £33,990,257.27); and
(ii) comprising equity securities (as defined in section
560 of the Companies Act 2006) up to an aggregate
nominal amount of £67,990,712.63 (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 2021 AGM and 30 June 2021.
The Company did not allot any new shares, other than those
shares allotted pursuant to the Group’s share option plans
and LTIPs.
10 Going concern
Due to the uncertainty arising from the COVID-19 pandemic,
management have performed a detailed going concern
review and analysis of the accounts and consider that the
Group has adequate resources to continue business for
the foreseeable future, and a period from the signing of
the financial statements through 30 June 2022.
Group’s financial covenants
The Group’s Term Loan Credit Agreement includes a
single financial covenant that is triggered at any time when
$35 million or more is outstanding under the revolving credit
agreement for a period ending on 30 June or 31 December.
The Group must maintain, on a consolidated basis, a
leverage ratio (set as a ratio of Consolidated First Lien
Net Debt to Consolidated EBITDA) less than 6.50x. This
covenant is tested quarterly at such time as it is in effect.
The Total Net First Lien Leverage Ratio remains materially
lower than 6.5x during the period under review. The ratio
was 1.4x at 31 December 2020 and there is no reason to
believe that the Group would have any material risk against
the ceiling of 6.5x. As of 31 December 2020, $40 million
committed was undrawn under the revolving credit facility
(see Note 27).
Reverse stress testing
To make the going concern assessment, the Directors have
reviewed the latest budget and forecast through 30 June
2022 including the projected cash flows and other relevant
information. The cash flow projections have been subject
to reverse stress testing, which assessed the potential
impact of an extreme scenario in which the Consumer
Direct Desktop billings would decline drastically without
any mitigating action taken by management. Even in such
a scenario, which is considered remote, the Group has
more than sufficient headroom in its available resources
to withstand the period from signing of the financial
statements through 30 June 2022 and not to be in breach
of the financial covenant. The Group would only run out of
available cash in the extreme situation where practically no
further Consumer Direct Desktop billings would be realised
after March 2021, collections would stop, and no meaningful
offsetting cost actions would be taken, whilst still paying
dividends according to the current policy (i.e. 40% of
Levered Free Cash Flow). Such a situation is considered
very remote.
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Our business remains resilient because:
Cash collection is strong and bad debt risk is limited
as clients typically pay for service up front;
The renewal rate remains steady in Consumer
Direct Desktop;
Flexible cost base – a significant portion of Group’s
costs are discretionary in nature;
The work-from-home trend in the pandemic environment
created an upswing in demand across the product
portfolio resulting in strong growth in paying customers
(up 997,000 since the end of 2019);
Our deferred revenue balance is growing (deferred
revenue up +6.5% vs FY 2019, excluding Jumpshot)
supporting attractive future revenue growth and good
future revenue visibility. Deferred revenue balance as of
31 December 2020 of $496.5m includes $458.8m to be
released into revenue in the following 12 months; and
We continuously monitor and invest into market needs.
In FY 2020 Avast continued its strong investment
in technology capability and innovation, and further
enhanced the customer experience to support
mid-term growth initiatives, and to keep up with
the latest technology trends.
The Directors continue to carefully monitor the impact of
the Covid-19 pandemic on the operations of the Group and
have a range of possible mitigation actions, which could be
implemented in the event of a downturn of the business.
11 Financial risk management
Details of financial risk management and financial
instruments are disclosed in Note 30 of the Group
financial statements.
12 Additional disclosures
The Strategic report is a requirement of the UK Companies
Act 2006 and can be found on pages 1 to 86 of this report.
The Company has chosen, in accordance with section 414
C(11) of the Act, to include the following matters of strategic
importance 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(s)
47
77 to 78
190
64 to 74 and
82 to 85
Information required by the Financial Conduct Authority’s
Listing Rules can be located as follows:
Listing Rule
LR 9.8.4(2)
Section
Publication of
unaudited financial
information
Page
42 to 57
LR 9.8.4(5) and (6) Details of waived
107 to 128
Director emoluments
Related party contracts
Independence of
controlling shareholders
190
130
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 accounting standards in
conformity with the requirements of the Companies Act
2006 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).
On the basis of the above considerations, the Directors have
a reasonable expectation that the Group will have adequate
resources to continue in business for the foreseeable future
and therefore continue to adopt the going concern basis in
preparing the financial statements.
LR 9.8.4R(10)
and (11)
LR 9.8.4(14)
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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 international accounting standards in conformity
with the requirements of the Companies Act 2006 (and
IFRSs adopted pursuant to Regulation(EC) No 1606/2002
as it applies in 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.
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. 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 international accounting standards in conformity
with the requirements of the Companies Act 2006 and
international reporting standards adopted pursuant
to Regulation (EC) No. 1606/2002 as it applies to 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 129 to 134 was
approved by the Board on 2 March 2021 and signed by
order of the Board.
By order of the Board
Kelby Barton
Company Secretary
2 March 2021
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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
136
146
153
193
195
199
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Independent Auditor’s Report
to the members of Avast plc
Opinion
In our opinion:
We have audited the financial statements of Avast plc
(the ‘parent company’) and its subsidiaries (the ‘Group’)
for the year ended 31 December 2020 which comprise:
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 2020
and of the Group’s profit for the year then ended;
The Group financial statements have been properly
prepared in accordance with International Accounting
Standards in conformity with the requirements of
the Companies Act 2006 and International Financial
Reporting Standards adopted pursuant to Regulation
(EC) No. 1606/2002 as it applies in 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.
Parent company
Company statement
of financial position
as at 31 December
2020
Company statement
of changes in equity
for the year then
ended
Related Notes 1
to 13 to the
financial statements
including a summary
of significant
accounting policies
Group
Consolidated statement of financial
position as at 31 December 2020
Consolidated statement of profit
and loss for the year then ended
Consolidated statement of
comprehensive income for the
year then ended
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 39 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 Accounting Standards in
conformity with the requirements of the Companies Act
2006 and International Financial Reporting Standards
adopted pursuant to Regulation (EC) No. 1606/2002 as
it applies in 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. We are
independent of the Group 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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We considered the mitigating factors included in the
cash forecasts and covenant calculations that are within
the control of the Group. This includes review of the
Group’s non-operating cash outflows and evaluating the
Group’s ability to control these outflows as mitigating
actions if required.
Based on the work we have performed, we have not
identified any material uncertainties relating to events
or conditions that, individually or collectively, may cast
significant doubt on the Group and parent company’s
ability to continue as a going concern for the period to
30 June 2022.
We have performed reverse stress testing in order to
identify what factors would lead to the Group utilising
all liquidity or breaching the financial covenant during
the going concern period.
We reviewed the Group’s going concern disclosures
included in the annual report in order to assess that the
disclosures were appropriate and in conformity with the
reporting standards.
The Group’s going concern assessment is based on the
budget as approved by the Board. We have assessed
management’s forecast against external analyst reports
and historical accuracy, noting no issues.
Throughout the going concern period, the Group is forecast
to increase its available liquidity and improve its covenant
headroom, both of which are significant.
In relation to the Group and parent company’s reporting
on how they have applied the UK Corporate Governance
Code, we have nothing material to add or draw attention
to in relation to the Directors’ statement in the financial
statements about whether the Directors considered it
appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the Directors
with respect to going concern are described in the relevant
sections of this report. However, because not all future
events or conditions can be predicted, this statement is
not a guarantee as to the Group’s ability to continue as a
going concern.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that
the Directors’ use of the going concern basis of accounting
in the preparation of the financial statements is appropriate.
Our evaluation of the Directors’ assessment of the Group
and parent company’s ability to continue to adopt the going
concern basis of accounting included:
In conjunction with our walkthrough of the Group’s
financial close process, we confirmed our understanding
of management’s Going Concern assessment process
and also engaged with management early to ensure all
key factors were considered in their assessment.
We obtained management’s going concern assessment,
including the cash forecasts and covenant calculation
for the going concern period which covers the period
to 30 June 2022. The Group has modelled a number of
adverse scenarios in their cash forecasts and covenant
calculations in order to incorporate unexpected changes
to the forecasted liquidity of the Group.
We specifically considered the impact of COVID-19
on the Group, which management have assessed
as having a minimal financial impact and limited
operational impact, and therefore limited potential
to alter management’s cash flow forecast.
We assessed the factors and assumptions included
in each modelled scenario for the cash forecast
and covenant calculation with reference to our
understanding of the business and historical performance.
We considered the appropriateness of the methods used
to calculate the cash forecasts and covenant calculations
and determined through inspection and testing of the
methodology and calculations that the methods utilised
were appropriately sophisticated to be able to make an
assessment for the entity.
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Overview of our audit approach
Audit scope
We performed an audit of the complete financial information of two components and audit procedures
on specific balances for a further six components.
The components where we performed full or specific audit procedures accounted for 99% of
Profit before Tax (‘PBT’) adjusted for exceptional items and unrealised Foreign Exchange (‘FX’) loss,
97% of Revenue and 96% of Total assets.
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 manipulation of the timing of revenues or due to an error.
Complexity of income and deferred tax: The Group records significant deferred tax assets (DTA) in the
USA originating largely from prior periods tax losses carried forward. There is a risk of recoverability/
impairment of the US DTA.
Materiality
Overall group materiality of $17.4m which represents 5% of the Group’s PBT adjusted for exceptional
items and unrealised FX loss (on the Term Loan).
An overview of the scope of the parent company and Group audits
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit
scope for each company 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 effectiveness of group-wide controls,
changes in the business environment and other factors such as recent Internal audit results 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 40 reporting components of the Group, we selected
8 components covering entities within the Czech Republic, Netherlands, United Kingdom and US, which represent the
principal business units within the Group.
Of the 8 components selected, we performed an audit of the complete financial information of 2 components (’full scope
components’) which were selected based on their size or risk characteristics. For the remaining 6 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.
The reporting components where we performed
audit procedures accounted for 99% (2019: 97%) of
the Group’s PBT adjusted for exceptional items and
unrealised FX loss measure used to calculate materiality,
97% (2019: 95%) of the Group’s Revenue and 96%
(2019: 95%) of the Group’s Total Assets. For the current year,
the full scope components contributed 108% (2019: 98%)
of the Group’s PBT adjusted for exceptional items and
unrealised FX loss measure used to calculate materiality,
88% (2019: 83%) of the Group’s Revenue and 88%
(2019: 35%) of the Group’s Total Assets. The specific
scope components contributed -9% (2019: -1%) of the
Group’s PBT adjusted for exceptional items and unrealised
FX loss measure used to calculate materiality, 9%
(2019: 9%) of the Group’s Revenue and 8% (2019: 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 Group.
Of the remaining 32 components that together represent
1% of the Group’s PBT adjusted for exceptional items and
unrealised FX loss, none are individually greater than
5% of the Group’s PBT adjusted for exceptional items and
unrealised FX loss, we performed specified procedures
over certain aspects of operating costs for one component
and we have also 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.
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The charts below illustrate the coverage obtained from
the work performed by our audit teams.
Adjusted PBT
108% Full scope components
(9%) Specific scope components
1% Other procedures
Revenue
Total assets
88% Full scope components
9% Specific scope components
3% Other procedures
88% Full scope components
8% Specific scope components
4% Other procedures
Changes from the prior year
Goodwill and Intangible Assets, which are audited in totality,
are considered to contribute to the ‘Full Scope’ coverage in
the current year. In the prior year, these were proportionally
distributed to entities for calculating coverage.
The Group has been undergoing a group simplification
exercise, including merging and liquidating entities and
transfers of trade to centralised entities. Our total full scope
locations are consistent with the prior year. Our total number
of specific scope components is reduced from 7 in the prior
year to 6 in the current year. 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, as 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. The integrated audit team performs
all audit procedures centrally on one audit file.
Members of the Group audit team in both jurisdictions
work together as an integrated team throughout the audit
process. All audit work performed for the purposes of the
2020 annual report and accounts was undertaken by the
integrated audit team.
Impact of the COVID-19 pandemic:
Due to the travel restrictions in place by the UK and Czech
Republic governments, the senior statutory auditor has been
unable to travel to the Czech Republic during the current
audit cycle to visit members of the Group audit team. The
members of the Group audit team in both jurisdictions
work together as an integrated team throughout the audit
process, facilitated by the EY Canvas cloud-based audit
platform and all audit evidence being electronic in nature.
The senior statutory auditor reviewed and approved key
working papers consistently with how this process would
have been performed previously.
In order to mitigate the risk of working remotely during
the current year audit, the senior statutory auditor held
regular video conference calls with the Czech Republic
and UK based members of the audit team to lead discussion
of the audit approach and issues arising from the audit
work, focussing his time on the significant risks and
judgemental areas of the audit. There have been no new
core members of the integrated audit team and the senior
statutory auditor has held face-to-face meetings with all
core team members previously.
The performance of the year end audit remotely was
supported through the use of EY Canvas for the secure
and timely delivery of requested audit evidence from the
Company to EY. Additionally, the senior statutory auditor
held regular video conferences, in place of face to face
meetings, to meet with Group financial management
and other key personnel, including the CEO. The senior
statutory auditor attended all 4 Audit Committee meetings
throughout the year, all of which were hosted virtually.
Overall oversight of the current year audit was further
supported by there have been no changes in key members
of the client management team from the previous years with
whom in-person meetings were conducted previously by
the senior statutory auditor and the integrated audit team.
Based upon the above approach we are satisfied that the
senior statutory auditor has been able to direct, supervise
and review the audit. The onset of COVID-19 and the move
to working from home across the UK and Czech Republic
has not prevented the integrated audit team from
performing its intended procedures.
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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.
Risk
Risk of inappropriate revenue recognition
2020: $892.9m (2019: $871.1m)
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
manipulation of the timing of revenues
through 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 a key audit matter.
The overall risk of revenue recognition has remained
consistent compared with the prior year.
Refer to the Audit Committee report (page 97);
Accounting policies (page 153); and Note 5 of the
Consolidated Financial Statements (page 164).
Our response to the risk
We have reviewed and walked through the process over the approval and recognition of revenue
across the Group.
We have tested IT and Financial controls over revenue pertaining to one significant class of revenue
transactions during the year.
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 licence keys 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 standard End User Licence Agreement (‘EULA’) and Reseller 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 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.
We performed an overall recalculation of deferred revenue with specific focus on the split of sales in a
1, 2 and 3 year period for appropriateness based upon contract terms, where 3 years is the maximum
length of licence sold.
We obtained customer confirmation of a selected sample of accounts receivable and unbilled revenue and
performed alternative procedures where responses were not received.
We sampled significant resellers to confirm contract terms and conditions to identify if a change in revenue
recognition is required.
We performed disaggregated analytical procedures over revenue on a monthly basis at a segment level to
check for completeness.
We performed full and specific scope audit procedures over this risk area in 3 locations, which covered
97% of the risk amount. For the remaining items we performed other analytical procedures.
Key observations communicated
to the Audit Committee
As part of our procedures,
we noted no indication
of deliberate or other
manipulation of
licence terms or
management override.
Based on the results of
the audit procedures
performed, we conclude
that the revenue recognised
during the year, and
deferred revenue as at
31 December 2020, are
materially correct and
appropriately disclosed
in the Annual Report
and Accounts.
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Risk
Complexity of Taxes
Income tax expense: $66.7m
(2019: $65.7m)
Deferred Tax Asset (‘DTA’): $197.1m,
(2019: $203.8m)
The overall risk of complexities of income and
deferred tax has reduced compared to the prior
year as management have not performed any
one-off transactions in the current year. As such,
our risk is specific to recoverability of the Deferred
Tax Asset in the USA. This includes:
1) Management exercises significant judgement to
determine the recoverability of deferred tax assets
and have recovery periods in excess of 20 years.
Refer to the Audit Committee Report (page 97);
Accounting policies (page 153); and Note 13 of the
Consolidated Financial Statements (page 168)
Our response to the risk
We obtained the Group’s tax consolidation and focused our detailed testing of the current and deferred
income tax positions for 4 regions, including consolidation, and IFRS adjustments recorded by the Group.
In addition, in order to respond to our risk, we:
Engaged tax specialists including for the USA and the United Kingdom to support the team’s audit
of complex areas, including accounting for tax on share options. Further, our specialists were
consulted to independently assess the US tax jurisdiction assumptions in management’s Deferred
Tax Asset assessment.
Obtained and reviewed management’s deferred tax asset recoverability assessment paper and
management’s expectations of recoverability.
Audited management’s prospective financial information (PFI) to support the recoverability of
the significant deferred tax assets.
Challenged the underlying assumptions including:
– applicability of US tax laws to deferred tax recoverability;
– assessing against the Group’s historic forecasting accuracy; and
– appropriateness of recoverability period by comparison to historic performance, Group and
industry wide performance.
Evaluated the adequacy and completeness of the disclosures provided by the Group in relation to
tax balances and activity. We specifically noted management have disclosed the recoverability
as a significant judgement and highlighted the length of recoverability in their judgement.
In the prior year, our auditor’s report included the same Key Audit Matters as noted above.
Key observations communicated
to the Audit Committee
We highlight that 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
deferred income tax asset
amount reported as at
31 December 2020 and
for the year then ended
are materially correct.
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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
We determined materiality for the Group to be $17.4 million
(2019: $15.0 million), which is 5% (2019: 5%) of the Group’s
PBT adjusted for exceptional items and unrealised FX
loss (on the Term Loan). We believe that PBT adjusted for
exceptional items and unrealised FX loss provides us with
the most relevant measure of underlying performance of
the Group as it better reflects the future performance of the
business and what users are most interested in. In the prior
period, we did not adjust for unrealised FX gain/loss as this
was immaterial. Further, in the prior year, we adjusted for
‘deferred revenue haircut’ adjustment, which is immaterial
in the current year.
We determined materiality for the Parent Company to be
$32.0 million (2019: $32.0 million), which is 1% (2019: 1%)
of total equity, which is greater than that of the Group
as a result of its investment in Avast Holdings B.V.
During the course of our audit, we reassessed initial
materiality and included the unrealised FX loss on the
Term Loan (as included above) as an additional adjustment
following the significant volatility in EUR to USD exchange
rates in H2 2020. This resulted in an overall materiality level
largely consistent with that determined at planning ($16.0m).
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 Group’s overall control environment,
our judgement was that performance materiality was set
at 50% (2019: 50%) of our planning materiality, namely
$8.7m (2019: $7.5m). 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.
Starting basis
Adjustments
Materiality
Profit before tax: $236.3m
Add back $49.9m exceptional
items (as disclosed in Note 6
of the financial statements),
unrealised FX loss from EUR
tranch of bank loan of $62.1m
(as disclosed in Note 11 of
the financial statements).
Totals $348.3m of PBT
adjusted for exceptional items
and unrealised FX loss
Materiality of $17.4m (5% of
PBT adjusted for exceptional
items and unrealised FX loss)
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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 $1.7m to $7.8m (2019: $1.5m to $6.7m).
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 $0.87m (2019: $0.75m), 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 1-134, including Strategic
Report and Governance Reports set out on pages 1 and 88
respectively, other than the financial statements and our
auditor’s report thereon. The Directors are responsible for
the other information contained within the annual report.
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
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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 course of 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 themselves.
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.
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;
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
Information about the company’s Corporate Governance
Statement 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.
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
Corporate governance statement
The Listing Rules require us to review the Directors’
statement in relation to going concern, longer-term viability
and that part of the Corporate governance statement
relating to the Group and Company’s compliance with the
provisions of the UK Corporate Governance Code specified
for our review.
Based on the work undertaken as part of our audit, we
have concluded that each of the following elements of the
Corporate governance statement is materially consistent
with the financial statements or our knowledge obtained
during the audit:
Directors’ statement with regards to the appropriateness
of adopting the going concern basis of accounting and
any material uncertainties identified set out on page 132;
Directors’ explanation as to their assessment of the
Company’s prospects, the period this assessment covers
and why the period is appropriate set out on page 63;
Directors’ statement on fair, balanced and understandable
set out on page 134;
Board’s confirmation that it has carried out a robust
assessment of the emerging and principal risks set out
on page 58;
The section of the annual report that describes the review
of effectiveness of risk management and internal control
systems set out on page 101; and
The section describing the work of the Audit Committee
set out on page 97
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Responsibilities of Directors
As explained more fully in the Directors’ responsibilities
statement (set out on page 133), 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.
Explanation as to what extent the audit
was considered capable of detecting
irregularities, including fraud
Irregularities, including fraud, are instances of non-
compliance with laws and regulations. We design
procedures in line with our responsibilities, outlined above,
to detect irregularities, including fraud. The risk of not
detecting a material misstatement due to fraud is higher
than the risk of not detecting one resulting from error, as
fraud may involve deliberate concealment by, for example,
forgery or intentional misrepresentations, or through
collusion. The extent to which our procedures are capable
of detecting irregularities, including fraud is detailed below.
However, the primary responsibility for the prevention
and detection of fraud rests with both those charged
with governance of the Company and management.
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
(International Accounting Standards in conformity
with the requirements of the Companies Act 2006
and International Financial Reporting Standards,
FRS 102 ‘The Financial Reporting Standard applicable in
the UK and Republic of Ireland’, Companies Act 2006,
the UK Corporate Governance Code 2018, Disclosure
Guidance and Transparency Rules of the Financial
Conduct Authority and the Listing Rules of the
Financial Conduct Authority).
– Relevant tax compliance regulations in the jurisdictions
in which the Group operates.
– The General Data Protection Regulations (GDPR).
– In addition, we concluded that there are certain laws
and regulations that may have an effect on the
determination of the amounts and disclosures in
the financial statements; and
– Laws and regulations relating to health and safety,
employee matters, environment and bribery and
corruption practices.
We understood how Avast plc is complying with those
frameworks by making enquiries of management,
internal audit, those responsible for legal and compliance
procedures and the Company Secretary. We corroborated
our enquiries through our review of Board minutes and
papers provided to the Audit and Risk Committee and
correspondence received from regulatory bodies.
We assessed the susceptibility of the Group’s financial
statements to material misstatement, including how fraud
might occur, by meeting with management within various
parts of the business to understand where they consider
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 Financial
Reporting Council’s website at https://www.frc.org.uk/
auditorsresponsibilities. This description forms part of
our auditor’s report.
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Independent Auditor’s Report continued Strategic report Governance Financial statements
Strategic report Governance Financial statements
Avast annual report 2020
Avast annual report 2020
145
145
Other matters we are required to address
We were appointed by the Company on 15 January 2021
to audit the financial statements for the year ending
31 December 2020 and subsequent financial periods.
The period of total uninterrupted engagement including
previous renewals and reappointments is 3 years, covering
the years ending 31 December 2018 to 31 December 2020.
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
3 March 2021
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Independent Auditor’s report continuedIndependent Auditor’s Report continued Strategic report Governance Financial statements
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Avast plc annual report 2020
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146
146
Consolidated financial statements
Consolidated statement of profit and loss
For the year-ended 31 December 2020
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 (EPS; in $ per share):
Basic EPS
Diluted EPS
The accompanying notes form an integral part of these financial statements.
© 2019 Friend Studio Ltd
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Note
5
8
9
16
11
11
11
13
34
14
14
Year-ended 31 December 2020
$M
Year-ended 31 December 2019
$M
892.9
(196.0)
696.9
(134.7)
(86.1)
(140.7)
(361.5)
335.4
–
0.4
(35.5)
(64.0)
236.3
(66.7)
169.6
169.6
–
0.17
0.16
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
Consolidated financial statements
Strategic report Governance Financial statements
Strategic report Governance Financial statements
Avast plc annual report 2020
Avast annual report 2020
147
147
Consolidated statement of comprehensive income
For the year-ended 31 December 2020
Profit for the financial year
Other comprehensive gains:
Items that may be reclassified subsequently to profit or loss:
– Translation differences
Total other comprehensive gains
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 2020
$M
Year-ended 31 December 2019
$M
169.6
248.9
1.9
1.9
171.5
171.5
–
0.3
0.3
249.2
249.0
0.2
© 2019 Friend Studio Ltd
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Consolidated financial statements continued Strategic report Governance Financial statements
Strategic report Governance Financial statements
Avast plc annual report 2020
Avast annual report 2020
148
148
Consolidated financial statements continued
Consolidated statement of financial position
As at 31 December 2020
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 2020
$M
31 December 2019
$M
17
18
19
13
20
21
22
13
19
23
175.4
63.0
35.0
10.3
–
5.2
0.3
289.2
41.2
56.4
127.7
197.1
0.8
2.8
0.5
1,991.3
2,417.8
2,707.0
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
Consolidated financial statements continued
Strategic report Governance Financial statements
Strategic report Governance Financial statements
Avast plc annual report 2020
Avast annual report 2020
149
149
Consolidated statement of financial position (continued)
As at 31 December 2020
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
Financial liabilities
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 2 March 2021 and
signed on its behalf by:
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Note
31 December 2020
$M
31 December 2019
$M
24
21
25
13
26
27
21
25
26
27
29
13
31
31, 32
34
63.2
7.0
27.7
1.3
458.8
64.6
0.4
623.0
57.5
0.6
37.7
769.4
–
0.7
–
22.8
888.7
138.6
374.8
3.2
678.7
1,195.3
–
1,195.3
2,707.0
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
Philip Marshall Chief Financial Officer
The accompanying notes form an integral part of these financial statements.
Consolidated financial statements continued Strategic report Governance Financial statements
Strategic report Governance Financial statements
Avast plc annual report 2020
Avast annual report 2020
150
150
Consolidated financial statements continued
Consolidated statement of changes in shareholders’ equity
For the year-ended 31 December 2020
Share capital
$M
Share premium,
statutory and other
reserves $M
Translation
differences
$M
Retained earnings
$M
Note
Equity attributable
to equity holders
of the parent
$M
Non-controlling
interests
$M
Total equity
$M
129.0
275.9
–
–
–
–
–
–
–
–
7.0
–
–
–
–
–
(55.7)
–
0.2
20.1
40.2
–
136.0
280.7
–
–
–
–
–
–
–
–
2.6
–
–
–
–
–
–
–
55.7
(15.4)
21.8
32.0
–
–
34
29
35
31
33
34
29
32
35
31
33
(0.3)
–
0.3
0.3
–
–
–
1.3
–
–
–
1.3
–
1.9
1.9
–
–
–
–
–
–
–
–
138.6
374.8
3.2
494.8
248.7
–
248.7
48.6
–
34.9
(1.1)
–
–
(127.0)
698.9
169.6
–
169.6
0.9
(57.3)
0.6
15.4
–
(0.6)
5.9
(154.7)
678.7
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
169.6
1.9
171.5
0.9
(57.3)
56.3
–
21.8
34.0
5.9
(154.7)
1,195.3
1.0
0.2
–
0.2
5.7
–
–
–
0.6
–
–
7.5
–
–
–
–
(7.5)
–
–
–
–
–
–
–
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
169.6
1.9
171.5
0.9
(64.8)
56.3
–
21.8
34.0
5.9
(154.7)
1,195.3
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 tax
Other movements
Share-based payments
Issuance of shares under share-based payments plans
Cash dividend
At 31 December 2019
Result of the year
Other comprehensive income
Comprehensive income for the year
Other movements
Transactions with NCI – Purchase of interest
Transactions with NCI – De-recognition of put liability
Transfer of share-based payments to retained earnings
Share-based payments
Issuance of shares under share-based payments plans
Share-based payments tax
Cash dividend
At 31 December 2020
The accompanying notes form an integral part of these financial statements.
© 2019 Friend Studio Ltd
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Consolidated financial statements continued
Strategic report Governance Financial statements
Strategic report Governance Financial statements
Avast plc annual report 2020
Avast annual report 2020
151
151
Consolidated statement of cash flows
For the year-ended 31 December 2020
Cash flows from operating activities
Profit for the financial year
Non-cash adjustments to reconcile profit to net cash flows:
Income tax
Depreciation
Amortisation
Impairment
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
(Increase)/decrease in inventories
Increase/(decrease) in trade and other payables
Increase in deferred revenues
Income tax paid
Net cash flows from operating activities
© 2019 Friend Studio Ltd
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Note
Year-ended 31 December 2020
$M
Year-ended 31 December 2019
$M
169.6
248.9
13
12
12
16
11
11
35
11
26
66.7
19.7
67.9
2.8
–
–
14.5
(0.4)
29.7
21.9
(3.0)
72.0
14.7
0.8
2.4
29.2
(52.0)
456.5
65.7
18.9
91.1
–
(17.5)
(0.2)
5.9
(1.5)
59.6
20.7
(2.8)
(13.8)
(9.3)
(1.1)
(1.2)
39.9
(104.2)
399.1
Consolidated financial statements continued Strategic report Governance Financial statements
Strategic report Governance Financial statements
Avast plc annual report 2020
Avast annual report 2020
152
152
Consolidated financial statements continued
Consolidated statement of cash flows (continued)
For the year-ended 31 December 2020
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
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 in 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
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Note
Year-ended 31 December 2020
$M
Year-ended 31 December 2019
$M
20
22
15
16
34
31
33
27
27
27
27
21
21
17
(12.4)
(2.7)
–
(4.7)
3.0
0.4
(16.4)
(64.8)
34.0
(154.7)
(261.9)
–
–
(27.5)
(2.1)
(7.2)
(484.2)
(44.2)
3.0
216.6
175.4
(26.3)
(3.6)
(14.8)
(0.2)
26.7
1.5
(16.7)
54.3
47.2
(127.0)
(562.9)
202.6
(0.9)
(45.1)
(2.3)
(6.8)
(440.9)
(58.5)
2.8
272.3
216.6
Consolidated financial statements continued
Strategic report Governance Financial statements
Strategic report Governance Financial statements
Avast plc annual report 2020
Avast annual report 2020
153
153
1 General information
Avast plc, together with its subsidiaries (collectively,
’Avast’, ’the Group’ or ’the Company’), is a leading
global cybersecurity provider. Avast plc is a public limited
company incorporated and domiciled in the UK, and
registered under the laws of England & Wales under
company number 07118170 with its registered address
at 110 High Holborn, London WC1V 6JS. The ordinary shares
of Avast plc are admitted to the premium listing segment of
the Official List of the UK Financial Conduct Authority and
trade on the London Stock Exchange plc’s main market for
listed securities.
2 Significant accounting policies
The accounting policies used in preparing the historical
financial information are set out below. These accounting
policies have been consistently applied in all material
respects to all periods presented except for the changes
described in Note 4.
Basis of preparation
The audited consolidated financial statements of the
Group have been prepared in accordance with international
accounting standards in conformity with the requirements
of the Companies Act 2006 and international financial
reporting standards adopted pursuant to Regulation
(EC) No 1606/2002 as it applies in the European Union.
The consolidated financial statements have been prepared
on a historical cost basis and are presented in US dollars.
All values are rounded to the nearest 0.1 million ($’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.
Going concern
Due to the uncertainty arising from the COVID-19 pandemic,
management has performed a detailed going concern
review and analysis of the accounts and considers that the
Group has adequate resources to continue business for
the foreseeable future, and a period from the signing of
the financial statements through 30 June 2022.
Group’s financial covenants
The Group’s Term Loan Credit Agreement includes a
single financial covenant that is triggered at any time
when $35m or more is outstanding under the revolving
credit agreement for a period ending on 30 June or
31 December. The Group must maintain, on a consolidated
basis, a leverage ratio (set as a ratio of Consolidated First
Lien Net Debt to Consolidated EBITDA) less than 6.5x.
This covenant is tested quarterly at such time as it is in
effect. The Total Net First Lien Leverage Ratio remains
materially lower than 6.5x during the period under review.
The ratio was 1.4x at 31 December 2020 and there is no
reason to believe that the Group would have any material
risk against the ceiling of 6.5x. As of 31 December 2020,
the $40m committed was undrawn under the revolving
credit facility (see Note 27).
Reverse stress testing
To make the going concern assessment, the Directors have
reviewed the latest budget and forecast through 30 June
2022, including the projected cash flows and other relevant
information. The cash flow projections have been subject
to reverse stress testing, which assessed the potential
impact of an extreme scenario in which the Consumer
Direct Desktop billings would decline drastically without
any mitigating action taken by management. Even in such
a scenario, which is considered remote, the Group has
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more than sufficient headroom in its available resources
to withstand the period from signing of the financial
statements through 30 June 2022 and not to be in breach
of the financial covenant. The Group would only run out of
available cash in an extreme situation where practically no
further Consumer Direct Desktop billings would be realised
after March 2021, collections would stop, and no meaningful
offsetting cost actions would be taken, whilst still paying
dividends according to the current policy (i.e. 40% of
Levered Free Cash Flow). Such a situation is considered
very remote.
Our business remains resilient because:
Cash collection is strong and bad debt risk is limited
as clients typically pay for service up front.
The renewal rate remains steady in Consumer
Direct Desktop.
Flexible cost base – a significant portion of the
Group’s costs are discretionary in nature.
The work-from-home trend in the pandemic environment
created an upswing in demand across the product
portfolio, resulting in strong growth in paying customers
(up 997,000 since the end of 2019).
Our deferred revenue balance is growing (deferred
revenue up +6.5% vs FY 2019, excluding Jumpshot)
supporting attractive future revenue growth and good
future revenue visibility. Deferred revenue balance as
of 31 December 2020 of $496.5m includes $458.8m to
be released into revenue in the following 12 months.
Notes to the consolidated financial statements Strategic report Governance Financial statements
Strategic report Governance Financial statements
Avast plc annual report 2020
Avast annual report 2020
154
154
Notes to the consolidated financial statements continued
2 Significant accounting policies (continued)
We continuously monitor and invest into market needs.
In FY 2020 Avast continued its strong investment
in technology capability and innovation, and further
enhanced the customer experience to support mid-
term growth initiatives, and to keep up with the latest
technology trends.
The Directors continue to carefully monitor the impact of
the COVID-19 pandemic on the operations of the Group and
have a range of possible mitigating actions, which could be
implemented in the event of a downturn of the business.
On the basis of the above considerations, the Directors have
a reasonable expectation that the Group will have adequate
resources to continue in business for the foreseeable future
and therefore continue to adopt the going concern basis in
preparing the financial statements.
Impact of COVID-19 on financial statements
at 31 December 2020
In light of the impact of COVID-19, management have
considered the impact on accounting policies, judgements
and estimates. In particular, on the expected credit loss,
where customers have been reviewed for potential
increased level of risk. There has been no material specific
impairment against the Group’s receivables recorded as
of 31 December 2020.
At 31 December 2020, the Group tested goodwill and
intangible assets for impairment and considered uncertainty
caused by COVID-19. No significant adjustment to
Group’s accounting estimates has been deemed necessary,
considering also the fact that the headroom of market
capitalisation over net assets is significant. There is no
reason to believe that impairment would be required.
See Note 23 for further details of the impairment test.
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, form 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.
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 partners’ 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.
© 2019 Friend Studio Ltd
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Notes to the consolidated financial statements continued
Strategic report Governance Financial statements
Strategic report Governance Financial statements
Avast plc annual report 2020
Avast annual report 2020
155
155
2 Significant accounting policies (continued)
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 are 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, LLC (’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 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
comprise 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. In January
2020, the Group made a decision to discontinue business
of Jumpshot.
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.
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.
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2 Significant accounting policies (continued)
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.
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 adjacent table. 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 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 functional currencies of the Group’s main entities are
as follows:
Company or branch
Avast plc
Avast Holding B.V.
Avast Software B.V.
Avast Software s.r.o.
Avast Software, Inc.
Avast Deutschland GmbH
AVG Technologies UK Limited
AVG Technologies USA, LLC
FileHippo s.r.o.
INLOOPX s.r.o.
Location Labs, LLC
Piriform Group Limited
Piriform Limited
Piriform Software Limited
Piriform, Inc.
Privax Limited
TrackOFF, Inc.
Functional
currency
USD
USD
USD
USD
USD
EUR
GBP
USD
CZK
EUR
USD
GBP
GBP
GBP
USD
USD
USD
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.
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2 Significant accounting policies (continued)
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 remeasured 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 remeasured 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 re-assesses 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.
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
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.
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:
Intangible assets are carried at cost less accumulated
amortisation and accumulated impairment losses.
the technical feasibility of completing the intangible asset
so that the asset will be available for use or sale;
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.
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.
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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 for 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 correspond to the Consumer
operating segment.
Leases
The Group adopted IFRS 16 using the modified
retrospective method of adoption with the date of initial
application of 1 January 2019. 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). The weighted
average discount rate was 3.3%.
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.
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2 Significant accounting policies (continued)
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 remeasurement 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 expenses are presented within depreciation,
allocated to general and administrative expenses. The Group
also assesses the right-of-use asset for impairment when
such indicators exist.
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.
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 a
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.
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2 Significant accounting policies (continued)
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.
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 includes 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 the 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.
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2 Significant accounting policies (continued)
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
remeasured 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.
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 expenses.
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,
costs incurred due to discontinuation of business and
COVID-19 donations.
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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). There were no changes to the extension
options for the year ended 31 December 2020.
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 CGUs. Management has concluded
that the operating segments used for segment reporting
represents 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 re-negotiation, 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 since
2017). 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.
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. (see Note 13). 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 give 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 approximately
a 25-year time frame. The recovery period is sensitive to
the level of profitability of the underlying business; however,
there are no significant assumptions that 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 .
Provisions
The amount recognised as a provision is the best estimate of
the consideration required to settle the present obligation
at the balance sheet date, taking into account the risks
and uncertainties surrounding the obligation. Other
provisions relate to a small number of contractual disputes.
The management has provided the best estimate of the
provisions, based on the legal advice. Refer to Note 25
for further details.
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163
4 Application of new and revised
IFRS standards
New and adopted standards
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. These amendments had no impact
on the consolidated financial statements of the Group, but
may impact future periods should the Group enter into any
business combinations.
IAS 1 Presentation of Financial Statements and IAS 8
Accounting Policies, Changes in Accounting Estimates
and Errors: Definition of ‘material’ (Amendments)
The Amendments are effective for annual periods beginning
on or after 1 January 2020 with earlier application permitted.
The Amendments clarify the definition of material and
how it should be applied. The new definition states that,
’Information is material if omitting, misstating or obscuring it
could reasonably be expected to influence decisions that the
primary users of general purpose financial statements make
on the basis of those financial statements, which provide
financial information about a specific reporting entity’.
In addition, the explanations accompanying the definition
have been improved. These amendments had no impact
on the consolidated financial statements of, nor is there
expected to be any future impact to, the Group.
Standards issued but not yet effective and
not early adopted
Amendments to IAS 1: Classification of Liabilities as
Current or Non-current
In January 2020, the IASB issued amendments to
paragraphs 69 to 76 of IAS 1 to specify the requirements
for classifying liabilities as current or non-current.
The amendments clarify:
What is meant by a right to defer settlement
That a right to defer must exist at the end of the
reporting period
That classification is unaffected by the likelihood that
an entity will exercise its deferral right
That only if an embedded derivative in a convertible
liability is itself an equity instrument would the terms
of a liability not impact its classification
The amendments are effective for annual reporting
periods beginning on or after 1 January 2023 and must be
applied retrospectively. In the year of initial application
of the IAS 1 amendment, the term loan will be reported
as current since both facilities are repayable in full in
September 2023 (see Note 27).
Interest Rate Benchmark Reform – Phase 2 –
Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 & IFRS 16
The amendments provide temporary reliefs which address
the financial reporting effects when an interbank offered
rate (IBOR) is replaced with an alternative nearly risk-free
interest rate (RFR). In particular, the amendments provide
for a practical expedient when accounting for changes in
the basis for determining the contractual cash flows of
financial assets and liabilities, to require the effective
interest rate to be adjusted, equivalent to a movement in
a market rate of interest. The amendment is effective for
annual reporting periods beginning on or after 1 January
2021 with earlier adoption permitted. The Group is currently
assessing the impact the amendments will have on current
credit agreement.
There are other new and revised standards that are not yet
effective and not early adopted which are not relevant to
the Group:
IFRS 17 Insurance Contracts – effective on 1 January 2021
IFRS 3 Business Combinations – effective on
1 January 2022
IAS 16 Property, Plant and Equipment – effective on
or 1 January 2022
IAS 37 Provisions, Contingent Liabilities and
Contingent Assets – effective on 1 January 2022
Annual Improvements 2018-2020 (Amendment) –
effective on 1 January 2022
The Group does not currently plan to adopt early any of the
new standards issued but not effective as discussed above.
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Notes to the consolidated financial statements continued
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 2020 ($’m)
Billings
Deferral of revenue
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
873.6
(28.8)
844.8
(81.1)
(84.3)
(49.2)
(1.2)
629.0
SMB
48.4
(0.3)
48.1
(5.8)
(17.5)
(3.5)
0.2
21.5
Total
922.0
(29.1)
892.9
(86.9)
(101.8)
(52.7)
(1.0)
650.5
(154.9)
–
(87.6)
(49.9)
(21.9)
(0.8)
335.4
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 and Medium-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 by
leveraging 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.
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.
The invoicing timing may slightly vary through the year with
immaterial impact, as part of our usual renewal offers testing.
Although the cash is paid up front, under IFRS subscription
revenue is deferred and recognised ratably over the life
of the subscription agreement, whereas non-subscription
revenue is typically recognised immediately.
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5 Segment information and other disclosures (continued)
For the year ended 31 December 2019 ($’m)
Billings
Deferral of revenue
Revenues
Deferred revenue haircut reversal
Segment revenue
Segment cost of revenues
Segment sales and marketing costs
Segment research and development costs
Segment general and administrative costs
Total Segment operating profit
Corporate overhead
Deferred revenue haircut reversal
Depreciation and amortisation
Exceptional items
Share-based payments
Employer’s taxes on share-based payments
Consolidated operating profit
Consumer
865.1
(42.2)
822.9
0.8
823.7
(84.7)
(78.7)
(57.7)
(5.4)
597.2
SMB
45.9
2.3
48.2
1.0
49.2
(5.3)
(18.9)
(4.7)
3.1
23.4
The following table presents depreciation and amortisation
by segment:
($’m)
Consumer
SMB
Corporate overhead
Total depreciation and amortisation
Year–ended
31 December
2020
Year–ended
31 December
2019
67.4
0.1
20.1
87.6
91.6
0.2
18.2
110.0
The following table presents further disaggregation
of revenue:
($’m)
Consumer Direct Desktop
Consumer Direct Mobile
Consumer Indirect*
SMB
Other
Total
Year–ended
31 December
2020
Year–ended
31 December
2019
699.7
72.1
67.9
48.0
5.2
892.9
631.1
75.4
70.4
49.2
45.0
871.1
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
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.
* For the year ended 31 December 2020 and 2019, revenues of
Jumpshot of $1m and $36.1m, respectively, were reclassified
into Other.
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Notes to the consolidated financial statements continued
Revenues from relationships with certain third parties
exceeding 10% of the Group’s total revenues were as follows:
Year–ended
31 December 2020
Year–ended
31 December 2019
($’m)
(in %)
($’m)
(in %)
Revenues
realised
through online
resellers:
Digital River
620.1
69.5%
521.8
59.9%
In 2020 and 2019, revenues realised through Digital
River significantly increased by $98.3m and $151.7m,
respectively, due to the continuing 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
$22.5m (2019: $12.0m) of revenues were reported in the
SMB segment.
6 Exceptional items
The following table presents the exceptional items
by activity:
($’m)
Year–ended
31 December
2020
Year–ended
31 December
2019
Exceptional items in operating profit
49.9
1.8
Net gain on disposal of
business operation
–
17.5
Exceptional items in operating profit
During the year, the Group incurred $25.4m in relation
to the winding down of the operations of Jumpshot.
These costs were primarily cash items consisting of
restructuring personnel costs, legal fees, refunds to the
customer and Ascential exit costs (Note 34). The non-cash
items included gain from release of deferred revenue of
$7.6m which was offset by impairment of fixed assets
and right-of-use assets of $3.1m and creation of bad debt
provision and write-offs of account receivables and other
assets of $4.5m. These exceptional items have been treated
as tax non-deductible and all have been included in the
cash flows from operating activities.
In addition, Avast donated $25m to accelerate global R&D
programs to help combat COVID-19. Total donations were
included in the net cash flows from operating activities and
the related tax impact has been included in the tax adjusting
items ($4.7m).
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
$17.5m as an exceptional item (Note 16). Proceeds from
this transaction, net of cash sold, have been included in
cash flows from investing activities.
5 Segment information and other disclosures
(continued)
The following table presents the Group´s non-current
assets, net of accumulated depreciation and amortisation,
by country. Non-current assets for this purpose consist
of property and equipment, right-of-use assets and
intangible assets.
Czech Republic
UK
USA
Other
countries*
Total
31 December 2020
31 December 2019
($’m)
193.7
13.9
12.9
(in %)
86.0%
6.1%
5.7%
($’m)
257.7
20.9
16.1
(in %)
86.2%
7.0%
5.4%
4.8
2.2%
4.1
1.4%
225.3
100.0%
298.8
100.0%
* No individual country represented more than 5% of the
respective totals.
The following table presents revenue attributed to countries
based on the location of the end user:
Year–ended
31 December 2020
Year–ended
31 December 2019
($’m)
349.0
81.6
69.2
60.1
332.9
892.9
(in %)
($’m)
39.1%
358.9
9.1%
7.8%
6.7%
75.8
66.2
56.6
(in %)
41.2%
8.7%
7.6%
6.5%
37.3%
100%
313.6
871.1
36.0%
100%
USA
UK
France
Germany
Other
countries*
Total
* No individual country represented more than 5% of the
respective totals.
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9 Operating costs
Operating costs are internally monitored by function;
their allocation by nature is as follows:
($ ’m)
Depreciation
Amortisation
Personnel expenses
Purchases of services from
third party vendors
Gifts and charities
Other operating expenses
Impairment
Total
Year–ended
31 December
2020
Year–ended
31 December
2019
11.3
2.0
11.7
1.2
191.2
180.1
128.3
27.8
0.4
0.5
116.5
5.0
1.3
–
361.5
315.8
Purchases of services from third party vendors include
legal and outsourced services, advertising, paid search
and other services.
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.
($ ’m)
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
2020
Year–ended
31 December
2019
0.9
0.2
1.1
0.1
–
–
0.1
1.2
0.9
0.2
1.1
0.1
–
–
0.1
1.2
8 Cost of revenues
Cost of revenues 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
Impairment
Total
Year–ended
31 December
2020
Year–ended
31 December
2019
65.9
8.4
19.0
20.9
5.6
89.9
7.2
19.1
16.4
5.3
13.4
13.2
60.5
2.3
59.6
–
196.0
210.7
10 Personnel expenses
Personnel expenses consist of the following:
Year-ended
31 December 2020
Year-ended
31 December 2019
($ ’m)
Employees
Non-
executive
directors
Employees
Non-
executive
directors
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
137.8
0.8
135.1
0.9
27.4
0.5
6.7
14.3
22.7
–
–
–
–
–
27.2
0.2
8.0
2.9
24.9
–
–
–
–
–
209.4
0.8
198.3
0.9
* 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:
Sales and marketing
Research and development
General and administrative
Year-ended
31 December
2020
Year-ended
31 December
2019
683
878
242
635
911
246
Total average number of employees
1,803
1,792
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Notes to the consolidated financial statements continued
10 Personnel expenses (continued)
Decrease in average number of employees in research and
development reflects winding down of Jumpshot operations
during the year.
11 Finance income and expenses
Interest income:
($ ’m)
Interest on bank deposits
Total finance income
Interest expense:
($ ’m)
Term loan interest expense
Lease interest expense
Total interest expense
Year-ended
31 December
2020
Year-ended
31 December
2019
0.4
0.4
1.5
1.5
Year-ended
31 December
2020
Year-ended
31 December
2019
(33.4)
(2.1)
(35.5)
(56.4)
(2.3)
(58.7)
Other finance income and expense (net):
($ ’m)
Changes of fair values of derivatives
Revolving loan – commitment fee
Foreign currency losses
Unrealised foreign exchange
gains/(losses) on borrowings
Other financial expense
Total other finance income
and expense (net)
Year-ended
31 December
2020
Year-ended
31 December
2019
1.7
(0.4)
(7.7)
(62.1)
4.5
(0.8)
(0.8)
(3.3)
13.9
0.7
(64.0)
9.7
12 Depreciation and amortisation
Amortisation by function:
($ ’m)
Cost of revenues
Total amortisation of
acquisition intangible assets
Cost of revenues
Sales and marketing
Research and development
General and administration
Total amortisation of
non-acquisition intangible assets
Total amortisation
Depreciation by function:
($ ’m)
Cost of revenues
Sales and marketing
Research and development
General and administration*
Total depreciation
Year-ended
31 December
2020
Year-ended
31 December
2019
65.8
88.3
65.8
88.3
0.6
0.2
0.4
0.9
2.1
67.9
1.6
0.2
0.1
0.9
2.8
91.1
Year-ended
31 December
2020
Year-ended
31 December
2019
8.4
0.1
0.2
11.0
19.7
7.2
0.1
0.6
11.0
18.9
* $7.9m (2019: $7.7m) is attributable to the depreciation of right-of-use
assets (see Note 21).
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 $1.9m (2019: $17.2m)
is part of the caption Tax receivables.
The major components of the income tax in the consolidated
statement of comprehensive income are:
($ ’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
2020
Year-ended
31 December
2019
(68.0)
0.3
(67.7)
1.2
(0.2)
1.0
(54.8)
(0.9)
(55.7)
(4.8)
(5.2)
(10.0)
Total income tax (expense)/
income through P&L
(66.7)
(65.7)
The Group generates a temporary difference relating to
an intragroup 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 expense of $4.4m (2019: benefit $0.4m)
and the Group reports a deferred tax asset of $5.7m
(2019: $10.1m) related to the loan.
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169
31 December
2020
31 December
2019
Asset/
(Liability)
Asset/
(Liability)
(26.2)
119.8
(38.2)
122.9
1.7
50.1
7.1
2.4
3.4
3.4
2.3
5.7
4.5
3.5
45.8
4.2
2.1
2.7
5.7
0.8
10.1
8.0
174.2
167.6
The deferred tax relates to following temporary differences:
13 Income tax (continued)
The reconciliation of income tax (expense)/benefit
applicable to accounting profit before income tax at the
statutory income tax rate to income tax expenses at the
Group’s effective income tax rate is as follows:
($ ’m)
Profit before tax
Year-ended
31 December
2020
Year-ended
31 December
2019
236.2
314.6
Group effective income tax rate
(19.5% in 2020 and 20% in 2019*)
(46.1)
(62.9)
($ ’m)
Temporary differences
Fixed assets
IP transfer tax benefit
Deferred revenue and
unbilled receivables
Tax loss carryforward
Tax credits carryforward
Loans and derivatives
Recurring adjustments
Non-deductible expenses
Share-based payments
FX effect on intercompany loans
Non recurring adjustments
Current year deferred tax assets
not recognised
Recognition of previously not
recognised deferred tax assets
Effect of prior year taxes
Effect of enacted changes in
tax rates on deferred taxes
Effect of higher taxes
in Netherlands
Remaining impact of tax rate
variance and other effects
Total income tax
(66.7)
(65.7)
* Estimated as a Group’s blended rate across the jurisdictions where the
Group operates.
(1.8)
(3.0)
(4.4)
(3.7)
(1.6)
0.4
Carryforward of unutilised interest
Share-based payments transactions
Provisions
Tax impact from FX difference on
intercompany loans
(19.2)
(0.1)
Other
Net
0.7
0.1
1.1
3.4
2.5
4.7
(6.1)
0.2
(0.7)
4.1
Tax losses carried forward are recorded by the
following subsidiaries:
31 December
2020
31 December
2019
Deferred
tax from
tax losses
carryforward
Deferred
tax from
tax losses
carryforward
Tax
jurisdiction
49.9
–
0.2
44.6
0.9
0.3
50.1
45.8
USA
UK
–
–
($ ’m)
Avast Software Inc.
(tax group incl.
Location Labs and AVG
Technologies USA)
Avast plc
Other
Total deferred tax from
tax losses carryforward
Tax losses carried forward in the United States are related
mainly to share-based payments exercises.
As a result of share-based payments exercises there was a
$41.0m (2019: $147.6m) tax deduction in Avast Software,
Inc., Location Labs LLC, Jumpshot, Inc., Avast plc and AVG
UK that created a tax benefit of $9.6m (2019: $34.2m).
A tax benefit of $7.3m (2019: $31.8m) exceeding related
cumulative remuneration expenses is recognised directly
in equity, of which the current tax benefit is $0.4m (2019:
$3.4m) and deferred tax benefit is $6.9m (2019: $28.4m).
Tax losses reported by Avast Software Inc. can be utilised by
all subsidiaries incorporated in the USA (Note 39) 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 $45.4m 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 arises between the tax deduction (prorated
for the period to vesting) and the tax effect of the related
cumulative remuneration expense. The deferred tax asset
of $3.4m (2019: $5.7m) is measured as an estimated tax
deduction at the date of exercise (prorated 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
reduction in the excess of the associated deferred tax of
$1.4m was recognised directly in equity.
Following the transactions of IP transfer in 2018, the Group
reports a deferred tax asset of $119.8m (2019: $122.9m),
of which the major part of $116.9m relates to the transfer
of the former Dutch AVG business from Avast BV to Avast
Software s.r.o. The temporary difference is amortised
and deducted from the tax base of Avast Software s.r.o.
registered in the Czech Republic linearly over 15 years.
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Avast annual report 2020
170
170
Notes to the consolidated financial statements continued
The movement in deferred tax balances:
($ ’m)
Temporary differences
Fixed assets
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
13 Income tax (continued)
The Group does not recognise the following potential
deferred tax asset of $39.6m (2019: $21.1m), mostly related
to Jumpshot tax losses $14.9m (2019: $8.9m) and temporary
difference related to EUR loan $14.5m (2019: nil), for which
the Group considers future recoverability to be uncertain.
31 December
2020
31 December
2019
Asset/
(Liability)
Asset/
(Liability)
7.2
1.8
6.6
7.6
5.5
($ ’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
4.5
Provisions
Tax impact from FX difference on intercompany loans
18.6
5.2
1.3
39.6
2.4
21.1
Other
Net
($ ’m)
Temporary differences
Fixed assets
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
Other
Net
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31 December
2019
Asset/
(Liability)
Recognised
in profit and
loss
31 December
2020
Recognised
in equity
Asset/
(Liability)
(38.2)
122.9
3.5
45.8
4.2
2.1
2.7
5.7
0.8
10.1
8.0
167.6
12.0
(3.1)
(1.8)
(2.7)
2.9
0.3
0.7
(0.9)
1.5
(4.4)
(3.5)
1.0
–
–
–
7.0
–
–
–
(1.4)
–
–
–
(26.2)
119.8
1.7
50.1
7.1
2.4
3.4
3.4
2.3
5.7
4.5
5.6
174.2
31 December
2018
Asset/
(Liability)
(53.1)
142.9
15.9
16.6
3.7
11.0
–
–
1.8
9.8
0.8
149.4
Effect of
business
combinations
(Note 15)
(3.6)
–
–
–
–
–
–
–
–
–
0.3
(3.3)
Recognised
in profit and
loss
31 December
2019
Recognised
in equity
Asset/
(Liability)
18.5
(20.0)
(12.4)
0.8
0.5
(8.9)
2.7
2.6
(1.0)
0.3
6.9
–
–
–
28.4
–
–
–
3.1
–
–
–
(38.2)
122.9
3.5
45.8
4.2
2.1
2.7
5.7
0.8
10.1
8.0
(10.0)
31.5
167.6
Notes to the consolidated financial statements continued
Strategic report Governance Financial statements
Strategic report Governance Financial statements
Avast plc annual report 2020
Avast annual report 2020
171
171
13 Income tax (continued)
The deferred tax asset increased significantly due to tax
losses realised in 2019 and 2018 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.
The temporary differences associated with investments in
the Group’s subsidiaries, for which a deferred tax liability has
not been recognised in the period presented, aggregate to
$77.1m (2019: nil). These relate to undistributed reserves of
the US subsidiaries, which would be subject to withholding
taxes if distributed. The Group has determined that the
undistributed profits of its subsidiaries will not be distributed
in the foreseeable future. While EU subsidiaries (including
the Czech Republic and the Netherlands) have significant
reserves, the management has determined that based on the
Group structure no material withholding taxes would arise
from distributions from these subsidiaries following the
UK’s exit from the European Union.
14 Earnings per share
Basic earnings per share (‘EPS’) is calculated by dividing
the net profit for the period attributable to equity holders
of the Group by the weighted average number of shares of
ordinary shares outstanding during the year.
Diluted EPS is calculated by dividing the net profit for the
period attributable to equity holders of the Group by the
weighted average number of ordinary shares outstanding
during the period plus the weighted average number of
shares that would be issued if all dilutive potential ordinary
shares were converted into ordinary shares.
Adjusted EPS is calculated by dividing the adjusted net
profit for the period attributable to equity holders by the
weighted average number of ordinary shares outstanding
during the period.
The following reflects the income and share data used in
calculating EPS:
Net profit attributable to
equity holders ($ ’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 2020
Year-ended
31 December 2019
169.6
248.7
1,022,001,218
973,788,157
14,815,576
44,313,005
1,036,816,794 1,018,101,162
0.17
0.16
0.26
0.24
Adjusted earnings per share measures:
Net profit attributable to
equity holders ($ ’m)
Deferred Revenue Haircut
reversal/Other
Share-based payments
(including employers‘ 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 on donations
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)
Year-ended
31 December 2020
Year-ended
31 December 2019
169.6
248.7
–
22.7
49.9
65.8
62.1
4.4
–
(4.7)
(15.7)
6.3
–
–
1.8
24.9
1.8
88.4
(13.9)
(0.4)
(0.1)
–
(20.3)
6.3
(17.5)
2.3
360.2
322.1
1,022,001,218
973,788,157
0.35
0.33
1,036,816,794 1,018,101,162
0.35
0.32
Management regards the above adjustments necessary to
give a fair picture of the adjusted results of the Group for
the period.
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172
Notes to the consolidated financial statements continued
15 Business combinations
The Group has not made an acquisition during 2020.
Below are acquisitions made during 2019:
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 including contingent payment at the
acquisition date was determined by the Group to be $5.3m.
($ ’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 18 months
Earn-out
Net cash flow on acquisition
31 December
2020
31 December
2019
–
–
(0.8)
(0.8)
(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
statement of profit or loss and are part of operating cash
flows in the 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
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
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.
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Avast annual report 2020
173
173
15 Business combinations (continued)
The business combination resulted in the recognition of
intangible asset in the amount of $11.2m that represents
intellectual property of TrackOFF, and will be amortised
over the estimated useful life of 5 years.
Analysis of cash flows on acquisition:
($’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
2020
31 December
2019
–
–
(0.8)
(0.8)
(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
statement of profit or loss and are part of operating cash
flows in the statement of cash flows.
Revenues and net profit of the Group for the twelve months
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).
16 Disposal of a business operation
The Group has not made a disposal during 2020. Below is
the disposal made during 2019:
On 30 January 2019, 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., sale of intellectual property
(IP) owned by Avast Software s.r.o. and 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 of 31 December 2020, $3m was fully released
from the escrow to the Group.
As a result, the Group de-recognised all assets and
liabilities of sold subsidiary AVG CAN. Because the sale
of a subsidiary is part of a single transaction of the sale of
a part of the business, the Group presents the result of the
whole transaction (except for tax impacts) within a single line
in the statement of comprehensive income, including the
sale of IP and other assets.
The carrying amounts of assets and liabilities as of the date
of sale were as follows:
($’m)
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
30 January
2019
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 the goodwill was allocated, a portion of the goodwill
had to be disposed of as part of the transaction. The Group
has determined that the appropriate amount of goodwill
disposed of is $11.0m which was part of the SMB CGU.
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174
174
Notes to the consolidated financial statements continued
16 Disposal of a business operation (continued)
The resulting gain on disposal of a business operation is
shown in the table below:
17 Cash and cash equivalents
For purposes of the statement of cash flows, cash and cash
equivalents comprise the following:
($’m)
30 January
2019
($ ’m)
Consideration received or receivable:
Cash on hand and cash equivalents
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:
33.0
3.0
36.0
(7.5)
28.5
(11.0)
17.5
($’m)
Cash received
Net cash sold of the business
(included in cash flow from
investing activities)
Transaction costs paid
Net cash flow on disposal
31 December
2020
31 December
2019
3.0
33.0
–
–
3.0
(6.0)
(0.3)
26.7
($ ’m)
Allowances at 31 December 2018
Additions
Write-offs
Reversals
Allowances at 31 December 2019
Additions
Write-offs
Reversals
Allowances at 31 December 2020
Amount
6.0
1.1
(0.3)
–
6.8
3.7
(5.3)
(3.0)
2.2
Movements in the allowances described above relate mainly
to trade receivables.
As of 31 December 2019 and 2020, the nominal
value of receivables overdue for more than 360 days
are $4.5m (carrying value: nil) and $1.2m (carrying value:
nil), respectively.
31 December
2020
31 December
2019
0.3
175.1
175.4
1.4
215.2
216.6
31 December
2020
31 December
2019
13.6
48.1
3.5
65.2
30.4
48.9
6.4
85.7
(2.2)
63.0
(6.8)
78.9
The ageing analysis of trade receivables, unbilled receivables
and other receivables was as follows (carrying amounts after
valuation allowance):
Cash in bank
Total
18 Trade and other receivables
($ ’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
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.
Other receivables represent mainly advances to, and
receivables from, employees.
Not
past
due
72.5
62.0
Past
due
1-90
days
5.9
0.8
Past
due
more
than
90
days
0.4
0.1
Past
due
more
than
180
days
0.1
0.1
Past
due
more
than
360
days
Total
– 78.9
– 63.0
($ ’m)
31 December 2019
31 December 2020
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Avast annual report 2020
175
175
19 Capitalised contract costs
20 Property, plant and equipment
($ ’m)
At 1 January
Additions
Sales commissions and fees
Licence fees
Amortisation
Sales commissions and fees
Licence fees
At 31 December
Total current
Total non-current
31 December
2020
31 December
2019
37.7
67.7
61.6
6.1
(67.6)
(62.1)
(5.5)
37.8
35.0
2.8
35.8
65.6
60.6
5.0
(63.7)
(58.4)
(5.3)
37.7
33.3
4.4
($ ’m)
Cost at 31 December 2018
Additions
Transfers
Net foreign currency exchange difference
Disposals
Cost at 31 December 2019
Additions
Transfers
Disposals
Cost at 31 December 2020
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)
Acc. depreciation at 31 December 2018
Depreciation
Disposals
Acc. depreciation at 31 December 2019
Depreciation
Disposals
Impairment
Acc. depreciation at 31 December 2020
NBV at 31 December 2019
NBV at 31 December 2020
Equipment,
furniture and
fixtures
Vehicles
Leasehold
improvements
In progress
45.9
17.8
2.5
0.3
(4.9)
61.6
9.0
6.4
(2.0)
75.0
0.4
0.1
–
(0.2)
(0.2)
0.1
–
–
–
0.1
10.3
0.9
–
(0.2)
(1.5)
9.5
0.7
0.5
–
10.7
2.5
7.5
(2.5)
0.4
(0.2)
7.7
2.7
(6.9)
(0.1)
3.4
Equipment,
furniture and
fixtures
Vehicles
Leasehold
improvements
In progress
(28.2)
(9.7)
4.4
(33.5)
(10.0)
2.0
(2.2)
(43.7)
28.1
31.3
(0.2)
(0.1)
0.2
(0.1)
–
–
–
(0.1)
–
–
(1.4)
(1.4)
0.4
(2.4)
(1.8)
–
–
(4.2)
7.1
6.5
–
–
–
–
–
–
–
–
7.7
3.4
Total
59.1
26.3
–
0.3
(6.8)
78.9
12.4
–
(2.1)
89.2
Total
(29.8)
(11.2)
5.0
(36.0)
(11.8)
2.0
(2.2)
(48.0)
42.9
41.2
For the year ended 31 December 2020, the Group recorded an impairment loss of $2.2m for idle fixed assets due to
discontinuation of Jumpshot’s business. These have been impaired to an immaterial recoverable amount. The impairment
loss is included in general and administrative expenses in the statement of profit or loss.
There has been no individually significant addition to the property, plant and equipment during the year.
For the information about items of property, plant and equipment pledged as security refer to Note 27.
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176
176
Notes to the consolidated financial statements continued
21 Leases
Right-of-use assets
Set out below, are the carrying amounts of the Group’s
right-of-use assets and the movements during the period.
The Group has lease contracts related primarily to
office buildings.
($ ’m)
Current
Non-current
Total
31 December
2020
31 December
2019
7.0
57.5
64.5
7.3
57.5
64.8
Below are the terms of significant lease contracts as of
31 December 2020:
($ ’m)
At 1 January
Additions
Remeasurements
Impairment
Disposals
Depreciation of right-of-use assets
At 31 December
31 December
2020
31 December
2019
62.6
3.2
0.6
(0.5)
(1.6)
(7.9)
56.4
69.7
0.9
(0.1)
(0.2)
–
(7.7)
62.6
Significant lease contracts
Enterprise Building
in Prague,
Czech Republic*
Vlněna Office
in Brno,
Czech Republic
The following table shows the breakdown of the lease
expense between amount charged to operating profit and
amount charged to finance costs:
($ ’m)
Depreciation of right-of-use assets
Short-term lease expense
Impairment
Carrying
amount
($ ’m)
End date
Option to
extend
Option to
be used
Leases of low-value lease expense
23.5 August
2024
22.4 January
2026
24
months
two
times
60
months
two
times
Yes –
in full
Charge to operating profit
Lease interest expense
Charge to profit before taxation
for leases
11.0
11.4
Yes –
in full
For maturity of the leases, refer to Note 30.
Year-ended
31 December
2020
Year-ended
31 December
2019
7.9
0.5
0.5
–
8.9
2.1
7.7
1.2
0.2
–
9.1
2.3
Office in Emeryville,
California, USA
2.7
June
2024
60
months
No
* 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.
Lease liabilities
Lease liabilities are presented in the statement of financial
position as follows:
($ ’m)
At 1 January
Additions
Remeasurements
Terminations
Lease interest expense
Payments of lease liabilities
Foreign currency exchange difference
At 31 December
31 December
2020
31 December
2019
64.8
3.2
0.6
(1.9)
2.1
(9.3)
5.0
64.5
71.7
0.9
(0.1)
–
2.3
(9.2)
(0.8)
64.8
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Notes to the consolidated financial statements continued
Strategic report Governance Financial statements
Strategic report Governance Financial statements
Avast plc annual report 2020
Avast annual report 2020
177
177
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 $26.0m, has a
remaining useful life of 1.7 years as of 31 December 2020.
The Piriform trademark, with a carrying value of $2.4m, has a
remaining useful life of 6.5 years as of 31 December 2020.
AVG developed technology has been fully depreciated as of
31 December 2020.
AVG customer relationship has been fully depreciated as of
31 December 2020.
Piriform and FileHippo software, with a carrying value
of $7.8m, has a remaining useful life of 1.5 years as of
31 December 2020.
For information about intangible assets pledged as
securities, refer to Note 27.
The Group has not capitalised development costs in the
year ended 31 December 2020 (2019: nil) as the Company
believes the criteria set out in IAS 38 has not been met.
See Note 2.
22 Intangible assets
($ ’m)
Cost at 31 December 2018
Business combination
Additions
Developed
technology
Trademarks
Software
Customer
relationship
and user base
250.5
164.1
40.0
246.6
–
–
–
–
–
–
–
–
Cost at 31 December 2019
250.5
164.1
40.0
246.6
Additions
Transfers
Disposal
–
–
–
–
–
–
–
–
–
–
–
–
Cost at 31 December 2020
250.5
164.1
40.0
246.6
36.8
Other
In progress
18.8
13.5
2.3
34.6
2.0
0.2
–
Total
721.5
13.5
3.6
738.6
2.7
–
(0.4)
740.9
1.5
–
1.3
2.8
0.7
(0.2)
(0.4)
2.9
($ ’m)
Acc. amortisation at 31 December 2018
Amortisation
Acc. amortisation at 31 December 2019
Amortisation
Acc. amortisation at 31 December 2020
NBV at 31 December 2019
NBV at 31 December 2020
Developed
technology
(228.7)
(16.7)
(245.4)
(5.1)
(250.5)
5.1
–
Trademarks
Software
Customer
relationship
and user base
Other
In progress
Total
(33.7)
(15.2)
(48.9)
(15.7)
(64.6)
115.2
99.5
(22.3)
(158.3)
(5.0)
(50.1)
(27.3)
(208.4)
(4.9)
(37.8)
(32.2)
(246.2)
12.7
7.8
38.2
0.4
(11.2)
(4.1)
(15.3)
(4.4)
(19.7)
19.3
17.1
–
–
–
–
–
2.8
2.9
(454.2)
(91.1)
(545.3)
(67.9)
(613.2)
193.3
127.7
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Notes to the consolidated financial statements continued Strategic report Governance Financial statements
Strategic report Governance Financial statements
Avast plc annual report 2020
Avast annual report 2020
178
178
Notes to the consolidated financial statements continued
23 Goodwill and impairment
The key assumptions used in the assessments are as follows:
($ ’m)
At 1 January
Acquisitions (Note 15)
Disposals (Note 16)
At 31 December
31 December
2020
31 December
2019
($’m)
1,991.3
1,993.7
Terminal growth rate
–
–
8.6
(11.0)
Pre-tax discount rate
After-tax discount rate
31 December
2020
31 December
2019
2.0%
12.2%
10.6%
2.0%
12.9%
11.2%
1,991.3
1,991.3
Goodwill was calculated as the difference between the
acquisition date fair value of consideration transferred less
the fair value of acquired net assets.
Goodwill & intangible assets impairment tests
Goodwill and intangible assets with an indefinite useful
life are tested for impairment at least once a year, or more
frequently if events or changes in circumstances indicate
that the carrying amount may not be recoverable.
The impairment test as of 31 December 2020 is performed
on the basis of two groups of cash generating units that
correspond to the two operating segments as below:
Terminal growth rate does not exceed the long term
average growth rate for the market. After-tax discount rate
represents the Group’s weighted average cost of capital
calculated from the cost of equity and cost of debt at a ratio
typical for an industry of 70% equity and 30% debt.
The Group has considered sensitivity of the impairment of
test results to changes in key assumptions. The recoverable
amount of tested assets exceeds their carrying value. As the
Group’s management is not aware of any other indications of
impairment and given the results of the impairment tests,
no impairment was recorded.
No reasonable possible change in the calculation
assumptions would lead to an impairment.
($’m)
Consumer
SMB
Total goodwill
31 December
2020
31 December
2019
24 Trade payables and other liabilities
1,978.4
1,978.4
12.9
12.9
1,991.3
1,991.3
($ ’m)
Trade payables
Accruals
The Group prepares projected 2021-2023 free cash flow
derived from the most current financial plan of the Group
approved by the Board which takes into account both
historical performance, industry forecasts and expectations
for future developments. Cash flow projections are based
on management assumptions that include revenue growth
of 6 to 8 percent despite an increase in operating costs from
the Company’s planned on-premises to cloud migration.
In performing the value-in-use calculations, the Group has
applied pre-tax discount rates to discount the forecast
future attributable pre-tax cash flows.
Amounts owed to employees
Social security and other taxes
Other payables and liabilities
Total trade payables and
other liabilities
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31 December
2020
31 December
2019
5.4
30.0
21.1
2.0
4.6
2.6
28.5
22.0
2.0
10.0
63.1
65.1
25 Provisions and contingent liabilities
The movements in the provision accounts were as follows:
($ ’m)
As at 31 December
2018
Additions
Utilisation
As at 31 December
2019
Additions
Utilisation
As at 31 December
2020
As at 31 December
2019
Total current
Total non-current
As at 31 December
2020
Total current
Total non-current
Accrued
vacation
provision
Provision for
restructuring
Other
Total
1.4
1.7
(1.4)
1.7
0.8
(1.7)
5.6
–
3.0
7.8
10.0
9.5
(3.0)
(2.6)
(7.0)
2.6
7.4
8.2
11.6
12.5
19.8
(1.7)
(0.6)
(4.0)
0.8
8.3
19.2
28.3
1.7
–
0.8
–
1.9
0.7
8.0
0.2
11.6
0.9
8.0
0.3
18.9
0.3
27.7
0.6
Other provisions predominantly comprise potential claims in
relation to contractual indemnities and disputes, including
Jumpshot-related and other third parties. The majority of
the claims in relation to Jumpshot have been successfully
settled as of 31 December 2020. As further disclosure would
prejudice the outcome of these negotiations, as permitted
by IAS 37.92, we have not made any further disclosures
about estimates in connection with the financial effects of,
and disclosures about the uncertainty regarding the timing
or amount of these.
Notes to the consolidated financial statements continued
Strategic report Governance Financial statements
Strategic report Governance Financial statements
Avast plc annual report 2020
Avast annual report 2020
179
179
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 term loan
Total term loans
($ ’m)
USD tranche principal
EUR tranche principal
Total principal
31 December
2020
31 December
2019
64.6
769.4
834.0
58.2
969.5
1,027.7
31 December
2020
31 December
2019
113.8
722.7
836.5
336.5
699.8
1,036.3
In June 2020 and September 2020, the Group paid down
the USD tranche by $100m each time. Repayments resulted
in the partial derecognition of arrangement fees of $2.7m
and $2.5m respectively.
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.
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 $2.7m. Further, the
Group reduced the margin on the EUR tranche by 0.25%
per annum.
Avast Software B.V. may voluntarily prepay term loans in
whole or in part without premium or penalty.
Under the Repricing agreement, the following terms apply
to the bank loans:
Facility
Interest
Floor
Margin
31 December
2020
Margin
31 December
2019
USD Tranche
EUR Tranche
3-month
USD LIBOR
3-month
EURIBOR
1.00%
p.a.
0.00%
p.a.
2.25%
p.a.
2.25%
p.a.
2.25%
p.a.
2.25%
p.a.
Both facilities are repayable in full at the end of the
84-month term on 30 September 2023. The margin
payable on both facilities is dependent upon the ratio of
the Group’s net debt to adjusted EBITDA as defined in
the facility agreement.
25 Provisions and contingent liabilities
(continued)
In addition, and as disclosed in the prior year, as part of
the process to effect an orderly wind-down of Jumpshot,
Avast continues to be in communication with relevant
regulators and authorities in respect of certain data
protection matters and is cooperating fully in respect of all
regulatory enquiries. Any potential future claims or liabilities
arising out of communication with relevant regulators or
authorities cannot at this time be quantified. There is no
provision in relation to this respect as of 31 December 2020.
26 Deferred revenue
The Group sells consumer and corporate antivirus products
for periods of 12, 24 or 36 months with payment received at
the beginning of the licence term. Revenues are recognised
ratably over the subscription period covered by the
agreement. Deferred revenue materially represents the
transaction price relating to sales of software licences
that is allocated to future performance obligations.
The movements in the deferred revenue were as follows:
($ ’m)
At 1 January
Additions – billings
Business combination
Deductions – revenue
Disposal of a business operation
Jumpshot’s release of
deferred revenue*
Translation and other adjustments
At 31 December
Current
Non-current
Total
31 December
2020
31 December
2019
474.8
922.0
–
(892.9)
–
(7.6)
0.2
496.5
458.8
37.7
496.5
435.5
911.0
0.3
(871.1)
(0.9)
–
–
474.8
420.5
54.3
474.8
* Jumpshot’s release of deferred revenue is included in exceptional costs.
© 2019 Friend Studio Ltd
File name: FinancialXStatements_v61
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Notes to the consolidated financial statements continued Strategic report Governance Financial statements
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Avast plc annual report 2020
Avast annual report 2020
180
180
Notes to the consolidated financial statements continued
Avast Software s.r.o. pledged its receivables from bank
accounts, trade receivables, receivables from insurance
policies, trademarks, receivables from intragroup 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 Term loan
balance with the statement of cash flow:
Revolving facility
Avast Software B.V. also obtained a revolving credit
facility of $40.0m 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 $35.0m or more is outstanding under the
revolving credit agreement as of 31 December 2020. If the
revolving credit facility exceeds this threshold, then the
Group must maintain, on a consolidated basis, a leverage
ratio of less than 6.5:1. This covenant is tested quarterly at
such time as it is in effect.
($ ’m)
Term loan balance at beginning
of period
Additional loan drawn (gross of fees)
Drawing fees
Interest expense
Interest paid
Loan repayment
Unrealised foreign exchange
loss/(gain)
31 December
2020
31 December
2019
1,027.7
1,391.5
–
–
33.4
(27.5)
202.6
(0.9)
56.4
(45.1)
(261.9)
(562.9)
62.1
0.2
(13.9)
–
834.0
1,027.7
27 Term loan (continued)
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 1.5:1 as of 31 December 2020 so no mandatory
repayment was required (see also Note 2).
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.
Other
Total
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
intragroup loan agreements
© 2019 Friend Studio Ltd
File name: FinancialXStatements_v61
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Notes to the consolidated financial statements continued
Strategic report Governance Financial statements
Strategic report Governance Financial statements
Avast plc annual report 2020
Avast annual report 2020
181
181
29 Redemption obligation
In connection with the sale of 35% fully diluted shares of
Jumpshot, Inc. to Ascential Investor on 30 August 2019,
the stockholders’ agreement gave Ascential Investor the
right (the put option) to sell back the shares. Avast therefore
recognised a redemption obligation at the present value
of the exercise price ($61.6m) discounted by the estimated
Avast annual borrowing rate of 3.6%, with a corresponding
entry in equity at year end.
In January 2020, the Group decided to discontinue
operations of Jumpshot Inc. As a result, the put option was
rendered void and redemption obligation was reclassified to
the same component of equity that was previously reduced
(on initial recognition) as of 31 December 2020.
28 Derivatives
The carrying amount of derivative financial instruments held by the Group was as follows:
($ ’m)
Type of derivative
Interest rate Cap
Total
Classified as
Current financial liability
Non-current financial liability
Total
31 December 2020
31 December 2019
Type
Assets
Liabilities
Assets
Liabilities
Level 3
–
–
–
–
–
0.4
0.4
0.4
–
0.4
–
–
–
–
–
2.0
2.0
–
2.1
2.1
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 2020, the 3-month USD LIBOR is capped at 2.75% p.a. for a notional amount of
$708.8m. The fee for the cap is $1.6m annually paid in quarterly installments.
During the reporting period ended 31 December 2020 there were no transfers between the Level 2 and Level 3 fair value
measurements.
The movement in fair value of the derivatives was as follows:
($ ’m)
31 December 2018
Change in fair value through profit and loss
31 December 2019
Change in fair value through profit and loss
31 December 2020
Interest rate
cap
1.0
1.1
2.1
(1.7)
0.4
© 2019 Friend Studio Ltd
File name: FinancialXStatements_v61
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Notes to the consolidated financial statements continued Strategic report Governance Financial statements
Strategic report Governance Financial statements
Avast plc annual report 2020
Avast annual report 2020
182
182
Notes to the consolidated financial statements continued
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. The Group has been managing
receivables effectively and improved collections process by
simplifying the billing system structure which is reflected in
the overall decrease of total receivables (see Note 18).
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 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.
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
2020
Year-ended
31 December
2019
46%
24%
9%
21%
49%
22%
8%
21%
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.
The following table shows financial assets and liabilities in
individual currencies, net:
($ ’m)
USD*
EUR*
CZK
GBP
Other
Total
31 December
2020
31 December
2019
34.3
(766.4)
(18.5)
15.9
11.3
(290.1)
(714.4)
(34.3)
89.9
25.6
(723.4)
(923.3)
* The fluctuation in the currencies are mainly caused by the term loan
repayments 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.
© 2019 Friend Studio Ltd
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Notes to the consolidated financial statements continued
Strategic report Governance Financial statements
Strategic report Governance Financial statements
Avast plc annual report 2020
Avast annual report 2020
183
183
30 Financial risk management (continued)
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
2020
31 December
2019
+/-10% (76.6)/76.6
(71.4)/71.4
+/-10%
+/-10%
+/-10%
(1.8)/1.8
(3.4)/3.4
1.6/(1.6)
1.1/(1.1)
9.0/(9.0)
2.6/(2.6)
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 Software
B.V. denominated in USD. As the functional currency of
Avast Software s.r.o. is the 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 the CZK depreciates against
the USD, the corporate income tax expense would decrease.
Avast Software 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 2020, the Group has a term loan with
an interest rate of 3-month USD LIBOR plus a 2.25% p.a.
mark-up for USD tranche and 3-month EURIBOR plus a
2.25% p.a. mark-up for EUR tranche. The 3-month USD
LIBOR and 3-month EURIBOR are subject to a 1% interest
rate floor and 0% interest rate floor, respectively. As of
31 December 2020, the 3-month USD LIBOR was 0.22% p.a.
and 3-months EURIBOR was -0.50%.
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, 3 month USD LIBOR is limited to 2.75% p.a. for a
notional amount of $802.5m at the beginning to $708.8m
through 31 March 2021. As of 31 December 2020, the Cap
is not effective as the interest rates are significantly lower.
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
2020
Year-ended
31 December
2019
(3.9)
–
(5.9)
3.4
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 2020 and 2019, the Group’s current ratio
(current assets divided by current liabilities including the
current portion of deferred revenue) was 0.46 and 0.65.
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 1.76 and 2.57 as at
31 December 2020 and 2019, respectively.
In 2020, Avast’s credit rating was upgraded to BB+ from
BB with Standard & Poor’s while rating with Moody
remained at Ba2, driven mainly by the voluntary debt
repayments and strong financial performance. The credit
ratings are subject to regular review by the credit rating
agencies and may change in response to economic and
commercial developments.
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Notes to the consolidated financial statements continued
30 Financial risk management (continued)
The following table shows the ageing structure of financial liabilities as of 31 December 2020:
($ ’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 to 12 months
Due between
1 to 5 years
Due in more
than 5 years
16.1
5.0
53.6
0.4
–
2.2
77.3
48.4
14.6
7.5
–
–
6.9
77.4
772.0
30.1
–
–
0.7
33.8
836.6
–
–
–
–
–
32.4
32.4
The following table shows the ageing structure of financial liabilities as of 31 December 2019:
($ ’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 to 12 months
Due between
1 to 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
836.5
49.7
61.1
0.4
0.7
75.3
1,023.7
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 31 December 2019, the original transaction was reversed in
2020 because of the repayment to Ascential. This impacted the overall liquidity position.
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:
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.
In connection with the put option (further described in
Note 29), the Group recognised redemption obligation of
$61.6m measured at the present value of the redemption
exercise price through profit or loss as of 31 December
2019. The Group classified the redemption liability as Level
3 liability. The fair value of the put option itself (as opposed
to the gross exercise price) was immaterial. Following the
closure of Jumpshot, the put option was rendered void and
therefore reclassified to the same component of equity
as of 31 December 2020.
On 31 December 2020, 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 nil at
31 December 2020 (2019: liability of $0.1m).
In addition, the Group had derivatives which were measured
at Level 3 fair value. See Note 28 for further information.
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30 Financial risk management (continued)
31 Share capital and share premium
Capital management
For the purpose of the Group’s capital management, capital
includes issued capital, share premium and all other equity
reserves attributable to the equity holders of the parent.
The primary objective of the Group’s capital management
is to maximise the shareholder value.
The Group manages its capital structure and makes
adjustments to it in the light of changes in circumstances,
including economic conditions. To maintain or adjust
the capital structure, the Group may adjust the dividend
payment to shareholders, return capital to shareholders or
issue new shares. The Group currently expects to maintain
dividend payments of approximately 40% of Group’s levered
free cash flow in the short to medium term.
The Group monitors capital using the net liability position
and gearing ratio (the net liability position divided by the
sum of the net liability position and equity). The Group
includes within the net liability position all current and
non-current liabilities, less cash and cash equivalents.
Shares issued and fully paid:
Number of shares
Share Capital ($ ’m) Share Premium ($ ’m)
Share capital at 31 December 2018 (Ordinary shares of £0.10 each)
953,438,299
Issuance of shares under share-based payment plans
54,581,736
Share capital at 31 December 2019 (Ordinary shares of £0.10 each)
1,008,020,035
Issuance of shares under share-based payment plans
20,492,707
Share capital at 31 December 2020 (Ordinary shares of £0.10 each)
1,028,512,742
32 Other reserves
The movements in the other reserves were as follows:
($ ’m)
Other reserves at 1 January
Redemption obligation reserve (see Note 29)
Share-based payments1
Transfer of share-based payments to retained earnings2
Other movements
Other reserves at 31 December
129.0
7.0
136.0
2.6
138.6
2020
225.1
55.7
21.8
(15.4)
–
287.2
15.4
40.2
55.6
32.0
87.6
2019
260.5
(55.7)
20.1
–
0.2
225.1
($ ’m)
31 December
2020
31 December
2019
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 34 for further details of share-based payments.
2 The amount represents reclassification of accumulated share-based payments reserve into retained earnings as actual shares were issued in regards to
Current and non-current liabilities*
1,511.7
1,685.2
Less: cash and short – term deposits
(175.4)
(216.6)
the granted awards.
Net liability position
Equity*
Gearing ratio
1,336.3
1,468.6
1,195.3
1,172.6
52.8%
55.6%
* As of 31 December 2019, 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
$55.7m from equity.
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Notes to the consolidated financial statements continued
33 Dividends made and proposed
($ ’m)
2020
2019
Interim 2020 dividend paid of
$4.8 cents (2019: $4.4 cents)
per share
Final 2019 dividend paid of
$10.3 cents (May 2018 – Dec 2018:
$8.6 cents) per share
Total cash dividend paid
49.3
43.2
105.4
154.7
83.7
127.0
Dividend proposed
The Directors propose to pay a final dividend of $11.2 cents
per share in respect of the year ending 31 December 2020
(total payment of $115.3m). Combined with the interim
dividend of 4.8 cents per share paid in October 2020
(total payment of $49.3m), this gives a total dividend for
the financial year of 16.0 cents (total payment of $164.6m),
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 18 June 2021 to shareholders on
the register on 14 May 2021. 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
28 May 2021. 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 3 June 2021 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.
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
of $48.6m as of 31 December 2019. The Group initially
measured the non-controlling interest as a proportionate
amount of net assets.
In January 2020, the Group decided to wind down the
operation of Jumpshot. The Group returned the investments
made by Ascential plc into the business, along with
associated exit costs, in the amount of $73.0m. Associated
exit costs of $8.2m were recorded as general and
administrative expenses in the statement of comprehensive
income and included in the exceptional costs. The remaining
$64.8m was recognised as a decrease in total equity as of
31 December 2020.
As of 31 December 2020, Avast owned almost 100% of
Jumpshot Inc. As a result, the non-controlling interest of
$7.5m as fully de-recognised.
35 Share-based payments
During the period, the Group has had several equity-settled
incentive plans available for employees:
Avast plc, 2018 Long Term Incentive Plan (LTIP)
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. The award carries a right to a
dividend equivalent.
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. The award carries no
right to a dividend equivalent.
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35 Share-based payments (continued)
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 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, 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 2020.
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. 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
installments. Some of the options granted to the
key management personnel are performance-based.
The contractual life of all options is 10 years.
Jumpshot Inc., 2015 Share Option Plan
(’Jumpshot Option Plan’)
The Jumpshot Option Plan concluded during the year
as a result of Jumpshot’s closure and the departure of
its employees. Following the departure of all Jumpshot
employees, all vested and unvested options lapsed in
accordance with the terms of the Jumpshot Option Plan.
There are no outstanding options under this plan as of
31 December 2020.
Share-based payment expense
The total expense that relates to share-based payment
transactions during the year is as follows:
($ ’m)
LTIP
SMP
Option plans
Total share-based payment expense
Year-ended
31 December
2020
Year-ended
31 December
2019
21.9
0.5
(0.5)
21.9
14.2
0.1
6.4
20.7
The Group also recognised additional $0.8m (2019: $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 $22.7m (2019: $24.9m).
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Notes to the consolidated financial statements continued
35 Share-based payments (continued)
Share options
The number and weighted average exercise prices of, and movements in, share options of Avast Option Plan in the year is set out below:
Outstanding – 1 January
Forfeited
Exercised
Outstanding – 31 December
Vested and exercisable – 31 December
Number of shares options
Weighted average exercise ($)
Number of shares options
Weighted average exercise ($)
Year-ended 31 December 2020
Year-ended 31 December 2019
24,757,234
(3,302,223)
(16,692,684)
4,762,327
2,489,697
2.27
3.53
2.10
2.77
2.36
68,941,832
(3,055,422)
(41,129,176)
24,757,234
13,968,428
1.60
3.24
1.07
2.27
1.52
The weighted average share price for options exercised during the year was £ pence 390.36 (2019: £ pence 367.94).
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 – $0.94
$1.00 – $1.86
$2.72 – $3.63
Outstanding – 31 December
Replacement options
Outstanding – 1 January
Exercised
Outstanding – 31 December
Vested and exercisable – 31 December
Number of shares outstanding
31 December 2020
Weighted average remaining life
(years)
Number of shares outstanding
31 December 2019
Weighted average remaining life
(years)
470,403
709,601
3,582,323
4,762,327
3.80
6.34
7.19
6.73
2,171,117
12,006,156
10,579,961
24,757,234
4.70
7.34
8.22
7.49
Year-ended 31 December 2020
Year-ended 31 December 2019
Number of shares
Weighted average exercise ($)
Number of shares
Weighted average exercise ($)
583,435
(574,042)
9,393
9,393
0.18
0.19
0.19
0.19
12,266,682
(11,683,247)
583,435
583,435
0.19
0.19
0.18
0.18
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35 Share-based payments (continued)
Restricted Stock Units
The following table illustrates the number and weighted average share price on date of award, and movements in, restricted stock units granted under the LTIP:
Outstanding – 1 January
Granted
Forfeited
Vested
Outstanding – 31 December
Number of shares
8,160,349
5,287,758
(1,984,348)
(2,994,633)
8,469,126
Year-ended 31 December 2020
Weighted average share price
(£ pence)
319.76
529.86
355.32
303.43
443.74
Number of shares
4,927,332
6,130,302
(1,329,900)
(1,567,385)
8,160,349
Year-ended 31 December 2019
Weighted average share price
(£ pence)
234.97
354.05
260.99
237.21
319.76
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 at
£ pence 503.77 (2019: £ pence 324.93). Future dividends have been taken into account based on expected cash flow and dividend policy.
Performance Stock Units
The following table illustrates the number and weighted average share price on date of award, and movements in, performance stock units granted under the LTIP:
Outstanding – 1 January
Granted
Forfeited
Outstanding – 31 December
Number of shares
5,358,037
1,185,732
(695,099)
5,848,670
Year-ended 31 December 2020
Weighted average share price
(£ pence)
242.30
404.60
219.60
277.91
Number of shares
6,309,881
1,458,494
(2,410,338)
5,358,037
Year-ended 31 December 2019
Weighted average share price
(£ pence)
219.60
303.01
219.60
242.30
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 was
£ pence 404.60 (2019: £ pence 303.01).
Share Matching Plan
During 2020, the Group has issued 231,348 (2019: 201,928) shares to the employees under the Share Matching Plan and an additional 76,555 (2019: 66,914) will be issued after the matching
period (which is two years). The cost of the additional shares is to be recognised against the other reserves over the matching period and amounted to $0.5m in total for all tranches as of
31 December 2020 (2019: $0.1m). The weighted average fair value of additional shares was £ pence 454.70 for the year ended 31 December 2020 (2019: £ pence 289.78).
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Notes to the consolidated financial statements continued
36 Related party disclosures
Transactions between the Company and its subsidiaries,
which are related parties, have been eliminated on
consolidation and are not disclosed in this note.
Compensation of key management personnel
(including Directors)
Year-ended
31 December 2020
Year-ended
31 December 2019
Key
management
personnel
Other
related
parties
Key
management
personnel
Other
related
parties
10.5
0.2
6.4
17.1
0.2
–
–
0.2
11.9
1.2
10.0
23.1
0.1
–
–
0.1
($ ’m)
Short term
employee benefits
(including salaries)
Termination benefits
Share-based
payments
Total
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.
The aggregate amount of gains made by Directors on the
exercise of share options during the year was approximately
$10.7m (£8.3m) (2019: $6.4m (£5.0m)). The aggregate
amount of gains made by the highest paid Director on
the exercise of share options during the year was $10.7m
(£8.3m) (2019: $2.6m (£2.1m)).
Statutory Directors’ remuneration amounted to $2.7m
(2019: $3.6m) for qualifying services to the Company during
the year. The aggregate value of the LTIP granted in 2018
will be reported as statutory Directors’ remuneration when
it vests in 2021 (but is included in the single total figure table
in the Directors’ remuneration report). Further details about
the Directors’ remuneration is set out on pages 105 to 126.
Other Related Parties
Nadační fond AVAST (’AVAST Foundation’)
The foundation was established by Avast Software s.r.o. and
it distributes the gifts to other charities and foundations in
the Czech Republic. The foundation is considered to be a
related party as the spouses of Messrs. Kučera and Baudiš
are members of the management board of the foundation.
On 13 March 2018, the Board approved that the annual
donation will be CZK 100m ($5.0m). The donation is paid in
quarterly instalments during the year.
During the twelve months ended 31 December 2020,
Avast Software s.r.o. paid donations of CZK 90.0m
($4.0m (2019: CZK 100.0m ($4.4 m)) to the Foundation.
Further $21.0m were paid to the Foundation, which was
part of total $25m donations on COVID-19 initiatives. As of
31 December 2020, the Company recorded an accrual of
CZK 51.8m ($2.4m) (2019: CZK 56.6m ($2.5m)).
Nadační fond Abakus (’Abakus Foundation’)
On 29 September 2020, Avast’s founders Messrs.
Baudiš and Kučera established the new foundation Abakus.
The foundation is considered to be a related party as the
spouses of Messrs. Kučera and Baudiš are members of the
management board of the foundation. The foundation will
distribute the gifts to other charities and foundations in the
Czech Republic. The Group will contribute to the operation
of the Abakus Foundation. There have been no transactions
between the Group and Abakus during the period from the
date of the foundation’s establishment through 31 December
2020. Subsequent to year end, Abakus Foundation merged
with AVAST Foundation (see Note 38).
Enterprise Office Center
On 15 November 2016, Enterprise Office Center (owned by
Starship Enterprise, a.s.) 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 Kučera and Pavel
Baudiš 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 ($4.0m).
37 Principal exchange rates
Translation of Czech crown into
US dollar ($: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
2020
Year-ended
31 December
2019
0.0431
0.0468
0.0437
0.0442
1.2860
1.3648
1.2757
1.3203
1.1384
1.2271
1.1212
1.1233
38 Subsequent events
On 1 January 2021, the Group changed its disaggregation of
Consumer reporting of billings and revenues. In prior years,
the Consumer segment was further split into Consumer
Direct Desktop, Consumer Direct Mobile and Consumer
Indirect. In 2021, the direct-to-consumer mobile subscription
business will be reported together with the desktop business
within the one segment ’Consumer Direct’, due to a rise of
multi-device subscriptions. Consumer Indirect will consist
of revenues generated via the carrier channel (named as
Partner) alongside with Mobile advertising and Platform
revenue. The Consumer reporting change has no impact on
the overall Group result. There is no change to the overall
segments which is consistently reported as Consumer
and SMB.
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38 Subsequent events (continued)
On 1 January 2021, Abakus Foundation merged as a successor company with AVAST Foundation. The legacy and the projects of AVAST Foundation in the Czech Republic will continue
through the Abakus Foundation, the Avast Founders’ foundation. The Abakus Foundation will support important societal topics such as end-of-life care, support for families with disabled
children, and general educational improvement in the Czech Republic.
On 4 January 2021, all Avast employees were granted RSUs under the Avast plc 2018 Long Term Incentive Plan. The grant date of these options is 4 January 2021 with vesting generally over a
period of 1-3 years. The Group is still analyzing the fair value of the RSU. As of the date of these financial statements, the Group expects the total costs of the RSUs over the vesting period to
be approximately $30.4m.
On 6 January 2021, Stichting Avast, known as Avast Foundation, was established in the Netherlands by Avast Holding. The new Avast Foundation will support a new range of programs that are
aligned with the Avast’s core mission of protecting people in the digital world. The Foundation is considered a related party according to IAS 24 as some of the key management personnel of
Avast are members of the Foundation’s Board.
39 Full list of subsidiaries as of 31 December 2020
AVG Technologies UK Limited (06301720), Piriform Software Ltd (08235567) and Privax Limited (07207304) will take advantage of the audit exemption set out within section 479A of the
Companies Act 2006 for the year ended 31 December 2020.
Country of incorporation
Registered office
Registered address
Netherlands
Avast Holding B.V.
Avast Software B.V.
Databankweg 26, Amersfoort, 3821 AL, The Netherlands
Databankweg 26, Amersfoort, 3821 AL, The Netherlands
AVG Ecommerce CY BV
Databankweg 26, Amersfoort, 3821 AL, The Netherlands
Czech Republic
Avast Software s.r.o.
Pikrtova 1737/1a, 140 00 Prague 4, Czech Republic
Germany
UK
USA
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
Avast Deutschland GmbH
Otto-Lilienthal-Straße 6, 88046 Friedrichshafen, Germany
AVG Technologies UK Limited
7th Floor 110 High Holborn, London, England, WC1V 6JS
Privax Limited
Piriform Software Ltd
AVAST Software, Inc.**
Remotium Inc.
TrackOFF, Inc.
Sybil Software LLC
Jumpshot, Inc.
7th Floor 110 High Holborn, London, England, WC1V 6JS
7th Floor 110 High Holborn, London, England, WC1V 6JS
2625 Broadway Street, Redwood City, County of San Mateo, CA 94063, USA
2625 Broadway Street, Redwood City, County of San Mateo, CA 94063, USA
3700 O’Donnell St, Baltimore, MD 21224
Corporation Service Company 251 Little Falls Drive, Wilmington, DE 19808, USA
2625 Broadway Street, Redwood City, County of San Mateo, CA 94063, USA
AVG Technologies USA, LLC
2625 Broadway Street, Redwood City, County of San Mateo, CA 94063, 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
100%
100%
100%
100%
99.9%
100%
100%
100%
100%
100%
100%
100%
100%
100%
99.9%
100%
100%
100%
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192
Notes to the consolidated financial statements continued
39 Full list of subsidiaries as of 31 December 2020 (continued)
Country of incorporation
Registered office
Registered address
Hong Kong
Israel
Cyprus
AVAST Software (Asia) Limited
10/F, Guangdong Investment Tower, 148 Connaught Road Central, Hong Kong
AVG Mobile Technologies Ltd*
2 HaShlosha Street, Tel Aviv Yaffo 6706054, Israel (PO BOX 9244)
Piriform Group Ltd
Piriform Limited
1 Constantinou Skokou St, Capital Chambers, 5th Floor, Agios Antonios, 1061 Nicosia, Cyprus
1 Constantinou Skokou St, Capital Chambers, 5th Floor, Agios Antonios, 1061 Nicosia, Cyprus
Australia
AVG Technologies AU Pty Ltd
C/- Intertrust Australia Pty Ltd, Suite 2, Level 25, 100 Miller Street,
North Sydney NSW 2060” Australia
Class of shares
held
Percentage of
share held
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100%
100%
100%
100%
100%
Brasil
Norway
Slovak Republic
Switzerland
Serbia
Japan
Romania
Ireland
Italy
AVG Distribuidora de
Tecnologias do Brasil Ltda.
Conj 38, R. Amazonas, 669 – Santa Paula, São Caetano do Sul – SP, 09520-070, Brasil
Ordinary
100%
AVG Technologies Norway AS
Lysaker Torg 5, 1366 Lysaker, Bærum, Norway
INLOOPX s.r.o.***
Avast Switzerland AG
Privax d.o.o. Beograd
Poštová 1, 010 08 Žilina, Slovakia
Grosspeteranlage 29, 4052 Basel, Switzerland
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
Avast Software Romania S.R.L.
Municipiul Iasi, Strada Palas Nr. 7B-7C, Clădirea C1, United Business Center 3, Etaj 8,
Judet Iasi, Romania
Avast Software Ireland Limited
5th Floor Beaux Lane House, Mercer Street, Lower Dublin 2 D02 DH60, Ireland
Avast Software Italy s.r.l.
Viale Abruzzi 94 CAP 20131, Milano, Italy
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100%
100%
100%
100%
100%
100%
100%
100%
In liquidation.
*
** As of 17 December 2020, Emerald Cactus Ventures, Inc. merged into AVAST Software, Inc.
*** As of 11 January 2021, Inloop s.r.o. changed its legal name to Avast Slovakia s.r.o.
The Company’s directly held subsidiary is Avast Holding B.V. All other subsidiaries are indirectly held.
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193
Company statement of financial position
As at 31 December 2020
Non-current assets
Investment 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 2020
$M
31 December 2019
$M
3,245.6
0.9
3,246.5
0.2
26.4
0.7
–
27.1
–
27.3
3,273.8
3.2
–
–
3.2
3.2
3,270.6
138.6
87.6
2,893.9
37.2
113.3
3,270.6
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
3,375.2
136.0
55.6
2,893.9
30.8
258.9
3,375.2
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 loss of the Company was
$(6.2)m (2019: Profit of $223.0m). These financial statements were approved by the Board
of Directors on 2 March 2021 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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194
Company financial statements continued
Company statement of changes in equity
For the year-ended 31 December 2020
Notes
Share
capital
$M
129.0
Share
premium
$M
Merger
reserve
$M
15.4
2,893.9
–
–
–
–
7.0
–
–
–
–
–
40.2
–
–
–
–
–
–
–
Other
reserve
$M
10.6
–
–
–
20.2
–
–
136.0
55.6
2,893.9
30.8
–
–
–
–
–
2.6
–
138.6
–
–
–
–
–
32.0
–
87.6
–
–
–
–
–
–
–
–
–
–
(15.4)
21.8
–
–
2,893.9
37..2
9
8
9
9
8
Retained
earnings
$M
161.6
223.0
223.0
1.3
–
–
Total
equity
$M
3,210.5
223.0
223.0
1.3
20.2
47.2
(127.0)
258.9
(127.0)
3,375.2
(6.2)
(6.2)
0.5
15.4
–
(0.6)
(6.2)
(6.2)
0.5
–
21.8
34.0
(154.7)
113.3
(154.7)
3,270.6
At 31 December 2018
Profit for the year
Total comprehensive profit for the year
Share-based payments tax
Share-based payments
Exercise of options
Cash dividend
At 31 December 2019
Loss for the year
Total comprehensive profit/(loss) for the year
Share-based payments tax
Share-based payments transfer to retained earnings
Share-based payments
Exercise of options
Cash dividend
At 31 December 2020
The accompanying notes form an integral part of these financial statements.
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195
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 in 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.
1 General
Avast plc (’the Company’) is a public limited company
incorporated and domiciled in the UK, and registered
under the laws of England & 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 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 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 intragroup transactions with wholly owned
subsidiary undertakings.
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 (see Note 2 of
consolidated financial statements of the Company).
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 cash equivalents 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’s 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.
The Company’s receivables qualify as basic financial
instruments under Section 11 of FRS 102 and are included
at amortised cost.
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196
Notes to the Company financial statements continued
2 Summary of significant accounting
policies (continued)
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.
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,
2,994,633 RSUs (2019: 1,567,385) were issued to the EBT
for the amount of the nominal value of $0.6m (2019: $0.2m)
and then transferred to employees. At 31 December 2020,
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.
In addition, the amounts due from related party also includes
$6.1m (2019: $3.7m) of recharges for management services
provided by the Company to Group subsidiaries and $5.2m
(2019: nil) of recharges for share-based payment expense to
the USA and UK.
6 Cash and cash equivalents
($ ’m)
Cash in bank
Total
31 December
2020
31 December
2019
–
–
16.5
16.5
7 Trade payables and other liabilities
($ ’m)
Trade payables
Corporate income tax
Total
31 December
2020
31 December
2019
3.2
–
3.2
1.3
0.1
1.4
Cost at 31 December 2018
Capitalisation of share-based payments
Cost at 31 December 2019
Capitalisation of share-based payments
Cost at 31 December 2020
$M
3,217.5
13.6
3,231.1
14.5
3,245.6
The additions in the year relate to IFRS 2 share-based
payment expense.
5 Trade and other receivables
($ ’m)
Amounts due from related party
Prepayments
Other accounts receivable
Total
31 December
2020
31 December
2019
26.4
0.7
–
27.1
126.5
0.5
0.2
127.2
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 $15.0m
(2019: $122.8m), repayable on demand, with a variable
interest rate based on 3-month USD LIBOR -0.5%
(2019: -0.5%) assessed quarterly. The interest income
for the period ended 31 December 2020 was $0.2m
(2019: $0.3m). The interest rates for both credit and debit
balances are floored at 0%.
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197
8 Share capital
Shares issued and fully paid:
Share capital on 31 December 2018 (Ordinary share of £0.10 each)
Issuance of shares under share-based payments plans
Share capital on 31 December 2019 (Ordinary share of £0.10 each)
Issuance of shares under share-based payments plans
Share capital on 31 December 2020 (Ordinary share of £0.10 each)
Number of shares
953,438,299
54,581,736
1,008,020,035
20,492,707
1,028,512,742
For details of dividends (including proposed dividends), see Note 33 of consolidated financial statements.
Share capital
($ ’m)
Share premium
($ ’m)
11 Personnel expenses
Personnel expenses of the Company consist of the following:
129.0
7.0
136.0
2.6
138.6
15.4
40.2
55.6
32.0
87.6
($ ’m)
Wages and salaries
Social security and health insurance
Social costs
Share-based payments
(including employer’s costs)
Total personnel expense
2020
6.7
1.0
0.4
2.5
10.6
2019
4.9
0.7
0.1
4.8
10.5
For details of options and other share awards over the Company’s shares, see Note 35 of consolidated financial statements
of the Company.
The average number of employees by category during the
period was as follows:
9 Reserves
Merger reserve
Merger reserve includes a reserve for the share-for-share exchange transaction that qualified for merger relief in accordance
with section 612. 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 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. The amount of $21.8m (2019: $20.2m) represents the expense from the share awards granted under
Avast’s incentive plans for the year ended 31 December 2020. In addition, the amount of $15.4m represents reclassification
of parts of the other reserves that are realised relating to awards to the Company’s own employees and due to recharges
to subsidiaries.
For more information about the plan, see Note 35 in the consolidated financial statements.
10 Dividend
The dividend income for the year ended 31 December 2020 was $nil (2019: $225.0m).
2020
2019
Sales and marketing
General and administrative
Total average number of employees
8
10
18
The total expense that relates to the equity-settled
share-based payment transactions of employees of the
Company during the period is as follows:
($ ’m)
Avast Option Plan
LTIP
Total share-based payment expense
2020
0.1
2.1
2.2
5
6
11
2019
0.9
0.4
1.3
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 consolidated financial statements.
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198
Notes to the Company financial statements continued
12 Guarantees
As denoted in Note 39 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.
13 Subsequent events
On 29 January 2021, the Company received an
interim dividend of $115.3m from its direct subsidiary
Avast Holding B.V.
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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. The invoicing timing may
slightly vary through the year with immaterial impact, as part of our
usual renewal offers testing. 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
EBITDA margin
Adjusted effective
tax rate
Adjusted EPS
Adjusted Revenue Adjusted Revenue represents the Group’s reported revenue adjusted
for the Deferred Revenue Haircut Reversal, the Gross-Up Adjustment.
These historical adjustments are negligible from 2019. A reconciliation
is included in the ’PRESENTATION OF RESULTS AND DEFINITIONS’.
Adjusted
Net Income
Adjusted
Billings/Revenue
excluding FX
Adjusted
Cash EBITDA
Adjusted Cost
of Revenues/
Operating costs
Adjusted EBITDA
Growth rate excluding exchange rate impact calculated by restating
2020 actuals to 2019 FX rates. Deferred revenue is translated to
USD at the 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’.
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. 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 ’FINANCIAL 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
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. A full reconciliation is included in the ’PRESENTATION
OF RESULTS AND DEFINITIONS’.
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Adjusted EBITDA as a percentage of Adjusted Revenue.
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 ’FINANCIAL 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 ’FINANCIAL 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, IP transfer and donations, less gain on disposal of
business operation. For the reconciliation see ’PRESENTATION OF
RESULTS AND DEFINITIONS’ section.
Amortisation
of acquisition
intangibles
Represents the amortisation of intangible assets acquired through
business combinations which does not reflect the ongoing normal level
of amortisation in the business.
Average Products
Per Customer
(APPC)
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 is 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’.
Cash conversion
Unlevered Free Cash Flow as a percentage of Adjusted Cash EBITDA.
See ’Cash flow’ section of ’FINANCIAL REVIEW’.
Glossary Strategic report Governance Financial statements
Strategic report Governance Financial statements
Avast plc annual report 2020 200
Avast annual report 2020 200
Glossary continued
COGS Deferral
Adjustments
Deferred Revenue
Haircut Reversal
Discontinued
Business
Exceptional items
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’.
In January 2020 Avast decided to terminate the provision of
anonymized data to its data analytics business, Jumpshot, having
concluded that the business was not consistent in long term with the
Group’s privacy priorities as a global cybersecurity company. As the
company is also exiting its toolbar-related search distribution business
(which had previously been an important contributor to AVG’s revenues)
and the browser clean-up business, the growth figures exclude all of
these (referred to above and throughout the report as ’Discontinued
Business’). These revenues were negligible by the end of 2020 in line
with expectations. The Discontinued Business does not represent a
discontinued operation as defined by IFRS 5 since it either has not
been disposed of but rather it is being continuously scaled down or
it is considered to be neither a separate major line of business, nor
geographical area of operations.
Exceptional items are material and non-recurring items of income and
expense which Group believes should be separately disclosed to show
the underlying business performance of the Group more accurately. For
details see ’Exceptional items’ of ’FINANCIAL REVIEW’ and Note 6.
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 ’FINANCIAL REVIEW’.
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Gross-Up
Adjustment
Levered Free
Cash Flow
Net debt
Number of
customers
Organic growth
Unlevered Free
Cash Flow
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 ’FINANCIAL 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 ’FINANCIAL REVIEW’.
Users who have at least one valid paid Consumer Direct Desktop
subscription (or license) 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. As such, organic revenue refers to
revenue normalised as described here.
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. In
2019, cash tax excluded a significant Dutch exit tax paid as this was
treated as an exceptional item. In 2020, the Jumpshot wind-down
costs were treated as an exceptional item, thus excluded from the
Unlevered Free Cash Flow. See ’Cash flow’ section of ’FINANCIAL
REVIEW’ for reconciliation.
Unrealised FX
on EUR tranche
of bank loan
In the reported financials, the Group retranslates into USD at each
balance sheet date the Euro value of the Euro 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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Strategic report Governance Financial statements
Strategic report Governance Financial statements
Avast annual report 2020
Avast annual report 2020
Avast annual report 2020
192
192
192
Notes to the Company financial statements
Contact
Brokers
J.P. Morgan Cazenove
UBS Investment Bank
Independent Auditors
Ernst & Young
1 More London Place
London SE1 2AF
Investor Relations
IR@avast.com
Public Relations
mediarelations@avast.com
Registrar
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
UK callers: 0371 384 2030
International callers: +44 121 415 7047
Registered office address
Avast plc
110 High Holborn
London WC1V 6JS
Company number : 07118170
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